UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

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		31-1163136
(State or other jurisdiction of incorporation or organization)		(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 o NO ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ý NO o

As of October 31, 2004, 126,501,404 shares of the registrant’s common stock were outstanding.

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	23

	Operating Statistics	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	36

Part II. Other Information

Item 1.	Legal Proceedings	39

Item 4.	Submission of Matters to a Vote of Security Holders	39

Item 5.	Other Information	39

Item 6.	Exhibits and Reports on Form 8-K	39

Other

Signatures		41

Certifications

Available Information:

DPL Inc. (DPL or the Company) files current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission (SEC). You may read and copy any document the Company files at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, DC 20549, USA. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. The Company’s SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.

The Company’s public internet site is http://www.dplinc.com. The Company makes available through its internet site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of directors and executive officers and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

In addition, the Company’s public internet site includes other items related to corporate governance matters, including, among other things, the Company’s governance guidelines, charters of various committees of the Board of Directors and the Company’s code of business conduct and ethics applicable to all employees, officers and directors. You may obtain copies of these documents, free of charge, by sending a request, in writing, to DPL Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.

Part I. Financial Information

Item 1. Financial Statements

DPL INC.

CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS

($ in millions)

	Three Months Ended March 31,
	2004			2003
				(as restated)
Revenues
Electric revenues	$	299.8		$	295.1
Other revenues, net of fuel costs	2.6			2.4
Total revenues	302.4			297.5

Operating Expenses
Fuel	63.6			56.6
Purchased power	28.0			19.4
Operation and maintenance	50.4			39.5
Depreciation and amortization	34.0			34.7
General taxes	27.4			28.7
Amortization of regulatory assets, net	0.1			12.1
Total operating expenses	203.5			191.0

Operating Income	98.9			106.5

Investment income (loss)	29.1			(3.5		)
Interest expense	(44.5		)	(45.4		)
Other income (deductions)	(2.6		)	0.1

Income Before Income Taxes and Cumulative Effect of Accounting Change	80.9			57.7

Income tax expense	31.2			21.8

Income Before Cumulative Effect of Accounting Change	49.7			35.9

Cumulative effect of accounting change, net of tax	—			17.0

Net Income	$	49.7		$	52.9

Average Number of Common Shares Outstanding (millions)
Basic	120.0			119.6
Diluted	121.3			121.8

Earnings Per Share of Common Stock
Basic:
Income before cumulative effect of accounting change	$	0.41		$	0.30
Cumulative effect of accounting change	—			0.14
Total Basic	$	0.41		$	0.44

Diluted:
Income before cumulative effect of accounting change	$	0.41		$	0.29
Cumulative effect of accounting change	—			0.14
Total Diluted	$	0.41		$	0.43

Dividends Paid Per Share of Common Stock	$	0.240		$	0.235

See Notes to Consolidated Financial Statements.

These interim statements are unaudited.

DPL INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

($ in millions)

	Three Months Ended March 31,
	2004			2003
				(as restated)
Operating Activities

Net income	$	49.7		$	52.9
Adjustments:
Depreciation and amortization	34.0			34.7
Amortization of regulatory assets, net	0.1			12.1
Deferred income taxes	40.3			20.0
Captive insurance provision	1.2			0.8
Investment (income) loss	(28.1		)	6.1
Cumulative effect of accounting change, net of tax	—			(17.0		)
Changes in working capital:
Accounts receivable	6.4			11.7
Accounts payable	7.0			9.0
Accrued taxes payable	(59.6		)	(5.6		)
Accrued interest payable	(8.2		)	(23.8		)
Prepayments	6.6			(3.5		)
Inventories	(7.8		)	1.9
Deferred compensation assets	8.8			30.5
Deferred compensation obligations	(6.7		)	(31.2		)
Other (Note 3)	(20.0		)	(3.5		)

Net cash provided by operating activities	23.7			95.1

Investing Activities

Capital expenditures	(26.7		)	(35.5		)
Purchases of fixed income and equity securities	(57.5		)	(9.7		)
Sales of fixed income and equity securities	196.7			22.1

Net cash provided by / (used for) investing activities	112.5			(23.1		)

Financing Activities

Issuance of long-term debt, net	174.7			—
Retirement of long-term debt	(5.0		)	(4.0		)
Dividends paid on common stock	(28.7		)	(28.0		)

Net cash provided by / (used for) financing activities	141.0			(32.0		)

Cash and Temporary Cash Investments

Net change	277.2			40.0
Balance at beginning of period	337.6			40.8
Balance at end of period	$	614.8		$	80.8

Cash Paid During the Period for:
Interest and trust preferred distributions	$	50.7		$	67.4
Income taxes	$	40.7		$	(1.4	)

See Notes to Consolidated Financial Statements.

These interim statements are unaudited.

DPL INC.

CONSOLIDATED BALANCE SHEET

($ in millions)

	At March 31, 2004			At December 31, 2003
ASSETS

Property
Property, plant and equipment	$	4,446.0		$	4,420.8
Less: Accumulated depreciation and amortization	(1,879.3		)	(1,846.9		)
Net property	2,566.7			2,573.9

Current Assets
Cash and temporary cash investments (Note 3)	614.8			337.6
Accounts receivable, less provision for uncollectible accounts of $6.0 and $6.0, respectively	169.6			176.0
Inventories, at average cost (Note 3)	60.0			52.1
Prepaid taxes	34.8			46.4
Other (Note 3)	32.7			60.1

Total current assets	911.9			672.2

Other Assets
Financial assets
Public securities	69.6			140.3
Private securities under the equity method	317.9			343.9
Private securities under the cost method	478.2			500.7
Total financial assets	865.7			984.9

Income taxes recoverable through future revenues	41.9			43.3
Other regulatory assets	37.1			36.1
Other (Note 3)	124.7			134.3

Total other assets	1,069.4			1,198.6

Total Assets	$	4,548.0		$	4,444.7

See Notes to Consolidated Financial Statements.

These interim statements are unaudited.

DPL INC.

CONSOLIDATED BALANCE SHEET

($ in millions)

(continued)

	At March 31, 2004			At December 31, 2003
CAPITALIZATION AND LIABILITIES

Capitalization
Common shareholders’ equity
Common stock	$	1.3		$	1.3
Other paid-in capital, net of treasury stock	12.6			12.0
Warrants	50.0			50.0
Common stock held by employee plans	(83.5		)	(84.4		)
Accumulated other comprehensive income	51.9			57.7
Earnings reinvested in the business	915.8			865.7
Total common shareholders’ equity	948.1			902.3

Preferred stock	23.0			23.0

Long-term debt	2,123.4			1,954.7
Total capitalization	3,094.5			2,880.0

Current Liabilities
Current portion - long-term debt	512.1			511.1
Accounts payable	101.4			95.6
Shareholder litigation	70.0			70.0
Accrued taxes	77.5			148.7
Accrued interest	41.9			50.1
Other (Note 3)	20.3			51.8

Total current liabilities	823.2			927.3

Deferred Credits and Other
Deferred taxes	373.6			374.0
Unamortized investment tax credit	51.5			52.2
Insurance and claims costs	27.2			26.0
Other (Note 3)	178.0			185.2

Total deferred credits and other	630.3			637.4

Contingencies (Note 9)

Total Capitalization and Liabilities	$	4,548.0		$	4,444.7

See Notes to Consolidated Financial Statements.

These interim statements are unaudited.

Notes to Consolidated Financial Statements

1. Basis of Presentation

Basis of Consolidation

DPL Inc. (DPL or the Company) prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of DPL, DPL’s principal subsidiary, The Dayton Power and Light Company (DP&L) and DPL’s other majority-owned subsidiaries. Investments that are not majority owned are accounted for using the equity method when DPL’s investment allows it the ability to exert significant influence, as defined by GAAP. Undivided interests in jointly-owned generation facilities are consolidated on a pro rata basis. All material intercompany accounts and transactions are eliminated in consolidation.

DPL has prepared the unaudited consolidated financial statements in this report, 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’s 2003 Annual Report on Form 10-K.

Estimates, Judgments and Reclassifications

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the revenue and expenses of the period reported. Significant items subject to such estimates and judgments include the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of financial assets; the valuation of insurance and claims costs; valuation allowance for receivables and deferred income taxes; and assets and liabilities related to employee benefits. Actual results may differ from those estimates. Reclassifications have been made in certain prior years’ amounts to conform to the current reporting presentation.

Recently Issued Accounting Standards

Financial Interpretation No. 46 (Revised December 2003)

In January 2003, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which was subsequently revised in December 2003 with the issuance of FIN 46R. The objective of this interpretation is to provide guidance on how to identify variable interest entities (VIEs) and determine when the assets, liabilities, non-controlling interests and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. DPL established the Capital Trust II in August 2001 and issued $300 million of Trust Preferred Securities to institutional investors at 8.125%. This trust is considered a VIE and required DPL to evaluate the effect of FIN 46R.

A trust preferred structure generally involves the establishment by an entity, of a limited purpose trust to issue the trust preferred securities. The trust issues preferred securities to outside investors and uses the proceeds of the issuance to purchase an equivalent amount of junior subordinated debentures or other loans having stated maturities. The debentures or other loans are the only assets of the trust. When an entity makes payments of interest on the debentures or other loans, the trust distributes the cash to the holders of the Trust Preferred Securities. The Trust Preferred Securities must be redeemed upon maturity of the debentures or other loans. Prior to the issuance of FIN 46R, the sponsoring enterprise consolidated the trust as a result of holding all the common equity of the trust. For financial reporting purposes, the accounts of the DPL Capital Trust II have been included in DPL’s consolidated financial statements.

In accordance with the provisions of FIN 46R DPL deconsolidated the DPL Capital Trust II in 2003. This resulted in recording an investment in the trust and amounts previously classified as shares subject to mandatory redemption to be classified as long-term debt as of December 31, 2003 by establishing a note payable to the trust. In accordance with FIN 46R, no amounts prior to adoption in 2003 will be reclassified.

Staff Position No. 106-1

In December 2003, the FASB issued Staff Position No. 106-1 (FSP 106-1), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). The Act provides for drug benefits for retirees over the age of 65 under a new Medicare Part D program. For employers like DPL, who currently provide retiree medical programs for certain former employees over the age of 65, there are subsidies available which are inherent in the Act. The Act entitles these employers to a direct tax-exempt federal subsidy. However, since the effective date of the Act was December 2003 and because most employers have not had time to consider the accounting considerations and there is no appropriate accounting guidance for the federal subsidy, the FASB issued this FSP 106-1 to allow employers a one-time election to defer recognition of the impact of the Act in the employer’s accounting until formal guidance is issued. DPL elected to defer recognition of the provisions of this Act until further accounting guidance is issued.

Staff Position No. 106-2

In May 2004, the FASB issued FASB Staff Position No. 106-2 (FSP 106-2), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, which supersedes FSP 106-1. FSP 106-2 provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) for employers that sponsor postretirement health care plans that provide prescription drug benefits. It also requires certain disclosures regarding the effect of the federal subsidy provided by the Act. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. The effect is not expected to be material to the Company’s results of operations, cash flow or financial position.

EITF 03-01 and EITF 02-14

In June 2004, the Emerging Issues Task Force (EITF) issued EITF 03-1, applied for periods effective beginning after June 15, 2004, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF 03-1 addresses the meaning of other-than-temporary impairment and its application to debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115), certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 124 “Accounting for Certain Investments Held by Not-for-Profit Organizations” (SFAS 124), and equity securities that are not subject to the scope of SFAS 115 and not accounted for under the equity method of accounting. In September 2004, the EITF issued EITF 02-14, applied for periods effective beginning after June 15, 2004, “Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock”. EITF 02-14, addresses: (1) whether an investor should apply the equity method of accounting to investments other than common stock, (2) if the equity method should be applied to investments other than common stock, how the equity method of accounting should be applied to those investments and (3) whether investments other than common stock that have a “readily determinable fair value” under paragraph 3 of SFAS 115 should be accounted for in accordance with SFAS 115 rather than pursuant to EITF 02-14. The Company is in the process of evaluating each of these issues and has not determined the impact to its results of operations, statement of financial position or cash flows.

2. Restatement of Financial Statements

As part of the Audit Committee’s response to a report prepared by Taft, Stettinius & Hollister LLP and during the 2003 year-end financial closing process, the Company identified certain adjustments to prior period financial statements. As a result, the Company has restated its consolidated financial statements for the quarter ended March 31, 2003 and prior periods. This adjustment decreased net income by $0.2 million to $52.9 million for the first quarter of 2003 and did not impact earnings per share. The restatement also affected the average number of basic and diluted common shares outstanding by adding stock incentive units to the outstanding shares during those periods the stock incentive unit plan was considered an equity plan. All applicable financial information contained in this Quarterly Report on Form 10-Q give effect to these restatements. Accordingly, the financial statements for the fiscal period described above that have been in the Company’s prior SEC filings should not be relied upon.

Certain captions in the March 31, 2003 Consolidated Balance Sheet were also adjusted due to the prior periods’ restatements. Please refer to the Company’s 2003 Annual Report on Form 10-K for a more complete description of the prior period adjustments.

The accompanying consolidated financial data set forth below presents the Company’s Consolidated Statement of Results of Operations for the quarter ended March 31, 2003, Consolidated Statement of Cash Flows for the quarter ended March 31, 2003 and Consolidated Balance Sheet as of March 31, 2003 on a comparative basis showing the amounts as originally reported and as restated.

Effects of Restatement on Net Income

The following table identifies the adjustments made to the consolidated financial statements for the quarter ended March 31, 2003:

$ in millions	Net Income Increase (Decrease)
	2003 First Quarter
Description of Adjustment
Supplemental Executive Retirement Plan (1)	$	(0.1	)
Stock incentive units (2)	(0.2		)
Sub-total pre-tax impact	(0.3		)

Income taxes (3)	0.1
Total Net Income impact	$	(0.2	)

DPL Inc.

Consolidated Statement of Results of Operations

(unaudited)

$ in millions except per share amounts	Three Months Ended March 31, 2003
	(as previously reported)			(as restated)

Revenues
Electric revenues	$	295.1		$	295.1
Other revenues, net of fuel costs	2.4			2.4
Total revenues	297.5			297.5

Operating Expenses
Fuel	56.6			56.6
Purchased power	19.4			19.4
Operation and maintenance	39.1			39.5
Depreciation and amortization	34.7			34.7
General taxes	28.7			28.7
Amortization of regulatory assets, net	12.1			12.1
Total operating expenses	190.6			191.0

Operating Income	106.9			106.5

Investment loss	(3.6		)	(3.5		)
Interest expense	(45.4		)	(45.4		)
Other income	0.1			0.1
Income Before Income Taxes and Cumulative Effect of Accounting Change	58.0			57.7

Income tax expense	21.9			21.8

Income Before Cumulative Effect of Accounting Change	36.1			35.9

Cumulative effect of accounting change, net of tax	17.0			17.0

Net Income	$	53.1		$	52.9

Average Number of Common Shares Outstanding (millions)
Basic	119.8			119.6
Diluted	119.8			121.8

Earnings Per Share of Common Stock – Basic
Income before cumulative effect of accounting change	$	0.30		$	0.30
Cumulative effect of accounting change	0.14			0.14
Total Basic	$	0.44		$	0.44

Earnings Per Share of Common Stock – Diluted
Income before cumulative effect of accounting change	$	0.30		$	0.29
Cumulative effect of accounting change	0.14			0.14
Total Diluted	$	0.44		$	0.43

Dividends Paid Per Share of Common Stock	$	0.235		$	0.235

DPL Inc.

Consolidated Statement of Cash Flows

(unaudited)

$ in millions	Three Months Ended March 31, 2003
	(as previously reported)			(as restated)

Operating Activities
Net income	$	53.1		$	52.9
Adjustments:
Depreciation and amortization	34.7			34.7
Amortization of regulatory assets, net	12.1			12.1
Deferred income taxes	20.0			20.0
Captive insurance provision	0.8			0.8
Investment loss	6.1			6.1
Cumulative effect of accounting change, net of tax	(17.0		)	(17.0		)
Changes in working capital:
Accounts receivable	11.7			11.7
Accounts payable	9.0			9.0
Accrued taxes payable	(5.5		)	(5.6		)
Accrued interest payable	(23.8		)	(23.8		)
Prepayments	(3.5		)	(3.5		)
Inventories	1.9			1.9
Deferred compensation assets	30.5			30.5
Deferred compensation obligations	(31.2		)	(31.2		)
Other	(3.8		)	(3.5		)
Net cash provided by operating activities	95.1			95.1

Investing Activities
Capital expenditures	(35.5		)	(35.5		)
Purchases of fixed income and equity securities	(9.7		)	(9.7		)
Sales of fixed income and equity securities	22.1			22.1

Net cash used for investing activities	(23.1		)	(23.1		)

Financing Activities
Retirement of long-term debt	(4.0		)	(4.0		)
Dividends paid on common stock	(28.0		)	(28.0		)

Net cash used for financing activities	(32.0		)	(32.0		)

Cash and Temporary Cash Investments
Net change	40.0			40.0
Balance at beginning of period	40.8			40.8

Balance at end of period	$	80.8		$	80.8

Cash Paid During the Period For:
Interest and trust preferred distributions	$	67.4		$	67.4
Income taxes	$	(1.4	)	$	(1.4	)

DPL Inc.

Consolidated Balance Sheet

(unaudited)

$ in millions	At March 31, 2003
	(as previously reported)			(as restated)

ASSETS
Property
Property, plant and equipment	$	4,344.7		$		4,344.7
Less: Accumulated depreciation and amortization	(1,757.0		)	(1,757.0			)
Net property	2,587.7			2,587.7

Current Assets
Cash and temporary cash investments	80.8			80.8
Accounts receivable, less provision for uncollectible accounts of $7.8 as reported and restated	156.2			156.2
Inventories, at average cost	54.2			54.2
Prepaid taxes	35.2			35.2
Other	70.4			70.4
Total current assets	396.8			396.8

Other Assets
Financial assets
Public securities	171.0			171.0
Private securities under the equity method	355.7			355.7
Private securities under the cost method	478.2			482.2
Total financial assets	1,004.9			1,008.9

Income taxes recoverable through future revenues	43.5			43.5
Other regulatory assets	68.8			68.8
Other	128.5			127.7
Total other assets	1,245.7			1,248.9

Total Assets	$	4,230.2		$	4,233.4

Note - Reflects adoption of FAS 143 in 2003.

DPL Inc.

Consolidated Balance Sheet

(unaudited)

$ in millions	At March 31, 2003
	(as previously reported)			(as restated)

CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders’ equity
Common stock	$	1.3		$	1.3
Other paid-in capital, net of treasury stock	—			8.7
Warrants	50.0			50.0
Common stock held by employee plans	(87.6		)	(87.6		)
Accumulated other comprehensive income	(0.1		)	(2.4		)
Earnings reinvested in the business	892.9			881.5
Total common shareholders’ equity	856.5			851.5

Preferred stock	23.0			23.0
Company obligated mandatorily redeemable trust preferred securities of subsidiary holding solely parent debentures	292.7			292.7

Long-term debt	2,137.3			2,137.3

Total capitalization	3,309.5			3,304.5

Current Liabilities
Current portion – long-term debt	10.1			10.1
Accounts payable	94.6			95.7
Accrued taxes	74.8			79.0
Accrued interest	33.5			33.5
Other	26.3			26.3
Total current liabilities	239.3			244.6

Deferred Credits and Other
Deferred taxes	326.5			319.2
Unamortized investment tax credit	54.7			54.7
Insurance and claims costs	115.2			115.2
Other	185.0			195.2
Total deferred credits and other	681.4			684.3

Contingencies

Total Capitalization and Liabilities	$	4,230.2		$	4,233.4

Note - Reflects adoption of FAS 143 in 2003.

3. Supplemental Financial Information

Balance Sheet

$ in millions	At March 31, 2004		At December 31, 2003
Cash and temporary cash investments
Cash and cash equivalents	$	514.8	$	237.6
Short-term investments	100.0		100.0
Total cash and temporary cash investments	$	614.8	$	337.6

Inventories, at average cost
Plant materials and supplies	$	31.3	$	31.7
Fuel	26.1		19.7
Other	2.6		0.7
Total inventories, at average cost	$	60.0	$	52.1

Other current assets
Prepayments	$	15.3	$	15.7
Deposits and other advances	13.5		9.6
Current deferred income taxes	1.1		30.5
Other	2.8		4.3
Total other current assets	$	32.7	$	60.1

Other deferred assets
Trust assets	$	37.8	$	46.4
Prepaid pension	38.4		39.7
Unamortized loss on reacquired debt	25.4		26.6
Investment in trust	10.3		10.4
Unamortized debt expense	11.5		10.1
Other	1.3		1.1
Total other deferred assets	$	124.7	$	134.3

Other current liabilities
Dividends payable	$	—	$	28.7
Customer security deposits and other advances	11.9		10.5
Current deferred income taxes	7.6		—
Payroll taxes payable	—		10.1
Other	0.8		2.5
Total other current liabilities	$	20.3	$	51.8

Other deferred credits
Asset retirement obligations – regulated property	$	73.3	$	72.0
Trust obligations	58.1		65.3
Retirees’ health and life benefits	32.6		33.7
Environmental reserves	0.1		0.2
Legal reserves	2.5		2.1
Asset retirement obligations-generation	5.0		4.9
Other	6.4		7.0
Total other deferred credits	$	178.0	$	185.2

Cash Flows

	Three Months Ended March 31,
$ in millions	2004			2003
				(as restated)
Cash flows - Other
Payroll taxes payable	$	(11.2	)	$	—
Customer security deposits and other advances	(3.9		)	(0.7		)
Other	(4.9		)	(2.8		)
Total cash flows - other	$	(20.0	)	$	(3.5	)

Results of Operations

	Three Months Ended March 31,
$ in millions	2004			2003
				(as restated)
Comprehensive income
Net income	$	49.7		$	52.9
Net change in unrealized gains (losses) on financial instruments, net of reclassification adjustments	1.4			(4.6		)
Net change in unrealized gains (losses) on foreign currency translation adjustments	(9.3		)	4.6
Net change in deferred gains on cash flow hedges	(0.7		)	(0.3		)
Deferred income taxes related to unrealized gains (losses)	2.8			0.1
Comprehensive income	$	43.9		$	52.7

4. Earnings per Share

Basic earnings per share (EPS) 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 anti-dilutive.

Approximately 38 million warrants and stock options were excluded from the computation of diluted earnings per share in the first quarter of 2004 and 2003, respectively, because they were anti-dilutive. These warrants and stock options could be dilutive in the future.

The following illustrates the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income before cumulative effect of accounting change:

	Three months ended March 31,
In millions except per share amounts	2004					2003 (as restated)
	Income		Shares	Per Share		(a) Income		Shares	Per Share
Basic EPS	$	49.7	120.0	$	0.41	$	35.9	119.6	$	0.30

Effect of Dilutive Securities:
Restricted stock units			1.2					2.2
Warrants	—		—
Stock options			0.1					—

Diluted EPS	$	49.7	121.3	$	0.41	$	35.9	121.8	$	0.29

(a) Income before cumulative effect of accounting change

5. Pension and Postretirement Benefits

DPL sponsors a defined benefit plan for substantially all its employees. For collective bargaining employees, the defined benefits are based on a specific dollar amount per year of service. For all other employees, the defined benefit plan is based primarily on compensation and years of service. The Company funds pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life insurance benefits. DPL has funded the union-eligible health benefit using a Voluntary Employee Beneficiary Association Trust.

The net periodic benefit (income) cost of the pension and postretirement benefit plans for the three months ended March 31 were:

Net periodic benefit (income) cost

$ in millions	Pension								Postretirement
	2004				2003				2004				2003
					(as restated)
Service cost	$	0.9			$		0.8		$		—		$		—
Interest cost	4.0				4.1				0.5				0.5
Expected return on assets	(5.4			)	(6.3			)	(0.2			)	(0.1			)
Amortization of unrecognized:
Actuarial (gain) loss	0.5				0.1				(0.2			)	(0.3			)
Prior service cost	0.6				0.7				—				—
Transition obligation	—				—				—				0.1

Net pension benefit (income) cost	$		0.6		$	(0.6		)	$	0.1			$	0.2

6. Stock-Based Compensation

DPL accounts for stock options granted on or after January 1, 2003 under the fair value method set forth in FASB Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (SFAS 123). This standard requires the recognition of compensation expense for stock-based awards to reflect the fair value of the award on the date of grant. DPL follows Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related Accounting Principles Board and FASB interpretations in accounting for stock-based compensation granted before January 1, 2003. If DPL had used the fair-value method of accounting for stock-based compensation granted prior to 2003, net income and earnings per share would have been reported as follows:

	Three months ended March 31,
$ in millions	2004			2003
				(as restated)
Net income, as reported	$	49.7		$	52.9
Add: Total stock-based compensation expense determined under APB 25, net of related tax effects	—			—
Deduct: Total stock-based compensation expense determined under FAS 123, net of related tax effects	(0.7		)	(0.7		)
Pro-forma net income	$	49.0		$	52.2

Earnings per share:
Basic – as reported	$	0.41		$	0.44
Basic – pro-forma	$	0.41		$	0.44

Diluted – as reported	$	0.41		$	0.43
Diluted – pro-forma	$	0.40		$	0.43

7. Long-term Debt, Notes Payable, and Compensating Balances

$ in millions	At March 31, 2004			At December 31, 2003
First Mortgage Bonds maturing:
2013 - 5.125%	$	470.0		$	470.0
Pollution Control Series maturing through 2027 - 6.43% (a)	104.8			104.8
	574.8			574.8

Note to Capital Trust II 8.125% due 2031	300.0			300.0

Guarantee of Air Quality Development Obligations 6.10% Series due 2030	110.0			110.0
Senior Notes 6.875% Series due 2011	400.0			400.0
Senior Notes 8.0% Series due 2009	175.0			—
Senior Notes 6.25% Series due 2008	100.0			100.0
Senior Notes 8.25% Series due 2007	425.0			425.0
Notes maturing through 2007 – 7.83%	39.0			45.0
Obligation for capital lease	4.1			4.3
Unamortized debt discount and premium (net)	(4.5		)	(4.4		)
Total	$	2,123.4		$	1,954.7

(a) Weighted average interest rates for 2004 and 2003.

The amounts of maturities and mandatory redemptions for First Mortgage Bonds, notes and the capital lease are $505.9 million for the remainder of 2004, $13.1 million in 2005, $16.1 million in 2006, $452.3 million in 2007 and $100.7 million in 2008. Substantially all property of DP&L is subject to the mortgage lien securing the First Mortgage Bonds.

On September 29, 2003, DP&L issued $470 million principal amount of First Mortgage Bonds, 5.125% Series due 2013. The net proceeds from the sale of the bonds, after expenses, were used to (i) redeem $226 million principal amount of DP&L’s First Mortgage Bonds, 8.15% Series due 2026, at a redemption price of 104.075% of the principal amount plus accrued interest to the redemption date, and (ii) redeem $220 million principal amount of DP&L’s First Mortgage Bonds, 7.875% Series due 2024, at a redemption price of 103.765% of the principal amount plus accrued interest to the redemption date. The $446 million of First Mortgage Bonds were called by DP&L on September 30, 2003, for redemption on October 30, 2003. The 5.125% Series due 2013 have not been registered under the Securities Act of 1933, but were offered and sold through a private placement in compliance with Rule 144A under the Securities Act of 1933. The bonds include step-up interest provisions requiring DP&L to pay additional interest if the securities remain unregistered after 180 days from issuance. The sale of the bonds was not registered and, as a result, the Company is required to pay additional interest of 0.50% until an exchange offer for these securities is registered with the SEC.

Issuance of additional amounts of First Mortgage Bonds by DP&L is limited by provisions of its mortgage; however, DP&L continues to have sufficient capacity to issue First Mortgage Bonds to satisfy its requirements in connection with its refinancing and construction programs through 2008. The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.

In fourth quarter of 2003, DPL adopted FIN 46R, which required the deconsolidation of the DPL Capital Trust II. This adoption resulted in the $300 million of 8.125% Trust Preferred Securities to be transferred to the trust and established a note to the trust for $300 million at 8.125%.

In December 2003, DPL entered into a $150 million term loan agreement, which was to expire in 2006, with a consortium of banks. The proceeds from this loan were to be used to provide partial funding for the retirement of the 6.82% Senior Notes due 2004, if needed. At March 31, 2004, DPL had no outstanding borrowings under this agreement. In May 2004, the Company elected to terminate the term loan agreement.

In December 2003, DP&L had $150 million available through a revolving credit agreement with a consortium of banks. The agreement, which was scheduled to expire on December 10, 2004, was terminated on June 1, 2004. The facility was to be used to support the Company’s business requirements and DP&L’s commercial paper program. The facility contained two financial covenants, including maximum debt to total capitalization and minimum earnings before interest and taxes (EBIT) to interest coverage. Fees associated with this credit facility were approximately $0.8 million per year. DP&L had no outstanding borrowings under the revolving credit facility and no outstanding commercial paper balances at March 31, 2004 and 2003.

In March 2004, DPL completed a $175 million private placement of unsecured 8% Series Senior Notes due March 2009. The Senior Notes will not be redeemable prior to maturity except for a make-whole payment at the adjusted Treasury rate plus 0.25%. The proceeds from these notes were used to provide partial funding for the redemption of $500 million of the 6.82% Senior Notes due April 2004. The 6.82% Senior Notes were redeemed on April 6, 2004.

The 8% Series Senior Notes were issued pursuant to the Company’s indenture dated as of March 1, 2000, and pursuant to authority granted in Board resolutions of the Company dated March 25, 2004. The notes impose a limitation on the incurrence of liens on the capital stock of any of the Company’s significant subsidiaries and require the Company and its subsidiaries to meet a consolidated coverage ratio of 2 to 1 prior to incurring additional indebtedness. The limitation on the incurrence of additional indebtedness does not apply to (i) indebtedness incurred to refinance existing indebtedness, (ii) subordinated indebtedness and (iii) up to $150 million of additional indebtedness. In addition to the events of default specified in the indenture, an event of default under the notes includes a payment default or acceleration of indebtedness under any other indebtedness of the Company or any of its subsidiaries which aggregates $25 million or more. The purchasers were granted registration rights in connection with the private placement under an Exchange and Registration Rights Agreement. Pursuant to this agreement, the Company was obligated to file an exchange offer registration statement by July 22, 2004, have the registration statement declared effective by September 20, 2004 and consummate the exchange offer by October 20, 2004. The Company failed to file an exchange offer registration statement and to have a registration statement declared effective according to this timeline. As a result, the Company is accruing additional interest at a rate of 0.5% per annum per violation, up to an additional interest rate not to exceed in the aggregate 1.0% per annum. As each violation is cured, the additional interest rate may decrease by 0.5%.

The terms of the private placement also required the Company to file its 2003 Form 10-K by July 30, 2004. Because the Company failed to meet this deadline, the Company was required to pay additional liquidated damages in the form of additional interest at a rate of 1.0% until the date it filed its 2003 Form 10-K with the SEC.

In June 2004, DP&L obtained a $100 million unsecured revolving credit agreement that extended and replaced DP&L’s revolving credit agreement of $150 million. The new agreement, which expires on May 31, 2005, provides credit support for the Company’s business requirements and commercial paper program during this period and may be increased to up to $150 million. The facility contains two financial covenants including maximum debt to total capitalization, and minimum earnings before interest and taxes (EBIT) to total interest expense. These covenants are currently met. DP&L currently has no outstanding borrowings under this credit facility and no outstanding commercial paper balances. Fees associated with this credit facility are approximately $0.6 million per year. Changes in debt ratings, however, may affect the applicable interest rate for DP&L’s revolving credit agreement. DP&L’s ability to use this revolving credit agreement is subject to the PUCO’s annual approval which is set to expire on November 5, 2004. DP&L has filed an application to secure the PUCO’s continued authorization and that application is pending.

The delay in filing audited financial statements for the year ending December 31, 2003 constituted an event of default under both the term loan and DP&L’s previous revolving credit facility; however, the Company obtained waivers from its lenders regarding this event. The Company incurred fees of approximately $0.2 million to obtain these waivers. Subsequently, the Company elected to terminate the term loan and obtained a new revolving credit facility. The delay in filing audited financial statements also resulted in non-compliance under the Company’s other debt agreements although the non-compliance did not result in an immediate event of default. The Company has not received any default notifications from any of its lenders. The Company’s debt agreements allow a grace period to cure a default after notification. Management, after consultation with legal counsel, believes all non-compliance conditions have been remedied.

There are no inter-company debt collateralizations or debt guarantees between DPL and its subsidiaries. None of the debt obligations of DPL or DP&L are guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.

8. Business Segment Reporting

DPL is a diversified, regional energy company providing electric services to over 500,000 retail customers in West Central Ohio. DPL is managed through two operating segments: Electric and the Financial Asset Portfolio. Electric represents assets and related costs associated with DPL’s transmission and distribution and base load and peaking generation operations. MVE, Inc. (MVE), a wholly-owned subsidiary, is responsible for the management of the financial asset portfolio. The financial asset portfolio seeks to maximize investment income within acceptable risk parameters and to ensure that the energy business can meet its capital and liquidity needs. The caption, Other, includes street lighting services and other peripheral businesses that are not directly related to the operations of the other segments.

The Company reevaluated the financial reporting requirements under FASB Statement of Accounting Standards No. 131 “Disclosures about Segments of an Enterprise and Related Information” and concluded it was appropriate to begin reporting its Financial Asset Portfolio as a separate operating segment because of the increased executive-level attention and emphasis on financial reporting during 2003. Prior periods have been conformed to the current year’s presentation.

	For the period ended
$ in millions	March 31, 2004			March 31, 2003
				(as restated)

Revenues
Electric	$	299.8		$	295.1
Other	2.6			2.4
Total revenues	$	302.4		$	297.5

Operating income
Electric	$	106.4		$	113.5
Other (b)	(7.5		)	(7.0		)
Total operating income	$	98.9		$	106.5

Investment income (loss)
Financial asset portfolio income (loss)	$	49.7		$	(6.2	)
Less: management fees	6.8			—
Net financial asset portfolio income (loss) (a)	42.9			(6.2		)
Management fees included in Other Income (deductions)	6.8			—
GAAP adjustments and other (c)	(20.6		)	2.7
Investment income (loss)	$	29.1		$	(3.5	)

Depreciation and amortization
Electric	$	34.0		$	34.7
Financial asset portfolio	—			—
Other	—			—
Total	$	34.0		$	34.7

Expenditures – construction additions
Electric	$	23.6		$	20.4
Financial asset portfolio	—			—
Other	0.2			0.4
Total	$	23.8		$	20.8

Assets
Electric	$	2,973.0		$	3,070.0
Financial asset portfolio (a)	1,010.5			1,014.3
Other	27.2			30.3
Unallocated corporate assets	651.5			116.3
Adjustments to reconcile segment assets to total assets (b)	(114.2		)	2.5
Total assets	$	4,548.0		$	4,233.4

(a) These amounts reflect non-GAAP internal management presentations. For internal reporting purposes, private equity securities are accounted for the same as public securities. For GAAP purposes, the private equity securities are accounted for as either cost or equity method investments. Investment income represents sales of public securities, dividends and other interest and investment income. Operating income is comprised of investment income less associated management fees.

(b) Includes unallocated corporate items.

(c) Represents amounts necessary to reconcile results from Company non-GAAP internal management reports to consolidated GAAP results for the Financial Asset Portfolio segment.

9. Commitments and Contingencies

Contingencies

In the normal course of business, DPL is subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. DPL believes the amounts provided in its consolidated financial statements, as prescribed by GAAP, are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in DPL’s Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of March 31, 2004 cannot be reasonably determined.

Environmental Matters

DPL and its subsidiaries’ facilities and operations are subject to a wide range of environmental regulations and law. In the normal course of business, DP&L has investigatory and remedial activities underway at these facilities to comply, or to determine compliance, with such regulations. DP&L has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, as a potentially responsible party (PRP) at a number of sites pursuant to state and federal laws. DP&L records liabilities for probable estimated loss in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.” To the extent a probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, DP&L accrues for the low end of the range. Because of uncertainties related to these matters, accruals are based on the best information available at the time. DP&L evaluates the potential liability related to probable losses quarterly and may revise its estimates. Such revisions in the estimates of the potential liabilities could have a material effect on the Company’s results of operations and financial position.

Legal Matters

On November 6, 2003, the Company and certain of its present and former officers and directors reached an agreement in principle with plaintiffs to settle the DPL Inc. Securities Litigation, and the shareholder class and derivative actions filed against them in Federal and Ohio state courts (the Global Settlement). The Company agreed to pay $70.0 million and certain of the Company’s liability insurers (the Insurers) agreed to pay $65.5 million to settle the DPL Inc. Securities Litigation and the state shareholder class actions. The Insurers agreed to pay $4.5 million to settle the derivative actions. In addition, PwC agreed to pay $5.5 million to settle all claims against it on a global basis. The Global Settlement was subject to approval by the Courts in which the actions were pending after notice to shareholders and class members and fairness hearings before the courts. On December 22, 2003, the Global Settlement was approved in total by the Court of Common Pleas, Hamilton County, Ohio. The U.S. District Court for the Southern District of Ohio approved the Global Settlement except for the petition for plaintiffs’ attorneys’ fees. As a result of the settlement, an after-tax charge of approximately $0.39 per share was recorded in the fourth quarter of 2003. On March 8, 2004, the U.S. District Court for the Southern District of Ohio approved in part the plaintiffs’ petition for plaintiffs’ attorneys’ fees. On May 24, 2004, in accordance with the terms of the Global Settlement, the amounts owed by the Company and the amounts owed by the Company’s liability insurers pursuant to Global Settlement were paid for ultimate distribution to the class. On August 13, 2004, as to state court and August 16, 2004, as to federal court, plaintiffs filed a motion seeking court approval of the distribution of the Global Settlement funds.

On June 7, 2004, the plaintiffs in the action in the Court of Common Pleas of Hamilton County, Ohio, filed a motion for an Order of Contempt, Disgorgement and Recission against defendants Peter H. Forster, Caroline E. Muhlenkamp and Stephen F. Koziar, Jr. In their motion, plaintiffs claimed that defendants Forster, Muhlenkamp and

Koziar breached the Global Settlement and caused DPL and its board of directors to breach the Global Settlement, by causing the Company to distribute to defendants Forster, Muhlenkamp and Koziar approximately $33 million in deferred compensation in December 2003 without proper board approval. Plaintiffs sought, among other things, disgorgement of monies received by defendants Forster, Muhlenkamp and Koziar and recission of the reinstatement of the stock incentive and benefits plans. On June 28, 2004, the Company filed a Motion to Strike the plaintiffs’ motion alleging, among other things, that the motion was procedurally defective. Further, on July 22, 2004, the Company filed a Motion for Preliminary Injunction in the U.S. District Court to enjoin the Motion for an Order of Contempt, Disgorgement and Recission. On August 2, 2004, plaintiffs filed their opposition to defendants’ Motion to Strike and filed their opposition to the Motion for a Preliminary Injunction on August 13, 2004. On or about October 4, 2004 the U.S. District Court ruled the distribution of the federal class settlement fund to approved claimants would proceed immediately and that plaintiffs would withdraw their Motion for Contempt in state court. This withdrawal was completed on October 4, 2004 and the state court ordered the distribution of the state class settlement fund to approved claimants.

On July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed a lawsuit against the Company, DP&L and MVE in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida. The complaint asserts that the Company, DP&L and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forster’s consulting contract and Ms. Muhlenkamp’s employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract and agreement upon their termination from the Company. Mr. Forster and Ms. Muhlenkamp seek damages of an undetermined amount. On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District of Florida, Jacksonville Division. On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida federal court’s lack of jurisdiction over the Company, DP&L and MVE, all of whom are companies based in Dayton, Ohio. In the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of Ohio, which has jurisdiction in Dayton, Ohio. On September 17, 2004,Mr. Forster and Ms. Muhlenkamp objected to these motions. The court has not yet ruled on the defendants’ motions.

On August 24, 2004, the Company, DPL and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the amendments and the propriety of the distributions and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. The Company, DPL and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that the Company, DPL and MVE have no further obligations under the consulting and employment contracts due to those breaches. At this time, defendants Forster, Koziar and Muhlenkamp have not yet responded to the Complaint. The Company continues to evaluate all of these matters and is considering other claims against Mr. Forster, Mr. Koziar and/or Ms. Muhlenkamp that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and Company investments, the calculation of benefits under the SERP and financial reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed to the Company as its legal counsel.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum. The Company is cooperating with the investigation.

On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L must file this plan within 120 days of the filing of its Form 10-K with the SEC. The Company and DP&L intend to comply with this order and to cooperate with the PUCO’s continuing investigation.

On May 20, 2004, the staff of the SEC notified the Company that it was conducting an inquiry covering the exempt status of the Company under the Public Utility Holding Company Act of 1935. The staff of the SEC has requested the Company provide certain documents and information on a voluntary basis. The Company is cooperating with the inquiry. On October 8, 2004, DPL received a notice from the SEC that a question exists as to whether such exemption from the Public Utility Holding Company Act may be detrimental to the public interest or the interests of investors or consumers. Under applicable rules, DPL will lose its exemption 30 days following this notice and be required to register as a holding company under the Public Utility Holding Company Act and become subject to additional regulation thereunder. However, DPL may delay the requirement to become registered so long as it files

a good faith application seeking an order of exemption from the Securities and Exchange Commission. DPL will remain exempt pending a decision from the Securities and Exchange Commission on that application. DPL believes it has a good faith basis for seeking an order of exemption and expects to make a filing seeking that order within the 30 day period. DPL cannot predict what action the Securities and Exchange Commission may take in connection with its application or whether it will be able to remain an exempt holding company.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company that it has initiated an inquiry involving matters connected to the Company’s internal investigation. The Company is cooperating with this investigation.

Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company regarding issues raised in the Thobe Memorandum. The staff of the IRS has requested that the Company provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE. financial statements. The Company is cooperating with these requests.

On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills. On February 12, 2004 DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in back pay to certain affected applicants. DP&L has completed these payments to the affected applicants.

In June 2002, a contractor’s employee received a verdict against DP&L for injuries he sustained while working at a DP&L power station. The Court awarded the contractor’s employee compensatory damages of approximately $0.8 million and prejudgment interest of approximately $0.6 million. On April 28, 2004, the appellate court upheld this verdict except the award for prejudgment interest. On September 1, 2004, the Ohio Supreme Court refused to hear the case, so the matter has been remanded to the trial court for a re-determination of whether prejudgment interest should be awarded. The trial court heard this matter on October 15, 2004 and the decision is pending.

Long-term Obligations and Commercial Commitments

DPL enters into various contractual and other long-term obligations that may affect the liquidity of its operations. At March 31, 2004, these include:

	Payment Year
Long-term Obligations ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter			Total
Long-term debt	$	505.4	$	27.8	$	551.6	$		1,546.0	$	2,630.8
Capital lease	0.5		1.4		1.4		1.5			4.8
Operating leases	0.8		0.4		—		—			1.2
Coal contracts	270.2		211.2		84.6		127.7			693.7
Other long-term obligations	10.1		14.9		1.0		—			26.0

Total long-term obligations	$	787.0	$	255.7	$	638.6	$	1,675.2		$	3,356.5

Long-term debt:

Long-term debt as of March 31, 2004, consists of first mortgage bonds, guaranteed air quality development obligations, DPL unsecured notes and includes current maturities.

Capital lease:

As of March 31, 2004, the Company had one capital lease that expires September 2010.

Operating leases:

As of March 31, 2004, the Company had several operating leases with various terms and expiration dates.

Coal contracts:

DP&L has entered into various long-term coal contracts to supply portions of its coal requirements for its generating plants. Contract prices are subject to adjustment in accordance with various indices, and have features that will limit price escalation in any given year.

Other long-term obligations:

As of March 31, 2004, DPL had various other long-term obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

DPL enters into various commercial commitments, which may affect the liquidity of its operations. At March 31, 2004, these include:

	Expiring Year
Commercial Commitments ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter		Total
Credit facilities	$	150.0	$	150.0	$	—	$	—	$	300.0
Guarantees	—		17.8		—		—		17.8
Other long-term commitments	30.8		155.7		101.0		—		287.5
Total commercial commitments	$	180.8	$	323.5	$	101.0	$	—	$	605.3

Credit facilities:

DP&L had $150 million available through an unsecured revolving credit agreement with a consortium of banks that was scheduled to expire on December 10, 2004. At March 31, 2004, there were no borrowings outstanding under this credit agreement. In June 2004, the Company replaced this facility with a $100 million, 364 day unsecured credit facility that expires on May 31, 2005. The new facility may be increased to up to $150 million.

DPL had a $150 million term loan agreement, which was to expire in 2006, with a consortium of banks. The proceeds from this loan were to be used to provide partial funding for the redemption of the 6.82% series Senior Notes due 2004, if needed. At March 31, 2004, DPL had no outstanding borrowings under this agreement and this facility was not used to provide partial funding of the retirement of the 6.82% series Senior Notes. In May 2004, the Company elected to terminate the term loan agreement.

Guarantees:

DP&L owns a 4.9% equity ownership interest in an electric generation company. As of March 31, 2004, DP&L could be responsible for the repayment of 4.9%, or $14.9 million, of a $305 million debt obligation and also 4.9%, or $2.9 million, of a separate $60 million debt obligation. Both obligations mature in 2006.

Other long-term commitments:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Matters discussed in this report which relate to events or developments that are expected to occur in the future, including management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters constitute forward-looking statements. Forward-looking statements are based on management’s beliefs, assumptions and expectations of the Company’s future economic performance, taking into account the information currently available to management. These statements are not statements of historical fact. Such forward-looking statements are subject to risks and uncertainties and investors are cautioned that outcomes and results may vary materially from those projected due to various factors beyond the control of DPL Inc. (DPL or the Company), including but not limited to: abnormal or severe weather; unusual maintenance or repair requirements; changes in fuel costs; changes in electricity, coal, environmental emissions, gas and other commodity prices; increased competition; regulatory changes and decisions; changes in accounting rules; financial market conditions; foreign currency market risk; market conditions, which may increase or decrease the value of the Company’s financial assets; additional investments in certain private equity partnership interests; and general economic conditions.

Forward-looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. (See FACTORS THAT MAY AFFECT FUTURE RESULTS.)

OVERVIEW AND FUTURE EXPECTATIONS

In the first quarter of 2004, DPL’s operating income decreased $7.6 million compared to the first quarter of 2003. Total revenue of $302.4 million exceeded the prior year by $4.9 million primarily resulting from an increase in wholesale revenue. Operating expenses of $203.5 million in the first quarter of 2004 exceeded the first quarter of 2003 by $12.5 million or 7% resulting from increased fuel and purchased power costs and corporate expenses. DPL’s reported basic earnings per share of $0.41 in the first quarter of 2004 decreased $0.02 per share from the first quarter of 2003 of $0.43.

RESULTS OF OPERATIONS

Income Statement Highlights

		Three Months Ended March 31,
$ in millions		2004		2003
				(as restated)

Electric revenues		$	299.8	$	295.1
Less:	Fuel	63.6		56.6
	Purchased power	28.0		19.4
Net electric margin		$	208.2	$	219.1

Operating income		$	98.9	$	106.5

(a) For purposes of discussing operating results DPL presents and discusses net electric margin. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding the Company’s financial performance.

Revenues

Electric revenues increased to $299.8 million in the first quarter of 2004 compared to $295.1 million for the first quarter of 2003 reflecting both higher retail and wholesale revenues. Retail revenues increased $0.8 million in the first quarter of 2004 over the prior year resulting from higher commercial and industrial sales volume and wholesale revenues increased $3.9 million or 13% as a result of increased resale transactions. Heating degree-days were down 8% to 2,949 for the first quarter of 2004 compared to 3,193 for the same period in 2003, resulting in 1% decrease in residential sales volume.

Operating Expenses

Net electric margin of $208.2 million in the first quarter of 2004 decreased by $10.9 million from $219.1 million in the first quarter of 2003. As a percentage of total electric revenues, net electric margin decreased by 4.8 percentage points to 69.4% from 74.2%. This decline is primarily the result of increased fuel and purchased power costs on moderate sales growth. Fuel costs increased by $7.0 million or 12% in the three months ended March 31, 2004 compared to the same period in 2003 primarily resulting from higher average fuel costs relating to both retail and wholesale sales. Purchased power costs increased by $8.6 million or 44% in the first quarter 2004 compared to the same period in 2003 primarily resulting from a higher volume of purchased power and higher average market prices.

Operation and maintenance expense increased $10.9 million or 28% for the three months ended March 31, 2004 compared to the same period in 2003 primarily as a result of higher corporate costs and increased electric production expenses. Corporate costs increased primarily from higher insurance premiums for Directors and Officers liability insurance of $3.5 million, the 2003 settlement of an outstanding jointly-held facility receivable of $3.8 million, internal investigation costs of $1.8 million and pension expense of $1.2 million, offset by a $1.2 million decrease in deferred compensation expense. Electric production expenses increased $3.1 million over the prior year primarily related to maintenance and repair expenses incurred for scheduled outages and ash disposal.

Amortization of regulatory assets decreased $12.0 million in the first quarter of 2004 compared to the first quarter of 2003 reflecting the conclusion of the three-year regulatory transition cost recovery period granted by the Public Utilities Commission of Ohio in 2000 which ended December 31, 2003.

Investment Income (Loss)

Investment income increased by $32.6 million in the first quarter of 2004 compared to the first quarter of 2003. This increase was primarily the result of realized gains from the financial asset portfolio. Investment income for the first quarter of 2004 was comprised of $18.6 million from private securities under the cost method, investment income of $9.6 million from the private securities under the equity method, realized gains and income from public securities of $0.3 million and $0.6 million from interest and other investment income. The investment loss for the first quarter of 2003 was comprised of an investment loss of $11.8 million from the private securities under the equity method, partially offset by investment income of $5.1 million from private securities under the cost method, realized gains and income from public securities of $2.9 million and $0.3 million from interest and other investment income.

Interest Expense

Interest expense decreased $0.9 million in the first quarter of 2004 compared to the first quarter of 2003 primarily relating to lower bond interest expense resulting from the issuance of the $470 million First Mortgage Bonds 5.125% Series due 2013 that have a lower interest rate than the previous debt. (See Note 7 of Notes to Consolidated Financial Statements.)

Other Income (Deductions)

Other deductions for the first quarter ended March 31, 2004 was $2.6 million compared to Other income of $0.1 million for the first quarter ended March 31, 2003. This decrease primarily resulted from $6.8 million of fees related to the financial asset portfolio and $1.1 million of miscellaneous expenses, partially offset by $5.5 million realized from the sale of 2004 pollution NOx allowances.

Income Tax Expense

Income tax expense increased $9.4 million or 43% in the first quarter of 2004 compared to the first quarter of 2003 primarily resulting from higher income.

Cumulative Effect of Accounting Change

The cumulative effect of accounting change of $17 million in the first quarter of 2003 reflects the adoption of the provisions of FASB Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143).

LIQUIDITY, CAPITAL RESOURCES AND REQUIREMENTS

DPL’s cash and temporary cash investments totaled $614.8 million at March 31, 2004 compared to $80.8 million at March 31, 2003. This increase was primarily attributed to cash generated from the net proceeds from the sales, purchases and realized gains on financial assets and issuance of short-term debt. DPL’s cash and temporary cash investments totaled $337.6 million at December 31, 2003.

The Company generated net cash from operating activities of $23.7 million in the first quarter of 2004 compared to $95.1 million in the first quarter of 2003. The net cash from operating activities for the three months ended March 31, 2004 was primarily the result of operating profitability, partially offset by working capital, specifically the timing of tax payments. Operating profitability primarily drove net cash provided from operating activities for the three months ended March 31, 2003. The tariff-based revenue from DPL’s energy business continues to be the principal source of cash from operating activities. Management believes that the diversified retail customer mix of residential, commercial, and industrial classes provides DPL with a reasonably predictable gross cash flow.

Net cash flows provided by investing activities were $112.5 million in the first quarter of 2004 compared to net cash flows used for investing activities of $23.1 million in the first quarter of 2003. Net cash flows provided by investing activities for the three months ended March 31, 2004 was primarily the result of net proceeds from sales, purchases and realized gains on financial assets, partially offset by capital expenditures. The net cash used for investing activities for the three months ended March 31, 2003 was primarily the result of $35.5 million for capital expenditures, partially offset by the net proceeds from sales, purchases and realized gains on financial assets.

Net cash flows provided by financing activities were $141.0 million in the first quarter of 2004 compared to net cash flows used for financing activities of $32.0 million in the first quarter of 2003. Net cash flows provided by financing activities for the first quarter of 2004 was primarily the result of the issuance of $175 million unsecured 8% Series Senior Notes used to provide partial funding for the retirement of $500 million of the 6.82% Series Senior Notes due

April 6, 2004. This was partially offset by dividends paid to common stockholders. Net cash used for financing activities in the first quarter of 2003 was primarily related to dividends paid to common stockholders.

Capital Requirements

Construction additions were $23.8 million for the first three months of 2004 and are expected to approximate $100 million for the year compared to $20.8 million in the first three months of 2003 and $102 million for the year ended 2003. Planned construction additions for 2004 relate to DPL’s environmental compliance program, power plant equipment, and its transmission and distribution system.

Capital projects are subject to continuing review and are revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors. Over the next four years, DPL is projecting to spend $800 million in capital projects, approximately half of which is to meet changing environmental standards. DPL’s ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of internal and external funds at reasonable cost, and adequate and timely return on these capital investments. DPL expects to finance its construction additions over the next few years with internally-generated funds.

Financial Asset Investment

DPL’s financial assets of $865.7 million at March 31, 2004 are comprised of both public and private debt and equity securities, and are diversified both in terms of geography and industry. Public securities comprise approximately 8% or $69.6 million of the portfolio and are valued at current market price. Private securities approximate 92% of the portfolio or $796.1 million and are valued under either the cost or equity method.

DPL used $202 million from the private and public securities in its investment portfolio to partially fund the retirement of $500 million 6.82% Series Senior Notes in April 2004. On April 7, 2004, following the retirement of the Senior Notes, cash and temporary cash investments held in the financial asset portfolio was $79.4 million and public securities were valued at $70.0 million. The Company used an additional $50 million from the financial asset portfolio in May 2004 to partially fund its obligation under the terms of a shareholder litigation settlement.

Through 2008, DPL may be called upon to make additional investments in private equity funds if and as the funds make investments during their respective investment periods. At March 31, 2004, DPL could be required to invest up to an additional $287.5 million in existing limited partnership interests as compared to $383.7 million at March 31, 2003, but is not subscribing to additional private equity funds at this time. DPL currently funds these investments from the return of previously invested capital and gains, with the aggregate capital invested expected to remain at less than $1 billion. The certainty of future investment opportunities by the funds and investment in the funds, as well as the rate of return of invested capital and gains, if any, cannot be predicted. Investments by these investment firms are designed to be self-liquidating over time.

Shareholder Litigation Settlement

In 2003, the Company and certain of its present and former officers and directors reached an agreement in principle with plaintiffs to settle the DPL Inc. Securities Litigation, and the shareholder class and derivative actions filed against them in Federal and Ohio state courts (the Global Settlement). On May 7, 2004, pursuant to an agreement entered into by the parties, the Company paid the $70.0 million it was obligated to pay under the Global Settlement into an escrow account pending payment to plaintiff’s counsel in accordance with the terms of the Global Settlement. The Company used $50 million from its financial asset portfolio, combined with funds from operations to pay its obligation under the terms of the shareholder litigation settlement.

Debt Obligations and Maturities

The amounts of maturities and mandatory redemptions for First Mortgage Bonds, Notes and the Capital Lease are $505.9 million for the remainder of 2004, $13.1 million in 2005, $16.1 million in 2006, $452.3 million in 2007 and $100.7 million in 2008. Substantially all property of DP&L is subject to the mortgage lien securing the First Mortgage Bonds.

under the Securities Act of 1933. The bonds include step-up interest provisions requiring DP&L to pay additional interest if the securities remain unregistered after 180 days from issuance. The sale of the bonds was not registered and, as a result, the Company is required to pay additional interest of 0.50% until an exchange offer for these securities is registered with the SEC.

In the fourth quarter of 2003, DPL adopted FIN 46R, which required the deconsolidation of the DPL Capital Trust II. This adoption resulted in the $300 million of 8.125% Trust Preferred Securities to be transferred to the trust and established a note to the trust for $300 million at 8.125%.

In December 2003, DPL entered into a $150 million term loan agreement, which was to expire in 2006, with a consortium of banks. The proceeds from this loan were to be used to provide partial funding for the retirement of the 6.82% Senior Notes due 2004, if needed. At March 31, 2004, DPL had no outstanding borrowings under this agreement and this facility was not used to provide partial funding of the retirement of the 6.82% Senior Notes. In May 2004, the Company elected to terminate the term loan agreement.

In December 2003, DP&L had $150 million available through a revolving credit agreement with a consortium of banks. The agreement, which was scheduled to expire on December 10, 2004, was terminated on June 1, 2004. The facility was to be used to support the Company’s business requirements and DP&L’s commercial paper program. The facility contained two financial covenants, including maximum debt to total capitalization and minimum earnings before interest and taxes (EBIT) to interest coverage. Fees associated with this credit facility were approximately $0.8 million per year, but a two-step increase in DP&L’s credit rating would have reduced the facility’s interest rate by 0.38%. A lower credit rating would not have increased the applicable interest rate. DP&L had no outstanding borrowings under the revolving credit facility and no outstanding commercial paper balances at March 31, 2004 and 2003.

In February 2004, DP&L entered into a $20 million Master Letter of Credit Agreement with a financial lending institution. This agreement, which expires in February 2005, supports performance assurance needs in the ordinary course of business. DP&L has certain contractual agreements for the sale and purchase of power, fuel and related energy services that contain credit rating clauses allowing the counterparties to seek additional surety under certain conditions. DP&L had two outstanding letters of credit totaling $1.4 million as of March 31, 2004 and no outstanding letters of credit as of March 31, 2003.

The terms of the private placement also required the Company to file its Form 10-K by July 30, 2004. Because the Company failed to meet this deadline, the Company was required to pay additional liquidated damages in the form of additional interest at a rate of 1.0% until the date it filed its Form 10-K with the SEC.

In June 2004, DP&L obtained a $100 million unsecured revolving credit agreement that extended and replaced DP&L’s revolving credit agreement of $150 million. The new agreement, which expires on May 31, 2005, provides credit support for the Company’s business requirements and commercial paper program during this period and may be increased to up to $150 million. The facility contains two financial covenants including maximum debt to total capitalization, and minimum earnings before interest and taxes (EBIT) to total interest expense. These covenants are currently met. DP&L currently has no outstanding borrowings under this credit facility and no outstanding commercial paper balances. Fees associated with this credit facility are approximately $0.6 million per year. Changes in debt ratings, however, may affect the applicable interest rate for DP&L’s revolving credit agreement. A one-step increase in DP&L’s credit rating reduces the facility’s interest rate by 0.38% and a one-step decrease in credit rating increases the facility’s interest rate by 0.38%. DP&L’s ability to use this revolving credit agreement is subject to the PUCO’s annual approval which is set to expire on November 5, 2004. DP&L has filed an application to secure the PUCO’s continued authorization and that application is pending.

The Company received multiple credit rating downgrades for DPL and DP&L. Currently, DPL’s senior unsecured and DP&L’s senior secured debt credit ratings are as follows:

	DPL Inc.	DP&L	Outlook	Effective
Fitch Ratings	BB	BBB	Negative	April 2004
Moody’s Investors Service	Ba3	Baa3	Negative	April 2004
Standard & Poor’s Corp.	BB-	BBB-	Negative	March 2004

As reflected above, DPL’s unsecured debt credit ratings are considered below investment grade.

Off-Balance Sheet Arrangements

DPL does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on DPL’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Long-term Obligations and Commercial Commitments

DPL enters into various contractual and other long-term obligations that may affect the liquidity of its operations. At March 31, 2004, these include:

	Payment Year
Long-term Obligations ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter		Total
Long-term debt	$	505.4	$	27.8	$	551.6	$	1,546.0	$	2,630.8
Capital lease	0.5		1.4		1.4		1.5		4.8
Operating leases	0.8		0.4		—		—		1.2
Coal contracts	270.2		211.2		84.6		127.7		693.7
Other long-term obligations	10.1		14.9		1.0		—		26.0

Total long-term obligations	$	787.0	$	255.7	$	638.6	$	1,675.2	$	3,356.5

Long-term debt:

Long-term debt as of March 31, 2004, consists of first mortgage bonds, guaranteed air quality development obligations, DPL unsecured notes and includes current maturities.

Capital lease:

As of March 31, 2004, the Company had one capital lease that expires September 2010.

Operating leases:

As of March 31, 2004, the Company had several operating leases with various terms and expiration dates.

Coal contracts:

Other long-term obligations:

As of March 31, 2004, DPL had various other long-term obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

DPL enters into various commercial commitments, which may affect the liquidity of its operations. At March 31, 2004, these include:

	Expiring Year
Commercial Commitments ($ in millions)	2004		2005 & 2006		2007 & 2008		Thereafter		Total
Credit facilities	$	150.0	$	150.0	$	—	$	—	$	300.0
Guarantees	—		17.8		—		—		17.8
Other long-term commitments	30.8		155.7		101.0		—		287.5
Total commercial commitments	$	180.8	$	323.5	$	101.0	$	—	$	605.3

Credit facilities:

Guarantees:

Other long-term commitments:

Market Risk

DPL’s financial results are subject to certain market risks, including changes in electricity, coal, environmental emissions, gas and other commodity prices; the effect of weather, increased competition and economic conditions

in the sales area on retail sales volume; financial market conditions; foreign currency market risk and adverse economic conditions.

Approximately 11 percent of DPL’s first quarter 2004 revenues were from sales of excess energy and capacity in the wholesale market. Energy and capacity in excess of the needs of existing retail customers is sold in the wholesale market when DPL can identify opportunities with positive margins. In the first quarter of 2004, sales from excess wholesale energy and capacity contributed $5.83 million in net electric margin; $5.78 million of which related to spot energy sales and $0.05 million of which related to peaking capacity. This compares to net electric margin from wholesale energy and capacity sales of $10.35 million in 2003 of which $10.16 million related to spot energy sales and $0.19 million related to peaking capacity. This decrease in net electric margin resulted from lower average market prices for wholesale sales and increased average market prices for fuel. Wholesale sales per megawatt hour in the first quarter of 2004 and 2003 were $34.18 and $35.77, respectively.

Fuel and purchased power costs represented 45% of total operating costs in the first quarter of 2004. DPL has contracted for all of its projected coal needs for 2004, at an estimated cost per Btu increase of approximately 15% over average 2003 levels. Purchased power costs depend, in part, upon the timing and extent of planned and unplanned outages of its generating capacity. DPL will purchase power on a discretionary basis when wholesale market conditions provide opportunities to obtain power at a cost below the Company’s internal production costs.

The carrying value of DPL’s debt was $2,636 million at March 31, 2004, consisting of DP&L’s First Mortgage Bonds, DP&L’s Guaranteed Air Quality Development Obligations, DP&L’s Capital Lease and DPL’s unsecured Notes. The fair value of this debt was $2,662 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities. The principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed rate debt at March 31, 2004 are as follows:

Expected Maturity Date	Long-term Debt
Expected Maturity Date	Amount		Average Rate
	($ in millions)

2004	$	506	6.8	%
2005	13		7.5	%
2006	16		7.6	%
2007	452		8.2	%
2008	101		6.2	%
Thereafter	1,548		6.6	%
Total	$	2,636	6.9	%

Fair Value	$	2,662

Debt maturities in 2004 are expected to be financed with a combination of internal and external funds. In March 2004, DPL completed a $175 million private placement of unsecured 8% Series Senior Notes due March 2009. The proceeds from these notes, combined with internal funds provided by the financial asset portfolio and operations, were used to fund the retirement of $500 million of the 6.82% Series Senior Notes due April 6, 2004.

The fair value of financial instruments held was $903.5 million and $1,031.6 million at March 31, 2004 and December 31, 2003, respectively. The market risk related to these financial instruments was estimated as the potential increase/decrease in fair value of approximately $90 million at March 31, 2004, resulting from a hypothetical 10% increase/decrease in the value of the underlying securities. DPL is also subject to foreign currency translation adjustments related to certain of its financial instruments. The foreign currency translation adjustments related to these financial instruments were estimated as the potential increase/decrease in fair value of approximately $17 million at March 31, 2004, resulting from a hypothetical 10% increase/decrease in the foreign currency exchange rates.

Financial Asset Portfolio

DPL’s financial assets of $865.7 million at March 31, 2004 is comprised of both public and private debt and equity securities, and is diversified both in terms of geography and industry. DPL’s financial asset investment objective, which began in 1995, has been and continues to be first, asset preservation, and second, earning an above market rate while seeking to mitigate risk through diversification.

Public securities comprise approximately 8% of the portfolio or $69.6 million at March 31, 2004, and are valued at current market price. Public securities include liquid public equities, including mutual funds comprised of S&P 500 Index and shorter-term fixed income and treasury securities.

Private securities are passive limited partnership interests in private equity funds managed by 27 investment firms, which in turn are managed by experienced investment professionals. DPL, along with other qualified investors, rely on the professionals managing the investment firms to make investment decisions with respect to investment of fund assets within a fund’s parameters and to manage such investments until exit.

Assets in the financial asset portfolio included in the consolidated balance sheets, are as follows:

$ in millions	At March 31, 2004		At December 31, 2003

Cash and temporary cash investments	$	149.8	$		136.6

Financial assets:
Public securities	69.6		140.3
Private securities under the equity method	317.9		343.9
Private securities under the cost method	478.2		500.7
Total financial assets	865.7		984.9

*Total Financial Asset Portfolio*	$	1,015.5	$	1,121.5

Through 2008, DPL may be called upon to make additional investments in private equity funds if and as the funds make investments during their respective investment periods. At March 31, 2004, DPL could be required to invest up to an additional $287.5 million in existing limited partnership interests as compared to $383.7 million at March 31, 2003, but is not subscribing to additional private equity funds at this time. The Company currently funds these investments from the return of previously invested capital and gains, with the aggregate capital invested expected to remain at less than $1 billion. The certainty of future investment opportunities by the funds and investment in the funds, as well as the rate of return of invested capital and gains, cannot be predicted. Investments by these investment firms are designed to be self-liquidating over time.

Since inception, the financial asset portfolio (excluding investment management fees of $115 million) has had cumulative gains of $572 million and cumulative losses of $370 million, with a net gain of $202 million as of March 31, 2004.

DPL holds limited partnership interests in private equity funds which have been organized and are managed by the following experienced investment firms:

Investment Firms		Location
Accel KKR		Palo Alto, CA
American Industrial Partners		New York, NY
Argos Soditic		Geneva, Switzerland
Bridgepoint Capital		London, England
Bruckmann Rosser and Sherrill & Co. LLC		New York, NY
Canterbury Capital Partners		New York, NY
Cravey, Green and Whalen Inc.		Atlanta, GA
Charterhouse Group International		New York, NY
Compass Partners International		London, England
CVC Capital Partners		London, England
DDJ Capital Management LLC		Boston, MA
Exxel Group		Buenos Aires, Argentina
Fremont Partners		San Francisco, CA

Freeman Spogli & Co.		Los Angeles, CA
GP Investimentos		Sao Paulo, Brazil
Hicks Muse Tate and Furst		Dallas, TX
Kelso Investment Associates		New York, NY
Kohlberg Kravis & Roberts & Co.		New York, NY
Lehman Brothers		New York, NY
Newbridge Capital		San Francisco, CA
TCW/Crescent Mezzanine LLC		Los Angeles, CA
Trivest		Miami, FL
The Shansby Group		San Francisco, CA
Vestar Capital Partners		New York, NY
Warburg Pincus		New York, NY
Washington & Congress Capital		Boston, MA
Willis Stein & Partners		Chicago, IL

The private equity funds, in turn, are currently invested in approximately 500 companies which manufacture or provide a wide array of products and services to both businesses and consumers worldwide.

Approximately half of DPL’s investments in any single private equity funds are less than 5% of the fund. Rarely is DPL’s investment in a single private equity fund more than 10% of the fund.

The Company consults with the investment professionals of each firm on a periodic basis and is provided access to information regarding each fund’s investments, subject to applicable confidentiality agreements. As an investor in the funds, DPL receives annual financial statements for each private equity fund audited by recognized U.S. or international accounting firms.

DPL’s financial assets are broadly diversified in terms of concentration of investment in particular companies, industry sector and region. The geographic allocation of the financial assets included on the Consolidated Balance Sheet at March 31, 2004 is as follows:

Geographical Region		% of DPL Portfolio Holdings
Private Securities:
United States/Canada		54%
Europe		29%
Asia/Australia		7%
Latin America		2%

Total Private Securities		92%

Public Securities:
United States		8%

Total Financial Assets		100%

The industry sector allocation of the investments in limited partnerships included on the Consolidated Balance Sheet at March 31, 2004 is as follows:

Primary Sector		% of DPL Portfolio Holdings
Manufacturing		35%
Services – Business/Consumer		11%
Health Care Products		10%
Communications		9%
Software/IT Services		7%
Media		6%
Retail		6%
Finance/Insurance		5%
Building Products/Construction		4%
Energy		2%
Business Products		2%
Agriculture		1%
Entertainment		1%
Wholesale Distribution		1%

FACTORS THAT MAY AFFECT FUTURE RESULTS

This quarterly report and other documents that DPL files with the Securities and Exchange Commission (SEC) and other regulatory agencies, as well as other oral or written statements the Company may make from time to time, contain information based on management’s beliefs and include forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that involve a number of known and unknown risks, uncertainties and assumptions. These forward-looking statements are not guarantees of future performance, and there are a number of factors including, but not limited to, those listed below, which could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements. DPL does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions.

Regulation/Competition

DPL operates in rapidly changing industry with evolving industry standards and regulations. In recent years a number of federal and state developments aimed at promoting competition triggered industry restructuring. Regulatory factors, such as changes in the policies or procedures that set rates; changes in tax laws, tax rates, and environmental laws and regulations; changes in DPL’s ability to recover expenditures for environmental compliance, fuel and purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases, can affect the Company’s results of operations and financial condition. Additionally, financial or regulatory accounting principles or policies imposed by governing bodies can increase DPL’s operational and monitoring costs affecting its results of operations and financial condition.

Changes in DPL’s customer base, including aggregation, could lead to the entrance of competitors in the Company’s marketplace affecting its results of operations and financial condition.

Economic Conditions

Economic pressures, as well as changing market conditions and other factors related to physical energy and financial trading activities, which include price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange rates and interest rates can have a significant effect on DPL’s operations and the operations of its retail, industrial and commercial customers.

Reliance on Third Parties

DPL relies on many suppliers for the purchase and delivery of inventory and components to operate its energy production and transmission functions. Unanticipated changes in DPL’s purchasing processes may affect the Company’s business and operating results. In addition, the Company relies on others to provide professional services, such as, but not limited to investment management, actuarial calculations, internal audit services, payroll processing and various consulting services.

Operating Results Fluctuations

Future operating results could be affected and are subject to fluctuations based on a variety of factors, including but not limited to: unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; changes in coal costs, gas supply costs, or availability constraints; environmental compliance, including costs of compliance with existing and future environmental requirements; and electric transmission system constraints.

Employees

A majority of DP&L’s employees are under a collective bargaining agreement. If the Company is unable to negotiate future collective bargaining agreements, the Company could experience work stoppages, which may affect its business and operating results.

Regulatory Uncertainties and Litigation

In the normal course of business, the Company is subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. Additionally, the Company is subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting and taxation, which are rapidly changing and subject to changes in the future. As described under Item 3 – Legal Proceedings, in

the Company’s Form 10-K for the year ended December 31, 2003, the Company is also currently involved in various litigation in which the outcome is uncertain. Compliance with these rapid changes may substantially increase costs to DPL’s organizations and could affect its future operating results.

Internal Controls

As described under Item 1 – Business - Recent Developments, in the Company’s Form 10-K for the year ended December 31, 2003, a review by independent counsel to the Audit Committee of the Board of Directors of the Company has identified recommendations for improvement relating to some of the concerns raised by the Company’s Controller including, among other things, internal controls. In addition, as further described under Item 9A - Controls and Procedures, during their year-end review, the Company’s independent auditors identified and reported to management and the Audit Committee of the Board of Directors two material weaknesses and certain other matters involving internal control deficiencies considered to be reportable conditions under standards established by the Public Company Accounting Oversight Board (PCAOB). The material weaknesses include conditions related to (1) the Company’s process for recognizing an adjustment to the Company’s income tax provision to reflect a deductibility limitation under Section 162(m) with respect to executive deferred compensation distributions made during 2003 and (2) lack of effective communication in internal reporting of certain investment income that may lead to improper accounting of such transactions in accordance with generally accepted accounting principles.

The reportable conditions that are not believed to be a material weakness include conditions related to payroll processing, the quality and change control process for the preparation of SEC filings, management’s assessment of the Company’s internal controls, executive travel and entertainment expense reporting, the lack of a comprehensive controller function and segregation of duties for certain accounting transactions and activities.

The Company’s failure to timely improve any deficiencies in its internal controls and procedures could result in errors in its consolidated financial statements, adversely affect its ability to operate its business and hamper management’s ability to report on the effectiveness of its internal controls. The Company has taken steps to correct the internal control deficiencies identified and will further develop and enhance the Company’s internal control policies, procedures, systems and staff to allow it to mitigate the risk that material accounting errors might go undetected and be included in its consolidated financial statements. The Company cannot assure that any new policies or procedures that the Company implements to remedy the material weaknesses and/or reportable conditions will be successful in the near term.

The Company is currently undertaking a thorough review of its internal controls as part of the Company’s preparation for compliance with the requirements under Section 404 of the Sarbanes-Oxley Act of 2002 and the Company is using this review to further assist in identifying and correcting any control deficiencies. As expected, this review has revealed some control weaknesses, which the Company has reported to the Audit Committee. The Company has since taken steps to strengthen its internal controls in these areas, including increasing segregation of duties, writing policies where necessary, adding checks at key decision points and increasing supervisor review of transactions. These actions have been successful in eliminating a large percentage of the deficiencies noted, but additional remediation activities continue. Corrected control deficiencies are being retested by management to assure that remediation efforts were successful, and the Company’s auditors will perform independent testing of the Company’s internal controls as part of their year-end review. At this time, the Company has not completed its review of the existing controls and their effectiveness. Unless the material weaknesses described above, or any identified during this review, are remedied, there can be no assurances that the Company will be able to assert that its internal control over financial reporting is effective, pursuant to the rules adopted by the SEC under Section 404, when those rules take effect.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

DPL’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). In connection with the preparation of these financial statements, DPL’s management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on management’s historical experience and assumptions that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. DPL’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain.

Different estimates could have a material effect on its financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different

DPL INC.

OPERATING STATISTICS

	Three Months Ended March 31,
	2004			2003
Electric

Sales (millions of kWh)
Residential	1,531			1,546
Commercial	904			886
Industrial	1,038			1,023
Other retail	333			333
Total retail	3,806			3,788
Wholesale	982			832

Total	4,788			4,620

Revenues ($ in thousands)
Residential	$	125,992		$		126,193
Commercial	63,846			63,562
Industrial	53,389			53,006
Other retail	22,685			22,342
Total retail	265,912			265,103
Wholesale	33,917			29,977

Total	$		299,829	$	295,080

Electric customers at end of period	507,659			505,568

Item 3. Quantitative and Qualitative Disclosures about Market Risk

See the “Market Risk” section of Item 2.

Item 4. Controls and Procedures

For the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Attached as exhibits 31.1 and 31.2 to this quarterly report are certifications of the Chief Executive Officer and the interim Chief Financial Officer required in accordance with Rule 13a-14 of the Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

There were no changes in the Company’s internal control over financial reporting that occurred during the last quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, during their year-end review, KPMG LLP (KPMG), the Company’s independent accountants, identified and reported to management and the Audit Committee of the Board of Directors two material weaknesses and certain other matters involving internal control deficiencies considered to be reportable conditions under standards established by the Public Company Accounting Oversight Board (PCAOB). Reportable conditions

are matters coming to the attention of the auditors that, in their judgment, relate to significant deficiencies in the design or operation of internal control and could adversely affect the organization’s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

The two material weaknesses identified are:

(1) An ineffective process for recognizing an adjustment to the Company’s income tax provision to reflect a deductibility limitation under Section 162(m) for executive deferred compensation distributions made during 2003, including, without limitation, insufficient supporting documentation submitted to the Company’s tax department for purposes of calculating the income tax provision and the lack of effective communication between and among senior management, counsel and the Company’s tax and compensation experts. Absent review of specific deferred compensation records by the Company’s outside auditors, income tax balances for 2003 may have been improperly stated at December 31, 2003. Management concurred with KPMG’s observations relating to income tax reporting of executive compensation. The Company further evaluated its internal processes relating to executive compensation and has implemented internal control improvements in this area; and

(2) A complex and manual process for accounting and reporting transactions in the Company’s financial asset portfolio, including, (i) separate reporting structures for MVE accounting and corporate accounting that do not allow for a review of the entire process, (ii) the lack of a complete accounting manual for financial asset portfolio accounting that contemplates all investment transactions that occur on a regular basis and (iii) ineffective communication between the MVE and corporate accounting groups that does not ensure that all investment portfolio transactions are identified, accumulated and reported in accordance with generally accepted accounting principles. Specifically, in 2003 private equity fund distributions in the form of stock of underlying investments were initially accounted for by management entirely as return of capital transactions. A large element of each distribution should have been accounted for as income rather than a return of capital. As a result, results for the third quarter 2003 were required to be revised. Similar transactions in prior years were also accounted for inappropriately and were revised. Management concurred with KPMG’s observations relating to investment portfolio accounting and acknowledged the need for improvement. The Company further evaluated its accounting processes relating to its investment portfolio and has implemented internal control improvements in this area.

The reportable conditions that are not believed to be material weaknesses are conditions related to: (i) payroll processing and the fact that the Company has two separate payroll processes, one for the majority of personnel and one for the Company’s senior executives, (ii) the lack of a quality and change control process for the preparation and submission of SEC filings on Form 10-K and Form 10-Q, (iii) the lack of significant progress made by management in assessing the Company’s internal controls in preparation for Sarbanes-Oxley Section 404 implementation and KMPG’s belief that the Company will identify control weaknesses requiring remediation, (iv) the Company’s process for executive travel and entertainment expense reporting and reimbursement and the lack of sufficient supporting documentation for reported business expenses of certain executives to support deductibility for tax purposes, (v) the lack of a comprehensive controller function to monitor the accounting function in the Company and (vi) inadequate segregation of duties for certain accounting transactions and activities processed at the executive level, including payroll, benefit plans, other compensation plans, time and expense reporting by senior management and preparation and submission of SEC filings.

The material weaknesses and reportable conditions identified above, if unaddressed, could result in errors in the Company’s consolidated financial statements.

Management concurred with KPMG’s observations relating to payroll processing (particularly those relating to executive compensation), external reporting processes, and executive travel and entertainment expense reporting. The Company further evaluated these areas and implemented appropriate internal control improvements.

Management acknowledged KPMG’s observations relating to Sarbanes-Oxley Section 404 implementation and increased resources dedicated to this effort. Additionally, the Company has improved its communications both within the organization and with KPMG regarding the status of the implementation process, project scope, preliminary results and remediation efforts. Management also acknowledged the need for a more comprehensive controller function. The Company reviewed the accounting processes performed outside the corporate controller’s

Part II. Other Information

Item 1. Legal Proceedings

There were no significant changes in the first quarter of 2004 to the Legal Proceedings reported in DPL’s Form 10-K as of December 31, 2003. A discussion of legal proceedings is described in Item 3-Legal Proceedings and Note 16 of Notes to Consolidated Financial Statements of DPL’s Form 10-K for the year ended December 31, 2003 and such discussion is incorporated by reference and made a part hereof.

Item 4. Submission of Matters to a Vote of Security Holders

There were no submissions to the security holders in the first quarter.

Item 5. Other Information

There were no significant changes in the first quarter of 2004 to the Recent Developments reported in Item 1-Business or to the Subsequent Events discussed in Note 18 of Notes to Consolidated Financial Statements in DPL’s Form 10-K as of December 31, 2003 and such discussions are incorporated by reference and made a part hereof.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

4.1 Officer’s Certificate of DPL Inc. establishing $175 million Senior Note due 2009, dated March 25, 2004 (Filed as Exhibit 4.1 to form 8-K filed on March 29, 2004 (File No. 1-9052))

4.2 Exchange and Registration Rights Agreement dated march 25, 2004 between DPL Inc. and the purchasers (Filed as Exhibit 4.2 to Form 8-K filed on March 29, 2004 (file No. 1-9052))

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K.

On February 5, 2004, DPL Inc. filed a Form 8-K reporting under Item 5 the appointment of Robert Biggs to to its Board of Directors, and attaching a copy of its press release as Exhibit 99.1 to the Report.

On February 10, 2004, DPL Inc. filed a Form 8-K reporting under Item 12 its full year and fourth quarter earnings, and attaching a copy of its press release as Exhibit 99.1 to the Report.

On March 15, 2004, DPL Inc. filed a Form 8-K reporting under Item 5 that it announced its filing with the Securities and Exchange Commission for an extension to file its 2003 Form 10-K, and attaching as Exhibit 99.1 its press release containing its unaudited 2003 results.

On March 25, 2004, DPL Inc. filed a Form 8-K reporting under Item 5 that it completed a private placement of $175 million aggregate principal amount of senior notes, to be used, together with other available corporate funds, to repay DPL’s Senior Notes, 6.82% Series due 2004 at maturity. A copy of DPL Inc.’s press release was attached as Exhibit 99.1 to the Report.

On March 30, 2004, DPL Inc. filed a Form 8-K reporting under Item 5 additional details of the private placement it announced on March 25, 2004 and attaching the Officer’s Certificate of DPL Inc. and the Exchange and Registration Rights Agreement related to such private placement as Exhibits 4.1 and 4.2, respectively, to the Report.

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:	November 5, 2004	/s/ James V. Mahoney
		James V. Mahoney
		President and Chief Executive Officer
		(principal executive officer)


	November 5, 2004	/s/ Pamela Holdren
		Pamela Holdren
		Treasurer and interim Chief Financial Officer (principal financial and principal accounting officer)


	November 5, 2004	/s/ Daniel L. Thobe
		Daniel L. Thobe
		Corporate Controller