Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
9 Months Ended
Nov. 02, 2013
Income Taxes [Abstract]  
Income Taxes
Income Taxes
The income tax benefit for the three months ended November 2, 2013 was $11 million as compared to $88 million for the three months ended October 27, 2012. The effective tax rate for the three months ended November 2, 2013 was (2.2)% as compared to (41.7)% for the three months ended October 27, 2012. The income tax benefit for the nine months ended November 2, 2013 was $228 million compared to $301 million for the nine months ended October 27, 2012. The effective tax rate for the nine months ended November 2, 2013 was (13.8)% compared to (41.0)% for the nine months ended October 27, 2012. Our effective tax rate for the three and nine months ended November 2, 2013 was negatively impacted by increases to the tax valuation allowance for deferred tax assets of $184 million and $416 million, respectively.

In assessing the need for the valuation allowance, we considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. As a result of our assessment, we concluded that, beginning in the second quarter of 2013, our estimate of the realization of deferred tax assets would be based solely on the future reversals of existing taxable temporary differences and tax planning strategies that we would make use of to accelerate taxable income to utilize expiring carryforwards. Accordingly, in the third quarter of 2013, the valuation allowance was increased to offset the net deferred tax assets created in the quarter relating primarily to the increase in net operating loss carryforwards. A valuation allowance of $482 million has been recorded against our deferred tax assets as of November 2, 2013. This resulted in an increase to the valuation allowance during the quarter ended November 2, 2013 of $184 million, of which $154 million relates to the increase in the deferred tax assets created for federal net operating loss carryforwards and $30 million relates to deferred tax assets created for state net operating loss carryforwards.
As a result of the valuation allowance, for the three months ended November 2, 2013, we recorded a net tax benefit of only $11 million. The net tax benefit consists of a $16 million non-cash benefit relating to other comprehensive income, offset by state and foreign tax expenses of $3 million and $2 million of tax expense on the amortization of certain indefinite-lived intangible assets that were not available to offset existing deferred taxes. In accordance with accounting standards, we are required to allocate a portion of our tax provision between operating losses and accumulated other comprehensive income. Application of this guidance required the recognition of a non-cash income tax benefit of $16 million in operating results, offset by a $16 million charge to other comprehensive income for the quarter.
As of November 2, 2013, we have approximately $2.5 billion of net operating losses available for U.S. federal income tax purposes which expire in 2032 and 2033 for which a net deferred tax asset of $527 million has been recorded, net of a valuation allowance of $337 million. A net deferred tax asset of $50 million, net of a valuation allowance of $145 million, has been recorded for state net operating losses that expire at various dates through 2033.