Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

Note 6 — Income Taxes

Income before income taxes comprises the following:

	2011		2010		2009
Domestic	$	388.8	$	448.8	$	431.7
Foreign		50.2		74.5		109.4
Total income before income taxes	$	439.0	$	523.3	$	541.1

The provisions for income taxes consist of the following:

	2011			2010			2009
Current expense:
Federal	$	24.4		$	60.5		$	69.6
State		14.5			20.4			21.6
Foreign		15.0			25.8			41.1
Investment tax credit		(5.8	)		(1.7	)		—
Total current expense		48.1			105.0			132.3
Deferred expense (benefit):
Federal		79.3			54.5			27.6
State		2.4			6.4			(1.1	)
Foreign		1.4			2.1			0.7
Investment tax credit amortization		(0.4	)		(0.4	)		(0.4	)
Total deferred expense		82.7			62.6			26.8
Total income tax expense	$	130.8		$	167.6		$	159.1

Federal income taxes for Fiscal 2010 and Fiscal 2009 are net of foreign tax credits of $2.1 and $34.9, respectively.

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

	2011			2010			2009
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
Difference in tax rate due to:
Noncontrolling interests not subject to tax		(6.0	)		(6.4	)		(8.0	)
State income taxes, net of federal benefit		2.2			3.5			2.5
Effects of international operations		(0.6	)		(0.6	)		(0.3	)
Other, net		(0.8	)		0.5			0.2
Effective tax rate		29.8	%		32.0	%		29.4	%

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

	2011			2010
Excess book basis over tax basis of property, plant and equipment	$	490.4		$	414.9
Investment in AmeriGas Partners		172.7			170.9
Intangible assets and goodwill		52.1			51.0
Utility regulatory assets		124.7			127.4
Foreign currency translation adjustment		8.5			12.9
Other		7.2			8.6
Gross deferred tax liabilities		855.6			785.7
Pension plan liabilities		(62.8	)		(76.1	)
Employee-related benefits		(42.7	)		(42.4	)
Operating loss carryforwards		(31.8	)		(25.5	)
Foreign tax credit carryforwards		(60.1	)		(61.3	)
Utility regulatory liabilities		(12.4	)		(13.5	)
Derivative financial instruments		(30.5	)		(34.8	)
Other		(32.9	)		(41.7	)
Gross deferred tax assets		(273.2	)		(295.3	)
Deferred tax assets valuation allowance		81.9			78.4
Net deferred tax liabilities	$	664.3		$	568.8

At September 30, 2011, foreign net operating loss carryforwards principally relating to Flaga and certain operations of Antargaz totaled $46.0 and $5.5, respectively, with no expiration dates. We have state net operating loss carryforwards primarily relating to certain subsidiaries which approximate $177.9 and expire through 2031. We also have operating loss carryforwards of $7.4 for certain operations of AmeriGas Propane that expire through 2031. At September 30, 2011, deferred tax assets relating to operating loss carryforwards include $10.6 for Flaga, $1.9 for Antargaz, $1.0 for UGI International Holdings BV, $2.7 for AmeriGas Propane and $15.6 for certain other subsidiaries. A valuation allowance of $15.6 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 $6.2 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 $60.1 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 increased by $3.5 in Fiscal 2011 due primarily to unusable net operating losses obtained in connection with overseas acquisitions of $3.2 and an increase in unusable state operating losses of $1.5 partially offset by a decrease in the foreign tax credit carryforwards of $1.2.

We conduct business and file tax returns in the U.S., numerous states, local jurisdictions and in France and certain central and eastern European countries. Our U.S. federal income tax returns are settled through the 2008 tax year and our French tax returns are settled through the 2007 tax year. Our Austrian tax returns are settled through 2007 and our other central and eastern European tax returns are effectively settled for various years from 2004 to 2009. UGI Corporation’s federal income tax return for Fiscal 2009 is currently under audit. Although it is not possible to predict with certainty the timing of the conclusion of the pending U.S. federal tax audit in progress, we anticipate that the Internal Revenue Service’s (“IRS’s”) audit of our Fiscal 2009 U.S. federal income tax return may be completed during Fiscal 2012. 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, 2011, we have unrecognized income tax benefits totaling $6.5 including related accrued interest of $0.2. If these unrecognized tax benefits were subsequently recognized, $1.6 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, 2011 are $4.8 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. The amount of reasonably possible changes in unrecognized tax benefits and related interest in the next twelve months is a net reduction of approximately $4.2.

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

Balance at September 30, 2008	$	4.9
Additions for tax positions of the current year		0.5
Additions for tax positions of prior years		0.3
Reductions as a result of tax positions taken in prior years		(1.2	)
Settlements with tax authorities		(2.2	)
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

Beginning with the tax year ended September 30, 2009, the Company received IRS consent to change its tax method of accounting for capitalizing certain repair and maintenance costs associated with its Gas Utility and Electric Utility assets. The filing of the Company’s Fiscal 2009 tax returns using the new tax method resulted in federal and state income tax benefits totaling approximately $30.2 which were used to offset Fiscal 2010 federal and state income tax liabilities. The filing of UGI Utilities’ Fiscal 2009 Pennsylvania income tax return also produced a $43.4 state net operating loss (“NOL”) carryforward. Under current Pennsylvania state income tax law, the NOL can be carried forward by UGI Utilities for 20 years and used to reduce future Pennsylvania taxable income. As of September 30, 2011, a state net operating loss carryforward of $29.3 remains. Because the Company believes that it is more likely than not that it will fully utilize this state NOL prior to its expiration, no valuation allowance has been recorded. The Company’s determination of what constitutes a capital cost versus ordinary expense as it relates to the new tax method will likely be reviewed upon audit by the IRS and may be subject to subsequent adjustment. Accordingly, the status of this tax return position is uncertain at this time. In accordance with accounting guidance regarding uncertain tax positions, during Fiscal 2011 and Fiscal 2010, the Company added $1.2 and $3.9 including interest to its liability for unrecognized tax benefits related to this tax method. However, because this tax matter relates only to the timing of tax deductibility, we have recorded an offsetting deferred tax asset of an equal amount. For further information on the regulatory impact of this change, see Note 8.

In 2010, U.S. federal tax legislation was enacted that allows 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. In accordance with existing Pennsylvania tax statutes, Pennsylvania taxpayers are also permitted to fully deduct such qualifying capital expenditures for Pennsylvania state corporate net income tax purposes. Pennsylvania utility ratemaking practice permits the flow through to ratepayers of state tax benefits from accelerated tax depreciation. UGI Utilities’ Fiscal 2011 effective tax rate reflects the beneficial effects of this greater state tax depreciation.