The Kroger Company and Subsidiaries - Page 10

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                        4.  Shrinkage Accruals                                                        
                  The KFS division accounting policy for estimating shrinkage                         
            accrual was as follows:                                                                   
                  For each store in which no physical inventory is taken                              
                  during a period, a shrinkage and spoilage loss will be                              
                  accrued for each department:                                                        
                  a.    At the beginning of each year determine the                                   
                        KMA rate of shrinkage and spoilage, at                                        
                        retail, for the previous year for each                                        
                  b.    From this experience and evidence of trend,                                   
                        estimate the percentage (to the nearest                                       
                        hundredth of one percent) expected for the                                    
                        KMA for the current year for each department.                                 
                  c.    Use the estimated percentages for all stores                                  
                        for the current year.  If a change in rate                                    
                        appears desirable within the year request                                     
                        approval of a change from the Corporate                                       
                        Accounting Policy and Methods Department.  No                                 
                        approval is required to change the                                            
                        percentages at the beginning of the year.                                     
                  C.  Management of Shrinkage                                                         
                  Minimization of shrinkage factors was a management goal                             
            common to all KMAs.  Detailed records were maintained in the KMAs                         
            on the incidence (cost) of shrinkage factors.  Records were                               
            maintained by store and by store manager.  Control (minimization)                         
            of shrinkage factors was an important criterion in assessing the                          
            performance of a store manager.  A store manager could be fired                           
            or might not be promoted for failure to minimize shrinkage                                
            factors.  Programs were continually developed and implemented to                          
            control shrinkage factors.                                                                

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Last modified: May 25, 2011