<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, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-9052
------
DPL INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1163136
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Courthouse Plaza Southwest
Dayton, Ohio 45402
(Address of principal executive offices)
(937) 224-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares of the issuer's classes of common stock,
as of the latest practicable date.
Common Stock, $.01 par value
and Preferred Share Purchase Rights 129,950,104 Shares
----------------------------------- ------------------------------
(Title of each class) (Outstanding at June 30, 2000)
<PAGE>
DPL INC.
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Results of Operations 1
Consolidated Statement of Cash Flows 2
Consolidated Balance Sheet 3
Consolidated Statement of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6
Operating Statistics 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 13
Part II. Other Information 14
Signatures 15
i
<PAGE>
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
DPL INC.
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
--millions-- --millions--
Revenues
--------
Utility Service Revenues --
Electric $260.9 $247.6 $519.8 $507.4
Gas 31.1 29.0 132.6 131.5
Other revenues 22.8 13.7 49.0 34.9
------ ------ ------ ------
Total Revenues 314.8 290.3 701.4 673.8
Expenses
--------
Fuel and purchased power 65.6 61.0 123.5 122.1
Gas purchased for resale 34.9 24.3 125.7 108.5
Operation and maintenance 51.7 49.7 99.4 87.7
Depreciation and amortization 35.3 32.8 69.6 65.8
Amortization of regulatory assets, net 6.3 5.9 13.2 12.3
General taxes 31.3 34.1 65.9 68.4
------ ------ ------ ------
Total Expenses 225.1 207.8 497.3 464.8
------ ------ ------ ------
Operating Income 89.7 82.5 204.1 209.0
Other Income (Deductions)
-------------------------
Investment income 12.5 10.5 28.5 27.5
Other income (deductions) (8.4) (4.6) (17.6) (4.2)
Interest expense (33.3) (29.1) (65.6) (55.5)
Trust preferred distributions by subsidiary (37.0) - (43.1) -
------ ------ ------ ------
Income before income taxes 23.5 59.3 106.3 176.8
Income taxes 7.7 21.9 40.4 66.9
------ ------ ------ ------
Net income $ 15.8 $ 37.4 $ 65.9 $109.9
====== ====== ====== ======
Average Number of Common Shares
Outstanding (millions) 124.2 151.2 134.8 152.0
Earnings Per Share of Common Stock -
Basic $ 0.13 $ 0.25 $ 0.49 $ 0.72
Earnings Per Share of Common Stock -
Diluted $ 0.12 $ 0.25 $ 0.48 $ 0.72
Dividends Paid Per Share of Common
Stock $0.235 $0.235 $ 0.47 $ 0.47
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-1-
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
DPL INC.
Six Months Ended
June 30
----------------
2000 1999
---- ----
--millions--
Operating Activities
--------------------
Cash received from utility customers $680.2 $646.6
Other operating cash receipts 69.0 51.8
Cash paid for:
Fuel and purchased power (115.2) (116.7)
Purchased gas (114.7) (116.5)
Operation and maintenance labor (42.9) (39.6)
Nonlabor operating expenditures (107.7) (56.1)
Interest (64.3) (50.2)
Income taxes (76.3) (61.7)
Property, excise and payroll taxes (83.1) (78.1)
------ ------
Net cash provided by operating activities 145.0 179.5
Investing Activities
--------------------
Capital expenditures (141.7) (57.8)
Purchases of available-for-sale financial assets (139.5) (190.2)
Sales of available-for-sale financial assets 43.6 99.1
------ ------
Net cash used for investing activities (237.6) (148.9)
Financing Activities
--------------------
Issuance of preferred securities 478.9 -
Issuance of long-term debt 421.1 497.4
Issuance of warrants 47.8 -
Retirement of long-term debt (2.9) (239.6)
Dividends paid on common stock (64.6) (71.6)
Retirement of short-term debt (252.2) (151.1)
Purchase of treasury stock (635.7) (45.3)
------ ------
Net cash used for financing activities (7.6) (10.2)
Cash and temporary cash investments--
-----------------------------------
Net change (100.2) 20.4
Balance at beginning of period 111.9 13.7
------ -------
Balance at end of period $ 11.7 $ 34.1
====== =======
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-2-
<PAGE>
CONSOLIDATED BALANCE SHEET
DPL INC.
At At
June 30, December 31,
2000 1999
-------- ------------
--millions--
ASSETS
------
Property
--------
Electric property $3,590.7 $3,456.4
Gas property 333.3 330.6
Other property 115.6 113.3
-------- --------
Total property 4,039.6 3,900.3
Less--
Accumulated depreciation and amortization (1,702.3) (1,633.5)
-------- --------
Net property 2,337.3 2,266.8
Current Assets
--------------
Cash and temporary cash investments 11.7 111.9
Accounts receivable, less provision for
uncollectible accounts of $2.3 and $4.3,
respectively 191.7 218.1
Inventories, at average cost 64.6 93.1
Taxes applicable to subsequent years 72.6 94.6
Other 45.2 71.7
-------- --------
Total current assets 385.8 589.4
Other Assets
------------
Financial assets 1,243.3 1,094.4
Income taxes recoverable through future
revenues 162.6 168.5
Other regulatory assets 38.1 53.3
Other 170.0 168.0
-------- --------
Total other assets 1,614.0 1,484.2
-------- --------
Total Assets $4,337.1 $4,340.4
======== ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-3-
<PAGE>
CONSOLIDATED BALANCE SHEET
(continued)
DPL INC.
At At
June 30, December 31,
2000 1999
-------- ------------
--millions--
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
--------------
Common shareholders' equity--
Common stock $ 1.3 $ 1.6
Other paid-in capital 75.0 739.0
Warrants 50.0 -
Common stock held by employee plans (92.8) (90.7)
Accumulated other comprehensive income 133.4 109.8
Earnings reinvested in the business 664.5 691.9
-------- --------
Total common shareholders' equity 831.4 1,451.6
Preferred stock equity 22.9 22.9
Preferred stock subject to mandatory
redemption 0.1 -
Company obligated mandatorily redeemable
trust preferred securities of subsidiary
holding solely parent debentures 529.1 -
Long-term debt 1,755.7 1,336.6
-------- --------
Total capitalization 3,139.2 2,811.1
-------- --------
Current Liabilities
-------------------
Accounts payable 87.9 130.4
Accrued taxes 93.1 170.6
Accrued interest 43.2 33.1
Short-term debt 41.8 294.1
Dividends payable 31.3 -
Current deferred income tax 30.3 10.0
Other 31.0 56.6
-------- --------
Total current liabilities 358.6 694.8
-------- --------
Deferred Credits and Other
--------------------------
Deferred taxes 458.8 471.9
Unamortized investment tax credit 64.9 66.4
Insurance and claims costs 142.3 140.0
Other 173.3 156.2
-------- --------
Total deferred credits and other 839.3 834.5
-------- --------
Total Capitalization and Liabilities $4,337.1 $4,340.4
======== ========
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-4-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
DPL INC.
Six Months Ended June 30, 2000 and 1999
Common
Common Stock Stock Accum. Earnings
------------------- Other Held by Other Reinvested
Outstanding Paid-In Employee Comp. in the
$ in millions Shares Amount Capital Warrants Plans Income Business Total
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000:
Beginning balance 157,801,404 $1.6 $739.0 - $(90.7) $109.8 $691.9 $1,451.6
Net income 65.9
Unrealized gains, net
of reclassification
adjustments, after tax 23.6
Total comprehensive income 89.5
Common stock dividends (93.4) (93.4)
Issuance of securities (23.3) 50.0 26.7
Treasury stock (27,851,300) (0.3) (641.9) (642.2)
Employee stock plans 1.2 (2.1) (0.9)
Other 0.1 0.1
---------------------------------------------------------------------------------------------------------
Ending balance 129,950,104 $1.3 $ 75.0 $50.0 $(92.8) $133.4 $664.5 $ 831.4
=========================================================================================================
1999:
Beginning balance 161,264,604 $1.6 $799.0 - $(94.4) $ 47.2 $630.3 $1,383.7
Net income 109.9
Unrealized gains, net
of reclassification
adjustments, after tax 19.7
Total comprehensive income 129.6
Common stock dividends (107.0) (107.0)
Treasury stock (2,582,300) - (45.3) (45.3)
Employee stock plans 0.7 2.1 2.8
---------------------------------------------------------------------------------------------------------
Ending balance 158,682,304 $1.6 $754.4 - $(92.3) $ 66.9 $633.2 $1,363.8
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
These interim statements are unaudited.
-5-
<PAGE>
Notes to Consolidated Financial Statements
1. DPL Inc. has prepared the consolidated financial statements in
this report without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). 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 Inc.'s
1999 Annual Report on Form 10-K.
2. Reclassifications have been made in certain prior years' amounts
to conform to the current reporting presentation of DPL Inc.
In the opinion of management, the information included in this
Form 10-Q reflects all adjustments which are necessary for a fair
statement of the results of operations for the periods presented. Any
adjustments are of a normal recurring nature.
3. Costs associated with all planned major repair and maintenance
activities, primarily power plant outages, are recognized at the time
the work is performed. Outage costs include labor, materials and
supplies, and outside services required to maintain Company equipment
and facilities. These costs are either capitalized or expensed based on
Company defined criteria identifying specific units of property to be
capitalized.
4. The following earnings per share disclosure is in accordance with
FASB Statement No. 128, "Earnings per Share". Prior year periods are
not presented because no potentially dilutive securities were
outstanding in the prior year.
<TABLE>
<CAPTION>
In millions except Three Months Ended Six Months Ended
per share amounts June 30, 2000 June 30, 2000
------------------ -------------------------------- --------------------------------
Per- Per-
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
---------
Income available to
common shareholders $15.8 124.2 $0.13 $65.9 134.8 $0.49
===== =====
Effect of Dilutive
Securities
------------------
Warrants - 2.8 - 1.4
Stock Option Plan - 0.6 - 0.3
----------------- -----------------
Diluted EPS
-----------
Income available to
common shareholders plus
assumed conversions $15.8 127.6 $0.12 $65.9 136.5 $0.48
================= ===== ================= =====
</TABLE>
-6-
<PAGE>
5. Business Segment Reporting
DPL Inc.'s principal subsidiary, DP&L, provides energy services to its
customers within a 6,000 square mile service territory. DP&L sells
and distributes electricity and natural gas to residential,
commercial, industrial and governmental customers. As a result of
legislation that will give electric utility customers a choice of
energy providers starting January 1, 2001, DP&L has begun aligning its
business units. For purposes of the segment disclosure required by
the FASB Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information," DPL Inc.'s results are classified
in two reportable segments, electric and natural gas. Amounts
attributed to segments below the quantitative thresholds for separate
disclosure are primarily for a natural gas supply management company,
insurance and street lighting services.
SEGMENT INFORMATION
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
$ in millions 2000 1999 2000 1999
-------------------------------------------------------------------------
$ $ $ $
ELECTRIC
--------
Revenues from external customers 262.2 247.6 521.1 507.4
Intersegment revenues 2.3 1.3 2.9 2.5
Earnings before interest and taxes 93.4 79.3 189.3 181.1
NATURAL GAS
-----------
Revenues from external customers 31.1 29.0 132.6 131.5
Intersegment revenues 1.0 1.0 1.5 1.8
Earnings before interest and taxes - 2.7 20.2 26.6
OTHER
-----
Revenues from external customers 21.5 13.7 47.7 34.9
Intersegment revenues 2.1 5.0 3.9 6.8
Earnings before interest and taxes (3.7) 0.5 (5.4) 1.3
TOTAL
-----
Revenues from external customers 314.8 290.3 701.4 673.8
Intersegment revenues 5.4 7.3 8.3 11.1
Earnings before interest and taxes 89.7 82.5 204.1 209.0
Profit or Loss Reconciliation (a)
---------------------------------
Total earnings before interest
and taxes 89.7 82.5 204.1 209.0
Investment income 12.5 10.5 28.5 27.5
Other income and deductions (8.4) (4.6) (17.6) (4.2)
Interest expense (33.3) (29.1) (65.6) (55.5)
Trust preferred distributions
by subsidiary (37.0) - (43.1) -
----- ----- ----- -----
Income before income taxes 23.5 59.3 106.3 176.8
(a) For categories not reconciled above, segment totals equal
consolidated totals.
-7-
<PAGE>
OPERATING STATISTICS
The Dayton Power and Light Company
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Electric
--------
Sales (millions of kWh)--
Residential 1,008 943 2,348 2,357
Commercial 881 852 1,706 1,650
Industrial 1,265 1,316 2,423 2,439
Other 1,087 936 1,959 1,844
------- ------- ------- -------
Total 4,241 4,047 8,436 8,290
Revenues (thousands of dollars)--
Residential 92,406 87,960 203,274 202,061
Commercial 60,902 59,479 117,929 114,728
Industrial 61,537 62,928 117,024 117,711
Other 47,961 37,831 84,082 74,124
------- ------- ------- -------
Total 262,806 248,198 522,309 508,624
Other Electric Statistics--
Average price per kWh-retail and
wholesale customers (cents) 6.11 6.05 6.11 6.05
Fuel cost per net kWh generated (cents) 1.18 1.28 1.18 1.27
Electric customers at end of period 496,559 491,568 496,559 491,568
Average kWh use per residential customer 2,279 2,150 5,307 5,373
Peak demand-maximum one hour
use (MW), (net) 2,717 2,968 2,717 2,968
-8-
<PAGE>
OPERATING STATISTICS
(continued)
The Dayton Power and Light Company
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Gas
---
Sales (millions of MCF)--
Residential 3,035 2,474 14,669 15,662
Commercial 859 918 4,413 4,865
Industrial 534 233 1,600 1,470
Other 141 143 611 816
Transportation gas delivered 4,141 3,806 11,034 10,319
------- ------- ------- -------
Total 8,710 7,574 32,327 33,132
Revenues (thousands of dollars)--
Residential 19,379 17,281 86,607 85,896
Commercial 5,100 5,053 24,757 24,675
Industrial 2,503 1,218 8,158 7,045
Other 4,161 5,466 13,101 13,915
------- ------- ------- -------
Total 31,143 29,018 132,623 131,531
Other Gas Statistics--
Average price per MCF-retail
customers (dollars) 6.08 6.44 5.77 5.33
Gas customers at end of period 309,486 305,145 309,486 305,145
Degree Days (based on calendar month)--
Heating 522 455 3,128 3,298
Cooling 285 313 285 313
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
-----------------------------------------------------------
This report contains certain forward-looking statements regarding
plans and expectations for the future. Investors are cautioned that
actual outcomes and results may vary materially from those projected
due to various factors beyond DPL Inc.'s control, including abnormal
weather, unusual maintenance or repair requirements, changes in fuel
costs, increased competition, regulatory changes and decisions, changes
in accounting rules and adverse economic conditions.
For the second quarter of 2000, DPL Inc. reported net income of
$32.1 million, or $0.26 per share on a weighted average of 124 million
shares outstanding, before a non-recurring item, compared to $37.4
million, $0.25 per share on a weighted average of 152 million shares
outstanding, in the year-ago period. During the second quarter of
the current year, DPL Inc. amortized $25.0 million of the $50.0 million
original issue discount associated with the issuance of $550.0 million,
8.5% trust preferred securities to Kohlberg Kravis Roberts & Co. The
non-cash charge reduced earnings in the quarter by $0.13 per share.
After this charge, earnings per share for the second quarter of 2000
were $0.13 per share.
For the first half of 2000, net income was $96.0 million, or $0.71
per share on a weighted average of 135 million shares outstanding, before
non-recurring charges, compared to $109.9 million, or $0.72 per share on
a weighted average of 152 million shares outstanding, in the year-ago
period. After the amortization of the original issue discount described
above as well as $8.4 million in one-time costs recorded in the first
quarter of 2000 related to the Company's recapitalization, the
elimination of certain compensation programs and the effects of unusual
weather in the first quarter, earnings per share for the first half
of 2000 were $0.49 per share.
DPL Inc. expects to deliver earnings per share of approximately
$1.50 for 2000, before non-recurring charges related to its
recapitalization and deregulation transition order and excluding the gain
from the sale of its natural gas business. Additionally, assuming weather
conditions remain relatively normal, DPL Inc. expects earnings per share
to increase 30% over 1999 in 2001 to $1.80 and, following that, to
increase at an annual rate of 10%.
Financial Condition
-------------------
On June 28, 2000, DPL Inc. completed Phase Two of its peaking
generation capacity expansion, with the four combustion turbine units
totaling 225 megawatts ("MW") ready for commercial operation. Phase
Two represents an investment of $80 million. Combined with the Phase
One expansion, DPL Inc. has an additional 475 MW to meet the region's
summer 2000 demand.
On April 19, 2000, DPL Inc. announced Phase Four of its electric
peaking generation expansion plan with the purchase of two additional
General Electric combustion turbine peaking units. Each natural gas
fired unit is rated at 80 megawatts ("MW") for a total of 160 MW,
representing an investment of more than $60 million. The units are
expected to be online by the end of 2001.
Phase Three, announced in January 2000, includes two units
totaling 160 MW at an investment of $50 million, which are expected to
be online for the summer of 2001. The first four phases of the peaking
generation additions represent an investment of $270 million and will
increase peaking capacity by almost 800 MW by the end of 2001.
-10-
<PAGE>
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 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 and the
availability of external funds at reasonable cost.
At June 30, 2000, DPL Inc.'s cash and temporary cash investment
balance was $11.7 million. DPL Inc. held financial assets valued as of
June 30, 2000 at $1,243.3 million. Financial assets include direct and
indirect managed debt and equity securities.
As part of the recapitalization completed earlier this year, DPL
Inc. purchased 25.0 million shares in a Dutch Auction self-tender.
Through June 30, 2000, DPL Inc. has repurchased an additional 2.9
million shares under its remaining 6.6 million-share repurchase
program.
DPL Inc. and its subsidiaries have $300 million available through
Revolving Credit Agreements ("Credit Agreements"). At June 30, 2000,
DPL Inc. had no borrowings outstanding under these Credit Agreements.
DPL Inc. also has $15 million available in a short-term informal line
of credit. At June 30, 2000, DPL Inc. had no borrowings outstanding
from this line and $29.8 million in commercial paper outstanding. DP&L
has $75 million available in short-term informal lines of credit. At
June 30, 2000, DP&L had no borrowings outstanding under these informal
lines and $12 million in commercial paper outstanding.
DP&L currently has sufficient capacity to issue First Mortgage
Bonds to satisfy its requirements in connection with the financing of
its construction and refinancing programs during the five-year period
2000-2004.
Results of Operations
---------------------
Electric revenues increased $14.6 million and $13.7 million over
last year's second quarter and year-to-date periods, respectively,
primarily due to higher sales to retail customers and to other utilities.
Gas revenues increased $2.1 million from the second quarter last year
primarily due to higher sales to residential customers as the result of
cooler weather in the second quarter. For year-to-date compared to last
year, gas revenues increased $1.1 million primarily due to the impact of
higher gas cost recovery factors on revenue, partially offset by lower
sales attributable to warmer weather in the first quarter.
Other revenues increased $7.8 million over the second quarter last
year and $12.8 million over year-to-date 1999 primarily due to
increased revenue from the natural gas supply management company.
Fuel and purchased power increased $4.6 million and $1.4 million
over the second quarter and year-to-date 1999 periods, respectively,
primarily due to higher purchased power expense because of additional
planned power plant outages for maintenance.
Gas purchased for resale in the second quarter increased $10.6
million compared to the same quarter last year primarily because of
higher sales by the natural gas supply management company and a 21%
increase in retail utility sales. For year-to-date compared to last
year, gas purchased for resale increased $17.2 million primarily due to
higher sales by the natural gas supply management company and higher
gas costs.
-11-
<PAGE>
Operation and maintenance expense increased $2.0 million from the
second quarter last year primarily due to increased planned power plant
maintenance. For year-to-date, operation and maintenance expense
increased $11.7 million over the same period a year ago primarily due
to increased power production costs, uncollectible expense, insurance
costs, and compensation plan expenses.
Depreciation and amortization increased $2.9 million and $4.7
million over the second quarter and year-to-date a year ago,
respectively, primarily because of increased property investment.
General taxes decreased $2.8 million from second quarter last year
and $2.5 million from year-to-date 1999, primarily due to recognition
of the Ohio Public Utility Excise Tax coal credit.
Investment income increased $2.0 million over the second quarter a
year ago primarily because of higher realized gains, partially offset
by decreased short-term interest income. For year-to-date, investment
income increased $1.0 million over the prior year primarily because of
higher short-term interest income.
Other deductions increased $3.8 million for the second quarter
over last year because of investment management fees and 1999's gain on
the sale on non-operating property. Other deductions increased $13.4
million from year-to-date last year because of investment monitoring
fees, 1999's gain on the sale on non-operating property, and lower non-
utility net revenue.
Interest expense increased $4.2 million from the second quarter of
1999 and $10.1 million from year-to-date 1999 primarily because of an
increase in long-term debt coupled with higher interest rates,
partially offset by reductions for capitalized interest on electric
peaking unit construction and decreased short-term debt.
Income taxes decreased $14.2 million for the second quarter and
$26.5 million year-to-date from last year because of lower taxable
income in both periods.
Issues and Financial Risks
--------------------------
Previously expected during the second quarter, DPL Inc. now
expects the sale of its natural gas retail distribution business to be
completed by the end of the year, pending final approvals. To
date, both the Department of Justice and the Public Utilities
Commission of Ohio ("PUCO") have given their approvals. SEC approval
of the Vectren structure is pending and is expected to be received
by year-end.
The Compact Agreement between DP&L and Local 175, Utility Workers
of America, AFL-CIO expired on October 31, 1999. Management and Union
Negotiations Committees have been discussing provisions of a new
agreement that would be responsive to the changes in business
conditions resulting from the Ohio legislation regarding energy
companies. On May 22, 2000, DP&L implemented the provisions of
its final offer for a new labor agreement.
-12-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
The carrying value of DPL Inc.'s debt was $1,636 million at
December 31, 1999, consisting of DP&L's first mortgage bonds and
guaranteed air quality development obligations, notes, commercial paper
and lines of credit. The fair value of this debt was $1,605 million,
based on current market prices or discounted cash flows using current
rates for similar issues with similar terms and remaining maturities.
The following table presents the principal cash repayments and related
weighted average interest rates by maturity date for long-term, fixed-
rate debt at December 31, 1999.
Expected Maturity Date
----------------------------- There- Fair
2000 2001 2002 2003 2004 after Total Value
------------------------------------------------------
Long-term Debt
--------------
Amount ($ in millions) $5 $6 $7 $8 $510 $806 $1,342 $1,311
Average rate 7.7% 7.7% 7.8% 7.8% 6.3% 7.3% 6.9%
DPL Inc. issued $425 million of Senior Notes Due 2007, with an
interest rate of 8.25% in February, 2000. The proceeds are being used
to continue its planned growth strategy, retire short-term debt and
repurchase common shares. The following table presents the principal
cash repayments and related weighted average interest rates by maturity
date for long-term fixed-rate debt including the issuance of this new
debt.
Expected Maturity Date (Including $425 Senior Notes Due 2007)
-------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
-------------------------------------------------------------
Long-term Debt
--------------
Amount ($ in millions) $5 $6 $7 $8 $510 1,222 1,767 $1,736
Average rate 7.7% 7.7% 7.8% 7.8% 6.3% 7.6% 7.3%
Because the long-term debt is at a fixed rate, the primary market
risk to DPL Inc. is short-term interest rate risk. The carrying value
and fair value of short-term debt was $294 million with a weighted
average interest rate of 5.9% at December 31, 1999. The carrying value
and fair value of short-term debt outstanding has been reduced to $41.8
million as of June 30, 2000. The interest expense risk related to short-
term debt at December 31, 1999 was estimated to be approximately an
increase/decrease of less than $1 million if the weighted average cost
for each quarter increased/decreased by 10%. With the reduction in
short-term debt in the second quarter 2000, the interest expense risk
has become negligible.
The fair value of available-for-sale securities was $1,308 million
and $1,113 million at June 30, 2000 and December 31, 1999, respectively.
The equity price risk related to these securities was estimated as the
potential increase/decrease in fair value of $122 million and $103
million at June 30, 2000 and December 31, 1999, respectively, that
resulted from a hypothetical 10% increase/decrease in the market prices.
As of June 30, 2000, there have been no other material changes in
the above information since the end of the preceding fiscal year.
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<PAGE>
Part II. Other Information
Item 5. Other Information.
------------------
Rate Regulation and Government Legislation
------------------------------------------
In October 1999, legislation became effective in Ohio that will
give electric utility customers a choice of energy providers starting
January 1, 2001. Under the legislation, electric generation,
aggregation, power marketing and power brokerage services supplied to
retail customers in Ohio will be deemed competitive and will not be
subject to supervision and regulation by the PUCO. As required by the
legislation, DP&L filed its transition plan at the PUCO on December 20,
1999. The review and hearing process was completed with the PUCO on
June 21, 2000, with DP&L reaching agreement with major groups
participating in the filing, including the Staff of the PUCO. Final
PUCO approval of the plan is expected in the third quarter of 2000.
The plan, which begins in January, provides a three-year
transition period ending December 31, 2003, at which time DP&L's
generation business unit will be exempt from state legislation. The
plan also provides the organizational and financial flexibility for
the Company to continue its corporate realignment initiatives. DP&L has
functionally separated its generation, transmission, and distribution
business units and has announced the sale of its natural gas retail
distribution operations. DP&L has received approval from the
Department of Justice and the PUCO for the sale of the gas business and
the transfer of assets. SEC approval is expected by the end of 2000.
The following groups have signed the transition plan agreement:
The Staff of the PUCO; The Office of the Ohio Consumers' Counsel; The
Ohio Manufacturers' Association; Industrial Energy Users - Ohio; Ohio
Council of Retail Merchants; American Municipal Power-Ohio; WPS Energy
Services, Inc.; Exelon Energy; The Association for Hospitals and Health
Systems, the Ohio Hospital Association; New Energy Midwest, L.L.C.;
Columbia Energy Services Corporation; Columbia Energy Power Marketing
Corporation; Strategic Energy, L.L.C.; Supporting Council of
Preventative Effort (SCOPE); Montgomery County Prosecutors' Office;
Ohio Department of Development; Ohio Partners for Affordable Energy;
Buckeye Power, Inc.; and Ohio Rural Electric Cooperatives, Inc.
Environmental Considerations
----------------------------
In June 2000, the Unites States Environmental Protection Agency
("EPA") issues to J.M. Stuart Station a Notice of Violation ("NOV")
for alleged violations of the Clean Air Act. The NOV contained
allegations consistent with NOV's and complaints that the EPA has
recently brought against numerous other coal-fired utilities in the
Midwest. DP&L will vigorously challenge the NOV. At this time, it
is not possible to determine the outcome of this claim or the impact,
if any, on DP&L.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
On June 7, 2000, DPL Inc. filed a report on Form 8-K announcing
that on June 1, 2000, it had reached a comprehensive agreement with
major groups on its transition plan for competing in the deregulated
Ohio electric utility industry.
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, 2000 /s/ Elizabeth M. McCarthy
--------------- -------------------------
Elizabeth M. McCarthy
Vice President and Chief
Accounting Officer
Date: August 14, 2000 /s/ Stephen F. Koziar, Jr.
--------------- --------------------------
Stephen F. Koziar, Jr.
Group Vice President and Secretary
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