The Kroger Company and Subsidiaries - Page 25

                                               - 25 -                                                 
                  Dr. Bates is of the opinion that the correlation between                            
            sales and shrinkage is strong.  Dr. Bates is also of the opinion                          
            that the “business level” is the appropriate level to test the                            
            relationship of sales to shrinkage.  Dr. Bates uses the term                              
            “business level” to refer, individually, to the aggregate                                 
            operations of the KFS division, the aggregate operations of                               
            Florida Choice, and the aggregate operations of Superx.  Dr.                              
            Bates acknowledges that correlation can be tested at other                                
            levels, e.g., the department level within a store, the store                              
            level, or, even, at the level of the “entire Kroger corporate                             
            entity”.  Dr. Bates believes that the business level is                                   
            appropriate because that is the level at which taxable income is                          
            computed.                                                                                 
                  Dr. Bates bases his opinions of strong correlation on the                           
            application of two methods to measure the correlation between                             
            sales and shrinkage at the business level.  The first method                              
            derives the correlation between sales and shrinkage from                                  
            aggregate data at the business level.  The second method derives                          
            the correlation between sales and shrinkage from individual                               
            inventory records at the store level.  Dr. Bates is of the                                
            opinion that, for the years he examined, the correlation between                          
            sales and shrinkage is (1) at least 0.91 for the KFS division,                            
            (2) at least 0.89 for Florida Choice, and (3) at least 0.94 for                           
            Superx.                                                                                   






Page:  Previous  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  Next

Last modified: May 25, 2011