The Kroger Company and Subsidiaries - Page 14

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            level in determining Superx's shrinkage accrual rate.  Individual                         
            store managers could not use a different rate.  Between 1981 and                          
            1986, shrinkage accrual rates, as a percentage of gross sales,                            
            varied between 2.1 percent and 2.5 percent.                                               
                  C.  Management of Shrinkage                                                         
                  Controlling shrinkage factors was a significant concern of                          
            Superx management.  Store managers could be fired, or their                               
            compensation reduced, for failure to control shrinkage factors.                           
            Superx maintained a risk management department, which performed                           
            field audits to see that procedures to reduce shrinkage factors                           
            were in place and performed analyses of shrinkage factors to aid                          
            in control of such factors.                                                               
                  D.  Physical Inventories                                                            
                  During 1983 and 1984, Superx conducted an average of 1.7                            
            physical inventories a year in each store.  In 1985, the average                          
            was 1.6 inventories a store.                                                              

            I.  Introduction                                                                          
                  Petitioner’s principal business activities are the operation                        
            of supermarkets and convenience stores and the distribution and                           
            sale of drug and general merchandise.  We are concerned here with                         
            (1) the Kroger Food Stores Division of Kroger (the KFS division),                         
            (2) Florida Choice, a division of Superx, which operated a chain                          

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