Business Combination

12 Months Ended

Dec. 31, 2011

Business Combination

2. Business Combination

On November 28, 2011, AES completed its acquisition of DPL. AES paid cash consideration of approximately $3,483.6 million. The allocation of the purchase price was based on the estimated fair value of assets acquired and liabilities assumed. In addition, Dolphin Subsidiary II, Inc. (a wholly-owned subsidiary of AES) issued $1,250.0 million of debt, which, as a result of the merger of DPL and Dolphin Subsidiary II, Inc. was assumed by

DPL.

Following is a summary of estimated fair value of assets acquired and liabilities assumed as of November 28, 2011 measured in accordance with FASC 805.

		Fair value
		of assets
		acquired
		and
		liabilities
$ in millions		assumed
Cash	$	116.4
Accounts receivable		277.6
Inventory		123.7
Other current assets		41.0
Property, plant and equipment		2,548.5
Intangible assets subject to amortization		166.3
Intangible assets - indefinite-lived		5.0
Regulatory assets		201.1
Other non-current assets		58.3
Current liabilities		(400.2	)
Debt		(1,255.1	)
Deferred taxes		(558.2	)
Regulatory liabilities		(117.0	)
Other non-current liabilities		(194.7	)
Redeemable preferred stock		(18.4	)
Net identifiable assets acquired		994.3
Goodwill		2,489.3
Net assets acquired	$	3,483.6

The carrying values of the majority of regulated assets and liabilities were determined to be stated at their estimate fair values at the Merger date based on a conclusion that individual assets are subject to regulation by the PUCO and the FERC. As a result, the future cash flows associated with the assets are limited to the carrying value plus a return, and management believes that a market participant would not expect to recover any more or less than the carrying value. Furthermore, management believes that the current rate of return on regulated assets is consistent with an amount that market participants would expect. FASC 805 requires that the beginning balance of fixed depreciable assets be shown net, with no accumulated amortization recorded, at the date of the Merger.

Property, plant and equipment were valued based on the discounted value of the estimated future cash flows to be generated from such assets.

Intangible assets include the fair value of customer relationships, customer contracts and DP&L's ESP based on a combination of the income approach, the market based approach and the cost approach.

The fair value of inventory consists primarily of two components: materials and supplies; and fuel and limestone.

The estimated fair value at the Merger date was established using a variety of approaches to estimate the market

price. The carrying value of fuel inventory was adjusted to its fair value by applying market cost at the Merger date.

Energy derivative contracts were reassessed and revalued at the Merger date based on forward market prices and forecasted energy requirements. The fair value assigned to the power contracts was determined using an income approach comparing the contract rate to the market rate for power over the remaining period of the contracts incorporating nonperformance risk. Management also incorporated certain assumptions related to quantities and market presentation that it believes market participants would make in the valuation. The fair value of the power contracts will be amortized as the contracts settle.

Other regulatory assets are costs that are being recovered or will be recovered through the ratemaking process and are valued at their expected recoverable amount.

The fair value assigned to long-term debt was determined by a third party pricing service's quoted price.

Redeemable preferred stock was valued based on the last price paid by a third party.

The Merger triggered a new basis of accounting for DPL for the postretirement benefit plans sponsored by DPL under FASC 805 which required remeasuring plan liabilities without the five year smoothing of market-related asset gains and losses.

During the periods January 1, 2011 through November 27, 2011 and November 28, 2011 through December 31, 2011, DPL incurred pre-tax merger costs of $37.9 million and $15.7 million, respectively, primarily related to legal fees, transaction advisory services and change of control provisions. DPL does not anticipate significant merger related costs in 2012.

As a result of the Merger, DPL reclassified emission allowances and renewable energy credits to intangible assets and records certain excise and other taxes net as a reduction of revenue, consistent with AES' policies. All material prior period amounts have been reclassified to conform to this presentation.

DP&L [Member]

Business Combination

2. Business Combination

On November 28, 2011, all of the outstanding common stock of DP&L's parent company, DPL, was acquired by AES. In accordance with FASC 805, the assets and liabilities of DPL were valued at their fair value at the Merger date. These adjustments were "pushed down" to DPL's records. These adjustments were not pushed down to DP&L which will continue to use its historic costs for its assets and liabilities. Therefore, DP&L does not need to show a Predecessor and Successor split of its financial statements.

A number of lawsuits have been filed in connection with the Merger (See Item 1A, "Risk Factors," for additional risks related to the Merger). Each of these lawsuits seeks, among other things, one or more of the following: to rescind the Merger or for rescissory damages, or to commence a sale process and/or obtain an alternative transaction or to recover an unspecified amount of other damages and costs, including attorneys' fees and expenses, or a constructive trust or an accounting from the individual defendants for benefits they allegedly obtained as a result of their alleged breach of duty.

On June 13, 2011, the three actions in the District Court were consolidated. On June 14, 2011, the District Court granted Plaintiff Nichting's motion to appoint lead and liaison counsel. On June 30, 2011, plaintiffs in the consolidated federal action filed an amended complaint that added claims based on alleged omissions in the preliminary proxy statement that DPL filed on June 22, 2011 (the "Preliminary Proxy Statement"). Plaintiffs, in their individual capacity only, asserted a claim against DPL and its

directors under Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") for purported omissions in the Preliminary Proxy Statement and a claim against DPL's directors for control person liability under Section 20(a) of the Exchange Act. In addition, plaintiffs purported to assert state law claims directly on behalf of Plaintiffs and an alleged class of DPL shareholders and derivatively on behalf of DPL. Plaintiffs alleged, among other things, that DPL's directors breached their fiduciary duties in approving the Merger Agreement for the Merger of DPL and AES and that DPL, AES and Dolphin Sub, Inc. aided and abetted such breach.

On February 24, 2012, the District Court entered an order approving a settlement between DPL, DPL's directors, AES and Dolphin Sub, Inc. and the plaintiffs in the consolidated federal action. The settlement resolves all pending federal court litigation related to the Merger, including the Kubiak, Holtmann and Nichting actions, results in the release by the plaintiffs and the proposed settlement class of all claims that were or could have been brought challenging any aspect of the Merger Agreement, the Merger and any disclosures made in connection therewith and provides for an immaterial award of plaintiffs' attorneys' fees and expenses.