Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

7.  Income Taxes

The following table details the effective tax rates for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
	Successor	Predecessor	Successor	Predecessor
DPL	(1.2)%	29.9%	(2.3)%	32.9%

Income tax expense for the three and nine months ended September 30, 2012 and 2011 was calculated using the estimated annual effective income tax rates of (2.2)% and 33.2% for 2012 and 2011, respectively.  For the three and nine months ended September 30, 2011, management estimated the annual effective tax rate based upon its forecast of annual pre-tax income. 

For the three and nine months ended September 30, 2012, management estimated the annual effective tax rate based upon actual pre-tax income for the period. 

For the three months ended September 30, 2012, DPL’s current period effective rate is greater than the estimated annual effective rate due to certain current period tax adjustments.  These current period adjustments include a revision to the estimated annual effective rate resulting in a reduction in tax expense of $16.7 million as well as a reduction in tax expense of $0.9 million due to the effect of estimate-to-actual income tax provision adjustments related to non-deductible merger costs as well as non-deductible officers compensation.

For the nine months ended September 30, 2012, DPL’s current period effective rate is less than the estimated annual effective rate due to certain current period tax adjustments.  These current period adjustments include an increase in deferred state income tax expense of $3.6 million and an increase in other estimated tax liabilities of $0.2 million.  These increases to tax expense are partially offset by a reduction in tax expense of $0.9 million due to the effect of estimate-to-actual income tax provision adjustments related to non-deductible merger costs as well as non-deductible officers compensation

For the three and nine months ended September 30, 2012, the decrease in DPL’s effective tax rate compared to the same period in 2011 primarily reflects decreased pre-tax earnings related to the goodwill impairment during the third quarter of 2012. 

Deferred tax liabilities for DPL decreased by approximately $25.4 million during the three months ended September 30, 2012 primarily related to purchase accounting adjustments and decreased $19.1 million during the nine months ended September 30, 2012 primarily related to purchase accounting adjustments, amortization and depreciation.

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.  At this time, we do not expect the results of this examination to have a material effect on our financial statements.

DP&L [Member]

Income Taxes

7.  Income Taxes

The following table details the effective tax rates for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2012	2011	2012	2011
DP&L	(138.3)%	29.6%	40.3%	32.0%

Income tax expense for the three and nine months ended September 30, 2012 and 2011 was calculated using the estimated annual effective income tax rates of 30.7% and 33.1% for 2012 and 2011, respectively. 

For the three and nine months ended September 30, 2011, management estimated the annual effective tax rate based upon its forecast of annual pre-tax income.  For the three and nine months ended September 30, 2012, management estimated the annual effective tax rate based on actual pre-tax income for the period. 

For the three months ended September 30, 2012, DP&L’s current period effective rate is less than the estimated annual effective rate due to certain current period tax adjustments.  These current period adjustments include a revision to the estimated annual effective rate resulting in a reduction of tax expense of $1.3 million offset by an increase in tax expense of $9.3 million due to fixed asset related deferred tax true-ups as well as the effect of estimate-to-actual income tax provision adjustments primarily related to lost Domestic Manufacturing Deductions.

For the nine months ended September 30, 2012, DP&L’s current period effective rate is greater than the estimated annual effective rate due to certain current period tax adjustments.  These current period adjustments include an increase in other estimated tax liabilities of $0.3 million as well as an increase in tax expense of $9.3 million due to fixed asset related true-ups as well as the effect of estimate-to-actual income tax provision adjustments primarily related to lost Domestic Manufacturing Deductions.

For the three and nine months ended September 30, 2012, the decrease in DP&L’s effective tax rate compared to the same period in 2011 primarily reflects decreased pre-tax book income related to an impairment on certain fixed assets during the third quarter of 2012.

Deferred tax liabilities for DP&L increased by approximately $4.8 million and $6.3 million, respectively, during the three and nine months ended September 30, 2012.  These increases were primarily related to depreciation offset by various purchase accounting adjustments.

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