Income Taxes

Income before income taxes comprises the following:



	2012		2011		2010
Domestic	$	227.3	$	388.8	$	448.8
Foreign	58.9		50.2		74.5
Total income before income taxes	$	286.2	$	439.0	$	523.3

The provisions for income taxes consist of the following:



	2012			2011			2010
Current expense (benefit):
Federal	$	(10.4	)	$	24.4		$	60.5
State	11.2			14.5			20.4
Foreign	18.8			15.0			25.8
Investment tax credit	(2.9		)	(5.8		)	(1.7		)
Total current expense	16.7			48.1			105.0
Deferred expense (benefit):
Federal	76.2			79.3			54.5
State	5.2			2.4			6.4
Foreign	1.8			1.4			2.1
Investment tax credit amortization	(0.3		)	(0.4		)	(0.4		)
Total deferred expense	82.9			82.7			62.6
Total income tax expense	$	99.6		$	130.8		$	167.6

Federal income taxes for Fiscal 2012 and Fiscal 2010 are net of foreign tax credits of $5.2 and $2.1, respectively.

A reconciliation from the U.S. federal statutory tax rate to our effective tax rate is as follows:



	2012		2011		2010
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Difference in tax rate due to:
Noncontrolling interests not subject to tax	1.3		(6.0	)	(6.4	)
State income taxes, net of federal benefit	3.8		2.2		3.5
Valuation allowance adjustments	(1.6	)	—		(0.2	)
Effects of foreign operations	(3.6	)	(0.6	)	(0.6	)
Other, net	(0.1	)	(0.8	)	0.7
Effective tax rate	34.8	%	29.8	%	32.0	%

The effects of foreign operations in the table above for Fiscal 2012 reflects the impact of tax efficient structuring of certain of our international operations and, as a result of the Shell Transaction, also reflects a greater proportion of pretax income in countries in which the statutory income tax rate is less than the U.S. statutory tax rate. The tax restructuring of certain of our international operations also permitted us to reduce our foreign tax credit valuation allowance by $4.6 during Fiscal 2012 which is included as valuation allowance adjustments in the table above.

Earnings of the Company's foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S. and the Company's tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings are considered to be indefinitely reinvested. Because of the availability of U.S. foreign tax credits, it is likely no U.S. tax would be due if such earnings were repatriated.

Pennsylvania utility ratemaking practice permits the flow through to ratepayers of state tax benefits resulting from accelerated tax depreciation. For Fiscal 2012, Fiscal 2011 and Fiscal 2010, the beneficial effects of state tax flow through of accelerated depreciation reduced income tax expense by $3.2, $7.9 and $2.5, respectively. The state tax flow through amounts in Fiscal 2012 and Fiscal 2011 reflect the impact of 2010 U.S. Federal tax legislation that allowed taxpayers to fully deduct qualifying capital expenditures incurred after September 8, 2010, through the end of calendar 2011, when such property is placed in service before 2012. This legislation was also permitted for Pennsylvania state corporate income tax purposes.

Deferred tax liabilities (assets) comprise the following at September 30:



	2012			2011
Excess book basis over tax basis of property, plant and equipment	$	582.0		$	490.4
Investment in AmeriGas Partners	293.2			172.7
Intangible assets and goodwill	61.2			52.1
Utility regulatory assets	140.4			124.7
Foreign currency translation adjustment	3.6			8.5
Other	6.8			7.2
Gross deferred tax liabilities	1,087.2			855.6

Pension plan liabilities	(72.7		)	(62.8		)
Employee-related benefits	(43.0		)	(42.7		)
Operating loss carryforwards	(38.0		)	(31.8		)
Foreign tax credit carryforwards	(55.5		)	(60.1		)
Utility regulatory liabilities	(11.8		)	(12.4		)
Derivative financial instruments	(37.7		)	(30.5		)
Other	(31.9		)	(32.9		)
Gross deferred tax assets	(290.6		)	(273.2		)
Deferred tax assets valuation allowance	81.6			81.9
Net deferred tax liabilities	$	878.2		$	664.3

At September 30, 2012, foreign net operating loss carryforwards principally relating to Flaga and certain operations of Antargaz totaled $50.2 and $5.3, respectively, with no expiration dates. We have state net operating loss carryforwards primarily relating to certain subsidiaries which approximate $213.3 and expire through 2032. We also have operating loss carryforwards of $18.6 for certain operations of AmeriGas Propane that expire through 2032. At September 30, 2012, deferred tax assets relating to operating loss carryforwards include $12.1 for Flaga, $1.8 for Antargaz, $0.9 for UGI International Holdings BV, $5.2 for AmeriGas Propane and $17.9 for certain other subsidiaries. A valuation allowance of $17.2 has been provided for deferred tax assets related to state net operating loss carryforwards and other state deferred tax assets of certain subsidiaries because, on a state reportable basis, it is more likely than not that these assets will expire unused. A valuation allowance of $1.0 was provided for certain acquisition loss carryforwards for certain operations of AmeriGas Propane because it is more likely than not that these assets will expire unused. A valuation allowance of $7.9 was also provided for deferred tax assets related to certain operations of Antargaz, Flaga and UGI International Holdings BV. Operating activities and tax deductions related to the exercise of non-qualified stock options contributed to the state net operating losses disclosed above. We first recognize the utilization of state net operating losses from operations (which exclude the impact of tax deductions for exercises of non-qualified stock options) to reduce income tax expense. Then, to the extent state net operating loss carryforwards, if realized, relate to non-qualified stock option deductions, the resulting benefits will be credited to UGI Corporation stockholders’ equity.

We have foreign tax credit carryforwards of approximately $55.5 expiring through 2022 resulting from the actual and planned repatriation of Antargaz’ accumulated earnings since acquisition which are includable in U.S. taxable income. Because we expect that these credits will expire unused, a valuation allowance has been provided for the entire foreign tax credit carryforward amount. The valuation allowance for all deferred tax assets decreased by $0.3 in Fiscal 2012 due to a decrease in unusable foreign tax credits of $4.6 partially offset by adjustments to unusable net operating losses obtained in connection with overseas acquisitions of $1.7, an increase in unusable state operating losses of $1.6, and unusable net operating losses in connection with an AmeriGas Propane acquisition of $1.0.

We conduct business and file tax returns in the U.S., numerous states, local jurisdictions and in France and certain other European countries. Our U.S. federal income tax returns are settled through the 2009 tax year, our French tax returns are settled through the 2008 tax year, our Belgian tax returns are settled through 2007 and our Netherlands tax returns are settled through 2004. Our Austrian tax returns are settled through 2008 and our other central and eastern European tax returns are effectively settled for various years from 2005 to 2010. State and other income tax returns in the U.S. are generally subject to examination for a period of three to five years after the filing of the respective returns.

As of September 30, 2012, we have unrecognized income tax benefits totaling $3.1 including related accrued interest of $0.2. If these unrecognized tax benefits were subsequently recognized, $1.9 would be recorded as a benefit to income taxes on the Consolidated Statement of Income and, therefore, would impact the reported effective tax rate. Generally, a net reduction in unrecognized tax benefits could occur because of the expiration of the statute of limitations in certain jurisdictions or as a result of settlements with tax authorities. Included in the balance at September 30, 2012, are $1.1 of tax positions for which the deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the current deduction would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. There are no expected changes in unrecognized tax benefits and related interest in the next twelve months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



Balance at September 30, 2009	$	2.3
Additions for tax positions of the current year	4.3
Reductions as a result of tax positions taken in prior years	(0.2		)
Settlements with tax authorities	(1.0		)
Balance at September 30, 2010	5.4
Additions for tax positions of the current year	0.4
Additions for tax positions of prior years	1.0
Settlements with tax authorities	(0.5		)
Balance at September 30, 2011	6.3
Additions for tax positions of the current year	0.5
Additions for tax positions of prior years	0.6
Settlements with tax authorities	(4.5		)
Balance at September 30, 2012	$	2.9