<Page>
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 JUNE 30, 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 126,501,404 Shares
- ------------------------------------ ------------------------------
(Title of each class) (Outstanding at June 30, 2001)
<Page>
DPL INC.
INDEX
<Table>
<Caption>
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
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Operating Statistics 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</Table>
2
<Page>
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
DPL INC.
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
2001 2000 2001 2000
------ ------ ------ ------
REVENUES
Electric revenues.................................................. $286.7 $262.2 $581.0 $521.1
Gas revenues....................................................... -- 31.1 -- 132.6
Other revenues, net of fuel costs.................................. 3.5 3.9 7.1 7.0
----- ------- ------- -------
290.2 297.2 588.1 660.7
----- ----- ----- -----
EXPENSES
Fuel and purchased power........................................... 76.6 64.9 152.9 124.0
Gas purchased for resale........................................... -- 17.6 -- 85.2
Operation and maintenance.......................................... 47.7 51.5 82.3 99.3
Depreciation and amortization...................................... 31.5 35.3 61.9 69.6
Amortization of regulatory assets, net............................. 11.3 7.0 23.4 12.7
General taxes...................................................... 22.5 31.3 48.7 65.8
----- ------ ------ ------
Total expenses 189.6 207.6 369.2 456.6
----- ----- ----- -----
OPERATING INCOME................................................... 100.6 89.6 218.9 204.1
Investment income.................................................. 6.0 12.5 34.2 28.5
Other income (deductions).......................................... (11.8) (8.2) (10.6) (17.6)
Interest expense................................................... (31.3) (33.4) (62.5) (65.6)
Trust preferred distributions by subsidiary........................ (11.7) (37.0) (23.4) (43.1)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE................................................ 51.8 23.5 156.6 106.3
Income taxes....................................................... 17.4 7.7 59.4 40.4
----- ------ ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE............... 34.4 15.8 97.2 65.9
Cumulative effect of accounting change, net of tax................. -- -- 1.0 --
----- ------ ------ ------
NET INCOME......................................................... $ 34.4 $ 15.8 $ 98.2 $ 65.9
====== ====== ====== =======
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(MILLIONS)
Basic.............................................................. 118.8 124.2 119.3 134.8
Diluted............................................................ 128.9 127.4 129.1 136.4
EARNINGS PER COMMON SHARE
Basic:
Income before cumulative effect of accounting change.......... $0.29 $0.13 $0.81 $0.49
Cumulative effect of accounting change........................ -- -- 0.01 --
----- ------ ------ ------
Total Basic................................................... $0.29 $0.13 $0.82 $0.49
==== ==== ==== ====
Diluted:
Income before cumulative effect of accounting change.......... $0.27 $0.12 $0.76 $0.48
Cumulative effect of accounting change........................ -- -- -- --
----- ------ ------ ------
Total Diluted.................................................. $0.27 $0.12 $0.76 $0.48
==== ==== ==== ====
DIVIDENDS PAID PER SHARE OF COMMON STOCK........................... $0.235 $0.235 $0.470 $0.470
===== ===== ===== =====
</Table>
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
3
<Page>
DPL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
----------------------------------
2001 2000
------ ------
OPERATING ACTIVITIES
Cash received from utility customers................................................ $565.6 $680.2
Other operating cash receipts....................................................... 196.9 69.0
Cash paid for:
Fuel and purchased power....................................................... (165.0) (115.2)
Purchased gas.................................................................. (172.3) (114.7)
Operation and maintenance labor................................................ (36.8) (42.9)
Nonlabor operating expenditures................................................ (64.0) (107.7)
Interest....................................................................... (82.6) (64.3)
Income taxes................................................................... (59.6) (76.3)
General taxes.................................................................. (76.8) (83.1)
------- -------
Net cash provided by operating activities........................................... 105.4 145.0
------ ------
INVESTING ACTIVITIES
Capital expenditures................................................................ (198.0) (141.7)
Purchases of available-for-sale financial assets.................................... (91.2) (139.5)
Sales of available-for-sale financial assets........................................ 107.2 43.6
Income taxes on gain from sale of natural gas retail distribution operations........ (90.9) --
------ ------
Net cash used for investing activities.............................................. (272.9) (237.6)
------- --------
FINANCING ACTIVITIES
Issuance of long-term debt.......................................................... -- 421.1
Issuance (retirement) of short-term debt, net....................................... 150.7 (252.2)
Retirement of long-term debt........................................................ (3.4) (2.9)
Dividends paid on common stock...................................................... (56.8) (64.6)
Purchase of treasury stock.......................................................... (35.9) (635.7)
Issuance of trust preferred securities by subsidiary................................ -- 478.9
Issuance of warrants................................................................ -- 47.8
----- -------
Net cash provided by (used for) financing activities................................ 54.6 (7.6)
------- ---------
CASH AND TEMPORARY CASH INVESTMENTS--
Net change.......................................................................... (112.9) (100.2)
Balance at beginning of period...................................................... 137.1 111.9
------ ------
Balance at end of period............................................................ $ 24.2 $ 11.7
======= =======
</Table>
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
4
<Page>
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
<Table>
<Caption>
AT At
JUNE 30, December 31,
2001 2000
-------- ------------
ASSETS
PROPERTY
Property $4,033.2 $3,853.4
Less: Accumulated depreciation and amortization.............................. (1,642.0) (1,586.4)
-------- --------
Net property............................................................ 2,391.2 2,267.0
-------- --------
CURRENT ASSETS
Cash and temporary cash investments.......................................... 24.2 137.1
Accounts receivable, less provision for uncollectible accounts
of $9.8 and $6.8, respectively.......................................... 214.9 241.6
Inventories, at average cost................................................. 60.8 46.0
Prepaid taxes................................................................ 65.9 65.4
Other........................................................................ 25.2 45.5
-------- --------
Total current assets.................................................... 391.0 535.6
-------- --------
OTHER ASSETS
Financial assets............................................................. 1,183.2 1,308.0
Income taxes recoverable through future revenues............................. 45.9 49.4
Other regulatory assets...................................................... 123.7 146.4
Other........................................................................ 155.9 159.2
-------- --------
Total other assets...................................................... 1,508.7 1,663.0
-------- --------
TOTAL ASSETS................................................................. $4,290.9 $4,465.6
======== ========
</Table>
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
5
<Page>
DPL INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(CONTINUED)
<Table>
<Caption>
At At
June 30, 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...................................... (95.6) (100.0)
Accumulated other comprehensive income................................... 21.2 107.5
Earnings reinvested in the business...................................... 812.5 814.1
-------- --------
Total common shareholders' equity.................................... 789.4 892.4
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................................................. 3,117.4 3,223.9
-------- --------
CURRENT LIABILITIES
Short-term debt............................................................... 150.7 -
Accounts payable.............................................................. 89.2 140.2
Accrued taxes................................................................. 84.2 223.6
Accrued interest.............................................................. 42.6 42.4
Dividends payable............................................................. 30.5 2.0
Other......................................................................... 31.1 20.9
-------- --------
Total current liabilities............................................ 428.3 429.1
-------- --------
DEFERRED CREDITS AND OTHER
Deferred taxes................................................................ 362.6 414.8
Unamortized investment tax credit............................................. 59.2 60.3
Insurance and claims costs.................................................... 128.6 130.9
Other......................................................................... 194.8 206.6
-------- --------
Total deferred credits and other..................................... 745.2 812.6
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES.......................................... $4,290.9 $4,465.6
========= =========
</Table>
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
6
<Page>
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:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2001 2000 2001 2000
------------------------ ------------------------- ------------------------ -----------------------
PER Per (1) PER Per
INCOME SHARES SHARE Income Shares Share INCOME SHARES SHARE Income Shares Share
------ ------ ----- ------ ------ ----- ------- ------ ----- ------ ------ -----
BASIC EPS....................$34.4 118.8 $0.29 $15.8 124.2 $0.13 $97.2 119.3 $0.81 $65.9 134.8 $0.49
EFFECT OF DILUTIVE SECURITIES
Warrants..................... 8.8 2.8 8.6 1.4
Stock Option Plan............ 1.3 0.4 1.2 0.2
----- ----- ----- -----
DILUTED EPS..................$34.4 128.9 $0.27 $15.8 127.4 $0.12 $97.2 129.1 $0.76 $65.9 136.4 $0.48
===== ===== ===== =====
</Table>
(1) Income before cumulative effect of accounting change
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 a cash flow
hedge of a forecasted transaction. As a result of adopting this accounting
standard, DPL recorded a cumulative effect of accounting change of $1.0 million
in income, 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.
7
<Page>
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" or "Other Liabilities" 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. In June 2001,
the FASB concluded that electric utilities could apply the normal purchases and
sales exception for option-type contracts and forward contracts in electricity
subject to specific criteria for the power buyers and sellers. DPL holds
contracts currently classified as cash flow hedges that will meet the
requirements for the normal purchases and sales exception to be excluded from
the scope of SFAS No. 133. These contracts remain recorded as hedges as the
scope exception is not effective until the third quarter of 2001. Beginning on
July 1, 2001, DPL intends to apply the normal purchase and sales exception as
defined in SFAS No. 133 and accordingly will account for these contracts upon
settlement. Therefore, the fair value of these contracts as of June 30, 2001
will become their net carrying amount beginning July 1, 2001 and, prospectively,
the carrying amounts of the contracts will no longer be adjusted for changes in
their fair values. Similarly, the hedge accounting effects of these contracts
recorded in Accumulated Other Comprehensive Income on June 30, 2001 will be
recorded in earnings in the month of physical receipt or delivery of the power.
This prospective change will not have a material impact on DPL's financial
position or results of operations.
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" or "Other Liabilities" on the Consolidated Balance Sheet and
changes in fair value are recorded as "Other Income/Deductions" on the
Consolidated Statement of Results of Operations. The impact on net income was
immaterial during the second quarter and the first six months of 2001.
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." On June 30, 2001, DPL sold
substantially all of its customer contracts at its natural gas supply management
subsidiary. The sale of these contracts did not have a material effect on
overall results.
8
<Page>
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
NET REVENUES:
Electric................................. $210.7 $197.2 $429.3 $398.9
Other.................................... 2.9 17.6 5.9 52.6
------ ------ ------- ------
Total................................. $213.6 $214.8 $435.2 $451.5
====== ====== ====== ======
OPERATING INCOME:
Electric................................. $105.1 $ 92.3 $216.5 $190.7
Other (a)................................ (4.5) (2.7) 2.4 13.4
------- ------- ------- ------
Total................................. $100.6 $ 89.6 $218.9 $204.1
====== ====== ====== ======
RECONCILIATION:
Operating income......................... $100.6 $ 89.6 $218.9 $204.1
Investment income........................ 6.0 12.5 34.2 28.5
Other income (deductions)................ (11.8) (8.2) (10.6) (17.6)
Interest expense......................... (31.3) (33.4) (62.5) (65.6)
Trust preferred distributions by
subsidiary............................ (11.7) (37.0) (23.4) (43.1)
------- ------- ------- -------
Income before income taxes and
cumulative effect of accounting
change................................ $ 51.8 $ 23.5 $156.6 $106.3
====== ====== ====== ======
</Table>
(a) Includes unallocated corporate items. The second quarter and year-to-date
periods for 2000 also include operating income for the natural gas retail
distributions, the sale of which was completed in October 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DPL Inc. ("DPL") reported earnings for the second quarter of 2001 of $0.32 per
share, an increase of 23% over earnings for the same quarter last year of $0.26
per share. Earnings for the current year-to-date period were $0.84 per share, an
increase of 29% over earnings of $0.65 per share for the prior year-to-date
period. All earnings per share numbers are before non-recurring items discussed
below and share dilution.
During the second quarter of 2001, a non-recurring charge of $4.9 million before
taxes was incurred for a voluntary early retirement program. The current
year-to-date period also included the accounting change for the adoption of the
new accounting standard for derivatives. The non-recurring charge in the second
quarter of 2000 resulted from the amortization of $25.0 million of a $50.0
million original issue discount associated with the issuance of trust preferred
securities. The prior year-to-date period also included non-recurring charges
from the first quarter of $8.4 million before taxes associated with the
recapitalization and the elimination of certain compensation programs. Each of
these non-recurring events affected financial results as outlined below:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
2001 2000 2001 2000
----- ----- ----- -----
Earnings per share - Basic, after non-recurring items................ $0.29 $0.13 $0.82 $0.49
Voluntary early retirement program.............................. 0.03 -- 0.03 --
Cumulative effect of accounting change.......................... -- -- (0.01) --
Recapitalization................................................ -- 0.13 -- 0.14
Compensation program............................................ -- -- -- 0.02
----- ----- ----- -----
Earnings per share - Basic, before non-recurring items............... $0.32 $0.26 $0.84 $0.65
</Table>
9
<Page>
DPL is on track to meet its earnings target of $1.90 per share, representing an
increase of more than 20% from record earnings of $1.56 per share reported in
2000. In addition, DPL expects to deliver annual earnings per share growth of
10-15% into 2002. The earnings per share amounts for 2001 and 2000 are before
share dilution and non-recurring items as discussed above. The earnings per
share amount for 2000 also excludes non-recurring and extraordinary items
associated with the remaining amortization of the $50.0 million original issue
discount (-$0.12), DPL's deregulation order (-$0.32), and the gain on the sale
of DP&L's natural gas retail distribution operations (+$0.95).
FINANCIAL CONDITION
On May 14, 2001, DPL announced Phase Six of its merchant peaking generation
expansion program. Phase Six consists of two 80-megawatt ("MW") combustion
turbines at an investment of $55 million. These units totaling 160 MW are
scheduled to be online for the 2002 summer peaking season. On August 1, 2001,
DPL announced that the seventh phase of its expansion program is in the final
stages of approval and is scheduled for construction over the next ten months.
This phase will add 320 MW of capacity by the summer of 2002.
Phases Three and Four were completed in May 2001, which added four peaking
generation units totaling 320 MW of capacity. Phase Five was completed in June
2001, adding four peaking generation units totaling 224 MW of capacity. Each of
these units was built ahead of schedule, on budget, and is immediately accretive
to earnings. DPL's total 2001 merchant peaking generation expansion of 544 MW
represents a combined $215 million investment. Ninety percent of DPL's merchant
peaking capacity has been sold forward for the summer 2001 market.
Construction plans are subject to continuing review and are expected to be
revised in light of changes in financial and economic conditions, load
forecasts, electricity and fuel price forecasts, legislative developments and
changing environmental standards, among other factors.
At June 30, 2001, DPL's cash and temporary cash investment balance was $24.2
million. DPL Inc. held financial assets valued as of June 30, 2001 at $1.2
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 $265 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 $66 million in
commercial paper outstanding at June 30, 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 $85 million in commercial paper outstanding at June 30, 2001.
10
<Page>
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.
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. Also in January, Moody's placed
the ratings of DPL Inc. and its affiliates under review. 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. On July 27, 2001,
Moody's also affirmed its ratings of Baa1 and A2 on DPL and DP&L,
respectively, with a stable outlook. The current credit ratings for DPL and
DP&L are investment grade.
RESULTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED, SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------
2001 2000 2001 2000
---- ---- ---- ----
Electric revenues............................ $286.7 $262.2 $581.0 $521.1
Fuel and purchased power..................... 76.6 64.9 152.9 124.0
------ ------ ------ ------
Net electric revenues................... $210.1 $197.3 $428.1 $397.1
Gas revenues $ -- $ 31.1 $ -- $132.6
Gas purchased for resale -- 17.6 -- 85.2
------ ------ ------ ------
Net gas revenues $ -- $ 13.5 $ -- $ 47.4
Operating income............................. $100.6 $ 89.6 $218.9 $204.1
</Table>
Net electric revenues increased by $12.8 million or 6% and by $31.0 million or
8% compared to last year's second quarter and year-to-date periods,
respectively. Wholesale revenues increased by 83% for the quarter and more than
doubled for the six-month period as a result of increased sales volume, higher
wholesale market prices, and revenue from additional generating facilities.
Retail revenues were 2% and 3% higher for the quarter and year-to-date periods,
respectively, primarily as a result of a higher average rate based on tax law
changes. Retail sales were down 1% for the quarter as a result of lower
industrial sales resulting from sluggish economic conditions in DP&L's service
territory, which offset sales increases in residential (1%) and commercial
markets (4%). Year-to-date retail sales were 1% higher than last year. Growth in
residential and commercial markets was partially offset by declines in
industrial sales, again reflecting economic conditions in DP&L's service
territory. Fuel costs increased for both comparison periods as a result of
higher spot-market prices for coal, higher prices on the wholesale market for
purchased power, and a greater volume of fuel usage and power purchases
resulting from increased wholesale sales.
The decline in net gas revenues for the quarter and year-to-date periods
resulted from the sale of the natural gas retail distribution assets and certain
liabilities, which was completed in October 2000.
11
<Page>
Operation and maintenance expense decreased by $3.8 million or 7% for the
quarter and by $17.0 million or 17% for the six-month period. The decreases
for both comparison periods were primarily attributable to the sale of the
natural gas retail distribution operations, lower insurance and claims
expense, lower pension expense, and general cost containment efforts. These
favorable variances were partially offset by voluntary early retirement costs.
Depreciation and amortization expense decreased by $3.7 million or 11% for the
quarter and by $7.7 million or 11% for the six-month period. The decreases for
both comparison periods resulted from depreciation rate changes for certain
generation units, and the sale of the natural gas retail distribution assets.
These decreases were partially offset by increased depreciation in 2001
resulting from the merchant peaking generation expansion activity.
Beginning January 1, 2001, regulatory transition cost assets of $144.8 million
are being amortized over a three-year period based on transition revenues. As a
result, amortization expense increased by $4.3 million or 61% for the quarter
and by $10.7 million or 84% for the year-to-date period based on transition
revenues recognized in the respective periods.
General taxes decreased by $8.8 million or 28% for the quarter and by $17.1
million or 26% for the six-month period. The decreases for both comparison
periods primarily resulted from changes in tax laws associated with the Ohio
deregulation order and the sale of the natural gas retail distribution assets.
Investment income decreased by $6.5 million or 52% compared to the second
quarter of last year as a result of lower net realized gains. Investment income
increased by $5.7 million or 20% compared to the first six months of last year
as a result of higher net realized gains.
Other deductions increased by $3.4 million for the quarter and decreased by $7.0
million for the six-month period. The increase for the second quarter resulted
from higher deferred compensation costs and net derivative losses. The decrease
for the six-month period was primarily attributable to a current year gain
associated with the termination of a contract and costs associated with the
elimination of certain compensation programs in the prior year. The decreases in
the six-month period were partially offset by current year strategic consulting
expenses and net derivative losses.
Interest expense decreased by $2.1 million or 6% for the quarter and by $3.1
million or 5% for the six-month period. The decreases in both comparison periods
were primarily attributable to higher capitalized interest. The decrease for the
year-to-date period was partially offset by higher long-term debt and higher
long-term debt interest rates.
Trust preferred distributions by subsidiary decreased by $25.3 million or 68%
for the quarter and by $19.7 million or 46% for the six-month period. The
decreases in both comparison periods resulted from the amortization of the $50.0
million original discount in the prior year.
12
<Page>
The 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.
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.
13
<Page>
OPERATING STATISTICS
THE DAYTON POWER AND LIGHT COMPANY
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- ------- -------- --------
ELECTRIC
Sales (millions of kWh)--
Residential.................................................. 1,017 1,008 2,497 2,348
Commercial................................................... 916 881 1,795 1,706
Industrial................................................... 1,148 1,265 2,242 2,423
Other retail................................................. 357 336 671 658
-------- ------- -------- --------
Total retail............................................. 3,438 3,490 7,205 7,135
Wholesale.................................................... 844 751 1,790 1,301
-------- ------- -------- --------
Total (a)................................................ 4,282 4,241 8,995 8,436
Revenues (thousands of dollars)--
Residential.................................................. $ 93,240 $92,406 $213,600 $203,274
Commercial................................................... 66,768 60,902 127,324 117,929
Industrial................................................... 57,921 61,537 112,679 117,024
Other retail................................................. 24,044 23,168 45,758 45,000
-------- ------- -------- --------
Total retail............................................. 241,973 238,013 499,361 483,227
Wholesale.................................................... 45,275 24,793 82,582 39,082
-------- ------- -------- --------
Total (a)................................................ $287,248 $262,806 $581,943 $522,309
Electric customers at end of period............................... 500,800 496,608 500,800 496,608
GAS (b)
Sales (millions of MCF)--
Residential.................................................. -- 3,035 -- 14,669
Commercial................................................... -- 859 -- 4,413
Industrial................................................... -- 534 -- 1,600
Other........................................................ -- 141 -- 611
Transportation gas delivered................................. 4,141 11,034
-------- ------- -------- --------
Total.................................................... -- 8,710 -- 32,327
Revenues (thousands of dollars)--
Residential.................................................. $ -- $19,379 $ -- $ 86,607
Commercial................................................... -- 5,100 -- 24,757
Industrial................................................... -- 2,503 -- 8,158
Other........................................................ -- 4,161 -- 13,101
-------- ------- -------- --------
Total.................................................... $ -- $31,143 $ -- $ 132,623
Gas customers at end of period.................................... -- 309,486 -- 309,486
</Table>
(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.
14
<Page>
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 $1,795 million, based on
current market prices or discounted cash flows using current rates for similar
issues with similar terms and remaining maturities. The following table presents
the principal cash repayments and related weighted average interest rates by
maturity date for long-term, fixed-rate debt at December 31, 2000:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
- ----------------------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
Long-term Debt
Amount($ 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%
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
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 $151 million with a weighted-average interest rate of 4.2% at June 30,
2001. The interest expense risk resulting from a hypothetical 10%
increase/decrease in the quarterly weighted-average cost of this debt is less
than $0.2 million.
The fair value of available-for-sale securities was $1,235 million and $1,337
million at June 30, 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 $124 million and $134 million at June 30,
2001 and December 31, 2000, respectively, that resulted from a hypothetical 10%
increase/decrease in the market prices.
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 June 30, 2001.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by DPL during the quarter
ended June 30, 2001.
15
<Page>
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: August 14, 2001 /s/ Elizabeth M. McCarthy
------------------ ----------------------------------
Elizabeth M. McCarthy
Group Vice President and
Chief Financial Officer
Date: August 14, 2001 /s/ Stephen F. Koziar, Jr.
------------------ ----------------------------------
Stephen F. Koziar, Jr.
Group Vice President and Secretary
16