Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

6. Income Taxes

The following table details the effective tax rates for the three and six months ended June 30, 2011 and 2010.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
DPL	34.0	%	32.9	%	35.3	%	33.4	%
DP&L	33.6	%	32.3	%	33.8	%	33.1	%

Income tax expenses for the three and six months ended June 30, 2011 and 2010 were calculated using the estimated annual effective income tax rates for 2011 and 2010 and reflect estimated annual effective income tax rates of 33.7% and 33.5%, respectively. Management estimates the annual effective tax rate based upon its forecast of annual pre-tax income. 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 recognized.

For the three months ended June 30, 2011, DPL increased income tax expense by $0.1 million for an increase in other estimated tax liabilities. For the six months ended June 30, 2011, DPL increased income tax expense by $1.9 million by increasing deferred state income taxes by $2.0 million and decreasing other estimated tax liabilities by $0.1 million.

For the three and six months ended June 30, 2011, DP&L increased income tax expense by $0.1 million and $0.2 million, respectively, for an increase in other estimated tax liabilities.

For the six months ended June 30, 2011, the increase in DPL's effective tax rate compared to the same period in 2010 primarily reflects the decreased benefits from the Section 199 Domestic Production Deduction due to the election of bonus depreciation and increased state income tax expense due to the acquisition of MC Squared. The increase in DP&L's effective tax rate primarily reflects the decreased benefits from the Section 199 Domestic Production Deduction.

Deferred tax liabilities for both DPL and DP&L increased by approximately $32.4 million and $37.8 million, respectively, during the six months ended June 30, 2011. These increases were related to depreciation, a pension contribution and other temporary differences arising from routine changes in balance sheet accounts giving rise to deferred taxes.

The Internal Revenue Service began an examination of our 2008 Federal income tax return during the second quarter of 2010 and has continued through the current quarter. We do not expect the results of this examination to have a material impact on our financial statements.

As of June 30, 2011, DPL has incurred approximately $5.2 million in certain costs that are directly associated with the Proposed Merger, which will be deemed as non-deductible, resulting in approximately $1.8 million of additional tax expense for the period in which the transaction would occur.

DP&L [Member]

Income Taxes

6. Income Taxes

The following table details the effective tax rates for the three and six months ended June 30, 2011 and 2010.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
DPL	34.0	%	32.9	%	35.3	%	33.4	%
DP&L	33.6	%	32.3	%	33.8	%	33.1	%

Income tax expenses for the three and six months ended June 30, 2011 and 2010 were calculated using the estimated annual effective income tax rates for 2011 and 2010 and reflect estimated annual effective income tax rates of 33.7% and 33.5%, respectively. Management estimates the annual effective tax rate based upon its forecast of annual pre-tax income. 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 recognized.

For the three months ended June 30, 2011, DPL increased income tax expense by $0.1 million for an increase in other estimated tax liabilities. For the six months ended June 30, 2011, DPL increased income tax expense by $1.9 million by increasing deferred state income taxes by $2.0 million and decreasing other estimated tax liabilities by $0.1 million.

For the three and six months ended June 30, 2011, DP&L increased income tax expense by $0.1 million and $0.2 million, respectively, for an increase in other estimated tax liabilities.

For the six months ended June 30, 2011, the increase in DPL's effective tax rate compared to the same period in 2010 primarily reflects the decreased benefits from the Section 199 Domestic Production Deduction due to the election of bonus depreciation and increased state income tax expense due to the acquisition of MC Squared. The increase in DP&L's effective tax rate primarily reflects the decreased benefits from the Section 199 Domestic Production Deduction.

Deferred tax liabilities for both DPL and DP&L increased by approximately $32.4 million and $37.8 million, respectively, during the six months ended June 30, 2011. These increases were related to depreciation, a pension contribution and other temporary differences arising from routine changes in balance sheet accounts giving rise to deferred taxes.

The Internal Revenue Service began an examination of our 2008 Federal income tax return during the second quarter of 2010 and has continued through the current quarter. We do not expect the results of this examination to have a material impact on our financial statements.

As of June 30, 2011, DPL has incurred approximately $5.2 million in certain costs that are directly associated with the Proposed Merger, which will be deemed as non-deductible, resulting in approximately $1.8 million of additional tax expense for the period in which the transaction would occur.