Use these links to rapidly review the document
THE DAYTON POWER AND LIGHT COMPANY INDEX

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,June 30, 2003

OR

OR

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’sRegistrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES

ý

NO

o

YESý        NOo

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

YES

ý

NO

o

YESý        NOo

Indicate the number of shares of the issuer’sissuer's classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value

41,172,173 Shares

(Title of each class)

41,172,173 Shares
(Outstanding at March 31,June 30, 2003)




THE DAYTON POWER AND LIGHT COMPANY
INDEX

INDEX



Part I. Financial Information


Item 1.


Financial Statements


Item 1.


Financial Statements


Consolidated Statement of Results of Operations




Consolidated Statement of Cash Flows




Consolidated Balance Sheet




Notes to Consolidated Financial Statements


Item 2.


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




Operating Statistics

Operating Statistics


Item 3.



Quantitative and Qualitative Disclosures about Market Risk


Item 4.



Controls and Procedures


Part II. Other Information


Item 5.



Other Information

Item 5.

Other Information


Item 6.



Exhibits and Reports on Form 8-K


Other

Other




Signatures

Certifications

2


2



Part I. Financial Information

Item 1.Financial Statements


THE DAYTON POWER AND LIGHT COMPANY


CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS


(Dollars$ in millions)

 

 

Three Months Ended
March 31,

 

 

 

2003

 

2002

 

Revenues

 

 

 

 

 

Electric

 

$

295.7

 

$

272.2

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

Fuel

 

55.6

 

47.5

 

Purchased power

 

20.0

 

33.1

 

Operation and maintenance

 

35.4

 

37.3

 

Depreciation and amortization

 

29.1

 

29.6

 

Amortization of regulatory assets, net

 

12.1

 

11.5

 

General taxes

 

28.3

 

25.9

 

Total expenses

 

180.5

 

184.9

 

 

 

 

 

 

 

Operating Income

 

115.2

 

87.3

 

 

 

 

 

 

 

Other income

 

1.0

 

10.3

 

Interest expense

 

(12.8

)

(14.0

)

 

 

 

 

 

 

Income Before Income Taxes and Cumulative Effect of Accounting Change

 

103.4

 

83.6

 

 

 

 

 

 

 

Income taxes

 

39.4

 

31.0

 

 

 

 

 

 

 

Income Before Cumulative Effect of Accounting Change

 

64.0

 

52.6

 

 

 

 

 

 

 

Cumulative effect of accounting change, net of tax

 

17.0

 

 

 

 

 

 

 

 

Net Income

 

81.0

 

52.6

 

 

 

 

 

 

 

Preferred dividends

 

0.2

 

0.2

 

 

 

 

 

 

 

Earnings on Common Stock

 

$

80.8

 

$

52.4

 

 
 For the Three Months
Ended June 30,

 For the Six Months
Ended June 30,

 
 
 2003
 2002
 2003
 2002
 
Revenues             
Electric $271.4 $279.1 $567.1 $551.3 
Expenses             
Fuel  50.8  50.0  106.4  97.5 
Purchased power  26.5  22.9  46.5  56.0 
Operation and maintenance  49.9  35.2  85.3  72.5 
Depreciation and amortization  29.3  29.5  58.4  59.1 
Amortization of regulatory assets, net  10.7  11.3  22.8  22.8 
General taxes  25.4  26.0  53.7  51.9 
  
 
 
 
 
 Total expenses $192.6 $174.9 $373.1 $359.8 
  
 
 
 
 
Operating Income  78.8  104.2  194.0  191.5 
Other income (deductions)  3.9  (2.6) 4.9  7.7 
Interest expense  (12.4) (13.2) (25.2) (27.2)
  
 
 
 
 
Income Before Income Taxes and Cumulative Effect of Accounting Change $70.3 $88.4 $173.7 $172.0 
Income tax expense  26.0  32.5  65.4  63.5 
  
 
 
 
 
Income Before Cumulative Effect of Accounting Change $44.3 $55.9 $108.3 $108.5 
Cumulative effect of accounting change, net of tax      17.0   
  
 
 
 
 
Net Income $44.3 $55.9 $125.3 $108.5 
Preferred dividends  0.2  0.2  0.4  0.4 
  
 
 
 
 
Earnings on Common Stock $44.1 $55.7 $124.9 $108.1 
  
 
 
 
 

See Notes to Consolidated Financial Statements.


These interim statements are unaudited.

3


3



THE DAYTON POWER AND LIGHT COMPANY


CONSOLIDATED STATEMENT OF CASH FLOWS


(Dollars$ in millions)

 

 

Three Months Ended
March 31,

 

 

 

2003

 

2002

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

81.0

 

$

52.4

 

Adjustments:

 

 

 

 

 

Depreciation and amortization

 

29.1

 

29.6

 

Amortization of regulatory assets, net

 

12.1

 

11.5

 

Deferred income taxes

 

23.7

 

6.0

 

Cumulative effect of accounting change, net of tax

 

(17.0

)

 

Changes in working capital:

 

 

 

 

 

Accounts receivable

 

11.8

 

1.8

 

Accounts payable

 

8.5

 

 

Net intercompany receivables from parent

 

 

(39.4

)

Accrued taxes payable

 

11.2

 

(3.4

)

Accrued interest payable

 

(10.8

)

(10.8

)

Inventories

 

2.2

 

(3.0

)

Other

 

(3.2

)

(8.7

)

 

 

 

 

 

 

Net cash provided by operating activities

 

148.6

 

36.0

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(35.0

)

(42.0

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Issuance of short-term debt, net

 

 

12.0

 

Dividends paid on common stock

 

(82.5

)

 

Dividends paid on preferred stock

 

(0.2

)

(0.2

)

 

 

 

 

 

 

Net cash provided by (used for) financing activities

 

(82.7

)

11.8

 

 

 

 

 

 

 

Cash and temporary cash investments

 

 

 

 

 

 

 

 

 

 

 

Net change

 

30.9

 

5.8

 

Balance at beginning of period

 

17.1

 

0.9

 

Balance at end of period

 

$

48.0

 

$

6.7

 

 

 

 

 

 

 

Cash Paid During the Period for:

 

 

 

 

 

Interest

 

$

22.6

 

$

23.8

 

Income taxes

 

$

(5.0

)

$

18.7

 

 
 Six Months Ended
June 30,

 
 
 2003
 2002
 
Operating Activities       
Net income $125.3 $108.5 
Adjustments:       
 Depreciation and amortization  58.4  59.1 
 Amortization of regulatory assets, net  22.8  22.8 
 Deferred income taxes  8.1  (6.2)
 Cumulative effect of accounting change, net of tax  (17.0)  
Changes in working capital:       
 Accounts receivable  22.8  (6.5)
 Accounts payable  (1.5) (4.4)
 Net intercompany receivables  0.3  (64.0)
 Accrued taxes payable  30.2  1.6 
 Prepayments  (13.5) 0.1 
 Inventories  (1.3) 2.5 
Other  (4.6) (0.8)
  
 
 
Net cash provided by operating activities $230.0 $112.7 
  
 
 

Investing Activities

 

 

 

 

 

 

 
Capital expenditures $(65.7)$(79.8)
  
 
 

Financing Activities

 

 

 

 

 

 

 

Retirement of long-term debt

 

 

(0.4

)

 

(0.4

)
Dividends paid on common stock  (112.7)  
Dividends paid on preferred stock  (0.4) (0.4)
  
 
 
Net cash used for financing activities $(113.5)$(0.8)
  
 
 

Cash and temporary cash investments

 

 

 

 

 

 

 

Net change

 

$

50.8

 

$

32.1

 
Balance at beginning of period  17.1  0.9 
  
 
 
Balance at end of period $67.9 $33.0 
  
 
 

Cash Paid During the Period for:

 

 

 

 

 

 

 
Interest $23.0 $25.0 
Income taxes $29.4 $69.0 

See Notes to Consolidated Financial Statements.


These interim statements are unaudited.

4


4



THE DAYTON POWER AND LIGHT COMPANY


CONSOLIDATED BALANCE SHEET


(Dollars$ in millions)

 

 

At
March 31,
2003

 

At
December 31,
2002

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

Property

 

$

3,803.2

 

$

3,781.7

 

Less: Accumulated depreciation and amortization

 

(1,762.2

)

(1,765.1

)

Net property

 

2,041.0

 

2,016.6

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and temporary cash investments

 

48.0

 

17.1

 

Accounts receivable, less provision for uncollectible accounts of $5.0 and $10.9, respectively

 

147.5

 

159.4

 

Inventories, at average cost

 

51.9

 

54.1

 

Prepaid taxes

 

35.2

 

46.9

 

Other

 

62.8

 

65.2

 

 

 

 

 

 

 

Total current assets

 

345.4

 

342.7

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Income taxes recoverable through future revenues

 

43.5

 

34.6

 

Other regulatory assets

 

59.1

 

71.1

 

Trust assets

 

77.2

 

115.6

 

Other

 

82.3

 

79.0

 

 

 

 

 

 

 

Total other assets

 

262.1

 

300.3

 

 

 

 

 

 

 

Total Assets

 

$

2,648.5

 

$

2,659.6

 

 
 At
June 30,
2003

 At
December 31,
2002

 
ASSETS       

Property

 

 

 

 

 

 

 

Property

 

$

3,832.5

 

$

3,781.7

 
Less: Accumulated depreciation and amortization  (1,789.3) (1,765.1)
  
 
 
 Net property $2,043.2 $2,016.6 
  
 
 

Current Assets

 

 

 

 

 

 

 

Cash and temporary cash investments

 

 

67.9

 

 

17.1

 
Accounts receivable, less provision for uncollectible accounts of $5.0 and $10.9, respectively  136.6  159.4 
Net intercompany receivables  36.1  36.4 
Inventories, at average cost  55.4  54.1 
Prepaid taxes  23.4  46.9 
Other  39.4  28.8 
  
 
 
 Total current assets $358.8 $342.7 
  
 
 

Other Assets

 

 

 

 

 

 

 

Income taxes recoverable through future revenues

 

 

43.3

 

 

34.6

 
Other regulatory assets  48.5  71.1 
Trust assets  88.1  115.6 
Other  84.2  79.0 
  
 
 
 Total other assets $264.1 $300.3 
  
 
 
Total Assets $2,666.1 $2,659.6 
  
 
 

See Notes to Consolidated Financial Statements.


These interim statements are unaudited.

5



THE DAYTON POWER AND LIGHT COMPANY


CONSOLIDATED BALANCE SHEET


(Dollars$ in millions)
(continued)

(continued)

 

 

At
March 31,
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

 

(3.3

)

1.5

 

Earnings reinvested in the business

 

393.5

 

395.3

 

 

 

 

 

 

 

Total common shareholder’s equity

 

1,162.4

 

1,168.9

 

 

 

 

 

 

 

Preferred stock

 

22.9

 

22.9

 

Long-term debt

 

665.4

 

665.5

 

 

 

 

 

 

 

Total capitalization

 

1,850.7

 

1,857.3

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

90.6

 

96.5

 

Accrued taxes

 

98.6

 

100.5

 

Accrued interest

 

8.2

 

19.0

 

Other

 

26.5

 

18.9

 

 

 

 

 

 

 

Total current liabilities

 

223.9

 

234.9

 

 

 

 

 

 

 

Deferred Credits and Other

 

 

 

 

 

 

 

 

 

 

 

Deferred taxes

 

400.5

 

370.9

 

Unamortized investment tax credit

 

54.7

 

55.1

 

Trust obligations

 

69.7

 

101.2

 

Other

 

49.0

 

40.2

 

 

 

 

 

 

 

Total deferred credits and other

 

573.9

 

567.4

 

 

 

 

 

 

 

Total Capitalization and Liabilities

 

$

2,648.5

 

$

2,659.6

 

 
 At
June 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  3.6  1.5
 Earnings reinvested in the business  407.5  395.3
  
 
   Total common shareholder's equity $1,183.3 $1,168.9
Preferred stock  22.9  22.9
Long-term debt  664.8  665.5
  
 
   Total capitalization $1,871.0 $1,857.3
  
 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

 

81.3

 

 

96.5
Accrued taxes  104.5  100.5
Accrued interest  19.2  19.0
Other  19.2  18.9
  
 
   Total current liabilities $224.2 $234.9
  
 

Deferred Credits and Other

 

 

 

 

 

 

Deferred taxes

 

 

394.7

 

 

370.9
Unamortized investment tax credit  53.6  55.1
Trust obligations  72.2  101.2
Other  50.4  40.2
  
 
   Total deferred credits and other $570.9 $567.4
  
 

Total Capitalization and Liabilities

 

$

2,666.1

 

$

2,659.6
  
 

See Notes to Consolidated Financial Statements.


These interim statements are unaudited.

6


6



Notes to Consolidated Financial Statements

1. The Dayton Power and Light Company (“("DP&L”&L" or “the Company”"the Company") is a wholly owned subsidiary of DPL Inc (“DPL”("DPL"). DP&L has prepared the unaudited consolidated financial statements in this report, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’sCompany's 2002 Annual Report on Form 10-K.

2. Reclassifications have been made in the presentation of certain prior year amounts to conform to the current reporting presentation of the Company.

In the opinion of management, the information included in this Form 10-Q reflects all adjustments that are necessary for a fair statement of the results of operations for the periods presented. Any adjustments are of a normal recurring nature.

3. Comprehensive income for the three and six months ended March 31,June 30, 2003 and 2002 consisted of the following:

 
 Three Months Ended
June 30,

 Six Months Ended
June 30,

$ in millions

 2003
 2002
 2003
 2002
Net income $44.3 $55.9 $125.3 $108.5
Net change in unrealized gains (losses) on financial instruments net of reclassification adjustments, after tax  6.9  0.8  2.1  3.4
  
 
 
 
Comprehensive income $51.2 $56.7 $127.4 $111.9
  
 
 
 

 

 

Three Months Ended
March 31,

 

$ in millions

 

2003

 

2002

 

 

 

 

 

 

 

Net income

 

$

81.0

 

$

52.6

 

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

 

(4.8

)

2.6

 

Comprehensive income

 

$

76.2

 

$

55.2

 

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 is effective for contracts entered into or modified after June 30, 2003. This standard is not expected to 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 is effective at the beginning of the third quarter of 2003, is not expected to have an effect on the Company at this time.

7



4.5. The Company adopted the provisions of the Financial Accounting Standard Board’s (“FASB”Standards Board's ("FASB") Statement of Financial Accounting Standards No. 143, “Accounting"Accounting for Asset Retirement Obligations” (“Obligations" ("SFAS No. 143”143") as of January 1, 2003. SFAS No. 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time those obligations are incurred. 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’scompany's accumulated depreciation reserve. The Company’sCompany'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

7



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’sCompany's accumulated depreciation reserve by $32.1 million. If the new accounting rules 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 impact for the quarter and six-month period ended March 31,June 30, 2002 would have been $0.3 million and $0.6 million, respectively, after tax. In addition, costs for the removal of retired assets are charged to operation and maintenance when incurred. Since the generation assets are not subject to Ohio regulation, the Company recorded the net effect of adopting this standard in its Consolidated Statement of Results of Operations. The total cumulative effect of the adoption of SFAS No. 143 increased earnings on common stock and shareholder’sshareholder's equity by $28.3 million before tax.

5.6. On 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 (“Compensation" ("SFAS No. 123”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"Accounting for Stock Issued to Employees” (“Employees" ("APB 25”25") and related Accounting Principles Board and FASB interpretations in accounting for DPL stock options granted to its employees. The Company has adopted SFAS No. 123 on a prospective basis for all grants issued after January 1, 2003. If the Company had used a 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:

 

 

Three Months Ended
March 31,

 

$ in millions

 

2003

 

2002

 

 

 

 

 

 

 

Earnings on common stock, as reported

 

$

80.8

 

$

52.4

 

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

 

 

0.3

 

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

 

(0.8

)

(0.9

)

Pro forma earnings on common stock

 

$

80.0

 

$

51.8

 

 
 Three Months Ended
June 30,

 Six Months Ended
June 30,

 
$ in millions

 
 2003
 2002
 2003
 2002
 
Earnings on common stock, as reported $44.1 $55.7 $124.9 $108.1 
Add: Total stock-based compensation expense determined under APB 25, net of related tax effects    0.4    0.7 
Deduct: Total stock-based compensation expense determined under FAS 123, net of related tax effects  (0.5) (0.8) (1.3) (1.7)
  
 
 
 
 
Pro forma earnings on common stock $43.6 $55.3 $123.6 $107.1 
  
 
 
 
 

8



6.     DPL’s7. DP&L's transmission and distribution and base load and peaking generation operations are managed and evaluated as a single operating segment, “Electric.”"Electric."

 

 

Three Months Ended
March 31,

 

$ in millions

 

2003

 

2002

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

Electric

 

$

220.1

 

$

191.6

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

Electric

 

$

119.3

 

$

91.4

 

Other (a)

 

(4.1

)

(4.1

)

Total

 

115.2

 

87.3

 

Other income (deductions)

 

1.0

 

10.3

 

Interest expense

 

(12.8

)

(14.0

)

Income before income taxes and cumulative effect of accounting change

 

$

103.4

 

$

83.6

 


 
 Three Months Ended
June 30,

 Six Months Ended
June 30,

 
$ in millions

 
 2003
 2002
 2003
 2002
 
Net revenues:             
Electric $194.1 $206.2 $414.2 $397.8 
  
 
 
 
 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 
Electric $88.9 $105.6 $208.2 $197.0 
Other (a)  (10.1) (1.4) (14.2) (5.5)
  
 
 
 
 
 Total  78.8  104.2  194.0  191.5 

Other income (deductions)

 

 

3.9

 

 

(2.6

)

 

4.9

 

 

7.7

 
Interest expense  (12.4) (13.2) (25.2) (27.2)
  
 
 
 
 
Income before income taxes and cumulative effect of accounting change $70.3 $88.4 $173.7 $172.0 
  
 
 
 
 

(a) Includes unallocated corporate items.

8. Net intercompany receivables consist primarily of $36 million due from a wholly owned captive insurance subsidiary of DPL that provides insurance coverage solely to DPL and its subsidiaries, for the settlement of claims under the business interruption policy (see "Other Matters").

9



Item 2.Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations

The Dayton Power and Light Company (“("DP&L”&L" or “the Company”the "Company") reported earnings on common stock of $44.1 million for the second quarter of 2003 compared to $55.7 million for the second quarter of 2002. Results for the current quarter included reduced operating income of $25.4 million primarily from lower retail sales resulting from mild weather and increased operation and maintenance expenses. The decline in retail sales was partially offset by an increase in wholesale sales for the quarter. Earnings on common stock for the second quarter of 2002 reflected lower operation and maintenance expenses as discussed below.

For the six months ended June 30, 2003, the Company reported earnings on common stock before the cumulative effect of an accounting change of $63.8$107.9 million compared to $108.1 million for the first quarter of 2003, an increase of 22% over earnings on common stock of $52.4 million for the first quarter ofsix months ending June 30, 2002. The earnings improvement was primarily attributable to higher retailRetail and wholesale sales and margins.combined grew 1% over the same period last year while revenues grew 3%. Results for the current six months included increased operating income of $2.5 million primarily as a result of increased wholesale sales. The cumulative effect of an accounting change in the current quarter of $17.0 million after tax resulted from the adoption of a new accounting standard for asset retirement obligations.obligations in 2003.

9



Income Statement Highlights

 
 Three Months Ended
June 30,

 Six Months Ended
June 30,

$ in millions

 2003
 2002
 2003
 2002
Electric revenues $271.4 $279.1 $567.1 $551.3
Less:            
 Fuel  50.8  50.0  106.4  97.5
 Purchased power  26.5  22.9  46.5  56.0
  
 
 
 
   Net electric revenues $194.1 $206.2 $414.2 $397.8
Operating income $78.8 $104.2 $194.0 $191.5

 

 

Three Months Ended
March 31,

 

$ in millions

 

2003

 

2002

 

 

 

 

 

 

 

Electric revenues

 

$

295.7

 

$

272.2

 

Fuel

 

55.6

 

47.5

 

Purchased power

 

20.0

 

33.1

 

Net revenues

 

$

220.1

 

$

191.6

 

 

 

 

 

 

 

Operating income

 

$

115.2

 

$

87.3

 

IncreasedRetail electric revenues resulteddecreased $28.8 million in the second quarter due to reduced sales resulting from increasesmild weather. This was significantly offset by a $21.2 million increase in bothwholesale revenues resulting from the sale of available generating capacity into the wholesale market at favorable market rates. For the six months ended June 2003, electric retail revenues were down $24.3 million primarily because of mild summer temperatures while wholesale revenues increased $40.1 million from higher market rates and a 6% gain in sales.

For the three months ended June 30, 2003, fuel costs increased slightly by $0.8 million due to lower retail sales and the use of internal generation to support increased wholesale sales. Purchased power costs were $3.6 million higher in the second quarter reflecting higher market prices and increased wholesale sales. Fuel costs increased $8.9 million or 9% in the six month period primarily from increased generation output. Purchased power costs dropped $9.5 million or 17% reflecting the use of internal generation to support retail and wholesale revenues.  Retail residential revenuessales.

Operation and maintenance expense increased $10.8$14.7 million or 9%in the second quarter and $12.8 million in the six months ended June 30, 2003, primarily as a result of higher sales volume drivenoperating plant costs associated with the increase in production and the expensing of cost of removal for retired assets required by colder weather as comparedthe Financial Accounting Standard Board's ("FASB") Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations" ("SFAS No. 143") effective January 1, 2003. Higher corporate costs including increased insurance premiums also contributed to 2002 with heating degree days of 3,193the variation in both periods.

Depreciation and amortization expense decreased $0.7 million or 1% in the first quarter of 2003 compared to 2,563 in the first quarter last year.  Wholesale capacity and energy revenues increased $19.0 million or 73%six month period primarily as a result of increased operating output at the Company’s generating units and higher average wholesale electric commodity prices.  Fuel costs increased $8.1 million or 17% as a resultadoption of increased production and higher plant availability.  Purchased power costs decreased $13.1 million or 40% as a resultSFAS No. 143 which required the elimination of lower purchased power volumesthe cost of removal accrual component of depreciation rates. This accounting change offset the additional depreciation resulting from increased production and higher plant availability.

Operation and maintenance expense decreased $1.9 million or 5% primarily as a resultthe completion of lower employee benefits costs, including charges of $1.1 million incurred in the prior year for a union severance program.

selective catalytic reduction installations at certain facilities.

General taxes increased $2.4$1.8 million or 9%3% in the six month period primarily as a result of increased sales causing an increase in the Ohio kWh excise tax and increases in property base resulting in higher property tax expense, as well as property tax rate increases.

Other income decreased $9.3increased $6.5 million or 90%in the second quarter of 2003, primarily as a result of higher interest income, of $7.3 million recognized in the prior year for the business interruption insurance policy related to deregulation (see “Issuesreduced miscellaneous fees, and Financial Risks - Other Matters”).

Interest expense decreased $1.2 million or 9% higher capitalized interest for selective catalytic reduction installations in 2003.

10



increased non-operating gains.

The cumulative effect of an accounting change reflects the Company’sCompany's adoption of the provisions of the Financial Accounting Standard Board’s (“FASB”) Statement of Financial Accounting StandardsSFAS No. 143 “Accounting for Asset Retirement Obligations” (“SFAS No. 143”) as of January 1, 2003 (see Note 4 to the Consolidated Financial Statements).2003.

10



Capital Resources and Requirements

Construction Program and Financing

Construction additionsCapital expenditures were $20$65.7 million for the first threesix months of 2003 and are expected to approximate $109 million for the year. Current year additions relate to the Company’sCompany's environmental compliance program, power plant equipment, and the installation of meters and distribution lines.

The Company’sCompany's scheduled maturities of long-term debt, including capital lease obligations, over the next three years are $0.3 million for the remainder of 2003 and $1.1 million each year.year for 2004 and 2005. The Company expects to finance its construction program and debt maturities in 2003 and 2004 with internal funds.

DPL and the Company have $50.0 million and $105.0 million, respectively, available through 364-day revolving credit agreements with a consortium of banks.  The primary purpose of these revolving credit facilities is to provide back-up liquidity for DPL’s and the Company’s commercial paper programs.  Current agreements, which expire in December of 2003, provide an appropriate amount of credit support for the Company’s business requirements over the remainder of the year.  At March 31, 2003, DPL and the Company had no outstanding borrowings under these credit agreements and no outstanding commercial paper balances.

The Company has $65.0 million available in short-term informal lines of credit.  Borrowings under these lines of credit were zero at March 31, 2003.

Fees associated with these revolving credit agreements and the Company’s lines of credit are approximately $0.3 million in total per year.

Issuance of additional amounts of first mortgage bonds by the Company is limited by provisions of its mortgage.  The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.  Themortgage, however, the Company currently hascontinues to have sufficient capacity to issue first mortgage bonds to satisfy its requirements in connection with its refinancing and construction programs duringthrough 2007. The amounts and timing of future financings depend upon market and other conditions, rate increases, levels of sales, and construction plans.

In May 2003, DPL announced plans to refinance significant amounts of its consolidated long-term debt to take advantage of favorable interest rates and to reduce long-term debt by $300 million over the five-year period 2003-2007.next 30 months. On July 24, 2003, the Company received authorization from the Public Utility Commission of Ohio ("PUCO") to issue up to $471 million of first mortgage bonds to refinance a portion of its outstanding first mortgage bonds.

In June 2003, Moody's Investors Service placed the debt ratings of the Company under review for possible downgrade. On July 30, 2003, Fitch Ratings reaffirmed the investment grade debt ratings for the Company. Also on July 30, 2003, Moody's Investor Service concluded their review and lowered the Company's debt rating.

As of July 30, 2003, the Company's senior secured debt credit ratings were as follows:


Rating
Outlook
Standard & Poor's CorpBBBStable
Fitch RatingsANegative
Moody's Investors ServiceBaa1Stable

Debt ratings from the three rating agencies remain investment grade.

11



The Company has $105.0 million available through a 364-day revolving credit agreement with a consortium of banks. The primary purpose of this revolving credit facility is to provide back-up liquidity for the Company's commercial paper program. This agreement, which expires in December of 2003, provides an appropriate amount of credit support for the Company's business requirements over the remainder of the year. At June 30, 2003, the Company had no outstanding borrowings under this credit facility and no outstanding commercial paper balance. Fees associated with this credit facility are approximately $0.2 million in total per year.

Market Risk

The Company’sCompany's financial results are affected by changes in electricity, coal, and gas commodity prices, increased competition, the effect of weather and economic conditions in the sales area on retail sales volume, financial market conditions, foreign currency market risk, and adverse economic conditions. SixEleven percent of the Company’s expected 2003 revenues areCompany's year-to-date revenue is from spot energy sales in the wholesale market.

Fuel and purchased power costs represented 42%41% and 43% of total operating costs in the first quartersix months of 2003 and for the year 2002, respectively. The Company has contracted for approximately 90%100% of its coal needs for 2003. Purchased power costs depend, in part, upon the timing and extent of planned and

11



unplanned outages of the Company’sCompany's generating capacity. The Company does not anticipate significant purchasedwill purchase power needson a discretionary basis when wholesale market conditions provide opportunities to cover scheduled maintenance for the remainder of 2003.obtain power at a cost below its internal production costs. A 2% change in overallannual fuel and purchased power costs would result in aan approximate $3.5 million change in net income.

The carrying value of the Company’sCompany's debt was $667.0$665.9 million at December 31, 2002,June 30, 2003, consisting of the Company’sCompany's first mortgage bonds and guaranteed air quality development obligations. The fair value of this debt was $690.2$692.0 million at December 31, 2002,June 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-ratefixed rate debt at December 31, 2002June 30, 2003 are as follows.follows:

 

 

Long-term Debt

 

Expected Maturity Date

 

Amount

 

Average Rate

 

 

 

($ in millions)

 

 

 

2003

 

 

$

1.1

 

7.4

%

2004

 

 

1.1

 

7.4

%

2005

 

 

1.1

 

7.4

%

2006

 

 

1.1

 

7.4

%

2007

 

 

9.3

 

6.5

%

Thereafter

 

 

653.3

 

7.5

%

Total

 

 

$

667.0

 

7.5

%

 

 

 

 

 

 

 

Fair Value

 

 

$

690.2

 

 

 

 
 Long-term Debt
 
Expected
Maturity Date

 Amount
($ in millions)

 Average
Rate

 
2003 $0.3 2.6%
2004  1.1 4.0%
2005  1.1 4.0%
2006  1.1 4.0%
2007  9.3 6.1%
Thereafter  653.0 7.5%
  
   
Total $665.9 7.4%
  
   
Fair Value $692.0   
  
   

At March 31,June 30, 2003, the Company had no short-term debt outstanding.

In May 2003, 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. At June 30, 2003, the market value of these rate risk hedges resulted in an unrealized gain of $1.3 million ($0.8 million net of tax) and is reflected in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet. These hedges were settled on July 28, 2003, at a final market value of $51.4 million and as a result the Company received this amount. The change in value over the end of the quarter was attributed to increasing U.S. Treasury interest rates. The ultimate effectiveness of the hedges will be amortized to interest expense over the life of any newly issued securities with any remaining market value recognized immediately in earnings.

Issues and Financial Risks

This report contains certain forward-looking statements regarding plans and expectations for the future. Investors are cautioned that actual outcomes and results may vary materially from those projected due to various factors beyond the Company’sCompany's control, including abnormal weather, unusual maintenance or repair requirements, changes in fuel costs, changes in commodity prices, increased competition, regulatory changes and decisions, changes in accounting rules, financial market conditions, foreign currency market risk, and adverse economic conditions.

12



Other Matters

A wholly-ownedwholly 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 environmental law and electric deregulation. “Insurance ClaimsIn 2001 and Costs” on DPL’s Consolidated Balance Sheet as2002, the Company recognized income of March 31, 2003$29 million and December 31, 2002 includes insurance reserves of approximately $76$7 million for based on actuarial methods and historical loss experience.  Such amounts are established based upon claims reportedrespectively relating to DPL and include estimates of losses for claims incurred but not reported based on past and current experience.  The liability is believed by management to be adequate to cover the ultimate net cost of losses to date; however, the liability is an estimate.  There is uncertainty associated with the occurrence of insured events and actual loss results could differ from the estimates.  Modification of these loss estimates based on experience and changed circumstances are reflected in the period in which the estimate is reevaluated.  As the outcome of electric deregulation becomes certain during the three-year regulatory transition period ending December 31, 2003, policy payments from the captive subsidiary to DP&L will occur and/or reserves of the captive insurance company will be adjusted and be reflected in DPL’s income.  As of March 31, 2003, a $36 million receivable has been recognized by DP&L for insurance its

12



claims under itsthe business interruption policy. Of this amount, $7.3By agreement dated December 31, 2001, the insurance subsidiary agreed to pay the Company $29 million and $29.0 million were reported as other income inwith respect to claims under the first quarter of 2002business interruption policy, and in June 2003 agreed to pay the second halfCompany an additional $7 million, as a result of 2001, respectively.

which the Company released the insurance subsidiary from future obligations under the business interruption policy. At June 30, 2003, the Company has an intercompany receivable for $36 million.

On 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”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"Accounting for Stock Issued to Employees” (“Employees" ("APB 25”25") and related Accounting Principles Board and FASB interpretations in accounting for DPLits employee stock options granted to its employees.options. The Company has adopted SFAS No. 123 on a prospective basis for all grants issued after January 1, 2003. The effect on compensation expense, if any, will depend on the timing, amount, and terms of future stock option awards. During the first quartersix months of 2003, there was no material effect.

13



THE DAYTON POWER AND LIGHT COMPANY


OPERATING STATISTICS

 

 

Three Months Ended
March 31,

 

 

 

2003

 

2002

 

Electric

 

 

 

 

 

 

 

 

 

 

 

Sales (millions of kWh)

 

 

 

 

 

Residential

 

1,546

 

1,383

 

Commercial

 

886

 

843

 

Industrial

 

1,023

 

1,033

 

Other retail

 

333

 

324

 

Total retail

 

3,788

 

3,583

 

Wholesale

 

832

 

736

 

 

 

 

 

 

 

Total

 

4,620

 

4,319

 

 

 

 

 

 

 

Revenues (thousands of dollars)

 

 

 

 

 

Residential

 

$

126,193

 

$

115,355

 

Commercial

 

60,130

 

60,166

 

Industrial

 

41,619

 

48,609

 

Other retail

 

22,870

 

22,184

 

Total retail

 

250,812

 

246,314

 

Wholesale

 

44,853

 

25,900

 

 

 

 

 

 

 

Total

 

$

295,665

 

$

272,214

 

 

 

 

 

 

 

Electric customers at end of period

 

505,568

 

501,971

 

 
 For the Three Months
Ended June 30,

 For the Six Months
Ended June 30,

 
 2003
 2002
 2003
 2002
Electric            

Sales (millions of kWh)

 

 

 

 

 

 

 

 

 

 

 

 
 Residential  949  1,099  2,495  2,481
 Commercial  902  919  1,788  1,761
 Industrial  1,118  1,170  2,141  2,202
 Other retail  354  354  687  678
  
 
 
 
   Total retail  3,323  3,542  7,111  7,122
 Wholesale  1,178  1,091  2,010  1,893
  
 
 
 
   Total  4,501  4,633  9,121  9,015
  
 
 
 
Revenues ($in thousands)            
 Residential $88,027 $99,683 $214,220 $215,038
 Commercial  60,061  65,457  120,191  125,623
 Industrial  42,284  53,555  83,903  102,164
 Other retail  23,313  23,811  46,183  45,995
  
 
 
 
   Total retail  213,685  242,506  464,497  488,820
 Wholesale  57,769  36,569  102,622  62,469
   Total $271,454 $279,075 $567,119 $551,289
  
 
 
 
Electric customers at end of period  505,198  503,058  505,198  503,058

Item 3.Quantitative and Qualitative Disclosures about Market Risk

See the “Market Risk”"Market Risk" section of Item 2.

13



Item 4.Controls and Procedures

Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision andThe Company's management evaluated, with the participation of the Company’s management, including the Company’sCompany's Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures.procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that the Company’sCompany's disclosure controls 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 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sCommission's rules and forms.

There were no significant changes in the Company’sCompany's internal controlscontrol over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or in other factors that could significantlyare reasonably likely to materially affect, the Company's internal controls subsequent to the date of their evaluation.

control over financial reporting.

14



Part II. Other Information

Item 5.Other Information

Electric RestructuringRate Regulation and Government Legislation

On October 28, 2002, DP&Lthe Company filed with the Public Utilities Commission of Ohio (“PUCO”)PUCO requesting an extension of its market development period as originally determined under Case No. 99-1687-EL-ETP from December 31, 2003 to December 31, 2005. If approved by the PUCO as requested, the extension of the market development period will continue DP&L’sthe Company's current rate structure and provide its retail customers with rate stability. On March 31, 2003, the PUCO issued a staff recommendation that suggests the adoption of the Company’sCompany's request to extend its market development period through 2005 and maintain current rates. However, beginning January 1, 2004, it proposes to increaseOn 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 2 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 number of customers who switch to a competitive supplier.  On Aprilresidential 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. Post hearing briefs and reply briefs were filed on July 3, 2003, and July 15, 2003, respectively. The Company anticipates that the PUCO issued an Order that setswill issue a ruling on the hearing date in this case for May 15,application and stipulation by the end of September 2003. The final outcome of this case cannot be determined at this time.

On May 28, 2002, the Company filed a notice with the Federal Energy Regulatory Commission (“FERC”("FERC") stating its intention to join the PJM Interconnection, L.L.C. (“PJM”("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 approval to join PJM conditioned on the parties meeting several regulatory reliability, ratemaking, and market developing initiatives. On September 30, 2002, the Company signed an implementation agreement with PJM with the expectation that the Company will be fully integrated into the PJM market by May 1, 2003. On March 3, 2003, PJM announced the planned date for the full integration of American Electric Power, Commonwealth Edison, and the Company was being extended. While technical implementation activities continue, full integration of the utilities into PJM will behas been delayed pending the necessary regulatory approvals.

On September 12, 2002, the Ohio Consumers’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 of its transmission assets to a FERC-approved Regional Transmission Organization (“RTO”).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. As such,The PUCO subsequently joined this case with the above-mentioned application regarding the extension of the Company's market development period. The Stipulation filed in the joined proceedings resolves and dismisses the complaint. The final outcome of this complaint cannot be determined at this time.

15



On March 10, 2003, American Municipal Power of Ohio, Inc. on behalf of the Company’sCompany's municipal customers (“Municipals”("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. The Company intends to vigorously defend this case and cannot be determine the outcome of this complaint at this time.

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. The Company submitted comments and reply comments on the proposed rules, and filed an application for rehearing on October 26, 2002. On March 18, 2003, the PUCO issued an Entry on Rehearing adopting the proposed modificationmodifications with minor changes. The effect of compliance with these rules by the Company is currently under review.

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 is askingasked 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 April 2003, a non-utility affiliated marketer completed its registration to become a competitive retail generation service provider in the Company’sCompany's service territory. The Company anticipates that this competitor will begin a marketing campaign to provide competitive retail generation service to the Company’sCompany's residential customers.

Environmental Considerations

On November 22, 2002, the United States Environmental Protection Agency (“USEPA”("USEPA") announced its final rule package on New Source Review reform and its proposed rule on the definition of “routine"routine maintenance, repair and replacement." On December 31, 2002, the final and proposed rules were published in the Federal Register. Following this announcement, several northeast states brought lawsuits in the United States Court of Appeals for the District of Columbia (the “Court”"Court") challenging the final rule. On March 6, 2003, the Court denied a petition for a stay that would have delayed implementation of the final rules. The Company, along with utility groups in which it is a member, is conducting an extensive review of the published rules and does not expect the rule changes to have a material effect on the Company’sCompany's financial position, earnings, or cash flow.

16



On July 29, 2002, the Bush Administration offered proposed legislation known as the “Clear Skies”"Clear Skies" initiative. The proposal calls for emissions reductions for sulfur dioxide, nitrogen oxides, and mercury commencing between 2008 and 2010. A competing proposed 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

16



Clear Skies proposal, competing proposed legislation revising the air pollution laws has emerged in the 108th session of Congress. In 2003, the Clear Skies and competing proposals were re-introduced in the second half of the 108th 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 are anticipated in August 2003. The effect of any final standards cannot be determined at this time.

On April 14, 2003, the USEPA issued proposed and direct final rules for standards of performance for stationary gas turbines. The final rules will not have a material impact on the Company’sCompany's combustion turbine facilities.

On June 4, 2003, several northeast states brought citizen lawsuits in the United States District Court for the District of Connecticut, claiming that USEPA has failed to undertake its duty to regulate carbon dioxide as a criteria pollutant under the Clean Air Act. The potential outcome of the litigation and the effect, if any, cannot be determined at this time.

During the first quarter of 2003, the Ohio Environmental Protection Agency (“("Ohio EPA”EPA") indicated that, as part of the regular permit renewal process for the National Pollutant Discharge EliminationsElimination System (“NPDES”("NPDES") permit for J.M. Stuart Station, it may not renew the thermal variance that was previously issued 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’sCompany's operations.

Item 6.Exhibits and Reports on Form 8-K

(a)

There

a)
The following exhibits are no exhibits required by Item 601 of Regulation S-K for the quarter ended March 31, 2003.

(b)

Reports on Form 8-K.

On March 13, 2003, DP&L filed a Form 8-K reporting under Item 4 that its independent accountants, PricewaterhouseCoopers LLP, had declinedherewith:

    Exhibit 31—Certifications pursuant to stand for reelection by the Finance and Audit Review CommitteeSection 302 of the BoardSarbanes-Oxley Act of Directors as DP&L’s independent accountants for2002
    Exhibit 32—Certification pursuant to Section 906 of the year ended December 31, 2003.Sarbanes-Oxley Act of 2002

b)
Reports on Form 8-K.

On April 14, 2003, DP&L Inc.the Company filed a Form 8-K reporting under Item 4 that its Finance and Audit Review Committee of the Board of Directors appointed KPMG LLP as DP&L’sthe Company's independent accountants for the year ended December 31, 2003.

17


17



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE DAYTON POWER AND LIGHT COMPANY

(Registrant)


Date: August 5, 2003

(Registrant)

Date:


April 30, 2003



/s/  
STEPHEN F. KOZIAR      


Stephen F. Koziar

Stephen F. Koziar


President and Chief Executive Officer



          August 5, 2003



April 30, 2003


/s/  
CAROLINE E. MUHLENKAMP      


Caroline E. Muhlenkamp

Caroline E. Muhlenkamp


Interim Group Vice President and Chief Financial Officer

April 30, 2003

/s/ Miles W. McHugh

Miles W. McHugh

Corporate Controller


18




CERTIFICATIONS

I, Caroline E. Muhlenkamp, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Dayton Power and Light Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and we have:

a) 

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) 

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) 

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) 

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) 

 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:

April 30, 2003

Signature:

/s/ Caroline E. Muhlenkamp

Print Name:

Caroline E. Muhlenkamp

Title:

Interim Group Vice President and Chief Financial Officer

19



I, Stephen F. Koziar, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of The Dayton Power and Light Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) 

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) 

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) 

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) 

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) 

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:

April 30, 2003

Signature:

/s/ Stephen F. Koziar

Print Name:

Stephen F. Koziar

Title:

President and Chief Executive Officer

20