I. INCOME TAXES

The calculation of the effective tax rate is as follows (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2016			2015			2016			2015
Income before income taxes	$	6,058		$	12,234		$	10,846		$	13,700

Income tax provision		1,164			5,185			844			10,573

Net income	$	4,894		$	7,049		$	10,002		$	3,127

Effective tax rate		19	%		42	%		8	%		77	%

	Nine months ended June 30,
	2016			2015
Statutory rate		35	%		35	%
Foreign valuation allowance		(11	)		76
Research and development credit		(12	)		(34	)
State income taxes, net of federal benefit		1			2
Rate differential and other		(5	)		(2	)
Effective tax rate		8	%		77	%

We recorded an income tax provision of $0.8 million for the nine months ended June 30, 2016, compared to an income tax provision of $10.6 million for the nine months ended June 30, 2015. The effective tax rate for the nine months ended June 30, 2016 was 8% compared to an effective tax rate of 77% for the nine months ended June 30, 2015. The effective tax rate for Fiscal 2016 was favorably impacted by the mix of income from our Canadian operations and the utilization of net operating loss carryforwards in Canada that have been fully reserved with a valuation allowance. Additionally, the effective tax rate for the nine months ended June 30, 2016 was favorably impacted by a $0.8 million discrete item recorded in the first quarter of Fiscal 2016 related to the retroactive reinstatement of the Research and Development Tax Credit (R&D Tax Credit) for the previously expired period from January 1, 2015 to September 30, 2015. On December 18, 2015, the “Protecting Americans from Tax Hikes Act of 2015” was enacted which retroactively reinstated and made permanent the R&D Tax Credit.

In the first nine months of Fiscal 2015, our effective tax rate increased due to a $9.0 million valuation allowance recorded against our Canadian deferred tax assets during the second quarter of Fiscal 2015. Due to the historical Canadian losses, and the losses that we projected at the time of determination, we were required under the more-likely-than-not accounting standard to record a valuation allowance against the Canadian net deferred tax assets because we anticipated that we may not be able to realize the benefits of the net operating loss carryforwards and other deductible differences. This was partially offset by the release of a $4.1 million FIN 48 reserve related to the R&D Tax Credit upon closing an IRS audit. We recorded a $0.6 million discrete item for the nine months ended June 30, 2015 that was also related to the retroactive reinstatement of the R&D Tax Credit referred to above.