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 Shopko€™s acquisition of Pamida on July 6, Year 1. Excerpts from Shopko€™s Year 1 annual report highlight the revenue and earnings growth achieved in that year. In the president€™s letter, William Podany noted the following:
For more than ten consecutive years we have achieved new records for revenues and this year we are pleased to report another year of record earnings.
The management€™s discussion and analysis (MD&A) section began with the following statement:
Consolidated net sales for fiscal Year 1 (52 weeks) increased $939.5 million or 31.8% over fiscal Year 0 weeks (52 weeks) to $3,898.1 million.
The details of the acquisition were disclosed in the following note in Shopko€™s Year 1 annual report:
On July 6, Year 1, the Company acquired all of the outstanding voting and nonvoting common stock of Pamida for $94.0 million in cash, $285.8 million in assumed debt and $138.6 million in assumed trade and other accrued liabilities. Pamida is a retail chain headquartered in Omaha, Nebraska, operating Pamida retail stores in 15 Midwest, North Central and Rocky Mountain states. In connection with the Pamida acquisition, the Company incurred special charges of $8.1 million for employee retention programs, elimination of administrative functions and various integration initiatives. The allocation of the purchase price of Pamida was based on estimated fair values at the date of acquisition.
This acquisition was accounted for under the purchase method of accounting and the allocation of the purchase price was based on fair values at the date of acquisition. Goodwill associated with the Pamida acquisition was approximately $186.6 million. The results of operations since the dates of acquisition have been included in the consolidated statements of earnings.
The following presents selected unaudited pro forma consolidated statement of earnings information that has been prepared assuming the Pamida acquisition occurred on January 1, Year 1, and January 1, Year 0, respectively:
The following presents selected unaudited pro forma consolidated statement of earnings information that has been prepared assuming the Pamida acquisition occurred on January 1, Year 1, and January 1, Year 0, respectively

Shopko€™s consolidated statements of earnings for the years ended December 31, Year 1, and December 31, Year 0, follow:

Required:
1. How should a financial statement user interpret the reference to 31.8% sales growth in the
MD&A section?
2. Suppose you are asked to prepare a sales forecast for the year ended December 31, Year 2. Based on the information shown here, what is the best estimate of Shopko€™s sustainable growth in sales between the years ended December 31, Year 0, and December 31, Year 1? Explain youranswer.

Fiscal Years ($ in thousands, except per share data unaudited) Net sales Earnings before extraordinary itenm Diluted earnings per share before extraordinary item Year I Year 0 $4,181,567 101,190 3.54 $3,630,951 56,678 2.14 Consolidated Statement of Earnings Fiscal Years $ in thousands) Revenues: Net sales Licensed department rentals and other income Year Year 0 $3,898,090 13,856 3,911,946 $2,958,557 12,325 2.970.882 Costs and Expenses: Cost of sales Selling, general and administrative expenses Special charges Depreciat 3,047,930 601,157 8,068 84,438 3,741,593 170,353 (46,894) 56,760 2,296,085 471,546 5,723 67,590 2,840,944 129,938 (38,311) ion and amortization expenses Income from operations Interest expense net Gain on sale of ProVantage stock Earnings before income taxes, minority interest and extraordinary item Provision for income taxes Earnings before minority interest and extraordinary item Minority interest Earnings before extraordinary item Extraordinary (loss) on retirement of debt, net of 180,219 71,800 108,419 2,463) 105,956 91.627 35,991 55,636 55,636 income taxes of $2,443 Net eamings 776) $ 102,180 S 55,636