Interpreting the statement of cash flows. Prime Contracting Services provides various services to government agencies under multiyear contracts. In 2006, the services primarily involved transportation of equipment and furniture. Beginning in 2007, the firm began exiting these transportation services businesses and began offering more people-based services (clerical, training). Sales increased at a compounded annual rate of 28.9% during the five-year period. Exhibit 15.20 presents a statement of cash flows for Prime Contracting Services for 2006 to 2010. Changes in Other Current Liabilities primarily represent salaries.

a. What evidence do you see of the strategic shift from asset-based to people-based services?
b. What are the likely reasons that net income decreased between 2006 and 2008 while cash flow from operations increased during the same period?
c. What are the likely reasons that net income increased between 2008 and 2010 while cash flow from operations wits less during 2009 and 2010 than in 2008?
d. How has the risk of Prime Contracting Services changed during the fiveyears?

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Prime Contracting Services Statement of Cash Flows (all dollar amounts in millions) (Problem 16) EXHIBIT 15.20 2010 2009 2007 2008 2006 OPERATIONS $ 412,908 $ 249,438 .$ 593,518 $ 46,799 $ 261,243 Net Income Depreciation 664,882 826,745 616,335 306,423 606,633 Deferred Income Taxes (154,000) (110,116) 55,000 179,584 158,966 Loss (Gain) on Disposition of Assets Other ... (117,804) (35,077) 20,000 (51,711) (263,164) (7,226) (19,377) 9,100 2,200 (864, 555) (9,333) (272,121) (Increase) Decrease in Accounts Receivable .. 175,408 ... 127,548 (166,672) (647,087) (1,420,783) (40,067) (32,732) (Increase) Decrease in Other Current Assets Increase (Decrease) in Accounts Payable . Increase (Decrease) in Other Current Liabilities. (416,856) Cash Flow from Operations (25,792) (38,031) (177,031) 507,386 ..... 266,260 927,478 422,929 99,417 $ 739,602 $ 611,962 $ 287,638 $ 963,799 63,664 INVESTING S 175,075 $ 117,804 Fixed Assets Sold 80,000 $ 62,894 (911,470) (2,002,912) S(848,576) S(1,939,872) Employee and Officer Loans Fixed Assets Acquired . (16,960) $ (56,370) $ (56,370) (19,222) $ 98,582 (48,296) $ 126,779 Cash Flow from Investing . FINANCING $ 325,354 $ 12,650 $ 275,475 $ 204,817 $(126,932) Net Increase (Decrease) in Notes Payable Borrowings under Equipment Loans .... Borrowings under Capital Leases... 208,418 793,590 943,589 915,596 Borrowings from Shareholder Loans. 117,422 127,500 (236,229) Repayments under Equipment Loans (736,793) (437,660) (564,585) (296,495) (389,268) Repayments under Capital Leases Repayments under Shareholder Loans Cash Flow from Financing. Change in Cash Cash, Beginning of Year (304,054) (268,556) (124,012) (28,710) (150,000) $(929,594) $ (22,165) 46,598 $ 24,433 (63,077) $ 1,768, 184 $ (108,024) $ 528,663 $ (32,275) $(729,064) $ (18,520) $(440,149) $ 426,232 78,873 5,913 24,433 186,897 .$ 432,145 $ 46,598 Cash, End of Year 5,913 78,873