(9) Income Taxes

The components of income from continuing operations before income taxes are as follows


	Years ended December 31,
	2015		2014		2013
	(in thousands)
U.S.	$	12,688	$	10,535	$	10,408
Non U.S.		1,456		1,307		892
Income from continuing operations before income taxes	$	14,144	$	11,842	$	11,300

The components of income tax expense for the years ended December 31, 2015, 2014, and 2013, included in the accompanying consolidated statements of income were as follows:


	Federal		State		Foreign		Total
	(in thousands)
December 31, 2015
Current	$	(208)	$	13	$	476	$	281
Deferred		5,332		1,175		—		6,507
Total 2015	$	5,124	$	1,188	$	476	$	6,788

December 31, 2014
Current	$	109	$	179	$	311	$	599
Deferred		3,832		164		—		3,996
Total 2014	$	3,941	$	343	$	311	$	4,595

December 31, 2013
Current	$	(155)	$	123	$	95	$	63
Deferred		(3,755)		(634)		—		(4,389)
Total 2013	$	(3,910)	$	(511)	$	95	$	(4,326)

The following is a reconciliation of the federal income tax expense at the statutory rate of 34% to the effective income tax expense:


	Years Ended December 31,
	2015			2014			2013
	(in thousands and % of pre-tax income)
	$		%	$		%	$		%
Statutory federal income tax expense		4,809	34.0		4,027	34.0		3,842	34.0
State taxes, net of federal benefit		784	5.5		117	1.0		(338)	(3.0)
Foreign tax paid		476	3.4		101	0.9		95	0.8
Tax consequences of the sale of engines to WMES		(306)	(2.1)		(36)	(0.3)		(36)	(0.3)
Uncertain tax positions		(195)	(1.4)		(101)	(0.9)		160	1.4
Permanent differences-nondeductible executive compensation		1,117	7.9		768	6.5		732	6.5
ETI basis restoration		—	—		—	—		(8,728)	(77.2)
Permanent differences and other		103	0.7		(281)	(2.4)		(53)	(0.5)
Effective income tax expense (benefit)		6,788	48.0		4,595	38.8		(4,326)	(38.3)

In 2013, we recorded an income tax benefit of $8.7 million related to an extraterritorial income (“ETI”) adjustment for certain of our engines. We recognized this income tax benefit in 2013 resulting from adjustments made to the tax basis of certain of our engines due to a decision in a recent court case on behalf of another company in which our circumstances are similar. The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:


	(in thousands)
Balance as of December 31, 2013	$	566
Increases related to current year tax positions		109
Decreases due to tax positions released		(211)
Balance as of December 31, 2014		464
Increases related to current year tax positions		5
Decreases due to tax positions expired		(195)
Balance as of December 31, 2015	$	274

As of December 31, 2013 we reserved $0.2 million for the benefit resulting from the Extraterritorial Income Exclusion. No reserve was established as of December 31, 2015 and December 31, 2014 for the exposure in Europe. If the Company is able to eventually recognize these uncertain tax positions, all of the unrecognized benefit would reduce the Company’s effective tax rate.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:


	As of December 31,
	2015		2014
	(in thousands)
Deferred tax assets:
Unearned lease revenue	$	1,511	$	1,368
State taxes		944		564
Reserves and allowances		898		938
Other accruals		1,767		582
Alternative minimum tax credit		377		377
Net operating loss carry forward		35,827		37,173
Charitable contributions		42		28
Total deferred tax assets		41,366		41,030
Less: valuation allowance		(1,280)		(1,310)
Net deferred tax assets		40,086		39,720

Deferred tax liabilities:
Depreciation and impairment on aircraft engines and equipment		(138,084)		(129,332)
Other deferred tax assets (liabilities)		981		(898)
Net deferred tax liabilities		(137,103)		(130,230)

Other comprehensive loss deferred tax asset		275		—

Net deferred tax liabilities	$	(96,742)	$	(90,510)

As of December 31, 2015, we had net operating loss carry forwards of approximately $100.5 million for federal tax purposes and $3.9 million for state tax purposes. The federal net operating loss carry forwards will expire at various times from 2023 to 2034 and the state net operating loss carry forwards will expire at various times from 2016 to 2024. During 2014, a valuation allowance of $1.3 million was established for the net operating losses expiring in California for the periods 2016 to 2024. The Company’s ability to utilize the net operating loss and tax credit carry forwards in the future may be subject to restriction in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax law. As of December 31, 2015, we also had alternative minimum tax credit of approximately $0.4 million for federal income tax purposes which has no expiration date and which should be available to offset future regular tax liabilities. Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income.

Deferred tax assets relating to tax benefits of employee stock option grants have been reduced to reflect exercises in 2015. Some exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of grant (“windfall”). Although these additional tax benefits are reflected in net operating tax loss carryforwards, pursuant to ASC 718, in the amount of $3.0 million as of December 31, 2015, the additional tax benefit associated with the windfall is not recognized until the deduction reduces taxes payable. The tax effect of windfalls included in net operating loss carryforwards but not reflected in deferred tax assets for 2015 are $1.0 million and will be recorded to paid-in capital when recognized.