UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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		(I.R.S. Employer Identification No.)
incorporation or organization)
4150 E. Fifth Avenue, Columbus, Ohio		43219
(Address of principal executive offices)		(Zip Code)

(614) 238-4148

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 (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 August 31, 2009 was 48,937,729.

 

 

RETAIL VENTURES, INC. FORM 10-Q/A

INTRODUCTORY NOTE

Subsequent to the issuance of the Retail Ventures Inc. financial statements for the quarter ended August 1, 2009, the Company determined it necessary to restate the condensed consolidated financial statements for the quarter ended August 1, 2009 to account for the Filene’s Basement defined benefit pension plan (the “Pension Plan”) as a defined benefit plan obligation in continuing operations rather than as a guarantee attributable to discontinued operations. This filing also updates various disclosures, including disclosures in management’s discussion and analysis and selected financial data. The effects of the restatement are discussed in Note 15 to the condensed consolidated financial statements.

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 on September 10, 2009, 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 August 1, 2009 and January 31, 2009 (as restated)			3
Condensed Consolidated Statements of Operations for the three and six months ended August 1, 2009 and August 2, 2008 (as restated)			5
Condensed Consolidated Statements of Shareholders’ Equity for the six months ended August 1, 2009 and August 2, 2008 (as restated)			6
Condensed Consolidated Statements of Cash Flows for the six months ended August 1, 2009 and August 2, 2008 (as restated)			7
Notes to the Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
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			46
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
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.

		August 1,				January 31,
		2009				2009
ASSETS
Cash and equivalents		$	58,972			$	94,308
Restricted cash							261
Short-term investments, net			139,687				101,404
Accounts receivable, net			6,347				7,142
Accounts receivable from related parties, net			187				332
Inventories			264,295				244,008
Prepaid expenses and other current assets			23,418				27,249
Deferred income taxes			26,598				22,243
Current assets held for sale							66,678
Total current assets			519,504				563,625
Property and equipment, net			223,187				236,355
Goodwill			25,899				25,899
Tradenames and other intangibles, net			3,241				3,668
Conversion feature of long-term debt			68,568				77,761
Deferred income taxes							805
Other assets			5,017				6,856
Non-current assets held for sale							38,793
Total assets		$	845,416			$	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)

		August 1,				January 31,
		2009				2009
		* Restated
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	101,341			$	93,088
Accounts payable to related parties			3,088				3,125
Accrued expenses:
Compensation			9,822				12,632
Taxes			18,658				14,857
Gift cards and merchandise credits			13,976				15,491
Guarantees from discontinued operations			5,037				2,909
Other			30,847				31,175
Warrant liability			7,184				6,292
Current maturities of long-term obligations							250
Current liabilities held for sale							76,030
Total current liabilities			189,953				255,849
Long-term obligations, net of current maturities			128,643				127,576
Long-term guarantees of discontinued operations			9,886				9,980
Other noncurrent liabilities			103,550				99,310
Deferred income taxes			24,955				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, 48,945,280 and 48,691,280, respectively			308,283				306,868
Accumulated deficit			(92,357	)			(76,930	)
Treasury shares, at cost, 7,551 shares			(59	)			(59	)
Warrants							124
Accumulated other comprehensive loss			(7,348	)			(655	)
Accumulated other comprehensive loss held for sale							(6,734	)
Total Retail Ventures’ shareholders’ equity			208,519				222,614
Noncontrolling interests			179,910				172,572
Total shareholders’ equity			388,429				395,186
Total liabilities and shareholders’ equity		$	845,416			$	953,762

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

RETAIL VENTURES, INC.

		Three months ended								Six months ended
		August 1,				August 2,				August 1,				August 2,
		2009				2008				2009				2008
		* Restated								* Restated
Net sales		$	369,490			$	357,175			$	755,336			$	723,439
Cost of sales			(210,267	)			(198,515	)			(427,867	)			(409,613	)
Gross profit			159,223				158,660				327,469				313,826
Selling, general and administrative expenses			(151,290	)			(140,981	)			(366,278	)			(280,141	)
Change in fair value of derivative instruments			(8,689	)			16,733				(10,077	)			53,901
Operating (loss) profit			(756	)			34,412				(48,886	)			87,586
Interest expense			(3,227	)			(3,649	)			(6,442	)			(7,190	)
Interest income			794				2,675				1,265				5,573
Interest expense, net			(2,433	)			(974	)			(5,177	)			(1,617	)
Non-operating income, net			528								133
(Loss) income from continuing operations before income taxes			(2,661	)			33,438				(53,930	)			85,969
Income tax expense			(1,763	)			(7,616	)			(2,428	)			(14,238	)
(Loss) income from continuing operations			(4,424	)			25,822				(56,358	)			71,731
Income from discontinued operations, net of tax — Value City			624				10,494				581				6,873
Income (loss) from discontinued operations, net of tax — Filene’s Basement			22,708				(14,628	)			44,378				(23,959	)
Total income (loss) from discontinued operations, net of tax			23,332				(4,134	)			44,959				(17,086	)
Net income (loss)			18,908				21,688				(11,399	)			54,645
Less: net income attributable to the noncontrolling interests			(2,810	)			(3,954	)			(5,459	)			(7,760	)
Net income (loss) attributable to Retail Ventures, Inc.		$	16,098			$	17,734			$	(16,858	)		$	46,885
Basic and diluted earnings (loss) per share:
Basic (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.15	)		$	0.45			$	(1.27	)		$	1.31
Diluted (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.15	)		$	0.45			$	(1.27	)		$	1.27
Basic earnings (loss) per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	0.48			$	(0.08	)		$	0.92			$	(0.35	)
Diluted earnings (loss) per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	0.48			$	(0.08	)		$	0.92			$	(0.34	)
Basic earnings (loss) per share attributable to Retail Ventures, Inc. common shareholders		$	0.33			$	0.36			$	(0.35	)		$	0.96
Diluted earnings (loss) per share attributable to Retail Ventures, Inc. common shareholders		$	0.33			$	0.36			$	(0.35	)		$	0.93
Shares used in per share calculations:
Basic			48,934				48,675				48,813				48,657
Diluted			48,934				48,970				48,813				50,296
Amounts attributable to Retail Ventures, Inc. common shareholders:
(Loss) income from continuing operations, net of tax		$	(7,234	)		$	21,868			$	(61,817	)		$	63,971
Discontinued operations, net of tax			23,332				(4,134	)			44,959				(17,086	)
Net income (loss)		$	16,098			$	17,734			$	(16,858	)		$	46,885

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

RETAIL VENTURES, INC.

(in thousands)

		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															63,971																7,760				71,731
Net loss from discontinued operations															(17,086	)																			(17,086	)
Unrealized loss on available-for-sale securities, net of tax benefit of $115																											(175	)							(175	)
Total comprehensive income																																		$	54,470
Capital transactions of subsidiary															1,404																1,151				2,555
Stock based compensation expense, before related tax effects											685																								685
Exercise of stock options			62								194																								194
Balance, August 2, 2008			48,685				8			$	306,133			$	(82,288	)		$	(59	)		$	124			$	(1,994	)		$	169,260			$	391,176
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 (*Restated)															(61,817	)															5,459				(56,358	)
Net income from discontinued operations (*Restated)															44,959																				44,959
Unrealized loss on available-for-sale securities																											(74	)							(74	)
Total comprehensive loss (*Restated)																																		$	(11,473	)
Capital transactions of subsidiary															1,431																1,879				3,310
Stock based compensation expense, before related tax effects											909																								909
Exercise of stock options			254								506																								506
Cumulative effect of adoption of new accounting pronouncement																							(115	)			115
Reclassification of warrants to liability																							(9	)											(9	)
Balance, August 1, 2009 (*Restated)			48,945				8			$	308,283			$	(92,357	)		$	(59	)		$				$	(7,348	)		$	179,910			$	388,429

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

RETAIL VENTURES, INC.

		Six months ended
		August 1,				August 2,
		2009				2008
		*Restated
Cash from operating activities:
Net (loss) income		$	(11,399	)		$	54,645
Less: (income) loss from discontinued operations, net of tax			(44,959	)			17,086
(Loss) income before discontinued operations		$	(56,358	)		$	71,731
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt issuance costs and discount on debt			1,742				1,825
Stock based compensation expense			909				685
Stock based compensation expense of subsidiary			1,431				1,404
Depreciation and amortization			22,981				16,971
Change in fair value of derivative instruments			10,077				(53,901	)
Deferred income taxes and other noncurrent liabilities			(15,606	)			(4,221	)
Impairment charges on long-lived assets			1,645				730
Non-operating income, net			(133	)
Loss on disposal of assets			271				301
Impairment charges on receivables from Filene’s Basement			57,864
Other			1,879				1,226
Change in working capital, assets and liabilities:
Accounts receivable			1,681				6,188
Inventories			(20,287	)			(24,832	)
Prepaid expenses and other current assets			3,729				(1,221	)
Accounts payable			7,163				11,535
Proceeds from lease incentives			4,867				10,416
Accrued expenses			(11,656	)			(1,342	)
Net cash provided by operating activities from continuing operations			12,199				37,495
Net cash provided by (used in) operating activities from discontinued operations			20,563				(9,748	)
Cash flows from investing activities:
Cash paid for property and equipment			(11,094	)			(42,609	)
Purchases of available-for-sale investments			(109,313	)			(107,639	)
Maturities and sales from available-for-sale investments			77,530				110,618
Purchases of held-to-maturity investments			(5,175	)			(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			(47,791	)			(41,630	)
Net cash used in investing activities from discontinued operations			(158	)			(988	)
Cash flows from financing activities:
Payment of current maturities on long-term obligations			(250	)
Proceeds from exercise of stock options			506				194
Net cash provided by financing activities from continuing operations			256				194
Net cash (used in) provided by financing activities from discontinued operations			(25,181	)			12,500
Net decrease in cash and equivalents from continuing operations		$	(35,336	)		$	(3,941	)
Cash and equivalents from continuing operations, beginning of period			94,308				107,260
Cash and equivalents from continuing operations, end of period		$	58,972			$	103,319
Net (decrease) increase in cash and equivalents from discontinued operations		$	(4,776	)		$	1,764
Cash and equivalents from discontinued operations, beginning of period			4,776				5,691
Cash and equivalents from discontinued operations, end of period		$				$	7,455

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 August 1, 2009, DSW operated a total of 306 stores located throughout the United States and dsw.com. DSW also supplies shoes, under supply arrangements, for 358 locations for four retailers in the United States. The Corporate segment consists of all revenue and expenses that are not allocated to the other segment.

As of August 1, 2009, Retail Ventures owned Class B Common Shares of DSW representing approximately 62.8% 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 $76.2 million on the transaction as of August 1, 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 the quarter ended August 1, 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 August 1, 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 $0.4 million has been paid through August 1, 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 $75.9 million on the transaction as of August 1, 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 August 1, 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 August 1, 2009. Its stores offer a remarkable selection of better-branded dress, casual and athletic footwear for women and men. As of August 1, 2009, DSW, pursuant to supply agreements, operated 269 leased shoe departments for Stein Mart, Inc., 65 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 six months ended August 1, 2009, DSW opened eight new DSW stores, ceased operations in 20 leased departments and added one new leased department.

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

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

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 August 1, 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 is 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.

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.

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

Tradenames and Other Intangible Assets, net — Tradenames and other intangible assets are comprised of values assigned to names the Company acquired and leases acquired. The accumulated amortization for these assets is $9.7 million and $9.2 million at August 1, 2009 and January 31, 2009, respectively.

The asset value and accumulated amortization of intangible assets is as follows:

		August 1,				January 31,
		2009				2009
		(in thousands)
Not subject to amortization
Domain names		$	21			$	21
Subject to amortization
Tradenames:
Gross asset		$	12,750			$	12,750
Accumulated amortization			(9,563	)			(9,138	)
Subtotal		$	3,187			$	3,612
Favorable leases:
Gross asset		$	140			$	140
Accumulated amortization			(107	)			(105	)
Subtotal		$	33			$	35
Tradenames and other intangible assets, net		$	3,241			$	3,668

Amortization expense for each of the three and six months ended August 1, 2009 and August 2, 2008 was $0.2 million and $0.4 million, respectively. Amortization associated with the net carrying amount of intangible assets at August 1, 2009 is estimated to be $0.5 million for the remainder of fiscal year 2009, $0.9 million in each of fiscal years 2010 through 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 must be redeemed 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 August 1, 2009 and January 31, 2009 was $7.8 million and $7.3 million, respectively.

Noncontrolling Interests — During both the three and six months ended August 1, 2009 and August 2, 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. The Company granted 43,627 director stock units and 45,130 director stock units during the three and six months ended August 1, 2009, respectively and granted 38,882 and 41,229 during the three and six months ended August 2, 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. Net sales also include revenue from shipping and handling while the related costs are included in cost of sales.

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

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 each of the three months ended August 1, 2009 and August 2, 2008 and recognized $0.4 million and $0.3 million as miscellaneous income from gift card breakage during the six months ended August 1, 2009 and August 2, 2008, respectively.

Income Taxes — Income taxes are accounted for using the asset and liability method as required by Financial Accounting Standards Board (“FASB”) Statement No. 109, Accounting for Income Taxes (“FAS 109”). 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 September 10, 2009, the date the Company’s financial statements were issued.

3.

ADOPTION OF ACCOUNTING STANDARDS

In December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (“FAS 141R”), FAS 141R 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. FAS 141R was effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Adoption of FAS 141R during the first quarter of fiscal year 2009 did not impact the Company’s consolidated financial statements.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. This statement 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 statement 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. The statement 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 statement 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 minority interests within the balance sheets, statements of operations and statements of changes in shareholders’ equity.

In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, (“FAS 161”). This statement establishes enhanced disclosures about the entity’s derivative and hedging activities. This statement was effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Adoption of FAS 161 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 Emerging Issues Task Force (“EITF”) Issue 07-5, Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock (“EITF No. 07-5”). This Issue 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. Paragraph 11(a) of Statement of Financial Accounting Standard No. 133, Accounting for Derivatives and Hedging Activities (“FAS 133”), 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. EITF No. 07-5 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 FAS 133 paragraph 11(a) scope exception. The adoption of EITF No. 07-5 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.

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

In November 2008, the FASB issued EITF Issue 08-8, Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That Is Based on the Stock of an Entity’s Consolidated Subsidiary (“EITF No. 08-8”). This Issue was effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, with early adoption prohibited. EITF No. 08-8 supersedes EITF No. 00-6 and amends EITF 00-19 such 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 EITF No. 07-5 and other applicable guidance to determine the classification of the instrument. The adoption of EITF 08-8 during the first quarter of fiscal year 2009 did not have any impact on the consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets, (“FSP FAS 142-3”). FSP FAS 142-3 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 FSP 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 FSP 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. The guidance within FSP FAS 142-3 was prospectively applied to intangible assets acquired after the effective date. The disclosure requirements of FSP FAS 142-3 was applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The adoption of FSP FAS 142-3 during the first quarter of fiscal year 2009 did not have any impact on the consolidated financial statements.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 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 FAS 133. FSP APB 14-1 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. FSP APB 14-1 was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP APB 14-1 during the first quarter of fiscal year 2009 did not have any impact on the 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 FSP APB 14-1.

In June 2008, the FASB issued EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF No. 03-6-1”). FSP EITF No 03-6-1 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 FAS No. 128, Earnings Per Share. This FSP 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 FSP. The adoption of FSP EITF No. 03-6-1 during the first quarter of fiscal year 2009 did not have any impact on the consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157, (“FSP 157-2”), which delayed the effective date of FASB Statement No. 157, Fair Value Measurements (“FAS 157”) 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. FAS 157, 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 Financial Accounting Standards Board issued FASB Staff Position FAS 157-4, 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 (“FSP 157-4”). FSP 157-4 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 FSP 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 FSP applies to all fair value measurements when appropriate. The adoption of FSP 157-4 during the second quarter of fiscal year 2009 did not have an impact on the Company’s consolidated financial statements.

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

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2”). FSP 115-2 amends existing guidance for determining whether an other-than-temporary impairment of debt securities has occurred. FSP 115-2 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. The adoption of FSP 115-2 during the second quarter of fiscal year 2009 did not have an impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”). FSP 107-1 requires an entity to provide the annual disclosures required by FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, in its interim consolidated financial statements. The adoption of FSP 107-1 during the second quarter of fiscal year 2009 did not have a significant impact on the consolidated financial statements.

In May 2009, the FASB issued FASB Statement No. 165, Subsequent Events (“FAS 165”). FAS 165 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. FAS 165 is effective for interim periods or fiscal years ending after June 15, 2009. The adoption of FAS 165 during the second quarter of fiscal year 2009 did not have an impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued FAS No. 166, Accounting for Transfers of Financial Assets, an amendment to FASB Statement No. 140, (“FAS 166”). This Statement eliminates the concept of a qualifying special-purpose entity from Statement of Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125, (“FAS 140”) and removes the exception from applying FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (“FIN 46(R)”) to qualifying special-purpose entities. FAS 166 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 FAS No. 167, Amendments to FASB Interpretation No. 46(R), (“FAS 167”). The Statement 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 Statement requires additional disclosures about an entity’s involvement in variable interest entities. FAS 167 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 the FASB Statement No. 168, FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“FAS 168”). The Codification will be 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. FAS 168 is effective for financial statements issued for periods ending after September 15, 2009. The adoption of FAS 168 will not have an impact on the Company’s financial position or results of operations. Upon adoption of FAS 168, references within financial statement disclosures will be modified to reference the Codification.

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

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 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 the quarter ended August 1, 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 $76.2 million as of August 1, 2009, including a decrease in the loss of $0.6 million recognized in the six months ended August 1, 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 August 1, 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 $0.4 million has been paid through August 1, 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 August 1, 2009, RVI had recorded a liability of approximately $2.5 million for the guarantees of Filene’s Basement commitments, primarily due to lease obligations related to leases not assumed by New Filene’s Basement. RVI has recognized an after-tax gain of $75.9 million on the transaction as of August 1, 2009. The $75.9 million gain on the disposition of Filene’s Basement is comprised of the write-off of the investment in Filene’s Basement partially offset by the recording of guarantees of $2.5 million, other transaction related expenses of $3.1 million, impairment charges of $1.8 million and income tax expenses of $2.3 million.

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. The interest on each note between Filene’s Basement and Retail Ventures accrues at 13% per annum. The notes and related interest receivable were fully reserved for during the quarter ended May 2, 2009.

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 $57.4 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 $0.5 million. Therefore, included in the consolidated results of operations of RVI for the six months ended August 1, 2009, is bad debt expense of $57.9 million related to the impairment of these items.

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

The following table presents the significant components of Filene’s Basement operating results included in discontinued operations. As previously discussed, on April 21, 2009, RVI disposed of its Filene’s Basement operations.

		Three months ended								Six months ended
		August 1,				August 2,				August 1,				August 2,
		2009				2008				2009				2008
		(in thousands)
Net sales						$	102,611			$	63,351			$	202,631
Loss before income taxes						$	(14,563	)		$	(31,195	)		$	(24,038	)
Income tax (provision) benefit							(65	)			(345	)			79
Gain on sale		$	22,708								75,918
Income(loss) from discontinued operations, net of tax — Filene’s Basement		$	22,708			$	(14,628	)		$	44,378			$	(23,959	)

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
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.

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

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 six months ended August 1, 2009 and August 2, 2008, included in income from continuing operations is stock based compensation expense of approximately $4.2 million and $3.2 million, respectively, which includes approximately $2.9 million and $2.0 million, respectively, of expenses recorded by DSW, before accounting for the noncontrolling interests.

The following tables summarize the activity of the Company’s stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) for the six months ended August 1, 2009 (in thousands):

Six months ended August 1, 2009		Stock Options				SARs				RSUs
Outstanding beginning of period			1,247				395				12
Granted			25
Exercised			(254	)							(6	)
Forfeited			(200	)			(164	)
Outstanding end of period			818				231				6
Exercisable end of period			768				209

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.

		Six months ended
		August 1, 2009				August 2, 2008
Assumptions:
Risk-free interest rate			1.9	%			2.8	%
Expected volatility of Retail Ventures common shares			83.3	%			55.9	%
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 three months ended August 1, 2009 and August 2, 2008 was $1.96 per share and $2.71 per share, respectively, and for the six months ended August 1, 2009 and August 2, 2009 was $1.77 per share and $3.31 per share, respectively.

Stock Appreciation Rights

Expense of $0.7 million and $0.6 million was recorded in continuing operations during the six months ended August 1, 2009 and August 2, 2008, respectively, relating to SARs.

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

Restricted Stock Units

The Company’s continuing operations recorded a reduction of compensation expense of less than $0.1 million and compensation expense of $0.1 million related to the restricted stock units in the six months ended August 1, 2009 and August 2, 2008, respectively. The amount of restricted stock units accrued at both August 1, 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.

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. DSW stock options, RSUs and director stock units are not included in the number of shares used in the basic or dilutive calculation of earnings per share of Retail Ventures. During the six months ended August 1, 2009 and August 2, 2008, DSW recorded stock based compensation expense of approximately $2.9 million and $2.0 million, respectively.

The following tables summarize the activity of DSW’s stock options and RSUs for the six months ended August 1, 2009 (in thousands):

		Stock Options				RSUs
Outstanding beginning of period			2,125				226
Granted			934				177
Exercised							(73	)
Forfeited			(304	)			(58	)
Outstanding end of period			2,755				272
Exercisable end of period			895

Stock Options

The weighted-average grant date fair value of each option granted in the three months ended August 1, 2009 and August 2, 2008 was $6.42 and $6.10 per share, respectively, and for the six months ended August 1, 2009 and August 2, 2009 was $5.07 per share and $5.88 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:

		Six months ended
		August 1, 2009				August 2, 2008
Assumptions:
Risk-free interest rate			1.9	%			2.7	%
Expected volatility of DSW common shares			57.6	%			48.1	%
Expected option term		4.9 years				4.9 years
Expected dividend yield			0.0	%			0.0	%

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

Restricted Stock Units

The total aggregate intrinsic value of nonvested restricted stock units at August 1, 2009 was $3.7 million. As of August 1, 2009, the total compensation cost related to nonvested restricted stock units not yet recognized was approximately $2.7 million with a weighted average expense recognition period remaining of 2.0 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 six months ended August 1, 2009 and August 2, 2008, DSW granted 45,130 and 41,229 director stock units, respectively, and expensed $0.6 million in each respective three and six month period for these grants. As of August 1, 2009, 128,331 director stock units had been issued and no director stock units had been settled.

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 August 1, 2009, the Company had held-to-maturity investments of $5.2 million in tax exempt term notes that will mature in the third quarter of fiscal 2009. 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 August 1, 2009 and January 31, 2009 include tax exempt, tax advantaged and taxable bonds, variable rate demand notes, tax exempt commercial paper, certificates of deposit and an auction rate security. 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 91 days. The other types of short-term investments generally have interest reset dates of every 3 to 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.

For the six months ended August 1, 2009, the Company recorded a net temporary impairment of less than $0.1 million related to its auction rate security. In the second quarter of fiscal 2009, the Company recorded an unrealized gain of $0.2 million related to this security. The net impairment recorded during the six months ended August 1, 2009 is in addition to temporary impairments of $0.7 million recorded in fiscal 2008 related to this security. The Company believes the impairment is temporary as the security is a perpetual preferred security that possesses certain debt-like characteristics and the Company believes it has the ability to hold the security until it can recover its value.

In the first quarter of fiscal 2009, the Company received preferred shares as distributions-in-kind on two of its auction rate securities. The Company sold these preferred shares during the second quarter of fiscal 2009 for a realized gain of $0.5 million, excluding the other-than-temporary impairments recorded in fiscal 2008 and the first quarter of fiscal 2009.

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

The following table discloses the major categories of the Company’s investments as of August 1, 2009 and January 31, 2009:

		Short-term								Long-term
		investments, net								investments, net
		August 1,				Jan. 31,				August 1,				Jan. 31,
		2009				2009				2009				2009
		(in thousands)
Available for sale:
Tax exempt, tax advantaged and taxable bonds		$	106,186			$	65,829
Variable rate demand notes			13,555				16,580
Tax exempt commercial paper							2,000
Certificates of deposit			13,000				14,000
Auction rate securities			2,500				3,650							$	2,400
Other-than-temporary impairment															(1,134	)
Unrealized losses included in accumulated other comprehensive loss			(729	)			(655	)
Total available for sale		$	134,512			$	101,404							$	1,266
Held-to-maturity:
Tax exempt term notes		$	5,175
Total investments		$	139,687			$	101,404							$	1,266

7.

LONG-TERM OBLIGATIONS AND WARRANT LIABILITIES

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

		August 1,				January 31,
		2009				2009
Credit facilities:
Senior Loan Agreement — related parties						$	250
Premium Income Exchangeable Securities (“PIES”)		$	133,750				133,750
Discount on PIES			(5,107	)			(6,174	)
			128,643				127,826
Less: current maturities							(250	)
Total long term obligations of continuing operations		$	128,643			$	127,576
Letters of credit outstanding under DSW revolving credit facility		$	20,228			$	17,709
Availability under DSW revolving credit facility		$	129,772			$	132,291

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

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 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 the 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 August 1, 2009 and January 31, 2009, there were no outstanding borrowings and there was availability under the facility of $129.8 million and $132.3 million, respectively. DSW had outstanding letters of credit of $20.2 million and $17.7 million, respectively, as of August 1, 2009 and January 31, 2009.

Deferred Rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the initial lease terms. For these leases, the Company recognizes the related rental expense on a straight-line basis and 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 amounts of deferred rent included in the other non-current liabilities caption, excluding discontinued operations, were $34.2 million and $33.5 million at August 1, 2009 and January 31, 2009, respectively.

Tenant and Construction 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. The unamortized allowances included in the other non-current liabilities caption, excluding discontinued operations, were $62.1 million and $63.7 million at August 1, 2009 and January 31, 2009, respectively.

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 August 1, 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. FAS 133 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 August 1, 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.

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

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 FAS 157 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 August 1, 2009, the discount on the PIES has a remaining amortization period of 2.1 years. The amount of interest expense recognized and the effective interest rate for the PIES were as follows:

		Six Months Ended
		August 1, 2009				August 2, 2008
		(in thousands)
Contractual interest expense		$	4,709			$	4,788
Amortization of debt discount		$	1,067			$	1,151
Total interest expense		$	5,776			$	5,939
Effective interest rate			8.6	%			8.6	%

During the three and six months ended August 1, 2009, the Company recorded a charge of $7.8 million and $9.2 million, respectively, related to the change in fair value of the conversion feature of the PIES. During the three and six months ended August 2, 2008, the Company recorded a reduction of expenses of $8.0 million and $26.8 million, respectively, related to the change in fair value of the conversion feature of the PIES. As of August 1, 2009 and January 31, 2009, the fair value asset recorded for the conversion feature was $68.6 million and $77.8 million, respectively.

The fair value of the conversion feature of the PIES at August 1, 2009 and January 31, 2009 was estimated using the Black-Scholes Pricing Model with the following assumptions:

		August 1, 2009				January 31, 2009
Assumptions:
Risk-free interest rate			1.9	%			3.0	%
Expected volatility of common shares			71.5	%			58.0	%
Expected option term		2.1 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 the quarter ended August 1, 2009.

The Company adopted EITF No. 07-5 during the quarter ended May 2, 2009. The adoption of EITF No. 07-5 resulted in the redesignation and reclassification of the VCHI Warrants from Equity to Liabilities 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. A charge of $0.1 million was recorded in other comprehensive income as of February 1, 2009, the date of adoption, which represented the change in fair value of the VCHI Warrants from the date of issuance to the date of adoption of EITF No. 07-5. During the three and six months ended August 1, 2009, the Company recorded an immaterial charge related to the change in fair value of the VCHI warrants.

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

Term Loan Warrants and Conversion Warrants

As of August 1, 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 on the Non-Convertible Loan along with the related accrued interest. The Term Loan Warrants expire on June 11, 2012.

For the three and six months ended August 1, 2009, the Company recorded a charge for the change in the fair value of the Warrants of $0.8 million and $0.9 million, respectively, of which the portion held by related parties was a reduction of expenses of less than $0.1 million and $0.6 million respectively. For the three and six months ended August 2, 2008, the Company recorded a reduction of expenses for the change in the fair value of the Warrants of $8.7 million and $27.1 million, respectively, of which the portion held by related parties was a reduction of expenses of $7.3 million and $22.5 million, respectively. No tax benefit has been recognized in connection with these charges. These derivative instruments do not qualify for hedge accounting under FAS 133 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 FAS 133 and FAS 157, 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 $7.2 million, of which the portion held by related parties was $3.4 million at August 1, 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.

The values ascribed to the Term Loan Warrants were estimated as of August 1, 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.

										Conversion
		Term Loan Warrants								Warrants
		August 1, 2009				January 31, 2009				January 31, 2009
Assumptions:
Risk-free interest rate			1.6	%			1.3	%			0.3	%
Expected volatility of common shares			106.5	%			95.9	%			114.3	%
Expected option term		2.9 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):

				August 1,				January 31,
		Balance Sheet Location		2009				2009
Warrants		Warrant liability		$	(7,184	)		$	(6,292	)
Conversion feature of long-term debt		Conversion feature of long-term debt			68,568				77,761
Total				$	61,384			$	71,469

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

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

		Three Months Ended								Six Months Ended
		August 1, 2009				August 2, 2008				August 1, 2009				August 2, 2008
Warrants		$	(840	)		$	8,740			$	(884	)		$	27,116
Conversion feature of long-term debt			(7,849	)			7,993				(9,193	)			26,785
(Expense) income related to the change in fair value of derivative instruments		$	(8,689	)		$	16,733			$	(10,077	)		$	53,901

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.

Financial assets and liabilities measured at fair value on a recurring basis as of August 1, 2009 consisted of the following:

		Balance at
		August 1, 2009				Level 1				Level 2				Level 3
		(in thousands)
Assets:
Cash and equivalents		$	58,972			$	58,972
Short-term investments			139,687							$	137,916			$	1,771
Conversion feature of long-term debt			68,568								68,568
		$	267,227			$	58,972			$	206,484			$	1,771
Liabilities:
Warrant liabilities		$	7,184							$	7,184
		$	7,184							$	7,184

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.

See Note 6 for fair value disclosures regarding investments and Note 7 for fair value disclosure regarding long-term obligations.

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

The activity related to level 3 investments for the six months ended August 1, 2009 is summarized below:

		Short-term				Long-term
		investments,				investments,
		net				net
Carrying value as of January 31, 2009		$	1,845			$	1,266
Transfer out of Level 3							(1,266	)
Unrealized losses included in accumulated other comprehensive loss			(74	)
Carrying value as of August 1, 2009		$	1,771			$

Non-financial assets and liabilities measured at fair value on a nonrecurring basis as of August 1, 2009 consisted of the following:

		Balance at
		August 1, 2009				Level 1				Level 2				Level 3
		(in thousands)
Assets:
Long-lived assets to be held and used		$	398											$	398
		$	398											$	398

Long-lived assets to be held and used with a carrying amount of $2.0 million were written down to their fair value of $0.4 million, resulting in an impairment charge of $1.6 million, which was included in earnings for the six months ended August 1, 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 is considered impaired when the carrying value of the asset exceeds the expected future cash flows from the asset. The Company reviews are conducted at the lowest identifiable level, which include a store. The impairment loss recognized is the excess of the carrying value of the asset 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 cost of sales. 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 first two quarters of fiscal 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 was included within noncurrent liabilities held for sale. The following table shows the components of net periodic cost of the Pension Plan (in thousands):

		Three months ended								Six months ended
		August 1, 2009				August 2, 2008				August 1, 2009				August 2, 2008
Interest cost			243				233				487				467
Expected return on plan assets			(189	)			(280	)			(378	)			(562	)
Amortization of transition asset			(10	)			(10	)			(19	)			(19	)
Amortization of net loss			142				110				285				221
Net periodic cost			186				53				375				107

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 numerator for the diluted earnings (loss) per share calculation is the net income (loss). The denominator is the weighted average number of shares outstanding.

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

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								Six months ended
		August 1, 2009				August 2, 2008				August 1, 2009				August 2, 2008
Weighted average shares outstanding			48,934				48,675				48,813				48,657
Assumed exercise of dilutive SARs							1								13
Assumed exercise of dilutive stock options							154								212
Assumed exercise of dilutive Term Loan Warrants							48								490
Assumed exercise of dilutive Conversion Warrants							92								924
Number of shares for computations of dilutive earnings per share			48,934				48,970				48,813				50,296

The amount of securities outstanding at August 1, 2009 and August 2, 2008 that were not included in the computation of dilutive earnings per share because the equity unit’s exercise price was greater than the average market price of the common shares for the period and, therefore, the effect would be anti-dilutive, was as follows (in thousands):

		August 1, 2009				August 2, 2008
SARs			231				364
Stock options			759				369
VCHI Warrants							150
Term Loan Warrants			3,684
Total of all potentially dilutive instruments			4,674				883

11.

TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS

The balance sheet caption “Accumulated Other Comprehensive Loss” was $7.3 million and $0.7 million at August 1, 2009 and January 31, 2009, respectively. At August 1, 2009 $6.7 million of the Accumulated Other Comprehensive Loss related to the Pension Plan and $0.6 million related to the unrealized loss on available-for-sale securities, net of income tax. At January 31, 2009, the Accumulated Other Comprehensive Loss primarily related to the unrealized loss on available-for-sale securities, net of income tax. For the six months ended August 1, 2009 the comprehensive loss was $11.5 million. For the six months ended August 2, 2008 the comprehensive income was $54.5 million.

12.

INCOME TAXES

Effective February 4, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). 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. The valuation allowance as of August 1, 2009 and January 31, 2009 was $50.1 million and $50.7 million, respectively. Based on available data, the Company believes it is more likely than not that the remaining deferred tax assets will be realized.

The tax rate of negative 4.5% for the six month period ended August 1, 2009 reflects the impact of the change in fair value of warrants, included in book income but not tax income and a reduction in valuation allowance of $0.6 million on federal and state deferred tax assets.

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

The Company is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for the fiscal years prior to 2000. The Company is currently under audit by the IRS for 2005, and there are several state audits and appeals ongoing for fiscal years from 2000 through 2006. The Company estimates the range of possible changes that may result from the examinations to be insignificant at this time.

Consistent with its historical financial reporting, the Company has elected to classify interest expense related to income tax liabilities, when applicable, as part of the interest expense in its condensed consolidated statement of income rather than income tax expense. The Company will continue to classify income tax penalties as part of operating expenses in its condensed consolidated statements of income. $1.2 million and $1.1 million was accrued for the payment of interest and penalties at August 1, 2009 and January 31, 2009, respectively.

13.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

A supplemental schedule of cash flow information is presented below (in thousands):

		Six months ended
		August 1, 2009				August 2, 2008
Cash paid during the period for:
Interest		$	4,762			$	4,762
Income taxes		$	7,323			$	13,096
Noncash activities:
Decrease in accounts payable and accrued expenses from asset purchases		$	(1,840	)		$	(6,295	)