13. Income Taxes

The following table sets forth the Company’s income tax provision for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
	(in thousands)
Income (loss) before taxes	$	6,001		$	(4,276)		$	19,569		$	(20,702)
Income tax expense (benefit)		2,111			(1,268)			6,295			(10,382)
Net income (loss)	$	3,890		$	(3,008)		$	13,274		$	(10,320)
Income tax provision (benefit) as a percentage of income (loss) before income taxes		35.2	%		(29.7)	%		32.2	%		(50.1)	%

The Company’s income tax provision for the three and nine months ended September 30, 2016, was 35.2% and 32.2% of income before taxes, respectively. The Company has a full valuation allowance against its French deferred tax assets; however, a tax benefit is included in the annual effective tax rate computation due to the French entity reporting a year-to-date foreign exchange gain in other comprehensive income. The blended effective income tax rate expected for the year ending December 31, 2016, is 32.4%. This effective tax rate factors in various permanent differences, including domestic deductions, the impact of foreign operations, and various credits. The Company’s income tax benefit of 29.7% and 50.1% during the three and nine months ended September 30, 2015, respectively, factored in similar permanent items, as well as the impact of its foreign operations.

Valuation Allowance

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Ultimately, the realization of deferred tax assets depends on the existence of future taxable income. Management considers sources of taxable income such as income in prior carryback periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

In connection with the AFP purchase accounting in 2014, the Company recorded a valuation allowance against a deferred tax asset of €3.2 million, or $4.4 million, subject to currency exchange rate fluctuations, with an offsetting entry to goodwill, since management did not believe that it was more likely than not that the deferred tax asset would be realized. In March 2015, the Company reversed the €3.2 million, or $3.3 million, subject to currency exchange rate fluctuations, deferred tax valuation allowance in conjunction with the transfer of AFP’s intangible assets from France to the United States. The difference in U.S. dollars relates to the currency exchange rate fluctuation, which is recorded in the Company’s accumulated other comprehensive loss as a foreign currency translation adjustment.

In 2015, the Company assessed the realizability of the deferred tax assets for AFP. Due to the potential impact of reduced revenues from the MannKind contract and other factors, the Company determined that it was not more likely than not that the net deferred tax assets of AFP would be realized. Therefore, the Company established a full valuation allowance of $0.9 million as of December 31, 2015, and continues to maintain a full valuation allowance on all AFP deferred tax assets.

In 2016, for computing its annual effective tax rate, the Company did not benefit from its losses in the states where it files separately. This had no material impact on the Company’s income tax expense during the three months ended September 30, 2016, and increased the Company’s income tax expense by $0.2 million during the nine months ended September 30, 2016.