3.24 Interpreting the Statement of Cash Flows. 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. LO 3-5 Exhibit 3.22 Montgomery Ward Statement of Cash Flows (amounts in millions) (Problem 3.24) Year 11 Year 10 Year 9 Year 8 Year 7 $ 101 98 25 $ 100 97 32 13 OPERATIONS Net income $(237) Depreciation 122 Other addbacks Other subtractions (197) (Increase) Decrease in accounts receivable (Increase) Decrease in inventories 225 (Increase) Decrease in prepayments 27 Increase (Decrease) in accounts payable (222) Increase (Decrease) in other current liabilities (55) Cash Flow from Operations $(356) INVESTING Fixed assets acquired $ (75) Change in marketable securities Other investing transactions (93) Cash Flow from favesting. All Rights Reserved. May not bog (32) $ (9) 115 8 (119) (54) (112) (32) 85 (64) $(182) $ 109 109 24 (29) (38) (229) (39) 291 (9) (204) (58) 148 28 $ 129 9 (38) 36 (17) (64) $ 155 (45) $ 153 20 $(122) (14) 27 $(109) icated $(184) (4) (113) $(142) (27) 6 $(146) 137 9 $(148) $(301 pin paris "$(46972-200-70g Continua Exhibit 3.22 (Continued) $ $ $ 144 168 78 $ - 100 1 1 FINANCING Increase in short-term borrowing $ 588 $ 16 Increase in long-term borrowing 205 Issue of capital stock 3 193 Decrease in short-term borrowing Decrease in long-term borrowing (63) (17) Acquisition of capital stock (20) (98) Dividends (9) (4) Other Cash Flow from Financing $ 499 $ 295 Change in Cash $ (5) $ 4 Cash--Beginning of year 37 33 Cash-End of Year $ 32 $ 37 Change in sales from previous year (10.0)% (0.5)% Source: Montgomery Ward, Form 10-K for the Fiscal Years Ended 1996 and 1994. (275) (9) (24) 1 $ 83 $ (65) 98 $ 33 +17.2% (18) (11) (23) 2 $ 51 $ 17 81 $ 98 +3.7% (403) (97) (19) 2 $(516) $(361) 442 $ 81 +2.0% 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 repurch- ase 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. 3.24 Interpreting the Statement of Cash Flows. 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. LO 3-5 Exhibit 3.22 Montgomery Ward Statement of Cash Flows (amounts in millions) (Problem 3.24) Year 11 Year 10 Year 9 Year 8 Year 7 $ 101 98 25 $ 100 97 32 13 OPERATIONS Net income $(237) Depreciation 122 Other addbacks Other subtractions (197) (Increase) Decrease in accounts receivable (Increase) Decrease in inventories 225 (Increase) Decrease in prepayments 27 Increase (Decrease) in accounts payable (222) Increase (Decrease) in other current liabilities (55) Cash Flow from Operations $(356) INVESTING Fixed assets acquired $ (75) Change in marketable securities Other investing transactions (93) Cash Flow from favesting. All Rights Reserved. May not bog (32) $ (9) 115 8 (119) (54) (112) (32) 85 (64) $(182) $ 109 109 24 (29) (38) (229) (39) 291 (9) (204) (58) 148 28 $ 129 9 (38) 36 (17) (64) $ 155 (45) $ 153 20 $(122) (14) 27 $(109) icated $(184) (4) (113) $(142) (27) 6 $(146) 137 9 $(148) $(301 pin paris "$(46972-200-70g Continua Exhibit 3.22 (Continued) $ $ $ 144 168 78 $ - 100 1 1 FINANCING Increase in short-term borrowing $ 588 $ 16 Increase in long-term borrowing 205 Issue of capital stock 3 193 Decrease in short-term borrowing Decrease in long-term borrowing (63) (17) Acquisition of capital stock (20) (98) Dividends (9) (4) Other Cash Flow from Financing $ 499 $ 295 Change in Cash $ (5) $ 4 Cash--Beginning of year 37 33 Cash-End of Year $ 32 $ 37 Change in sales from previous year (10.0)% (0.5)% Source: Montgomery Ward, Form 10-K for the Fiscal Years Ended 1996 and 1994. (275) (9) (24) 1 $ 83 $ (65) 98 $ 33 +17.2% (18) (11) (23) 2 $ 51 $ 17 81 $ 98 +3.7% (403) (97) (19) 2 $(516) $(361) 442 $ 81 +2.0% 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 repurch- ase 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