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 MARCH 31, 2001
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 126,601,404 Shares
------------------------------------------ ------------------------------
(Title of each class) (Outstanding at March 31, 2001)
DPL INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Results of Operations 3
Consolidated Statement of Cash Flows 4
Consolidated Balance Sheet 5
Consolidated Statement of Shareholders' Equity 7
Notes to Consolidated Financial Statements 8
Operating Statistics 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DPL INC.
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
---- ----
REVENUES
Electric revenues...................................................... $294.3 $258.9
Gas revenues........................................................... - 101.5
Other revenues, net of fuel costs...................................... 3.6 3.1
------- -------
297.9 363.5
EXPENSES
Fuel and purchased power............................................... 76.3 59.1
Gas purchased for resale............................................... - 67.6
Operation and maintenance.............................................. 34.6 47.8
Depreciation and amortization.......................................... 30.4 34.3
Amortization of regulatory assets, net................................. 12.1 5.7
General taxes.......................................................... 26.2 34.5
------- -------
Total expenses........................................... 179.6 249.0
------- -------
OPERATING INCOME....................................................... 118.3 114.5
Investment income...................................................... 28.2 16.0
Other income (deductions).............................................. 1.2 (9.4)
Interest expense....................................................... (31.2) (32.2)
Trust preferred distributions by subsidiary............................ (11.7) (6.1)
------- -------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.................................................... 104.8 82.8
Income taxes........................................................... 42.0 32.7
------- -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................... 62.8 50.1
Cumulative effect of accounting change, net of tax..................... 1.0 -
------- -------
NET INCOME............................................................. $ 63.8 $ 50.1
======= =======
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (MILLIONS)
Basic.................................................................. 119.7 145.4
Diluted................................................................ 129.3 145.4
EARNINGS PER COMMON SHARE
Basic:
Income before cumulative effect of accounting change............... $0.52 $ 0.34
Cumulative effect of accounting change............................. 0.01 -
------- -------
Total Basic........................................................ $0.53 $ 0.34
======= =======
Diluted:
Income before cumulative effect of accounting change............... $0.49 $ 0.34
Cumulative effect of accounting change.............................
- -
------- -------
Total Diluted...................................................... $0.49 $ 0.34
======= =======
DIVIDENDS PAID PER SHARE OF COMMON STOCK............................... $0.235 $0.235
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
3
DPL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
---- ----
OPERATING ACTIVITIES
Cash received from utility customers............................................. $291.9 $361.6
Other operating cash receipts.................................................... 108.5 38.7
Cash paid for:
Fuel and purchased power.................................................... (85.8) (51.2)
Purchased gas............................................................... (115.2) (65.0)
Operation and maintenance labor............................................. (18.6) (21.0)
Nonlabor operating expenditures............................................. (20.8) (52.1)
Interest.................................................................... (52.4) (30.8)
Income taxes................................................................ (4.7) (24.1)
General taxes............................................................... (53.3) (56.7)
------- -------
Net cash provided by operating activities........................................ 49.6 99.4
------- -------
INVESTING ACTIVITIES
Capital expenditures............................................................. (102.1) (67.0)
Purchases of available-for-sale financial assets................................. (45.1) (91.8)
Sales of available-for-sale financial assets..................................... 46.6 28.0
Proceeds from sale of natural gas retail distribution operations, net............ (90.9) -
------- -------
Net cash used for investing activities........................................... (191.5) (130.8)
------- -------
FINANCING ACTIVITIES
Issuance of long-term debt....................................................... - 421.4
Issuance (retirement) of short-term debt......................................... 84.8 (227.0)
Retirement of long-term debt..................................................... (3.0) (2.5)
Dividends paid on common stock................................................... (28.2) (35.3)
Purchase of treasury stock....................................................... (31.0) (585.2)
Issuance of trust preferred securities by subsidiary............................. - 479.3
Issuance of warrants............................................................. - 47.9
------- -------
Net cash provided by financing activities........................................ 22.6 98.6
------- -------
CASH AND TEMPORARY CASH INVESTMENTS--
Net change....................................................................... (119.3) 67.2
Balance at beginning of period................................................... 137.1 111.9
------- -------
Balance at end of period......................................................... $ 17.8 $179.1
======= =======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
4
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
AT At
MARCH 31, December 31,
2001 2000
--------------- ------------------
ASSETS
PROPERTY
Electric property............................................................ $3,554.6 $3,522.6
Other property............................................................... 386.0 330.8
--------- --------
Total property.......................................................... 3,940.6 3,853.4
Less--
Accumulated depreciation and amortization............................... (1,613.4) (1,586.4)
--------- --------
Net property........................................................ 2,327.2 2,267.0
--------- --------
CURRENT ASSETS
Cash and temporary cash investments.......................................... 17.8 137.1
Accounts receivable, less provision for uncollectible accounts
of $9.8 and $6.8, respectively.......................................... 235.8 241.6
Inventories, at average cost................................................. 52.5 46.0
Prepaid taxes................................................................ 41.6 65.4
Prepaid public utility excise tax............................................ 29.7 14.9
Other........................................................................ 39.4 30.6
--------- --------
Total current assets.................................................... 416.8 535.6
--------- --------
OTHER ASSETS
Financial assets............................................................. 1,269.3 1,308.0
Income taxes recoverable through future revenues............................. 47.3 49.4
Other regulatory assets...................................................... 134.7 146.4
Other........................................................................ 154.6 159.2
--------- --------
Total other assets...................................................... 1,605.9 1,633.0
--------- --------
TOTAL ASSETS................................................................. $4,349.9 $4,465.6
======== ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
5
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(CONTINUED)
AT At
MARCH 31, December 31,
2001 2000
-------------- -------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity--
Common stock............................................................. $ 1.3 $ 1.3
Other paid-in capital, net of treasury stock............................. - 19.5
Warrants................................................................. 50.0 50.0
Common stock held by employee plans...................................... (99.3) (100.0)
Accumulated other comprehensive income................................... 68.9 107.5
Earnings reinvested in the business...................................... 837.2 814.1
--------- ---------
Total common shareholders' equity.................................... 858.1 892.4
Preferred stock............................................................... 22.9 22.9
Preferred stock subject to mandatory redemption............................... 0.1 0.1
Company obligated mandatorily redeemable trust preferred
securities of subsidiary holding solely parent debentures................... 550.0 550.0
Long-term debt................................................................ 1,755.0 1,758.5
--------- ---------
Total capitalization................................................. 3,186.1 3,223.9
--------- ---------
CURRENT LIABILITIES
Short-term debt............................................................... 84.8 -
Accounts payable.............................................................. 105.8 140.2
Accrued taxes................................................................. 119.3 223.6
Accrued interest.............................................................. 31.3 42.4
Other......................................................................... 26.2 22.9
--------- ---------
Total current liabilities............................................ 367.4 429.1
--------- ---------
DEFERRED CREDITS AND OTHER
Deferred taxes................................................................ 398.6 414.8
Unamortized investment tax credit............................................. 59.7 60.3
Insurance and claims costs.................................................... 132.0 130.9
Other......................................................................... 206.1 206.6
--------- ---------
Total deferred credits and other..................................... 796.4 812.6
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES.......................................... $4,349.9 $4,465.6
========= =========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
6
DPL INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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
- ------------------------------- ------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
2001:
Beginning balance.......... 127,774,404 $1.3 $19.5 $50.0 $(100.0) $107.5 $814.1 $892.4
Net income................. 63.8
Unrealized losses on
financial assets, net of
reclassification
adjustments, after tax... (43.5)
Unrealized gains on
derivative instruments,
after tax................ 4.9
Total comprehensive
income................... 25.2
Common stock dividends..... (28.2) (28.2)
Treasury stock............. (1,173,000) (20.5) (12.6) (33.1)
Employee stock plans....... 1.0 0.7 1.7
Other 0.1 0.1
------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
Ending balance............. 126,601,404 $1.3 $ - $50.0 $ (99.3) $68.9 $837.2 $858.1
============= ========== ========= =========== ============ ================ ============ =========
2000:
Beginning balance.......... 157,801,404 $1.6 $739.0 $ - $(90.7) $109.8 $691.9 $1,451.6
Net income................. 50.1
Unrealized gains on
financial assets, net of
reclassification
adjustments, after tax... 9.2
Total comprehensive
income................... 59.3
Common stock dividends..... (35.3) (35.3)
Issuance of securities..... (23.1) 50.0 26.9
Treasury stock............. (25,662,800) (0.3) (590.9) (591.2)
Employee stock plans....... 0.9 0.2 1.1
Other...................... (0.1) 0.1 -
------------- ---------- --------- ----------- ------------ ---------------- ------------ ---------
Ending balance............. 132,138,604 $1.3 $125.9 $50.0 $(90.5) $118.9 $706.8 $912.4
============= ========== ========= =========== ============ ================ ============ =========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DPL Inc. ("DPL") 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
DPL's 2000 Annual Report on Form 10-K.
2. Reclassifications have been made in certain prior years' amounts to conform
to the current reporting presentation of DPL.
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. 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 cumulative effect of
accounting change (prior year periods are not presented because no potentially
dilutive securities were outstanding in the prior year):
In millions except per share amounts THREE MONTHS ENDED
MARCH 31, 2001
---------------------------------------------------
Income (1) Shares Per-Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
BASIC EPS.......................... $62.8 119.7 $0.52
EFFECT OF DILUTIVE SECURITIES
Warrants........................... - 8.4
Stock Option Plan.................. - 1.2
--------------------------------------
DILUTED EPS........................ $62.8 129.3 $0.49
==== =====
(1) Income before cumulative effect of accounting change
8
4. DPL adopted the provisions of the Financial Accounting Standard Board's
("FASB") Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended ("SFAS No. 133") as of January 1, 2001. SFAS No. 133
requires that all derivatives be recognized as either assets or liabilities in
the consolidated balance sheet and be measured at fair value, and changes in the
fair value be recorded in earnings, unless they are designated as hedges of an
underlying transaction. As a result of adopting this accounting standard, DPL
recorded a cumulative effect of accounting change of $1.0 million, net of tax,
or $0.01 per share of common stock. The implementation of this accounting
standard did not have a material impact on DPL's financial position or results
of operations.
DPL uses forward and option purchase contracts as a hedge against the risk of
changes in cash flows associated with expected electricity purchases. These
purchases are required to meet full requirements load during times of peak
demand or during planned and unplanned generation facility outages. DPL also
holds forward sales contracts that hedge against the risk of changes in cash
flows associated with power sales during periods of projected generation
facility availability. DPL records the fair value of all these contracts as
"Other Assets" on the Consolidated Balance Sheet with an offset to "Accumulated
Other Comprehensive Income," which is reclassified into earnings in the month of
physical receipt or delivery of power.
DPL has entered into derivative contracts in order to hedge the fair value of a
firm sales commitment. The fair value of the derivative contracts as well as the
firm commitment are captured as "Other Assets" on the Consolidated Balance
Sheet, and any hedge ineffectiveness is included as "Other Income/Deductions" on
the Consolidated Statement of Results of Operations. The net impact of these
contracts was immaterial during the quarter.
DPL also holds purchased gas contracts through November 2001, as well as
emission allowance options through 2004, that are classified as derivatives not
subject to hedge accounting. The fair value of these contracts is reflected as
"Other Assets" on the Consolidated Balance Sheet and "Other Income/Deductions"
on the Consolidated Statement of Results of Operations. The impact on net income
was immaterial during the quarter.
5. In prior years, DPL had two reportable operating segments: electric and
natural gas. In October 2000, DPL's principal subsidiary, The Dayton Power and
Light Company ("DP&L"), completed the sale of substantially all of its natural
gas retail distribution assets and certain liabilities. Accordingly, the
Electric segment is the remaining reportable operating segment. The Electric
segment generates, markets, distributes, and transmits electricity to retail and
wholesale customers. Amounts attributable to segments below the quantitative
thresholds for separate disclosure are reported as "Other," which primarily
includes a natural gas supply management subsidiary, street lighting services,
insurance, and financial support services. Prior year amounts related to the
Natural Gas segment are included in "Other."
9
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2001 2000
---- ----
NET REVENUES:
Electric................................. $218.6 $201.7
Other.................................... 3.0 35.0
------- ------
Total................................. $221.6 $236.7
===== =====
OPERATING INCOME:
Electric................................. $111.4 $98.4
Other.................................... 6.9 16.1
------ ------
Total................................. $118.3 $114.5
===== =====
RECONCILIATION:
Operating income......................... $118.3 $114.5
Investment income........................ 28.2 16.0
Other income (deductions)................ 1.2 (9.4)
Interest expense......................... (31.2) (32.2)
Trust preferred distributions by
subsidiary............................ (11.7) (6.1)
-------- -------
Income before income taxes and
cumulative effect of accounting
change................................ $104.8 $ 82.8
===== =====
10
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
---- ----
ELECTRIC
Sales (millions of kWh)--
Residential.................................................. 1,480 1,340
Commercial................................................... 879 825
Industrial................................................... 1,094 1,158
Wholesale and other.......................................... 1,260 872
--------- ----------
Total (a)................................................ 4,713 4,195
Revenues (thousands of dollars)--
Residential.................................................. $120,360 $110,868
Commercial................................................... 60,556 57,027
Industrial................................................... 54,758 55,487
Wholesale and other ......................................... 59,021 36,121
--------- ----------
Total (a)................................................ $294,695 $259,503
Electric customers at end of period............................... 500,137 496,142
GAS (b)
Sales (millions of MCF)--
Residential.................................................. - 11,634
Commercial................................................... - 3,554
Industrial................................................... - 1,066
Other........................................................ - 470
Transportation gas delivered................................. - 6,893
---------- ---------
Total.................................................... - 23,617
Revenues (thousands of dollars)--
Residential.................................................. $ - $67,228
Commercial................................................... - 19,657
Industrial................................................... - 5,655
Other........................................................ - 8,940
---------- ---------
Total.................................................... $ - $101,480
Gas customers at end of period.................................... - 309,743
(a) Electric sales and revenues include sales by DP&L to a subsidiary of DPL,
which are eliminated from the electric revenues reported on the
Consolidated Statement of Results of Operations.
(b) DP&L completed the sale of its natural gas retail distribution assets and
certain liabilities in October 2000.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DPL Inc. ("DPL") reported earnings per share for the first quarter of 2001 of
$0.52 per share before the cumulative effect of an accounting change, an
increase of 37% over earnings per share for the same quarter last year of $0.38
before non-recurring items. The accounting change in the first quarter of 2001
resulted from the adoption of a new accounting standard for derivatives. The
non-recurring charges in the first quarter of 2000, which totaled $8.4 million
before taxes, were associated with the recapitalization and the elimination of
certain compensation programs that reduced earnings by $0.04 to $0.34 per share.
The earnings growth was primarily attributable to a 9% increase in net electric
revenues, a 27% decrease in operating and maintenance expense, a 76% increase in
earnings from DPL's diversified portfolio of financial assets, and a reduction
in the number of shares outstanding as a result of the leveraged
recapitalization implemented in March 2000. These financial gains were partially
offset by the impact of the sale of the natural gas retail distribution assets
and certain liabilities in October 2000.
FINANCIAL CONDITION
At March 31, 2001, DPL's cash and temporary cash investment balance was $17.8
million. DPL Inc. held financial assets valued as of March 31, 2001 at $1.3
billion.
During the first quarter of 2001, investing cash flows included a cash payment
of $90.9 million for income taxes associated with the gain on the sale of the
natural gas retail distribution assets and certain liabilities that was reported
in October 2000.
DPL and its subsidiaries have up to $300 million available through Revolving
Credit Agreements ("Credit Agreements"). The primary purpose of the revolving
credit facilities is to provide back-up liquidity for the commercial paper
program. DPL had no borrowings outstanding under these Credit Agreements and $10
million in commercial paper outstanding at March 31, 2001. DPL's primary
subsidiary, the Dayton Power and Light Company ("DP&L"), has $75 million
available in short-term informal lines of credit. DP&L had no borrowings
outstanding under these informal lines and $75 million in commercial paper
outstanding at March 31, 2001.
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 2001-2005.
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.
12
As a result of DPL's December 2000 press release regarding its exploration of
strategic alternatives, Standard & Poor's placed DPL and DP&L on credit watch
with developing implications in January 2001. Developing implications indicate
that ratings could be raised, lowered, or affirmed. On May 2, 2001, Standard &
Poor's affirmed its ratings on DPL and DP&L with a stable outlook, and removed
the credit watch with developing implications. This action followed DPL's
announcement on February 15, 2001 that it would pursue its growth strategy as an
independent company based on its merchant generation expansion plan. The current
credit ratings for DPL and DP&L are investment grade.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31,
2001 2000
--------------------- ---------------------
Electric revenues............................ $294.3 $258.9
Fuel and purchased power..................... 76.3 59.1
------ ------
Net electric revenues................... $218.0 $199.8
====== ======
Gas revenues................................. $ - $101.5
Gas purchased for resale..................... - 67.6
------ ------
Net gas revenues........................ $ - $ 33.9
====== ======
Operating income............................. $118.3 $114.5
====== ======
Despite increases in fuel and purchased power costs, first quarter net electric
revenues increased by $18.2 million or 9% compared to last year. Wholesale
revenues more than doubled as a result of a 72% increase in sales volume and
higher wholesale market prices. Retail revenues were 4% higher as a result of
colder weather (heating degree days increased 41%). Fuel costs increased as a
result of higher prices on the wholesale market for purchased power, higher
spot-market prices for coal, and a greater volume of generated power (up 11%)
resulting from increased sales.
The loss of net gas revenues resulted from the sale of the natural gas retail
distribution assets and certain liabilities, which was completed in October
2000.
First quarter operating income increased $3.8 million or 3% compared to last
year. This growth was primarily attributable to the increase in net electric
revenues, a $13.2 million decrease in operation and maintenance expense, and an
$8.3 million decrease in general taxes, partially offset by a $ 6.4 million
increase in regulatory amortization and the effect of the sale of the natural
gas retail distribution assets.
13
The decrease in operation and maintenance expense was attributable to decreased
deferred compensation costs, the sale of the natural gas retail distribution
operations, and changes in the timing of certain maintenance work, which is
expected to be performed later in the year. These favorable variances were
partially offset by higher uncollectible receivable expense, an increase in ash
removal program expense, and higher operating costs associated with the increase
in generation power.
The decrease in general taxes primarily resulted from changes in tax laws
associated with the Ohio deregulation order.
Regulatory transition cost assets of $144.8 million are being amortized over the
three-year period beginning January 1, 2001 based on transition revenues. As a
result, amortization expense increased $6.4 million over the same period last
year.
Investment income increased $12.2 million or 76% compared to the first quarter
of last year as a result of higher net realized gains.
Other income increased $10.6 million compared to the first quarter of last year
as a result of higher executive compensation and the elimination of certain
compensation programs in the prior year, and a current year gain associated with
the termination of a contract. These favorable variances were partially offset
by strategic consulting expenses and a net loss associated with derivative
activity.
Interest expense decreased $1.0 million or 3% compared to the first quarter of
last year as a result of lower average short-term debt and higher capitalized
interest, partially offset by higher long-term debt, higher long-term debt
interest rates, and higher short-term debt interest rates.
Trust preferred distributions by subsidiary increased $5.6 million or 92%
compared to the first quarter of last year because of the timing of the
recapitalization, which occurred in March 2000, partially offset by one-half
month amortization of the $50 million original issue discount.
The effective income tax rates for the first quarter of 2001 and 2000 were 40.1%
and 39.5%, respectively. The increase was primarily attributable to a $5.6
million increase in state income-based taxes resulting from the implementation
of the Ohio deregulation order.
Cumulative effect of an accounting change reflects DPL's adoption of the
provisions of the Financial Accounting Standard Board's ("FASB") Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
("SFAS No. 133"). SFAS No. 133 requires that all derivatives be recognized as
either assets or liabilities in the consolidated balance sheet and be measured
at fair value, and changes in the fair value be recorded in earnings, unless
they are designated as hedges of an underlying transaction.
14
OTHER MATTERS
A wholly-owned captive subsidiary of DPL provides, among other coverages,
business interruption and specific risk coverage for DP&L with respect to the
impact of environmental law and electric deregulation. "Insurance Claims and
Costs" on the Consolidated Balance Sheet includes insurance reserves of the
captive subsidiary of approximately $87 million for this coverage, as well as
other coverages based on actuarial methods and loss experience data. As the
policy impact of electric deregulation becomes known during the three-year
regulatory transition period ending December 31, 2003, either policy payments
from the captive subsidiary to DP&L or release of the appropriate reserves will
occur and be reflected in income.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements regarding plans and
expectations for the future. Investors are cautioned that actual outcomes and
results may vary materially from those projected due to various factors beyond
DPL'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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying value of DPL's debt was $1,766 million at December 31, 2000,
consisting of DP&L's first mortgage bonds, guaranteed air quality development
obligations, and notes. The fair value of this debt was $1,795 million, based on
current market prices or discounted cash flows using current rates for similar
issues with similar terms and remaining maturities. The following table presents
the principal cash repayments and related weighted average interest rates by
maturity date for long-term, fixed-rate debt at December 31, 2000:
- ----------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
- ----------------------------- ---------- ---------- --------- ---------- ---------- ------------- ---------- ---------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ----------------------------- ---------- ---------- --------- ---------- ---------- ------------- ---------- ---------------
Long-term Debt
- ----------------------------- ---------- ---------- --------- ---------- ---------- ------------- ---------- ---------------
Amount($ in millions) $7 $8 $9 $511 $13 $1,218 $1,766 $1,795
- ----------------------------- ---------- ---------- --------- ---------- ---------- ------------- ---------- ---------------
Average rate 7.8% 7.8% 7.8% 6.7% 7.8% 7.6% 7.4%
- ----------------------------- ---------- ---------- --------- ---------- ---------- ------------- ----------
Because the long-term debt is at a fixed rate, the primary market risk to DPL is
short-term interest rate risk. The carrying value and fair value of short-term
debt was $85 million with a weighted-average interest rate of 5.5% at March 31,
2001. The interest expense risk resulting from a hypothetical 10%
increase/decrease in the quarterly weighted-average cost of this debt is
negligible.
The fair value of available-for-sale securities was $1,319 million and $1,337
million at March 31, 2001 and December 31, 2000, respectively. The equity price
risk related to these securities was estimated as the potential
increase/decrease in fair value of $132 million and $134 million at March 31,
2001 and December 31, 2000, respectively, that resulted from a hypothetical 10%
increase/decrease in the market prices.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
DPL held its annual meeting of shareholders on April 11, 2001 at which security
holders elected four directors nominated for three-year terms expiring in 2004.
The results of the voting were as follows:
For Withheld
--------------------------- --------------------------
Thomas J. Danis 121,666,695 1,853,910
Allen M. Hill 120,719,923 2,800,682
W. August Hillenbrand 121,746,023 1,774,582
Scott M. Stuart 121,529,608 1,990,997
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits required by Item 601 of Regulation S-K
for the quarter ended March 31, 2001.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by DPL during the quarter
ended March 31, 2001.
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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: May 14, 2001 /s/ Elizabeth M. McCarthy
------------------- -------------------------------------------------
Elizabeth M. McCarthy
Group Vice President and Chief Financial Officer
Date: May 14, 2001 /s/ Stephen F. Koziar, Jr.
------------------- -------------------------------------------------
Stephen F. Koziar, Jr.
Group Vice President and Secretary
17