Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
6 Months Ended
Aug. 02, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income taxes for the three months ended August 2, 2014 was a benefit of $4 million compared to a benefit of $18 million for the three months ended August 3, 2013. The effective tax rate for the three months ended August 2, 2014 was (2.3)% as compared to (3.0)% for the three months ended August 3, 2013. Income taxes for the six months ended August 2, 2014 was an expense of $4 million compared to a benefit of $217 million for the six months ended August 3, 2013. The effective tax rate for the six months ended August 2, 2014 was 0.8% as compared to (18.9)% for the six months ended August 3, 2013. Our effective tax rate for the six months ended August 2, 2014 was impacted by a net increase to the tax valuation allowance for deferred tax assets of $148 million.

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 second quarter of 2014, 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 (NOL) carryforwards. A valuation allowance of $452 million has been recorded against our deferred tax assets as of August 2, 2014, which resulted in an increase to the valuation allowance during the quarter ended August 2, 2014 of $28 million.
The net tax benefit of $4 million for the second quarter of 2014 consisted of state and foreign tax expenses of $3 million and $2 million of expense related to the deferred tax asset change arising from the tax amortization of indefinite-lived intangible assets, offset by a $7 million non-cash benefit relating to other comprehensive income and a $2 million benefit on settlement of certain state audits. 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 $7 million in operating results, offset by a $7 million charge to other comprehensive income for the quarter.

The net tax expense of $4 million for the six months ended August 2, 2014 consisted of a federal audit adjustment of $12 million, state and foreign tax expenses of $5 million and $4 million of expense related to the deferred tax asset change arising from the tax amortization of indefinite-lived intangible assets, offset by a $13 million non-cash benefit relating to other comprehensive income and a $4 million benefit on settlement of certain state audits. 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 $13 million in operating results, offset by a $13 million charge to other comprehensive income for the quarter.
As of August 2, 2014, we have approximately $2.5 billion of net operating losses available for U.S. federal income tax purposes, which expire in 2032 through 2034 and $45 million of tax credit carryforwards that expire at various dates through 2034. For these NOL and tax credit carryforwards a net deferred tax asset of $550 million has been recorded, net of a valuation allowance of $307 million. A net deferred tax asset of $31 million, net of a valuation allowance of $145 million, has been recorded for state NOL carryforwards that expire at various dates through 2034.