Wal-Mart Stores, Inc. and Subsidiaries - Page 18

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          Store     Computed %       Applied %     % Applied                          
                     201   -1.08 shrinkage     -1.08          Computed                
                     397   -3.90 shrinkage     -3.85          Ceiling                 
                     531   -0.27 shrinkage     -1.00          Floor                   
                     782   +0.32 overage       -1.40          Floor                   
                                                                                     
                Sam's consistently determined shrinkage projections for               
          its clubs by multiplying a fixed rate of .2 percent by monthly              
          sales.  None of the clubs, including new clubs, applied a floor             
          or ceiling percentage limitation to the .2-percent rate.  The               
          .2-percent rate was determined by petitioner's senior management            
          on the basis of their analysis of historical results from                   
          warehouse operations.  Sam's shrinkage estimates are a smaller              
          part of overall annual shrinkage because Sam's warehouse format             
          allows it to continuously take item physical inventories in                 
          addition to taking complete physical inventories twice a year.              
                Sam's underestimated shrinkage.  Sales during the physical            
          inventory cycle for Sam's, expressed in thousands of dollars,               
          were $597,954 for 1985 and $1,314,344 for 1986.  Shrinkage during           
          the physical inventory cycle for Sam's, expressed in thousands of           
          dollars, was $567 for 1985 and $4,669 for 1986.  Sam's shrinkage            
          as a percentage of sales for the physical inventories taken                 
          during 1985 and 1986 was .27% (($567 + $4,669)/($597,954 +                  
          $1,314,344)).                                                               
                D.  Adjustment of Monthly Estimates                                   
                Petitioners adjusted their inventory accounts to reflect              
          the results of each physical count of a store or club.  Each time           




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