Victoria, Inc., produces athletic wear. The company€™s peak year was 2008. Since then, both sales and profits have fallen. The following information is from the company€™s 2011 annual report ($ in thousands):

During 2012, short-term loans of $9 million became due. Victoria paid off only $2.25 million and was able to extend the terms on the other $6.75 million. Accounts payable continued at a very low level in 2012, and the company maintained a large investment in corporate equity securities, enough to generate a $3,000,000 addition to net income and $900,000 of cash dividends in 2012. Victoria neither paid dividends nor issued stock or bonds in 2012. Its 2012 statement of cash flows was as follows:

* $3,000 of revenue from equity investments was included in income. $900 of this was received in the form of dividends, so $2,100 of the income was not received in cash.
1. Interpret Victoria€™s statement of cash flows.
2. Describe any ethical issues relating to the strategy and financial disclosures of Victoria.

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2010 $1,500 $4,500 $7,500 1,800 2,100 1,050 1,050 1,500 2011 2009 Net income Accounts receivable (end of year) Inventory (end of year) Net cash provided by operations Capital expenditures Proceeds from sales of fixed assets 900 1,050 675 900 2,700 6,000 2,850 2,250 1,350 2,250 Victoria, Inc Statement of Cash Flows for the Year Ended December 31, 2012 (in thousands) Cash flows from operating activities Net income $1,650 Adjustments to reconcile net income to net cash provided by operating activities Add back noncash expenses: 600 Depreciation and amortization Deduct noncash revenues: Investment revenue from equity investments, less $900 of dividends received (2,100) 150 225 Net decrease in accounts receivable Net decrease in inventory $525 Net cash provided by operating activities Cash flows from investing activities Purchase of fixed assets Insurance proceeds on building fire Sale of plant assets Purchase of corporate equity securities Net cash provided by Investing activities (600) 3,000 3,750 (2,250 3,900 Cash flows from financing activities Principal payments on short-term debt to banks Purchase of treasury stock Net cash used for financing activities (2,250) 900 Net increase in cash Cash, December 31, 2011 Cash, December 31, 2012 3,150 1,275 1,800 3,075