UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

RETAIL VENTURES, INC.

(Exact name of registrant as specified in its charter)

Ohio		20-0090238
(State or other jurisdiction of         incorporation or organization)		(I.R.S. Employer Identification No.)
3241 Westerville Road, Columbus, Ohio		43224
(Address of principal executive offices)		(Zip Code)

(614) 471-4722

Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES þ NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO þ

The number of outstanding common shares, without par value, as of November 30, 2005 was 39,539,776.

 

 

INTRODUCTORY NOTE

On July 31, 2006, the Audit Committee of the Board of Directors approved management’s recommendation that the Company’s financial statements and related disclosures for the three and nine months ended October 29, 2005 be restated in response to comments from the staff of the Securities and Exchange Commission primarily related to the fair value of the warrants.

This filing is made to restate the Company’s October 29, 2005 and the thirteen week period then ended condensed consolidated financial statements and related disclosures. This filing corrects errors, by eliminating the application of a block sale discount, identified in the calculation of the warrant liability and the related change in fair value of warrants recognized in the condensed consolidated financial statements. This filing also amends various disclosures including disclosures in management’s discussion and analysis and selected financial data.

As of October 29, 2005 the correction of the above-noted error increased the Warrant liability by $48.3 million, reduced Retained earnings by $39.5 million, and reduced Common shares by $8.8 million. The correction of the error for the three months ended October 29, 2005 increased by $2.2 million all of the following (i) Change in fair value of warrants (ii) Operating profit (iii) Income before income taxes (iv) Income before minority interest and (v) Net income. The correction of the error for the nine months ended October 29, 2005 increased by $39.5 million all of the following (i) Change in fair value of warrants (ii) Operating loss (iii) Loss before income taxes (iv) Loss before minority interest and (v) Net loss. The basic and diluted earnings per share increased to $1.43 and $0.92, respectively for the three months ended October 29, 2005 and basic and diluted loss per share increased to $2.94 for the nine months ended October 29, 2005.

This adjustment had no effect on the previously reported balance sheet as of January 29, 2005 or the condensed consolidated financial statements for any period prior to the quarter ended July 30, 2005 which has also been amended separately. This adjustment had no effect on net cash or the income tax returns filed by the Company. This correction is further detailed in Note 15 to the condensed consolidated financial statements.

This amendment does not reflect events after the filing of the original report on Form 10-Q filed December 8, 2005 with the SEC, and is not intended to update other information presented except as required to reflect the effects of this restatement. Except for Items 1, 2 and 4 of Part I and Item 6 of Part II, no other information included in the Form 10-Q/A (Amendment No. 1) filed on April 11, 2006 is amended by this Form 10-Q/A (Amendment No. 2).

RETAIL VENTURES, INC.
TABLE OF CONTENTS

		Page No.
Part I.Financial Information
Item 1.Financial Statements
Condensed Consolidated Balance Sheets at October 29, 2005 and January 29, 2005 (as restated)			3
Condensed Consolidated Statements of Operations for the three and nine months ended October 29, 2005 and October 30, 2004 (as restated)			4
Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended October 29, 2005 and October 30, 2004 (as restated)			5
Condensed Consolidated Statements of Cash Flows for the nine months ended October 29, 2005 and October 30, 2004 (as restated)			6
Notes to the Condensed Consolidated Financial Statements			7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			43
Part II.Other Information
Item 1.Legal Proceedings			44
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3.Defaults Upon Senior Securities			46
Item 4.Submission of Matters to a Vote of Security Holders			46
Item 5.Other Information			46
Item 6.Exhibits			46
Signature			47
Index to Exhibits			48
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

RETAIL VENTURES, INC.

		October 29,				January 29,
		2005				2005
			Restated*				Restated*
ASSETS
Cash and equivalents		$	78,778			$	29,258
Accounts receivable, net			47,826				7,455
Receivables from related parties			527				501
Inventories			617,903				473,051
Prepaid expenses and other assets			28,830				21,112
Deferred income taxes			56,284				62,355
Total current assets			830,148				593,732
Property and equipment, net			276,841				280,454
Goodwill			25,899				25,899
Tradenames and other intangibles, net			40,278				43,460
Deferred income taxes and other assets			8,887				32,881
Total assets		$	1,182,053			$	976,426
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	268,152			$	202,578
Accounts payable to related parties			4,529				5,428
Accrued expenses			187,461				151,547
Warrant liability ($95,769 — related party)			96,780
Current maturities of long-term obligations			634				611
Total current liabilities			557,556				360,164
Long-term obligations, net of current maturities
Non-related parties			148,652				169,134
Related parties			50,000				174,241
Deferred income taxes and other noncurrent liabilities			131,416				87,710
Minority interest			108,626
Commitments and contingencies
Shareholders’ equity:
Common shares, without par value; 160,000,000 authorized; issued, 39,536,927 and 34,110,707, respectively			158,008				143,477
Warrants							6,074
Retained earnings			34,924				42,756
Deferred compensation expense, net			(2	)			(3	)
Treasury shares, at cost, 7,551 shares			(59	)			(59	)
Accumulated other comprehensive loss			(7,068	)			(7,068	)
Total shareholders’ equity			185,803				185,177
Total liabilities and shareholders’ equity		$	1,182,053			$	976,426

* See note 15

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

RETAIL VENTURES, INC.

		Three months ended								Nine months ended
		October 29,				October 30,				October 29,				October 30,
		2005				2004				2005				2004
		Restated*				Restated*				Restated*				Restated*
Net sales		$	746,101			$	699,738			$	2,092,880			$	1,977,692
Cost of sales			(462,397	)			(419,776	)			(1,281,412	)			(1,178,731	)
Gross profit			283,704				279,962				811,468				798,961
Selling, general and administrative expenses			(290,439	)			(273,962	)			(835,328	)			(778,232	)
Change in fair value of warrants ($66,407 and $(71,147) — related party, respectively)			66,997								(70,586	)
License fees and other income			1,593				1,950				7,104				5,073
Operating profit (loss)			61,855				7,950				(87,342	)			25,802
Interest expense, net
Non-related parties			(1,981	)			(3,123	)			(10,430	)			(8,981	)
Related parties			(1,264	)			(6,815	)			(12,884	)			(20,266	)
Income (loss) before income taxes			58,610				(1,988	)			(110,656	)			(3,445	)
Benefit for income taxes			1,812				646				1,645				911
Income (loss) before minority interest			60,422				(1,342	)			(109,011	)			(2,534	)
Minority interest			(4,022	)							(3,299	)
Net income (loss)		$	56,400			$	(1,342	)		$	(112,310	)		$	(2,534	)
Basic and diluted income (loss) per share:
Basic		$	1.43			$	(0.04	)		$	(2.94	)		$	(0.07	)
Diluted		$	0.92			$	(0.04	)		$	(2.94	)		$	(0.07	)
Shares used in per share calculations:
Basic			39,479				33,978				38,227				33,914
Diluted			61,514				33,978				38,227				33,914

* See Note 15

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

RETAIL VENTURES, INC.

(in thousands)

		Number of Shares																												Accumulated
						Common																Deferred								Other
		Common				Shares				Common								Retained				Compensation				Treasury				Comprehensive
		Shares				in Treasury				Shares				Warrants				Earnings				Expense				Shares				Loss				Total
Balance, January 31, 2004 (as restated)*			33,991				8			$	143,077			$	6,074			$	62,204			$	(635	)		$	(59	)		$	(6,011	)		$	204,650
Net loss(as restated)*																			(2,534	)															(2,534	)
Exercise of stock options			109								422																								422
Forfeiture of restricted shares			(16	)							(104	)											104
Amortization of deferred compensation expense																							231												231
Balance, October 30, 2004 (as restated)*			34,084				8			$	143,395			$	6,074			$	59,670			$	(300	)		$	(59	)		$	(6,011	)		$	202,769
Balance, January 29, 2005 (as restated)*			34,111				8			$	143,477			$	6,074			$	42,756			$	(3	)		$	(59	)		$	(7,068	)		$	185,177
Net loss (as restated)*																			(112,310	)															(112,310	)
Initial public offering of subsidiary																			104,474																104,474
Capital transactions of subsidiary																			4																4
Exercise of stock options			5,426								24,493																								24,493
Tax benefit related to stock options exercised											10,158																								10,158
Amortization of deferred compensation expense																							1												1
Warrant reclass to liability															(6,074	)																			(6,074	)
Warrant adjustment to fair value (as restated)*											(20,120	)																							(20,120	)
Balance, October 29, 2005 (as restated)*			39,537				8			$	158,008			$	0			$	34,924			$	(2	)		$	(59	)		$	(7,068	)		$	185,803

*See Note 15

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

RETAIL VENTURES, INC.

		Nine months ended
		October 29,				October 30,
		2005				2004
		Restated*				Restated*
Cash flows from operating activities:
Net loss		$	(112,310	)		$	(2,534	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt issuance costs and discount on debt			4,116				4,269
Depreciation and amortization			42,998				40,011
Change in fair value of warrants ($71,147 — related party)			70,586
Deferred income taxes and other noncurrent liabilities			(3,579	)			(10,567	)
Tax benefit related to stock options exercised			10,158
Loss on disposal of assets			560				25
Minority interest in consolidated subsidiary			3,299
Impairment charges							712
Other			603				231
Change in working capital, assets and liabilities:
Receivables			(40,397	)			(4,222	)
Inventories			(144,852	)			(164,494	)
Prepaid expenses and other assets			(7,903	)			(14,305	)
Accounts payable			61,145				128,283
Proceeds from lease incentives			8,972				10,396
Accrued expenses			35,983				16,956
Net cash (used in) provided by operating activities			(70,621	)			4,761
Cash flows from investing activities:
Capital expenditures			(33,400	)			(56,754	)
Proceeds from sale of assets			98				111
Tradename acquisition							(4,056	)
Net cash used in investing activities			(33,302	)			(60,699	)
Cash flows from financing activities:
Payments of capital lease obligations			(459	)			(606	)
Payments on long-term debt			(125,000	)
Net (decrease) increase in revolving credit facility			(20,000	)			60,000
Debt issuance costs			(3,527	)			(438	)
Proceeds from exercise of stock options			24,493				422
Proceeds from sale of stock of subsidiary			277,936
Net cash provided by financing activities			153,443				59,378
Net increase in cash and equivalents			49,520				3,440
Cash and equivalents, beginning of period			29,258				14,226
Cash and equivalents, end of period		$	78,778			$	17,666

* See Note 15

The accompanying Notes are an integral part of the Condensed Consolidated Financial Statements.

RETAIL VENTURES, INC.

1.		BUSINESS OPERATIONS
		Retail Ventures, Inc. (“Retail Ventures”) and its wholly-owned subsidiaries, and DSW Inc. (“DSW”), a controlled subsidiary, and DSW’s wholly-owned subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are herein referred to collectively as the “Company”. Retail Ventures operates three segments in the United States of America (“United States”); Value City Department Stores LLC (“Value City”), DSW, and Filene’s Basement, Inc. (“Filene’s Basement”).
		On October 8, 2003, the Company reorganized its corporate structure into a holding company form whereby Retail Ventures, an Ohio corporation, became the successor issuer to Value City Department Stores, Inc. As a result of the reorganization, Value City Department Stores, Inc. became a wholly-owned subsidiary of Retail Ventures. In connection with the reorganization, holders of common shares of Value City Department Stores, Inc. became holders of an identical number of common shares of Retail Ventures. The reorganization was affected by a merger which was previously approved by Value City Department Stores Inc.’s shareholders. Since October 2003, Retail Ventures’ common shares have been listed for trading under the ticker symbol “RVI” on the New York Stock Exchange.
		In December 2004, the Company completed another corporate reorganization whereby Value City Department Stores, Inc. merged with and into Value City, a newly created, wholly-owned subsidiary of Retail Ventures. In connection with this reorganization, Value City transferred all the issued and outstanding shares of DSW and Filene’s Basement to Retail Ventures in exchange for a promissory note.
		Value City. Located in the Midwestern, Eastern and Southern United States and operating for over 80 years principally under the name Value City, this segment’s strategy has been to provide exceptional value by offering a broad selection of brand name merchandise at prices substantially below conventional retail prices. At October 29, 2005, there were 114 Value City stores in operation.
		DSW. Located throughout the United States, the DSW stores offer a wide selection of brand name and designer dress, casual and athletic footwear for men and women. As of October 29, 2005, there were 197 DSW stores in operation. Additionally, pursuant to a license agreement with Filene’s Basement, DSW supplies leased shoe departments in most Filene’s Basement stores. Results of operations of the leased shoe departments are included with the DSW segment. In July 2002 and June 2004, respectively, DSW entered into supply agreements with Stein Mart, Inc. (“Stein Mart”) and Gordmans, Inc. (“Gordmans”) to supply merchandise to some of the Stein Mart’s and all of the Gordmans’ shoe departments. As of October 29, 2005, DSW supplied 157 leased departments for Stein Mart, 53 for Gordmans, 25 for Filene’s Basement and one for Frugal Fannie’s Fashion Warehouse. Results of operations under the supply agreements are included with the DSW segment. During the three months and nine months ended October 29, 2005, DSW opened 13 and 27 new DSW stores, respectively, and, during the nine months ended October 29,

RETAIL VENTURES, INC.

		2005, re-categorized two DSW/Filene’s Basement combination store locations as leased shoe departments which are included in the DSW segment.
		Filene’s Basement. Filene’s Basement stores are located primarily in major metropolitan areas of the United States such as Boston, New York, Atlanta, Chicago and Washington, D.C. Filene’s Basement focuses on providing top-tier brand name merchandise at everyday low prices for men’s and women’s apparel, jewelry, shoes, accessories and home goods. As of October 29, 2005, there were 27 Filene’s Basement stores in operation.
2.		BASIS OF PRESENTATION
		The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with Retail Ventures’ 2004 Annual Report on Form 10-K for the fiscal year ended January 29, 2005, as amended and filed with the Securities and Exchange Commission (the “SEC”) on April 11, 2006 (the “2004 Annual Report”). This Form 10-Q reflects all changes incorporated into the Retail Ventures Amendment No. 3 to Form 10-Q/A for the quarter ended July 30, 2005.
		In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the condensed consolidated financial position and results of operations for the periods presented.
		The consolidated financial statements are reported on the full consolidation method and include 100% of the assets and liabilities of all controlled subsidiaries. The ownership interests of minority participants are recorded as “Minority Interest”. All material intercompany transactions and balances are eliminated.
3.		INITIAL PUBLIC OFFERING OF SUBSIDIARY
		On July 5, 2005, DSW completed an initial public offering (“IPO”) of 16,171,875 Class A common shares sold at a price to the public of $19.00 per share and raising net proceeds of $285.8 million, net of the underwriters’ commission and before estimated expenses of approximately $7.9 million. Following the IPO, Retail Ventures owns approximately 63.0% of DSW’s outstanding common shares and approximately 93.2% of the combined voting power of such shares. In conjunction with the separation of their businesses following the IPO, Retail Ventures and DSW entered into several agreements, including, among others, a master separation agreement, a shared services agreement and a tax separation agreement. Retail Ventures’ current intent is to continue to hold its DSW common shares, except to the extent necessary to satisfy obligations under warrants it has granted to certain of its lenders. Retail Ventures is subject to (a) contractual obligations with its lenders to retain ownership of at least 55% by value of the common shares of DSW for so long as Retail Ventures’ senior loan facility remains outstanding and (b) contractual obligations with its warrantholders to retain enough DSW common shares to be able to satisfy its obligations to deliver such shares to its warrantholders if the warrantholders elect to exercise their warrants in full for DSW Class A common shares. In addition, Retail Ventures has agreed not to sell or otherwise dispose of any of the DSW common shares for a period of 180 days following the IPO without the prior written consent of Lehman Brothers Inc. on behalf of the

RETAIL VENTURES, INC.

		underwriters of the IPO. Retail Ventures accounted for the sale of DSW as a capital transaction. Associated with this transaction, a deferred tax liability of $68.7 million was recorded.
4.		STOCK BASED COMPENSATION
		Retail Ventures has various stock-based employee compensation plans. The Company accounts for those plans in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, no stock-based employee compensation cost has been recognized for the fixed stock option plans or the discontinued stock purchase plan, which was discontinued at the end of May 2005. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”

		Three months ended								Nine months ended
		October 29,				October 30,				October 29,				October 30,
		2005 Restated *				2004				2005 Restated *				2004
		(in thousands, except per share amounts)
Net income (loss), as reported		$	56,400			$	(1,342	)		$	(112,310	)		$	(2,534	)
Add: Stock-based employee compensation (benefit) expense included in reported net income, net of tax			(861	)			94				3,197				448
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax			554				(562	)			(3,775	)			(2,343	)
Pro forma net income (loss)		$	56,093			$	(1,810	)		$	(112,888	)		$	(4,429	)
Income (loss) per share:
Basic as reported		$	1.43			$	(0.04	)		$	(2.94	)		$	(0.07	)
Diluted as reported		$	0.92			$	(0.04	)		$	(2.94	)		$	(0.07	)
Basic pro forma		$	1.42			$	(0.05	)		$	(2.95	)		$	(0.13	)
Diluted pro forma		$	0.91			$	(0.05	)		$	(2.95	)		$	(0.13	)

* See Note 15

5.		TRADENAMES AND OTHER INTANGIBLES
		During the nine months ended October 30, 2004, Retail Ventures acquired the “Leslie Fay” tradename for approximately $4.1 million. This amortizing asset has been assigned an anticipated life of 15 years.

RETAIL VENTURES, INC.

6.		LONG-TERM OBLIGATIONS AND SHAREHOLDERS’ EQUITY
		On July 5, 2005, Retail Ventures amended or terminated the then-existing credit facilities and other debt obligations of Value City and its other affiliates, including certain facilities under which DSW had rights and obligations as a co-borrower and co-guarantor, as follows:
		Amended and Restatement of Value City Revolving Credit Facility.
		The Company and its affiliates amended and restated the Loan and Security Agreement originally entered into in June 2002 (the “Revolving Credit Facility”). Pursuant to the $275 million Amended and Restated Loan and Security Agreement, entered into on July 5, 2005, (i) DSW was released from its obligations under the Revolving Credit Facility, (ii) the lenders released their liens on the shares of DSW’s capital stock held by Retail Ventures and the capital stock of DSWSW held by DSW, and (iii) leasehold mortgages which had been granted by DSW and DSWSW in 2002 to secure obligations under the June 2002 Revolving Credit Facility were released. Under the July 2005 Amended and Restated Loan and Security Agreement (the “Amended and Restated Revolving Credit Facility”), Retail Ventures and its wholly-owned subsidiaries are named as co-borrowers. The Amended and Restated Revolving Credit Facility has borrowing base restrictions and provides for borrowings at variable interest rates based on LIBOR, the prime rate and the Federal Funds effective rate, plus a margin. Retail Ventures’ obligations under the Amended and Restated Revolving Credit Facility are secured by a lien on substantially all of the personal property of Retail Ventures and its wholly-owned subsidiaries, including a pledge of all of Retail Ventures’ shares of DSW. In addition, the Amended and Restated Revolving Credit Facility contains usual and customary covenants that, among other things, restrict Retail Ventures’ ability to grant liens on its assets, incur additional indebtedness, open or close stores, pay cash dividends and redeem its stock, enter into transactions with affiliates and merge or consolidate with another entity.
		Amendment of Value City Term Loan Facility.
		The Company and its affiliates amended the Financing Agreement, as amended, among Cerberus Partners, L.P. (“Cerberus”), as agent, and other parties named therein, originally entered into in June 2002 (as so amended, the “Term Loan Facility”). Pursuant to the Fourth Amendment to Financing Agreement entered into July 5, 2005, (i) DSW was released from its obligations as a co-borrower, (ii) Value City repaid all the term loan indebtedness, and (iii) the Company agreed to amend the issued and outstanding 2,954,792 warrants (“Term Loan Warrants”) to provide Cerberus, Schottenstein Stores Corporation (“SSC”) and Back Bay Capital Funding LLC (“Back Bay”) the right, from time to time, in whole or in part, to (A) acquire Retail Ventures’ common shares at the then current conversion price (subject to the existing anti-dilution provisions), (B) acquire from Retail Ventures Class A common shares of DSW at an exercise price per share equal to the price of shares sold to the public in DSW’s IPO, or (C) acquire a combination thereof. Effective November 23, 2005, Back Bay transferred and assigned its Term Loan Warrants to Millennium Partners, L.P. Although Retail Ventures has no present intention or plan to undertake a spin-off of its DSW common shares to Retail Ventures’ shareholders, in the event that Retail Ventures would effect such

RETAIL VENTURES, INC.

		a spin-off in the future, the holders of outstanding unexercised Term Loan Warrants would receive the same number of DSW Class A common shares that they would have received had they exercised their Term Loan Warrants in full for Retail Ventures common shares immediately prior to the record date of such spin-off, without regard to any limitations on exercise contained in the Term Loan Warrants. Following the completion of any such spin-off, the Term Loan Warrants would be exercisable solely for Retail Ventures common shares. The Company has granted the Term Loan Facility lenders registration rights with respect to the shares issuable upon exercise of the Term Loan Warrants. In June 2002, a value of $6.1 million was ascribed to the Term Loan Warrants using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 5.6%; expected life of 10 years; expected volatility of 47%; illiquidity discount of 10%; and an expected dividend yield of 0%. The related debt discount was amortized into interest expense over the life of the debt.
		Amendment and Restatement of Value City Convertible Loan Facility.
		The Company and its affiliates amended and restated the Amended and Restated Senior Convertible Loan Agreement, as amended, with Cerberus, as agent and lender, SSC, as lender, and the other parties named therein, originally entered into in June 2002 (the “Convertible Loan Facility”). Pursuant to the Second Amended and Restated Senior Loan Agreement (the “Second Amended and Restated Senior Loan Agreement”), entered into July 5, 2005, (i) DSW was released from its obligations as a co-guarantor, (ii) Value City repaid $25 million of this facility, (iii) the remaining $50 million convertible loan was converted into a non-convertible loan, (iv) the capital stock of DSW held by Retail Ventures continues to secure the amended loan facility, and (v) Retail Ventures issued to SSC and Cerberus convertible warrants (the “Conversion Warrants”) which will be exercisable from time to time until the later of June 11, 2007 and the repayment in full of Value City’s obligations under the Second Amended and Restated Senior Loan Agreement. The July 2005 Second Amended and Restated Senior Loan Agreement is not eligible for prepayment until June 11, 2007. Under the Conversion Warrants, SSC and Cerberus will have the right, from time to time, in whole or in part, to (i) acquire Retail Ventures common shares at the conversion price referred to in the Second Amended and Restated Senior Loan Agreement (subject to existing anti-dilution provisions), (ii) acquire from Retail Ventures Class A common shares of DSW at an exercise price of $19.00 per share which equals the price of the shares sold to the public in DSW’s IPO (subject to anti-dilution provisions similar to those in the existing warrants held by SSC and Cerberus), or (iii) acquire a combination thereof. Although Retail Ventures has no present intention or plan to undertake a spin-off of its DSW common shares to Retail Ventures’ shareholders, in the event that Retail Ventures would effect such a spin-off in the future, the holders of outstanding unexercised Conversion Warrants would receive the same number of DSW Class A common shares that they would have received had they exercised their Conversion Warrants in full for Retail Ventures common shares immediately prior to the record date of such spin-off, without regard to any limitations on exercise contained in the Conversion Warrants. Following the completion of any such spin-off, the Conversion Warrants would be exercisable solely for Retail Ventures common shares.
		Warrants

RETAIL VENTURES, INC.

		As a result of the previously discussed credit facilities’ modifications made on July 5, 2005, the detached Term Loan Warrants and detached Conversion Warrants with dual optionality qualified as derivatives under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). As a result of the modifications, the fair values of the Term Loan Warrants and Conversion Warrants (together, the “Warrants”) have been recorded on the balance sheet within current liabilities. As the Term Loan Warrants had previously been recorded on the balance sheet within equity, the difference of $20.1 million, between the book value of the Warrants and the fair value at the time the Warrants were reclassified to a liability, was recorded to paid in capital. The liability has been recorded for the Conversion Warrants for the full amount of their fair value as a result of the modifications and a non-cash charge has been recorded within the Consolidated Statement of Operations. Regarding the change in the fair value of the Warrants, the Company recorded a gain of $67.0 million in the three-month period ended October 29, 2005 and a charge of $70.6 million for the nine months then ended. The initial recording of the Conversion Warrants was $134.2 million. No tax benefit has been recognized in connection with this charge.
		These derivative instruments do not qualify for hedge accounting under SFAS No. 133, as changes in the fair values are recognized in earnings in the period of change.
		Retail Ventures estimates the fair values of derivatives based on pricing models using current market rates and records all derivatives on the balance sheet at fair value. The fair market value of derivative instruments was $96.8 million at October 29, 2005. There were no derivative instruments outstanding at January 29, 2005. As the Warrants may be exercised for either common shares of RVI or common shares of DSW owned by RVI, the settlement of the Warrants will not result in a cash outlay by the Company.
		The above amendments to the Term Loan Facility and the Convertible Loan Facility were viewed in the aggregate and deemed to be modifications.
7.		PENSION BENEFIT PLANS
		The Company has three qualified defined pension benefit plans which it assumed at the time of previous acquisitions of three separate companies. The Company’s funding policy is to contribute an amount annually that satisfies the minimum funding requirements of ERISA and that is tax deductible under the Internal Revenue Code of 1986, as amended. Contributions are provided not only for benefits attributed to service to date but also for those anticipated to be earned in the future. The Company uses a January 31 measurement date for its pension benefit plans.
		The following table shows the components of net periodic benefit cost of the Company’s pension benefit plans for the three and nine months ended October 29, 2005 and October 30, 2004:

RETAIL VENTURES, INC.

		Three months ended								Nine months ended
		October 29,				October 30,				October 29,				October 30
		2005				2004				2005				2004
		(in thousands)
Service cost		$	11			$	11			$	34			$	32
Interest cost			366				350				1,098				1,051
Expected return on plan assets			(393	)			(359	)			(1,179	)			(1,077	)
Amortization of transition asset			(9	)			(9	)			(28	)			(28	)
Amortization of net loss			175				145				525				435
Net periodic benefit cost		$	150			$	138			$	450			$	413

		As of October 29, 2005, the Company has contributed the $2.5 million required for fiscal 2005 to meet the minimum funding requirements of ERISA. During the nine months ended October 30, 2004, the Company contributed approximately $1.7 million to its pension benefit plans.
8.		OTHER BENEFIT PLANS
		The Company maintains a Profit Sharing and 401(k) Plan (the “401(k) Plan”) for its employees. Employees who attain age twenty-one are eligible to defer compensation as of the first day of the month following 60 days of employment and may contribute up to 30% of their compensation to the 401(k) Plan on a pre-tax basis, subject to Internal Revenue Service limitations. As of the first day of the month following an employee’s completion of one year of service as defined under the terms of the 401(k) Plan, the Company matches employee deferrals into the 401(k) Plan as follows: 100% on the first 3% of eligible compensation deferred and 50% on the next 2% of eligible compensation deferred. Additionally, the Company may contribute a discretionary profit sharing amount to the 401(k) Plan each year. In fiscal 2004 the Company contributed $1.3 million to the 401(k) Plan for discretionary profit sharing. As of October 29, 2005 the Company has made no discretionary profit sharing contributions for fiscal 2005.
		The Company identified the following issue involving its 401(k) Plan:
		It is the position of the Securities and Exchange Commission (the “SEC”) SEC that, if participants’ 401(k) plan contributions can be invested in employer securities, all of the securities offered pursuant to the plan must be registered under the Securities Act of 1933 (the “Securities Act”). This is true regardless whether the plan acquires the shares from the employer or on the open market and whether the shares are purchased with employee contributions or the company’s match. Based on this interpretation of the Securities Act, Retail Ventures registered 600,000 common shares for inclusion in the Retail Ventures, Inc. Common Stock Fund under the 401(k) Plan.
		Although all purchases by the custodian of the 401(k) Plan were made in the open market and in a manner consistent with the 401(k) Plan and the investment elections of the 401(k) Plan participants, Retail Ventures has determined that (i) more common shares have been purchased by the custodian of the 401(k) Plan and allocated to the Retail Ventures, Inc.

RETAIL VENTURES, INC.

		Common Stock Fund than were registered in accordance with the Securities Act and (ii) certain participants in the 401(k) Plan may not have received the prospectus required to be delivered under the Securities Act.
		Effective November 29, 2005, Retail Ventures commenced an offer for a 30-day right of rescission with regard to all of its common shares purchased by the custodian of the 401(k) Plan and included in units purchased by 401(k) Plan participants between July 12, 2003 and December 22, 2004. Under the rescission offer, which will apply to approximately 700,000 Retail Ventures common shares, if 401(k) Plan participants have sold units at a loss, Retail Ventures will credit to their 401(k) Plan account an amount equal to the price per unit they paid less the proceeds from the sale of the units plus applicable interest. Additionally, if 401(k) Plan participants continue to hold the units and the market price of the Retail Ventures common shares as of the expiration date of the rescission offer is less than the price they paid for the units plus applicable interest, Retail Ventures will repurchase units that are subject to the rescission offer and will credit their 401(k) Plan account with an amount equal to the price per unit they paid plus interest from the date of purchase of the units through the date the credit is made. The rescission offer expires after December 29, 2005.
		SSC, as the primary sponsor of the 401(k) Plan, and Retail Ventures, as an additional sponsor of the 401(k) Plan, elected to close the Retail Ventures, Inc. Common Stock Fund to additional investments effective July 1, 2005. Subsequent to December 22, 2004, all 401(k) Plan participants received registered securities and the prospectus required to be delivered under the Securities Act.
		The Company provided an Employee Stock Purchase Plan (“ESPP”) for its employees until the end of May 2005, when the ESPP was discontinued. Eligibility requirements were similar to those of the 401(k) Plan. Eligible employees could purchase common shares of the Company through payroll deductions. The Company matched 15% of employee investments up to a maximum investment level. ESPP costs to the Company for all fiscal periods presented were not material to the consolidated financial statements.
		While investigating the unregistered sale of shares in connection with the 401(k) Plan, it was also discovered that approximately 640,000 Retail Ventures common shares acquired by our employees through the ESPP may not have been registered under applicable federal or state law. While all of the Retail Ventures common shares were acquired on the open market and in compliance with the provisions of the ESPP, because the shares were not registered, ESPP participants may have a right to rescind their purchases. The Company believes that, at this time, damages resulting from successful claims against the Company for its failure to register the common shares that were purchased through the ESPP would have a negligible effect on the Company. At this time, the Company does not intend to make a rescission offer to participants in the ESPP.
9.		EARNINGS PER SHARE

RETAIL VENTURES, INC.

Basic earnings per share are based on the net income (loss) and a simple weighted average of common shares outstanding. Diluted earnings per share reflects, in addition to the simple weighted average common shares outstanding, the potential dilution of common shares related to outstanding stock options, stock appreciation rights (“SARS”) and warrants, calculated using the treasury stock method and convertible debt calculated using the if-converted method. The numerator for the diluted earnings per share calculation is the net income (loss) adjusted to remove the effect of interest, adjusted for tax, on the pre-amended Convertible Loan Facility assuming such effect is not anti-dilutive (in which case the interest would be included in the numerator and the potential shares excluded from the denominator). The denominator is the weighted average shares outstanding.

		Three months ended								Nine months ended
		October 29,				October 30,				October 29,				October 30,
		2005				2004				2005				2004
		(in thousands)
Weighted average shares outstanding			39,479				33,978				38,227				33,914
Assumed exercise of dilutive SARS			257
Assumed exercise of dilutive stock options			698
Assumed exercise of dilutive term loan warrants			4,413
Assumed exercise of dilutive conversion warrants			16,667
Number of shares for computation of dilutive earnings per share			61,514				33,978				38,227				33,914

		For the nine months ended October 29, 2005 and the three and nine months ended October 30, 2004, all potentially dilutive instruments (stock options, SARS, warrants and convertible debt) were anti-dilutive.
		There were securities outstanding at October 29, 2005 and October 30, 2004 that were anti-dilutive and, therefore, were not included in the computation of diluted earnings per share. The total amount of securities outstanding that were not included in the computation of dilutive earnings per share for the periods presented are as follows:

		Three months ended								Nine months ended
		October 29,				October 30,				October 29,				October 30,
		2005				2004				2005				2004
		(in thousands)
Stock options			227				7,789				2,122				7,789
SARS							1,193				1,486				1,193
Term loan warrants							2,955				4,413				2,955
Conversion warrants											16,667
Convertible debt							16,667								16,667
Total potentially dilutive instruments			227				28,604				24,688				28,604

Reductions to compensation costs of $0.9 million and $0.1 million, net of tax, were recorded during the three months ended October 29, 2005 and October 30, 2004, relating to SARS.

RETAIL VENTURES, INC.

Compensation charges of $3.1 million and $0.5 million, net of tax, were recorded during the nine months ended October 29, 2005 and October 30, 2004, respectively, relating to SARS.

RETAIL VENTURES, INC.

10.		ADOPTION OF ACCOUNTING STANDARDS
		The Financial Accounting Standards Board (“FASB”) periodically issues Statements of Financial Accounting Standards (“SFAS”), some of which require implementation by a date falling within or after the close of the fiscal year.
		In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). This statement revised SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”) and requires a fair value measurement of all stock-based payments to employees, including grants of employee stock options and recognition of those expenses in the statements of operations. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services and focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions. In addition, SFAS No. 123R will require the recognition of compensation expense over the period during which an employee is required to provide service in exchange for an award. The effective date of this statement was originally established to be interim and annual periods beginning after June 15, 2005. In April 2005, however, the SEC delayed the compliance date for SFAS No. 123R until the beginning of the Company’s 2006 fiscal year. The Company is currently evaluating the impact of this statement and has not yet determined the method of adoption under SFAS No. 123R and whether the adoption will result in amounts that are similar to the pro forma disclosures required under SFAS No. 123.
11.		ACCUMULATED OTHER COMPREHENSIVE LOSS
		The balance sheet caption “Accumulated other comprehensive loss” of $7.1 million at each of October 29, 2005 and January 29, 2005, relates to the Company’s minimum pension liability, net of income tax.
12.		TAX VALUATION
		The Company establishes valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. The Company has determined that there is a probability that future taxable income may not be sufficient to fully utilize deferred tax assets (state net operating losses and charitable contribution carry forwards) which expire in future years at various dates depending on the state jurisdiction. The allowance at October 29, 2005 and at January 29, 2005 was $9.7 and $4.2 million, respectively.
		The tax rate of 1.5% for the nine months ended October 29, 2005, reflects: (a) the negative impact of the non-deductible warrant amortization included for book income but not for tax income, (b) the increase of $5.5 million in the valuation allowance and (c) the write-off of $5.2 million of deferred tax assets no longer deductible as a result of tax regulation changes enacted by the State of Ohio legislature related to the new Commercial Activity Tax in Ohio. The negative impacts discussed above were offset by the $10.2 million tax effect of stock

RETAIL VENTURES, INC.

		option exercises that occurred during the nine months ended October 29, 2005 and that are deductible for tax income but not for book income.
13.		SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

		Nine months ended
		October 29,				October 30,
		2005				2004
		(in thousands)
Cash paid during the period for:
Interest:
Non-related parties		$	7,583			$	7,346
Related parties			15,104				17,675
Income taxes		$	15,282			$	11,675
Noncash investing and operating activities —
Changes in accounts payable due to asset purchases		$	3,530			$	(1,827	)

14.		SEGMENT REPORTING
		The Company is managed in three operating segments: Value City, DSW and Filene’s Basement. All of the operations are located in the United States. The Company has identified such segments based on chief operating decision maker responsibilities and measures segment profit (loss) as operating profit (loss), which is defined as income (loss) before interest expense (income) and benefit (provision) for income taxes and minority interest.
		The Company’s business segments were realigned at the beginning of fiscal 2005 to reflect how the Company establishes strategic goals and manages the business. The realignment resulted in the Filene’s Basement shoe business being included within the DSW segment. The fiscal 2004 presentation has been retroactively adjusted to conform to this realignment.
		The tables below present segment statement of operations information.

										Filene’s
		Value City				DSW				Basement				Total
		(in thousands)
Three months ended October 29, 2005 (Restated)
Net sales		$	341,687			$	302,240			$	102,174			$	746,101
Operating profit			43,070				17,728				1,057				61,855
Depreciation and amortization			7,176				4,649				2,245				14,070
Interest expense (income), net			2,615				(149	)			779				3,245
Benefit (provision) for income taxes			8,906				(6,965	)			(129	)			1,812
Capital expenditures			6,006				5,740				1,197				12,943

RETAIL VENTURES, INC.

										Filene’s
		Value City				DSW				Basement				Total
		(in thousands)
Three months ended October 30, 2004
Net sales		$	347,154			$	262,444			$	90,140			$	699,738
Operating (loss) profit			(6,853	)			16,789				(1,986	)			7,950
Depreciation and amortization			7,445				4,823				1,788				14,056
Interest expense, net			7,931				989				1,018				9,938
Benefit (provision) for income taxes			5,899				(6,371	)			1,118				646
Capital expenditures			8,819				6,585				8,723				24,127

										Filene’s
		Value City				DSW				Basement				Total
		(in thousands)
Nine months ended October 29, 2005 (Restated)
Net sales		$	954,312			$	860,257			$	278,311			$	2,092,880
Operating (loss) profit			(128,819	)			53,469				(11,992	)			(87,342	)
Depreciation and amortization			21,848				14,229				6,921				42,998
Interest expense, net			12,211				8,384				2,719				23,314
Benefit (provision) for income taxes			13,616				(17,942	)			5,971				1,645
Capital expenditures			13,139				21,248				2,543				36,930
As of October 29, 2005
Total assets			552,392				481,788				147,873				1,182,053

										Filene’s
		Value City				DSW				Basement				Total
		(in thousands)
Nine months ended October 30, 2004
Net sales		$	1,005,763			$	729,406			$	242,523			$	1,977,692
Operating (loss) profit			(12,640	)			46,123				(7,681	)			25,802
Depreciation and amortization			21,341				13,663				5,007				40,011
Interest expense, net			23,851				2,460				2,936				29,247
Benefit (provision) for income taxes			14,459				(17,584	)			4,036				911
Capital expenditures			17,887				19,802				17,238				54,927
As of January 29, 2005
Total assets			462,838				395,437				118,151				976,426

RETAIL VENTURES, INC.

15.

RESTATEMENT OF FINANCIAL STATEMENTS

The Company has restated its October 29, 2005 and January 29, 2005 condensed consolidated balance sheets contained herein to correct errors in retained earnings and deferred income taxes related to matters described in the January 29, 2005 Form 10-K/A Amendment No. 3. These adjustments caused a reduction in opening retained earnings by $7.5 million, reduced deferred income tax assets by $6.9 million and increased accrued taxes by $0.6 million. This adjustment had no effect on the previously reported results of operations and had no effect on net cash or the income tax returns filed by the Company.

Subsequent to the issuance of our consolidated financial statements in Form 10-Q/A (Amendment No. 1), the Company’s management determined that the block sale discount included in the determination of the fair value of the warrant liability should be eliminated. As a result, the warrant liability recorded at the initial issuance of the warrants and the subsequent changes in the fair value of the warrant liability at each reporting date has been restated from the amount previously recorded to exclude the block sale discount. As of October 29, 2005 the correction of the error increased the Warrant liability by $48.3 million, reduced Retained earnings by $39.5 million and reduced Common shares by $8.8 million. The correction of the error for the three months ended October 29, 2005 increased by $2.2 million all of the following (i) Change in fair value of warrants (ii) Operating profit (iii) Income before income taxes (iv) Income before minority interest and (v) Net income. The correction of the error for the nine months ended October 29, 2005 increased by $39.5 million all of the following (i) Change in fair value of warrants (ii) Operating loss (iii) Loss before income taxes (iv) Loss before minority interest and (v) Net loss. The basic and diluted earnings per share increased to $1.43 and $0.92, respectively for the three months ended October 29, 2005 and basic and diluted loss per share increased to $2.94 for the nine months ended October 29, 2005.

The following is a summary of the effects of these changes on the Company’s condensed consolidated financial statements for the periods indicated.

		October 29, 2005
			As Reported				Amendment No. 1				Amendment No. 2			As Restated
		(in thousands)
Consolidated Balance Sheets:
Deferred income taxes			$	58,288			$	(2,004	)			—		$	56,284
Total current assets				832,152				(2,004	)			—			830,148
Total assets				1,184,057				(2,004	)			—			1,182,053
Accrued expenses				186,853				608				—			187,461
Warrant liability ($47,948, $47,821, $95,769-related party)				48,472				—			$	48,308			96,780
Total current liabilities				508,640				608				48,308			557,556
Deferred income taxes and other noncurrent liabilities				126,491				4,925				—			131,416
Common shares				166,800				—				(8,792	)		158,008
Retained earnings				81,977				(7,537	)			(39,516	)		34,924
Total shareholders’ equity				241,648				(7,537	)			(48,308	)		185,803
Total liabilities and shareholders’ equity				1,184,057				(2,004	)			—			1,182,053

RETAIL VENTURES, INC.

		January 29, 2005
		As Reported				Amendment No. 1				Amendment No. 2			As restated
		(in thousands)
Consolidated Balance Sheets:
Deferred income taxes		$	64,359			$	(2,004	)			—		$	62,355
Total current assets			595,736				(2,004	)			—			593,732
Deferred income taxes and other assets			37,806				(4,925	)			—			32,881
Total assets			983,355				(6,929	)			—			976,426
Accrued expenses			150,939				608				—			151,547
Total current liabilities			359,556				608				—			360,164
Retained earnings			50,293				(7,537	)			—			42,756
Total shareholders’ equity			192,714				(7,537	)			—			185,177
Total liabilities and shareholders’ equity			983,355				(6,929	)			—			976,426

		Three months ended October 29, 2005
		As Reported				Amendment No. 1				Amendment No. 2				As Restated
		(in thousands)
Consolidated Statements of Operations:
Change in fair value of warrants ($64,193, $2,214, $66,407 - related party)		$	64,778				—			$	2,219			$	66,997
Operating profit			59,636				—				2,219				61,855
Income before income taxes			56,391				—				2,219				58,610
Income before minority interest			58,203				—				2,219				60,422
Net income			54,181				—				2,219				56,400
Basic and diluted income per share:
Basic			1.37				—				0.06				1.43
Diluted			0.88				—				0.04				0.92

		Nine Months ended October 29, 2005
		As reported				Amendment No. 1				Amendment No. 2				As Restated
		(in thousands)
Consolidated Statements of Operations:
Change in fair value of warrants ($(31,590), $(39,557), $(71,147) - related party)		$	(31,070	)			—			$	(39,516	)		$	(70,586	)
Operating loss			(47,826	)			—				(39,516	)			(87,342	)
Loss before income taxes			(71,140	)			—				(39,516	)			(110,656	)
Loss before minority interest			(69,495	)			—				(39,516	)			(109,011	)
Net loss			(72,794	)			—				(39,516	)			(112,310	)
Basic and diluted loss per share:
Basic			(1.90	)			—				(1.04	)			(2.94	)
Diluted			(1.90	)			—				(1.04	)			(2.94	)
Consolidated Statements of Cash Flows:
Net loss		$	(72,794	)			—			$	(39,516	)		$	(112,310	)
Change in fair value of warrants ($31,590, $39,557, $71,147 - related party)			31,070				—				39,516				70,586

In February 2005, the Office of the Chief Accountant of the SEC issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain lease related accounting issues and their application under accounting principles generally accepted in the United States. Following the release of the SEC letter, many retail companies reviewed their previous interpretations of these lease accounting issues and announced that they would restate their results for previous periods.

After reviewing its accounting for leasing transactions, the Company concluded that it would correct certain errors in its accounting for two types of leasing transactions. First, the Company’s statements of cash flows reflected construction allowances as a reduction of capital expenditures (within “investing” cash flows) rather than as an operating lease activity (within “operating” cash flows). Second, the Company had excluded the build-out period of its stores from its straight line rent expense calculations.

The Company restated its condensed consolidated statements of operations, shareholders’ equity and cash flows for the interim periods ended October 30, 2004, and the effected notes therein. The Company also restated the segment financial information for the interim periods ended October 30, 2004 (see Note 14). The impact of the restatement was an increase in net loss of $1.2 million for the nine months ended October 30, 2004 and an increase in net loss of $0.4 million for the three months ended October 30, 2004.

In the condensed consolidated statement of cash flows for the nine months ended October 30, 2004, the Company excluded from cash used for capital expenditures and the change in accounts payable, the amount of asset purchases included in accounts payable, to be consistent with the October 29, 2005 presentation.

The significant effects of the corrections of the errors to the Company’s Condensed Consolidated Financial Statements are as follows:

		Three months ended October 30, 2004
		As Reported				Adjustments				As Restated
		(in thousands)
Consolidated Statements of Operations:
Selling, general and administrative expenses		$	(273,560	)		$	(402	)		$	(273,962	)
Operating profit			8,352				(402	)			7,950
Loss before income taxes			(1,586	)			(402	)			(1,988	)
Net loss			(940	)			(402	)			(1,342	)
Basic and diluted loss per share			(0.03	)			(0.01	)			(0.04	)
		Nine months ended October 30, 2004
		As Reported				Adjustments				As Restated
		(in thousands)
Consolidated Statements of Operations:
Selling, general and administrative expenses		$	(777,025	)		$	(1,207	)		$	(778,232	)
Operating profit (loss)			27,009				(1,207	)			25,802
Loss before income taxes			(2,238	)			(1,207	)			(3,445	)
Net loss			(1,327	)			(1,207	)			(2,534	)
Basic and diluted loss per share			(0.04	)			(0.03	)			(0.07	)
Consolidated Statements of Cash Flows:
Net loss		$	(1,327	)		$	(1,207	)		$	(2,534	)
Depreciation and amortization			39,507				504				40,011
Deferred income taxes and other noncurrent liabilities			(9,008	)			(1,559	)			(10,567	)
Proceeds from lease incentives			8,605				1,791				10,396
Accrued expenses			16,485				471				16,956
Net cash (used in) provided by operating activities			(5,671	)			8,605				2,934
Net cash used in investing activities			(50,267	)			(8,605	)			(58,872	)

16.		COMMITMENTS AND CONTINGENCIES
		On March 8, 2005, Retail Ventures announced that it had learned of the theft of credit card and other purchase information from a portion of DSW customers. On April 18, 2005, Retail Ventures issued the findings from its investigation into the theft. The theft took place primarily over two weeks and covered all customers who made purchases at 108 DSW stores, primarily during a three-month-period from mid-November 2004 to mid-February 2005. Transaction information involving approximately 1.4 million credit cards was obtained. For each card, the stolen information included credit card or debit card numbers, name and transaction amount. In addition, data from transactions involving approximately 96,000 checks were stolen. In these cases, checking account numbers and driver’s license numbers were obtained.
		The Company has contacted and is cooperating with law enforcement and other authorities with regard to this matter. To mitigate potential negative effects on its business and financial performance, the Company is working with credit card companies and issuers and has contacted as many of its affected customers as possible. In addition, the Company worked with a leading computer security firm to minimize the risk of any further data theft. The Company is involved in several legal proceedings arising out of this incident that, after consultation with counsel, it believes will not exceed the reserves the Company has currently recorded.
		As of October 29, 2005, the Company estimates that the potential exposure for losses related to this theft, including exposure under currently pending proceedings, ranges from

RETAIL VENTURES, INC.

		approximately $6.5 million to approximately $9.5 million. Because of many factors, including the early development of information regarding the theft and recoverability under insurance policies, if any, there is no amount in the estimated range that represents a better estimate than any other amount in the range. Therefore, in accordance with Financial Accounting Standard No. 5, Accounting for Contingencies, the Company has accrued a charge to operations in the first quarter of fiscal 2005 equal to the low end of the range set forth above, or $6.5 million. As the situation develops and more information becomes available, the amount of the reserve may increase or decrease accordingly. The amount of any such change may be material.
		There can be no assurance that there will not be additional proceedings or claims brought against the Company in the future. We have contested and will continue to vigorously contest the claims made against us and will continue to explore our defenses and possible claims against others.
		The Company is involved in various other legal proceedings that are incidental to the conduct of its business. The Company estimates the range of liability related to pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss, the Company records the minimum estimated liability related to the claim. In the opinion of management, the amount of any liability with respect to these legal proceedings will not be material. As additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises the estimates. Revisions in the Company’s estimates and potential liability could materially impact its results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Quarterly Report on Form 10-Q/A (this “Report” or “Form 10-Q”) and except as the context otherwise may require, “Company”, “we”, “us”, and “our” refers to Retail Ventures, Inc. (“Retail Ventures”), and its wholly owned subsidiaries, including but not limited to, Value City Department Stores LLC (“Value City”) and Filene’s Basement, Inc. (“Filene’s Basement”), its controlled subsidiary, DSW Inc. (“DSW”), and DSW’s wholly-owned subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”).

As discussed in Note 15 to the condensed consolidated financial statements, the Company’s October 29, 2005 and October 30, 2004 condensed consolidated financial statements have been restated. This discussion and analysis gives effect to the restatement.

RISK FACTORS AND SAFE HARBOR STATEMENT

We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Report and/or other risk factors that may be described in the Safe Harbor Statement and Business Risks section of the Company’s 2004 Annual Report, or contained in other filings with the SEC or made by our management involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected the matters discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations. These same factors could cause our future financial performance in fiscal 2005 and beyond to differ materially from those expressed or implied in any such forward-looking statements. These factors include: decline in demand for our merchandise, our ability to achieve our business plans, expected cash flow from operations, vendors and their factor relations, flow of merchandise, compliance with our credit agreements, our ability to strengthen our liquidity and increase our credit availability, the availability of desirable store locations on suitable terms, changes in consumer spending patterns, marketing strategies, consumer preferences and overall economic conditions, the impact of competition and pricing, changes in weather patterns, seasonality of operations, changes in fuel and energy costs, changes in existing or potential duties, tariffs or quotas, paper and printing costs, the ability to hire and train associates, development of management information systems and other factors set forth in Exhibit 99 attached hereto.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis discusses the results of operations and financial condition as reflected in our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP. As discussed in the Notes to Consolidated Financial Statements that are included in our 2004 Annual Report, the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis,

management evaluates its estimates and judgments, including, but not limited to, those related to inventory valuation, depreciation, amortization, recoverability of long-lived assets including intangible assets, the calculation of retirement benefits, estimates for self insurance reserves for health and welfare, workers’ compensation and casualty insurance, income taxes, contingencies, litigation and revenue recognition. Management bases its estimates and judgments on its historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

While we believe that our historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

We believe the following represent the most critical estimates and assumptions, among others, used in the preparation of our consolidated financial statements. We have discussed the selection, application and disclosure of the critical accounting policies with our audit committee.

	•		Revenue recognition. Revenues from merchandise sales are recognized at the point of sale and are net of returns and exclude sales tax. Revenue from gift cards is deferred and is recognized upon redemption of the gift cards. Layaway sales are recognized when the merchandise has been paid for in full. The layaway program was discontinued in the current year.
	•		Cost of sales and merchandise inventories. We use the retail method of accounting for substantially all of our merchandise inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail inventory method is widely used in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on our consolidated balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered through the use of markdowns. Accordingly earnings are negatively impacted as merchandise is marked down prior to sale. Reserves to value inventory at the lower of cost or market were $43.7 million at October 29, 2005 and $42.8 million at January 29, 2005.
			Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value or markon, markups of initial prices established, reduction of pricing due

			to customer’s value perception or perceived value known as markdowns, and estimates of losses between physical inventory counts or shrinkage, which, combined with the averaging process within the retail method, can significantly impact the ending inventory valuation at cost, and the resulting gross margins.
	•		Asset impairment and long-lived assets. We must periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset is considered impaired when the carrying value of the asset exceeds the expected future cash flows (undiscounted and without interest) from the asset. Our reviews are conducted down at the lowest identifiable level, which include a store. The impairment loss recognized is the excess of the carrying value, based on discounted future cash flows, of the asset over its fair value. Should an impairment loss be realized, it will be included in operating expenses. Assets acquired for stores that have been previously impaired are not capitalized when acquired if the store’s expected future cash flow (undiscounted and without interest) remains negative. During the nine months ended October 29, 2005, there were no impairments recorded. For the nine months ended October 30, 2004, we recorded an impairment of $0.7 million related to the Value City segment for store assets.
			We believe at this time that the remaining long-lived assets’ carrying values and useful lives continue to be appropriate. To the extent these future projections or our strategies change, the conclusion regarding impairment may differ from our current estimates.
	•		Self-insurance reserves. We record estimates for certain health and welfare, workers compensation and casualty insurance costs that are self-insured programs. These estimates are based on actuarial assumptions and are subject to change based on actual results. Should the total cost of claims for health and welfare, workers compensation and casualty insurance exceed or fall short of those anticipated, reserves recorded may not be appropriate, and, to the extent actual results vary from assumptions, earnings would be impacted.
	•		Pension. The obligations and related assets of defined benefit retirement plans are included in the Notes to Consolidated Financial Statements in the Company’s 2004 Annual Report. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using market quotations. Plan obligations and the annual pension expense are determined by independent actuaries and through the use of a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate, the rate of salary increases and the estimated future return on plan assets. In determining the discount rate, we utilize the yield on fixed-income investments currently available with maturities corresponding to the anticipated timing of

			the benefit payments. Salary increase assumptions are based upon historical experience and anticipated future management actions. Asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans. At October 29, 2005, the actuarial assumptions of our plans have remained unchanged from our 2004 Annual Report. To the extent actual results vary from assumptions, earnings would be impacted.
	•		Customer loyalty program. DSW maintains a customer loyalty program for our DSW stores in which customers receive a future discount on qualifying purchases. The “Reward Your Style” program is designed to promote customer awareness and loyalty plus provide DSW with the ability to communicate with our customers and enhance our understanding of their spending trends. While the program develops customer loyalty, it also provides DSW with valuable market intelligence and purchasing information regarding its most frequent customers. Upon reaching the target level, customers may redeem these discounts on a future purchase. Generally, these future discounts must be redeemed within six months. We accrue the estimated costs of the anticipated redemptions of the discount earned at the time of the initial purchase and charge such costs to selling, general and administrative expense based on historical experience. The estimates of the costs associated with the loyalty program require us to make assumptions related to customer purchase levels and redemption rates. DSW’s accrued liability for the customer loyalty program as of October 29, 2005 and January 29, 2005 was $7.4 million and $4.5 million, respectively.
			During the third quarter of 2004, Filene’s Basement implemented a limited-time customer rewards program that ended in December 2004. The rewards program provided qualifying customers with Filene’s Basement gift cards in various denominations based on their cumulative spending during the program period. Filene’s Basement had an accrued liability related to the rewards program of $0.8 million at January 29, 2005. These rewards were redeemed in the first quarter of fiscal 2005, and no liability remains at October 29, 2005. Filene’s Basement utilizes this customer database for direct mail and e-mail marketing efforts during fiscal 2005.
	•		Change in fair value of Warrants. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, the Company recognizes all derivatives on the balance sheet at fair value. For derivatives that are not designated as hedges under SFAS No. 133, changes in the fair values are recognized in earnings in the period of change. For the three and nine months ended October 29, 2005 and October 30, 2004, the Company did not have any derivatives designated as hedges. During the three months ended October 29, 2005, the Company recorded income related to a change in the fair value of the Warrants of $67.0 million. During the nine months ended October 29, 2005, the Company recorded a charge related to the change in the fair value of the Warrants of $70.6 million, including a $134.2

			million charge relating to the initial recording of the Conversion Warrants. There were no changes in fair value recorded during the three or nine months ended October 30, 2004 as the Company did not have any derivatives outstanding during that time period.
	•		Income taxes. We are required to determine the aggregate amount of income tax expense to accrue and the amount which will be currently payable based upon tax statutes of each jurisdiction we do business in. In making these estimates, we adjust income based on a determination of generally accepted accounting principles for items that are treated differently by the applicable taxing authorities. Deferred tax assets and liabilities, as a result of these differences, are reflected on our balance sheet for temporary differences that will reverse in subsequent years. A valuation allowance is established against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. If our management had made these determinations on a different basis, our tax expense, assets and liabilities could be different. During the nine months ended October 29, 2005, we established an additional valuation reserve of $5.5 million for state net operating loss carry forwards and wrote-off $5.2 million of deferred tax assets no longer deductible as a result of changes in state tax regulations in Ohio. During fiscal 2004, we established an additional valuation reserve for deferred income tax assets of $3.2 million for carry forwards related to state net operating losses.
			Following the completion of the DSW initial public offering (“IPO”) in June 2005, DSW is no longer included in the Retail Ventures’ consolidated federal tax return.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage relationships to net sales of the listed items included in the Company’s Consolidated Statements of Operations.

		Three months ended								Nine months ended
		October, 29				October 30,				October 29,				October 30,
		2005 Restated				2004				2005 Restated				2004
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			(62.0	)			(60.0	)			(61.2	)			(59.6	)
Gross profit			38.0				40.0				38.8				40.4
Selling, general and administrative expenses			(38.9	)			(39.2	)			(39.9	)			(39.4	)
Change in fair value of warrants			9.0								(3.4	)
License fees and other income			0.2				0.3				0.3				0.3
Operating profit (loss)			8.3				1.1				(4.2	)			1.3
Interest expense, net			(0.4	)			(1.4	)			(1.1	)			(1.5	)

		Three months ended								Nine months ended
		October, 29				October 30,				October 29,				October 30,
		2005				2004				2005				2004
Income (loss) before income taxes			7.9				(0.3	)			(5.3	)			(0.2	)
Benefit for income taxes			0.2				0.1				0.1				0.1
Income (loss) before minority interest			8.1				(0.2	)			(5.2	)			(0.1	)
Minority interest			(0.5	)							(0.2	)
Net Income (loss)			7.6	%			(0.2	)%			(5.4	)%			(0.1	)%

THREE MONTHS ENDED OCTOBER 29, 2005 COMPARED TO THREE MONTHS ENDED OCTOBER 30, 2004

Net Sales. Net sales increased $46.4 million, or 6.6%, from $699.7 million to $746.1 million. Comparable store sales increased by 1.0% and, by segment, were:

		Three months ended
		October 29, 2005				October 30, 2004
	(Decrease) Increase
Value City			(1.0	)%			(7.8	)%
DSW			3.5	%			0.8	%
Filene’s Basement			2.1	%			1.1	%
Total			1.0	%			(4.1	)%

Value City net sales decreased $5.5 million to $341.7 million. The sales for comparable stores decreased 1.0% due to declines in customer traffic. All stores in the segment are in the comparative stores base. In addition, during the third quarter of fiscal 2005, Value City operated two fewer stores than in the previous year. These stores had net sales of $2.6 million in the comparable three month-period ended October 30, 2004. The decrease in comparable sales is comprised of decreases in mens, childrens and hardlines of 0.6%, 8.5% and 9.3%, respectively. Jewelry, shoes and ladies sales increased over the comparable period by 7.8%, 6.0% and 6.6%, respectively. During the comparable quarters, the transaction volume in the Value City segment decreased by 7.3% while the average unit retail increased 4.3% and the number of units in the basket increased 1.5%. Additionally, Value City began the elimination of the health and beauty aids and non-gourmet food categories in July 2005. These categories represent 1.1% and 2.9% of total segment sales in the three month-periods ended October 29, 2005 and October 30, 2004, respectively. Throughout the first quarter of fiscal 2005, Value City began the initial phase to transition a new merchandise strategy which includes more name brand merchandise and better assortments across all categories. The transition to this new merchandising strategy was substantially in place relative to this year’s goals by the end of the third quarter of fiscal 2005.

DSW net sales were $302.2 million, a $39.8 million, or 15.2%, increase over the comparable period in fiscal 2004. Comparable store sales in the quarter improved 3.5%. The increase in DSW sales includes a net increase of 30 DSW stores, 7 non-affiliated leased shoe departments and two Filene’s Basement leased shoe departments not including the re-categorization of two DSW/Filene’s Basement combination stores as leased shoe departments which are included in the DSW segment, from October 30, 2004. The DSW store locations and the leased shoe departments that opened subsequent to October 30, 2004 added $23.3 million and $1.5 million,

respectively. DSW comparable sales in the merchandise categories of womens, athletics and mens had increases of 5.7%, 1.1% and 0.4%, respectively, and decreased in the accessories category by 9.4%. Sales increases in the womens category were driven by increases in the seasonal classes, while the increase in the athletic category was the result of an increase in the women’s fashion class. The decrease in accessories resulted from declines in all classes of accessories. The accessories category represents 4.6% of total comparable DSW store sales for the third quarter of fiscal 2005.

Filene’s Basement net sales increased $12.0 million, or 13.4%, in the quarter to $102.2 million. Filene’s Basement had a net increase of two stores over the prior year’s period and a comparable store sales increase of 2.1%. Net sales for the new store that opened in fiscal 2005 added $2.4 million to current year sales while the impact for all stores which opened last year on the fiscal 2005 sales increase was $8.0 million. The merchandise categories of mens, ladies and childrens had comparable sale increases of 3.5%, 1.2% and 25.5%, respectively. The jewelry category had an increase of 15.7% driven by watches and costume jewelry classes. Home goods comparable sales increased 2.8%. The childrens and jewelry categories represent 2.0% and 5.6%, respectively, of total comparative stores sales.

Gross Profit. Total gross profit increased $3.7 million from $280.0 million to $283.7 million. Gross profit, as a percentage of sales, decreased to 38.0% compared to 40.0% for the prior year’s period. The decrease in the overall margin rate is attributable to the decrease in gross profit from the Value City and DSW segments, offset in part by increases at the Filene’s Basement segment.

Gross profit, as a percent of sales by segment, was:

		Three months ended
		October 29, 2005				October 30, 2004
Value City			35.4	%			38.9	%
DSW			41.8	%			43.5	%
Filene’s Basement			35.6	%			34.2	%
Total			38.0	%			40.0	%

Value City’s gross profit decreased $14.3 million from the comparable period of fiscal 2004. The decrease is attributable to several factors, including lower initial markups as a result of a planned shift in strategy toward more name brand merchandise and better assortments at compelling prices. These new merchandise items have higher initial costs and we have reduced our initial markups which we believe will improve our sell through. The segment also incurred additional markdowns within the quarter related to increased point of sales discounts on clearance merchandise compared to the prior year’s comparable quarter and deeper initial price reductions on permanent markdowns.

The DSW gross profit increased $12.4 million to $126.4 million in the third quarter of fiscal 2005 from $114.0 million in the third quarter of fiscal 2004, and decreased as a percentage of net sales from 43.5% in the third quarter of fiscal 2004 to 41.8% in the third quarter of fiscal 2005. This decrease as a percentage of sales is primarily attributable to increased markdowns caused

by higher average unit retail price on items in clearance and additional markdowns in our accessories category. These negative factors were partially offset by an increase in our initial markups.

Filene’s Basement gross profit increased by $5.6 million from the comparable period of fiscal 2004 which is attributable to new stores offset by increased markdowns related to the ready to wear categories and slow moving spring, domestic and certain imported stock categories. During the quarter, the initial markup remained comparable to the prior year’s markup.

Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses increased $16.4 million from $274.0 million to $290.4 million. Total SG&A expense associated with new DSW and Filene’s Basement stores and new leased shoe departments, excluding pre-opening costs, not opened as of October 30, 2004, was $9.5 million for the three months ended October 29, 2005. Pre-opening costs decreased approximately $1.6 million during the three months ended October 29, 2005, compared with the three months ended October 30, 2004. As a percentage of sales, SG&A expense was 38.9% compared to 39.2% in the comparable quarter last year.

SG&A expense, as a percent of sales by segment, was:

		Three months ended
		October 29, 2005				October 30, 2004
Value City			42.7	%			41.5	%
DSW			36.0	%			36.9	%
Filene’s Basement			37.0	%			37.9	%
Total			38.9	%			39.2	%

The Value City segment’s SG&A expense increase as a percentage of sales is primarily the result of fixed costs primarily in occupancy and salaries not being leveraged against the current period sales. Value City closed a related party leased warehouse facility and recorded $2.8 million in expenses associated with the closing. Pre-opening costs decreased in Filene’s Basement by approximately $1.0 million during the three months ended October 29, 2005 compared with the three months ended October 30, 2004. Total SG&A expense associated with new Filene’s Basement stores not opened as of October 30, 2004, excluding pre-opening costs, was $1.4 million for the three months ended October 29, 2005.

The DSW segment SG&A expense percentage decreased as a percentage of sales. Included in the DSW SG&A expenses, excluding pre-opening costs, are costs associated with new DSW stores and new leased shoe departments not opened as of October 30, 2004 of $7.8 million and $0.3 million, respectively, for the three months ended October 29, 2005. Pre-opening costs, which are expensed as incurred, decreased approximately $0.6 million to $3.6 million during the three months ended October 29, 2005 compared with the three months ended October 30, 2004.

Change in Fair Value of Warrants. During the three months ended October 29, 2005, the Company recorded non-cash income of $67.0 million representing the changes in fair value of

the Conversion Warrants and Term Loan Warrants. There were no derivative instruments outstanding for the three months ended October 30, 2004.

License Fees and Other Income. License fees and other income were $1.6 million and $2.0 million for the three months ended October 29, 2005 and October 30, 2004, respectively. License fees and other income are comprised of fees from licensees, layaway fees and vending income. These sources of income can vary based on customer traffic and contractual arrangements.

Operating Profit (Loss). Operating profit for the quarter ended October 29, 2005 was $61.9 million compared to an operating profit of $8.0 million for the quarter ended October 30, 2004, an increase of $53.9 million. Operating profit as a percentage of sales was 8.3% and 1.1% for October 29, 2005 and October 30, 2004, respectively.

Operating profit (loss) as a percent of sales by segment in the third quarter was:

		Three months ended
		October 29, 2005				October 30, 2004
Value City			12.6	%			(2.1	)%
DSW			5.9	%			6.6	%
Filene’s Basement			1.0	%			(2.2	)%
Total			8.3	%			1.1	%