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

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

Commission file number 1-10767

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.)
4150 E. Fifth Avenue, Columbus, Ohio		43219
(Address of principal executive offices)		(Zip Code)

(614) 238-4148 Registrant’s telephone number, including area code
Not applicable (Former name, former address and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of outstanding Common Shares, without par value, as of November 30, 2009 was 48,940,729.

 

 

RETAIL VENTURES, INC. FORM 10-Q/A

INTRODUCTORY NOTE

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends and restates Part I Items 1 and 4 of the Quarterly Report on Form 10-Q for the quarter ended October 31, 2009 which was originally filed with Securities and Exchange Commission on December 15, 2009 (“Original Report”). This Amendment is made solely to correct the disclosures of diluted (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders and diluted (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders for the nine month period ended November 1, 2008 included in the Company’s condensed consolidated statement of operations and related disclosures. The error in the diluted (loss) earnings per share was due to the fact that the numerator in the calculation, diluted earnings, did not include the change in fair value of dilutive warrants. The correction of the error decreased diluted earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders from the previously reported amount of $1.58 to a corrected amount of $0.82 and diluted earnings per share attributable to Retail Ventures, Inc. common shareholders from the previously reported amount of $1.14 to a corrected amount of $0.38 for the nine month period ended November 1, 2008.

The dollar amount of revenues, expenses, net (loss) income attributable to Retail Ventures, Inc., the consolidated balance sheets, the consolidated statements of cash flows, and the consolidated statements of shareholders’ equity for all periods reported in the Original Report is unchanged and except for as described above, no other information in the Form 10-Q has been amended and the Company has not updated disclosures in this Amendment to reflect any event subsequent to the Company’s filing of the Original Report. Additionally this Amendment has no impact on the Company’s subsidiary, DSW Inc. This amendment does not reflect events after the filing of the Original Report and is not intended to update other information presented in this Form 10-Q as originally filed with the Securities and Exchange Commission, except as required to reflect the effects of the restatement.

RETAIL VENTURES, INC.
TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at October 31, 2009 and January 31, 2009			2
Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2009 and November 1, 2008			4
Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended October 31, 2009 and November 1, 2008			6
Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2009 and November 1, 2008			7
Notes to the Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			44
Part II. Other Information
Item 1. Legal Proceedings			45
Item 1A Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			47
Signature			48
Index to Exhibits			49
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements.

RETAIL VENTURES, INC.

		October 31,				January 31,
		2009				2009
ASSETS
Cash and equivalents		$	108,723			$	94,308
Restricted cash							261
Short-term investments, net			169,429				101,404
Accounts receivable, net			5,614				7,142
Accounts receivable from related parties, net			165				332
Inventories			289,395				244,008
Prepaid expenses and other current assets			24,358				27,249
Deferred income taxes			29,378				22,243
Current assets held for sale							66,678
Total current assets			627,062				563,625
Property and equipment, net			216,274				236,355
Goodwill			25,899				25,899
Tradenames and other intangibles, net			3,028				3,668
Conversion feature of long-term debt			46,943				77,761
Deferred income taxes							805
Other assets			6,264				6,856
Non-current assets held for sale							38,793
Total assets		$	925,470			$	953,762

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

RETAIL VENTURES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share amounts)
(unaudited)

		October 31,				January 31,
		2009				2009
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	142,498			$	93,088
Accounts payable to related parties			2,876				3,125
Accrued expenses:
Compensation			22,285				12,632
Taxes			40,963				14,857
Gift cards and merchandise credits			13,716				15,491
Guarantees from discontinued operations			4,330				2,909
Other			35,910				31,175
Warrant liability			16,260				6,292
Current maturities of long-term obligations							250
Current liabilities held for sale							76,030
Total current liabilities			278,838				255,849
Long-term obligations, net of current maturities			129,194				127,576
Long-term guarantees of discontinued operations			9,883				9,980
Other noncurrent liabilities			102,119				99,310
Deferred income taxes			18,511				29,806
Noncurrent liabilities held for sale							36,055
Commitments and contingencies
Shareholders’ equity:
Common shares, without par value; 160,000,000 authorized; issued and outstanding, including 7,551 treasury shares, 48,947,280 and 48,691,280, respectively			308,328				306,868
Accumulated deficit			(105,930	)			(76,930	)
Treasury shares, at cost, 7,551 shares			(59	)			(59	)
Warrants							124
Accumulated other comprehensive loss			(6,619	)			(655	)
Accumulated other comprehensive loss held for sale							(6,734	)
Total Retail Ventures’ shareholders’ equity			195,720				222,614
Noncontrolling interests			191,205				172,572
Total shareholders’ equity			386,925				395,186
Total liabilities and shareholders’ equity		$	925,470			$	953,762

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

RETAIL VENTURES, INC.

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Net sales		$	444,621			$	391,355			$	1,199,957			$	1,114,794
Cost of sales			(238,549	)			(218,946	)			(666,416	)			(628,559	)
Gross profit			206,072				172,409				533,541				486,235
Selling, general and administrative expenses			(164,862	)			(151,492	)			(531,140	)			(431,633	)
Change in fair value of derivative instruments			(30,701	)			7,858				(40,778	)			61,759
Operating profit (loss)			10,509				28,775				(38,377	)			116,361
Interest expense			(3,236	)			(3,241	)			(9,678	)			(10,431	)
Interest income			626				2,895				1,891				8,468
Interest expense, net			(2,610	)			(346	)			(7,787	)			(1,963	)
Non-operating (expense) income, net			(754	)			1,486				(621	)			1,486
Income (loss) from continuing operations before income taxes			7,145				29,915				(46,785	)			115,884
Income tax expense			(11,079	)			(10,411	)			(13,507	)			(24,649	)
(Loss) income from continuing operations			(3,934	)			19,504				(60,292	)			91,235
(Loss) income from discontinued operations, net of tax — Value City			(498	)			2,035				83				8,908
Income (loss) from discontinued operations, net of tax — Filene’s Basement			203				(6,562	)			44,581				(30,521	)
Total (loss) income from discontinued operations, net of tax			(295	)			(4,527	)			44,664				(21,613	)
Net (loss) income			(4,229	)			14,977				(15,628	)			69,622
Less: net income attributable to the noncontrolling interests			(9,900	)			(4,988	)			(15,359	)			(12,748	)
Net (loss) income attributable to Retail Ventures, Inc.		$	(14,129	)		$	9,989			$	(30,987	)		$	56,874

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

RETAIL VENTURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(in thousands, except per share amounts)
(unaudited)

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Basic and diluted earnings (loss) per share:
Basic (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.28	)		$	0.30			$	(1.55	)		$	1.61
Diluted (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders — nine months ended November 1, 2008 restated (See Note 17)		$	(0.28	)		$	0.30			$	(1.55	)		$	0.82
Basic (loss) earnings per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	(0.01	)		$	(0.09	)		$	0.91			$	(0.44	)
Diluted (loss) earnings per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	(0.01	)		$	(0.09	)		$	0.91			$	(0.43	)
Basic (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders		$	(0.29	)		$	0.21			$	(0.63	)		$	1.17
Diluted (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders — nine months ended November 1, 2008 restated (See Note 17)		$	(0.29	)		$	0.20			$	(0.63	)		$	0.38
Shares used in per share calculations:
Basic			48,938				48,681				48,855				48,665
Diluted			48,938				48,817				48,855				49,803
Amounts attributable to Retail Ventures, Inc. common shareholders:
(Loss) income from continuing operations, net of tax		$	(13,834	)		$	14,516			$	(75,651	)		$	78,487
Discontinued operations, net of tax			(295	)			(4,527	)			44,664				(21,613	)
Net (loss) income		$	(14,129	)		$	9,989			$	(30,987	)		$	56,874

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

RETAIL VENTURES, INC.

		Number of Shares								Retail Ventures, Inc. Shareholders
																										Total
														Retained												Accumulated
						Common								Earnings												Other				Non-
		Common				Shares in				Common				(Accumulated				Treasury								Comprehensive				controlling
		Shares				Treasury				Shares				Deficit)				Shares				Warrants				Loss				Interests				Total
Balance, February 2, 2008			48,623				8			$	305,254			$	(130,577	)		$	(59	)		$	124			$	(1,819	)		$	160,349			$	333,272
Net income from continuing operations															78,487																12,748				91,235
Net loss from discontinued operations															(21,613	)																			(21,613	)
Unrealized loss on available-for-sale securities, net of tax benefit of $616																											(941	)							(941	)
Total comprehensive income																																		$	68,681
Capital transactions of subsidiary															2,452																1,372				3,824
Stock based compensation expense, before related tax effects											1,046																								1,046
Exercise of stock options			65								200																								200
Balance, November 1, 2008			48,688				8			$	306,500			$	(71,251	)		$	(59	)		$	124			$	(2,760	)		$	174,469			$	407,023
Balance, January 31, 2009			48,691				8			$	306,868			$	(76,930	)		$	(59	)		$	124			$	(7,389	)		$	172,572			$	395,186
Net (loss) income from continuing operations															(75,651	)															15,359				(60,292	)
Net income from discontinued operations															44,664																				44,664
Unrealized loss on available-for-sale securities																											(99	)							(99	)
Total comprehensive loss																																		$	(15,727	)
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment																											754								754
Capital transactions of subsidiary															1,987																3,274				5,261
Stock based compensation expense, before related tax effects											949																								949
Exercise of stock options			256								511																								511
Cumulative effect of adoption of new accounting pronouncement																							(115	)			115
Reclassification of warrants to liability																							(9	)											(9	)
Balance, October 31, 2009			48,947				8			$	308,328			$	(105,930	)		$	(59	)		$				$	(6,619	)		$	191,205			$	386,925

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

RETAIL VENTURES, INC.

		Nine months ended
		October 31,				November 1,
		2009				2008
Cash from operating activities:
Net (loss) income		$	(15,628	)		$	69,622
Less: (income) loss from discontinued operations, net of tax			(44,664	)			21,613
(Loss) income before discontinued operations		$	(60,292	)		$	91,235
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt issuance costs and discount on debt			2,630				2,515
Stock based compensation expense			949				1,046
Stock based compensation expense of subsidiary			1,987				2,452
Depreciation and amortization			34,782				26,109
Change in fair value of derivative instruments			40,778				(61,759	)
Gain on repurchase of Premium Income Exchangeable Securities							(1,486	)
Deferred income taxes and other noncurrent liabilities			(28,053	)			(8,956	)
Impairment charges on long-lived assets			481				1,586
Non-operating expense, net			621
Loss on disposal of assets			387				1,062
Impairment charges on receivables from Filene’s Basement			57,897
Other			3,274				1,018
Change in working capital, assets and liabilities:
Accounts receivable			2,403				6,029
Inventories			(45,387	)			(57,207	)
Prepaid expenses and other current assets			2,951				(309	)
Accounts payable			47,703				22,692
Proceeds from construction and tenant allowances			6,680				14,928
Accrued expenses			31,244				15,787
Net cash provided by operating activities from continuing operations			101,035				56,742
Net cash provided by (used in) operating activities from discontinued operations			20,563				(10,164	)

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

RETAIL VENTURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(unaudited)

		Nine months ended
		October 31,				November 1,
		2009				2008
Cash flows from investing activities:
Cash paid for property and equipment			(18,671	)			(66,272	)
Purchases of available-for-sale investments			(161,147	)			(182,672	)
Maturities and sales of available-for-sale investments			101,106				174,213
Purchases of held-to-maturity investments			(12,105	)			(2,000	)
Maturities and sales of held-to-maturity investments			3,675				2,000
Transfer of cash from restricted cash			10,261
Transfer of cash to restricted cash			(10,000	)
Net cash used in investing activities from continuing operations			(86,881	)			(74,731	)
Net cash used in investing activities from discontinued operations			(158	)			(3,372	)
Cash flows from financing activities:
Payment of current maturities on long-term obligations			(250	)
Repurchase of Premium Income Exchangeable Securities							(5,600	)
Proceeds from exercise of stock options			511				200
Net cash provided by (used in) financing activities from continuing operations			261				(5,400	)
Net cash (used in) provided by financing activities from discontinued operations			(25,181	)			20,500
Net increase (decrease) in cash and equivalents from continuing operations		$	14,415			$	(23,389	)
Cash and equivalents from continuing operations, beginning of period			94,308				107,260
Cash and equivalents from continuing operations, end of period		$	108,723			$	83,871
Net (decrease) increase in cash and equivalents from discontinued operations		$	(4,776	)		$	6,964
Cash and equivalents from discontinued operations, beginning of period			4,776				5,691
Cash and equivalents from discontinued operations, end of period		$				$	12,655

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

RETAIL VENTURES, INC.

1. BUSINESS OPERATIONS

Retail Ventures, Inc. (“Retail Ventures” or “RVI”) and its wholly-owned subsidiaries and majority-owned subsidiary are herein referred to collectively as the “Company”. Retail Ventures’ common shares are listed on the New York Stock Exchange trading under the ticker symbol “RVI”. The Company operates two segments in the United States of America (“United States”). DSW Inc. (“DSW”) is a specialty branded footwear retailer. As of October 31, 2009, DSW operated a total of 306 stores located throughout the United States and dsw.com. DSW also supplies shoes, under supply arrangements, for 356 locations for four retailers in the United States. The Corporate segment consists of all revenue and expenses that are not attributable to the DSW segment.

As of October 31, 2009, Retail Ventures owned Class B Common Shares of DSW representing approximately 62.7% of DSW’s outstanding common shares and approximately 93.1% of the combined voting power of such shares. DSW is a controlled subsidiary of Retail Ventures and its Class A Common Shares are listed on the New York Stock Exchange trading under the ticker symbol “DSW”.

On January 23, 2008, Retail Ventures disposed of an 81% ownership interest in its Value City Department Stores (“Value City”) business to VCHI Acquisition Co., a newly formed entity owned by VCDS Acquisition Holdings, LLC, Emerald Capital Management LLC and Crystal Value, LLC. Retail Ventures received no net cash proceeds from the sale, paid a fee of $500,000 to the purchaser, and recognized an after-tax loss of $76.7 million on the transaction as of October 31, 2009. As part of the transaction, Retail Ventures, Inc. issued warrants to VCHI Acquisition Co. to purchase 150,000 RVI common shares, at an exercise price of $10.00 per share, and exercisable within 18 months of January 23, 2008. The warrants expired in June 2009. To facilitate the change in ownership and operation of Value City Department Stores, Retail Ventures agreed to provide or arrange for the provision of certain transition services principally related to information technology, finance and human resources to Value City Department Stores for a period of one year unless otherwise extended by both parties. On October 26, 2008, Value City filed for bankruptcy protection and announced that it would close its remaining stores. The Company negotiated an agreement with Value City to continue to provide services post bankruptcy filing, including risk management, financial services, benefits administration, payroll and information technology services, in exchange for a weekly payment. As of October 31, 2009, the Company is still providing Value City with limited transition services.

On April 21, 2009, Retail Ventures entered into and consummated the transactions contemplated by a definitive agreement dated April 21, 2009 (the “Purchase Agreement”) to dispose of Filene’s Basement, Inc. and certain related entities to FB II Acquisition Corp., a newly formed entity owned by Buxbaum Holdings, Inc. (“Buxbaum”). Retail Ventures did not realize any cash proceeds from this transaction and will pay a fee of $1.3 million to Buxbaum, of which $0.7 million has been paid through October 31, 2009, and has reimbursed $0.4 million of Buxbaum’s costs associated with the transaction. Retail Ventures has also agreed to indemnify Buxbaum, FB II Acquisition Corp. and their owners against certain liabilities. Retail Ventures has recognized an after-tax gain of $76.1 million on the transaction as of October 31, 2009. As a result of the disposition, Filene’s Basement is no longer a related party of Retail Ventures. On May 4, 2009, Filene’s Basement filed for bankruptcy protection. On June 18, 2009, following bankruptcy court approval, SYL LLC, a subsidiary of Syms Corp (“Syms”), purchased certain assets of Filene’s Basement. All references to “liquidating Filene’s Basement” refer to the debtor, formerly known as Filene’s Basement Inc., and its debtor subsidiaries remaining after the asset purchase by a subsidiary of Syms. All references to “New Filene’s Basement” refer to the stores operated by Syms. The Company negotiated with Syms to provide transition services in exchange for payment. As of October 31, 2009, the Company is still providing transition services to Syms.

DSW. DSW is a leading U.S. specialty branded footwear retailer operating stores in 39 states as of October 31, 2009. Its stores offer a remarkable selection of better-branded dress, casual and athletic footwear for women and men. As of October 31, 2009, DSW, pursuant to supply agreements, operated 266 leased shoe departments for Stein Mart, Inc., 66 for Gordmans, Inc., 23 for Filene’s Basement and one for Frugal Fannie’s Fashion Warehouse. Supply agreements results are included within the DSW segment. During the nine months ended October 31, 2009, DSW opened nine new stores, relocated one store, closed one store, added three leased departments and ceased operations in 24 leased departments.

Corporate. The Corporate segment represents the corporate assets, liabilities and expenses not allocated to the DSW segment, debt related expenses and income on investments.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, as filed with the Securities and Exchange Commission (the “SEC”) on April 30, 2009 (the “2008 Annual Report”).

In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring adjustments, which are necessary to present fairly the condensed consolidated financial position, results of operations and cash flows for the periods presented.

Allowance for Doubtful Accounts — The Company monitors its exposure for losses and records related allowances for doubtful accounts. Allowances are estimated based upon specific accounts receivable balances, where a risk of default has been identified. As of October 31, 2009 and January 31, 2009, the Company’s allowance for doubtful accounts was $6.7 million and $1.2 million, respectively. The increase in the allowance was primarily related to allowances recorded related to receivables from liquidating Filene’s Basement. In addition, during the quarter ended May 2, 2009, there was an allowance recorded for $52.6 million to fully reserve for the notes receivable from liquidating Filene’s Basement. Effective November 3, 2009, RVI’s claims against liquidating Filene’s Basement in respect of these notes receivables were released in connection with a Settlement Agreement approved by the bankruptcy court.

Inventories — Merchandise inventories are stated at net realizable value, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail 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 profits are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The cost of the inventory reflected on the 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, which are reductions in prices due to customers’ perception of value. Hence, earnings are negatively impacted as the merchandise is marked down prior to sale.

Inherent in the calculation of inventories are certain significant management judgments and estimates, including setting the original merchandise retail value, 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 profit.

Tradenames and Other Intangible Assets, net — Tradenames and other intangible assets, net are primarily comprised of values assigned to tradenames and leases the Company acquired. The gross balance of tradenames and other intangible assets was $12.9 million as of both October 31, 2009 and January 31, 2009. Accumulated amortization for these assets was $9.9 million and $9.2 million at October 31, 2009 and January 31, 2009, respectively.

Amortization expense for each of the three and nine months ended October 31, 2009 and November 1, 2008 was $0.3 million and $0.7 million, respectively. Amortization associated with the net carrying amount of intangible assets at October 31, 2009 is estimated to be $0.2 million for the remainder of fiscal year 2009, $0.9 million for each fiscal year from fiscal year 2010 through fiscal year 2012 and $0.2 million in fiscal year 2013.

Customer Loyalty Program — The Company maintains a customer loyalty program for the DSW stores and dsw.com in which program members earn reward certificates that result in discounts on future purchases. Upon reaching the target-earned threshold, the members receive reward certificates for these discounts which expire within six months. The Company accrues the anticipated redemptions of the discount earned at the time of the initial purchase. To estimate these costs, DSW is required to make assumptions related to customer purchase levels and redemption rates based on historical experience. The accrued liability as of October 31, 2009 and January 31, 2009 was $9.3 million and $7.3 million, respectively.

Noncontrolling Interests — During both the three and nine months ended October 31, 2009 and November 1, 2008, there was an immaterial impact to the net income (loss) attributed to Retail Ventures, Inc. as a result of the additional DSW common shares outstanding from DSW director stock unit grants. DSW granted 765 and 45,895 director stock units during the three and nine months ended October 31, 2009, respectively and granted 2,658 and 43,887 director stock units during the three and nine months ended November 1, 2008, respectively.

Sales and Revenue Recognition — Revenues from merchandise sales are recognized upon customer receipt of merchandise, are net of returns and sales tax and are not recognized until collectability is reasonably assured. For dsw.com, the Company estimates a time lag for shipments to record revenue when the customer receives the goods and also includes revenue from shipping and handling in net sales while the related costs are included in cost of sales.

Revenue from gift cards is deferred and recognized upon redemption of the gift card. The Company’s policy is to recognize income from breakage of gift cards when the likelihood of redemption of the gift card is remote. The Company recognized $0.2 million as miscellaneous income from gift card breakage during both of the three months ended October 31, 2009 and November 1, 2008. The Company recognized $0.6 million and $0.5 million as miscellaneous income from gift card breakage during the nine months ended October 31, 2009 and November 1, 2008, respectively.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Income Taxes — Income taxes are accounted for using the asset and liability method as required by ASC 740 Income Taxes. Under this method, deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Sale of Subsidiary Stock — Sales of stock by a subsidiary are accounted for by Retail Ventures as capital transactions.

Subsequent Events — The Company has evaluated subsequent events through December 15, 2009, the date the Company’s financial statements were issued.

3. ADOPTION OF ACCOUNTING STANDARDS

In December 2007, the FASB issued Accounting Standards Codification (“ASC”) 805 Business Combinations. ASC 805 establishes a framework for how an acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in a business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of the business combination. ASC 805 was effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The adoption of ASC 805 during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In December 2007, the FASB issued an update to ASC 805 Business Combinations related to noncontrolling interests in consolidated financial statements. This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (previously referred to as minority interest) and for the deconsolidation of a subsidiary. This guidance shall be applied prospectively as of the beginning of the fiscal year in which this statement is initially adopted, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. This guidance was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with early adoption prohibited. The adoption of this guidance during the first quarter of fiscal year 2009 resulted in enhanced disclosures regarding the minority interests of DSW as well as some presentation changes of noncontrolling interest within the balance sheets, statements of operations and statements of changes in shareholders’ equity.

In March 2008, the FASB issued an update to ASC 815 Derivatives and Hedging related to disclosures about an entity’s derivative instruments and hedging activities. This guidance establishes enhanced disclosures about the entity’s derivative and hedging activities. This guidance was effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Adoption of this guidance during the first quarter of fiscal year 2009 resulted in enhanced disclosure regarding the Company’s derivative instruments. See Note 7 for additional information regarding Retail Ventures’ derivative instruments.

In June 2008, the FASB issued an update to ASC 815-40 Derivatives and Hedging, Contracts in Entity’s Own Equity related to determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. ASC 815-10 Derivatives and Hedging topic specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. ASC 815-40 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the ASC 815-10 scope exception. The adoption of this guidance during the first quarter of fiscal year 2009 resulted in the redesignation and reclassification of the VCHI Warrants from Equity to Liability within the balance sheets. In addition, the VCHI Warrants were marked to market as of the date of the adoption and continued to be marked to market through their expiration date.

In November 2008, the FASB issued an update to the ASC 815-40 Derivatives and Hedging, Contracts in Entity’s Own Equity topic related to accounting for an instrument (or an embedded feature) with a settlement amount that is based on the stock of an entity’s consolidated subsidiary. This guidance was effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. This guidance states that provided that the subsidiary is a substantive entity, instruments indexed to the stock of a subsidiary could be considered indexed to the entity’s own stock within the consolidated financial statements. The instruments should be evaluated using ASC 815-40 and other applicable guidance to determine the classification of the instrument. The adoption of this guidance during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In April 2008, the FASB issued an update to the ASC 350-30 Goodwill and Other Intangible Assets, General Intangibles Other than Goodwill that amends factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of this guidance is to improve consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure its fair value. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. This guidance was prospectively applied to intangible assets acquired after the effective date. The disclosure requirements were applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The adoption of this guidance during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In May 2008, the FASB issued an update to ASC 470-20 Debt, Debt with Conversion and Other Options related to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidance applies to convertible debt instruments that may be settled in cash (including partial cash settlement) unless the embedded conversion option is required to be separately accounted for as a derivative under ASC 815-10. This guidance requires that the convertible debt instrument is separated into a liability-classified component and an equity-classified component in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of this guidance during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements. Additional disclosures related to the Company’s convertible debt have been included in Note 7 as a result of the adoption of this guidance.

In June 2008, the FASB issued an update to ASC 260 Earnings Per Share related to determining whether instruments granted in share-based payment transactions are participating securities. This guidance addresses whether awards granted in unvested share-based payment transactions that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and therefore need to be included in computing earnings per share under the two-class method, as described in ASC 260-10. This guidance was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and was applied retrospectively in accordance with the guidance. The adoption of this guidance during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In February 2008, the FASB issued an update to ASC 820 Fair Value Measurements and Disclosures which delayed the effective date for non-financial assets and liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. ASC 820, which defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. Refer to Note 8 for additional information regarding the Company’s fair value measurements.

In April 2009, the FASB issued an update to ASC 820 Fair Value Measurements and Disclosures related to determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This guidance affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The update provides guidance for estimating fair value when the volume and level of market activity for an asset or liability have significantly decreased and determining whether a transaction was orderly. This guidance applies to all fair value measurements when appropriate. This guidance was effective for interim and annual periods ending after June 15, 2009 and shall be applied prospectively. The adoption of this guidance during the second quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In April 2009, the FASB issued an update to ASC 320 Investments — Debt and Equity Securities related to recognition and presentation of other-than-temporary impairments. This guidance amends existing guidance for determining whether an other-than-temporary impairment of debt securities has occurred. This update replaces the existing requirement that an entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert (a) it does not have the intent to sell the security, and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. This guidance was effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance during the second quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In April 2009, the FASB issued an update to ASC 825 Financial Instruments which requires an entity to provide the annual disclosures required by ASC 825 in its interim consolidated financial statements. This guidance was effective for reporting periods ending after June 15, 2009. The adoption of this guidance during the second quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In May 2009, the FASB issued ASC 855 Subsequent Events. ASC 855 requires an entity to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. This statement should not result in significant changes in the subsequent events the entity reports, either through recognition or disclosure, in its financial statements. This guidance is effective for interim periods or fiscal years ending after June 15, 2009. The adoption of this guidance during the second quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In June 2009, the FASB issued an update to ASC 860 Transfers and Servicing related to accounting for transfers of financial assets. This guidance eliminates the concept of a qualifying special-purpose and removes the exception from applying ASC 810 to qualifying special-purpose entities. This guidance is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years, and will not impact the Company’s consolidated financial statements.

In June 2009, the FASB issued an update to ASC 810 Consolidation. The guidance requires ongoing assessments using a primarily qualitative approach rather than the quantitative-based risks and rewards calculation in determining which entity has a controlling interest in a variable interest entity. In addition, an additional reconsideration assessment should be completed when an event causes a change in facts or circumstances. Lastly, the guidance requires additional disclosures about an entity’s involvement in variable interest entities. This guidance is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years, and will not impact the Company’s consolidated financial statements.

In June 2009, the FASB issued Accounting Standard Codification 105 Generally Accepted Accounting Principles, or the Codification. The Codification is the sole source of authoritative U.S. accounting and reporting standards recognized by the FASB. Rules and interpretive releases of the SEC are also sources of authoritative GAAP. ASC 105 is effective for financial statements issued for periods ending after September 15, 2009. The adoption of ASC 105 during the third quarter of fiscal year 2009 did not have an impact on the Company’s financial position or results of operations, but upon adoption of ASC 105, references within financial statement disclosures were modified to reference the Codification.

4. DISCONTINUED OPERATIONS

Value City

As mentioned above, on January 23, 2008, Retail Ventures disposed of an 81% ownership interest in its Value City operations. As part of the transaction, Retail Ventures issued warrants (“VCHI Warrants”) to VCHI Acquisition Co. to purchase 150,000 RVI Common Shares, at an exercise price of $10.00 per share, and exercisable within 18 months of January 23, 2008. The VCHI Warrants expired in June 2009. Retail Ventures received no net cash proceeds from the sale and paid a fee of $500,000 to the purchaser. Retail Ventures recognized an aggregate after-tax loss related to the Value City disposition of $76.7 million as of October 31, 2009, including a decrease in the loss of $0.1 million recognized in the nine months ended October 31, 2009. The decrease in the loss consisted primarily of revaluations of the liabilities due to the passage of time for the guarantees recorded by Retail Ventures. As of October 31, 2009, Retail Ventures is still providing Value City with limited transition services.

Filene’s Basement

As previously discussed, on April 21, 2009, RVI disposed of its Filene’s Basement operations. RVI did not realize any cash proceeds from this transaction and will pay a fee of $1.3 million to Buxbaum, of which $0.7 million has been paid through October 31, 2009, and reimbursed $0.4 million of Buxbaum’s costs associated with the transaction. RVI also agreed to indemnify Buxbaum, FB II Acquisition Corp. and their owners against certain liabilities. As of October 31, 2009, RVI had recorded a liability of $1.9 million under lease obligations related to leases not assumed by New Filene’s Basement. RVI has recognized an after-tax gain of $76.1 million on the transaction as of October 31, 2009. The $76.1 million gain on the disposition of Filene’s Basement is net of the write-off of the investment in Filene’s Basement partially offset by the recording of guarantees of $1.9 million, other transaction related expenses of $3.4 million, impairment charges of $1.8 million and income tax expenses of $1.8 million.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

On August 16, 2006, Filene’s Basement entered into a Promissory Note with Retail Ventures for $27.6 million, due August 16, 2013. In addition, on January 3, 2008, Filene’s Basement entered into a Promissory Note with Retail Ventures for $25.0 million, due February 1, 2013. Each note between Filene’s Basement and Retail Ventures provided for interest to accrue at 13% per annum. The notes and related interest receivable were fully reserved for during the first quarter of 2009. Effective November 3, 2009, RVI’s claims against liquidating Filene’s Basement in respect of these notes receivables were released in connection with a Settlement Agreement approved by the bankruptcy court.

On May 4, 2009, liquidating Filene’s Basement filed for bankruptcy protection. As a result of the filing, RVI has determined that the notes receivable from liquidating Filene’s Basement, the related accrued interest receivable and accounts receivable from liquidating Filene’s Basement were fully impaired and recorded bad debt expense of $57.3 million related to these assets. In addition, DSW recorded bad debt expense related to the impairment of certain accounts receivable from liquidating Filene’s Basement of $0.6 million. Therefore, included in the consolidated results of operations of RVI for the nine months ended October 31, 2009, is bad debt expense of $57.9 million related to the impairment of these items.

The following table presents the significant components of Filene’s Basement operating results included in discontinued operations.

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
		(in thousands)
Net sales		$				$	112,150			$	63,351			$	314,781
Loss before income taxes						$	(6,758	)		$	(31,195	)		$	(30,796	)
Income tax benefit (provision)							196				(345	)			275
Gain on sale		$	203								76,121
Income (loss) from discontinued operations, net of tax — Filene’s Basement		$	203			$	(6,562	)		$	44,581			$	(30,521	)

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following table presents the financial classification of assets and liabilities of Filene’s Basement reflected as held for sale in the Condensed Consolidated Balance Sheets as of January 31, 2009 (in thousands):

		January 31,
		2009
		(in thousands)
Cash		$	4,776
Accounts receivable, net			1,670
Inventories			58,384
Prepaid expenses and other			1,848
Total current assets			66,678
Property and equipment, net			33,590
Tradenames and intangibles, net			4,255
Other non current assets			948
Total non current assets			38,793
Total assets		$	105,471
Accounts payable, net		$	18,805
Accrued expenses			17,642
Revolving credit facility			39,583
Total current liabilities			76,030
Other non current liabilities			36,055
Total non current liabilities			36,055
Total liabilities		$	112,085

As of January 31, 2009, Filene’s Basement had accumulated other comprehensive loss of $6.7 million related to the minimum pension liability.

5. STOCK BASED COMPENSATION

Retail Ventures Stock Compensation Plans

The Company has an Amended and Restated 2000 Stock Incentive Plan (the “2000 Plan”) that provides for the issuance of equity awards covering up to 13.0 million common shares, including stock options, stock appreciation rights and restricted stock, to management, key employees of Retail Ventures and affiliates, consultants (as defined in the plan), and non-employee directors of Retail Ventures. Options granted under the plan generally vest 20% per year on a cumulative basis and remain exercisable for a period of ten years from the date of grant.

The Company has an Amended and Restated 1991 Stock Option Plan that provided for the grant of equity awards covering up to 4.0 million common shares. Options granted under the plan are generally exercisable 20% per year on a cumulative basis and remain exercisable for a period of ten years from the date of grant.

During the nine months ended October 31, 2009 and November 1, 2008, included in income from continuing operations is stock based compensation expense of approximately $5.2 million and $4.3 million, respectively, which includes approximately $4.2 million and $3.3 million, respectively, of expenses recorded by DSW, before accounting for the noncontrolling interests.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following tables summarize the activity of the Company’s stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) for the nine months ended October 31, 2009 (in thousands):

		Stock Options				SARs				RSUs
Outstanding beginning of period			1,247				395				12
Granted			38
Exercised			(256	)							(6	)
Forfeited			(212	)			(200	)
Outstanding end of period			817				195				6
Exercisable end of period			767				175

Stock Options

The following table illustrates the weighted-average assumptions used in the option-pricing model for options granted in each of the periods presented.

		Nine months ended
		October 31,				November 1,
		2009				2008
Assumptions:
Risk-free interest rate			2.1	%			2.9	%
Expected volatility of Retail Ventures common shares			84.6	%			56.1	%
Expected option term		5.0 years				5.0 years
Expected dividend yield			0.0	%			0.0	%

The weighted-average grant date fair value of options granted in the nine months ended October 31, 2009 and November 1, 2008 was $1.94 per share and $3.15 per share, respectively.

Stock Appreciation Rights

Included in compensation expense recorded in continuing operations during the nine months ended October 31, 2009 and November 1, 2008 was $0.7 million and $0.8 million, respectively, relating to SARs.

Restricted Stock Units

The Company’s continuing operations recorded compensation expense of less than $0.1 million and $0.1 million related to the restricted stock units in the nine months ended October 31, 2009 and November 1, 2008, respectively. The amount of restricted stock units accrued at both October 31, 2009 and January 31, 2009 was less than $0.1 million.

Restricted Shares

The Company issues restricted common shares to certain key employees pursuant to individual employment agreements and certain other grants from time to time, which are approved by the Board of Directors. The agreements condition the vesting of the shares generally upon continued employment with the Company with such restrictions expiring over various periods ranging from three to five years. The market value of the shares at the date of grant is charged to expense on a straight-line basis over the period that the restrictions lapse. As of January 31, 2009, the Company had 50,000 restricted common shares outstanding, which were all attributed to the discontinued operations. All 50,000 restricted shares were forfeited during the quarter ended May 2, 2009.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

DSW Stock Compensation Plan

DSW has a 2005 Equity Incentive Plan (“the Plan”) that provides for the issuance of equity awards to purchase up to 7.6 million common shares, including stock options and restricted stock units to management, key employees of DSW and affiliates, consultants (as defined in the Plan) and directors of DSW. During the nine months ended October 31, 2009 and November 1, 2008, DSW recorded stock based compensation expense of approximately $4.2 million and $3.3 million, respectively.

The following tables summarize the activity of DSW’s stock options and RSUs for the nine months ended October 31, 2009 (in thousands):

		Stock Options				RSUs
Outstanding beginning of period			2,125				226
Granted			946				179
Exercised			(52	)			(73	)
Forfeited			(378	)			(63	)
Outstanding end of period			2,641				269
Exercisable end of period			856

Stock Options

The weighted-average grant date fair value of each option granted in the nine months ended October 31, 2009 and November 1, 2008 was $5.10 per share and $5.89 per share, respectively. The following table illustrates the weighted-average assumptions used in the Black-Scholes option-pricing model for options granted in each of the periods presented:

		Nine months ended
		October 31,				November 1,
		2009				2008
Assumptions:
Risk-free interest rate			1.9	%			2.8	%
Expected volatility of DSW common stock			57.6	%			48.1	%
Expected option term		4.9 years				4.9 years
Expected dividend yield			0.0	%			0.0	%

Restricted Stock Units

The total aggregate intrinsic value of nonvested restricted stock units at October 31, 2009 was $5.2 million. As of October 31, 2009, the total compensation cost related to nonvested restricted stock units not yet recognized was approximately $2.5 million with a weighted average expense recognition period remaining of 1.8 years. The weighted average exercise price for all restricted stock units is zero.

Director Stock Units

DSW issues stock units to directors who are not employees of DSW or RVI. During the nine months ended October 31, 2009 and November 1, 2008, DSW granted 45,895 and 43,887 director stock units, respectively, and expensed $0.6 million in each respective nine month period for these grants. As of October 31, 2009, 129,096 director stock units had been issued and no director stock units had been settled.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

6. INVESTMENTS

The Company determines the appropriate balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. If the Company has the intent and ability to hold the investments to maturity, investments are classified as held-to-maturity. Held-to-maturity securities are stated at amortized cost plus accrued interest. As of October 31, 2009, the Company had held-to-maturity investments of $8.4 million in tax exempt term notes that mature within the next year. All other investments are classified as available-for-sale and stated at current market value.

Short-term investments classified as available-for-sale as of October 31, 2009 and January 31, 2009 include tax exempt, tax advantaged and taxable bonds, variable rate demand notes, tax exempt commercial paper and certificates of deposit. The Company also participates in the Certificate of Deposit Account Registry Service^® (“CDARS”). CDARS provides FDIC insurance on deposits of up to $50.0 million. Certificates of deposit mature every 28 to 182 days. The other types of short-term investments generally have interest reset dates of every 7 days. Despite the long-term nature of the stated contractual maturities of certain short-term investments, the Company has the ability to quickly liquidate these securities. As a result, the Company has classified these securities as available-for-sale.

As of October 31, 2009, the Company reclassified its auction rate security as long-term and the unrealized loss on its auction rate security from a temporary to an other-than-temporary impairment. The Company believes the impairment is other-than-temporary due to the financial condition and future business prospects of the underlying issuer, as well as the duration of the impairment. The Company received preferred shares as distributions-in-kind on two of its auction rate securities and sold these preferred shares for a net realized gain of $0.1 million in fiscal 2009.

The following table discloses the major categories of the Company’s investments as of October 31, 2009 and January 31, 2009:

		Short-term investments, net								Long-term investments, net
		October 31,				January 31,				October 31,				January 31,
		2009				2009				2009				2009
		(in thousands)
Available for sale:
Tax exempt, tax advantaged and taxable bonds		$	125,639			$	65,829
Variable rate demand notes			13,160				16,580
Tax exempt commercial paper			7,200				2,000
Certificates of deposit			15,000				14,000
Auction rate securities							3,650			$	2,500			$	2,400
Other-than-temporary impairment included in earnings											(754	)			(1,134	)
Unrealized losses included in accumulated other comprehensive loss							(655	)
Total available-for-sale investments			160,999				101,404				1,746				1,266
Held-to-maturity:
Tax exempt term notes			8,430
Total investments		$	169,429			$	101,404			$	1,746			$	1,266

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

7. LONG-TERM OBLIGATIONS AND WARRANT LIABILITIES

Long-term obligations of continuing operations consist of the following (in thousands):

		October 31,				January 31,
		2009				2009
Credit facilities:
Senior Loan Agreement — related parties						$	250
Premium Income Exchangeable Securities (“PIES”)		$	133,750				133,750
Discount on PIES			(4,556	)			(6,174	)
			129,194				127,826
Less: current maturities							(250	)
Total long term obligations of continuing operations		$	129,194			$	127,576
Letters of credit outstanding under DSW revolving credit facility		$	10,849			$	17,709
Availability under DSW revolving credit facility		$	139,151			$	132,291

DSW has a $150 million secured revolving credit facility with a term of five years that will expire on July 5, 2010. Under this facility, the Company and its subsidiaries are named as co-borrowers. The 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. DSW’s obligations under this facility are secured by a lien on substantially all of its and one of its subsidiary’s personal property and a pledge of its shares of DSW Shoe Warehouse, Inc. (“DSWSW”). In addition, the secured revolving credit facility contains usual and customary restrictive covenants relating to the management and the operation of the business. These covenants, among other things, restrict DSW’s 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. In addition, if at any time DSW utilizes over 90% of its borrowing capacity under the facility, DSW must comply with a fixed charge coverage ratio test set forth in the facility documents. DSW intends to refinance the DSW Revolving Loan on a long-term basis. As of October 31, 2009 and January 31, 2009, there were no outstanding borrowings and there was availability under the facility of $139.2 million and $132.3 million, respectively. DSW had outstanding letters of credit of $10.8 million and $17.7 million, respectively, as of October 31, 2009 and January 31, 2009.

Deferred Rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rentals during the initial lease terms. For these leases, the Company recognizes the related rental expense on a straight-line basis over the original term of the lease. The Company records the difference between the amount charged to expense and the rent paid as deferred rent and begins amortizing such deferred rent upon the delivery of the lease location by the lessor. The deferred rent included in the other non-current liabilities, excluding discontinued operations, was $34.0 million and $33.5 million at October 31, 2009 and January 31, 2009, respectively.

Construction and Tenant Allowances

The Company receives cash allowances from landlords, which are deferred and amortized on a straight-line basis over the original terms of the lease as a reduction of rent expense. Construction and tenant allowances included in other non-current liabilities, excluding discontinued operations, were $60.8 million and $63.7 million at October 31, 2009 and January 31, 2009, respectively.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Derivative Instruments

The Company has derivative instruments, warrants and the conversion feature of convertible debt, that it has issued in conjunction with past financing activities. As of October 31, 2009 and January 31, 2009, Retail Ventures did not have any derivatives designated as hedges nor has Retail Ventures entered into derivative instruments for trading purposes. ASC 815 Derivatives and Hedging requires recognition of all qualifying derivative instruments as either assets or liabilities on the balance sheet at fair value. Retail Ventures utilizes the Black-Scholes pricing model to compute the fair value of its derivative instruments. The Company’s derivative instruments outstanding as of October 31, 2009, are described in detail below.

$143,750,000 Premium Income Exchangeable Securities^SM (PIES)

The Premium Income Exchangeable Securities^SM (“PIES”) bear a coupon at an annual rate of 6.625% of the principal amount and mature on September 15, 2011. Except to the extent RVI exercises its cash settlement option, the PIES are mandatorily exchangeable, on the maturity date, into Class A Common Shares of DSW, no par value per share, which are issuable upon exchange of DSW Class B Common Shares, no par value per share, beneficially owned by RVI. On the maturity date, each holder of the PIES will receive a number of DSW Class A Common Shares per $50.0 principal amount of PIES equal to the “exchange ratio” described in the RVI prospectus filed with the SEC on August 11, 2006, or if RVI elects, the cash equivalent thereof or a combination of cash and DSW Class A Common Shares. The exchange ratio is equal to the number of DSW Class A Common Shares determined as follows: (i) if the applicable market value of DSW Class A Common Shares equals or exceeds $34.95, the exchange ratio will be 1.4306 shares; (ii) if the applicable market value of DSW Class A Common Shares is less than $34.95 but greater than $27.41, the exchange ratio will be between 1.4306 and 1.8242 shares; and (iii) if the applicable market value of DSW Class A Common Shares is less than or equal to $27.41, the exchange ratio will be 1.8242 shares, subject to adjustment as provided in the PIES. The maximum aggregate number of DSW Class A Common Shares deliverable upon exchange of the PIES is 5,244,575 DSW Class A Common Shares subject to adjustment as provided in the PIES.

The embedded exchange feature of the PIES is accounted for as a derivative, which is recorded at fair value based upon the income approach using the Black-Scholes pricing model in accordance with ASC 820 Fair Value Measurements and Disclosures using level 2 inputs such as current market rates and changes in fair value are reflected in the statement of operations. Accordingly, the accounting for the embedded derivative addresses the variations in the fair value of the obligation to settle the PIES when the market value exceeds or is less than the threshold appreciation price. The fair value of the conversion feature at the date of issuance of $11.7 million was equal to the amount of the discount of the PIES and is being amortized into interest expense over the term of the PIES. As of October 31, 2009, the discount on the PIES has a remaining amortization period of 1.9 years. The amount of interest expense recognized and the effective interest rate for the PIES were as follows (in thousands):

		Nine months ended
		October 31,				November 1,
		2009				2008
Contractual interest expense		$	7,090			$	7,195
Amortization of debt discount			1,618				1,503
Total interest expense		$	8,708			$	8,698
Effective interest rate			8.6	%			8.6	%

During the three and nine months ended October 31, 2009, the Company recorded a non-cash charge of $21.6 million and $30.8 million, respectively, related to the change in fair value of the conversion feature of the PIES. During the three and nine months ended November 1, 2008, the Company recorded a non-cash charge of $2.9 million and a non-cash reduction of expense of $23.9 million, respectively, related to the change in fair value of the conversion feature of the PIES. As of October 31, 2009 and January 31, 2009, the fair value asset recorded for the conversion feature was $46.9 million and $77.8 million, respectively.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The fair value of the conversion feature of the PIES at October 31, 2009 and January 31, 2009 was estimated using the Black-Scholes Pricing Model with the following assumptions:

		October 31,				January 31,
		2009				2009
Assumptions:
Risk-free interest rate			1.5	%			3.0	%
Expected volatility of common shares			72.9	%			58.0	%
Expected option term		1.9 years				2.6 years
Expected dividend yield			0.0	%			0.0	%

Warrants

VCHI Acquisition Co. Warrants

On January 23, 2008, Retail Ventures disposed of an 81% ownership interest in its Value City Department Stores business to VCHI Acquisition Co., a newly formed entity owned by VCDS Acquisition Holdings, LLC, Emerald Capital Management LLC and Crystal Value, LLC. As part of the transaction, Retail Ventures issued warrants (“the VCHI Warrants”) to VCHI Acquisition Co. to purchase 150,000 RVI Common Shares, at an exercise price of $10.00 per share, and exercisable within 18 months of January 23, 2008. The warrants expired in June 2009.

An update to ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity, resulted in the redesignation and reclassification of the VCHI Warrants from Equity to Liabilities within the balance sheets during the quarter ended May 2, 2009. In addition, the VCHI Warrants were marked to market and continued to be marked to market through their expiration date. A charge of $0.1 million was recorded in other comprehensive income as of February 1, 2009, which represented the change in fair value of the VCHI Warrants from the date of issuance to the date of adoption of ASC 815-40. During the nine months ended October 31, 2009, the Company recorded an immaterial charge related to the change in fair value of the VCHI warrants.

Term Loan Warrants and Conversion Warrants

As of October 31, 2009, the Company had outstanding 3,683,959 Term Loan Warrants and no Conversion Warrants (together, the “Warrants”). As of January 31, 2009, the Company had outstanding 3,683,959 Term Loan Warrants and 8,333,333 Conversion Warrants. On June 10, 2009, the 8,333,333 outstanding Conversion Warrants expired and Retail Ventures repaid in full the $250,000 remaining balance along with the related accrued interest on the Senior Non-Convertible Loan, as amended and restated on August 16, 2006, made by Schottenstein Stores Corporation in favor of Value City, which loan was assumed by RVI in connection with the disposition of its 81% ownership interest in the Value City operations on January 23, 2008. The Term Loan Warrants expire on June 11, 2012.

For the three and nine months ended October 31, 2009, the Company recorded a non-cash charge for the change in the fair value of the Warrants of $9.1 million and $10.0 million, respectively, of which the portion held by related parties was a non-cash charge of $4.3 million and $3.7 million respectively. For the three and nine months ended November 1, 2008, the Company recorded a non-cash reduction of expenses of $10.8 million and $37.9 million, respectively, for the change in fair value of the Term Loan Warrants and Conversion Warrants, respectively, of which the portion held by related parties was a non-cash reduction of expenses of $8.5 million and $31.0 million, respectively. No tax benefit has been recognized in connection with these charges. These derivative instruments do not qualify for hedge accounting under ASC 815 Derivatives and Hedging therefore; changes in the fair values are recognized in earnings in the period of change. 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.

In accordance with ASC 815 Derivatives and Hedging and ASC 820 Fair Value Measurements and Disclosures, Retail Ventures estimates the fair values of derivatives based on the income approach using the Black-Scholes pricing model using level 2 inputs such as current market rates and records all derivatives on the balance sheet at fair value.

The fair value of the Term Loan Warrants was $16.3 million, of which the portion held by related parties was $7.6 million at October 31, 2009. The fair value of the Term Loan Warrants and Conversion Warrants was $6.3 million, of which the portion held by related parties was $3.9 million at January 31, 2009.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The values ascribed to the Term Loan Warrants as of October 31, 2009 and the values ascribed to the Term Loan Warrants and Conversion Warrants as of January 31, 2009 were estimated using the Black-Scholes Pricing Model with the following assumptions. As previously noted, the Conversion Warrants expired on June 10, 2009.

		Term Warrants								Conversion Warrants
		October 31,				January 31,				January 31,
		2009				2009				2009
Assumptions:
Risk-free interest rate			1.5	%			1.3	%			0.3	%
Expected volatility of common shares			107.5	%			95.9	%			114.3	%
Expected option term		2.6 years				3.4 years				0.4 years
Expected dividend yield			0.0	%			0.0	%			0.0	%

The fair values and balance sheet locations of the Company’s derivative assets (liabilities) are as follows (in thousands):

				October 31,				January 31,
		Balance Sheet Location		2009				2009
Warrants		Warrant liability		$	(16,260	)		$	(6,292	)
Conversion feature of long-term debt		Conversion feature of long-term debt			46,943				77,761
Total				$	30,683			$	71,469

The effect of derivative instruments on the Company’s condensed consolidated statements of operations is as follows (in thousands):

		Three months ended								Nine Months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Warrants		$	(9,076	)		$	10,760			$	(9,960	)		$	37,876
Conversion feature of long-term debt			(21,625	)			(2,902	)			(30,818	)			23,883
(Expense) income related to the change in fair value of derivative instruments		$	(30,701	)		$	7,858			$	(40,778	)		$	61,759

8. FAIR VALUE MEASUREMENTS OF FINANCIAL ASSETS AND LIABILITIES

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Therefore, fair value is a market-based measurement based on assumptions of the market participants. As a basis for these assumptions, the Company classifies its fair value measurements under the following fair value hierarchy:

•

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have frequent transactions with enough volume to provide ongoing pricing information.

•

Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets, or other observable inputs.

•

Level 3 inputs are unobservable inputs.

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2009 consisted of the following (in thousands):

		Balance at
		October 31,
		2009				Level 1				Level 2				Level 3
Assets:
Cash and equivalents		$	108,723			$	108,723
Short-term investments, net			169,249							$	169,249
Long-term investments, net			1,746											$	1,746
Conversion feature of long-term debt			46,943								46,943
		$	326,661			$	108,723			$	216,192			$	1,746
Liabilities:
Warrant liability		$	16,260							$	16,260
		$	16,260							$	16,260

Cash and equivalents primarily represent cash deposits and investments in money market funds held with financial institutions, as well as credit card receivables that settle in fewer than three days. The Company’s investment in an auction rate security is recorded at fair value using an income approach valuation model that uses level 3 inputs such as the financial condition of the issuers of the underlying securities, expectations regarding the next successful auction, risks in the auction rate securities market and other various assumptions. The Company’s other types of investments and derivative instruments are valued using a market based approach using level 2 inputs such as prices of similar assets in active markets.

The carrying amount of accounts receivable approximates fair value because of the relatively short average maturity of the instruments and no significant change in interest rates. The book value of notes payable and long-term debt approximates fair value. The carrying amount of the revolving line of credit approximates fair value as a result of the variable rate-based borrowings. The carrying amount of the term loan and subordinated debt also approximates fair value. See Note 6 for fair value disclosures regarding investments and Note 7 for fair value disclosure regarding long-term obligations.

The activity related to level 3 fair value measurements for the three months ended October 31, 2009 is summarized below (in thousands):

		Short-term				Long-term
		investments, net				investments, net
Carrying value as of August 1, 2009		$	1,771
Transfers between short-term and long-term investments, net			(1,771	)		$	1,771
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment							729
Other-than-temporary impairment included in earnings							(754	)
Carrying value as of October 31, 2009		$				$	1,746

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The activity related to level 3 fair value measurements for the nine months ended October 31, 2009 is summarized below (in thousands):

		Short-term				Long-term
		investments, net				investments, net
Carrying value as of January 31, 2009		$	1,845			$	1,266
Transfer out of Level 3							(1,266	)
Transfers between short-term and long-term investments, net			(1,845	)			1,845
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment							655
Other-than-temporary impairment included in earnings							(754	)
Carrying value as of October 31, 2009		$				$	1,746

Non-financial assets and liabilities measured at fair value on a nonrecurring basis as of October 31, 2009 consisted of the following (in thousands):

		Balance at
		October 31,
		2009				Level 1				Level 2				Level 3
Assets:
Long-lived assets to be held and used		$	762											$	762
		$	762											$	762

Long-lived assets to be held and used with a carrying amount of $1.3 million were written down to their fair value of $0.8 million, resulting in an impairment charge of $0.5 million, which was included in earnings for the nine months ended October 31, 2009.

The Company periodically evaluates the carrying amount of its 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 or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The Company reviews are conducted at the lowest identifiable level, which includes a store. The impairment loss recognized is the excess of the carrying value of the asset or the asset group over its fair value, based on a discounted cash flow analysis using a discount rate determined by management. Should an impairment loss be realized, it will generally be included in operating expenses. The impairment charges were recorded within the DSW reportable segment.

9. PENSION BENEFIT PLAN

The Company was not required to make any contributions during the nine months ended October 31, 2009 to meet minimum funding requirements under the Filene’s Basement defined benefit pension plan (“the Pension Plan”). Prior to fiscal 2009, the Pension Plan liability was included within noncurrent liabilities held for sale. The following table shows the components of the Pension Plan (in thousands):

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Interest cost		$	244			$	234			$	732			$	701
Expected return on plan assets			(189	)			(282	)			(567	)			(844	)
Amortization of transition asset			(9	)			(9	)			(27	)			(28	)
Amortization of net loss			143				111				429				332
Net periodic cost		$	189			$	54			$	567			$	161

RETAIL VENTURES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

10. EARNINGS PER SHARE

Basic earnings (loss) per share are based on the net income (loss) and a simple weighted average of common shares outstanding. Diluted earnings (loss) per share reflects the potential dilution of common shares, related to outstanding stock options, SARs and Warrants, calculated using the treasury stock method. The following is a reconciliation of the components of net income (loss) and number of shares used in the calculation of diluted earnings (loss) per share computations for the three and nine months ended October 31, 2009 and November 1, 2008 (in thousands except per share amounts):

The following table shows the composition of the number of shares used for the computations of dilutive earnings per share (in thousands):

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Net (loss) income from continuing operations attributable to Retail Ventures, Inc. common shareholders for basic earnings per share		$	(13,834	)		$	14,516			$	(75,651	)		$	78,487
Less gain in fair value of Term Loan and Conversion Warrants															(37,876	)
Net (loss) income from continuing operations attributable to Retail Ventures, Inc. common shareholders for diluted earnings per share		$	(13,834	)		$	14,516			$	(75,651	)		$	40,611

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Net (loss) income attributable to Retail Ventures, Inc. common shareholders for basic earnings per share		$	(14,129	)		$	9,989			$	(30,987	)		$	56,874
Less gain in fair value of Term Loan and Conversion Warrants															(37,876	)
Net (loss) income attributable to Retail Ventures, Inc. common shareholders for diluted earnings per share		$	(14,129	)		$	9,989			$	(30,987	)		$	18,998

		Three months ended								Nine months ended
		October 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
Weighted average shares outstanding			48,938				48,681				48,855				48,665
Assumed exercise of dilutive SARs															9
Assumed exercise of dilutive stock options							136								187
Assumed exercise of dilutive Term Loan Warrants															326
Assumed exercise of dilutive Conversion Warrants															616
Number of shares for computations of dilutive earnings per share			48,938				48,817				48,855				49,803