13. Income Taxes

Income tax expense consists of the following:



	Year Ended December 31,
(dollars in millions)	2011			2010			2009
Current:
Federal	$	—		$	0.3		$	2.5
State and local	0.4			0.7			1.5
Total current	0.4			1.0			4.0
Investment tax credits	(0.3		)	(0.3		)	(0.3		)
Deferred:
Federal	24.3			44.0			59.8
State and local	3.5			1.4			6.9
Total deferred	27.8			45.4			66.7
Valuation allowance	(2.9		)	(7.2		)	(5.7		)
Total	$	25.0		$	38.9		$	64.7

The following is a reconciliation of the statutory federal income tax rate with the effective tax rate for each year:



	Year Ended December 31,
	2011		2010		2009
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax	2.9		2.6		1.3
Change in valuation allowance, net of federal income tax	(4.4	)	(7.1	)	(2.4	)
State net operating loss adjustments	2.7		0.1		2.3
Nondeductible interest expense	15.0		13.3		3.8
Medicare drug subsidy law change	—		5.8		—
Unrecognized tax benefit changes	2.8		5.7		0.8
Nondeductible compensation	2.1		1.5		0.1
Other differences, net	1.2		1.0		1.0
Effective tax rate	57.3	%	57.9	%	41.9	%

The components of our deferred tax assets and liabilities are as follows:



	December 31,
(dollars in millions)	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	453.9		$	445.8
Pension and postretirement benefits	155.0			134.6
Other	70.8			67.3
Total deferred tax assets	679.7			647.7
Valuation allowance	(58.4		)	(60.0		)
Total deferred tax assets, net of valuation allowance	$	621.3		587.7
Deferred tax liabilities:
Property, plant and equipment	$	159.8		127.9
Federal deferred liability on state deferred tax assets	7.8			8.0
Total deferred tax liabilities	167.6			135.9
Net deferred tax assets	$	453.7		$	451.8

As of December 31, 2011, the Company had approximately $1.1 billion of federal tax operating loss carryforwards with a deferred tax asset value of $394.3 million, alternative minimum tax credit carryforwards of $14.4 million, state tax credits of $12.0 million, and $59.6 million in deferred tax assets related to state and local tax operating loss carryforwards. The majority of the remaining tax loss carryforwards will generally expire between 2021 and 2023. U.S. tax laws limit the annual utilization of tax loss carryforwards of acquired entities. These limitations should not materially impact the utilization of the tax carryforwards.

The ultimate realization of the deferred income tax assets depends upon the Company’s ability to generate future taxable income during the periods in which basis differences and other deductions become deductible, and prior to the expiration of the net operating loss carryforwards. Due to its historical and future projected earnings, management believes it will utilize future federal deductions and available net operating loss carryforwards prior to their expiration. Management also concluded that it was more likely than not that certain state tax loss carryforwards would not be realized based upon the analysis described above and therefore provided a valuation allowance.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $21.5 million at December 31, 2011 and $20.3 million at December 31, 2010. We do not currently anticipate that the amount of unrecognized tax benefits will change significantly over the next year.

A reconciliation of the unrecognized tax benefits is as follows:



	Year Ended December 31,
(dollars in millions)	2011		2010			2009
Balance, beginning of year	$	20.5	$	16.7		$	15.6
Change in tax positions for the current year	1.3		4.0			1.1
Change in tax positions for prior years	—		(0.2		)	—
Balance, end of year	$	21.8	$	20.5		$	16.7

During the year ended December 31, 2010, a change of $4.0 million was recorded due to tax matters associated with the refinancing of the 8 ³/₈% Subordinated Notes.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various foreign, state and local jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state or local examinations for years before 2008. In 2011, the IRS completed an examination of the Company’s U.S. federal income tax returns for 2008 and 2009.