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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, 2002

OR


  o 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
(State or other jurisdiction of
incorporation or organization)
  31-1163136
(I.R.S. Employer Identification No.)
 

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 o

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
(Title of each class)
  
126,501,404 Shares
(Outstanding at June 30, 2002)		  


 

Table of Contents

DPL INC.

INDEX

      Page No.
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Consolidated Statement of Results of Operations 3
     
  Consolidated Statement of Cash Flows 4
     
  Consolidated Balance Sheet 5
     
  Notes to Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition
   and Results of Operations 		10
     
  Operating Statistics 19
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
     
     
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 5. Other Information 20
     
Item 6. Exhibits and Reports on Form 8-K 22
     
   
   
SIGNATURES 23
   
   
 

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

DPL INC.
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS
(Dollars in millions)

Three Months Ended
June 30, 		Six Months Ended
June 30,
2002 2001 2002 2001
As Restated As Restated
Revenues                          
Electric revenues   $ 278.5   $ 286.6   $ 550.2   $ 581.0  
Other revenues, net of fuel costs     3.2     4.4     6.8     8.0  
    281.7     291.0     557.0     589.0  
Expenses                          
Fuel     54.2     55.4     102.2     114.7  
Purchased power     20.2     21.2     41.3     38.2  
Operation and maintenance     35.9     48.5     74.4     83.2  
Depreciation and amortization     33.4     31.5     66.8     61.9  
Amortization of regulatory assets, net     11.4     11.3     22.9     23.4  
General taxes     26.1     22.5     53.0     48.7  
   Total expenses     181.2     190.4     360.6     370.1  
Operating Income     100.5     100.6     196.4     218.9  
Investment income     (111.9 )   (15.1 )   (105.8 )   29.8  
Other income (deductions)     (13.4 )   (10.9 )   (5.8 )   (8.3 )
Interest expense     (37.5 )   (31.4 )   (75.7 )   (62.5 )
Trust preferred distributions by subsidiary     (6.1 )   (11.7 )   (12.3 )   (23.4 )
Income (Loss) Before Income Taxes and Cumulative
   Effect of Accounting Change 		    (68.4 )   31.5     (3.2 )   154.5  
Income taxes     (25.0 )   10.3     (0.4 )   58.7  
Income (Loss) Before Cumulative Effect of Accounting
   Change 		    (43.4 )   21.2     (2.8 )   95.8  
Cumulative effect of accounting change, net of tax     —     —     —     1.0  
Net Income (Loss)   $ (43.4 ) $ 21.2   $ (2.8 ) $ 96.8  
Average Number of Common Shares Outstanding
   (millions) 		                         
Basic     119.2     118.8     119.1     119.3  
Diluted     119.2     128.9     119.1     129.1  
Earnings Per Common Share                          
Basic:                          
   Income (loss) before cumulative effect of accounting
      change		   $ (0.36 ) $ 0.18   $ (0.02 ) $ 0.80  
   Cumulative effect of accounting change     —     —     —     0.01  
   Total Basic   $ (0.36 ) $ 0.18   $ (0.02 ) $ 0.81  
Diluted:                          
   Income (loss) before cumulative effect of accounting
      change		   $ (0.36 ) $ 0.16   $ (0.02 ) $ 0.74  
   Cumulative effect of accounting change     —     —     —     0.01  
   Total Diluted   $ (0.36 ) $ 0.16   $ (0.02 ) $ 0.75  
Dividends Paid Per Share of Common Stock   $ 0.235   $ 0.235   $ 0.470   $ 0.470  

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.

 

Table of Contents

DPL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)

Six Months Ended
June 30,
2002 2001
As Restated
Operating Activities              
Net income (loss)   $ (2.8 ) $ 96.8  
Adjustments:              
   Depreciation and amortization     66.8     61.9  
   Amortization of regulatory assets, net     22.9     23.4  
   Deferred income taxes     (35.8 )   13.9  
   Investment (income) loss     110.7     (25.7 )
Changes in working capital:              
   Accounts receivable     (20.0 )   23.9  
   Accounts payable     8.3     (41.5 )
   Inventories     2.1     (14.7 )
   Accrued taxes payable     (8.7 )   (42.0 )
   Accrued interest payable     (0.3 )   (0.1 )
Other     (5.6 )   2.9  
Net cash provided by operating activities     137.6     98.8  
Investing Activities              
Capital expenditures     (109.9 )   (198.0 )
Purchases of fixed income and equity securities     (106.3 )   (91.2 )
Sales of fixed income and equity securities     143.6     113.6  
Income taxes on gain from sale of natural gas retail distribution operations     —     (90.9 )
Net cash used for investing activities     (72.6 )   (266.5 )
Financing Activities              
Issuance of short-term debt, net     43.0     150.7  
Retirement of long-term debt     (4.0 )   (3.4 )
Dividends paid on common stock     (55.9 )   (56.8 )
Purchase of treasury stock     —     (35.9 )
Net cash provided by (used for) financing activities     (16.9 )   54.6  
Cash and temporary cash investments—              
Net change     48.1     (113.1 )
Balance at beginning of period     7.5     131.9  
Balance at end of period   $ 55.6   $ 18.8  
Cash Paid During the Period for:              
Interest   $ 84.8   $ 82.6  
Income taxes   $ 45.1   $ 150.6  

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.

 

Table of Contents

DPL INC.
CONSOLIDATED BALANCE SHEET
(Dollars in millions)

At June 30,
2002 		At December 31,
2001
As Restated

    ASSETS 		             
Property              
Property   $ 4,267.5   $ 4,176.6  
Less: Accumulated depreciation and amortization     (1,754.9 )   (1,694.3 )
   Net property     2,512.6     2,482.3  
Current Assets              
Cash and temporary cash investments     55.6     7.5  
Accounts receivable, less provision for uncollectible accounts of $12.0 and $12.5,
   respectively		     184.9     164.4  
Inventories, at average cost     59.5     61.6  
Prepaid taxes     20.1     54.8  
Other     33.7     35.7  
   Total current assets     353.8     324.0  
Other Assets              
Financial assets              
   Public Securities     182.3     183.1  
   Private Securities under the Equity Method     406.3     515.4  
   Private Securities under the Cost Method     414.3     444.3  
    1,002.9     1,142.8  
Income taxes recoverable through future revenues     34.5     39.2  
Other regulatory assets     77.6     99.7  
Other     194.5     187.9  
   Total other assets     1,309.5     1,469.6  
Total Assets   $ 4,175.9   $ 4,275.9  

See Notes to Consolidated Financial Statements.
These interim statements are unaudited.

 

Table of Contents

DPL INC.
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(continued)

At June 30,
2002 		At December 31,
2001
As Restated

    CAPITALIZATION AND LIABILITIES 		         
Capitalization          
Common shareholders’ equity—              
   Common stock   $ 1.3   $ 1.3  
   Other paid-in capital, net of treasury stock     —     —  
   Warrants     50.0     50.0  
   Common stock held by employee plans     (91.5 )   (93.5 )
   Accumulated other comprehensive income     (8.4 )   (13.2 )
   Earnings reinvested in the business     804.7     891.1  
     Total common shareholders’ equity     756.1     835.7  
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		     292. 5     292. 4  
Long-term debt     2,146.4     2,150.8  
     Total capitalization     3,218.0     3,301.9  
Current Liabilities              
Accounts payable     111.4     115.3  
Accrued taxes     53.0     84.7  
Accrued interest     51.2     51.3  
Short-term debt     55.0     12.0  
Other     64.2     32.9  
     Total current liabilities     334.8     296.2  
Deferred Credits and Other              
Deferred taxes     299.2     343.9  
Unamortized investment tax credit     56.5     58.0  
Insurance and claims costs     123.3     123.6  
Other     144.1     152.3  
     Total deferred credits and other     623.1     677.8  
     Contingencies (Note 6)    
Total Capitalization and Liabilities   $ 4,175.9   $ 4,275.9  

See Notes to Consolidated Financial Statements
These interim statements are unaudited.

Table of Contents

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 2001 Annual Report on Form 10-K/A.

2. As publicly announced on August 14, 2002, DPL’s independent accountant, PricewaterhouseCoopers, has required use of a different accounting method to recognize the investment results and valuation of the Company’s financial asset portfolio. DPL agrees with this accounting method, which has been applied retroactively to 2001, and that recognizes income or loss from the financial asset portfolio in accordance with the equity and cost method of accounting. It is a non-cash change that adjusts the timing of when unrealized gains and losses are recognized in the income statement. Previously, they were reflected on the balance sheet in accumulated other comprehensive income. The revision resulted in a reduction in full year 2001 earnings of $19 million or $0.16 per share of which $1.4 million or $0.01 per share relates to the six months ended June 30, 2001. The revision resulted in an increase in publicly announced earnings for the first six months of 2002 of $23 million or $0.20 per share. DPL’s financial asset balance remains at $1.0 billion at June 30, 2002. The restated consolidated financial statement of results of operations for the three and six months ended June 30, 2001 and balance sheet as of December 31, 2001 are included herein. Comparisons of restated and previously reported financial statement items for these periods are outlined below.

Three Months Ended
June 30, 2001 		Six Months Ended
June 30, 2001
$ in millions except per share amounts As Restated As Previously
Reported 		As Restated As Previously
Reported
Consolidated Statement of Results of Operations                          
Total revenue   $ 291.0   $ 291.0   $ 589.0   $ 589.0  
Total operating expenses     190.4     190.4     370.1     370.1  
Investment income     (15.1 )   5.2     29.8     31.9  
Income before income taxes and cumulative effect
   of accounting change		     31.5     51.8     154.5     156.6  
Income taxes     10.3     17.4     58.7     59.4  
Income before cumulative effect of accounting
   change		     21.2     34.4     95.8     97.2  
Net income     21.2     34.4     96.8     98.2  
Earnings per share of common stock – Basic :                          
   Income before extraordinary item and accounting
      change		   $ 0.18   $ 0.29   $ 0.80   $ 0.81  
   Net income   $ 0.18   $ 0.29   $ 0.81   $ 0.82  
Earnings per share of common stock – Diluted :                          
   Income before extraordinary item and accounting
      change		   $ 0.16   $ 0.27   $ 0.74   $ 0.76  
   Net income   $ 0.16   $ 0.27   $ 0.75   $ 0.76  
Consolidated Statement of Cash Flows                          
Net income                 96.8   $ 98.2  
Investment income                 25.7     (27.8 )
Net cash provided by operating activities                 98.8     98.8  

 

Table of Contents
December 31, 2001
$ in millions As Restated As Previously
Reported
Consolidated Balance Sheet              

    ASSETS : 		             
Net property   $ 2,482.3   $ 2,482.3  
Total current assets     324.0     324.0  
Financial assets     1,142.8     1,120.4  
Total other assets     1,469.6     1,447.2  
Total assets     4,275.9     4,253.5  

    CAPITALIZATION AND LIABILITIES : 		             
Accumulated other comprehensive income     (13.2 )   (46.4 )
Earnings reinvested in the business     891.1     909.7  
Total shareholders’ equity     835.7     821.1  
Total capitalization     3,301.9     3,287.3  
Total current liabilities     296.2     296.2  
Deferred taxes     343.9     336.1  
Total deferred credits and other     677.8     670.0  
Total capitalization and liabilities     4,275.9     4,253.5  

Reclassifications have been made in the presentation of 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, except in periods where the inclusion of such common equivalent shares is antidilutive.

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:

Three Months Ended June 30,
2002 2001
As Restated 		2001
As Previously Reported
Income Shares Per
Share 		Income Shares Per
Share 		Income Shares Per
Share
Basic EPS   $ (43.4 )   119.2   $ (0.36 ) $ 21.2     118.8   $ 0.18   $ 34.4     118.8   $ 0.29  
Effect of Dilutive Securities                                                        
Warrants           —                 8.8                 8.8        
Stock Option Plan           —                 1.3                 1.3        
Diluted EPS   $ (43.4 )   119.2   $ (0.36 ) $ 21.2     128.9   $ 0.16   $ 34.4     128.9   $ 0.27  

 

Table of Contents
Six Months Ended June 30,
2002 2001
As Restated 		2001
As Previously Reported

Income

Shares Per
Share 		(a) Income Shares Per
Share 		(a)
Income 		Shares Per
Share
Basic EPS   $ (2.8 )   119.1   $ (0.02 ) $ 95.8     119.3   $ 0.80   $ 97.2