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, 2002
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 1-2385
------
THE DAYTON POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0258470
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1065 Woodman Drive
Dayton, Ohio 45432
---------------------------------------------------------------
(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 41,172,173 Shares
- ---------------------------------------- --------------------------------
(Title of each class) (Outstanding at March 31, 2002)
THE DAYTON POWER AND LIGHT COMPANY
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
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Operating Statistics 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 12
Part II. Other Information
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
Part I. Financial Information
- --------------------------------------------------------------------------------
Item 1. Financial Statements
--------------------
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(Dollars in millions)
Three Months Ended
March 31,
------------------------
2002 2001
---- ----
Revenues
Electric ............................................................................. $ 272.2 $ 294.7
Expenses
Fuel ................................................................................. 47.5 59.1
Purchased power ...................................................................... 33.1 23.0
Operation and maintenance ............................................................ 37.3 33.1
Depreciation and amortization ........................................................ 29.6 28.7
Amortization of regulatory assets, net ............................................... 11.5 12.1
General taxes ........................................................................ 25.9 25.8
------ ------
Total expenses .................................................................. 184.9 181.8
------ ------
Operating Income ..................................................................... 87.3 112.9
Other income (deductions) ............................................................ 11.7 (2.5)
Interest expense ..................................................................... (15.4) (15.9)
------ ------
Income Before Income Taxes and Cumulative Effect of Accounting
Change ........................................................................... 83.6 94.5
Income taxes ......................................................................... 31.0 38.0
------ ------
Income Before Cumulative Effect of Accounting Change ................................. 52.6 56.5
Cumulative effect of accounting change, net of tax ................................... -- 1.0
------ ------
Net Income ........................................................................... 52.6 57.5
Preferred dividends .................................................................. 0.2 0.2
------ ------
Earnings on Common Stock ............................................................. $ 52.4 $ 57.3
====== ======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
3
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Three Months Ended
March 31,
--------------------------
2002 2001
---- ----
Operating Activities
Net income ...................................................................... $ 52.4 $ 57.3
Adjustments:
Depreciation and amortization .............................................. 29.6 28.7
Amortization of regulatory assets, net ..................................... 11.5 12.1
Deferred income taxes ...................................................... 6.0 14.3
Changes in working capital:
Accounts receivable ........................................................ (37.6) (4.6)
Accounts payable ........................................................... -- (0.4)
Inventories ................................................................ (3.0) (6.6)
Accrued taxes payable ...................................................... (3.4) (5.3)
Accrued interest payable ................................................... (10.8) (10.8)
Other ........................................................................... (8.4) (0.3)
----- ------
Net cash provided by operating activities ....................................... 36.3 84.4
----- ------
Investing Activities
Capital expenditures ............................................................ (42.0) (46.6)
Income taxes on gain from sale of natural gas retail distribution operations .... -- (90.9)
----- ------
Net cash used for investing activities .......................................... (42.0) (137.5)
----- ------
Financing Activities
Issuance of short-term debt, net ................................................ 12.0 74.8
Dividends paid on common stock .................................................. -- (8.1)
Dividends paid on preferred stock ............................................... (0.2) (0.2)
----- ------
Net cash provided by financing activities ....................................... 11.8 66.5
----- ------
Cash and temporary cash investments--
Net change ...................................................................... 6.1 13.4
Balance at beginning of period .................................................. 5.7 8.6
----- ------
Balance at end of period ........................................................ $ 11.8 $ 22.0
===== ======
Cash Paid During the Period for:
Interest ........................................................................ $ 23.8 $ 25.6
Income taxes .................................................................... $ 18.7 $ 93.3
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
4
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
At At
March 31, December 31,
2002 2001
------------- -------------
ASSETS
Property
Property ................................................................... $ 3,715.6 $ 3,684.4
Less: Accumulated depreciation and amortization ............................ (1,695.7) (1,670.0)
------------- -------------
Net property .......................................................... 2,019.9 2,014.4
------------- -------------
Current Assets
Cash and temporary cash investments ........................................ 11.8 5.7
Accounts receivable, less provision for uncollectible accounts
of $12.1 and $12.4, respectively ...................................... 193.9 156.3
Inventories, at average cost ............................................... 64.3 61.3
Prepaid taxes .............................................................. 34.0 54.8
Other ...................................................................... 17.7 20.7
------------- -------------
Total current assets .................................................. 321.7 298.8
------------- -------------
Other Assets
Income taxes recoverable through future revenues ........................... 37.9 39.2
Other regulatory assets .................................................... 88.9 99.7
Trust assets ............................................................... 142.7 141.1
Other ...................................................................... 113.4 104.9
------------- -------------
Total other assets .................................................... 382.9 384.9
------------- -------------
Total Assets ............................................................... $ 2,724.5 $ 2,698.1
============= =============
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
5
THE DAYTON POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(continued)
At At
March 31, December 31,
2002 2001
------------ --------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholder's equity--
Common stock ................................................. $ 0.4 $ 0.4
Other paid-in capital ........................................ 771.7 771.6
Accumulated other comprehensive income ....................... 18.2 15.6
Earnings reinvested in the business .......................... 409.6 357.3
---------- ----------
Total common shareholder's equity ........................ 1,199.9 1,144.9
Preferred stock ................................................... 22.9 22.9
Long-term debt .................................................... 666.5 666.6
---------- ----------
Total capitalization ..................................... 1,889.3 1,834.4
---------- ----------
Current Liabilities
Accounts payable .................................................. 102.6 110.5
Accrued taxes ..................................................... 90.9 105.6
Accrued interest .................................................. 8.3 19.0
Short-term debt ................................................... 12.0 -
Other ............................................................. 27.3 21.8
---------- ----------
Total current liabilities ................................ 241.1 256.9
---------- ----------
Deferred Credits and Other
Deferred taxes .................................................... 395.2 397.0
Unamortized investment tax credit ................................. 57.4 58.0
Trust obligations ................................................. 100.1 102.7
Other ............................................................. 41.4 49.1
---------- ----------
Total deferred credits and other ......................... 594.1 606.8
---------- ----------
Total Capitalization and Liabilities .............................. $ 2,724.5 $ 2,698.1
========== ==========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
6
Notes to Consolidated Financial Statements
1. The Dayton Power and Light Company ("DP&L" or "the Company") is a wholly
owned subsidiary of DPL Inc ("DPL"). DP&L 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 2001 Annual Report on Form 10-K.
2. Reclassifications have been made in the presentation of 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 that are necessary for a fair statement of the results
of operations for the periods presented. Any adjustments are of a normal
recurring nature.
3. Comprehensive income for the three months ended March 31, 2002 and 2001 of
$55.2 and $45.9 million, respectively, includes reported net income adjusted by
the non-cash effect of unrealized gains on trust and derivative assets after
tax.
4. DPL's transmission and distribution and base load and peaking generation
operations are managed and evaluated as a single operating segment, Electric.
Three Months Ended
March 31,
--------------------------
2002 2001
---- ----
Net revenues:
Electric ................................... $ 191.6 $ 212.6
Operating income:
Electric ................................... $ 91.4 $ 106.9
Other (a) .................................. (4.1) 6.0
-------- --------
Total ................................... 87.3 112.9
Other income (deductions) .................. 11.7 (2.5)
Interest expense ........................... (15.4) (15.9)
-------- --------
Income before income taxes,
extraordinary item, and cumulative
effect of accounting change ............. $ 83.6 $ 94.5
======== ========
(a) Includes unallocated corporate items.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The Dayton Power and Light Company ("DP&L" or "the Company") reported earnings
on common stock for the first quarter of 2002 of $52.4 million compared to prior
year earnings on common stock of $56.3 million before the cumulative effect of
an accounting change. The accounting change in the first quarter of 2001
resulted from the adoption of a new accounting standard for derivatives.
Despite significant cost reductions, work elimination, and a stable economic
environment, the first quarter of 2002 fell slightly below prior year results.
The continuation of record mild temperatures throughout the first quarter
significantly impacted the retail sector and reduced earnings by $6 million.
Industrial/commercial revenues remained constant quarter to quarter.
Wholesale power prices are beginning to increase slightly, which provides
opportunity for increased margins on sales from the Company's low cost coal
units. With the increase in announced capacity addition cancellations, the
region's generation reserves at time of peak demand, after factoring in planned
outages, are expected to be in the single digits this summer.
Results of Operations
Three Months Ended
March 31,
---------------------------
2002 2001
---- ----
Electric revenues ...................... $ 272.2 $ 294.7
Fuel ................................... 47.5 59.1
Purchased power ........................ 33.1 23.0
-------- --------
Net electric revenues ............. $ 191.6 $ 212.6
Operating income ....................... $ 87.3 $ 112.9
Net electric revenues decreased by $21.0 million or 10%. Retail revenues
decreased $8.2 million or 3% as a result of the warmest weather on record in the
last 30 years. Wholesale capacity and energy revenues decreased $14.3 million or
36% as a result of the weather and lower commodity prices. Fuel costs decreased
$11.6 million or 20% as a result of lower spot-market prices for coal and the
sales decline. Purchased power increased $10.1 million or 44% as a result of
higher outages.
Operation and maintenance expense increased $4.2 million or 13% primarily as a
result of higher employee benefits expense, including lower pension credits and
a $1.1 million current year union severance charge.
Other income (deductions) increased $14.2 million primarily as a result of a
current year insurance claim under the Company's business interruption policy
(see "Other Matters"). Prior year results included strategic consulting
expenses.
8
The prior year cumulative effect of an accounting change reflected the Company'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.
Capital Resources and Requirements
Construction additions were $32 million for the current quarter and are expected
to approximate $133 million for the year. 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 and regulatory developments and changing environmental
standards, among other factors. The Company's ability to complete its capital
projects and the reliability of future service will be affected by its financial
condition, the availability of external funds at reasonable cost and adequate
and timely rate recovery. The Company expects to finance its construction
program in 2002 and 2003 with internal funds.
During the first quarter of 2001, investing cash flows included a cash payment
of $90.9 million for income taxes associated the tax 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 $200 million available through revolving credit
agreements with a consortium of banks. Facility fees are approximately $0.3
million per year. The primary purpose of the revolving credit facilities is to
provide back-up liquidity for the commercial paper program. The Company had no
borrowings outstanding under these credit agreements at March 31, 2002. The
Company also has $75 million available in short-term informal lines of credit.
The commitment fees are not material. The Company had no borrowings outstanding
under these informal lines and $12 million in commercial paper outstanding at
March 31, 2002.
Issuance of additional amounts of first mortgage bonds by the Company is limited
by provision of its mortgage. The amounts and timing of future financings will
depend upon market and other conditions, rate increases, levels of sales, and
construction plans. The Company currently has sufficient capacity to issue first
mortgage bonds to satisfy requirements in connection with the financing of its
construction and refinancing programs during the five-year period 2002-2006.
At March 31, 2002, the Company's senior debt credit ratings were as follows:
Standard & Poor's Corp. ............... BBB+
Moody's Investors Service ............. A2
9
Market Risk
The carrying value of the Company's debt was $668.1 million at December 31,
2001, consisting of the Company's first mortgage bonds and guaranteed air
quality development obligations. The fair value of this debt was $678.8 million
on December 31, 2001, based on current market prices or discounted cash flows
using current rates for similar issues with similar terms and remaining
maturities. There have been no material changes in the carrying value or fair
value of the Company's long-term debt since December 31, 2001. The following
table presents the principal cash repayments and related weighted average
interest rates by maturity date for long-term, fixed-rate debt at December 31,
2001:
- ---------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
- ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------
2002 2003 2004 2005 2006 Thereafter Total Fair Value
- ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------
Long-term Debt
- ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------
Amount ($ in millions) $1.1 $1.1 $1.1 $1.1 $1.1 $662.6 $668.1 $678.8
- ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------
Average rate 7.4% 7.4% 7.4% 7.4% 7.4% 7.5% 7.5%
- ------------------------------ ---------- --------- ---------- ---------- ---------- ------------- ----------- ------------
Because the long-term debt is at a fixed rate, the primary market risk to the
Company is short-term interest rate risk. The carrying value and fair value of
short-term debt was $12 million with a weighted-average interest rate of 2.1% at
March 31, 2002. The interest expense risk resulting from a hypothetical 10%
increase/decrease in the quarterly average cost of this debt is negligible.
The Company's financial results are impacted by changes in electricity, coal,
and gas commodity prices. Ten percent of the Company's expected 2002 revenues
are from spot energy sales in the wholesale market and sales of peaking
capacity. Fuel and purchased power costs represented 39% of total operating
costs in 2001. The Company has contracted for approximately 95% of its coal
needs for 2002. A 2% change in overall fuel costs would result in a $3.5 million
change in net income.
Other Matters
A wholly-owned captive insurance subsidiary of DPL provides insurance coverage
solely to DPL and its subsidiaries including, among other coverages, business
interruption and specific risk coverage with respect to environmental law and
electric deregulation. "Insurance Claims and Costs" on DPL's Consolidated
Balance Sheet includes insurance reserves of approximately $87 million for this
coverage based on actuarial methods and loss experience data. Such reserves are
determined, in the aggregate, based on a reasonable estimation of probable
insured events occurring. There is uncertainty associated with the loss
estimates, and actual results could differ from the estimates. Modification of
these loss estimates based on experience and changed circumstances are reflected
in the period in which the estimate is reevaluated. As the outcome of electric
deregulation becomes known during the three-year regulatory transition period
ending December 31, 2003, policy payments from the captive subsidiary to DP&L,
receivables for insurance claims for DP&L, or the release of the appropriate
reserves will occur and be reflected in income. Through the first quarter of
2002, a $36 million receivable has been recognized by DP&L for insurance claims
under its business interruption policy.
10
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143") that addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets.
SFAS No. 143 is effective for DP&L as of January 1, 2003. DP&L has not yet
determined the extent to which its financial condition or results of operations
may be affected by the implementation of this accounting standard.
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
the Company'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.
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
Three Months Ended
March 31,
----------------------------
2002 2001
---- ----
Electric
Sales (millions of kWh)--
Residential ...................... 1,383 1,480
Commercial ....................... 843 879
Industrial ....................... 1,033 1,094
Other retail ..................... 324 314
------- --------
Total retail ................. 3,583 3,767
Wholesale ........................ 736 946
------- --------
Total ........................ 4,319 4,713
Revenues (thousands of dollars)--
Residential ...................... $115,355 $120,360
Commercial ....................... 60,166 60,421
Industrial ....................... 48,609 52,014
Other retail ..................... 22,184 21,710
-------- --------
Total retail ................. 246,314 254,505
Wholesale ........................ 25,900 40,190
-------- --------
Total ........................ $272,214 $294,695
Electric customers at end of period ... 501,971 500,741
11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
See the "Market Risk" section of Item 2.
Part II. Other Information
- --------------------------------------------------------------------------------
Item 5. Other Information
-----------------
The Federal Energy Regulatory Commission ("FERC") issued a final rule on
December 20, 1999 specifying the minimum characteristics and functions for
Regional Transmission Organizations ("RTO"). The rule required that all public
utilities that own, operate, or control interstate transmission file a proposal
to join an RTO by October 15, 2000 or file a description of efforts taken to
participate in an RTO, reasons for not participating in an RTO, any obstacles to
participation in an RTO, and any plans for further work towards participation.
The Company filed with the FERC on October 16, 2000 to join the Alliance RTO. On
December 19, 2001, the FERC issued an Order that did not approve the Alliance
RTO as a stand-alone RTO. However, on April 24, 2002, the FERC approved the
Alliance Companies' proposal to form an independent transmission company that
will operate under the umbrella of an existing RTO. The Company is exploring its
operational options as a result of the FERC Order.
On July 22, 1998, the Public Utilities Commission of Ohio ("PUCO") approved the
implementation of Minimum Electric Service Standards for all of Ohio's
investor-owned electric utilities. This Order details minimum standards of
performance for a variety of service-related functions, effective July 1, 1999.
On December 21, 1999 and again on March 21, 2002, the PUCO issued additional
rules proposed by the PUCO staff, which are designed to guide the electric
utility companies as they prepare to enter into deregulation. These rules
include certification of providers of competitive retail electric services,
minimum competitive retail electric service standards, monitoring the electric
utility market, and establishing procedures for alternative dispute resolution.
There were also rules issued to amend existing rules for noncompetitive electric
service and safety standards and electric companies long-term forecast
reporting. The Company submitted comments on the proposed rules on January 31,
2000 and April 18, 2002. The current revisions to the rules are expected to be
finalized by the PUCO in the fall of 2002.
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, 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DAYTON POWER AND LIGHT COMPANY
----------------------------------------
(Registrant)
Date: May 15, 2002 /s/ Elizabeth M. McCarthy
---------------------------- ----------------------------------------
Elizabeth M. McCarthy
Group Vice President and Chief Financial
Officer (principal financial officer)
13