Montgomery Ward operates a retail department store chain. It filed for bankruptcy during the first quarter of Year 12. Exhibit 3.22 presents a statement of cash flows for Montgomery Ward for Year 7 to Year 11.

The firm acquired Lechmere, a discount retailer of sporting goods and electronic products, during Year 9. It acquired Amoco Enterprises, an automobile club, during Year 11. During Year 10, it issued a new series of preferred stock and used part of the cash proceeds to repurchase a series of outstanding preferred stock. The €˜€˜other subtractions€™€™ in the operating section for Year 10 and Year 11 represent reversals of deferred tax liabilities.

REQUIRED
Discuss the relations between net income and cash flow from operations and among cash flows from operating, investing, and financing activities for the firm over the five-year period. Identify signals of Montgomery Ward€™s difficulties that might have led to its filing for bankruptcy.

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Exhibit 3.22 (Continued) FINANCING $ 588 $ 16 $ 144 Increase in short-term borrowing Increase in long-term borowing Issue of capital stock Decrease in short-term borrowing Decrease in long-term borrowing Acquisition of capital stock 205 168 100 3 193 78 (63) (17) (18) (275) (9) (403) (20) (98) (11) (97) Dividends (9) (4) (24) (23) (19) Other $ 83 $ (65) Cash Flow from Financing $ 499 $ (5) $ 295 $ 51 $ 17 $(516) Change in Cash Cash-Beginning of year $(361) 37 33 98 81 442 Cash-End of Year $ 32 $ 37 $ 33 $ 98 $ 81 Change in sales from previous year (10.0)% (0.5)% +17.2% +3.7% +2.0% %24 %24