Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes

Note 7  –Income Taxes

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

	Years ended December 31,
$ in millions	2014		2013		2012
Computation of tax expense
Federal income tax expense / (benefit)(a)	$	(19.8)	$	(69.9)	$	(588.7)
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect		1.2		1.7		3.5
Depreciation of AFUDC - Equity		(3.4)		(3.2)		(2.4)
Investment tax credit amortized		(0.5)		(0.5)		(0.3)
Section 199 - domestic production deduction		(1.1)		(4.1)		(2.1)
Non-deductible merger-related compensation		-		-		0.6
Non-deductible goodwill impairment		47.5		107.2		636.0
Accrual (settlement) for open tax years		(6.6)		(8.8)		(0.1)
Other, net (b)		0.7		(0.1)		1.2
Total tax expense	$	18.0	$	22.3	$	47.7
Components of tax expense
Federal - current	$	(0.1)	$	1.8	$	48.6
State and Local - current		0.9		0.7		1.2
Total current		0.8		2.5		49.8
Federal - deferred		16.6		18.1		(4.9)
State and local - deferred		0.6		1.7		2.8
Total deferred		17.2		19.8		(2.1)
Total tax expense	$	18.0	$	22.3	$	47.7

Components of Deferred Tax Assets and Liabilities
	December 31,
$ in millions	2014		2013
Net non-current Assets / (Liabilities)
Depreciation / property basis	$	(548.2)	$	(531.5)
Income taxes recoverable		(14.8)		(11.4)
Regulatory assets		(18.0)		(15.6)
Investment tax credit		1.5		1.0
Compensation and employee benefits		3.2		(3.9)
Intangibles		(7.0)		(2.0)
Long-term debt		(1.5)		(1.7)
Other (c)		(2.5)		0.8
Net non-current liabilities	$	(587.3)	$	(564.3)
Net current Assets / (Liabilities) (d)
Other	$	1.1	$	(2.6)
Net current assets / (liabilities)	$	1.1	$	(2.6)

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

(b)Includes expense of $0.4 million, $0.0 million and benefits of $1.2 million in the years ended December 31, 20142013, and 2012, respectively, of income tax related to adjustments from prior years.

(c)The Other non-current liabilities caption includes deferred tax assets of $27.1 million in 2014 and $20.7 million in 2013 related to state and local tax net operating loss carryforwards, net of related valuation allowances of $21.9 million in 2014 and $16.6 million in 2013.  These net operating loss carryforwards expire from 2014 to 2027.

(d)Amounts are included within Other prepayments and current assets and Other current liabilities 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.

	Years ended December 31,
$ in millions	2014		2013		2012
Tax expense / (benefit)	$	(9.1)	$	15.4	$	(2.5)

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 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
Calendar 2014
Tax positions taken during prior period		2.8
Lapse of Statute of Limitations		(8.6)
Balance at December 31, 2014	$	3.0

Of the December 31, 2014 balance of unrecognized tax benefits, $0.9 million is due to uncertainty in the timing of deductibility.

We recognize interest and penalties related to unrecognized tax benefits in Income tax expense.  The amounts accrued as well as the expense / (benefit) recorded were not material for the years ended December 31, 2014,  2013 and 2012.

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 6  – Income Taxes

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

	Years ended December 31,
$ in millions	2014		2013		2012
Computation of tax expense
Federal income tax expense / (benefit)(a)	$	53.8	$	35.5	$	50.9
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect		1.2		0.3		(2.0)
Depreciation of AFUDC - Equity		(2.7)		(2.5)		3.0
Investment tax credit amortized		(2.5)		(2.5)		(2.5)
Section 199 - domestic production deduction		(4.6)		(4.1)		(2.5)
Non-deductible merger-related compensation		-		-		0.6
Accrual (settlement) for open tax years		(6.6)		(8.8)		-
Other, net (b)		1.1		0.7		7.6
Total tax expense	$	39.7	$	18.6	$	55.1
Components of Tax Expense
Federal - current	$	34.1	$	38.6	$	52.1
State and Local - current		0.5		(0.1)		1.0
Total current		34.6		38.5		53.1
Federal - deferred		4.1		(20.4)		4.7
State and local - deferred		1.0		0.5		(2.7)
Total deferred		5.1		(19.9)		2.0
Total tax expense	$	39.7	$	18.6	$	55.1

	December 31,
$ in millions	2014		2013
Net non-current Assets / (Liabilities)
Depreciation / property basis	$	(618.8)	$	(607.1)
Income taxes recoverable		(14.8)		(11.4)
Regulatory assets		(18.0)		(15.6)
Investment tax credit		8.6		8.8
Compensation and employee benefits		5.2		(0.2)
Other		(12.2)		(6.8)
Net non-current liabilities	$	(650.0)	$	(632.3)
Net current Assets / (Liabilities) (c)
Other	$	0.5	$	(5.0)
Net current assets / (liabilities)	$	0.5	$	(5.0)

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

(b)Includes expense of $0.7 million, $1.1 million and benefit of $7.6 million in the years ended December 31, 2014,  2013 and 2012, respectively, of income tax related to adjustments from prior years.

(c)Amounts are included within Other prepayments and current assets and Other current liabilities 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.

	Years ended December 31,
$ in millions	2014		2013		2012
Tax expense / (benefit)	$	(6.0)	$	7.0	$	(0.8)

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, 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
Calendar 2014
Tax positions taken during prior period		2.8
Lapse of Statute of Limitations		(8.6)
Balance at December 31, 2014	$	3.0

Of the December 31, 2014 balance of unrecognized tax benefits, $0.9 million is due to uncertainty in the timing of deductibility.

We recognize interest and penalties related to unrecognized tax benefits in Income tax expense.  The amounts accrued and expense (benefit) recorded were not material for each period presented.

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.