UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-9052
DPL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-1163136
- ------------------------------------- --------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
COURTHOUSE PLAZA SOUTHWEST
DAYTON, OHIO 45402
---------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(937) 224-6000
---------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares of the issuer's classes of common stock, as of the
latest practicable date.
Common Stock, $.01 par value
and Preferred Share Purchase Rights 128,082,004 Shares
- --------------------------------------- -------------------------------------
(Title of each class) (Outstanding at September 30, 2000)
DPL INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Results of Operations 1
Consolidated Statement of Cash Flows 2
Consolidated Balance Sheet 3
Consolidated Statement of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6
Operating Statistics 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
i
DPL INC.
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Utility Service Revenues --
Electric.......................................................... $287.5 $303.5 $ 807.6 $ 811.0
Gas............................................................... 33.2 15.7 165.9 147.2
Other revenues...................................................... 34.8 12.1 83.4 47.0
------ ------ -------- -------
Total revenues......................................... 355.5 331.3 1,056.9 1,005.2
EXPENSES
Fuel and purchased power............................................ 69.1 84.6 193.1 207.4
Gas purchased for resale............................................ 34.4 13.9 160.1 122.5
Operation and maintenance........................................... 55.1 51.6 154.5 139.4
Depreciation and amortization....................................... 34.7 33.1 104.3 98.8
Amortization of regulatory assets, net.............................. 2.0 .5 14.7 12.1
General taxes....................................................... 31.2 34.8 97.1 103.2
------ ------ -------- -------
Total expenses........................................ 226.5 218.5 723.8 683.4
------ ------ -------- -------
Operating Income.................................................... 129.0 112.8 333.1 321.8
OTHER INCOME (DEDUCTIONS)
Investment income................................................... 37.9 5.2 66.4 32.8
Other income (deductions)........................................... (11.9) .4 (29.5) (3.8)
Interest expense.................................................... (39.2) (27.6) (104.8) (83.1)
Trust preferred distributions by subsidiary......................... (32.5) - (75.6) -
------ ------ -------- -------
Income Before Income Taxes and Extraordinary Item................... 83.3 90.8 189.6 267.7
Income taxes........................................................ 30.1 37.2 70.5 104.1
------ ------ -------- -------
Income Before Extraordinary Item.................................... 53.2 53.6 119.1 163.6
Extraordinary item, net of taxes.................................... 41.4 - 41.4 -
------ ------ -------- -------
Net Income.......................................................... $ 11.8 $ 53.6 $ 77.7 $ 163.6
====== ====== ======== =======
Average Number of Common Shares Outstanding (millions)
Basic............................................................. 121.2 151.1 130.2 151.7
Diluted........................................................... 128.3 151.1 133.7 151.7
EARNINGS PER COMMON SHARE
Basic:
Income before extraordinary item................................ $ .44 $ .36 $ .91 $ 1.08
Extraordinary item.............................................. (.34) - (.31) -
------ ------ -------- -------
Total Basic..................................................... $ .10 $ .36 $ .60 $ 1.08
====== ====== ======== =======
Diluted:
Income before extraordinary item................................ $ .41 $ .36 $ .89 $ 1.08
Extraordinary item.............................................. (.32) - (.31) -
------ ------ -------- -------
Total Diluted................................................... $ .09 $ .36 $ .58 $ 1.08
====== ====== ======== =======
Dividends Paid Per Share of Common Stock............................ $ .235 $ .235 $ .705 $ .705
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-1-
DPL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
Nine Months Ended
September 30
----------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Cash received from utility customers............................................. $1,000.6 $984.3
Other operating cash receipts.................................................... 100.2 75.8
Cash paid for:
Fuel and purchased power.................................................... (189.4) (208.2)
Purchased gas............................................................... (179.1) (146.2)
Operation and maintenance labor............................................. (61.9) (59.6)
Nonlabor operating expenditures............................................. (134.4) (96.4)
Interest.................................................................... (124.8) (74.9)
Income taxes................................................................ (101.1) (62.1)
Property, excise and payroll taxes.......................................... (116.2) (115.5)
-------- -------
Net Cash Provided by Operating Activities........................................ 193.9 297.2
-------- -------
INVESTING ACTIVITIES
Capital expenditures............................................................. (231.5) (89.4)
Purchases of available-for-sale financial assets................................. (243.6) (315.2)
Sales of available-for-sale financial assets..................................... 99.6 112.4
-------- -------
Net Cash Used for Investing Activities........................................... (375.5) (292.2)
-------- -------
FINANCING ACTIVITIES
Issuance of preferred securities................................................. 478.9 -
Issuance of long-term debt....................................................... 421.0 497.4
Issuance of warrants............................................................. 47.6 -
Retirement of long-term debt..................................................... (5.4) (241.6)
Dividends paid on common stock................................................... (93.1) (107.1)
Retirement of short-term debt.................................................... (70.9) (95.1)
Purchase of treasury stock....................................................... (690.2) (45.3)
-------- -------
Net Cash Provided by Financing Activities........................................ 87.9 8.3
-------- -------
CASH AND TEMPORARY CASH INVESTMENTS--
Net change....................................................................... (93.7) 13.3
Balance at beginning of period................................................... 111.9 13.7
-------- -------
Balance at end of period......................................................... $18.2 $27.0
======== =======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-2-
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
At At
September 30, December 31,
2000 1999
--------------------- ---------------------
ASSETS
PROPERTY
Electric property............................................................ $3,678.6 $3,456.4
Gas property................................................................. 336.3 330.6
Other property............................................................... 90.3 113.3
--------- --------
Total property.......................................................... 4,105.2 3,900.3
Less--
Accumulated depreciation and amortization............................... (1,723.1) (1,633.5)
--------- --------
Net property........................................................ 2,382.1 2,266.8
--------- --------
CURRENT ASSETS
Cash and temporary cash investments.......................................... 18.2 111.9
Accounts receivable, less provision for uncollectible accounts
of $2.3 and $4.3, respectively.......................................... 202.1 218.1
Inventories, at average cost................................................. 94.3 93.1
Prepaid taxes................................................................ 12.9 94.6
Other........................................................................ 54.4 71.7
--------- --------
Total current assets.................................................... 381.9 589.4
--------- --------
OTHER ASSETS
Financial assets............................................................. 1,339.2 1,094.4
Income taxes recoverable through future revenues............................. 28.8 168.5
Other regulatory assets...................................................... 155.3 53.3
Other........................................................................ 153.7 168.0
--------- --------
Total other assets...................................................... 1,677.0 1,484.2
--------- --------
Total Assets................................................................. $4,441.0 $4,340.4
========= ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-3-
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(CONTINUED)
At At
September 30, December 31,
2000 1999
--------------- -------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity--
Common stock............................................................. $1.3 $1.6
Other paid-in capital.................................................... 27.1 739.0
Warrants................................................................. 50.0 -
Common stock held by employee plans...................................... (99.4) (90.7)
Accumulated other comprehensive income................................... 145.3 109.8
Earnings reinvested in the business...................................... 648.2 691.9
----- -----
Total common shareholders' equity.................................... 772.5 1,451.6
Preferred stock equity........................................................ 22.9 22.9
Preferred stock subject to mandatory redemption............................... .1 -
Company obligated mandatorily redeemable trust preferred
securities of subsidiary holding solely parent debentures................... 550.0 -
Long-term debt................................................................ 1,753.5 1,336.6
------- -------
Total capitalization................................................. 3,099.0 2,811.1
------- -------
CURRENT LIABILITIES
Accounts payable.............................................................. 86.6 130.4
Accrued taxes................................................................. 90.6 170.6
Accrued interest.............................................................. 32.2 33.1
Short-term debt............................................................... 223.2 294.1
Dividends payable............................................................. 28.9 -
Other......................................................................... 40.9 66.6
---- ----
Total current liabilities............................................ 502.4 694.8
----- -----
DEFERRED CREDITS AND OTHER
Deferred taxes................................................................ 436.2 471.9
Unamortized investment tax credit............................................. 64.1 66.4
Insurance and claims costs.................................................... 143.4 140.0
Other......................................................................... 195.9 156.2
----- -----
Total deferred credits and other..................................... 839.6 834.5
----- -----
Total Capitalization and Liabilities.......................................... $4,441.0 $4,340.4
======= =======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-4-
DPL INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Common
Common Stock Stock Accumulated Earnings
----------------------- Other Held by Other Reinvested
Outstanding Paid-In Employee Comprehensive in the
$ in millions Shares Amount Capital Warrants Plans Income Business Total
- ------------------------------- ------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
2000:
Beginning balance....... 157,801,404 $1.6 $739.0 $ - $(90.7) $109.8 $691.9 $1,451.6
Net income.............. 77.7
Unrealized gains on
financial assets, net
of reclassification
adjustments, after
tax................... 35.5
Total comprehensive
income................ 113.2
Common stock dividends.. (121.4) (121.4)
Issuance of securities.. (23.5) 50.0 26.5
Treasury stock.......... (29,719,400) (.3) (690.0) (690.3)
Employee stock plans.... 1.6 (8.7) (7.1)
------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
Ending balance.......... 128,082,004 $1.3 $27.1 $50.0 $(99.4) $145.3 $648.2 $772.5
============= ========== ========= =========== ============ ================ ============ =========
1999:
Beginning balance....... 161,264,604 $1.6 $799.0 - $(94.4) $47.2 $630.3 $1,383.7
Net income.............. 163.6
Unrealized gains on
financial assets, net
of reclassification
adjustments, after
tax .................. 13.5
Total comprehensive
income................ 177.1
Common stock dividends.. (142.6) (142.6)
Treasury stock.......... (2,633,900) - (46.2) (46.2)
Employee stock plans.... 0.9 2.5 3.4
------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
Ending balance.......... 158,630,704 $1.6 $753.7 - $(91.9) $60.7 $651.3 $1,375.4
============= ========== ========= =========== ============ ================ ============ =========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DPL Inc. ("the Company") has prepared the consolidated financial
statements in this report without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Company's 1999
Annual Report on Form 10-K.
2. Reclassifications have been made in certain prior years' amounts to
conform to the current reporting presentation of the Company.
In the opinion of management, the information included in this Form 10-Q
reflects all adjustments which are necessary for a fair statement of the
results of operations for the periods presented. Any adjustments are of a
normal recurring nature.
3. Costs associated with all planned major repair and maintenance
activities, primarily power plant outages, are recognized at the time the
work is performed. Outage costs include labor, materials and supplies, and
outside services required to maintain Company equipment and facilities. These
costs are either capitalized or expensed based on Company defined criteria
identifying specific units of property to be capitalized.
4. Basic earnings per share are based on the weighted-average number of
common shares outstanding during the year. Diluted earnings per share are
based on the weighted-average number of common and common equivalent shares
outstanding during the year.
The following illustrates the reconciliation of the numerators and
denominators of the basic and diluted EPS computations for income before
extraordinary item (prior year periods are not presented because no
potentially dilutive securities were outstanding in the prior year):
- -------------------------------------- --------------------------------------------- ---------------------------------------------
Three Months Ended Nine Months Ended
In millions except per share amounts September 30, 2000 September 30, 2000
- -------------------------------------- --------------------------------------------- ---------------------------------------------
Income (1) Shares Per-Share Income (1) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- ---------- ------------ ------------- ---------
BASIC EPS $53.2 121.2 $.44 $119.1 130.2 $.91
=== ===
EFFECT OF DILUTIVE SECURITIES
Warrants - 6.1 - 3.0
Stock Option Plan - 1.0 - .5
------------- --------------- --------------- ---------------
DILUTED EPS $53.2 128.3 $.41 $119.1 133.7 $.89
==== ===== === ===== ===== ===
- -------------------------------------- --------------- --------------- ------------- --------------- --------------- -------------
(1) Income before extraordinary item
-6-
5. In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133." This statement addresses a limited number of issues
causing implementation difficulties for a large number of entities getting
ready to apply Statement No. 133. The effective date of Statement No. 133 is
the fiscal year beginning after June 15, 2000. Accordingly, the Company will
adopt Statement No. 133 at the beginning of fiscal year 2001. Implementation
of this statement is not expected to have a material impact on the Company's
financial position or results of operations.
6. DPL Inc.'s principal subsidiary, The Dayton Power and Light Company
(DP&L), received approval from the Public Utilities Commission of Ohio (PUCO)
for its customer transition plan during the month of September 2000. The
plan, which begins in January 2001, provides a three-year transition period
(the market development period) ending December 31, 2003, at which time
DP&L's generation business unit will be fully merchant. The plan, as
approved, provides for the recovery of a portion of DP&L's transition costs,
including generation-related regulatory assets, during the market development
period. Based on DP&L's assessment of recoveries of regulatory assets during
the market development period and actual generation-related regulatory
assets, a write-off of $63.7 million before tax benefits ($41.4 million net
of taxes) was recorded in the third quarter of 2000 as an extraordinary item
in accordance with FASB Statement No. 101, "Regulated Enterprises-Accounting
for the Discontinuation of Application of FASB Statement No. 71." The
assessment of the impact of the plan was based on assumptions for future
sales levels during the market development period.
-7-
7. The reconciliation of segment profit to DPL Inc.'s consolidated income
before income taxes and extraordinary item is as follows:
Segment Information Three months ended Nine months ended
September 30, September 30,
$ in millions 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
ELECTRIC
Revenues from external customers $287.5 $303.5 $807.6 $811.0
Intersegment revenues .6 1.2 1.9 3.7
Earnings before interest, taxes, and
extraordinary item 112.5 113.4 301.8 294.5
NATURAL GAS
Revenues from external customers 33.2 15.7 165.9 147.2
Intersegment revenues 1.3 1.8 2.8 3.6
Earnings before interest, taxes, and
extraordinary item 2.8 (1.6) 23.0 25.0
OTHER
Revenues from external customers 34.8 12.1 83.4 47.0
Intersegment revenues 8.8 3.2 14.4 10.0
Earnings before interest, taxes, and
extraordinary item 13.7 1.0 8.3 2.3
TOTAL
Revenues from external customers 355.5 331.3 1,056.9 1,005.2
Intersegment revenues 10.7 6.2 19.1 17.3
Earnings before interest, taxes, and
extraordinary item 129.0 112.8 333.1 321.8
PROFIT OR LOSS RECONCILIATION (a)
Total earnings before interest, taxes, and
extraordinary item 129.0 112.8 333.1 321.8
Investment income 37.9 5.2 66.4 32.8
Other income and deductions (11.9) .4 (29.5) (3.8)
Interest expense (39.2) (27.6) (104.8) (83.1)
Trust preferred distributions by subsidiary (32.5) - (75.6) -
---------------------------------------------------------------
Income before income taxes and
extraordinary item $83.3 $90.8 $189.6 $267.7
===============================================================
(a) For categories not reconciled above, segment totals equal consolidated
totals.
-8-
OPERATING STATISTICS
THE DAYTON POWER AND LIGHT COMPANY
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
ELECTRIC
Sales (millions of kWh)--
Residential.................................................. 1,218 1,309 3,566 3,666
Commercial................................................... 931 927 2,637 2,577
Industrial................................................... 1,254 1,272 3,676 3,712
Other........................................................ 1,307 1,084 3,267 2,927
-------- -------- -------- --------
Total.................................................... 4,710 4,592 13,146 12,882
Revenues (thousands of dollars)--
Residential.................................................. $110,412 $116,756 $313,685 $318,817
Commercial................................................... 62,451 61,460 180,380 176,188
Industrial................................................... 60,886 68,208 177,910 185,919
Other........................................................ 70,179 57,684 154,261 131,808
-------- -------- -------- --------
Total.................................................... $303,928 $304,108 $826,236 $812,732
Other Electric Statistics--
Average price per kWh - Retail (cents)....................... 6.75 6.70 6.89 6.73
Average price per kWh - Wholesale (cents).................... 4.77 3.76 4.71 3.36
Fuel cost per net kWh generated (cents)...................... 1.13 1.29 1.16 1.27
Electric customers at end of period.......................... 497,000 491,941 497,000 491,941
Average kWh use per residential customer..................... 2,750 2,982 8,057 8,356
Peak demand-maximum one hour use (MW), (net)................. 2,866 3,130 2,866 3,130
NOTE: Sales and revenue numbers include electric peaking generation capacity
sales.
-9-
OPERATING STATISTICS
(CONTINUED)
THE DAYTON POWER AND LIGHT COMPANY
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
2000 1999 2000 1999
------ -------- ---------- --------
GAS
Sales (millions of MCF)--
Residential.................................................. 2,401 1,029 17,071 16,691
Commercial................................................... 985 525 5,398 5,390
Industrial................................................... 250 235 1,849 1,705
Other........................................................ 125 36 737 852
Transportation gas delivered................................. 3,478 3,549 14,511 13,868
-------- -------- -------- --------
Total.................................................... 7,239 5,374 39,566 38,506
Revenues (thousands of dollars)--
Residential.................................................. $21,197 $8,163 $107,804 $94,059
Commercial................................................... 7,160 2,932 31,917 27,607
Industrial................................................... 1,693 1,142 9,852 8,187
Other........................................................ 3,188 3,448 16,289 17,363
-------- -------- -------- --------
Total.................................................... $33,238 $15,685 $165,862 $147,216
Other Gas Statistics--
Average price per MCF-retail customers (dollars)............. $8.22 $6.81 $6.14 $5.44
Gas customers at end of period............................... 309,186 304,818 309,186 304,818
Degree Days (based on calendar month)--
Heating...................................................... 120 83 3,248 3,381
Cooling...................................................... 521 738 806 1,051
-10-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 DPL Inc.'s control, including abnormal weather, unusual maintenance or
repair requirements, changes in fuel costs, increased competition, regulatory
changes and decisions, changes in accounting rules and adverse economic
conditions.
For the third quarter of 2000, DPL Inc. reported net income of $66.7
million, or $.55 per share before nonrecurring and extraordinary items
related to its recapitalization and deregulation order on a weighted average
of 121 million shares. These results compared to net income of $53.6 million,
or $.36 per share on a weighted average of 151 million shares for the same
period in 1999. During the third quarter, the Company amortized the remaining
$21 million of the $50 million original issue trust preferred discount
associated with its issuance of $550 million Trust Preferred Securities.
Additionally, DP&L recorded an extraordinary charge of $41.4 million, net of
tax, reflecting its final transition order and the discontinuation of
application of regulatory accounting methods for its generation business.
These non-cash charges reduced earnings per share for the third quarter of
2000 by $.45 to $.10 per share.
Net income for the year-to-date period was $154.3 million, or $1.18 per
share before non-recurring and extraordinary items related to its
recapitalization, deregulation order, and elimination of certain compensation
programs on a weighted average of 130 million shares outstanding. These
results compared to net income of $163.6 million or $1.08 per share on a
weighted average of 152 million shares in the same period in 1999. After the
amortization of the $50 million original issue discount and the $41.4 million
after-tax extraordinary charge related to the deregulation order and the
elimination of certain compensation programs, earnings for the nine-months
ended September 30, 2000 were $.60 per share.
The earnings growth for both the quarter and year-to-date periods was
primarily attributable to increased electric wholesale sales, contributions
from the Company's Phase Two electric peaking generation capacity expansion,
increased income from investments, and lower outstanding common shares due to
its stock buyback program. These increases were partially offset by lower
retail electric sales due to milder weather.
DPL Inc. expects earnings per share to be $1.50 in 2000 and to increase
20% to $1.80 in 2001. DPL Inc.'s earnings are expected to increase at an
annual rate of at least 10% after 2001 and could reach a rate of up to 15%.
The earnings per share amount for 2000 is before non-recurring and
extraordinary items related to the Company's recapitalization, deregulation
transition order, the elimination of certain compensation programs, and the
sale of DP&L's natural gas business.
-11-
FINANCIAL CONDITION
DP&L completed the sale of its natural gas retail distribution assets
and certain liabilities on October 31, 2000 to Vectren Energy Delivery of
Ohio, Inc. and Indiana Gas Company, Inc. as tenants-in-common ("Vectren") for
approximately $463 million. The sale was completed in accordance with the
terms of the related Asset Purchase Agreement dated December 14, 1999. The
transaction was valued pursuant to an arms-length negotiation between DP&L
and Vectren. The purchase price was paid in cash and is subject to adjustment
based upon the finalization of the closing balance sheet in accordance with
the provisions of the Asset Purchase Agreement. Management believes any such
adjustments will not be material. The Company will invest the after-tax
proceeds from the sale to continue its regional merchant generation
expansion, continue its stock buyback program, and reduce outstanding
short-term debt.
DP&L and Vectren also entered into a continuing agreement whereby DP&L
will provide transitional support to Vectren in the areas of meter reading,
billing, cash receipts, collections, customer deposits, telecommunication
services, and other miscellaneous services for a predetermined fee.
On September 29, 2000, DPL Inc. announced that it had begun construction
on Phases Three and Four of its peaking generation expansion strategy. This
project consists of four 80-megawatt (MW) units totaling 320 MW. Phase Three
includes two units totaling 160 MW at an investment of $50 million and is
expected to be online for the summer of 2001. Phase Four includes two units
totaling 160 MW at an investment of approximately $60 million and is expected
to be online by the end of 2001.
On June 28, 2000, DPL Inc. completed Phase Two of its peaking generation
capacity expansion, with the four combustion turbine units totaling 225
megawatts ("MW") ready for commercial operation. Phase Two represents an
investment of $80 million. Combined with the Phase One expansion, DPL Inc.'s
peaking expansion program provided an additional 475 MW to meet the region's
summer 2000 demand.
The first four phases of the peaking generation additions represent an
investment of $270 million and will increase peaking capacity by almost 800
MW by the end of 2001.
Construction plans are subject to continuing review and are expected to
be revised in light of changes in financial and economic conditions, load
forecasts, legislative developments and changing environmental standards,
among other factors.
At September 30, 2000, DPL Inc.'s cash and temporary cash investment
balance was $18.2 million. DPL Inc. held financial assets valued as of
September 30, 2000 at $1,339.2 million.
As part of the recapitalization completed earlier this year, DPL Inc.
purchased 25.0 million shares in a Dutch Auction self-tender. Through
September 30, 2000, DPL Inc. has repurchased an additional 4.7 million shares
under its remaining 6.6 million-share repurchase program.
-12-
DPL Inc. and its subsidiaries have $300 million available through
Revolving Credit Agreements ("Credit Agreements"). At September 30, 2000, DPL
Inc. had no borrowings outstanding under these Credit Agreements. DPL Inc.
also has $15 million available in a short-term informal line of credit. At
September 30, 2000, DPL Inc. had no borrowings outstanding from this line and
$173.5 million in commercial paper outstanding. DP&L has $75 million
available in short-term informal lines of credit. At September 30, 2000, DP&L
had no borrowings outstanding under these informal lines and $49.7 million in
commercial paper outstanding.
DP&L currently has sufficient capacity to issue First Mortgage Bonds to
satisfy its requirements in connection with the financing of its construction
and refinancing programs during the five-year period 2000-2004.
RESULTS OF OPERATIONS
Electric revenues decreased by $16.0 million and $3.4 million compared
to last year's third quarter and year-to-date periods, respectively. This
decline was primarily due to lower retail sales resulting from the mild
summer weather (cooling degree days were 29% and 23% lower than the third
quarter and the first nine months of 1999, respectively). Gas revenues
increased $17.5 million from the third quarter last year primarily due to the
impact of higher gas recovery factors on revenue, plus higher retail sales as
a result of the cooler weather (heating degree days were 45% higher than the
third quarter of 1999). For year-to-date compared to last year, gas revenues
increased $18.7 million primarily due to the impact of higher gas cost
recovery factors on revenue, partially offset by lower sales attributable to
warmer weather in the first quarter.
Other revenues increased $22.7 million over the third quarter last year
and $36.4 million over year-to-date 1999 primarily due to capacity sales from
the new generation peaking capacity.
Fuel and purchased power decreased $15.5 million and $14.3 million
compared to the third quarter and year-to-date 1999 periods, respectively,
primarily due to the impact of more efficient plant operations, along with
lower peak demand levels, which reduced purchased power costs.
Gas purchased for resale in the third quarter increased $20.5 million
compared to the same quarter last year primarily due to increases in gas
costs and retail gas sales. For year-to-date compared to last year, gas
purchased for resale increased $37.6 million primarily due to higher gas
costs.
-13-
Operation and maintenance expense increased $3.5 million from the third
quarter last year primarily due to a loss from natural gas supply management
contracts. This increase was partially offset by lower power production and
utility distribution service costs. For the year-to-date comparison,
operation and maintenance expense increased $15.1 million over the same
period a year ago primarily due to higher costs as previously discussed for
the third quarter, plus increased uncollectible receivable expense, employee
benefit costs, insurance costs, and power production costs.
Depreciation and amortization increased $3.1 million and $8.1 million
over the third quarter and year-to-date a year ago, respectively, primarily
due to increased property investment and the amortization of regulatory
deferrals related to fuel expense.
General taxes decreased $3.6 million from third quarter last year and
$6.1 million from year-to-date 1999, primarily due to lower taxes resulting
from property tax adjustments for air and water quality expenditures, coupled
with the timing and recognition of credits received related to the Ohio
Public Utility Excise Tax.
Investment income increased $32.7 million and $33.6 million over the
third quarter and the first nine months of 1999, respectively, primarily due
to higher realized gains on financial assets.
Other deductions increased $12.3 million for the third quarter and $25.7
million for year-to-date over last year primarily due to increased investment
management fees, costs associated with elimination of certain compensation
programs, and 1999's gain on the sale of non-operating property.
Interest expense increased $11.6 million from the third quarter of 1999
and $21.7 million from year-to-date 1999 primarily due to increases in
long-term and short-term debt, and higher interest rates on long-term debt.
These increases were partially offset by reductions for capitalized interest
on electric peaking unit construction and decreased interest rates on
short-term debt.
Third quarter and year-to-date results for 2000 include an expense of
$32.5 million and $75.6 million, respectively, for dividends and discount
amortization associated with the issuance of $550 million, 8.5% Trust
Preferred Securities.
Income taxes decreased $7.1 million for the third quarter and $33.6
million year-to-date from last year primarily due to lower taxable income in
both periods.
Third quarter and year-to-date results for 2000 include an extraordinary
charge of $41.4 million for unrecoverable generation-related regulatory
assets associated with the discontinuance of regulatory accounting for the
generation business (see Note 6 to the Consolidated Financial Statements).
-14-
OTHER MATTERS
DP&L received approval from the PUCO for its customer transition plan
during the month of September 2000. The plan, which begins in January 2001,
provides a three-year transition period (the market development period)
ending December 31, 2003, at which time DP&L's generation business unit will
be fully merchant.
On August 15, 2000, DPL Inc. announced that members of Local 175 Utility
Workers Union of America approved a six-year labor agreement with the
Company. The package includes 3.25% wage increases each year for the next six
years, additional medical and retirement benefits, and employment security
through 2005.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The carrying value of DPL Inc.'s debt was $1,636 million at December 31,
1999, consisting of DP&L's first mortgage bonds and guaranteed air quality
development obligations, notes, commercial paper and lines of credit. The
fair value of this debt was $1,605 million, based on current market prices or
discounted cash flows using current rates for similar issues with similar
terms and remaining maturities. The following table presents the principal
cash repayments and related weighted average interest rates by maturity date
for long-term, fixed-rate debt at December 31, 1999:
- ----------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
- ----------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Long-term Debt
- ----------------------------------------------------------------------------------------------------------------------------
Amount($ in millions) $5 $6 $7 $8 $510 $806 $1,342 $1,311
- ----------------------------------------------------------------------------------------------------------------------------
Average rate 7.7% 7.7% 7.8% 7.8% 6.3% 7.3% 7.3%
- ----------------------------------------------------------------------------------------------------------------------------
DPL Inc. issued $425 million of Senior Notes due 2007, with an interest
rate of 8.25% in February, 2000. The proceeds are being used to continue its
planned growth strategy, retire short-term debt and repurchase common shares.
The following table presents the principal cash repayments and related
weighted average interest rates by maturity date for long-term fixed-rate
debt including the issuance of new debt:
- ----------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date (including $425 Senior Notes Due 2007)
- ----------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
Long-term Debt
- ----------------------------------------------------------------------------------------------------------------------------
Amount($ in millions) $5 $6 $7 $8 $510 $1,222 $1,767 $1,736
- ----------------------------------------------------------------------------------------------------------------------------
Average rate 7.7% 7.7% 7.8% 7.8% 6.3% 7.6% 7.3%
- ----------------------------------------------------------------------------------------------------------------------------
-15-
Because the long-term debt is at a fixed rate, the primary market risk
to DPL Inc. is short-term interest rate risk. The carrying value and fair
value of short-term debt was $294.1 million with a weighted-average interest
rate of 5.9% at December 31, 1999. The carrying value and fair value of
short-term debt outstanding has been reduced to $223.2 million as of
September 30, 2000. The interest expense risk related to short-term debt at
December 31, 1999 and September 30, 2000 was estimated to be approximately an
increase/decrease of less than $1 million if the weighted-average cost for
each quarter increased/decreased by 10%.
The fair value of available-for-sale securities was $1,382 million and
$1,113 million at September 30, 2000 and December 31, 1999, respectively. The
equity price risk related to these securities was estimated as the potential
increase/decrease in fair value of $138 million and $111 million at September
30, 2000 and December 31, 1999, respectively, that resulted from a
hypothetical 10% increase/decrease in the market prices.
As of September 30, 2000, there have been no other material changes in
the above information since the end of the preceding fiscal year.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION.
RATE REGULATION AND GOVERNMENT LEGISLATION
In October 1999, legislation became effective in Ohio that will give
electric utility customers a choice of energy providers starting January 1,
2001. Under the legislation, electric generation, aggregation, power
marketing and power brokerage services supplied to retail customers in Ohio
will be deemed competitive and will not be subject to supervision and
regulation by the PUCO. As required by the legislation, DP&L filed its
transition plan at the PUCO on December 20, 1999. The review and hearing
process was completed with the PUCO on June 21, 2000, with DP&L reaching
agreement with major groups participating in the filing, including the Staff
of the PUCO. DP&L received PUCO approval of its plan on September 21, 2000.
The plan, which begins in January 2001, provides a three-year transition
period ending December 31, 2003, at which time DP&L's generation business
unit will be fully merchant. The plan also provides the organizational and
financial flexibility for the DP&L to continue its corporate realignment
initiatives. DP&L has functionally separated its generation, transmission,
and distribution business units and completed the sale of its natural gas
retail distribution operations on October 31, 2000 to Vectren Energy Delivery
of Ohio, Inc. and Indiana Gas Company, Inc. as tenants-in-common for $463
million in cash.
-16-
ENVIRONMENTAL CONSIDERATIONS
DP&L and numerous other parties received notification from the
Ohio EPA on July 27, 1994 that it considers them Potentially Responsible
Parties ("PRP's") for clean up of hazardous substances at the North Sanitary
Landfill site in Dayton, Ohio. DP&L has not joined the PRP group
formed for the site because the available information does not demonstrate
that DP&L contributed wastes to the site.
The PRP group recently brought an action against DP&L and numerous other
parties alleging that DP&L and the others are PRP's that should be liable for
a portion of clean-up costs at the site. DP&L will vigorously challenge this
action. The final resolution is not expected to have a material effect on
DP&L's financial position, earnings or cash flow.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed herewith:
Exhibit No. Description
---------------- ---------------------------------------------
2 Copy of Asset Purchase Agreement, dated
December 14, 1999, between The Dayton Power
and Light Company, Indiana Energy, Inc., and
Number-3CHK, Inc. (exclusive of Exhibits,
Schedules, and Ancillary Agreements, which
will be furnished to the Commission upon
request)
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 2000.
-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.
DPL INC.
------------------------------------------
(Registrant)
Date: November 14, 2000 /s/ Elizabeth M. McCarthy
---------------------- ------------------------------------------
Elizabeth M. McCarthy
Vice President and Chief Financial Officer
Date: November 14, 2000 /s/ Stephen F. Koziar, Jr.
---------------------- ------------------------------------------
Stephen F. Koziar, Jr.
Group Vice President and Secretary
-18-