The Kroger Company and Subsidiaries - Page 11

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                  During the years in issue, the incidence of shrinkage                               
            factors varied among stores, among departments within stores, and                         
            among KMAs.  Overages were, on occasion, recorded by individual                           
            stores and, in some years, on a net basis by entire KMAs, but                             
            never for the KMAs together.  No accrual was made to reflect an                           
            expectation of overage.  From 1984 through 1987, in the face of                           
            recurring overages, the Michigan KMA did not make shrinkage                               
                  The management of each KMA determined shrinkage accrual                             
            rates to be used throughout that KMA.  Judgment played a large                            
            role in determining shrinkage accrual rates.  Factors that would                          
            be taken into account included experience with shrinkage factors,                         
            store sizes, merchandising techniques, regional differences, and                          
            recent shrinkage trends.  A separate percentage rate was                                  
            determined for each department for which a shrinkage accrual was                          
                  D.  Physical Inventories                                                            
                  From 1984 through 1992, the KFS division conducted an                               
            average of 2.3 physical inventories a year in each store.                                 
            III.  Florida Choice                                                                      
                  Florida Choice, although a division of Superx, was operated                         
            as if it were a part of the KFS division.  During the years in                            
            issue, Florida Choice’s chain of supermarkets grew from 22 to                             
            30 stores.                                                                                

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Last modified: May 25, 2011