Income Taxes

9 Months Ended

Sep. 30, 2013

Income Taxes

6.  Income Taxes 

The following table details the effective tax rates for the three and nine months endedSeptember 30, 2013 and 2012. 

	Three months ended September 30,		Nine months ended September 30,
	2013	2012	2013	2012
DPL	25.4%	(1.2)%	21.5%	(2.3)%

Income tax expense for the three and nine months endedSeptember 30, 2013 and 2012 was calculated using the estimated annual effective income tax rates for 2013 and 2012 of 31.0% and 33.2%, respectively.  For the three and nine months endedSeptember 30, 2013, management estimates the annual effective tax rate based on its forecast of annual pre-tax income. For the three and nine months endedSeptember 30, 2012, management estimates the annual effective tax rate based on its actual pre-tax income for the period. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the rates estimated could be materially different from the actual effective tax rates.

For the three months endedSeptember 30, 2013,  DPL’s current period effective rate is less than the estimated annual effective rate due to a 2013 deferred tax adjustment related to the expiration of the statute of limitations on the 2009 tax year. 

For the nine months endedSeptember 30, 2013,  DPL’s current period effective rate is less than the estimated annual effective rate due primarily to a favorable resolution of the 2008 Internal Revenue Service examination in the first quarter of 2013 and a 2013 deferred tax adjustment related to the expiration of the statute of limitations on the 2007, 2008 and 2009 tax years.  The decrease in the effective rate compared to the same periods in 2012 is due to the factors mentioned above.

Deferred tax liabilities for DPL increased by approximately $41.1 million during the nine months endedSeptember 30, 2013 primarily related to the resolution of the 2008 Internal Revenue Service examination in the first quarter of 2013, as well as changes in OCI and adjustments for differences between book and tax depreciation and amortization. 

The Internal Revenue Service began an examination of our 2008 Federal income tax return during the second quarter of 2010.  The results of the examination were approved by the Joint Committee on Taxation on January 18, 2013.  As a result of the examination, DPL received a refund of $19.9 million and recorded a $1.2 million reduction to income tax expense.

On September 13, 2013, the Internal Revenue Service released final regulations addressing the acquisition, production and improvement of tangible property and proposed regulations addressing the disposition of property. These regulations replace previously issued temporary regulations and are effective for tax years beginning on or after January 1, 2014.  DPL has not yet performed a detailed analysis of the potential impact of the new regulations, but based on previously implemented method changes regarding repairs, believes it is currently in compliance with the vast majority of the provisions in the new regulations and that upon full adoption there will be no material impact on the financial statements.  DPL will be evaluating elections and safe harbor methods available and future guidance yet to be issued regarding implementation of the new regulations which may change the timing of future income tax payments.

DP&L [Member]

Income Taxes

6.  Income Taxes 

The following table details the effective tax rates for the three and nine months endedSeptember 30, 2013 and 2012. 

	Three months ended September 30,		Nine months ended September 30,
	2013	2012	2013	2012
DP&L	24.4%	(138.3)%	22.5%	40.3%

Income tax expense for the three and nine months endedSeptember 30, 2013 and 2012 was calculated using the estimated annual effective income tax rates for 2013 and 2012 of  29.5% and 30.7%, respectively.  For the three and nine months endedSeptember 30, 2013, management estimates the annual effective tax rate based on its forecast of annual pre-tax income. For the three and nine months endedSeptember 30, 2012, management estimates the annual effective tax rate based on its actual pre-tax income for the period. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the rates estimated could be materially different from the actual effective tax rates.

For the three months endedSeptember 30, 2013,  DP&L’s current period effective rate is less than the estimated annual effective rate due to a 2013 deferred tax adjustment related to the expiration of the statute of limitations on the 2009 tax year. 

For the nine months endedSeptember 30, 2013,  DP&L’s current period effective rate is less than the estimated annual effective rate due primarily to a favorable resolution of the 2008 Internal Revenue Service examination in the first quarter of 2013 and the deferred tax adjustment related to the expiration of the statute of limitationson the 2007, 2008 and 2009 tax years.  The decrease in the effective rate compared to the same periods in 2012 is due to the factors mentioned above. 

Deferred tax liabilities for DP&L increased by approximately $28.4 million during the nine months endedSeptember 30, 2013primarily related to the resolution of the 2008 Internal Revenue Service examination in the first quarter of 2013, as well as changes in OCI and adjustments for differences between book and tax depreciation and amortization.

The Internal Revenue Service began an examination of our 2008 federal income tax return during the second quarter of 2010.  The results of the examination were approved by the Joint Committee on Taxation on January 18, 2013.  As a result of the examination, DP&L received a refund of $19.9 million and recorded a $1.2 million reduction to income tax expense.  

On September 13, 2013, the Internal Revenue Service released final regulations addressing the acquisition, production and improvement of tangible property and proposed regulations addressing the disposition of property. These regulations replace previously issued temporary regulations and are effective for tax years beginning on or after January 1, 2014.  DP&L has not yet performed a detailed analysis of the potential impact of the new regulations, but based on previously implemented method changes regarding repairs, believes it is currently in compliance with the vast majority of the provisions in the new regulations and that upon full adoption there will be no material impact on the financial statements.  DP&L will be evaluating elections and safe harbor methods available and future guidance yet to be issued regarding implementation of the new regulations which may change the timing of future income tax payments.