Income Taxes

Our effective tax rate was 25.0 percent for the nine months ended September 30, 2013, compared to 30.4 percent for the nine months ended September 30, 2012. Our effective tax rate differs from the United States statutory tax rate primarily due to valuation allowances, earnings in countries with differing statutory tax rates, accruals related to uncertain tax positions and tax planning structures. At September 30, 2013 and December 31, 2012, we had $1.0 million and $1.5 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. During the three months ended September 30, 2013, we recorded no additional income tax benefit. During the nine months ended September 30, 2013, we recorded an income tax benefit, exclusive of interest and penalties, of $0.5 million due to the reversal of an accrual for an uncertain tax position that expired under the statute of limitations.

FASB ASC 740-20, "Income Taxes - Intraperiod Tax Allocation," requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. A tax benefit of $4.2 million was recorded in our income tax provision for the nine months ended September 30, 2012. There was no similar benefit recorded for the three months ended September 30, 2012 or the three and nine months ended September 30, 2013.

Our current and future provision for income taxes for 2013 is impacted by valuation allowances. In the United States, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. In assessing the need for recording or releasing a valuation allowance, we weigh all available positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused, prudent and feasible tax planning strategies that could be implemented, and whether there was an unusual, infrequent or extraordinary item to be considered. Based on our analysis of all available evidence, we intend to maintain these allowances until it is more likely than not that the deferred income tax assets will be realized. We will continue to monitor and assess the need for these allowances quarterly in each jurisdiction.

Income tax payments consisted of the following:



	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Total income tax payments, net of refunds	$	2,715	$	1,366	$	12,254	$	3,981
Less: credits or offsets	435		491		2,159		1,915
Cash paid, net	$	2,280	$	875	$	10,095	$	2,066

Cash paid for income taxes has increased for the three and nine months ended September 30, 2013 due to net operating loss carryforwards being fully utilized in 2012 in China, timing of payments in Mexico, and payments for federal Alternative Minimum Tax and state income tax where net operating loss carryforwards cannot be fully utilized.