The Kroger Company and Subsidiaries - Page 32

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            explained by the fact that they chose to correlate different                              
            variables.  Each, however, has gone another step (beyond                                  
            correlation) and ventures an opinion as to the predictability of                          
            shrinkage based on sales.  Not surprisingly, they have reached                            
            different opinions.  While we cannot fully reconcile those                                
            different opinions, Dr. Bates, principally by way of his rebuttal                         
            report, has persuaded us that the low correlations found by Dr.                           
            Roberts are not inconsistent with Dr. Bates’ opinion as to the                            
            accuracy of sales as a predictor of shrinkage at the business                             
            level.  More importantly, Dr. Roberts has not persuaded us that                           
            the low department level correlations found by him are                                    
            determinative of the question of clear reflection of taxable                              
            income.  Moreover, Dr. Roberts has failed to rebut Dr. Bates’                             
            opinion that losses from shrinkage factors occur during the                               
            physical-to-yearend period or to undermine Dr. Bates’ shrinkage                           
            accrual accuracy analysis.                                                                
                  At this point, it is sufficient to say that we attach                               
            credence to Dr. Bates’ analysis and are convinced that, at the                            
            business level, sales have value as a predictor of shrinkage.  We                         
            will consider the weight to be accorded to Dr. Bates' conclusions                         
            infra.                                                                                    











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