Income Taxes

12 Months Ended

Dec. 31, 2013

Note 8 – Income Taxes

DPL’s components of income tax expense were as follows:



	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Computation of tax expense
Federal income tax expense / (benefit)(a)	$	(69.9)	$	(588.7)	$	(2.0)	$	88.4

Increases (decreases) in tax resulting from:
State income taxes, net of federal effect		1.7		3.5		0.1		3.8
Depreciation of AFUDC - Equity		(3.2)		(2.4)		(0.3)		(2.9)
Investment tax credit amortized		(0.5)		(0.3)		(0.2)		(2.3)
Section 199 - domestic production deduction		(4.1)		(2.1)		-		(3.6)
Non-deductible merger costs		-		-		0.1		6.0
Non-deductible merger-related compensation		-		0.6		3.5		-
Non-deductible goodwill impairment		107.2		636.0		-		-
Accrual (settlement) for open tax years		(8.8)		(0.1)		0.1		0.1
Compensation and benefits		-		-		-		13.8
Income not subject to tax		-		-		(0.6)		-
Other, net (b)		(0.1)		1.2		(0.1)		(1.3)
Total tax expense	$	22.3	$	47.7	$	0.6	$	102.0

Components of tax expense
Federal - current	$	1.8	$	48.6	$	0.4	$	53.2
State and Local - current		0.7		1.2		0.4		0.9
Total current		2.5		49.8		0.8		54.1

Federal - deferred		18.1		(4.9)		(0.2)		43.2
State and local - deferred		1.7		2.8		-		4.7
Total deferred		19.8		(2.1)		(0.2)		47.9

Total tax expense	$	22.3	$	47.7	$	0.6	$	102.0



Components of Deferred Tax Assets and Liabilities (Successor)
	Years ended December 31,
$ in millions	2013		2012
Net non-current Assets / (Liabilities)
Depreciation / property basis	$	(531.5)	$	(517.0)
Income taxes recoverable		(11.4)		(12.3)
Regulatory assets		(15.6)		(20.6)
Investment tax credit		1.0		1.2
Intangibles		(3.9)		(2.4)
Compensation and employee benefits		(2.0)		2.2
Long-term debt		(1.7)		(2.0)
Other (c)		0.8		16.0
Net non-current liabilities	$	(564.3)	$	(534.9)

Net current Assets / (Liabilities) (d)
Other	$	(2.6)	$	4.7
Net current assets / (liabilities)	$	(2.6)	$	4.7

(a)The statutory tax rate of 35% was applied to pre-tax earnings.

(b)Includes expense of $0.0 million, $1.2 million and benefits of $0.0 million and $2.3 million in the years ended December 31, 2013 and 2012, the period November 28, 2011 through December 31, 2011 and the period January 1, 2011 through November 27, 2011, respectively, of income tax related to adjustments from prior years.

(c)The Other non-current liabilities caption includes deferred tax assets of $20.7 million in 2013 and $20.4 million in 2012 related to state and local tax net operating loss carryforwards, net of related valuation allowances of $16.6 million in 2013 and $16.2 million in 2012. These net operating loss carryforwards expire from 2014 to 2027.

(d)Amounts are included within Other prepayments and current assets on the Consolidated Balance Sheets of DPL.

The following table presents the tax expense / (benefit) related to pensions, postemployment benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.



	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Tax expense / (benefit)	$	15.4	$	(2.5)	$	(1.2)	$	(33.2)

Accounting for Uncertainty in Income Taxes

We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



$ in millions
Balance at January 1, 2011	$	19.4

January 1, 2011 through November 27, 2011 (Predecessor)
Tax positions taken during prior period		2.0
Settlement with taxing authorities		3.5
Balance at November 27, 2011	$	24.9

November 28, 2011 through December 31, 2011 (Successor)
Balance at November 28, 2011	$	24.9
Tax positions taken during current period		0.1
Balance at December 31, 2011		25.0

Calendar 2012 (Successor)
Tax positions taken during prior period		(6.3)
Tax positions taken during current period		(0.4)
Balance at December 31, 2012		18.3

Calendar 2013 (Successor)
Tax positions taken during prior period		(0.1)
Lapse of Statute of Limitations		(6.9)
Settlement with taxing authorities		(2.5)
Balance at December 31, 2013	$	8.8

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months other than those subject to expiring statutes of limitations.

We recognize interest and penalties related to unrecognized tax benefits in Income tax expense. The following table represents the amounts accrued as well as the expense / (benefit) recorded as of and for the periods noted below:



Amounts in Balance Sheet	Successor
$ in millions	December 31, 2013		December 31, 2012
Liability	$	0.2	$	0.8


Amounts in Statement of Operations	Successor						Predecessor
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		November 28, 2011 through December 31, 2011		January 1, 2011 through November 27, 2011
Expense / (benefit)	$	(0.6)	$	(0.1)	$	-	$	0.6

Following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2010 and forward

State and Local – 2010 and forward

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months other than those subject to expiring statutes of limitations.

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.

DP&L [Member]

Income Taxes

Note 7 – Income Taxes

DP&L’s components of income tax expense were as follows:



$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		Year ended December 31, 2011
Computation of tax expense
Federal income tax expense / (benefit)(a)	$	35.5	$	50.9	$	103.8

Increases (decreases) in tax resulting from:
State income taxes, net of federal effect		0.3		(2.0)		1.4
Depreciation of AFUDC - Equity		(2.5)		3.0		(3.2)
Investment tax credit amortized		(2.5)		(2.5)		(2.5)
Section 199 - domestic production deduction		(4.1)		(2.5)		(4.9)
Non-deductible merger-related compensation		-		0.6		3.6
Accrual (settlement) for open tax years		(8.8)		-		-
ESOP		-		-		13.6
Compensation and benefits		-		-		(5.3)
Other, net (b)		0.7		7.6		(2.3)
Total tax expense	$	18.6	$	55.1	$	104.2

Components of Tax Expense
Federal - current	$	38.6	$	52.1	$	54.9
State and Local - current		(0.1)		1.0		0.9
Total current		38.5		53.1		55.8

Federal - deferred		(20.4)		4.7		47.1
State and local - deferred		0.5		(2.7)		1.3
Total deferred		(19.9)		2.0		48.4

Total tax expense	$	18.6	$	55.1	$	104.2



	December 31,
$ in millions	2013		2012
Net non-current Assets / (Liabilities)
Depreciation / property basis	$	(607.1)	$	(622.1)
Income taxes recoverable		(11.4)		(12.3)
Regulatory assets		(15.6)		(20.6)
Investment tax credit		8.8		9.6
Compensation and employee benefits		(0.2)		0.3
Other		(6.8)		(6.9)
Net non-current liabilities	$	(632.3)	$	(652.0)

Net current Assets / (Liabilities) (c)
Other	$	(5.0)	$	2.0
Net current assets / (liabilities)	$	(5.0)	$	2.0

(a)The statutory tax rate of 35% was applied to pre-tax earnings.

(b)Includes expense of $1.1 million, $7.6 million and benefit of $2.4 million in the years ended December 31, 2013, 2012 and 2011, respectively, of income tax related to adjustments from prior years.

(c)Amounts are included within Other prepayments and current assets on the Balance Sheets of DP&L.

The following table presents the tax (benefit) / expense related to pensions, postemployment benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.



$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		Year ended December 31, 2011
Tax expense / (benefit)	$	7.0	$	(0.8)	$	(7.2)

Accounting for Uncertainty in Income Taxes

We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits for DP&L is as follows:



$ in millions
Balance at December 31, 2011	$	25.0

Calendar 2012
Tax positions taken during prior period		(6.3)
Tax positions taken during current period		(0.4)
Balance at December 31, 2012		18.3

Calendar 2013
Tax positions taken during prior period		(0.1)
Lapse of Statute of Limitations		(6.9)
Settlement with taxing authorities		(2.5)
Balance at December 31, 2013	$	8.8

Of the December 31, 2013 balance of unrecognized tax benefits, $8.8 million is due to uncertainty in the timing of deductibility.



Amounts in Balance Sheet
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		Year ended December 31, 2011
Liability	$	0.2	$	0.8	$	0.9


Amounts in Statement of Operations
$ in millions	Year ended December 31, 2013		Year ended December 31, 2012		Year ended December 31, 2011
Expense / (benefit)	$	(0.6)	$	(0.1)	$	0.6

Following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2010 and forward

State and Local – 2010 and forward

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months other than those subject to expiring statutes of limitations.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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