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as computed, was subjected to the floor and ceiling limitations
described below.
The floor and ceiling percentage limitations mentioned
above were internal guidelines set forth in memoranda prepared by
Wal-Mart's senior management. These guidelines were followed by
all of Wal-Mart's stores. Wal-Mart's internal audit department
recommended the amount of a ceiling and floor limitation to the
controllers and vice presidents of the respective operating
divisions based on a weighted 5-year average, and they, in turn,
recommended the guidelines for these limitations to Wal-Mart's
president. Wal-Mart's president was the ultimate setter of these
guidelines, and, once set and implemented, these guidelines were
effective until revised through the procedure used to establish
them. The floor and ceiling percentage limitations were applied
as follows: (1) If the computed shrinkage rate was below the
floor, the rate was adjusted upward to equal the floor; (2) if
the computed shrinkage rate exceeded the ceiling, it was adjusted
downward to equal the ceiling; (3) if the computed shrinkage rate
was an overage, the rate was replaced by the floor. In practice,
the ceiling was seldom applied, and the floor was applied more
often. As one example of the application of the floor and
ceiling percentage limitations, the following table contains
information from the 1986 taxable year that illustrates how a
computed average shrinkage rate was adjusted:
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