Kohl's 2008 Annual Report Download - page 23

Net interest expense for 2008 increased $49 million, or 79%, over 2007 primarily due to the $1 billion in
new debt that was issued in September 2007. Reductions in capitalized interest due to lower capital expenditures
also contributed to the increase.
Net interest expense for 2007 increased $21 million, or 51%, over 2006 primarily due to higher outstanding
debt balances, including both advances on our short-term credit facilities and $1 billion in new debt that was
issued in September 2007. Lower interest income on investments also contributed to the increase as we used
proceeds from the 2007 debt issuance and the 2006 sale of our credit card portfolio to fund stock repurchases.
These increases were partially offset by higher capitalized interest due to increased capital expenditures.
Income taxes.
2008 2007 2006
(Dollars in millions)
Provision for income taxes .................................. $ 540 $ 658 $ 665
Effective tax rate ......................................... 37.9% 37.8% 37.5%
The effective tax rate for 2008 was comparable to the 2007 rate. The increase in the effective tax rate for
2007 compared to 2006 was primarily due to a decrease in the amount of tax-exempt interest earned in 2007
compared to 2006 and a shift in the mix of new stores in certain jurisdictions. The tax rate for 2006 benefited
from the tax-free interest earned on investments.
Inflation
Although we expect that our operating results will be influenced by general economic conditions, including
fluctuations in food, fuel and energy prices, we do not believe that inflation has had a material effect on our
results of operations during the periods presented. However, there can be no assurance that our business will not
be affected by inflation in the future.
Liquidity and Capital Resources
Our primary ongoing cash requirements are for capital expenditures in connection with our expansion and
remodeling programs and seasonal and new store inventory purchases. Our working capital and inventory levels
typically build throughout the fall, peaking during the November and December holiday selling season.
Our primary sources of funds are cash flow provided by operations, short-term trade credit and our lines of
credit. Short-term trade credit, in the form of extended payment terms for inventory purchases, represents a
significant source of financing for merchandise inventories. Seasonal cash needs are met by the lines of credit
available under our $900 million revolving credit facility.
We anticipate that we will be able to satisfy our working capital requirements, planned capital expenditures
and debt service requirements with available cash and short-term investments, proceeds from cash flows from
operations, short-term trade credit, seasonal borrowings under our revolving credit facility and other sources of
financing. We expect to generate adequate cash flow from operating activities to sustain current levels of operations.
2008 2007 2006
(Dollars in millions)
Net cash provided by (used in):
Operating activities ................................... $ 1,701 $ 1,235 $ 3,120
Investing activities .................................... (1,442) (1,568) (1,440)
Financing activities ................................... (273) 325 (1,618)
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