Income Taxes

Our effective tax rate was (46.6) percent for the nine months ended September 30, 2014, compared to 25.0 percent for the nine months ended September 30, 2013. 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, intraperiod tax allocation, and tax planning structures. At September 30, 2014 and December 31, 2013, we had $0.8 million and $1.3 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. Tax benefits, exclusive of interest and penalties, of zero and $0.6 million were recorded in our income tax provision for the three months and the nine months ended September 30, 2014, respectively, due to expirations of statutes of limitations. During the three months and the nine months ended September 30, 2013, we recorded tax benefits, exclusive of interest and penalties, of zero and $0.5 million, respectively.

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. For 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. Tax benefits of $0.3 million and $1.9 million were recorded in our income tax provision for the three months and nine months ended September 30, 2014, respectively. There were no similar benefits recorded for the three months and nine months ended September 30, 2013.

Our current and future provision for income taxes for 2014 is impacted by valuation allowances. In the United States, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. We review the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required, in order to assess the likelihood of the realization of our deferred tax assets. In assessing the need for recording or reversing 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 were unusual, infrequent or extraordinary items to be considered.

Despite our 2013 improvement in financial results in the U.S., management has concluded that in consideration of our projected 2014 loss, the duration and magnitude of our U.S. operating losses, and the current U.S. economic environment and competitive landscape, we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against our deferred tax assets. Accordingly, we continue to maintain a valuation allowance related to our net deferred tax assets in the U.S.

The valuation allowance in the Netherlands has been maintained since 2006 and a significant piece of evidence used in our assessment has been a history of cumulative losses through 2013. The weight applied to other subjective evidence, such as projected financial results, has been limited. Despite its historical losses, the Netherlands is forecasted to move into a small three year cumulative income position in 2014. Before we would change our judgment of the need for a full valuation allowance, a sustained period of operating profitability is required. Considering the duration and magnitude of our Netherlands operating losses, the current European economic environment and the competitive landscape, it is our judgment that we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against deferred tax assets in the Netherlands. If we generate significant pre-tax earnings in the Netherlands in 2014 and plans for 2015 and beyond show continued profitability, we may have sufficient evidence to release all or a portion of our valuation allowance on our Netherlands deferred tax assets in the foreseeable future. At December 31, 2013, the valuation allowance in the Netherlands was $9.2 million. We will continue to monitor and assess the need for a valuation allowance in all our jurisdictions in the upcoming quarters.

Income tax payments consisted of the following:



	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2014		2013		2014		2013
Total income tax payments, net of refunds	$	3,525	$	2,715	$	8,678	$	12,254
Less: credits or offsets	934		435		2,794		2,159
Cash paid, net	$	2,591	$	2,280	$	5,884	$	10,095