UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 30, 2010

OR

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

For the transition period from                      to                     

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

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 (§232.405 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 29, 2010 was 50,254,551.

 

 

RETAIL VENTURES, INC.
TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at October 30, 2010 and January 30, 2010			2
Condensed Consolidated Statements of Operations for the three and nine months ended October 30, 2010 and October 31, 2009			4
Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended October 30, 2010 and October 31, 2009			5
Condensed Consolidated Statements of Cash Flows for the nine months ended October 30, 2010 and October 31, 2009			6
Notes to the Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			40
Part II. Other Information
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			43
Item 4. (Removed and Reserved)			43
Item 5. Other Information			43
Item 6. Exhibits			43
Signature			44
Index to Exhibits			45
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

RETAIL VENTURES, INC.

		October 30,				January 30,
		2010				2010
ASSETS
Cash and equivalents		$	113,927			$	141,773
Short-term investments			206,065				164,265
Accounts receivable, net			11,592				6,509
Accounts receivable from related parties, net			39				154
Inventories			332,446				262,284
Prepaid expenses and other current assets			30,218				22,478
Deferred income taxes			34,571				29,560
Total current assets			728,858				627,023
Long-term investments, net			11,767				1,151
Property and equipment, net			208,804				208,813
Goodwill			25,899				25,899
Conversion feature of long-term debt							28,029
Deferred income taxes			14,191				5,657
Other assets			10,224				6,893
Total assets		$	999,743			$	903,465

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 30,				January 30,
		2010				2010
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	138,846			$	120,038
Accounts payable to related parties			1,087				1,239
Accrued expenses:
Compensation			23,264				27,056
Taxes			19,138				29,682
Gift cards and merchandise credits			16,293				17,774
Guarantees from discontinued operations			463				2,800
Other			51,560				36,162
Current maturities of long-term obligations			131,519
Warrant liability			34,328				23,068
Conversion feature of short-term debt			6,553
Total current liabilities			423,051				257,819
Long-term obligations							129,757
Other noncurrent liabilities			100,013				112,599
Deferred income taxes			14,157
Commitments and contingencies
Shareholders’ equity:
Common shares, without par value; 160,000,000 authorized; issued and outstanding, including 7,551 treasury shares, 49,047,530 and 48,964,530, respectively			313,864				313,147
Accumulated deficit			(79,272	)			(100,277	)
Treasury shares, at cost, 7,551 shares			(59	)			(59	)
Accumulated other comprehensive loss			(6,942	)			(6,942	)
Total Retail Ventures’ shareholders’ equity			227,591				205,869
Noncontrolling interests			234,931				197,421
Total shareholders’ equity			462,522				403,290
Total liabilities and shareholders’ equity		$	999,743			$	903,465

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

RETAIL VENTURES, INC.

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Net sales		$	489,269			$	444,621			$	1,353,926			$	1,199,957
Cost of sales (exclusive of depreciation included below in selling, general and administrative expenses)			(268,485	)			(238,549	)			(737,626	)			(666,416	)
Selling, general and administrative expenses			(171,883	)			(164,862	)			(479,947	)			(531,140	)
Change in fair value of derivative instruments			(31,681	)			(30,701	)			(45,843	)			(40,778	)
Operating profit (loss)			17,220				10,509				90,510				(38,377	)
Interest expense			(3,335	)			(3,236	)			(10,032	)			(9,678	)
Interest income			1,258				626				2,671				1,891
Interest expense, net			(2,077	)			(2,610	)			(7,361	)			(7,787	)
Non-operating income (expense), net			1,500				(754	)			1,500				(621	)
Income (loss) from continuing operations before income taxes			16,643				7,145				84,649				(46,785	)
Income tax expense			(8,726	)			(11,079	)			(38,532	)			(13,507	)
Income (loss) from continuing operations			7,917				(3,934	)			46,117				(60,292	)
Income (loss) from discontinued operations, net of tax — Value City			2,187				(498	)			2,152				83
Income from discontinued operations, net of tax — Filene’s Basement			4				203				3,009				44,581
Total income (loss) from discontinued operations, net of tax			2,191				(295	)			5,161				44,664
Net income (loss)			10,108				(4,229	)			51,278				(15,628	)
Less: net income attributable to the noncontrolling interests			(13,428	)			(9,900	)			(33,642	)			(15,359	)
Net (loss) income attributable to Retail Ventures, Inc.		$	(3,320	)		$	(14,129	)		$	17,636			$	(30,987	)
Basic and diluted (loss) earnings per share:
Basic (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.11	)		$	(0.28	)		$	0.25			$	(1.55	)
Diluted (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.11	)		$	(0.28	)		$	0.25			$	(1.55	)
Basic earnings (loss) per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	0.04			$	(0.01	)		$	0.11			$	0.91
Diluted earnings (loss) per share from discontinued operations attributable to Retail Ventures, Inc. common shareholders		$	0.04			$	(0.01	)		$	0.10			$	0.91
Basic (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders		$	(0.07	)		$	(0.29	)		$	0.36			$	(0.63	)
Diluted (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders		$	(0.07	)		$	(0.29	)		$	0.36			$	(0.63	)
Shares used in per share calculations:
Basic			49,037				48,938				49,028				48,855
Diluted			49,037				48,938				49,315				48,855
Amounts attributable to Retail Ventures, Inc. common shareholders:
(Loss) income from continuing operations, net of tax		$	(5,511	)		$	(13,834	)		$	12,475			$	(75,651	)
Discontinued operations, net of tax			2,191				(295	)			5,161				44,664
Net (loss) income		$	(3,320	)		$	(14,129	)		$	17,636			$	(30,987	)

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												Accum-
														Earnings												ulated
						Common								(Accum-												Other				Non-
		Common				Shares in				Common				ulated				Treasury								Comprehen-				controlling
		Shares				Treasury				Shares				Deficit)				Shares				Warrants				sive Loss				Interests				Total
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
Balance, January 30, 2010			48,964				8			$	313,147			$	(100,277	)		$	(59	)		$				$	(6,942	)		$	197,421			$	403,290
Net income from continuing operations															12,475																33,642				46,117
Net income from discontinued operations															5,161																				5,161
Total comprehensive income																																		$	51,278
Capital transactions of subsidiary															3,369																3,868				7,237
Stock based compensation expense, before related tax effects											218																								218
Net issuance of restricted shares			70								414																								414
Exercise of stock options			13								85																								85
Balance, October 30, 2010			49,047				8			$	313,864			$	(79,272	)		$	(59	)		$				$	(6,942	)		$	234,931			$	462,522

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

RETAIL VENTURES, INC.

		Nine months ended
		October 30,				October 31,
		2010				2009
Cash from operating activities:
Net income (loss)		$	51,278			$	(15,628	)
Less: income from discontinued operations, net of tax			(5,161	)			(44,664	)
Income (loss) before discontinued operations			46,117				(60,292	)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt issuance costs and discount on debt			2,795				2,630
Stock based compensation expense			218				949
Restricted shares granted			414
Capital transactions of subsidiary			3,369				1,987
Depreciation and amortization			34,823				34,782
Change in fair value of derivative instruments			45,843				40,778
Deferred income taxes and other non current liabilities			(13,607	)			(28,053	)
Loss on disposal of long-lived assets			805				387
Impairment charges on long-lived assets							481
Impairment charges on receivables from Filene’s Basement							57,897
Non-operating expense							621
Other			5,525				3,274
Change in working capital, assets and liabilities:
Accounts receivable			(4,968	)			2,403
Inventories			(70,162	)			(45,387	)
Prepaid expenses and other current assets			(11,809	)			2,951
Accounts payable			18,221				47,703
Proceeds from construction and tenant allowances			1,633				6,680
Accrued expenses			(5,098	)			31,244
Net cash provided by operating activities from continuing operations			54,119				101,035
Cash flows from investing activities:
Cash paid for property and equipment			(32,182	)			(18,671	)
Purchases of available-for-sale investments			(24,918	)			(161,147	)
Purchases of held-to-maturity investments			(147,348	)			(12,105	)
Maturities and sales of available-for-sale investments			68,145				101,106
Maturities and sales of held-to-maturity investments			49,876				3,675
Return of capital from equity investment — related party			199
Purchase of tradename			(225	)
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			(86,453	)			(86,881	)

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 30,				October 31,
		2010				2009
Cash flows from financing activities:
Debt issuance costs			(758	)
Proceeds from exercise of stock options			85				511
Payment of current maturities on long-term obligations							(250	)
Net cash (used in) provided by financing activities from continuing operations			(673	)			261
Cash and equivalents from discontinued operations:
Operating activities			5,161				20,563
Investing activities							(158	)
Financing activities							(25,181	)
Net increase (decrease) in cash and equivalents from discontinued operations			5,161				(4,776	)
Net (decrease) increase in cash and equivalents from continuing operations		$	(33,007	)		$	14,415
Cash and equivalents, beginning of period			141,773				99,084
Cash and equivalents, end of period		$	113,927			$	108,723

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

RETAIL VENTURES, INC.

(unaudited)

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 (“NYSE”) under the ticker symbol “RVI”. The Company operates two segments in the United States of America (“United States”) as of October 30, 2010. DSW Inc. (“DSW”) is a specialty branded footwear retailer. The Corporate segment consists of all corporate assets, liabilities and expenses that are not attributable to the DSW segment. As of October 30, 2010, there were 313 DSW stores located throughout the United States. DSW also supplies shoes, under supply arrangements, for 351 locations for other retailers in the United States.

DSW. On July 5, 2005, DSW completed an initial public offering (“IPO”) of 16,171,875 Class A Common Shares sold at a price of $19.00 per share and raised net proceeds of $285.8 million, net of the underwriters’ commission and before expenses of approximately $7.8 million. As of October 30, 2010, Retail Ventures owned Class B Common Shares of DSW representing approximately 62.2% of DSW’s outstanding Common Shares and approximately 92.9% of the combined voting power of such shares. RVI accounted for the sale of DSW as a capital transaction. Associated with this transaction, a deferred tax liability of $65.5 million was recorded. DSW is a controlled subsidiary of Retail Ventures and its Class A Common Shares are listed on the NYSE under the ticker symbol “DSW”.

DSW is a leading U.S. branded footwear specialty retailer operating 313 shoe stores in 39 states as of October 30, 2010. DSW offers a wide assortment of better-branded dress, casual and athletic footwear for women and men, as well as accessories through DSW stores and dsw.com. As of October 30, 2010, DSW, pursuant to supply agreements, operated 261 leased shoe departments for Stein Mart, Inc., 68 for Gordmans, Inc., 21 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 30, 2010, DSW opened nine new DSW stores and three new leased departments, ceased operations in two DSW stores and seven leased departments and recategorized one combination DSW/Filene’s Basement store as a DSW store.

Corporate. The Corporate segment represents the corporate assets, liabilities and expenses not allocated to the DSW 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/A for the fiscal year ended January 30, 2010, as filed with the Securities and Exchange Commission (the “SEC”) on October 12, 2010 (the “2009 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 credit 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 30, 2010 and January 30, 2010, the Company’s allowance for doubtful accounts were $2.6 million and $5.3 million, respectively. The decrease in the allowance was primarily related to the reversal of allowances recorded for receivables from liquidating Filene’s Basement due to an initial distribution from the debtor’s estates.

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 receivable 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 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.

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

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.

A reduction to inventories is charged to cost of sales for shrinkage. Shrinkage is calculated as a percentage of sales from the last physical inventory date. Estimates are based on both historical experience as well as recent physical inventory results. Physical inventory counts are taken on an annual basis and have supported the Company’s shrinkage estimates.

Markdowns represent the excess of the carrying value over the amount the Company expects to realize from the ultimate disposition of the inventory. Factors considered in the determination of markdowns include customer preference and fashion trends. Changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.

Tradenames and Other Intangible Assets, Net — Tradenames and other intangible assets, net are primarily comprised of values assigned to tradenames and leases. As of October 30, 2010 and January 30, 2010, the gross balance of tradenames was $13.0 million and $12.8 million, respectively. During the nine months ended October 30, 2010, DSW purchased a merchandise tradename for the amount of $0.2 million, amortizable over five years and an indefinite lived tradename for less than $0.1 million. As of both October 30, 2010 and January 30, 2010, the gross balance of other intangible assets was $0.1 million. Accumulated amortization for tradenames was $10.6 million and $10.0 million as of October 30, 2010 and January 30, 2010, respectively. Accumulated amortization for other intangible assets was $0.1 million as of both October 30, 2010 and January 30, 2010. The average useful lives of tradenames and other intangible assets, net are 14 and 15 years as of October 30, 2010 and January 30, 2010, respectively.

Amortization expense for the nine months ended October 30, 2010 was $0.7 million, and $0.2 million will be amortized during the remainder of fiscal 2010. Amortization expense associated with the net carrying amount of intangible assets as of October 30, 2010 is $0.9 million for both fiscal 2011 and fiscal 2012, $0.3 million in fiscal 2013 and less than $0.1 million in fiscal 2014.

Customer Loyalty Program — DSW 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 six months after being issued. DSW 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 30, 2010 and January 30, 2010 was $11.9 million and $9.0 million, respectively.

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 terms of the lease. The Company records the difference between the amounts 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 noncurrent liabilities was $34.3 million and $34.4 million as of October 30, 2010 and January 30, 2010, respectively.

Construction and Tenant Allowances — DSW 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 are included in noncurrent liabilities and were $57.4 million and $59.7 million as of October 30, 2010 and January 30, 2010, respectively.

Noncontrolling Interests — During both the three and nine months ended October 30, 2010 and October 31, 2009, there was an immaterial impact to the net income (loss) attributable to Retail Ventures, Inc. as a result of the additional DSW common shares outstanding from DSW director stock unit grants of 432 and 765 made during each respective three month period and 31,130 and 45,895 made during each respective nine month period.

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

Sales and Revenue Recognition — Revenues from merchandise sales are recognized upon customer receipt of merchandise, are net of returns through period end 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 other operating income from gift card breakage during both of the three months ended October 30, 2010 and October 31, 2009. The Company recognized $0.6 million as other operating income from gift card breakage during both of the nine months ended October 30, 2010 and October 31, 2009.

Cost of Sales — Cost of sales includes the cost of merchandise, markdowns, and inventory shrinkage. Cost of merchandise includes related inbound freight to our distribution centers, duties, commissions and outbound freight from the distribution centers to our stores and outbound freight of e-commerce sales. The classification of these expenses vary across the retail industry, thus our gross margin rates may not be comparable to those of other retailers that include warehousing and outbound distribution and transportation costs in cost of sales.

Selling, General and Administrative Expenses — Selling, general and administrative expenses include, and consist primarily of, store, warehousing, distribution and corporate payrolls and benefit costs, occupancy costs which include retail stores, warehousing and corporate rent costs, facility and leasehold improvement depreciation and utility costs, advertising, repair and maintenance, insurance, equipment depreciation, professional fees and other miscellaneous expenses.

Non-operating Income, Net — Non-operating income, net includes other-than-temporary impairments related to investments and realized gains on disposition of investments.

Income Taxes — Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes arise from temporary differences between the tax basis 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.

3.

ADOPTION OF ACCOUNTING STANDARDS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification (“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 did 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 did not impact the Company’s consolidated financial statements.

In January 2010, the FASB issued updates to existing guidance related to fair value measurements. As a result of these updates, entities will be required to provide enhanced disclosures about transfers into and out of level 1 and level 2 classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the level 3 classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the detailed level 3 disclosures, the new standard was effective for the Company for the first quarter of fiscal 2010. The requirement related to level 3 fair value measurements is effective for the Company for interim and annual reporting periods beginning after January 29, 2011. The adoption of the effective portions of this new standard did not have a material impact to its consolidated financial statements and the Company does not expect a material impact to its consolidated financial statements related to the level 3 fair value disclosures.

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

4.

DISCONTINUED OPERATIONS

Value City

On January 23, 2008, Retail Ventures disposed of an 81% ownership interest in its Value City operations 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 and paid a fee of $0.5 million to the purchaser. Retail Ventures recognized an aggregate after-tax loss related to the Value City disposition of $65.1 million as of October 30, 2010.

Filene’s Basement

On April 21, 2009, Retail Ventures disposed of Filene’s Basement, Inc. and certain related entities to FB II Acquisition Corp., a newly formed entity owned by Buxbaum Holdings, Inc. (“Buxbaum”). RVI did not realize any cash proceeds from this transaction and agreed to pay a fee of $1.3 million to Buxbaum, which has been paid, 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 30, 2010, RVI had recorded a liability of $0.2 million under lease obligations related to leases not assumed by New Filene’s Basement. RVI has recognized an after-tax gain of $84.9 million on the transaction as of October 30, 2010. The $84.9 million gain on the disposition of Filene’s Basement is comprised of the following (in thousands):

Total Investment in Filene’s Basement as of April 21, 2009		$	(90,026	)
Disposition Costs:
Selling costs to dispose of Filene’s Basement			5,848
Outstanding guarantees			400
Impairment of fixed assets not sold			1,666
Total Disposition Costs			7,914
Pre-tax gain on disposition of Filene’s Basement			(82,112	)
Less tax effect			(2,805	)
After tax gain on disposition of Filene’s Basement		$	(84,917	)

In accordance with ASC 205-20, Discontinued Operations, changes in the carrying value of assets with residual interest in the discontinued business should be classified within continuing operations. The other accounts receivable from Filene’s Basement existed prior to the disposition of Filene’s Basement and the notes receivable and related interest receivable from Filene’s Basement were not forgiven pursuant to the disposition transaction, but as a result of the May 4, 2009, Filene’s Basement filing for bankruptcy after the disposition transaction. Therefore, the Company recorded bad debt expense in the amount of $57.3 million for the notes receivable, related interest receivable and other accounts receivable from Filene’s Basement in selling, general and administrative expenses within continuing operations. 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. On March 3, 2010, an initial distribution from the debtor’s estates of $5.8 million to Retail Ventures and $0.2 million to DSW was made.

On May 4, 2009, Filene’s Basement Inc. 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. On September 25, 2009, RVI and DSW entered into a settlement agreement with liquidating Filene’s Basement and its related debtors and the Official Committee of Unsecured Creditors appointed in the Chapter 11 case for the debtors. On November 3, 2009, the settlement agreement was approved by the Bankruptcy Court for the District of Delaware. As a result of the court’s approval of the settlement agreement, RVI’s claims in respect of $52.6 million in notes receivable (comprised of two 13% Promissory Notes) from liquidating Filene’s Basement were released; RVI maintained the rights and obligations related to (and agreed to indemnify liquidating Filene’s Basement with regard to certain matters arising out of) the liquidating Filene’s Basement defined benefit pension plan (“the Pension Plan”); and liquidating Filene’s Basement and the creditors’ committee agreed to allow certain general unsecured claims for amounts owed to RVI and DSW. The parties also agreed to certain provisions affecting the proper allocation of proceeds paid to RVI or liquidating Filene’s Basement in connection with specified third party litigation and to certain provisions related to the debtors’ recovery from third parties that were the beneficiaries of letters of credit or hold collateral related to workers’ compensation claims. The settlement agreement also provides for certain mutual releases among the debtors, the creditors’ committee, RVI, DSW and other parties.

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 in each of the periods presented (in thousands):

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Net sales														$	63,351
Loss before income taxes														$	(31,195	)
Income tax expense															(345	)
Gain on sale		$	4			$	203			$	3,009				76,121
Income from discontinued operations, net of tax — Filene’s Basement		$	4			$	203			$	3,009			$	44,581

5.

STOCK BASED COMPENSATION

Retail Ventures Stock Compensation Plans

Retail Ventures has a 2000 Stock Incentive Plan (“the RVI Plan”) that provides for the issuance of stock options to purchase up to 13,000,000 common shares or the issuance of restricted stock to management, key employees of Retail Ventures and affiliates, consultants (as defined in the RVI Plan), and directors of Retail Ventures. Stock options generally vest 20% per year on a cumulative basis. Stock options granted under the RVI Plan remain exercisable for a period of ten years from the date of grant.

A stock option to purchase 2,500 common shares is automatically granted to each non-employee RVI director on the first NYSE trading day in each calendar quarter. The exercise price for each stock option is the fair market value of the common shares on the date of grant. All stock options become exercisable one year after the grant date and remain exercisable for a period of ten years from the grant date, subject to continuation of the option holders’ service as directors of Retail Ventures.

Retail Ventures had a 1991 Stock Option Plan. As of October 30, 2010, there were no outstanding options under this plan.

The following table summarizes the activity of RVI’s stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) (in thousands):

Nine months ended October 30, 2010		Stock Options				SARs				RSUs
Outstanding beginning of period			826				177				6
Granted			38
Exercised			(13	)							(6	)
Forfeited			(46	)			(4	)
Outstanding end of period			805				173
Exercisable end of period			755				165

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

Stock Options

Retail Ventures expensed $0.2 million for both the nine months ended October 30, 2010 and October 31, 2009, respectively, related to RVI stock options.

The following table illustrates the weighted-average assumptions used in the Black-Scholes option-pricing model for RVI stock options granted in each of the periods presented:

		Nine months ended
		October 30,				October 31,
		2010				2009
Assumptions:
Risk-free interest rate			2.2	%			2.1	%
Expected volatility of Retail Ventures common shares			87.6	%			84.6	%
Expected option term		4.9 years				5.0 years
Expected dividend yield			0.0	%			0.0	%

The weighted-average grant date fair value of RVI stock options granted in the nine months ended October 30, 2010 and October 31, 2009 was $6.78 per share and $1.94 per share, respectively. The total aggregate intrinsic value of nonvested RVI stock options as of October 30, 2010 was $0.2 million. As of October 30, 2010, the total compensation cost related to nonvested RVI stock options not yet recognized was approximately $0.1 million with a weighted-average expense recognition period remaining of 0.6 years.

Stock Appreciation Rights

Retail Ventures expensed less than $0.1 million and $0.7 million in continuing operations for the nine months ended October 30, 2010 and August 1, 2009, respectively, related to RVI SARs. As of October 30, 2010, the total compensation cost related to nonvested RVI SARS not yet recognized was less than $0.1 million with a weighted-average expense recognition period remaining of 1.4 years.

Restricted Stock Units

Retail Ventures expensed less than $0.1 million in continuing operations for both the nine months ended October 30, 2010 and October 31, 2009, related to RVI restricted stock units. The restricted stock units are settled only in cash in an amount equal to the fair market value of an equivalent number of RVI’s common shares on the date of vesting. Retail Ventures paid $0.1 million to settle vested RVI restricted stock units during the nine months ended October 30, 2010. There were no RVI restricted stock units accrued as of October 30, 2010 and there were less than $0.1 million RVI restricted stock units accrued at January 30, 2010.

Restricted Shares

Retail Ventures expensed $0.4 million in continuing operations for the nine months ended October 30, 2010 related to RVI restricted shares. There was no expense related to RVI restricted shares during the nine months ended October 31, 2009. Retail Ventures 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 RVI restricted shares generally upon continued employment with Retail Ventures with such restrictions generally expiring over one to three years. The market value of the RVI restricted shares at the date of grant is charged to expense on a straight-line basis over the period that the restrictions lapse. As of October 30, 2010, Retail Ventures had 70,000 restricted shares outstanding.

The total aggregate intrinsic value of nonvested RVI restricted shares at October 30, 2010 was $1.0 million. As of October 30, 2010, the total compensation cost related to nonvested RVI restricted shares not yet recognized was approximately $0.2 million with a weighted-average expense recognition period remaining of 0.3 years. The weighted-average exercise price for all RVI restricted shares is zero.

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

DSW Stock Compensation Plan

DSW has a 2005 Equity Incentive Plan (“the DSW Plan”) that provides for the issuance of equity awards to purchase up to 7.6 million DSW common shares. The DSW Plan covers stock options, restricted stock units and director stock units. Eligible recipients include key employees of DSW and affiliates, as well as directors of DSW. Stock options generally vest 20% per year on a cumulative basis. Stock options granted under the DSW Plan generally remain exercisable for a period of ten years from the date of grant. Prior to fiscal 2005, DSW did not have a stock option plan or any equity units outstanding.

The following tables summarize the activity of DSW’s stock options and restricted stock units (“RSUs”) (in thousands):

Nine months ended October 30, 2010		Stock Options				RSUs
Outstanding beginning of period			2,504				267
Granted			522				59
Exercised			(82	)			(39	)
Forfeited			(101	)			(11	)
Outstanding end of period			2,843				276
Exercisable end of period			1,187

Stock Options

Included in the consolidated statements of operations is expense of $3.5 million and $3.2 million for the nine months ended October 30, 2010 and October 31, 2009, respectively, related to DSW stock options.

The following table illustrates the weighted-average assumptions used in the Black-Scholes option-pricing model for DSW stock options granted in each of the periods presented:

		Nine months ended
		October 30,				October 31,
		2010				2009
Assumptions:
Risk-free interest rate			2.5	%			1.9	%
Expected volatility of DSW common shares			56.9	%			57.6	%
Expected option term		4.9 years				4.9 years
Expected dividend yield			0.0	%			0.0	%

The weighted-average grant date fair value of DSW stock options granted in the nine months ended October 30, 2010 and October 31, 2009 was $13.40 per share and $5.10 per share, respectively. The total aggregate intrinsic value of nonvested DSW stock options as of October 30, 2010 was $25.5 million. As of October 30, 2010, the total compensation cost related to nonvested DSW stock options not yet recognized was approximately $9.0 million with a weighted average expense recognition period remaining of 3.5 years.

Restricted Stock Units

Included in the consolidated statements of operations is expense of $0.7 million and $1.0 million for the nine months ended October 30, 2010 and October 31, 2009, respectively, related to DSW restricted stock units. The total aggregate intrinsic value of nonvested DSW restricted stock units as of October 30, 2010 was $9.2 million. As of October 30, 2010, the total compensation cost related to nonvested DSW restricted stock units not yet recognized was approximately $1.9 million with a weighted-average expense recognition period remaining of 2.6 years. The weighted-average exercise price for all DSW restricted stock units is zero.

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

Director Stock Units

Included in the consolidated statements of operations is expense of $0.8 million and $0.6 million for the nine months ended October 30, 2010 and October 31, 2009, respectively, related to DSW director stock units. DSW issues stock units to directors who are not employees of DSW or RVI. During the nine months ended October 30, 2010 and October 31, 2009, DSW granted 31,130 and 45,895 director stock units, respectively. As of October 30, 2010, 160,835 DSW director stock units had been issued and no DSW director stock units had been settled.

6.

INVESTMENTS

DSW determines the balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. If DSW 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. Otherwise, investments are classified as available-for-sale. The majority of DSW’s short-term available-for-sale investments generally have renewal dates of every 7 days and longer stated maturities. Despite the long-term nature of the stated contractual maturities of these short-term investments, DSW has the ability to liquidate these securities shortly after the renewal dates. In addition to short-term investments, DSW has invested in certain longer term bonds to receive higher returns. These long-term investments have maturities greater than one year but generally shorter than two years and are classified as held-to-maturity. DSW also received a return of capital of $0.2 million related to its related party equity investment. During the third quarter of fiscal 2010, DSW sold its fully impaired auction rate security for a gain of $1.5 million.

The following table discloses the major categories of DSW’s investments (in thousands) as of the periods presented:

		Short-term investments								Long-term investments, net
		October 30,				January 30,				October 30,				January 30,
		2010				2010				2010				2010
Available-for-sale:
Tax exempt, tax advantaged and taxable bonds		$	99,822			$	124,107
Tax exempt commercial paper			4,000				8,100
Certificates of deposit							15,000
Total available-for-sale investments		$	103,822			$	147,207
Held-to-maturity:
Term notes		$	102,243			$	17,058
Bonds										$	10,815
Equity investment — related party											952			$	1,151
Total investments		$	206,065			$	164,265			$	11,767			$	1,151

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

7.

LONG-TERM OBLIGATIONS AND WARRANT LIABILITIES

Long-term obligations as of the periods presented consisted of the following (in thousands):

		October 30,				January 30,
		2010				2010
Credit facilities:
Current maturities of long-term obligations
Premium Income Exchangeable Securities (“PIES”)		$	133,750
Discount on PIES			(2,231	)
Total short-term obligations		$	131,519
Long-term debt net of current maturities
Premium Income Exchangeable Securities (“PIES”)						$	133,750
Discount on PIES							(3,993	)
Total long-term obligations						$	129,757
Availability to DSW under the revolving credit facility		$	87,107			$	132,560

DSW $100 Million Credit Facility

On June 30, 2010, DSW entered into a $100 million secured revolving credit facility (the “DSW Credit Facility”) with a term of four years that will expire on June 30, 2014. Under this facility, DSW and its subsidiary, DSW Shoe Warehouse, Inc. (“DSWSW”), are co-borrowers, with all other subsidiaries listed as guarantors. The DSW Credit Facility may be increased by up to $75 million upon DSW’s request and approval by increasing lenders and subject to customary conditions. The DSW Credit Facility provides for swing loans of up to $10 million and the issuance of letters of credit up to $50 million. The DSW Credit Facility is secured by a lien on substantially all of the personal property assets of DSW and its subsidiaries with certain exclusions and will be used to provide funds for general corporate purposes, to refinance existing letters of credit outstanding under DSW’s previous credit arrangement, to provide for the ongoing working capital requirements of DSW, and to make permitted acquisitions. Revolving credit loans bear interest under the DSW Credit Facility at DSW’s option under: (A) a base rate option at a rate per annum equal to the highest of (i) the Federal Funds Open Rate (as defined in the DSW Credit Facility), plus 0.5%, (ii) the Agent’s prime rate, and (iii) the Daily LIBOR Rate (as defined in the DSW Credit Facility) plus 1.0%, plus in each instance an applicable margin based upon DSW’s revolving credit availability; or (B) a LIBOR option at rates equal to the one, two, three, or six month LIBOR rates, plus an applicable margin based upon DSW’s revolving credit availability. Swing loans bear interest under the base rate option. DSW’s right to obtain advances under the DSW Credit Facility is limited by a borrowing base. In addition, the DSW Credit Facility contains usual and customary restrictive covenants relating to the management and the operation of DSW’s business. These covenants, among other things, limit or restrict DSW’s ability to grant liens on its assets, incur additional indebtedness, enter into transactions with affiliates, merge or consolidate with another entity, redeem its stock and pay cash dividends up to the aggregate amount of 50% of the previous year’s net income, for a maximum of $50.0 million.

As of October 30, 2010, DSW had no outstanding borrowings, had availability under the facility of $87.1 million and had outstanding letters of credit of $12.9 million. As of January 30, 2010 under its previous credit facility, DSW had no outstanding borrowings, had availability under the facility of $132.6 million and had outstanding letters of credit of $17.4 million. DSW is in compliance with the covenants under the DSW Credit Facility.

RVI’s net restricted assets as of October 30, 2010 and January 30, 2010 were $234.8 million and $197.4 million, respectively.

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

Derivative Instruments

In accordance with ASC 815, Derivatives and Hedging, the Company recognizes all derivatives on the balance sheet at fair value. For derivatives that are not designated as hedges under ASC 815, changes in the fair values are recognized in earnings in the period of change. There were no derivatives designated as hedges outstanding as of October 30, 2010 or January 30, 2010. The Company does not hold or issue derivative financial instruments for trading purposes. Retail Ventures estimates the fair values of derivatives based on the Black-Scholes model using current market information and records all derivatives on the balance sheet at fair value.

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

On August 10, 2006, Retail Ventures announced the pricing of its 6.625% Mandatorily Exchangeable Notes due September 15, 2011, or PIES, in the aggregate principal amount of $125,000,000. The closing of the transaction took place on August 16, 2006. On September 15, 2006, Retail Ventures closed on the exercise by the sole underwriter of its entire option to purchase an additional aggregate principal amount of $18,750,000 of PIES. The $143,750,000 PIES bear a coupon at an annual rate of 6.625% of the principal amount, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on December 15, 2006 and ending 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 $50.00 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 gross 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. As of October 30, 2010 the PIES have been reclassified to a current liability.

The embedded exchange feature of the PIES is accounted for as a derivative, which is recorded at fair value with changes in fair value 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 will be amortized into interest expense over the term of the PIES.

As of October 30, 2010, the discount on the PIES has a remaining amortization period of 0.9 years. The amount of interest expense recognized and the effective interest rate for the PIES were as follows (in thousands):

		Nine Months Ended
		October 30,				October 31,
		2010				2009
Contractual interest expense		$	7,143			$	7,090
Amortization of debt discount			1,762				1,618
Total interest expense		$	8,905			$	8,708
Effective interest rate			8.6	%			8.6	%

On October 10, 2008, Retail Ventures repurchased 200,000 units of PIES for an aggregate purchase price of $5.6 million, which resulted in a reduction of the long-term obligation of $10.0 million. Retail Ventures recorded a gain of $1.5 million on the repurchase which was included in non-operating income on the statements of operations.

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

During the three and nine months ended October 30, 2010, the Company recorded a non-cash charge of $23.5 million and $34.6 million, respectively, related to the change in fair value of the conversion feature of the PIES. 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. At October 30, 2010 the fair value current liability recorded for the conversion feature was $6.6 million. At January 30, 2010, the fair value asset recorded for the conversion feature was $28.0 million.

The fair value of the conversion feature of the PIES was estimated using the Black-Scholes option-pricing model with the following assumptions in each of the periods presented:

		October 30, 2010				January 30, 2010
Assumptions:
Risk-free interest rate			0.9	%			1.3	%
Expected volatility of common shares			48.1	%			70.9	%
Expected option term		0.9 years				1.6 years
Expected dividend yield			0.0	%			0.0	%

Warrants

The detached warrants with dual optionality issued in connection with previously paid credit facilities qualified as derivatives under ASC 815, Derivatives and Hedging. The fair values of the warrants have been recorded on the balance sheet within current liabilities. As of both October 30, 2010 and January 30, 2010, the Company had 3,683,959 outstanding warrants. The warrants outstanding as of October 30, 2010 expire on June 11, 2012.

During the three months and nine months ended October 30, 2010, the Company recorded a non-cash charge of $8.2 million and $11.3 million, respectively, related to the change in the fair value of the warrants, of which the portion held by related parties was a non-cash charge of $3.9 million and $5.3 million, respectively. During the three and nine months ended October 31, 2009, the Company recorded a non-cash charge of $9.1 million and $10.0 million, respectively, related to the change in the fair value of the warrants, of which the portion held by related parties was a non-cash charge of $4.3 million and $3.7 million, respectively. The fair value of the warrants was $34.3 million and $23.1 million at October 30, 2010 and January 30, 2010, respectively. The fair value of the warrants held by related parties at October 30, 2010 and January 30, 2010 was $16.1 million and $10.8 million, respectively.

Effective November 16, 2010, Retail Ventures, Inc issued 1,214,572 of its common shares, without par value, to Cerberus Partners, L.P. (“Cerberus”) in connection with Cerberus’ exercise of its outstanding term warrant that was originally issued by the Company on July 5, 2005. The warrant was exercised on a cashless exercise basis as permitted by the warrant, resulting in the issuance of 1,214,572 of the 1,731,460 shares for which the warrant could have been exercised (at an exercise price of $4.50 per share). In connection with this issuance, no payment was made to the Company, no underwriters were utilized and no commissions were paid.

The fair value of the warrants was estimated using the Black-Scholes option-pricing model with the following assumptions in each of the periods presented:

		October 30, 2010				January 30, 2010
Assumptions:
Risk-free interest rate			0.4	%			0.8	%
Expected volatility of common shares			61.3	%			123.0	%
Expected option term		1.6 years				2.4 years
Expected dividend yield			0.0	%			0.0	%

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

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

				October 30,				January 30,
		Balance Sheet Location		2010				2010
Warrants		Warrant liability		$	(34,328	)		$	(23,068	)
Conversion feature of short-term debt		Conversion feature of short-term debt			(6,553	)
Conversion feature of long-term debt		Conversion feature of long-term debt							28,029
Total				$	(40,881	)		$	4,961

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 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Warrants		$	(8,209	)		$	(9,076	)		$	(11,260	)		$	(9,960	)
Conversion feature of long-term debt			(23,472	)			(21,625	)			(34,583	)			(30,818	)
Expense related to the change in fair value of derivative instruments		$	(31,681	)		$	(30,701	)		$	(45,843	)		$	(40,778	)

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 the periods presented consisted of the following (in thousands):

		As of October 30, 2010																As of January 30, 2010
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Assets:
Cash and equivalents		$	113,927			$	113,927											$	141,773			$	141,773
Short-term investments			206,065							$	206,065								164,265							$	164,265
Long-term investments, net			11,767								10,815			$	952				1,151											$	1,151
Conversion feature of long-term debt																			28,029								28,029
		$	331,759			$	113,927			$	216,880			$	952			$	335,218			$	141,773			$	192,294			$	1,151
Liabilities:
Conversion feature of short-term debt		$	6,553							$	6,553
Warrant liability			34,328								34,328							$	23,068							$	23,068
		$	40,881							$	40,881							$	23,068							$	23,068

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

Cash and equivalents primarily represent cash deposits and investments in money market funds held with financial institutions, as well as credit card receivables that generally settle within three days. Equity investments are evaluated for other-than-temporary impairment using level 3 inputs such as the financial condition and future prospects of the entity. The Company’s available-for-sale and held-to maturity investments 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 and warrant liabilities.

The following table presents the activity related to level 3 fair value measurements for the periods presented (in thousands):

		Three months ended
		October 30, 2010								October 31, 2009
		Short-term				Long-term				Short-term				Long-term
		investments				investments, net				investments				investments, net
Carrying value at the beginning of the period						$	952			$	1,771
Transfers between short-term and long-term investments											(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 net loss															(754	)
Carrying value at the end of the period						$	952			$				$	1,746

		Nine months ended
		October 30, 2010								October 31, 2009
		Short-term				Long-term				Short-term				Long-term
		investments				investments, net				investments				investments, net
Carrying value at the beginning of the period						$	1,151			$	1,845			$	1,266
Transfer out of level 3															(1,266	)
Transfers between short-term and long-term investments											(1,845	)			1,845
Return of capital from equity investment							(199	)
Reclassification of unrealized losses on available-for-sale securities to an other-than-temporary impairment															655
Other-than-temporary impairment included in net loss															(754	)
Carrying value at the end of the period						$	952			$				$	1,746

There were no non-financial assets measured on a nonrecurring basis during the nine months ended October 30, 2010. As of October 31, 2009, 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.

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

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 include a store. The impairment loss recognized is the excess of the carrying value of the asset or 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 selling, general and administrative expense.

9.

PENSION BENEFIT PLAN

The Company contributed $0.5 million in the third quarter of fiscal 2010 to meet minimum funding requirements under the Pension Plan. The Company was not required to make any contributions during the first three quarters of fiscal 2009 to meet minimum funding requirements under the Pension Plan. The following table shows the components of net periodic cost of the Pension Plan for the periods presented (in thousands):

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Interest cost		$	248			$	244			$	743			$	732
Expected return on plan assets			(212	)			(189	)			(636	)			(567	)
Amortization of transition asset			(9	)			(9	)			(26	)			(27	)
Amortization of net loss			72				143				218				429
Net periodic cost		$	99			$	189			$	299			$	567

10.

(LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share are based on the net (loss) income and a simple weighted average of common shares outstanding. Diluted (loss) earnings 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 (loss) income and number of shares used in the calculation of diluted (loss) earnings per share computations for the three and nine months ended October 30, 2010 and October 31, 2009 (in thousands except per share amounts):

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Net (loss) income from continuing operations attributable to Retail Ventures, Inc. common shareholders for basic earnings per share		$	(5,511	)		$	(13,834	)		$	12,475			$	(75,651	)
Net (loss) income attributable to Retail Ventures, Inc. common shareholders for basic earnings per share		$	(3,320	)		$	(14,129	)		$	17,636			$	(30,987	)

For all periods presented, the loss in fair value of Term Loan Warrants (“warrants”) was included in the calculation of the net (loss) income.

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

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Weighted average shares outstanding			49,037				48,938				49,028				48,855
Assumed exercise of dilutive SARs											18
Assumed exercise of dilutive stock options											269
Number of shares for computations of dilutive earnings per share			49,037				48,938				49,315				48,855

For the nine months ended October 30, 2010, the assumed exercise of 1,970,396 warrants was not included in the calculation of shares since there was a loss in fair value of warrants.

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Dilutive (loss) earnings per share from continuing operations attributable to Retail Ventures, Inc. common shareholders		$	(0.11	)		$	(0.28	)		$	0.25			$	(1.55	)
Dilutive (loss) earnings per share attributable to Retail Ventures, Inc. common shareholders		$	(0.07	)		$	(0.29	)		$	0.36			$	(0.63	)

There were 2,390,370 and 530,566 securities outstanding for the quarter ended October 30, 2010 and October 31, 2009, respectively, 2,087,432 and 441,553 of which were for the assumed exercise of warrants, that had an equity unit exercise price less than the average market price of the common shares for the period, but were not included in the computation of dilutive (loss) earnings per share since the effect would be anti-dilutive due to the quarter-to-date net loss. There were 194,711 securities outstanding for the year-to-date period ended October 31, 2009, 147,184 of which were for the assumed exercise of warrants that had an equity unit exercise price less than the average market price of the common shares for the period, but were not included in the computation of dilutive (loss) earnings per share since the effect would be anti-dilutive due to the year-to-date net loss.

The amount of securities outstanding at October 30, 2010 and October 31, 2009 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):

		Three months ended								Nine months ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
SARs			120				159				120				197
Stock Options			138				309				160				760
Total of all potentially dilutive instruments			258				468				280				957