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 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 (s thousands) Year 3 Revenues Year 2 Year 1 Product Services and maintenance $31,945 $33,624 $47,384 61,662 56,920 58,013 93,607 90,544 105,397 Total revenues Cost of Revenues I Product $4,379 $5,511 $5,571 29,825 29,105 32,073 384 568 1.136 33,868 35,964 38,720 59,739 54,580 66,677 Services and maintenance Amortization of purchased product rights Total cost of revenues Gross profit Operating expenses Sales and marketing Research and development General and administrative Impairment of purchased product rights Restructuring charges and adjustments Total operating expenses 26,322 34,985 44,128 17.266 22,566 24,151 14,840 12,569 13,143 1,364 (1,359) 14,178 (1,309) 56,152 86,236 80,451 ENTRUST, INC. Consolidated Statements of Operations Year Ended December 31 ($ thousands) Year 3 Year 2 Year 1 Revenues Product $31,945 $33,624 $47,384 Services and maintenance 61,662 Total revenues 56,920 58,013 90,544 105,397 93,607 Cost of Revenues Product $4,379 $5,571 $5,511 Services and maintenance 29,105 29,825 32,073 384 568 1,136 33,868 35,964 38,720 59,739 54,580 66,677 26,322 34,985 44,128 17,266 22,566 24,151 12,569 13,143 14,840 1,364 (1,359) Amortization of purchased product rights Total cost of revenues Gross profit Operating expenses Sales and marketing Research and developmeut General and administrative Impairment of purchased product rights Restructuring charges and adjustments Total operating expenses Income (loss) from operations Other income (expense) Interest income Foreign exchange gain (loss) Loss from equity investments Realized loss on investments Write-down of long-term strategic investments Tatakotheraincome expenses 14,178 (1,309) 56,157 86,236 80,451 3,582 (31,656) (13,774) 1,281 1,680 3,346 429 (431) (72) (1,341) (833) (832) (2,780) (450) (2,780) (1,238) 369 (5.144 754 Business Course Return to course 26,322 34,985 44,128 17,266 22,566 24,151 12,569 13,143 14,840 Operating expenses Sales and marketing Research and development General and administrative Impairment of purchased product rights Restructuring charges and adjustments Total operating expenses Income (loss) from operations Other income (expense) 1,364 (1,359) 14,178 (1,309) 56,157 86,236 80,451 3,582 (31,656) (13,774) Interest income 1,281 1,680 3,346 429 (431) (72) Foreign exchange gain (loss) Loss from equity investments Realized loss on investments (1,341) (833) (832) (2,780) (450) Write-down of long-term strategic investments Total other income (expense) Income (loss) before income taxes and minority interest Noncontrolling interest in subsidiary Income (loss) before income taxes (2,780) (1,238) 369 (5,144) 754 3,951 (36,800) (13,020) 4 3,955 (36,800) (13,020) Provision for income taxes 1,542 442 1,055 Net income (loss) $ 2,413 $(37,242) $(14,075) Calculate the sustainable earnings of Entrust, Inc., for each of the three years. Remember to use negative signs with answers, when appropriate. Year 3 Year 2 Year 1 Permanent earnings $ 2,413 X $ (15,546) * $ (15,306) X Check