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AT&T: Business acquisitions and analysis of sales growth (LO 17-5) The disclosure rules for business combinations complicate financial analysis. Trend analysis becomes difficult because comparative financial statements are not retroactively adjusted to include data for the acquired company for periods prior to the acquisition. For example, consider AT&T's acquisition of DirecTV in 2015. The following disclosure appeared in AT&T's management discussion and analysis in its 2016 Form 10-K:

($ in millions)	Actual	Forecasted
	2017	2017	2016	2015	2014	2016 vs 2015	2015 vs 2014
Operating revenues
Service	$145,597		$148,884	131,677	$118,437	13.10%	11.20%
Equipment	$14,949		14,902	15,124	14,010	-1.5	8
Total Operating Revenues	$160,546		163,786	146,801	132,447	11.5	10.8
Operating Expenses
Cost of services and sales
Equipment	$18,709		18,757	19,268	18,946	-2.7	1.7
Broadcast, programming and operations	$21,159		19,851	11,996	4,075	65.5	-
Other cost of services	$37,511		38,276	35,782	37,124	7	-3.6
Selling, general and administrative	$34,917		36,347	32,919	39,697	10.4	-17.1
Asset abandonments and impairments	$2,914		361	35	2,120	-	-98.3
Depreciation and ammortization	$24,387		25,847	22,016	18,273	17.4	20.5
Total Operating Expenses	$139,597		139,439	122,016	120,235	14.3	1.5
Operating Income	$20,949		24,347	24,785	12,212	-1.8	-
Interest expense	$6,300		4,910	4,120	3,613	19.2	14.0
Equity in net income of affilliates	-128		98	79	175	24.1	-54.9
Other income (expense)-net	$618		277	-52	1,581	-	-
Income Before Income Taxes	$15,139		19,812	20,692	10,355	-4.3	99.8
Net Income	$29,847		13,333	13,687	6,736	-2.6	-
Net income Attributable to AT&T	$29,450		$12,976	$13,345	$6,442	-2.80%	-

After the above disclosure, AT&T provided the following discussion: Operating revenues increased $16,985, or 11.6%, in 2016 and $14,354, or 10.8%, in 2015. 

Service revenues increased $17,207, or 13.1%, in 2016 and $13,240, or 11.2%, in 2015. The increase in 2016 was primarily due to our 2015 acquisition of DIRECTV and increases in IP broadband and fixed strategic service revenues. These were partially offset by continued declines in our legacy wireline voice and data products and lower wireless revenues from offerings that entitle customers to lower monthly service rates. The increase in 2015 was primarily due to our acquisition of DIRECTV, our new wireless operations in Mexico, and gains in fixed strategic services and our IP-based AT&T U-verse®(U-verse) services. In the notes to the financial statements, AT&T provided pro forma income statement information as if the DirecTV acquisition had been completed on January 1, 2014:

Dollars in millions except per share amounts For the 160-day period ended December 31, 2015, our consolidated statement of income included $14,561 of revenues and $(46) of operating income, which included $2,254 of intangible amortization, from DIRECTV and its affiliates. The following unaudited pro forma consolidated results of operations assume that the acquisition of DIRECTV was completed as of January 1, 2014.

 

Questions: 

1. How should a financial statement user interpret the reference to 13.1% revenue growth for 2016 disclosed by AT&T?

2. Suppose you are asked to prepare a sales forecast for 2017. Based on the information provided, what is the best estimate of AT&T's sustainable growth in revenues for the next several years? Explain your answer. (I have provided the table for that)