Permanent Versus Transitory Earnings Entrust, Inc., is a global provider of security software; it operates in one business segment involving the design, production, and sale of software products for securing digital identities and information. The consolidated statements of operations for a three-year period (all values in thousands) follows. On January 1, Year 1, the Entrust common shares traded at $10.40 per share; by year end Year 3, the shares traded at $3.80 per share. The company's cash flow from operations was $(27,411), $(20,908), and $9,606, for Year 1, 1 1, Year 2, and Year 3, respectively. Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Compare the company's reported net income (loss) with its sustainable earnings. Does Entrust's share price at year-end Year 3 reflect the firm's apparent turn-around? Why or why not? ENTRUST, INC. Consolidated Statements of Operations Year Ended December 31 ($ thousands) Revenues Product Services and maintenance Total revenues Cost of Revenues Year 3 Year 2 Year 1 $30.395 $32,074 $45,834 61.662 56.920 58.013 92057 88994 103847 Product Services and maintenance Amortization of purchased product rights Total cost of revenues $4,239 $5,431 $5371 29.105 29,825 32,073 384 568 1.136 33.728 35824 38580 Gross profit Operating expenses Sales and marketing Research and development 58.329 53,170 65.267 26.322 34.985 44128 17.266 22,566 24.151 General and administrative 12.569 13,143 14840 Impairment of purchased product rights 1,224 Restructuring charges and adjustments Total operating expenses 13,873 (1.169) 56157 85.791 81,950