Dayton Hudson Corporation and Subsidiaries - Page 43

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                  shrinkage estimation methodology produces very small or                                
                  very large errors at the aggregate level.  Shrinkage is                                
                  not accrued at the aggregate level.                                                    
            Dr. LaRue believes that, notwithstanding a net figure of zero at                             
            the aggregate level, the fact that retail dollars of shrinkage                               
            have to be converted into cost dollars among the various LIFO                                
            pools, which pools utilize diverse conversion processes (i.e.,                               
            differing BLS indexes and cost complements), undermines the                                  
            significance of Dr. Seago's shrinkage accrual accuracy analysis.                             
            Dr. LaRue acknowledges, however, that a finding of low shrinkage                             
            estimation error at the aggregate level is not irrelevant.                                   
            Indeed, he believes that such a finding creates a presumption of                             
            a “pretty good model”.                                                                       
                  In addition, Dr. LaRue, although in agreement with                                     
            Dr. Seago's mathematics, questioned the significance of the high                             
            correlation between sales and shrinkage derived from the 10-year                             
            correlation analysis.  Dr. LaRue conducted his own analysis of                               
            Target data and concludes that the correlation between sales and                             
            shrinkage disintegrates as the level of analysis moves from the                              
            Target-wide level to the department and store levels.                                        
                  G.  Evaluation of Expert Testimony                                                     
                        1.  Origin of Shrinkage Estimation Errors                                        
                  An inquiry into the origin of shrinkage estimation errors                              
            provides the proper perspective to evaluate Dr. LaRue's criticism                            
            that the Divisions' shrinkage methods are inherently flawed                                  






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Last modified: May 25, 2011