##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A 
 (Amendment No. 2)
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For The Fiscal Year Ended January 29, 2005
OR 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. 
  Ohio
    
    20-0090238(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3241 Westerville Road, Columbus, Ohio
    
    43224(Address of principal executive offices)
    
    (Zip Code)
 (614) 471-4722 
  Securities registered pursuant to Section 12(b) of the Act:
Title of each class:                                   Name of each exchange on which registered:
Common Shares, without par value                      New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 the filing requirements for at least the past 90 days. YES þ NO o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). YES þ NO o The aggregate market value of voting stock held by non-affiliates of the registrant computed by
reference to the price at which such voting stock was last sold, as of July 31, 2004, was
$104,106,001. Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date: 38,215,976 Common Shares were outstanding at March 31, 2005. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Companys Proxy Statement relating to the Annual Meeting of Shareholders to be held
on June 28, 2005 are incorporated by reference into Part III.




---



##### Table of Contents



Retail Ventures, Inc. Form 10-K/A 
 
 
 Explanatory Note 
 
 This
Amendment No. 2 on Form 10-K/A (this Amendment) amends the Annual Report on Form 10-K for the
fiscal year ended January 29, 2005, which was originally filed with the Securities and Exchange
Commission on April 14, 2005, as amended by Amendment No. 1, filed with the Securities and Exchange
Commission on April 18, 2005 (as amended, the Original
Report). This Amendment is to amend and restate Item 9A to
include (i) Managements Report on Internal Control Over Financial Reporting, (ii) the
Report of Independent Registered Public Accounting Firm relating to the Companys assessment of
internal control over financial reporting and the effectiveness of internal control over financial
reporting and (iii) all other information
required by Item 9A of Form 10-K. This Amendment also contains the required consent of the Companys independent
registered public accounting firm and certifications pursuant to Sections 302 and 906
of the Sarbanes-Oxley Act of 2002. Except for as described above and
except for those additional exhibits marked as filed
herewith on the Index to Exhibits, no other information in the Form
10-K has been amended and the Company has not updated disclosures in
this Amendment to reflect any event subsequent to the Companys
filing of the Original Report.




---



TABLE OF CONTENTS Item No.
    
    PagePART I1. Business
    
    
    32. Properties
    
    
    153. Legal Proceedings
    
    
    164. Submission of Matters to a Vote of Security Holders
    
    
    16PART II5. Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    176. Selected Financial Data
    
    
    197. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    207A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    338. Financial Statements and Supplementary Data
    
    
    349. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    349A. Controls and Procedures
    
    
    349B. Other Information
    
    
    36PART III10. Directors and Executive Officers of the Registrant
    
    
    3711. Executive Compensation
    
    
    3812. Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters
    
    
    3813. Certain Relationships and Related Transactions
    
    
    3814. Principal Accountant Fees and Services
    
    
    38PART IV15. Exhibits, Financial Statement Schedules
    
    
    39
    

Signatures
    
    
    40TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULESReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Shareholders Equity
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6SCHEDULESIIValuation and Qualifying Accounts
    
    
    S-1Index
to Exhibits
    
    
    E-1EX-10.29.1EX-10.30.1EX-10.31.1EX-10.48.1EX-10.50.1EX-10.51.1EX-10.52.1EX-10.53.1EX-10.54.1EX-10.55.1EX-10.58.1EX-10.59.1EX-10.67EX-10.68EX-23EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I As used in this Annual Report onForm 10-Kand except as the context otherwise may
require, Company, we, us, and our refers to Retail Ventures, Inc.(Retail Ventures) and
its wholly owned subsidiaries, including but not limited to, Value City Department Stores LLC
(Value City), DSW Inc., formerly known as Shonac Corporation, (DSW) and Filenes Basement,
Inc.(Filenes Basement). Restatement We have restated the consolidated balance sheet at January 31, 2004, and the consolidated
statements of operations, shareholders equity and cash flows for the fiscal years ended January
31, 2004 and February 1, 2003 in this Annual Report on Form 10-K (see Note 4 to the consolidated
financial statements on page F- 13 of this Annual Report) and the related Notes thereto, to correct our historical accounting for operating leases. The restatement
adjustments had no impact on net sales or comparable store sales. We have not amended our
previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the restatement,
and the financial statements and related financial statement information contained in those reports
should no longer be relied upon. Throughout this Annual Report on Form 10-K, all referenced
amounts for prior periods and prior period comparisons reflect the balances and amounts on a
restated basis. Forward-Looking Information This document contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act). You can identify such forward-looking statements by the words expects,
intends, plans, projects, believes, estimates and similar expressions. In the normal
course of business, we, in an effort to help keep our shareholders and the public informed about
our operations, may from time to time issue such forward-looking statements, either orally or in
writing. Generally, these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, or projections involving
anticipated revenues, earnings or other aspects of operating results. We base the forward-looking
statements on our current expectations, estimates, and projections. We caution you that these
statements are not guarantees of future performance and involve risks, uncertainties, and
assumptions that we cannot predict. In addition, we have based many of these forward-looking
statements on assumptions about future events that may prove to be inaccurate. Therefore, the
actual results of the future events described in the forward-looking statements in this Annual
Report on Form 10-K or elsewhere, could differ materially from those stated in the forward-looking
statements. Additional information concerning factors that could cause actual results to differ
materially from those in our forward-looking statements is contained under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations. 
 ITEM 1. BUSINESS. History of Our Business 
 We opened our first Value City department store in Columbus, Ohio in 1917. Until our initial
public offering on June 18, 1991, Value City department stores operated as a division of
Schottenstein Stores Corporation (SSC). SSC owns approximately 57% of our common shares. We also
have a number of ongoing related party agreements and arrangements with SSC. These are more fully
described in Item 13 of this Annual Report beginning on page 38. 
 In July 1997, we entered into agreements with Mazel Stores, Inc. (Mazel) to create VCM, Ltd.
(VCM), a 50/50 joint venture. Since 1997, VCM has operated the leased health and beauty care, toy
and sporting goods departments in our Value City stores and, beginning in fiscal 2000, began
operating the food department. Effective at the close of business February 2, 2002, we purchased
Mazels interest in the partnership. In May, 1998, we purchased substantially all of the common shares of DSW, an Ohio corporation,
from Nacht Management, Inc. and SSC. Subsequently we acquired the remaining DSW shares. DSW has
been the shoe licensee in principally all of the Value City stores since its inception in 1969 and
has operated the DSW chain of retail shoe stores since the opening of the first store in 1991. We acquired substantially all of the assets and assumed certain liabilities of Filenes
Basement Corp., a Massachusetts corporation, and Filenes Basement, a Delaware corporation, a
wholly owned subsidiary of Filenes Basement Corp., in March 2000. 3




---



##### Table of Contents



On October 8, 2003, the Company reorganized its corporate structure into a holding company
form whereby Retail Ventures, Inc., an Ohio corporation, became the successor issuer to Value City
Department Stores, Inc. As a result of the reorganization, Value City Department Stores, Inc.
became a wholly-owned subsidiary of Retail Ventures. In connection with the reorganization,
holders of common shares of Value City Department Stores, Inc. became holders of an identical
number of common shares of Retail Ventures, Inc. The reorganization was affected by a merger which
was previously approved by the Companys shareholders. Since October 2003, the Companys common
shares have been listed for trading under the ticker symbol RVI on the New York Stock Exchange. In December 2004, the Company completed another corporate reorganization whereby Value City
Department Stores, Inc. merged with and into Value City Department Stores LLC, a newly created,
wholly-owned subsidiary of Retail Ventures. In connection with this reorganization, Value City
transferred all the issued and outstanding shares of DSW and Filenes Basement to Retail Ventures
in exchange for a promissory note. The Company announced on March 14, 2005 that DSW had filed a registration statement with the
SEC and will pursue an initial public offering (the IPO). The Company expects that DSW will
complete the IPO in fiscal 2005, subject to market conditions. After the IPO, the Company expects
to own a majority of the outstanding common shares of DSW. Prior to the IPO, the Company will
enter into agreements with DSW related to the separation of its business from DSW, including a
master separation agreement, a shared services agreement and a tax separation agreement. The
Companys current intent is to continue to hold its DSW common shares following the offering.
However, other than with respect to a customary 180 day lock up period following the IPO, the
Company is not subject to any contractual obligation to retain its controlling interest. General We are managed in three operating segments: Value City, DSW and Filenes Basement. Value City.As of January 29, 2005, we operated a chain of 116 off-price department stores
located in the Midwestern, Eastern and Southern states, principally under the name Value City. For
over 80 years, our strategy has been to provide exceptional value by offering a broad selection of
brand name merchandise at prices substantially below conventional retail prices. Subsequent to
year end, we closed two under-performing stores. DSW.As of January 29, 2005, we also operated a chain of 172 DSW stores located throughout
the United States. The DSW stores offer a wide selection of brand name and designer dress, casual
and athletic footwear for men and women. Additionally, pursuant to a license agreement with
Filenes Basement, DSW operates leased shoe departments in most Filenes Basement stores. Results
of operations of the leased shoe departments are included with the Filenes Basement segment. In
July 2002 and June 2004, respectively, DSW entered into supply agreements with Stein Mart, Inc.
(Stein Mart) and Gordmans, Inc. (Gordmans) to supply merchandise to some of the Stein Marts
and all of the Gordmans shoe departments. As of January 29, 2005, we operated 153 leased
departments for Stein Mart and 48 for Gordmans. Results of the supply agreements are included with
the DSW segment and represent substantially all of the leased operations of the segment.
Subsequent to year end, as of the date of this Annual Report, we have
opened five new DSW stores and re-categorized two DSW/Filenes
Basement combination locations as leased shoe departments and which will be included in
the Filenes Basement segment. For stores scheduled to open in
fiscal 2005, as of January 29, 2005, we have signed leases for 23 new
stores and two store relocations. Filenes Basement.As of January 29, 2005, we operated 26 Filenes Basement stores located
primarily in major metropolitan areas such as Boston, New York City, Atlanta, Chicago and
Washington, D.C. Filenes Basement focuses on providing the top tier brand names at everyday low
prices for mens and womens apparel, jewelry, shoes, accessories and home goods. Subsequent to
year end, as of the date of this Annual Report, we opened one new Filenes Basement store. See Note 12 of Notes to consolidated financial statements beginning on page F-23 of this
Annual Report for detailed financial information regarding our three
operating segments. Value City As an off-price retailer, Value Citys strategy is to take advantage of inventory imbalances
along the retail supply chain. These imbalances occur as a result of cancelled orders, excess
production, and consumer changes in demand, each of which creates opportunities for us. In this
role, we offer ourselves as an important alternative to manufacturers as an additional distribution
source for their goods. In addition, we believe we have a core of value oriented customers that
have embraced off-price retailing as an attractive retail concept and we continue to market to
those who seek this alternative concept to traditional retail offerings. 4




---



##### Table of Contents



Merchandising Selection.Value City is a full-line, off-price retailer carrying mens, womens and
childrens apparel, accessories, jewelry, shoes, home furnishings, toys, health and beauty care
items and commodities. Off-price retailing, as distinguished from traditional full-price and
discount retailing is characterized by the purchase by the retailer of brand name merchandise at
prices below normal cost to most retailers. We build our merchandise content by taking advantage of
imbalances in the inventory supply chain between the manufacturer and other retailers and these
retailers and the ultimate consumer. A portion of the cost savings is then passed on to our
customers through lower prices. The Value City customer is a value seeker who is budget minded with
a moderate income level. Value City strives to offer customers one-stop-shopping for the categories
of merchandise we carry. The large size of our Value City stores facilitates the offering of a wide
range of merchandise categories with broad assortments and a deep selection of goods within each
category. Value City stores carry over 700 classifications of merchandise, similar to the items
generally found in traditional department, specialty and discount stores. We continually refine the
Value City merchandise mix by eliminating or reducing less productive departments, introducing new
merchandise categories or growing existing merchandise categories to improve store profitability
and meet the changing needs of our customers. We continue to evaluate the impact of in-season
merchandise to the overall assortment and will look to increase the sourcing and introduction of
this merchandise in the current selling season sooner than we have historically. We believe our customers are attracted to Value City stores by the continuous new offerings
and flow of value-priced and fashion right merchandise. At the same time, we purchase continuing
lines of merchandise to ensure a constant offering of certain basic categories of merchandise as
well as current fashion trends. Value Pricing. Value City stores offer quality brand name merchandise at prices typically 20%
to 70% below initial prices charged by traditional department or specialty stores for similar items
and at prices comparable to or lower than prices charged by other off-price retailers. We can offer
exceptional values because our buyers purchase merchandise directly from manufacturers and other
vendors generally at prices substantially below those paid by conventional retailers. This allows
us to pass on the savings directly to our budget minded and/or moderate-income customers. Well-known designer labels, brand names and original retailer names are displayed throughout
our Value City stores. Many items carry labels and/or original price tags showing brand names
identifiable with designers, manufacturers and retail stores, as well as tags showing original
retail, comparable or nationally advertised prices. In certain cases, suppliers may require
removal of labels or original retail price tags as a condition to a special purchase arrangement.
See Supplier Relationships and Purchasing below for more information. Supplier Relationships and Purchasing An important factor in our operations has been the relationships we have developed with our
various suppliers and our many years of experience in purchasing merchandise directly from
manufacturers and other vendors at prices substantially below those generally paid by conventional
retailers. We believe our buyers have established good relationships with suppliers and are
frequently invited to evaluate entire lots of merchandise held for sale. We review these offerings
and acquire the mix and quantities of merchandise we want and need, up to and including the entire
lot. Continuously, we seek to find and negotiate special purchase opportunities. The apparel
industry is extremely fragmented in terms of merchandise supply; thus, the dynamics of the markets
continue to change, and we attempt to take advantage of the innumerable disconnects in this supply
chain such as overproduction, other retailers cancellations and available vendor production time.
As a result of our relationships, reputation and experience, suppliers offer special purchase
opportunities to us as well as others prior to attempting to dispose of merchandise through other
channels. Most brand name merchandise manufacturers are open to selling merchandise to Value City
for resale at our discounted prices as we provide a stable and known outlet. By selling their
merchandise through our retail stores, we are able to assure these suppliers the merchandise will
be sold without disturbing their regular channels of distribution. Although we cannot quantify the reduction in prices we pay for special purchases compared to
the prices paid by our competitors for similar purchases, we believe that such special purchases
are made at prices sufficiently favorable to enable us to offer merchandise to our customers at
very competitive prices while achieving our initial markup goals. We purchase merchandise from more than 4,000 suppliers, none of which accounted for a material
percentage of purchases during the past fiscal year. Except for greeting cards, our-front end
register program and soft drinks, we do not maintain any long-term or exclusive commitments to
purchase merchandise from any one supplier. We employ several different purchasing strategies. We
regularly purchase overstocked or overproduced items from manufacturers and other retailers,
including end-of-season, out-of-season / packaway and end-of-run merchandise and manufacturers
slight irregulars. From time to time, but less frequently from our historical practice, we
purchase all or substantially all of the inventories of financially distressed retailers and make
other special purchases. We also have started more aggressively to seek advantageous buying
opportunities and sourcing overseas across all 5




---



##### Table of Contents



categories. Packaway purchases are used as a method of sourcing closeout merchandise found in the market and warehousing theses goods until the
following season. Packaway merchandise lags the normal retail distribution by approximately one selling
season and generally has a level of risk above other purchases. We purchase in-season merchandise
opportunistically during the selling season when seasonal merchandise presents itself and the cost
of the acquisition allows for sufficient retail markup. Up-front planned purchases occur in advance
of our season and represent a growing portion of our overall merchandising needs. Advertising and Promotion We have committed substantial resources to advertising. Value City advertises frequently in
print, including newspapers, circulars and flyers, and on television and radio. Our promotional
strategy is carefully planned and budgeted to include not only institutional and seasonal
promotions, but also weekly storewide sales events highlighting recent buy-outs and other specially
purchased brand name merchandise designed to maximize customer interest. In some cases, a supplier
may prohibit the advertising or non-store promotion of its brand name. We utilize advertising
agencies to assist us in promoting our Value City brand recognition and use a media buying service
that purchases our media for us. During fiscal 2004, Value City introduced a gift card program in
its stores. Stores Store Location, Design and Operations. We believe our customers are attracted to our stores
principally by the wide assortment of quality items at substantial savings. Our Value City stores are generally open from 9:30 a.m. until 9:30 p.m. Monday through
Saturday and 11:00 a.m. until 6:00 p.m. on Sunday. All of the stores are located in leased
facilities. Of the 116 Value City stores open as of January 29, 2005, 33 are freestanding, 56 are
located in shopping centers and 27 are located in enclosed malls. Our Value City stores average
approximately 87,000 square feet, with approximately 70% of the total area of each store
representing selling space. The stores are generally laid out on a single level, with central
traffic aisles providing access to major departments. Each department strives to display and stock
large quantities and assortments of merchandise, giving the store a full appearance. We believe
our stores offer customers a convenient shopping experience. All of our Value City stores are designed for self-service shopping, although sales personnel
are available to help customers locate merchandise and to assist in the selection and fitting of
apparel, jewelry, and footwear. Value Citys associate training programs are designed to assure
that every associate maintains the highest level of professionalism and places customer service at
the forefront. In all stores, a customer service desk is conveniently located, generally adjacent
to the central checkout area. To promote the ease of checkout, we utilize point of sale scanning
systems that expedite the checkout process by providing automated check and credit approval and
price lookup. We accept all major credit cards and also provide a private label credit card
program. In fiscal 2004, Value City offered a layaway program in approximately 60% of its stores
that was used by our budget and moderate-income customers. We have discontinued the layaway
program in our operations for fiscal 2005. We also maintain a reasonable return policy. Our Value City stores are organized into separate geographic regions and districts, each with
a territory or district manager. Territory and district managers are headquartered in their region
and spend the majority of their time in their stores to ensure adherence to merchandising,
operational and personnel standards. The typical staff for a Value City store consists of a store
manager, several assistant managers and full and part-time hourly associates. Each store manager
reports directly to one of the territory or district managers, and each of the territory or
district managers reports to a Regional Vice President who in turn reports to the Senior Vice
President of Store Operations. Our Value City store managers are responsible on a day-to-day basis for the overall condition
of their stores, customer relations, personnel hiring and scheduling, and all other operational
matters arising in the stores. Each store manager is compensated, in part, based on the performance
of their store. Our store managers are an important source of information concerning local market
conditions, trends and customer preferences. We prefer to fill management positions through promotion of existing associates. A store
management training program is maintained to develop the management skills of associates and to
provide a source of management personnel for future store expansion. We continually refurbish our stores by updating the merchandise displays, department locations
and in-store signage. The costs of refurbishing on a per store basis are generally not
substantial. On an annual basis, we select stores to be remodeled, which generally involve more
significant changes to the interior than the exterior of the store. We have in the past utilized
our own internal architectural design staff, construction crews and carpentry shop to assist in
refurbishing and remodeling store interiors and to build in-store display tables and racks. 6




---



##### Table of Contents



Expansion. No new department stores were added in fiscal 2004 or 2003 and none are currently
planned for fiscal 2005. We continue to explore exceptional real estate opportunities, basing any
potential future expansions on site qualities, national economic trends and existing store
performance. Distribution Our distribution facilities are designed to enable us to prioritize the processing of
merchandise on short notice and to deliver merchandise to stores. This allows our buyers to
purchase merchandise very late in the season, when prices tend to be more favorable, and still
deliver the merchandise to stores before the end of the season. At the same time, we are capable of
devoting warehouse space to out-of-season goods for our Value City stores. Such merchandise is
generally warehoused until the most opportune time to begin a season before closeouts are
available. Our ability to purchase and distribute our warehouse merchandise in substantial
quantities has enabled us to offer high-quality merchandise to customers at prices significantly
below usual retail prices. We believe that this ability distinguishes us from the typical discount
or department store and provides us with a competitive advantage in making purchases as favorable
opportunities arise. We use a regionalized distribution strategy with 5 distribution centers located in Columbus,
Ohio. Our distribution facilities utilize material handling equipment, including mechanized
conveyor systems to separate and collate shipments to the stores. The aggregate area of the
distribution facilities is approximately 2,040,000 square feet; however, use of multi-tier
processing levels in some of the distribution centers increases the operating capacity by
approximately 380,000 square feet. In 2004, we consolidated operations, resulting in the closure of
one of our Columbus Distribution Centers. The consolidation included the conversion of a 300,000
square foot facility to outbound pool shipping. The conversion resulted in reduced outbound
transportation costs and increased speed of delivery to our stores. Merchandise is processed, ticketed and consolidated prior to shipment to the stores to ensure
full-truck loads and minimize shipping costs. We lease our fleet of road tractors and approximately
70% of our semi-rig trailers, with the remainder being owned. Our fleet makes the majority of all
deliveries to the stores. License Agreements In connection with the reorganization
completed in
December 2004, Value City and DSW agreed to terminate the supply agreement whereby Value City utilized DSW to operate the shoe departments in the Value City
stores. The inter-company activity is eliminated in our consolidated financial statements. In fiscal 2005, shoe departments
in Value City will be opened and operated by Value City and its own associates. Retail Ventures Jewelry, Inc., a wholly owned subsidiary of Retail Ventures, operates the jewelry
departments in all Value City stores. Licensees supply their own merchandise and generally supply
their own store fixtures. License departments complement the operations of our stores and facilitate
the uniformity of the in-store merchandising strategy, including the overall emphasis on value. Segment Seasonality Value City customer traffic increases in the early Spring, back-to-school and Christmas
holiday seasons. These seasonal periods are critical to Value Citys annual operating targets. Service Marks, Trademarks and Tradenames The service mark Value City has been registered by SSC in the United States Patent and
Trademark Office (USPTO). As of January 29, 2005, we had four department stores in Columbus that
operated under the tradename Schottensteins, which has been registered by SSC in the State of
Ohio. We are entitled to use such names for the sole purpose of operating department stores on an
exclusive basis pursuant to a perpetual license from SSC. SSC also operates a chain of furniture
stores under the name Value City Furniture. We have also registered in the U.S. Patent and
Trademark Office various trademarks used in our marketing program. 7




---



##### Table of Contents



DSW DSWs goal is to further strengthen its position as a leading specialty branded footwear
retailer of choice in the United States. DSWs core focus is to offer customers a vast, exciting
selection of in-season styles with the convenience and value they desire. DSW believes its
combination of selection, convenience and value differentiates it from its competitors and
appeals to consumers from a broad range of socioeconomic and demographic backgrounds. In July 2002 and June 2004, respectively, DSW, entered into supply agreements with Stein Mart
and Gordmans to supply merchandise to some of the Stein Marts and all of the Gordmans shoe
departments. As of January 29, 2005, we operated 153 leased departments for Stein Mart and 48 for
Gordmans. The Stein Mart and Gordmans operations are included with the DSW segment and represent
substantially all of the leased operations of the segment. Merchandising Selection.DSW stores offer a large selection of brand name and designer merchandise. DSW
stores carry primarily in-season footwear found in specialty and department stores and branded
make-ups (shoes made exclusively for a retailer). DSW stores also offer a complementary selection
of handbags, hosiery and other accessories that appeal to its brand- and fashion-conscious
customers. DSWs strategy is designed to ensure that a broad and consistent selection of
merchandise is available at all times. Value.Through its buying organization, DSW is able to provide its customers with
high-quality, in-season fashions at everyday prices that it believes are competitive with the
typical sale price found at specialty retailers and department stores. DSW employs a consistent
pricing strategy that typically provides customers with the same price on merchandise from the day
it is received until it goes into the planned clearance rotation. In order to provide additional
value to its regular customers, DSW developed a customer loyalty program called Reward Your
Style. This program offers additional savings to frequent shoppers and encourages repeat sales. Convenience. DSW organizes most of its stores on a single level, which allows customers to
view the entire store and product offering as they enter and move quickly to the area where their
desired styles are located. All the merchandise is displayed on the selling floor with
self-service fixtures to enable customers to view and touch the merchandise without feeling rushed.
This self-service concept empowers customers to shop quickly and easily because they do not have
to rely on a salesperson to check for sizes and styles. Although all DSW stores are designed for
self-service shopping, sales associates are available to help customers locate merchandise and to
assist as needed. Supplier Relationships and Purchasing Through its buying organization, DSW is able to provide its customers with high-quality,
in-season fashions at everyday prices that it believes are competitive with the typical sale price
found at specialty retailers and department stores. DSW employs a consistent pricing strategy that
typically provides customers with the same price on merchandise from the day it is received until
it goes into the planned clearance rotation. DSW believes it has good relationships with its
vendors. DSW purchases merchandise directly from more than 300 domestic and foreign vendors as of
January 29, 2005. As the number of DSW locations increases and its sales volumes grow, DSW
believes there will continue to be adequate sources available to acquire a sufficient supply of
quality goods in a timely manner and on satisfactory economic terms. DSWs merchandising group continually monitors current fashion trends as well as historical
sales trends to identify popular styles and styles that may become popular in the upcoming season,
and has a flexible incremental buying process that enables it to order styles frequently throughout
the year. DSW has implemented quality control programs under which DSW buyers and store managers
inspect incoming merchandise for fit, color and material, as well as for overall quality of
manufacturing. DSW does not generally experience quality problems related to merchandise
manufactured overseas. Advertising and Promotion Our marketing strategy for DSW focuses on communicating the selection, convenience and value
offered by DSW through the use of the slogan The Shoes of the Moment. The Deal of a Lifetime. We
utilize television, radio and print media advertising as well as in-store promotions. In early 1998, the Reward Your Style customer loyalty program at DSW was introduced. The
program seeks to motivate members to shop at DSW by offering them a $25 reward certificate for
every $250 they spend. In addition to customer rewards, the program regularly communicates with
customers through direct mail, e-mail and the DSW website. While the program develops 8




---



##### Table of Contents



customer loyalty, it also provides DSW with valuable market intelligence and purchasing
information regarding its most frequent customers. During fiscal 2003, DSW introduced a gift card
program in its stores. Stores Store Location, Design and Operations. Typical DSW stores are approximately 25,000 square feet, with over 85% of total square footage
used as selling space. Most DSW stores are organized on a single level, which allows customers
to view the entire store and product offering as they enter and move quickly to the area where
their desired styles are located. Interiors are well-lit, with informative signage, and spacious
aisles allow ease of movement throughout the store. Shoes in the stores are displayed in a logical
manner that groups together similar styles such as dress, casual, seasonal and athletic
merchandise. Clearance shoes are grouped by size and displayed on racks in the rear of the store.
Of the 172 DSW stores open as of January 29, 2005, 145 are either freestanding or located in
shopping centers, which provide customers with direct access to parking, and the remainder are in
shopping malls or downtown locations. For added convenience, DSW stores have a centralized
check-out, which aids customers in quickly locating the cashier for efficient processing. The
stores are generally open from 10:00 a.m. until 9:00 p.m. Monday through Saturday and 11:00 a.m.
until 6:00 p.m. on Sunday. All stores are located in leased facilities. At DSW, store associates receive training to maximize the customer shopping experience in
DSWs self-service environment. Training components consist of customer service, maintaining neat,
clean and orderly store conditions for ease of shopping, efficient checkout process and friendly
service. DSW also maintains a store management training program to develop the skills of management
personnel and to provide an ongoing talent pool for future store expansion. We prefer to fill store
management and field supervisor positions through internal promotions. As of January 29, 2005, DSW stores are organized into the West, Central and East geographic
regions, composed of 13, 7 and 12 districts, respectively. Each region is supported by a Regional
Vice President or Director, who supervise senior district, district and area managers headquartered
in the respective region, district or area. The Regional Vice Presidents and Directors spend the
majority of their time in their stores to ensure adherence to merchandising, operational and
personnel standards. The typical staff for a DSW store consists of a store manager and two
assistant managers who supervise 15 to 25 full and part-time hourly associates. Each store manager
reports directly to one of 32 district or area managers, each of whom in turn reports to one of
three Regional Vice Presidents or Regional Directors who in turn report to the Senior Vice
President of Store Operations. DSW store managers are responsible on a day-to-day basis for
customer relations, personnel hiring and scheduling, and all other operational matters arising in
the stores. Store managers are an important source of information concerning local market
conditions, trends and customer preferences. DSW provides compensation bonuses to store managers
which are largely based on store profitability and inventory control. Expansion. We opened 31 new DSW stores in fiscal 2004 and plan to open approximately 30
additional stores in each fiscal year from fiscal 2005 through fiscal 2009. For stores scheduled to
open in fiscal 2005, as of January 29, 2005, we have signed leases for 23 new stores and two store
relocations. We plan to open stores both in markets in which we currently operate and in new
markets. In general, our evaluation of potential new stores focuses on store size, configuration,
location and lease terms. We target high-traffic real estate locations, with new stores sized as
appropriate to fit market potential. An ideal DSW store is either freestanding on the peripheral
road of a mall, in a power strip center, in a shopping center or in a high traffic urban shopping
zone. We target not only locations with high traffic and visibility, but also locations near other
large format, category leading retailers, such as Bed Bath & Beyond, Barnes & Noble and Staples,
and we insist on favorable lease terms. We intend, over time, to cluster our stores in strategic
metropolitan areas to enhance name recognition, lower average per store advertising costs and
achieve economies of scale in management and distribution. After we approve a site, we negotiate lease terms and begin planning the store layout and
design. We typically devote between four and six weeks from the time we take possession of a store
to prepare for its opening. During fiscal 2004, the average investment required to open a new DSW
store was approximately $1.7 million per store. Of this amount, in fiscal 2004, gross inventory
typically accounted for approximately $880,000, fixtures and leasehold improvements typically
accounted for approximately $600,000 (prior to tenant allowances) and pre-opening advertising and
other pre-opening expenses typically accounted for approximately $250,000. All our stores are
leased or subleased. Distribution DSWs distribution center is located in an approximately 707,000 square foot facility in
Columbus, Ohio. The design of the distribution center facilitates the prompt delivery of priority
purchases and fast-selling footwear to stores so DSW can take full 9




---



##### Table of Contents



advantage of each selling
season. This distribution center facility uses a warehouse management system updated in 2003, and
material handling equipment, including conveyor systems, to separate and collate shipments to DSW
stores. DSW uses a cross dock conveyor system which enhances the movement of merchandise, through
the distribution facility, using vendor advance shipment notifications (ASNs). DSW may need to
increase our distribution capacity in 2006 to accommodate our expanding retail store base. Leased Departments and Supply Agreements DSW has operated leased shoe departments for Filenes Basement since March 2000. The
inter-company activity is eliminated in our consolidated financial
statements. Effective January 30, 2005, DSW updated and
reaffirmed its contractual relationship with Filenes Basement. Under the new
agreement, DSW owns the merchandise and provides supervisory assistance in all covered locations
and receives a percentage of net sales as payment. Filenes Basement provides the fixtures and
sales associates. As of January 29, 2005, DSW operated leased shoe departments in 23 Filenes
Basement locations. Effective as of January 30, 2005, DSW updated and reaffirmed its contractual
arrangement with Filenes Basement. DSW has operated shoe departments in all the Value City stores. The inter-company
activity is eliminated in our consolidated financial statements. In connection with the
reorganization completed in December 2004, Value City and DSW
agreed to terminate the supply agreement whereby Value City utilized
DSW to operate the shoe departments in all Value City stores.
In fiscal 2005, the shoe departments in Value City stores will be operated by Value City and its own
employees. DSW also operates leased shoe departments for three non-affiliated retailers. DSW entered
into Supply Agreements to merchandise the shoe departments in Stein Mart and Gordmans stores as of
July 2002 and June 2004, respectively. DSW owns the merchandise and fixtures and provides
supervisory assistance in these covered locations, and it receives a percentage of net sales as
payment. Stein Mart and Gordmans provide the sales associates. As of
January 29, 2005, DSW supplied
merchandise to 153 Stein Mart stores and 48 Gordmans stores. As of
January 29, 2005, DSW also
supplied merchandise to a single Frugal Fannies Fashion Warehouse store in Westwood,
Massachusetts. Segment Seasonality The DSW business, measured in terms of net sales, is subject to seasonal trends. This
segments net sales, measured on a comparable stores basis, have typically been higher in spring
and early fall, when its customers interest in new seasonal styles increases. In addition, when
measured in terms of operating profit, the DSW segment has historically experienced lower levels of
profitability in the fourth quarter of our fiscal year, due primarily to moderately lower sales in
the fourth quarter. Unlike many other retailers, DSW has not historically experienced a large
increase in net sales during the fourth quarter associated with the winter holiday season. Service Marks, Trademarks and Tradenames DSW has registered a number of trademarks and service marks, in the United States and
internationally, including: DSW®, DSW Shoe Warehouse® and Reward Your Style®. Filenes Basement Our strategy for Filenes Basement focuses on providing the top-tier brand names at everyday
low prices for mens and womens apparel, jewelry, shoes, accessories and home goods. We believe
Filenes Basement, a well-known institution in Boston since 1908, is consistent with the Companys
overall merchandising philosophy of delivering value-priced merchandise to our customers. Merchandising Selection. Filenes Basement stores offer branded apparel, home goods and accessories. The
branded merchandise represents a focused assortment of fashionable, nationally recognized mens and
womens apparel, shoes, accessories and home goods bearing prominent designers and manufacturers
names. Branded merchandise constitutes most of the product line and is often obtained through
opportunistic purchases from a diverse group of quality manufacturers and vendors, including direct
imports from some of the most prominent European designers. Value Pricing. Filenes Basement stores have changed their purchasing philosophy over the
last year from buying in-season closeouts to more up-front purchasing. We believe that up-front
purchasing will promote a consistent flow of name brand purchases to our stores. We now place
approximately 40% of our purchases up front. We also have become more aggressive in placing
purchases of make-up goods in Europe, such as sweaters, knits and cold weather goods. We believe
this will ensure a consistent flow of goods into our stores. 10




---



##### Table of Contents



We also accelerated our buying of end-of-season merchandise and holding it for the next
selling season. This allows us to establish a reliable flow of name brand goods for opening season
assortments in February and August. Supplier Relationships and Purchasing Because of the longstanding relationships Filenes Basement has with vendors, it receives
quality buying opportunities at competitive prices. These longstanding relationships make Filenes
Basement a prime choice for vendors with overruns, department store cancellations and unmet volume
objectives. We purchase merchandise from more than 2,500 suppliers, none of which accounted for a
material percentage of purchases during the past fiscal year. Advertising and Promotion Filenes Basement employs a multi-media approach, using print, broadcast and direct mail.
Event-based marketing and brand awareness have been the main marketing messages. In fiscal 2004, we
purchased in-store sign printing equipment which permits us to download promotional rack signing
directly to the store as needed. The communication strategy is designed to target customer segments
and generate increased store trips and cross shopping opportunities. During fiscal 2003, Filenes
Basement introduced a gift card program in its stores. During the third quarter of 2004, Filenes Basement implemented a limited-time customer
rewards program that ended in December 2004. The rewards program provided qualifying customers
with Filenes Basement gift cards in various denominations based on their cumulative spending
during the program period. Over 200,000 customers joined the customer rewards program while less
than 100,000 qualified for some denomination of gift card. The Company plans to utilize this
customer database for direct mail and e-mail marketing efforts during fiscal 2005. Stores Store Location, Design and Operations. Our Filenes Basement Boston store is a landmark
institution recognized by generations of New England families and visitors as a source of quality
off-price mens and womens merchandise. The downtown location is famous for a unique marketing
concept - the Automatic Markdown Plan - whereby certain merchandise is automatically discounted
based on the number of days the merchandise has been on the sales floor. Filenes Basement
believes the Automatic Markdown Plan, found only in the downtown Boston location, generates a sense
of shopping urgency and creates customer excitement and loyalty. Our Filenes Basement downtown
Boston store subleases 178,000 square feet (approximately 65,300 square feet of selling space) on
four floors. The sublease terminates in 2009 with rights on behalf of Filenes Basement to extend
until 2024. The Boston store generated approximately 16.8% of Filenes Basements total sales
during fiscal 2004. Most of our Filenes Basement stores are located in suburban areas, near large residential
neighborhoods, and average approximately 31,500 square feet of selling space per store
(approximately 45,000 square feet of total space per store). The downtown Boston location and
stores in New York, Chicago, Atlanta and Washington D.C. are located in urban areas. As of January
29, 2005, Filenes Basement operated 25 branch stores, in
addition to our downtown Boston location, in eight states and the District of Columbia.
Generally, each branch stores selling space uses a prototypical racetrack aisle layout for
merchandise presentation. The branch stores are designed to be convenient and attractive in their
merchandise presentation, dressing rooms, checkouts and customer service areas. Their merchandise
mix is similar to that of the Boston flagship store. The branch stores do not operate under the
Automatic Markdown Plan, although markdowns are taken as required. All of our Filenes Basement stores are designed for self-service shopping, although sales
personnel are available to help customers locate merchandise and to assist in the selection and
fitting of apparel and footwear. In all stores, a customer service desk is conveniently located
generally adjacent to the central checkout area. To promote the ease of checkout we utilize point
of sale scanning systems that expedite the checkout process by providing automated check and credit
approval and price lookup. Sales associates are trained to create a customer-friendly
environment. Filenes Basement accepts all major credit cards, and also provides a private label
credit card program. Filenes Basement maintains a reasonable return policy in the branch stores of
30 days and in the Downtown Boston location of 14 days. Our Filenes Basement stores typical staff consists of a general manager, an assistant store
manager, merchandising group managers and full and part-time associates. Each general manager
reports to a Regional Vice President who in turn reports to the Executive Vice President, Stores &
Operations. Filenes Basement store managers are responsible on a day-to-day basis for customer relations,
personnel hiring and scheduling, and all other operational matters arising in the stores. Each
store manager is compensated, in part, based on the 11




---



##### Table of Contents



performance of his store. Our store managers are an important source of information concerning
local market conditions, trends and customer preferences. We prefer to fill management positions through promotion of existing associates. Expansion.
We plan to open at least four new Filenes Basement stores during fiscal 2005.
Based upon our experience, we estimate the average cost of opening a new Filenes Basement store is
between $4.0 million to $5.0 million including leasehold improvements, fixtures, inventory,
pre-opening expenses and other costs. Preparations for opening a Filenes Basement store generally
take 11 to 13 weeks. We charge pre-opening expenses to operations as incurred. It has been our
experience that new stores generally achieve profitability and contribute to net income following
the first full year of operations. We continually update our stores by changing the merchandise displays and in-store signage.
The annual cost of refurbishing on a per store basis is generally not substantial and is treated as
on-going cost of operations. We utilize our own architectural design staff, construction crews and
carpentry shop as needed to assist in the refurbishing and remodeling of a store or to build
in-store display tables and racks. Distribution Filenes Basements merchandise is processed and distributed from a 457,000 square foot leased
distribution facility situated on 32.8 acres with adjacent rail service in Auburn, Massachusetts,
outside of metropolitan Boston Massachusetts. In 2005, the Auburn Distribution Center is being
upgraded to accommodate the current volume of business and the anticipated growth in new stores for
2005 and beyond. License
Agreements and Leased Departments Filenes Basement licenses cosmetics and certain other incidental departments to independent
third parties. The aggregate annual license fees for the 2004 fiscal year were approximately $1.4
million. Filenes Basement also uses DSW to manage the in-store
shoe departments on a leased
department basis. Retail Ventures Jewelry, Inc., a wholly owned subsidiary of Retail Ventures,
operates the jewelry departments in all Filenes Basement stores. The inter-company activity is
eliminated in our consolidated financial statements. Licensees supply their own merchandise and generally supply their own store fixtures. In most
instances, licensees utilize our associates to operate their departments. The licensees reimburse
us for all costs associated with such associates. Leased departments are operated under our
general supervision and licensees are required to abide by our policies with regard to pricing,
quality of merchandise, refunds and store hours. Leased departments complement the operations of
our stores and facilitate the uniformity of the in store merchandising strategy including the
overall emphasis on value. DSW has operated leased shoe departments for Filenes Basement since March 2000. Effective as
of January 30, 2005, DSW updated and reaffirmed its contractual arrangement with Filenes Basement.
Under the new agreement, DSW owns the merchandise and provides supervisory assistance in all
covered locations and receives a percentage of net sales as payment. Filenes Basement provides the
fixtures and sales associates. As of January 29, 2005, DSW operated leased shoe departments in 23
Filenes Basement locations. This inter-company activity is eliminated in our consolidated
financial statements. Segment Seasonality Filenes Basement customer traffic increases in the fall and the Christmas holiday season. Service Marks, Trademarks and Tradenames Filenes Basement has an exclusive, perpetual, worldwide, royalty-free license to use the name
Filenes Basement and Filenes Basement of Boston trademark and service mark registrations as well
as certain other tradenames. Filenes Basements exclusive licensee status with respect to these
registered marks has been recorded with the USPTO and relevant state offices. Management Information and Control Systems We believe a high level of automation is essential to maintaining and improving our
competitive position. We rely upon computerized systems to provide information at all levels for
all of our segments, including warehouse operations, store billing, inventory control,
merchandising and automated accounting. We utilize registers with full scanning capabilities to
increase speed and 12




---



##### Table of Contents



accuracy at customer checkouts and facilitate inventory restocking. We utilize
automated distribution center systems to track and control the receipt, processing, storage and
shipping of product to the stores. Value City has embarked on major projects to replace its legacy systems with industry leading
solutions from various vendors. Value City has implemented sales audit, accounts payable,
allocation, merchandise management and retail data warehouse systems for its jewelry business
during February 2004 that enhanced inventory productivity and merchandise assortments for our
stores. A warehouse management system was also implemented for the jewelry operations during
February 2004 and improved the efficiency of our distribution
centers and improved the flow of
merchandise to our stores. These types of systems will be implemented in the future to support
hardlines and softlines. New point of sale (POS) software was successfully implemented in all
Value City stores in fiscal 2004. Registers were replaced to improve the customer transaction
experience and enhance back office efficiency in fiscal 2004. New wireless hand held scanners and
wireless printers were implemented in fiscal 2004 in conjunction with the POS system for markdown
and inventory processing. The ability to sell magnetic gift cards was implemented by the end of
fiscal 2004. In addition, in the first quarter of 2005, Value City
customers will be able to open a new
Value City credit card at all of its POS registers as a customer convenience. Value City systems
run on two AS/400s and open systems computers. Filenes Basement utilizes the JDA merchandise management system to track and manage
merchandise inventory at its stores. A warehouse management system is used at the distribution
center to process and distribute merchandise to the stores. Filenes Basement utilizes POS
registers with full scanning capabilities to increase speed and accuracy at customer checkout and
facilitate inventory restocking. The ability to sell magnetic gift cards was implemented for the
2003 holiday season. In 2004, Filenes Basement installed high quality color printers in all of
its stores to enhance store signage. Filenes Basement systems run on an AS/400 and open systems
computers. In order to promote its continued growth, DSW has undertaken several major initiatives to
build upon the merchandise management system and warehouse management systems that support DSW. An
electronic data interchange (EDI) project is underway to utilize product UPC barcodes and
electronic exchange of purchase orders, ASNs and invoices with our top vendors. As of January 29,
2005, approximately 70% of our footwear product is processed using UPC barcodes which has reduced
processing costs and improved flow of goods through the distribution center to the stores. EDI
purchase orders and ASNs were piloted with key vendors in early 2004. They accounted for
approximately 20% of the volume of our shipments as of the end of fiscal 2004, and DSW expects they
will be approximately 50% by the end of fiscal 2005. This will speed the flow of goods from the
vendor to DSW stores, as well as reduce the amount of inventory needed in our warehouse.
Additionally, new merchandise planning and merchandise allocation systems were implemented in 2003
to improve inventory productivity and store assortments and reduce supply chain cycle time. DSW utilizes POS registers with full scanning capabilities to increase speed and accuracy at
customer checkouts and facilitate inventory restocking. In 2003, a new, completely wireless POS
system was implemented in all DSW stores, resulting in more efficient customer checkouts and back
office operations. This enables DSW to complete new store openings more efficiently and simply. The
ability to sell magnetic gift cards was implemented for the 2003 holiday season. In addition, in
October 2004, DSW launched an application that provides DSW with the ability to look up a
customers Reward Your Style number at POS registers. DSW anticipates that in the first quarter
of fiscal 2005, the POS system will be further upgraded with debit card terminals and signature
capture. DSW will continually enhance system security. Program administration, operations and analysis for the Reward Your Style program was
brought in-house on February 1, 2005. Prior to this time, these functions were contracted out to a
third party. DSW uses enterprise data warehouse and customer relationship management software to
manage the program. DSW expects this will allow it to support, expand and integrate Reward Your
Style with the POS system to improve the customer experience while reducing costs. In March 2005, we announced that we had learned of the theft of credit card and other purchase
information relating to all customers who made purchases at 103 DSW
stores between mid-November 2004 and mid-February of 2005. We
now believe that the theft occurred at 108 DSW stores. We have contacted federal law enforcement authorities,
who are involved in the investigation. We are taking steps to address the situation, including a
review of our technology systems in conjunction with a leading computer security firm, and we are
also working with credit card companies and issuers to mitigate the situation. We cannot yet
reasonably estimate what the potential liability to us will be in connection with these events, and
we do not yet know what effect this incident may have on our customers perceptions of us. 13




---



##### Table of Contents



A focus of our information technology program is to leverage our technology infrastructure and
systems whenever appropriate to simplify and become more efficient. In addition, we also expect to
continually enhance system security. All of our segments are now supported by enterprise
financial, human resource and e-mail systems. We
automated our corporate environment with a document management system
in fiscal 2003 for invoice
processing to move toward an efficient, paperless environment. In
fiscal 2003, we implemented financial
reporting and analysis and financial planning systems to augment and
streamline these processes. In fiscal 2004, we
have embarked on a data warehouse project to provide capabilities for customer and advertising
analysis as well as to support a new loss prevention system. Associates The
mission of the Companys human resource department includes
ensuring the Companys business plans, organization structure, talent development and bench strength meet the Companys needs for
associate effectiveness to improve quality of work product, superior customer service, shareholder
value and our profit. As of January 29, 2005, we had approximately 18,000 associates of which 9,000 were full-time
and the balance were part-time. Approximately 1,300 of these associates in 21 stores
are covered by collective bargaining agreements. We believe that, in general,
we have satisfactory relations with all of our associates. Competition The retail industry is highly competitive. We compete with a variety of conventional and
discount retail stores, including national, regional and local independent department and specialty
stores, as well as with catalog operations, on-line providers, factory outlet stores and other
off-price stores. Our operating entities - Value City, DSW and
Filenes Basement - have different
target customers and different strategies, but each focus on the basic equation: Value =
Quality/Price. In the discount or off-price retailing segment, we differentiate ourselves through our Value
City store format and the breadth of our product offering. Our large stores differ from most other
off-price retailers that tend to operate substantially smaller stores focusing predominantly on
either hard or soft goods. Our large stores enable us to offer a broad range of brands and
products. In addition, because we purchase much of our inventory opportunistically, we compete for
merchandise with other national and regional off-price apparel and discount outlets. Many of our
competitors handle identical or similar lines of merchandise and have comparable locations, and
some have greater financial resources than we do. Competitive factors important to our customers include fashion, value, merchandise selection,
brand name recognition and, to a lesser degree, store location. We compete primarily on the basis
of value, merchandise quality and selection. We believe our competitive advantages include: our
reputation in the marketplace for being able to purchase entire lots of merchandise; our ability
either to quickly distribute or to hold the merchandise for sale at the most opportune time; our
full-line merchandise and style offerings; and our broad range of brand names. Value City and Filenes Basement provide perceived high value by offering easily recognized
brand-name merchandise at discounted prices. We believe Filenes Basements niche, however, is the
top-tier of the off-price retailing category and its sales events shape its image as having a
special cachet. In 2004, Filenes Basements famous one-day bridal gown sale, commonly referred
to as the running of the brides, was held in nine stores in different geographic areas. This
event creates great excitement and generates both regional and national media attention. Based on the unique retail format and the high quality, in-season selection of its shoe
merchandise, DSW believes that it provides a distinct shoe-shopping destination for its customers.
DSW believes that its customers prefer its wide selection of in-season merchandise compared to
product offerings of typical traditional department stores, mall-based company stores, national
chains, single-brand specialty retailers and independent shoe retailers because those retailers
generally offer a more limited selection at higher average prices and in a less convenient format
than does DSW. In addition, DSW believes that it will successfully compete against competitors who
have attempted to duplicate its format because they typically offer assortments with fewer
recognizable brands and more styles from prior seasons. DSW does not view non-brand-oriented
discount retailers as its prime competitors. These non-brand-oriented discount retailers may offer
footwear at lower price points; however, they generally offer lower quality, private label shoes. Available Information We
maintain an Internet website at www.retailventuresinc.com. We file our reports with
the Securities and Exchange Commission (the SEC) and make available free of charge, on or through
our website, our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy and information statements and amendments to these reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. 14




---



##### Table of Contents



ITEM 2. PROPERTIES. Set forth in the following table are the locations of stores we operated as of January
29, 2005: FilenesValue City
    
    
    DSW
    
    
    Basement
    
    
    TotalAlabama
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Arizona
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2California
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Colorado
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Connecticut
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Delaware
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    4Florida
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Georgia
    
    
    4
    
    
    
    6
    
    
    
    1
    
    
    
    11Illinois
    
    
    16
    
    
    
    10
    
    
    
    3
    
    
    
    29Indiana
    
    
    7
    
    
    
    4
    
    
    
    
    
    
    
    11Iowa
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Kansas
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Kentucky
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Maine
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Maryland
    
    
    8
    
    
    
    5
    
    
    
    1
    
    
    
    14Massachusetts
    
    
    
    
    
    
    8
    
    
    
    9
    
    
    
    17Michigan
    
    
    9
    
    
    
    10
    
    
    
    
    
    
    
    19Minnesota
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Missouri
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    9Nebraska
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Nevada
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2New Hampshire
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1New Jersey
    
    
    7
    
    
    
    6
    
    
    
    1
    
    
    
    14New York
    
    
    
    
    
    
    16
    
    
    
    6
    
    
    
    22North Carolina
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    3Ohio
    
    
    23
    
    
    
    11
    
    
    
    1
    
    
    
    35Oklahoma
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Pennsylvania
    
    
    18
    
    
    
    10
    
    
    
    1
    
    
    
    29Rhode Island
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Tennessee
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    4Texas
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Virginia
    
    
    4
    
    
    
    9
    
    
    
    
    
    
    
    13Washington D.C.
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3West Virginia
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Wisconsin
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3116
    
    
    
    172
    
    
    
    26
    
    
    
    314
 We maintain buying offices in Columbus, Ohio; a suburb of Boston, Massachusetts; New
York, New York and Los Angeles, California. We operate 6 warehouse/distribution complexes located
in Columbus, Ohio and one distribution facility in Auburn, Massachusetts. In addition, to expedite
the flow of merchandise to certain clusters of stores, we use third party processors and utilize
vendor direct shipments where such use is advantageous. Our primary
RVI executive offices occupy approximately
45,000 square feet in a building which includes a store and also serves as one of our apparel
distribution centers. The stores and all of the warehouse, buying and executive office facilities are leased or
subleased except for one owned shoe store location. As of January 29, 2005, we leased or subleased
36 stores and 5 warehouse facilities and a parcel of land from SSC or entities affiliated with SSC.
The remaining stores and warehouses are leased from unrelated entities. Most of the store leases
provide for an annual rent based upon a percentage of gross sales, with a specified minimum rent. Our warehouse and distribution facilities for our Value City and Filenes Basement businesses
are adequate for our current needs and we believe that such facilities, with certain modifications
and additional equipment, will be adequate for our foreseeable future demands. With respect to
DSW, we believe that our receiving and distribution process and infrastructure will support our
anticipated growth in 2005. We may need to increase our distribution capacity in 2006 to
accommodate our expanding retail store base. Because our ability to expand our distribution
facilities at our current site is limited, we may need to acquire, construct or lease additional
distribution facilities in other geographic locations to accommodate our planned expansion. 15




---



##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS. We are involved in various legal proceedings that are incidental to the conduct of our
business. In the opinion of management, the amount of any liability with respect to these
proceedings, either individually or in the aggregate, will not be material. In March 2005, Retail Ventures announced that it had recently learned of the theft of credit
card and other purchase information from 103 DSW stores. We now
believe that the theft occurred at 108 DSW stores. Federal law enforcement officials are
involved in the investigation of this incident and we have engaged a leading computer security firm
to assist us in a review of our technology systems. While no litigation regarding this theft is
currently pending, there can be no assurance that there will not be in the future. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 16




---



##### Table of Contents



PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common shares are listed for trading under the ticker symbol RVI on the New York Stock
Exchange. The following table sets forth the high and low sales prices of our common shares as
reported on the NYSE Composite Tape during the periods indicated. As of March 31, 2005, there were
505 holders of record of our common shares. High
    
    
    LowFiscal 2003:First Quarter
    
    $
    2.26
    
    
    $
    1.48Second Quarter
    
    
    3.25
    
    
    
    1.90Third Quarter
    
    
    5.88
    
    
    
    2.02Fourth Quarter
    
    
    6.30
    
    
    
    4.10Fiscal 2004:First Quarter
    
    $
    8.60
    
    
    $
    5.02Second Quarter
    
    
    9.70
    
    
    
    6.13Third Quarter
    
    
    8.04
    
    
    
    6.32Fourth Quarter
    
    
    7.67
    
    
    
    6.02Fiscal 2005:First Quarter (through March 31, 2005)
    
    $
    10.25
    
    
    $
    6.60
 We have paid no dividends and we do not anticipate paying cash dividends on our common shares
during fiscal 2005. Presently we expect that all of our future earnings will be retained for
development of our businesses. The payment of any future dividends will be at the discretion of our
board of directors and will depend upon, among other things, future earnings, operations, capital
requirements, our general financial condition and general business conditions. The Companys
credit facilities restrict the payment of dividends by the Company or any affiliate of the borrower
or guarantor, other than dividends paid in stock of the issuer or paid to another affiliate, and
cash dividends can only be paid to the Company by its subsidiaries up to the aggregate amount of
$5.0 million less the amount of any borrower advances made to the Company by any subsidiaries. The
Companys credit facilities also restrict the ability of the Company and its subsidiaries to issue
dividend notes or similar instruments unless the Companys several lenders have agreed on how
such dividend notes or similar instruments would be treated for collateral purposes. The
Companys credit facilities are more fully explained in Item 7 on page 20 of this Annual Report. In connection with our refinancing, we amended and restated our $75 million convertible loan
on June 11, 2002. Pursuant to the terms of the convertible loan, the lenders may, at their option,
convert the convertible loan into common shares at a conversion rate of $4.50 per share, subject to
adjustment. We relied on the exemption from registration contained in Section 4(2) of the
Securities Act of 1933 for this issuance. In connection with our refinancing, on September 26, 2002 we issued warrants to purchase
2,954,792 common shares at $4.50 per share, subject to adjustment. We relied on the exemption from
registration contained in Section 4(2) of the Securities Act of 1933 for this issuance. For
information relating to the Companys failure to register our
common shares in connection with The
Profit Sharing and 401K Plan as amended and restated effective January 1, 2000, and its Employee
Stock Purchase Plan, see Note 7 to the consolidated financial statements beginning on page F-19 of
the Annual Report. 17




---



##### Table of Contents



The following table provides information with respect to purchases Retail Ventures made of its
common shares during the fourth quarter of the 2004 fiscal year, if any: Total Number of
    
    
    Maximum NumberTotal Number
    
    
    
    
    
    
    Shares Purchased
    
    
    of Shares that Mayof
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Yet be PurchasedShares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Under Plans orPurchased
    
    
    Share
    
    
    or Programs
    
    
    ProgramsNovember 1, 2004 - November 30, 2004
    
    None
    
    
    
    
    
    
    
    
    
    NoneDecember 1, 2004 - December 31, 2004
    
    None
    
    
    
    
    
    
    
    
    
    NoneJanuary 1, 2005- January 29, 2005
    
    None
    
    
    
    
    
    
    
    
    
    NoneTotal
    
    None
    
    
    
    
    
    
    
    
    
    None
 18




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth for the periods indicated various selected financial
information. Such selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements of Retail Ventures, Inc. including the notes thereto, set forth
in Item 8 of this Annual Report on Form 10-K and Managements Discussion and Analysis of Financial
Condition and Results of Operations set forth in Item 7 of this Annual Report on Form 10-K. For the Fiscal Year Ended1/29/2005
    
    
    1/31/2004
    
    
    2/1/2003
    
    
    2/2/2002
    
    
    2/3/2001(1)Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated(dollars in thousands, except per share amounts and net sales per selling square feet)Net sales
    
    $
    2,739,631
    
    
    $
    2,594,206
    
    
    $
    2,450,719
    
    
    $
    2,283,878
    
    
    $
    2,213,017Operating profit (loss)
    
    $
    6,685
    
    
    $
    31,658
    
    
    $
    36,706
    
    
    $
    (15,430
    )
    
    $
    (133,753
    )Loss before cumulative
effect of accounting change
    
    $
    (19,448
    )
    
    $
    (5,219
    )
    
    $
    (2,357
    )
    
    $
    (30,256
    )
    
    $
    (103,006
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    $
    (2,080
    )
    
    
    
    
    
    
    Net loss
    
    $
    (19,448
    )
    
    $
    (5,219
    )
    
    $
    (4,437
    )
    
    $
    (30,256
    )
    
    $
    (103,006
    )Basic loss per share before
cumulative effect of accounting change
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.07
    )
    
    $
    (0.90
    )
    
    $
    (3.07
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    $
    (0.06
    )
    
    
    
    
    
    
    Basic loss per share
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.13
    )
    
    $
    (0.90
    )
    
    $
    (3.07
    )Diluted loss per share
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.13
    )
    
    $
    (0.90
    )
    
    $
    (3.07
    )Total assets
    
    $
    983,355
    
    
    $
    867,521
    
    
    $
    835,055
    
    
    $
    883,045
    
    
    $
    909,511Working capital
    
    $
    236,180
    
    
    $
    230,277
    
    
    $
    177,583
    
    
    $
    225,740
    
    
    $
    209,900Current ratio
    
    
    1.66
    
    
    
    1.86
    
    
    
    1.58
    
    
    
    1.77
    
    
    
    1.65Long-term obligations
    
    $
    343,375
    
    
    $
    326,940
    
    
    $
    264,664
    
    
    $
    337,199
    
    
    $
    326,449Number of:(2)Value City Stores
    
    
    116
    
    
    
    116
    
    
    
    116
    
    
    
    117
    
    
    
    119DSW Stores
    
    
    172
    
    
    
    142
    
    
    
    126
    
    
    
    104
    
    
    
    78Filenes Basement Stores
    
    
    26
    
    
    
    21
    
    
    
    20
    
    
    
    20
    
    
    
    19Net sales per selling sq. ft.(3)
    
    $
    221
    
    
    $
    225
    
    
    $
    224
    
    
    $
    233
    
    
    $
    234Comparable store sales change(4)
    
    
    (1.0
    )%
    
    
    1.2
    %
    
    
    (3.5
    )%
    
    
    (2.4
    )%
    
    
    (1.1
    )%
   (1)
    Fiscal 2000 contains 53 weeks; all other years contain 52 weeks.(2)
    Includes all stores operating at the end of the fiscal year.(3)
    Presented in whole dollars and excludes stores not operated
during the entire fiscal period.(4)
    A store or leased department is considered to
be comparable if it has been opened 14 months at the beginning of the fiscal year. For
fiscal year 2000, comparable store sales are computed using like 52-week periods. 19




---



##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS If we are unable to retain current and attract new customers to our Value City business segment,
our results of operations, financial condition and business could be adversely affected. Our ability to execute to our new managements strategy for the Value City segment is
necessary to reverse the downward sales trend we have experienced. This strategy includes
acquiring the right mix of merchandise in our key fashion areas of ladies and mens, of acquiring in
season merchandise sooner in the season in complete runs (size and color) in recognizable brands
and of identifying the prevailing fashion trend. Our advertising and marketing efforts to retain
and draw new customers will need to be focused on this strategy. The failure to impact the
customers we have and draw in new customers may result in stores being unprofitable, which could,
in turn, have an adverse impact on our business, financial condition and results of operations. We may be unable to open all the DSW and Filenes Basement stores contemplated by our growth
strategy on a timely basis, and new stores we open may not be profitable or may have an adverse
impact on the profitability of existing stores, any of which could have a material adverse affect
on our business, financial condition and results of operations. We intend to open approximately 4 and 30 stores per year in the four years from 2005
through 2008 for Filenes Basement and DSW, respectively.
However, we may not achieve
our planned expansion on a timely and profitable basis or that we will be able to achieve results
similar to those achieved in existing locations in prior periods. Our ability to open and operate
new DSW and Filenes Basement stores successfully on a timely and profitable basis depends on many
factors, including, among others, our ability to:  
    identify suitable markets and sites for new store locations;
    negotiate favorable lease terms;
    build-out or refurbish sites on a timely and effective basis;
    obtain sufficient levels of inventory to meet the needs of new stores;
    obtain sufficient financing and capital resources or generate sufficient cash flows from operations to fund growth;
    successfully open new DSW and Filenes Basement stores
in regions of the United States in which we currently have few or no
stores;
    open new stores at costs not significantly greater than those anticipated;
    control the costs of other capital investments associated with store openings,
including, for example, those related to the expansion of distribution facilities;
    hire, train and retain qualified managers and store personnel; and
    successfully integrate new stores into our existing infrastructure, operations and
management and distribution systems or adapt such infrastructure, operations and
systems to accommodate our growth. As a result, we may be unable to open new stores at the rates expected or at all. If we fail
to successfully implement our growth strategy, the opening of new stores could be delayed or
prevented, could cost more than anticipated and could divert resources 20




---



##### Table of Contents



from other areas of our business, any of which could have a material adverse effect on our
business, financial condition and results of operations. To the extent that we open new stores in our existing markets, we may experience reduced net
sales in existing stores in those markets. As the number of our stores increases, our stores will
become more concentrated in the markets we serve. As a result, the number of customers and
financial performance of individual stores may decline and the average sales per square foot at our
stores may be reduced. This could have a material adverse effect on our business, financial
condition and results of operations. We rely on our good relationships with vendors to purchase brand name and designer merchandise at
favorable prices. If these relationships were to be impaired, we may not be able to obtain a
sufficient selection of merchandise at attractive prices, and we may not be able to respond
promptly to changing fashion trends, either of which could have a negative impact on our
competitive position, our business and financial performance. We do not have long-term supply agreements or exclusive arrangements with any vendors (except
for greeting cards and bottled drinks) and, therefore, our success depends on maintaining good
relations with our vendors in all business segments. Since our business is fundamentally dependent
on selling brand name and designer merchandise at attractive prices, we must continue to obtain
from our vendors a wide selection of this merchandise at favorable wholesale prices. Our growth
strategy depends to a significant extent on the willingness and ability of our vendors to supply us
with sufficient inventory to stock our new stores. If we fail to continue to deepen and strengthen
our relations with our existing vendors to improve the quality of merchandise they supply us and
fail to acquire new vendors of in-season brand name and designer merchandise, we may limit our
ability to obtain a sufficient amount and variety of merchandise at favorable prices, which could
have a negative impact on our competitive position. We may be unable to anticipate and respond to fashion trends and consumer preferences in the
markets in which we operate, which could adversely affect our business, financial condition and
results of operations. Our merchandising strategy is based on identifying each regions customer base and having the
proper mix of products in each store to attract its target customers. This requires us to
anticipate and respond to numerous and fluctuating variables in fashion trends and other conditions
in the markets in which our stores are situated. A variety of factors will affect our ability to
maintain the proper mix of products in each store, including:  
    variations in local economic conditions, which could affect our customers discretionary spending;
    unanticipated fashion trends;
    our success in developing and maintaining vendor relationships that provide us
access to in-season merchandise at attractive prices;
    our success in distributing merchandise to our stores in an efficient manner; and
    changes in weather patterns, which in turn affect consumer preferences. If we are unable to anticipate and fulfill the merchandise needs of each region, we may
experience decreases in our net sales and may be forced to increase markdowns in relation to
slow-moving merchandise, either of which could have an adverse effect on our business, financial
condition and results of operations. Seasonal variability of operations. Our operations have been historically seasonal, with a disproportionate amount of sales and a
majority of net income occurring in the fall and Christmas selling seasons for Value City and
Filenes Basement. DSW net sales have typically been higher in spring and early fall. As a result
of seasonality, any factors negatively affecting us during these periods, including adverse
weather, the timing and level of markdowns or unfavorable economic conditions, could have a
material adverse effect on our financial condition and results of operations for the entire year. Our comparable store sales and quarterly financial performance may fluctuate for a variety of
reasons in addition to seasonal factors, which could result in a decline in the price of our common
shares. Our business is sensitive to customers spending patterns, which in turn are subject to
prevailing regional and national economic conditions and the general level of economic activity.
Our comparable store sales and quarterly results of operations have
fluctuated in the past, and we expect them to continue to fluctuate in the future. In addition
to seasonal fluctuations, including weather patterns, a variety of other factors affect our
comparable store sales and quarterly financial performance, including: 21




---



##### Table of Contents




    changes in our merchandising strategy;
    timing and concentration of new store openings and related pre-opening and other start-up costs;
    levels of pre-opening expenses associated with new stores;
    changes in our merchandise mix;
    changes in and regional variations in demographic and population characteristics;
    timing of promotional events;
    actions by our competitors; and
    general United States economic conditions and, in particular, the retail sales environment. Accordingly, our results for any one fiscal quarter are not necessarily indicative of the
results to be expected for any other quarter, and comparable store sales for any particular future
period may decrease. In the future, our financial performance may fall below the expectations of
securities analysts and investors. In that event, the price of our common shares could decline. Our stock price may fluctuate significantly, which could negatively affect the trading of our
common shares. The market price of our common shares has fluctuated significantly in the past and may likely
continue to fluctuate in the future. Various factors and events have caused this fluctuation and
are likely to cause the fluctuations to continue. These factors include, among others:  
    developments related to the proposed DSW IPO;
    quarterly variations in actual or anticipated operating results;
    changes by securities analysts in estimates regarding Retail Ventures;
    conditions in the retail industry;
    the condition of the stock market; and
    general economic conditions. Our failure to retain our existing senior management team and to continue to attract qualified new
personnel could adversely affect our business. Our business requires disciplined execution at all levels of our organization to ensure that
we continually have sufficient inventories of assorted brand name merchandise at below traditional
retail prices. This execution requires an experienced and talented management team. If we were to
lose the benefit of the experience, efforts and abilities of any of our key executive and buying
personnel, our business could be adversely affected. We have entered into employment agreements
with certain of these officers. Furthermore, our ability to manage our retail expansion will
require us to continue to train, motivate and manage our employees and to attract, motivate and
retain additional qualified managerial and merchandising personnel. Competition for these personnel
is intense, and we may not be successful in attracting, assimilating and
retaining the personnel required to grow and operate profitably. We may be unable to compete favorably in our highly competitive markets. The off-price retail, department store and retail footwear markets are highly competitive with
few barriers to entry. We compete against a diverse group of retailers, both small and large,
including locally owned, regional and national department stores, specialty retailers, discount
chains and off-price retailers. Some of our competitors are larger and have substantially greater
resources than we do. Our success depends on our ability to remain competitive with respect to
style, price, brand availability and customer service. The performance of our competitors, as well
as a change in their pricing policies, marketing activities and other business strategies, could
have an adverse effect on our business, financial condition, results of operations and our market
share. 22




---



##### Table of Contents



A decline in general economic conditions, or the outbreak or escalation of war or terrorist acts,
could lead to reduced consumer demand for our merchandise. Consumer spending habits, including spending for the merchandise that we sell, are affected
by, among other things, prevailing economic conditions, levels of employment, salaries and wage
rates, prevailing interest rates, income tax rates and policies, consumer confidence and consumer
perception of economic conditions. In addition, consumer purchasing patterns may be influenced by
consumers disposable income. A general slowdown in the U.S. economy or an uncertain economic
outlook could adversely affect consumer spending habits. Consumer confidence is also affected by the domestic and international political situation.
The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or
affecting the United States, could lead to a decrease in spending by consumers. In the event of an
economic slowdown, we could experience lower net sales than expected on a quarterly or annual basis
and be forced to delay or slow our retail expansion plans. We rely on foreign sources for our merchandise, and our business is therefore subject
to risks associated with international trade. We purchase merchandise from domestic and foreign vendors. In addition, many of our domestic
vendors import a large portion of their merchandise from abroad. For this reason, we face risks
inherent in purchasing from foreign suppliers, such as:  
    economic and political instability in countries where these suppliers are located;
    international hostilities or acts of war or terrorism affecting the United States
or foreign countries from which our merchandise is sourced;
    increases in shipping costs;
    transportation delays and interruptions, including as a result of increased
inspections of import shipments by domestic authorities;
    work stoppages;
    adverse fluctuations in currency exchange rates;
    laws of the United States affecting the importation of goods, including duties,
tariffs and quotas and other non-tariff barriers;
    expropriation or nationalization;
    changes in local government administration and governmental policies;
    changes in import duties or quotas;
    compliance with trade and foreign tax laws; and
    local business practices, including compliance with local laws and with domestic and international labor standards. We require our vendors to operate in compliance with applicable laws and regulations and our
internal requirements. However, we do
not control our vendors or their labor and business practices. The violation of labor or other laws
by one of our vendors could have an adverse effect on our business. We face significant security risks related to our electronic processing and transmission of
confidential customer information. On March 8, 2005, we
announced the theft of credit card and other purchase information of
DSW customers, which could affect our
reputation and business and subject us to liability. We rely on commercially available encryption software and other technologies to provide
security for processing and transmission on confidential customer information, such as credit card
numbers. Advances in computer capabilities, new discoveries in the field of cryptography, or other
events or developments, including improper acts by third parties, may result in a compromise or
breach of the security measures we use to protect customer transaction data. Compromises of these
security systems could have an adverse effect on our reputation and business, and we may be subject
to liabilities and reporting obligations. A party who is able to 23




---



##### Table of Contents



circumvent our security measures
could misappropriate our information, cause interruptions in our operations, damage our reputation
and customers willingness to shop in our stores and subject us to possible liability. We may be
required to expend significant capital and other resources to protect against these security
breaches or to alleviate problems caused by these breaches. In March 2005, we announced that we had learned of the theft of credit card and other purchase
information relating to customers who made purchases at 103 DSW stores during mid-December of
2004 to mid-February of 2005. We now believe that the theft occurred
at 108 DSW stores. We cannot yet reasonably estimate what the potential liability to us
in connection with these events is, and we do not yet know what effect this incident may have on
DSW customers perception of us. The proposed IPO of DSW may not be completed. If the IPO is not completed, net proceeds which we
would have received from the IPO will not be available to repay indebtedness, including
indebtedness to related parties. Additionally, we will have incurred expenses to date in
connection with the IPO for which we will not receive any benefits. The IPO may not be completed. We have anticipated that a portion of the net proceeds of the
IPO will be used to repay $165 million of intercompany indebtedness owed by DSW to Retail Ventures.
It is anticipated that Retail Ventures will then apply the amount received from DSW to the partial
payment of obligations evidenced by a $240 million promissory note made by Retail Ventures payable
to its subsidiary, Value City, issued in December 2004. It is anticipated that Value City will
then apply a portion of the amount received from Retail Ventures to the payment in full of all
outstanding indebtedness and obligations owed by Value City (and other affiliates of Retail
ventures) under a $100 million term loan agreement with related parties. This $100 million term
loan has an annual effective rate of interest of 15%-15 1/2%, and matures in June 2006. The
remaining portion of the proceeds of any such $165 million repayment is to be used (i) first, to
repay (subject to the ability to reborrow) a portion of the obligations outstanding under our
Revolving Credit Facility, and (ii) second, to the extent of any excess, for working capital and
general corporate purposes. If the IPO is not completed, we may be unable to prepay our
obligations under the Term Loan Agreement, and a significant portion of our cash flow from
operations will continue to be dedicated to the payment of interest on the term loan, and will not
be available for other purposes. In addition, if the IPO is not completed, we will have incurred
significant expenses in connection with the IPO which we will be unable to recoup, and for which we
will not receive any benefits. CRITICAL ACCOUNTING POLICIES Managements Discussion and Analysis discusses the results of operations and financial
condition as reflected in our Consolidated Financial Statements, which have been prepared in
accordance with generally accepted accounting principles. As discussed in Note 1 to our
Consolidated Financial Statements, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of commitments and
contingencies at the date of the financial statements and reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its estimates and judgments,
including, but not limited to, those related to inventory valuation, depreciation, amortization,
recoverability of long-lived assets including intangible assets, the calculation of retirement
benefits, estimates for self insurance reserves for health and welfare, workers compensation and
casualty insurance, income taxes, contingencies, litigation and revenue recognition. Management
bases its estimates and judgments on its historical experience and other relevant factors, the
results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The process of determining
significant estimates is fact specific and takes into account factors such as historical
experience, current and expected economic conditions, product mix, and in some cases, actuarial and
appraisal techniques. We constantly re-evaluate these significant factors and make adjustments
where facts and circumstances dictate. While we believe that our historical experience and other factors considered provide a
meaningful basis for the accounting policies applied in the preparation of the Consolidated
Financial Statements, we cannot guarantee that our estimates and assumptions will be accurate. As
the determination of these estimates requires the exercise of judgment, actual results inevitably
will differ from those estimates, and such differences may be material to the financial statements. We believe the following represent the most critical estimates and assumptions, among others,
used in the preparation of our Consolidated Financial Statements. We have discussed the selection,
application and disclosure of the critical accounting policies with our audit committee.  
    Revenue Recognition.Revenues from merchandise sales are recognized at the point
of sale and are net of returns and exclude sales tax. Revenue from gift cards is
deferred and is recognized upon redemption of the gift cards. Layaway sales are
recognized when the merchandise has been paid for in full.
    Cost of Sales and Merchandise Inventories.We use the retail method of
accounting for substantially all of our merchandise inventories. Merchandise
inventories are stated at the lower of cost, determined using the first-in,
first-out basis, or market, using the retail inventory method. The retail 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 24




---



##### Table of Contents



margins are calculated by applying a calculated cost to retail ratio to the retail
value of inventories. The cost of the inventory reflected on our consolidated
balance sheet is decreased by charges to cost of sales at the time the retail value
of the inventory is lowered through the use of markdowns. Hence, earnings are
negatively impacted as merchandise is marked down prior to sale. Reserves to value
inventory at the lower of cost or market were $42.8 million and $34.2 million at
the end of fiscal 2004 and 2003, respectively. Inherent in the calculation of inventories are certain significant management
judgments and estimates including, setting the original merchandise retail value or
markon, markups of initial prices established, reduction of pricing due to customers
value perception or perceived value, known as markdowns, and estimates of losses
between physical inventory counts or shrinkage, which, combined with the averaging
process within the retail method, can significantly impact the ending inventory
valuation at cost and the resulting gross margins.  
    Asset Impairments and Long-lived Assets.We must periodically evaluate the
carrying amount of our long-lived assets, primarily property and equipment, and
finite life intangible assets when events and circumstances warrant such a review
to ascertain if any assets have been impaired. The carrying amount of a long-lived
asset is considered impaired when the carrying value of the asset exceeds the
expected future cash flows (undiscounted and without interest) from the asset. Our
reviews are conducted down at the lowest identifiable level, which include a store.
The impairment loss recognized is the excess of the carrying value, based on
discounted future cash flows, of the asset over its fair value. Should an
impairment loss be realized, it will be included in operating expenses. During fiscal
2004, fiscal 2003 and fiscal 2002, we recorded $2.9 million
(including the impairment of a capital lease of $1.2 million
related to a store closing), $0.3
million and $0.6 million in charges, respectively, related to long-lived assets at
store operating units. During fiscal 2004 we recorded a non-cash charge of $11.7 million, $6.9 million net
of taxes, for the impairment of goodwill related to Filenes Basement. In fiscal
2002, we recorded a charge as a result of the implementation of SFAS 142, which
requires that goodwill no longer be amortized. The initial tests for goodwill
impairment, as of February 3, 2002, resulted in a non-cash charge of $3.4 million,
$2.1 million net of taxes, which is reported in our Consolidated Statement of
Operations as of February 1, 2003 in the caption Cumulative effect of accounting
change. Substantially all of the charge relates to goodwill associated with our
purchase of Mazels interest in VCM and is included in the net loss for the year
ended February 1, 2003. The balance of goodwill subject to goodwill annual testing at the end of the current
fiscal year was $25.9 million on the DSW segment. We believe at this time that the long-lived assets carrying values and useful lives
continue to be appropriate. To the extent these future projections or our strategies
change, the conclusion regarding impairment may differ from our current estimates.  
    Self-insurance Reserves. We record estimates for certain health and welfare,
workers compensation and casualty insurance costs that are self-insured programs.
These estimates are based on actuarial assumptions and are subject to change based
on actual results. Should costs of certain health and welfare, workers compensation
and casualty insurance increase beyond what was anticipated, reserves recorded may
not be sufficient and to the extent actual results vary from assumptions, earnings
would be impacted.
    Pension. The obligations and related assets of defined benefit retirement plans
are presented in Note 6 of the Notes to Consolidated Financial Statements page F-17
of this Annual Report. Plan assets, which consist primarily of
marketable equity and debt instruments, are valued using market quotations. Plan
obligations and the annual pension expense are determined by independent actuaries
and through the use of a number of assumptions. Key assumptions in measuring the plan
obligations include the discount rate, the rate of salary increases and the estimated
future return on plan assets. In determining the discount rate, we utilize the yield
on fixed-income investments currently available with maturities corresponding to the
anticipated timing of the benefit payments. Salary increase assumptions are based
upon historical experience and anticipated future management actions. Asset returns
are based upon the anticipated average rate of earnings expected on the invested
funds of the plans. At January 29, 2005, the weighted-average actuarial assumption of
our plans was: discount rate 5.75%, assumed salary increases 4.0% and long-term rate
of return on plan assets 8.0%. To the extent actual results vary from assumptions,
earnings would be impacted.
    Customer Loyalty Program. We maintain a customer loyalty program for our DSW
stores in which customers receive a future discount on qualifying purchases. The
Reward Your Style program is designed to promote customer awareness and loyalty
plus provide the Company with the ability to communicate with our customers and
enhance our understanding of their spending trends. While the program develops
customer loyalty, it also provides 25




---



##### Table of Contents



DSW with valuable market intelligence and
purchasing information regarding its most frequent customers. Upon reaching the
target level, customers may redeem these discounts on a future purchase.
Generally, these future discounts must be redeemed within six months. We accrue
the estimated costs of the anticipated redemptions of the discount earned at the
time of the initial purchase and charge such costs to selling, general and
administrative expense based on historical experience. The estimates of the costs
associated with the loyalty program require us to make assumptions related to
customer purchase levels and redemption rates. The accrued liability as of January
29, 2005 and January 31, 2004 was $4.5 million and $3.0 million, respectively. To
the extent assumptions of purchases and redemption rates vary from actual results,
earnings would be impacted. During the third quarter of 2004, Filenes Basement implemented a limited-time
customer rewards program that ended in December 2004. The rewards program provided
qualifying customers with Filenes Basement gift cards in various denominations
based on their cumulative spending during the program period. Filenes Basement had
an accrued liability related to the rewards program of $0.8 million at January 29,
2005. Filenes Basement plans to utilize this customer database for direct mail and e-mail
marketing efforts during fiscal 2005.  
    Income Taxes. We are required to determine the aggregate amount of income tax
expense to accrue and the amount which will be currently payable based upon tax
statutes of each jurisdiction we do business in. In making these estimates, we
adjust income based on a determination of generally accepted accounting principles
for items that are treated differently by the applicable taxing authorities.
Deferred tax assets and liabilities, as a result of these differences, are
reflected on our balance sheet for temporary differences that will reverse in
subsequent years. A valuation allowance is established against deferred tax assets
when it is more likely than not that some or all of the deferred tax assets will
not be realized. If our management had made these determinations on a different
basis, our tax expense, assets and liabilities could be different. During fiscal
2004, we established a valuation allowance for deferred income tax assets of $3.2 million for
carry forwards related to state net operating losses. During fiscal 2003, we
established a valuation allowance for deferred income tax assets of $1.5 million for charitable
contribution carry forwards. RESULTS OF OPERATIONS We
operate three business operating segments. Value City and Filenes Basement segments operate
full-line, off-price department stores. Our DSW segment sells better-branded off-price shoes and
accessories. As of January 29, 2005, a total of 116 Value City, 26 Filenes Basement and 172 DSW
stores were open. The following table sets forth, for the periods indicated, the percentage
relationships to net sales of the listed items included in our Consolidated Statements of
Operations. For the Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/0352 Weeks
    
    
    52 Weeks
    
    
    52 WeeksNet sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    (60.7
    )
    
    
    (61.4
    )
    
    
    (61.8
    )Gross profit
    
    
    39.3
    
    
    
    38.6
    
    
    
    38.2Selling, general and administrative expenses
    
    
    (39.3
    )
    
    
    (37.6
    )
    
    
    (37.0
    )License fees and other income
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Operating profit
    
    
    0.2
    
    
    
    1.2
    
    
    
    1.5Interest expense, net
    
    
    (1.4
    )
    
    
    (1.4
    )
    
    
    (1.6
    )Loss before cumulative effect of accounting
change and income taxes
    
    
    (1.2
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Benefit for income taxes
    
    
    0.5
    
    
    
    
    
    
    
    Loss before cumulative effect of accounting change
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Cumulative effect of accounting change, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net loss
    
    
    (0.7
    )%
    
    
    (0.2
    )%
    
    
    (0.2
    )%
 Fiscal Year Ended January 29, 2005 (fiscal 2004) Compared To Fiscal Year Ended January 31,
2004 (fiscal 2003) Sales.Sales for fiscal 2004, increased by 5.6% to $2.7 billion from $2.6 billion in sales
for fiscal 2003. By operating segment, comparable store sales were: 2004
    
    
    2003Value City Department Stores
    
    
    (4.9
    )%
    
    
    (0.7
    )%DSW
    
    
    4.8
    %
    
    
    5.6
    %Filenes Basement
    
    
    5.0
    %
    
    
    2.6
    %Total
    
    
    (1.0
    )%
    
    
    1.2
    %
 26




---



##### Table of Contents



Value City comparable store sales percentages were impacted negatively by decreased customer
traffic in the year and were partially offset by increased average unit retail. Value Citys
non-apparel comparable sales decreased 2.8% and apparel comparable sales declined 6.4% for the
fiscal year. The mens, ladies and childrens apparel divisions had comparable sales declines of
6.2%, 7.7% and 4.0%, respectively. All 116 Value City stores are in our comparative store base. DSW comparable store sales
improved 4.8% as overall sales increased $164.6 million to $937.2
million for the year. The DSW increase includes a net increase of 30
stores and 50 net leased shoe
operations. The DSW operations in the segment merchandise categories
of athletics, womens and
accessories had increases of 11.6%, 4.3% and 9.6%, respectively. The
merchandise category of mens
had a decrease of 0.3%. The increase in athletics was driven by the fashion athletic category, the
increase in womens was driven by the moderate and better categories and the
increase in accessories occurred in the handbag and gift item categories. Filenes Basement sales increased $54.8 million to $371.7 million for the fiscal year.
Filenes Basement had a net increase of five stores during fiscal 2004 and had a comparable store
sale increase of 5.0%. Merchandise categories of mens,
ladies and childrens had comparable store
sale increases of 4.2%, 5.5% and 24.4%, respectively. The shoe, jewelry and home categories had
increases of 9.0%, 2.9% and 2.3%, respectively. Due to the increase in up-front purchasing and
packaways Filenes Basement remained in-stock starting in and during both the spring and fall
season in fiscal 2004. In addition, Filenes Basement allocated
more space to the childrens areas
in the stores to support the increased sales in this category. Gross profit.Consolidated
gross profit increased $75.4 million from $1,001.0 million to
$1,076.4 million, and increased as a percentage of net sales from 38.6% to 39.3%. Value Citys gross
profit decrease is primarily attributable to increased markdowns necessary
to address aged inventory and to accelerate the sale of underperforming fall merchandise. Higher
initial markups as a result of increased average unit retail prices did not offset the increased
markdowns associated with the clearance promotions. Gross profit for our
DSW segment improved as a result of increased average unit retail,
lower costs associated with increased orders and reduced markdowns due to sales increases. Filenes
Basement segments gross profit improved as the result of higher initial markups on
merchandise purchases and a reduction in markdowns. Higher initial markups were the result of
increased average unit retail price increases as measured by transactions through the point of sale
registers. Gross profit, as a percent of sales by segment, was: 2004
    
    
    2003Value City Department Stores
    
    
    38.0
    %
    
    
    38.4
    %DSW
    
    
    43.3
    %
    
    
    41.0
    %Filenes Basement
    
    
    34.2
    %
    
    
    33.4
    %Total
    
    
    39.3
    %
    
    
    38.6
    %
 SG&A.For the year, consolidated selling, general and administrative expenses (SG&A)
increased $101.5 million to $1,076.4 million or 39.3% of sales. The year ended January 29, 2005
includes approximately $1.8 million for store closings
(including the impairment of a capital lease of $1.2 million),
a $1.6 million increase in advertising,
$14.2 million in expenses associated with the termination of executives and associates, $11.7
million associated with the impairment of the Filenes Basement goodwill, $1.7 million in
impairments of fixed assets and $14.4 million in pre-opening costs for new stores. New store
openings in the period were limited to our DSW and Filenes Basement segments. Preparations for
opening a DSW store generally takes 4 to 6 weeks while a typical Filenes Basement store generally
takes 11 to 13 weeks (including construction and setup). Pre-opening costs are expensed as
incurred. It has been our experience that new stores for each of our segments generally achieve
profitability and contribute to net income after the first full year of operations. Pre-opening
expense for the 31 new DSW stores was $10.8 million in fiscal 2004 compared to $5.1 million for the
16 new stores opened in the prior year. Pre-opening expense was $3.6 million for five new Filenes
Basement stores in fiscal 2004 compared to $0.8 million in fiscal 2003 for the one new Filenes
Basement store opened in the prior year. 27




---



##### Table of Contents



SG&A, as a percent of sales by segment, were: 2004
    
    
    2003Value City Department Stores
    
    
    40.1
    %
    
    
    38.1
    %DSW
    
    
    37.5
    %
    
    
    37.7
    %Filenes Basement
    
    
    40.8
    %
    
    
    34.9
    %Total
    
    
    39.3
    %
    
    
    37.6
    %
 License fees and other income.Overall license fees and other income increased $1.1 million
from $5.6 million to $6.7 million. License fees decreased $0.5 million, or 25%, as a result of
lower sales from licensees. Other income increased $1.6 million, or 41.9%, from $3.7 million to
$5.3 million. Other income is comprised of layaway fees and vending income. These sources of
income vary based on customer traffic and contractual arrangements. Operating profit.Operating profit was $6.7 million in fiscal 2004 compared to $31.7 million
in fiscal 2003. As a percentage of net sales operating profit was 0.2% and 1.2% in fiscal 2004 and
2003, respectively. Interest expense.Interest expense, net of interest income, was $38.6 million in fiscal 2004
and fiscal 2003. Interest expense included the amortization of debt discount of $2.0 million in
both fiscal 2004 and 2003. Fiscal Year Ended January 31, 2004 (fiscal 2003) Compared To Fiscal Year Ended February 1, 2003
(fiscal 2002) Sales.Sales for fiscal 2003 increased by 5.9% to $2.59 billion from $2.45 billion for fiscal
2002. By segment, comparable store sales were: 2003
    
    
    2002Value City Department Stores
    
    
    (0.7
    )%
    
    
    (5.1
    )%DSW
    
    
    5.6
    %
    
    
    (0.1
    )%Filenes Basement
    
    
    2.6
    %
    
    
    0.3
    %Total
    
    
    1.2
    %
    
    
    (3.5
    )%
 Comparable store sales percentages were impacted negatively by unseasonable weather in the
early part of fiscal 2003 in all segments. All 116 Value City stores are in our comparative store
base. Value Citys non-apparel comparable sales increased 2.1% for fiscal 2003 and apparel
comparable sales declined 2.4% as compared to fiscal 2002. The childrens apparel division had an
increase of 2.1%, while the mens and ladies apparel divisions had comparable sales declines of
4.6% and 2.4%, respectively. DSW comparable store sales improved 5.6% as overall sales increased
almost $143.7 million to $772.6 million for the year. The DSW increase includes a net increase of
16 stores. Filenes Basement sales increased $13.7 million to $316.9 million for the fiscal year.
Filenes Basement total stores increased due to a single opening during the fiscal year. Gross profit.Consolidated gross profit increased $64.9 million from $936.1 million to
$1,001.0 million, and increased as a percentage of net sales from 38.2% to 38.6% for fiscal 2003 as
compared to fiscal 2002. Value Citys gross profit decrease is
primarily attributable to lower average unit retail prices as a result of lower initial
markups during the year. Gross profit for our DSW and Filenes Basement segments improved as the
result of higher initial markups on merchandise purchases and a reduction in markdowns. Gross
profit, as a percent of sales by segment, was: 2003
    
    
    2002Value City Department Stores
    
    
    38.4
    %
    
    
    38.9
    %DSW
    
    
    41.0
    %
    
    
    39.4
    %Filenes Basement
    
    
    33.4
    %
    
    
    32.2
    %Total
    
    
    38.6
    %
    
    
    38.2
    %
 SG&A.For the year, consolidated SG&A increased $68.2 million to $974.9 million or 37.6% of
sales. Fiscal 2003 includes approximately $1.6 million for store closings, a $16.7 million increase
in advertising and $5.9 million in pre-opening costs for new stores. New store openings in the
period were limited to our DSW and Filenes Basement segments. Preparations for opening a DSW store
or a Filenes Basement store generally take eight to ten weeks. Pre-opening costs are expensed as
incurred. It has been our experience that new stores for each of our segments generally achieve
profitability and contribute to net income after the first full year of operations. Pre-opening
expense for the 16 new DSW stores was $5.1 million in fiscal 2003 compared to $3.8 million for the
22 new stores opened in prior year. Pre-opening expense was $0.8 million in fiscal 2003 and $0.7
million in fiscal 2002 for the one new Filenes Basement store opened in each of those periods.
SG&A, as a percent of sales by segment, were: 28




---



##### Table of Contents



2003
    
    
    2002Value City Department Stores
    
    
    38.1
    %
    
    
    37.6
    %DSW
    
    
    37.7
    %
    
    
    37.1
    %Filenes Basement
    
    
    34.9
    %
    
    
    33.7
    %Total
    
    
    37.6
    %
    
    
    37.0
    %
 License fees and other income.Overall license fees and other income decreased $1.8 million
from $7.4 million to $5.6 million. License fees decreased $0.8 million, or 29.1%, as a result of
lower sales from licensees. Other income decreased $1.0 million, or 21.6%, from $4.8 million to
$3.7 million. Other income is comprised of layaway fees and vending income. These sources of
income vary based on customer traffic and contractual arrangements. Operating profit.Operating profit was $31.7 million in fiscal 2003 compared to $36.7 million
in fiscal 2002. As a percentage of net sales operating profit was 1.2% and 1.5% in fiscal 2003 and
2002, respectively. Interest expense.Interest expense, net of interest income, decreased $0.8 million from $39.4
million in fiscal 2002 to $38.6 million in fiscal 2003 due primarily to the $3.3 million write-off
of unamortized debt costs in 2002 offset by an increase in average weighted borrowings and an
increase in the average weighted borrowing rate in 2003. Interest expense included the amortization
of debt discount of $2.0 million. Seasonality Our business is affected by the pattern of seasonality common to most retail businesses.
Historically, the majority of our sales and operating profit have been generated during the
back-to-school and Christmas selling seasons for our Value City segment and, more recently, our
Filenes Basement segment. DSW net sales have typically been higher in spring and early fall, when DSWs customers interest in new seasonal styles increases. Fiscal Year We follow a 52/53-week fiscal year that ends on the Saturday nearest to January 31. Fiscal
2004, 2003 and 2002 each contain 52 weeks. Income Taxes Our effective tax rate for fiscal 2004 was 39.0%. The effective tax benefits are negatively
impacted due to the write off of net operating losses of $3.1 million as the result of the
reorganization of the Company. During fiscal 2004 and fiscal 2003, we
established a valuation allowance for our deferred tax assets of $3.2 million and $1.5 million,
respectively. The reserve reflects a reduction in the estimated amount for future tax deductions,
primarily for state and local taxes and excess contribution carry forwards. Our effective tax rate for fiscal 2003 was 24.8% versus 12.1% for fiscal 2002. There was an
increase in the effective tax rate primarily due to the increase in non-deductible expenses for tax
purposes and the fluctuation in taxable income. However, that increase was then off-set by the tax
effect of the write-off of financing costs. Adoption of Accounting Standards The Financial Accounting Standards Board (FASB) periodically issues Statements of Financial
Accounting Standards (SFAS), some of which require implementation by a date falling within or
after the close of the fiscal year. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46), which requires the consolidation of certain entities considered to be
variable interest entities (VIEs). An entity is considered to be a VIE when it has equity
investors who lack the characteristics of having a controlling financial interest, or its capital
is insufficient to permit it to finance its activities without additional subordinated financial
support. Consolidation of a VIE by an investor is required when it is determined that the investor
will absorb a majority of the VIEs expected losses or residual returns if they occur. FIN 46
provides certain exceptions to these rules, relating to qualifying special purpose entities
(QSPEs) subject to the requirements of SFAS No. 140. Upon its original issuance, FIN 46 required
that VIEs created after January 31, 2003 would be consolidated immediately, while VIEs created
prior to February 1, 2003 were to be consolidated as of July 1, 2003. In October 2003, the FASB deferred the effective date for consolidation of VIEs created prior
to February 1, 2003 to December 31, 2003 for calendar year-end companies, with earlier application
encouraged. In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarify some of the
provisions of the original interpretation and to exempt certain entities from its requirements. FIN
46R provides special effective date provisions to enterprises that fully or partially applied to
FIN 46 prior to the issuance of the revised interpretation. In particular, entities that have
already 29




---



##### Table of Contents



adopted FIN 46 are not required to adopt FIN 46R until the quarterly reporting period ended
May 1, 2004. Adoption of the required sections of FIN 46, as modified and interpreted, including
the provisions of FIN 46R, did not have any effect on the Companys consolidated financial
statements or disclosures. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in some circumstances),
many of which were previously classified as equity. This statement was effective for financial
instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the
beginning of the first interim period beginning after June 15, 2003. Initial adoption of this
accounting pronouncement did not have a material impact on the Companys consolidated financial
statements. The FASBs Emerging Issues Task Force (EITF) Issue No. 02-16, Accounting By A Customer
(Including A Reseller) For Cash Consideration Received From A Vendor addressed the accounting
treatment for vendor allowances. The adoption of EITF Issue No. 02-16 in 2003 did not have a
material impact on the Companys financial position or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based
Payment. This statement revised SFAS No. 123, Accounting for Stock-Based Compensation, and
requires companies to expense the value of employee stock options and similar awards. The
effective date of this standard is interim and annual periods beginning after June 15, 2005. As of
the date of this report, the Company is evaluating the impact of this statement. Inflation The results of operations and financial condition are presented based upon historical cost.
While it is difficult to accurately measure the impact of inflation because of the nature of the
estimates required, management believes that the effect of inflation, if any, on the results of
operations and financial condition has been minor; however, there can be no assurance that the
business will not be affected by inflation in the future. Liquidity and Capital Resources Our primary ongoing cash requirements are for seasonal and new store inventory purchases,
capital expenditures in connection with expansion and remodeling and infrastructure growth,
primarily information technology development. The primary sources of funds for these liquidity
needs are cash flow from operations and credit facilities. Our working capital and inventory levels
typically build throughout the fall, peaking during the Christmas selling season. Net working capital was $236.2 million and $230.3 million at January 29, 2005 and January 31,
2004, respectively. Current ratios at those dates were 1.7 and 1.9, respectively. Net cash provided
by operating activities totaled $88.5 million and $11.6 million in fiscal 2004 and 2003,
respectively. The net cash increase is reflective of several items, primarily the increase in
accounts payable of $56.9 million and the increase of accrued expenses of $33.0 million and an
increase in borrowings under our revolving credit facility. The increases in inventories due to new
stores were: $25.5 million for DSW, $5.8 million for leased departments and $10.4 million for
Filenes Basement. Cash used for capital expenditures was $83.9 million and $68.7 million for fiscal 2004 and
2003, respectively. During fiscal 2004, capital expenditures included $47.0 million for new stores,
$21.4 million for improvements in existing stores, $5.7 million for office and warehousing and $9.8
million for MIS equipment upgrades and new systems. On June 11, 2002, Value City Department Stores, Inc., together with certain other principal
subsidiaries of Retail Ventures, Inc., entered into a $525.0 million refinancing that consists of
three separate credit facilities (collectively, the Credit Facilities): (i) a three-year $350.0
million revolving credit facility which, in March 2005, was increased from $350.0 million to $425.0
million (the Revolving Credit Facility), (ii) two $50.0 million term loan facilities provided
equally by Cerberus Partners, L.P. (Cerberus) and Schottenstein Stores Corporation (SSC) (the
Term Loans), and (iii) an amended and restated $75.0 million senior subordinated convertible
loan, initially entered into by us on March 15, 2000, which is held equally by Cerberus Partners,
L.P. and SSC (the Convertible Loan). These Credit Facilities are guaranteed by Retail Ventures,
Inc. and substantially all of its subsidiaries. We are not subject to any financial covenants under these credit facilities, however, there
are numerous restrictive covenants relating to our management and operation. These non-financial
covenants include, among other restrictions, limitations on indebtedness, guarantees, mergers,
acquisitions, fundamental corporate changes, financial reporting requirements, budget approval,
disposition of assets, investments, loans and advances, liens, dividends, stock purchases,
transactions with affiliates, issuance of securities and the payment of and modification to debt
instruments. These Credit Facilities are also subject to an Intercreditor Agreement, which provides
for an established order of payment of obligations from the proceeds of collateral upon default
(the Intercreditor Agreement). 30




---



##### Table of Contents



$350 Million Revolving Credit Facility Under the Revolving Credit Facility, the borrowing base formula is structured in a manner that
allows us and our subsidiaries availability based on the value of inventories and receivables.
Primary security for the Revolving Credit Facility is provided by a first priority lien on all of
our inventory and accounts receivable, as well as certain intercompany notes and payment
intangibles. Subject to the Intercreditor Agreement, the Revolving Credit Facility also has a
second priority perfected interest in all of the collateral securing the Term Loans. Interest on
borrowings is calculated at the banks base rate or Eurodollar rate plus 2.00% to 2.75%, depending
upon the level of average excess availability we maintain. During fiscal 2004, the Company extended
the maturity dates of the Revolving Loan by one year. As a result, the maturity date of the
Revolving Loan, which originally matured on June 11, 2005, was extended to June 11, 2006, under
substantially the same terms and conditions. At January 29, 2005 and January 31, 2004, $145.0
million and $137.7 million were available, respectively, under the Revolving Credit Facility.
Direct borrowings aggregated $140.0 million and $125.0 million for fiscal 2004 and fiscal 2003,
respectively, while $29.6 million and $23.4 million letters of credit were issued and outstanding
for fiscal 2004 and fiscal 2003, respectively. In March 2005, the Company increased the ceiling under its revolving credit facility to $425
million. The increase of $75 million to the revolving credit facility was accomplished by
amendment under substantially the same terms to the existing revolving credit agreement which
expires in June 2006. $100 Million Term Loans  Related Parties The Term Loans are comprised of a $50.0 million Term Loan B and a $50.0 million Term Loan C.
All obligations under the Term Loans are senior debt and, subject to the Intercreditor Agreement,
have the same rights and privileges as the Revolving Credit Facility and the Convertible Loan. We
and our principal subsidiaries are obligated on the facility. During fiscal 2004, the Company
extended the maturity dates of the Term Loans by one year. As a result, the maturity date of the
Term Loans, which originally matured on June 11, 2005, was extended to June 11, 2006, under
substantially the same terms and conditions. The Term Loans stated rate of interest per annum depends on whether we elect to pay interest
in cash or a paid-in-kind (PIK) option. During the first two years of the Term Loans, we may pay
all interest in PIK. During the final two years of the Term Loans, the stated rate of interest is
15.0% if paid in cash or 15.5% if PIK and the PIK option is limited to 50% of the interest due.
For the years ended January 31, 2004 and February 1, 2003, we elected to pay interest in cash. We issued 2,954,792 warrants (Warrants) to purchase common shares, at an initial exercise
price of $4.50 per share, to the Term Loan C Lenders. The Warrants are exercisable at any time
prior to June 11, 2012. We have granted the Term Loan C Lenders registration rights with respect
to the shares issuable upon exercise of the Warrants. The $6.1 million value ascribed to the
Warrants was estimated as of the date of issuance using the Black-Scholes Pricing Model with the
following assumptions: risk-free interest rate of 5.6%; expected life of 10 years; expected
volatility of 47%; illiquidity discount of 10%; and an expected dividend yield of 0%. The related
debt discount is amortized into interest expense over the life of the debt. The number of common shares issuable varies upon the occurrence of the following: (i) the
issuance of additional common shares without consideration or for a consideration per common share
less than the Warrant exercise price; (ii) the declaration of any dividend; (iii) the combination
or consolidation of the outstanding common shares into a lesser number of shares; (iv) the
issuance or sale of additional common shares at a price per share less than the current market
price but greater than the Warrant exercise price; (v) the issuance of convertible securities
which are convertible into common shares; and/or (vi) the exchange of common shares in a merger or
other business combination. $75 Million Senior Subordinated Convertible Loan  Related Parties In June 2002, we amended and restated our $75.0 million Convertible Loan dated March 15, 2000.
As amended, borrowings under the Convertible Loan bear interest at 10% per annum. At our option,
interest could have been PIK during the first two years, and thereafter, at our option, up to 50%
of the interest due may be PIK until maturity. PIK interest accrued with respect to the
convertible loan is added to the outstanding principal balance, on a quarterly basis, and is
payable in cash upon the maturity of the debt. The Convertible Loan is guaranteed by all our
principal subsidiaries and is secured by a lien on assets junior to liens granted in favor of the
Revolving Credit Facility and Term Loans. The Convertible Loan is not prepayable until June 11,
2007, and has a maturity date of June 10, 2009. The agent has the right to designate two observers
to our Board of Directors for so long as the agent is the beneficial owner of at least 50% of the
advances initially made by it and has the right to designate two individuals to our Board of
Directors for so long as the agent is the beneficial owner of at least 50% of the conversion shares
issued or issuable upon conversion of the advances initially made by it. The Convertible Loan is convertible at the option of the holders into common shares at an
initial conversion price of $4.50. The conversion price is subject to adjustment upon the
occurrence of specified events. 31




---



##### Table of Contents



Achievement of expected cash flows from operations and compliance with the restrictive
covenants of our credit agreements (see Note 5 to the Consolidated Financial Statements) are
dependent upon a number of factors, including the attainment of sales, gross profit, expense
levels, vendor relations, and flow of merchandise that are consistent with our financial
projections. Future limitations of credit availability by factor organizations and/or vendors will
restrict our ability to obtain merchandise and services and may impair operating results. Although
operating results for fiscal 2004 were negative, we believe that cash generated by operations,
along with the available proceeds from our credit agreements and other sources of financing, will
be sufficient to meet our obligations for working capital, capital expenditures, and debt service
requirements. However, there is no assurance that we will be able to meet our projections.
Further, there is no assurance that extended financing will be available in the future if we fail
to meet our projections or on terms acceptable to us. Other
Debt Items  Financing and DSW IPO The Company announced on March 14, 2005 that DSW had filed a registration statement with the
SEC and plans to pursue an IPO. The Company expects that DSW will complete the IPO in 2005,
subject to market conditions. After the IPO, the Company expects to own a majority of the
outstanding common shares of DSW. DSW will use a portion of the proceeds from the IPO to repay intercompany indebtedness owed to
Retail Ventures. The amount of the proceeds that the Company receives will depend on market
conditions and other factors. The Company believes the proceeds will strengthen its balance sheet
and improve debt coverage. We will use these funds to pay down the Term Loans, which bear interest
at approximately 15% per year, and a portion of our Revolving Credit Facility, which it will
refinance at the time of the IPO. On or about the date of the consummation of the DSW IPO, the Company and its affiliates will
amend and restate the agreement relating to the Revolving Credit Facility, and DSW will be released
from its obligations thereafter. In addition, the Convertible Loan will be converted into a $75
million non-convertible loan. On or about the date of the consummation of the DSW IPO, we expect that DSW will enter into a
new $150 million secured revolving credit facility with a term of five years. This new facility is
expected to have borrowing base restrictions and will provide 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 the new secured revolving credit facility will be guaranteed by its
subsidiary, DSW Shoe Warehouse, Inc. and secured by a lien on substantially all DSWs property. In connection with the amendment of the agreement governing the Term Loan Facility, the
Company has agreed to amend the outstanding warrants to provide SSC, Cerberus and Back Bay Capital
Funding LLC the right, from time to time, either to (i) acquire Company common shares at the then
current conversion price (subject to the existing antidilution provisions) or (ii) acquire from the
Company Class A common shares of DSW at the price of shares sold in the IPO (subject to
antidilution provisions similar to those in the existing warrants). In addition, in connection with the amendment of the agreement governing the Convertible Loan
Facility, the Company has agreed to issue to SSC and Cerberus convertible warrants which will be
exercisable from time to time until the later of June 11, 2007 and the repayment in full of Value
Citys obligations under the amended convertible loan agreement. Under the convertible warrants,
SSC and Cerberus will have, from time to time, the right either to (i) acquire Retail Ventures
common shares at the conversion price referred to in the convertible loan (subject to existing
antidilution provisions) or (ii) acquire from Retail Ventures Class A common shares of DSW at a
strike price equal to the price of the shares sold to the public in the IPO (subject to
antidilution provisions similar to those in the existing warrants). SSC and Cerberus may acquire an
aggregate number of Class A common shares of DSW from Retail Ventures which, at the price of shares
sold to the public in this offering, have a value equal to the outstanding principal amount of the
amended loan facility. Contractual Obligations We
have the following minimum commitments under contractual obligations. A purchase obligation is defined as an agreement to purchase goods or services that is
enforceable and legally binding on us and that specifies all significant terms, including: fixed or
minimum quantities to be purchased, fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Other long-term liabilities are defined as long-term
liabilities that are reflected on our balance sheet under generally accepting accounting principles
of the United States of America. Based on this definition, the tables below include only those
contracts, which include fixed or minimum obligations. It does not include normal purchases, which
are made in the ordinary course of business. The following table provides aggregated information about contractual obligations and other
long-term liabilities as of January 29, 2005 (dollars in thousands). 32




---



##### Table of Contents



Payments due by PeriodNoLess Than
    
    
    1-3
    
    
    3-5
    
    
    More Than
    
    
    ExpirationContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years
    
    
    DateLong-term debt
    
    $
    315,021
    
    
    $
    21
    
    
    $
    240,000
    
    
    $
    75,000
    
    
    
    
    
    
    
    Capital lease and operating lease
obligations(1)
    
    
    1,402,169
    
    
    
    156,237
    
    
    
    301,937
    
    
    
    268,007
    
    
    $
    675,988
    
    
    
    Pension
benefit obligations
    
    
    2,450
    
    
    
    2,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
commitments(2)
    
    
    1,391
    
    
    
    1,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase
obligations(3)
    
    
    37,507
    
    
    
    8,444
    
    
    
    17,693
    
    
    
    7,387
    
    
    
    3,388
    
    
    $
    595Total
    
    $
    1,758,538
    
    
    $
    168,543
    
    
    $
    559,630
    
    
    $
    350,394
    
    
    $
    679,376
    
    
    $
    595
   1.
    Capital and operating leases require us, as part of the lease,
to pay for common area maintenance and real estate taxes. In
fiscal 2004, the common area maintenance and real estate taxes
represented 31.9% of the required lease payment. These costs vary
year by year and based almost entirely on actual costs incurred by
the landlord and as such are not included in the lease obligations
presented above.2.
    Construction commitments include capital items to be purchased for projects that were
under construction, or for which a lease had been signed, as of January 29, 2005.3.
    Many of our purchase commitments are cancelable by us without payment or penalty, and
we have excluded such commitments, along with all associate employment and intercompany
commitments. We have outstanding letters of credit and stand-by letters of credit that total approximately
$29.6 million at January 29, 2005. If certain conditions are met under the arrangement, we would be
required to satisfy the obligations in cash. Due to the nature of these arrangements and based on
historical experience, we do not expect to make any significant payment outside of terms set forth
in these arrangements. Additional information regarding our financial commitment as of January 29, 2005 is provided
in the Notes to Consolidated Financial Statements. See Notes to Consolidated Statements, Note 5  Long-Term
Obligations and Notes Payable beginning on page F-15 and Note 10  Commitments and Contingencies
beginning on page F-22. Off-Balance Sheet Arrangements It is not our intention to participate in transactions that generate relationships with
unconsolidated entities or financial partnerships such as special purpose entities (SPEs) or
variable interest entities (VIEs), which would facilitate off balance sheet arrangements or other
limited purposes. As of January 29, 2005, we are not involved in any unconsolidated SPEs or VIEs as
defined in Item 303 (a)(4)(ii) of Regulation S-K. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to market risk from changes in interest rates, which may adversely affect our
financial position, results of operations and cash flows. In seeking to minimize the risks from
interest rate fluctuations, we manage exposures through our regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial instruments. We do
not use financial instruments for trading or other speculative purposes and are not party to any
leveraged financial instruments. We are exposed to interest rate risk primarily through our borrowings under our Revolving
Credit Facility. At January 29, 2005, direct borrowings aggregated $140.0 million. The Revolving
Credit Facility permits debt commitments up to $350.0 million, matures on June 11, 2006 and
generally bears interest at a floating Eurodollar rate plus 2.0% to 2.75% based on the average
excess availability during the previous quarter. We have in the past used, and may in the future
use, interest rate swap agreements to effectively establish long-term fixed rates on borrowings
under the Revolving Credit Facility, thus reducing a portion of our interest rate risk. These swap
agreements, which would be designated as cash flow hedges, involve the receipt of variable rate
amounts in exchange for fixed rate interest payments over the life of the agreements. At January
29, 2005 and January 31, 2004, we had no outstanding swap agreements. A hypothetical 100 basis point increase in interest rates, net of taxes, would have an
approximate $1.1 million impact to our financial position, liquidity and results of operation. 33




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Our financial statements and financial statement schedule and the Report of Independent
Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in
this report beginning on page F-1. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 
 ITEM 9A. CONTROLS AND PROCEDURES. 
 Evaluation of Disclosure Controls and Procedures The Company, under the supervision and with the participation of its management, including its
Chief Executive Officer and Chief Financial Officer, performed an evaluation of the Companys
disclosure controls and procedures, as contemplated by Securities Exchange Act rules 13a-15(e) and
15d-15(e). Based on that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded, as of the end of the period covered by this report, that such disclosure
controls and procedures were effective. As part of these disclosure controls and procedures, the Company reviewed the appropriateness of
its accounting policies. In light of views expressed by the Office of the Chief Accountant of the
SEC on February 7, 2005, the Company reviewed its accounting practices for operating leases. As
part of this review, the Company initiated a reassessment of its policy related to the accounting
for operating leases with scheduled rent increases. The Company determined that its policy should
be corrected to recognize minimum rent payments on a straight-line basis beginning with the time
the Company takes possession of the premises, instead of the previous policy of using the earlier
of the commencement date of the lease or the store opening date. Also as part of this review, the Company determined that it should correct the classification of
tenant allowances to be shown as operating activities rather than as investing activities in the
Consolidated Statement of Cash Flows. The previously reported financial statements included in this
Annual Report on Form 10-K/A have been restated to reflect these corrections. 
 
 In reaching its conclusion that the internal control over financial reporting was effective as of
January 29, 2005, management carefully considered the facts and circumstances surrounding the
restatement of the Companys previously issued financial statements. Management concluded that the
restatement was limited to the lease issues discussed above and was not indicative of a broader
issue concerning the application of generally accepted accounting principles. Management further
concluded that the actual and potential misstatement related to these issues was not material and,
accordingly, did not rise to the level of a material weakness. 
 
 Managements Report on Internal Control over Financial Reporting 
 
 Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The
Companys internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America. 
 
 Internal control systems, no matter how well designed and operated, have inherent limitations,
including the possibility of the circumvention or overriding of controls. Due to these inherent
limitations, the Companys internal control over financial reporting may not prevent or
detect misstatements. As a result, projections of effectiveness to future periods are subject to
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. 
 
 Management assessed the effectiveness of the Companys internal control system as of January 29,
2005. In making its assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control  Integrated Framework.
Based on this assessment, management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Company maintained effective internal control over financial reporting,
in all material respects, as of January 29, 2005. 
 34




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 
 To the Board of Directors and
Shareholders of Retail Ventures, Inc.
Columbus, Ohio 
 
 We have
audited managements assessment,
included in the accompanying Managements Report on Internal
Control over Financial Reporting, that Retail Ventures, Inc. and its wholly-owned subsidiaries (the
Company) maintained effective internal control over financial reporting as of January 29, 2005,
based on criteria established in Internal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. 
 
 We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions. 
 
 A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. A companys internal control
over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements. 
 
 Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. 
 
 In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on
the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of January 29,
2005, based on the criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. 
 
 We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet as of January 29, 2005, and the related
consolidated statements of operations, stockholders equity, cash flows and financial statement
schedule for the year ended January 29, 2005 of the Company and our report dated April 14, 2005
expressed an unqualified opinion on those financial statements and financial statement schedule. 
 
 /s/ Deloitte & Touche LLP Columbus, Ohio
May 6, 2005 
 35




---



##### Table of Contents



Changes in Internal Control over Financial Reporting 
 
 No change was made in the Companys internal control over financial reporting during the Companys
most recent fiscal quarter that has materially affected, or is reasonable likely to affect, the
Companys internal control over financial reporting. 
 
 ITEM 9B. OTHER INFORMATION. None. 36




---



##### Table of Contents



PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers The following persons are executive officers of the Company. Our officers of the Company
are elected annually by our Board and serve at the pleasure of the Board. Heywood Wilansky, age 56, became our President and Chief Executive Officer in November 2004.
Mr. Wilansky has served as a director of DSW since March 2005 and will continue to serve in that capacity
after the DSW IPO.
Before joining Retail Ventures, Mr. Wilansky served as President and Chief Executive Officer of
Filenes Basement, a subsidiary of Retail Ventures, from February 2003 to November 2004. Mr.
Wilansky was a professor of marketing at the University of Maryland business school from August
2002 to February 2003. From August 2000 to January 2003, he was President and Chief Executive
Officer of Strategic Management Resources, LLC. From August 1995 to July 2000, he was President
and Chief Executive Officer of Bon Ton Stores. Prior to that, he was with The May Department Stores
Company for more than 19 years, last serving as President and Chief Executive Officer of the
Foleys division from 1992 to 1995 and President and Chief Executive Officer of the Filenes
division from 1991 to 1992. James A. McGrady, age 54, became our Executive Vice President, Chief Financial Officer,
Treasurer and Secretary in December 2002. He served as our Chief Financial Officer, Treasurer and
Secretary from July 2000 until December 2002. From 1986 until July 2000, Mr. McGrady served as
Vice President and Treasurer of Big Lots, Inc. From 1979 through 1986, Mr. McGrady was in the
practice of public accounting with KPMG Main Hurdman. Julia A. Davis, age 44, became our Executive Vice President and General Counsel in January
2003. After consummation of the DSW IPO, she will serve as Executive
Vice President, General Counsel and Secretary of DSW as well. Prior to that time, Ms. Davis was a partner in the Columbus office of Vorys, Sater, Seymour
and Pease LLP. Ms. Davis has 17 years of private legal practice primarily representing and
advising national and regional retailers in a wide variety of employment matters. Steven E. Miller, age 46, became our Senior Vice President Controller in 2003 after joining
the Company in September 2000 as its Vice President Controller.
After consummation of the DSW IPO, he will serve as Senior Vice
President and Controller of DSW as well. Prior to that time, Mr. Miller
served as Chief Financial Officer of Spitzer Management, Inc. beginning in 1998. From 1993 through
1998, Mr. Miller held various positions with Big Lots, Inc. including Director, Assistant Treasurer
and Assistant Controller. Audit Committee Financial Expert The Companys Board of Directors has determined that Harvey L. Sonnenberg is an audit
committee financial expert as such term is defined by the SEC under Item 401(h) of Regulation S-K. The members of the Audit Committee are Messrs. Harvey L. Sonnenberg (Chair) and James L.
Weisman and Ms. Elizabeth M. Eveillard. The Board of Directors has affirmatively determined that
each of Messrs. Sonnenberg, Weisman, and Ms. Eveillard is an independent member of the Audit
Committee in accordance with the listing standards of the New York Stock Exchange. Code of Ethics and Corporate Governance Information The Company has adopted a code of ethics that applies to all of its directors, officers and
employees, including its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, and an additional code
of ethics that applies to senior financial officers. These codes of ethics, designated as the Code
of Conduct and the Code of Ethics for Senior Financial Officers, respectively by the Company,
can be found on the Companys investor website at www.retailventuresinc.com. The Company
intends to disclose any amendment to, or waiver from, any applicable provision of the Code of
Conduct or Code of Ethics for Senior Financial Officers (if such amendment or waiver relates to elements listed
under Item 406(b) of Regulation S-K and applies to the Companys directors, principal executive
officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions) by posting such information on the Companys website at
www.retailventuresinc.com. The Board of Directors has adopted and approved Corporate Governance Principles and written
charters for its Nominating and Corporate Governance, Audit and Compensation Committees. In
addition, the Audit Committee has adopted a written Audit Committee Pre-Approval Policy with
respect to audit and non-audit services to be performed by the Companys independent public
accountants. All of the forgoing documents are available on the Companys investor website at
www.retailventuresinc.com and a copy of the foregoing will be made available (without charge) to
any shareholder upon request. 37




---



##### Table of Contents



Other In accordance with General Instruction G(3), the information contained under the captions ELECTION
OF DIRECTORS, OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE
INFORMATION, in the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on June 28, 2005, to be filed with the SEC pursuant to Regulation 14A promulgated under the
Exchange Act (the Proxy Statement), is incorporated herein by reference to satisfy the remaining
information required by this Item. 
 Item 11. EXECUTIVE COMPENSATION In accordance with General Instruction G(3), the information contained under the captions
COMPENSATION OF MANAGEMENTand OTHER
DIRECTOR INFORMATION COMMITTEES OF DIRECTORS AND
CORPORATE GOVERNANCE INFORMATION  GENERALin the Proxy Statement is incorporated herein by
reference. Neither the report of the Compensation Committee of the Companys Board of Directors on
executive compensation nor the share price performance graph included in the Proxy Statement shall
be deemed to be incorporated herein by reference. 
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS In accordance with General Instruction G(3), the information contained under the captions SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,and COMPENSATION OF MANAGEMENT  EQUITY
COMPENSATION PLAN TABLEin the Proxy Statement is incorporated herein by reference. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In accordance with General Instruction G(3), the information contained under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONSin the Proxy Statement is incorporated herein by reference. 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES In accordance with General Instruction G(3), the information contained under the caption AUDIT AND
OTHER SERVICE FEESin the definitive Proxy Statement is incorporated herein by reference. 38




---



##### Table of Contents



PART IV 
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
 
 15(a)(1) Financial Statements The documents listed below are filed as part of this Form 10-K: Page inForm 10-KReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets at January 29, 2005 and January 31, 2004
    
    F-2Consolidated Statements of Operations for the years ended
January 29, 2005, January 31, 2004 and February 1, 2003
    
    F-3Consolidated Statements of Shareholders Equity for the years ended
January 29, 2005, January 31, 2004 and February 1, 2003
    
    F-4Consolidated Statements of Cash Flows for the years ended
January 29, 2005, January 31, 2004 and February 1, 2003
    
    F-5Notes to Consolidated Financial Statements
    
    F-615(a)(2) Consolidated Financial Statement Schedules:The schedule listed below is filed as part of this Form 10-K:Schedule II. Valuation and Qualifying Accounts
    
    S-1
 Schedules not listed above are omitted because of the absence of the conditions under which
they are required or because the required information is included in the financial statements or
the notes thereto. 15(a)(3) and (b) Exhibits: See Index to Exhibits which begins on page E-1. 15(c) Additional Financial Statement Schedules: None. 39




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. RETAIL VENTURES, INC.May 12, 2005
    By:
    /s/ James A. McGradyJames A. McGrady, Executive Vice
President, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated. Signature
    
    Title
    
    Date*

Jay L. Schottenstein
    
    Chairman of the Board of Directors
    
    May 12, 2005*

Heywood Wilansky
    
    President and Chief Executive Officer
(Principal Executive Officer)
    
    May 12, 2005*

James A. McGrady
    
    Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
    
    May 12, 2005*

Henry L. Aaron
    
    Director
    
    May 12, 2005*

Ari Deshe
    
    Director
    
    May 12, 2005*

Jon P. Diamond
    
    Director
    
    May 12, 2005*

Elizabeth M. Eveillard
    
    Director
    
    May 12, 2005*

Harvey L. Sonnenberg
    
    Director
    
    May 12, 2005*

James L. Weisman
    
    Director
    
    May 12, 2005
 *By:
    /s/ James A. McGradyJames A. McGrady, Attorney-in-fact 40




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders
Retail Ventures, Inc.
Columbus, Ohio 43026 We have audited the accompanying consolidated balance sheets of Retail Ventures, Inc. and its
wholly owned subsidiaries (the Company) as of January 29, 2005 and January 31, 2004, and the
related consolidated statements of operations, shareholders equity, and cash flows for each of the
three years ended January 29, 2005, January 31, 2004, and February 1, 2003. Our audits also
included the financial statement schedules listed in the Index at Item 15. These financial
statements and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. Our
audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Retail Ventures, Inc. and its wholly owned subsidiaries as of January 29,
2005, January 31, 2004, and February 1, 2003, and the results of their operations and their cash
flows for each of the three years in the period ended January 29, 2005, January 31, 2004, and
February 1, 2003, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation to
the consolidated financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein. As discussed in the notes to the financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective February 3, 2002. As discussed in Note 4, the accompanying consolidated financial statements have been restated. /s/  Deloitte &
Touche LLP Columbus, Ohio
April 14, 2005 F-1




---



##### Table of Contents



RETAIL VENTURES, INC. 
 CONSOLIDATED BALANCE SHEETS
  (in thousands, except share amounts)
 1/29/05
    
    
    1/31/04Restated*ASSETSCurrent assets:Cash and equivalents
    
    $
    29,258
    
    
    $
    14,226Accounts receivable, net
    
    
    7,455
    
    
    
    8,969Receivables from related parties
    
    
    501
    
    
    
    137Inventories
    
    
    473,051
    
    
    
    420,338Prepaid expenses and other assets
    
    
    21,112
    
    
    
    10,651Deferred income taxes
    
    
    64,359
    
    
    
    44,933Total current assets
    
    
    595,736
    
    
    
    499,254Property and equipment, at cost:Furniture, fixtures and equipment
    
    
    321,513
    
    
    
    293,081Leasehold improvements
    
    
    268,423
    
    
    
    234,719Land and building
    
    
    801
    
    
    
    801Capital leases
    
    
    36,265
    
    
    
    37,423627,002
    
    
    
    566,024Accumulated depreciation and amortization
    
    
    (346,548
    )
    
    
    (315,210
    )Property and equipment, net
    
    
    280,454
    
    
    
    250,814Goodwill
    
    
    25,899
    
    
    
    37,619Tradenames and other intangibles, net
    
    
    43,460
    
    
    
    43,638Deferred income taxes and other assets
    
    
    37,806
    
    
    
    36,196Total assets
    
    $
    983,355
    
    
    $
    867,521LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    202,578
    
    
    $
    147,771Accounts payable to related parties
    
    
    5,428
    
    
    
    3,335Accrued expenses:Compensation
    
    
    38,526
    
    
    
    31,777Taxes
    
    
    48,058
    
    
    
    46,646Other
    
    
    64,355
    
    
    
    38,707Current maturities of long-term obligations
    
    
    611
    
    
    
    741Total current liabilities
    
    
    359,556
    
    
    
    268,977Long-term obligations, net of current maturitiesNon-related
    
    
    169,134
    
    
    
    154,724Related parties
    
    
    174,241
    
    
    
    172,216Other noncurrent liabilities
    
    
    87,710
    
    
    
    59,417Commitments and contingenciesShareholders equity:Common shares, without par value; authorized
160,000,000 shares; issued, including treasury shares,
34,110,707 shares and 33,990,707 shares, respectively
    
    
    143,477
    
    
    
    143,077Warrants
    
    
    6,074
    
    
    
    6,074Retained earnings
    
    
    50,293
    
    
    
    69,741Deferred compensation expense, net
    
    
    (3
    )
    
    
    (635
    )Treasury shares at cost, 7,551 shares
    
    
    (59
    )
    
    
    (59
    )Accumulated other comprehensive loss
    
    
    (7,068
    )
    
    
    (6,011
    )Total shareholders equity
    
    
    192,714
    
    
    
    212,187Total liabilities and shareholders equity
    
    $
    983,355
    
    
    $
    867,521
 *See
Note 4.The accompanying notes are an integral part of the consolidated financial statements.
 F-2




---



##### Table of Contents



RETAIL VENTURES, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   For the
    
    
    For the
    
    
    For theYear Ended
    
    
    Year Ended
    
    
    Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/0352 Weeks
    
    
    52 Weeks
    
    
    52 WeeksRestated*
    
    
    Restated*Net sales
    
    $
    2,739,631
    
    
    $
    2,594,206
    
    
    $
    2,450,719Cost of sales
    
    
    (1,663,215
    )
    
    
    (1,593,214
    )
    
    
    (1,514,629
    )Gross profit
    
    
    1,076,416
    
    
    
    1,000,992
    
    
    
    936,090Selling, general and administrative expenses
    
    
    (1,076,445
    )
    
    
    (974,944
    )
    
    
    (906,789
    )License fees and other income
    
    
    6,714
    
    
    
    5,610
    
    
    
    7,405Operating profit
    
    
    6,685
    
    
    
    31,658
    
    
    
    36,706Interest expense, net:Non-related
    
    
    (12,820
    )
    
    
    (12,025
    )
    
    
    (20,040
    )Related parties
    
    
    (25,741
    )
    
    
    (26,570
    )
    
    
    (19,348
    )Loss before cumulative effect of accounting change
and income taxes
    
    
    (31,876
    )
    
    
    (6,937
    )
    
    
    (2,682
    )Benefit for income taxes
    
    
    12,428
    
    
    
    1,718
    
    
    
    325Loss before cumulative effect of accounting change
    
    
    (19,448
    )
    
    
    (5,219
    )
    
    
    (2,357
    )Cumulative effect of accounting change, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (2,080
    )Net loss
    
    $
    (19,448
    )
    
    $
    (5,219
    )
    
    $
    (4,437
    )Basic and diluted loss per share:Loss before cumulative effect of accounting change
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.07
    )Cumulative effect of accounting change, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (0.06
    )Net loss
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.13
    )Shares used in per share calculations:Basic
    
    
    33,956
    
    
    
    33,753
    
    
    
    33,665Diluted
    
    
    33,956
    
    
    
    33,753
    
    
    
    33,665
   F-3




---



##### Table of Contents



RETAIL VENTURES, INC. 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
   Number of Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    OtherCommon
    
    
    Shares
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Compensation
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    in Treasury
    
    
    Shares
    
    
    Warrants
    
    
    Earnings
    
    
    Expense
    
    
    Shares
    
    
    Loss
    
    
    TotalBalance, February 2, 2002
(as restated)*
    
    
    34,228
    
    
    
    8
    
    
    $
    145,772
    
    
    
    
    
    
    $
    79,397
    
    
    $
    (4,150
    )
    
    $
    (59
    )
    
    $
    (3,566
    )
    
    $
    217,394Net loss (as
restated)*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,437
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,437
    )Net unrealized gain on derivative
financial instruments, net of
income tax provision of $1,316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,974
    
    
    
    1,974Minimum pension liability, net of
income tax benefit of $2,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,228
    )
    
    
    (4,228
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,691
    )Warrants issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,074Net issuance/forfeitures of
restricted shares
    
    
    (315
    )
    
    
    
    
    
    
    (2,589
    )
    
    
    
    
    
    
    
    
    
    
    2,589Amortization of deferred
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    580Balance, February 1, 2003
(as restated)*
    
    
    33,913
    
    
    
    8
    
    
    $
    143,183
    
    
    $
    6,074
    
    
    $
    74,960
    
    
    $
    (981
    )
    
    $
    (59
    )
    
    $
    (5,820
    )
    
    $
    217,357Net loss (as
restated)*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,219
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,219
    )Net unrealized gain on derivative
financial instruments, net of
income tax provision of $413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    620
    
    
    
    620Minimum pension liability, net
of income tax benefit of $541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (811
    )
    
    
    (811
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,410
    )Exercise of stock options
    
    
    20
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Net issuance/forfeitures of
restricted shares
    
    
    58
    
    
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    180Balance, January 31, 2004
(as restated)*
    
    
    33,991
    
    
    
    8
    
    
    $
    143,077
    
    
    $
    6,074
    
    
    $
    69,741
    
    
    $
    (635
    )
    
    $
    (59
    )
    
    $
    (6,011
    )
    
    $
    212,187Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,448
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,448
    )Minimum pension liability, net
of income tax benefit of $753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,057
    )
    
    
    (1,057
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,505
    )Exercise of stock options
    
    
    136
    
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504Net forfeitures of
restricted shares
    
    
    (16
    )
    
    
    
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    
    
    
    
    
    
    
    
    528Balance, January 29, 2005
    
    
    34,111
    
    
    
    8
    
    
    $
    143,477
    
    
    $
    6,074
    
    
    $
    50,293
    
    
    $
    (3
    )
    
    $
    (59
    )
    
    $
    (7,068
    )
    
    $
    192,714
 *See
Note 4The accompanying notes are an integral part of the consolidated financial statements.
 F-4




---



##### Table of Contents



RETAIL VENTURES, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Year
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended1/29/05
    
    
    1/31/04
    
    
    2/1/0352 Weeks
    
    
    52 Weeks
    
    
    52 WeeksRestated*
    
    
    Restated*Cash flows from operating activities:Net loss
    
    $
    (19,448
    )
    
    $
    (5,219
    )
    
    $
    (4,437
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    2,080Amortization of debt issuance costs and discount on debt
    
    
    5,380
    
    
    
    6,055
    
    
    
    8,492Amortization of deferred compensation
    
    
    528
    
    
    
    180
    
    
    
    580Depreciation and amortization
    
    
    56,111
    
    
    
    53,432
    
    
    
    53,656Deferred income taxes and other noncurrent liabilities
    
    
    (8,264
    )
    
    
    1,761
    
    
    
    8,587Loss on disposal of assets
    
    
    120
    
    
    
    1,282
    
    
    
    3,021Impairment charges
    
    
    14,596
    
    
    
    312
    
    
    
    582Change in working capital, assets and liabilities:Receivables
    
    
    1,150
    
    
    
    2,493
    
    
    
    (4,044
    )Inventories
    
    
    (52,713
    )
    
    
    (30,513
    )
    
    
    7,005Prepaid expenses and other assets
    
    
    (12,013
    )
    
    
    11,546
    
    
    
    (432
    )Accounts payable
    
    
    56,900
    
    
    
    (13,931
    )
    
    
    6,264Proceeds from lease incentives
    
    
    13,099
    
    
    
    7,094
    
    
    
    9,859Accrued expenses
    
    
    33,042
    
    
    
    (22,885
    )
    
    
    6,319Net cash provided by operating activities
    
    
    88,488
    
    
    
    11,607
    
    
    
    97,532Cash flows from investing activities:Capital expenditures
    
    
    (83,855
    )
    
    
    (68,701
    )
    
    
    (41,784
    )Proceeds from sale of assets
    
    
    119
    
    
    
    43
    
    
    
    184Tradename acquisitions
    
    
    (4,066
    )
    
    
    
    
    
    
    Other assets
    
    
    
    
    
    
    (25
    )
    
    
    Net cash used in investing activities
    
    
    (87,802
    )
    
    
    (68,683
    )
    
    
    (41,600
    )Cash flows from financing activities:Principal payments of long-term obligations:Related party note
    
    
    
    
    
    
    
    
    
    
    (20,000
    )Capital lease obligations and other debt
    
    
    (720
    )
    
    
    (817
    )
    
    
    (583
    )Proceeds from related party note
    
    
    
    
    
    
    
    
    
    
    100,000Net increase (decrease) in revolving credit facility
    
    
    15,000
    
    
    
    61,000
    
    
    
    (147,000
    )Proceeds from issuance of common shares
    
    
    504
    
    
    
    60
    
    
    
    Debt issuance costs
    
    
    (438
    )
    
    
    
    
    
    
    (13,205
    )Net cash provided by (used in) financing activities
    
    
    14,346
    
    
    
    60,243
    
    
    
    (80,788
    )Net increase (decrease) in cash and equivalents
    
    
    15,032
    
    
    
    3,167
    
    
    
    (24,856
    )Cash and equivalents, beginning of year
    
    
    14,226
    
    
    
    11,059
    
    
    
    35,915Cash and equivalents, end of year
    
    $
    29,258
    
    
    $
    14,226
    
    
    $
    11,059
 *See
Note 4.The accompanying notes are an integral part of the consolidated financial statements.
 F-5




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusiness OperationsRetail Ventures, Inc. and its wholly-owned subsidiaries are herein referred to collectively
as the Company. The Company operates three segments. Value City Department Stores (Value
City) and Filenes Basement, Inc. (Filenes Basement) segments operate full-line,
off-price department stores. DSW Inc. (DSW) segment sells better-branded off-price shoes
and accessories. As of January 29, 2005, there were a total of 116 Value City stores located
principally in the Midwestern, Eastern and Southern states, 172 DSW stores located throughout
the United States and 26 Filenes Basement stores located primarily in major metropolitan
areas. DSW also operates leased shoe departments pursuant to supply
arrangements, for 202 locations for other non-related
retailers in the United States.In October 2003, the Company reorganized its corporate structure into a holding company form
whereby Retail Ventures, Inc., an Ohio corporation, became the successor issuer to Value City
Department Stores, Inc. As a result of the reorganization, Value City Department Stores, Inc.
became a wholly-owned subsidiary of Retail Ventures, Inc.In connection with the reorganization, holders of common shares of Value City became holders
of an identical number of common shares of Retail Ventures, Inc. The reorganization was
affected by a merger which was previously approved by the Companys shareholders. Since
October 2003, the Companys common shares have been listed for trading under the ticker
symbol RVI on the New York Stock Exchange.In December 2004, the Company completed another corporate reorganization whereby Value City
Department Stores, Inc. merged with and into Value City, another wholly-owned subsidiary of
Retail Ventures. In turn, Value City transferred all the issued and outstanding shares of DSW
and Filenes Basement to Retail Ventures in exchange for a promissory note.Principles of ConsolidationThe consolidated financial statements include the accounts of Retail Ventures, Inc. and its
wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. To facilitate comparisons with the current year, certain reclassifications have
been made to prior year financial statements and notes to conform to the current year
presentation.Fiscal YearThe Companys fiscal year ends on the Saturday nearest to January 31. Fiscal year 2004, 2003
and 2002 each contain 52 weeks. Unless otherwise stated, references to years in this report
relate to fiscal years rather than calendar years.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses during the
reporting period. Significant estimates are required as a part of inventory valuation,
depreciation, amortization, recoverability of long-lived assets, establishing reserves for
insurance and calculating retirement benefits. Although these estimates are based on
managements knowledge of current events and actions it may undertake in the future, actual
results could differ from these estimates.Cash and EquivalentsCash and equivalents represent cash, highly liquid investments with original maturities of
three months or less at the date of purchase and credit card receivables which generally
settle within three days to be cash equivalents.Accounts Receivable, NetAccounts receivable is classified as current assets because the average collection period is
generally less than one year. The carrying amount approximates fair value because of the
relatively short average maturity of the instruments F-6




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  and no significant change in interest rates. The allowance for doubtful accounts was
$0.8 million for each of the fiscal years 2004 and 2003.InventoriesMerchandise inventories are stated at the lower of cost, determined using the first-in,
first-out basis, or market using the retail inventory method. The retail method is widely
used in the retail industry due to its practicality. Under the retail inventory method, the
valuation of inventories at cost and the resulting gross margins are calculated by applying a
calculated cost to retail ratio to the retail value of inventories. The cost of the inventory
reflected on the consolidated balance sheet is decreased by charges to cost of sales at the
time the retail value of the inventory is lowered through the use of markdowns. Hence,
earnings are negatively impacted as the merchandise is marked down prior to sale. Reserves to
value inventory at the lower of cost or market were $42.8 million and $34.2 million at the end
of fiscal year 2004 and 2003, respectively.Inherent in the calculation of inventories are certain significant management judgments and
estimates, including setting the original merchandise retail value or mark-on, markups of
initial prices established, reductions in prices due to customers perception of value (known
as markdowns), and estimates of losses between physical inventory counts, or shrinkage, which,
combined with the averaging process within the retail inventory method, can significantly
impact the ending inventory valuation at cost and the resulting gross profit.Pre-Opening ExpensesPre-opening costs associated with the opening of new stores are expensed as incurred for
stores opened during the fiscal year and those under construction and to be opened in future
fiscal years. Pre-opening costs expensed were $14.4 million, $5.9 million and $4.5 million for
fiscal 2004, 2003 and 2002, respectively. During these respective
periods we opened 31 DSW
and 5 Filenes Basement stores in 2004, 16 DSW and one Filenes Basement store in 2003 and 22
DSW and one Filenes store in 2002.Property and EquipmentDepreciation and amortization are recognized principally on the straight-line method in
amounts adequate to amortize costs over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of their useful lives (10 years) or
initial lease term. The estimated useful lives by class of asset are: Buildings
    
    31 yearsFurniture, fixtures and equipment
    
   
    3 to 10 years
  Asset Impairment and Long-Lived AssetsThe Company must periodically evaluate 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 (undiscounted and without interest) from the asset. The Company
reviews are conducted down at the lowest identifiable level, which include a store. The
impairment loss recognized is the excess of the carrying value, based on discounted future
cash flows, of the asset over its fair value. The impairment loss is included in selling,
general and administrative expense. Based on recent analysis, the
Company expensed $2.9 million (including the impairment of a
capital lease of $1.2 million related to a store closing), $0.3 million and $0.6 million in fiscal year 2004, 2003 and 2002, respectively, of
identified stores assets where the recorded value could not be
supported by cash flows. The impairment charges in fiscal 2004 of
$2.0 million and $0.9 million were recorded on the Value
City and DSW segments, respectively.GoodwillGoodwill represents the excess cost over the estimated fair values of net assets including
identifiable intangible assets of businesses acquired. The Company, as a result of adoption of
Statement of Financial Accounting Standards (SFAS) No. 142, will no longer record goodwill
amortization. F-7




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  The initial result of testing for goodwill for impairment in accordance with SFAS 142, as
of February 3, 2002, was a non-cash charge of $3.4 million, $2.1 million net of taxes, which
is reported in Consolidated Statement of Operations as of February 1, 2003 in the caption
Cumulative effect of accounting change. Substantially all of the charge relates to goodwill
associated with the Companys purchase of Mazels interest in VCM and is included in the net
loss for the year ended February 1, 2003.During fiscal 2004, based on the results of the annual impairment tests in accordance with
SFAS 142, the company recorded a non-cash impairment charge relating to the goodwill on
Filenes Basement of $11.7 million ($6.9 million, net of taxes). At January 29, 2005, the
Company had $25.9 million of goodwill subject to annual testing.Tradenames and Other Intangible AssetsTradenames and other intangibles assets are comprised of values assigned to names the Company
acquired and leases acquired. The accumulated amortization for these assets is $22.0 million
and $17.8 million at January 29, 2005 and January 31, 2004, respectively. During fiscal 2004,
the Company acquired the Leslie Fay tradename for
approximately $4.1 million. The
anticipated life of the amortizing asset has been initially assigned 15 years. The asset
value and accumulated amortization of intangible assets is as follows (in thousands): FilenesValue City
    
    
    DSW
    
    
    Basement
    
    
    TotalAs of January 29, 2005Tradenames:Gross amount
    
    $
    5,211
    
    
    $
    12,750
    
    
    $
    9,900
    
    
    $
    27,861Accumulated amortization
    
    
    (783
    )
    
    
    (5,738
    )
    
    
    (3,245
    )
    
    
    (9,766
    )Useful life (in years)
    
    
    15
    
    
    
    15
    
    
    
    15Favorable lease values:Gross amount
    
    $
    14,417
    
    
    $
    140
    
    
    $
    23,057
    
    
    $
    37,614Accumulated amortization
    
    
    (5,115
    )
    
    
    (73
    )
    
    
    (7,061
    )
    
    
    (12,249
    )Average useful life (in years)
    
    
    25
    
    
    
    14
    
    
    
    21As of January 31, 2004Tradenames:Gross amount
    
    $
    1,145
    
    
    $
    12,750
    
    
    $
    9,900
    
    
    $
    23,795Accumulated amortization
    
    
    (433
    )
    
    
    (4,887
    )
    
    
    (2,585
    )
    
    
    (7,905
    )Useful life (in years)
    
    
    15
    
    
    
    15
    
    
    
    15Favorable lease values:Gross amount
    
    $
    14,417
    
    
    $
    140
    
    
    $
    23,057
    
    
    $
    37,614Accumulated amortization
    
    
    (4,513
    )
    
    
    (60
    )
    
    
    (5,293
    )
    
    
    (9,866
    )Average useful life (in years)
    
    
    25
    
    
    
    14
    
    
    
    21
  Aggregate amortization expense for the current and each of the five succeeding years is as follows (in thousands): FilenesFiscal Year
    
    Value City
    
    DSW
    
    Basement
    
    Total2004
    
    952
    
    864
    
    2,428
    
    4,2442005
    
    952
    
    864
    
    2,428
    
    4,2442006
    
    952
    
    861
    
    2,428
    
    4,2412007
    
    952
    
    854
    
    2,428
    
    4,2342008
    
    948
    
    854
    
    2,428
    
    4,2302009
    
    938
    
    854
    
    2,428
    
    4,220
  Vendor AllowancesVendor allowances include allowances, rebates and cooperative advertising funds received from
vendors. These funds are determined for each fiscal year and the majority are based on various
quantitative contract terms. Amounts expected F-8




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  to be received from vendors relating to the purchase of merchandise inventories are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as
advertising, are recorded as a reduction to the related expense in the period that the related
expense is incurred. The Company records an estimate of earned allowances based on the latest
projected purchase volumes and advertising forecasts. On an annual basis, the Company confirms
earned allowances with vendors to determine the amounts are recorded in accordance with the
terms of the contract. At January 29, 2005 and January 31, 2004, the Company had a vendor
allowance balance of less than $100,000.Revenue RecognitionRevenues from merchandise sales are recognized at the point
of sale, net of returns and
exclude sales tax. Revenue from gift cards is deferred and the revenue is recognized upon
redemption of the gift cards. Layaway sales are recognized when the merchandise has been paid
for in full.Customer Loyalty ProgramThe Company maintains a customer loyalty program for its DSW stores in which customers receive
a future discount on qualifying purchases. The Reward Your Style (RYS) is designed to
promote customer awareness and loyalty, provide the Company with the ability to communicate
with its customers and enhance the Companys understanding of their spending trends. While
the program develops customer loyalty, it also provides DSW with valuable market intelligence
and purchasing information regarding its most frequent customers . Upon reaching the
target level, customers may redeem these discounts on a future purchase. Generally, these
future discounts must be redeemed within six months. The Company accrues the estimated costs
of the anticipated redemptions of the discount earned at the time of the initial purchase and
charges such costs to selling, general and administrative expense based on historical
experience. The estimates of the costs associated with the loyalty program require the
Company to make assumptions related to customer purchase levels and redemption rates. The
accrued liability as of January 29, 2005 and January 31, 2004 was $4.5 million and $3.0
million, respectively.During the third quarter of 2004, Filenes Basement implemented a limited-time customer
rewards program. The rewards program provided qualifying customers with a Filenes Basement
certificate in various denominations based on their cumulative spending during the program
period. Filenes Basement had an accrued liability related to the rewards program of $0.8
million at January 29, 2005. The Company plans to utilize this customer database for direct
mail and e-mail marketing efforts during fiscal 2005.Advertising ExpenseThe cost of advertising is expensed as incurred. During fiscal year 2004, 2003 and 2002,
advertising expense was $112.5 million, $110.8 million and $94.1 million, respectively.Derivative Financial InstrumentsThe Company utilizes interest rate swap agreements to establish long-term fixed rates
associated with borrowings. The Company does not hold or issue derivative financial
instruments for trading purposes. The Company does not have derivative financial instruments
that are held or issued and accounted for as hedges of anticipated transactions. Amounts due
to or from interest swap counter parties are recorded in interest expense in the period in
which they accrue. At January 29, 2005 and January 31, 2004, the Company had no outstanding
swap agreements.Earnings Per ShareBasic earnings per share is based on a simple weighted average of common shares outstanding.
Diluted earnings per share reflects the potential dilution of common shares, related to both
outstanding stock options, stock appreciation rights and warrants, calculated using the
treasury stock method and convertible debt calculated using the if-converted method. For the
years ended January 29, 2005, January 31, 2004 and February 1, 2003 all potentially dilutive
instruments were anti-dilutive. The numerator for the calculation of basic and diluted
earnings per share is net loss. The denominator is the weighted average shares outstanding. F-9




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  Stock-Based CompensationThe Company has various stock-based employee compensation plans that are described more fully
in Note 9. The Company accounts for those plans in accordance with APB No. 25. Accounting For
Stock Issued to Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net loss, as no options granted under those plans had an exercise price
less than the market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition of SFAS 123, Accounting For Stock-Based Compensation. Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Net loss, as reported
    
    $
    (19,448
    )
    
    $
    (5,219
    )
    
    $
    (4,437
    )Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards
    
    
    (2,382)
    
    
    
    (5,341
    )
    
    
    (4,999
    )Pro forma net loss
    
    $
    (21,830)
    
    
    $
    (10,560
    )
    
    $
    (9,436
    )Earnings per share:Basic and diluted as reported
    
    $
    (0.57
    )
    
    $
    (0.15
    )
    
    $
    (0.13
    )Basic and diluted pro forma
    
    $
    (0.64
    )
    
    $
    (0.31
    )
    
    $
    (0.28
    )
  To determine the pro forma amounts, the fair value of each stock option has been estimated on
the date of grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in the fiscal year 2004, 2003 and 2002, respectively:
expected volatility of 72.5%, 71.1% and 83.4%; dividend yield of 0.0%; risk-free interest
rates of 4.1%, 4.3% and 2.6%; and, expected lives of 5.4, 8.3 and 7.6 years. The weighted
average fair value of options granted in the fiscal year 2004, 2003 and 2002 was $5.08, $1.49
and $2.54, respectively.Consistent with SFAS No. 123, pro-forma net loss and loss per share have not been calculated
for options granted prior to July 30, 1995. Pro forma disclosures may not be representative of
the actual results to be expected in future years.Comprehensive LossComprehensive loss is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by owners and
distributions to owners. The difference between net loss for fiscal
year 2003 and 2002 relates
to the change in minimum pension liability and the net unrealized gain (loss) on derivative
financial instruments for cash flow hedges. The Company presents other comprehensive loss in
its consolidated statements of shareholders equity.Recent Accounting PronouncementsThe Financial Accounting Standards Board (FASB) periodically issues Statements of Financial
Accounting Standards (SFAS), some of which require implementation by a date falling within
or after the close of the fiscal year.In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46), which requires the consolidation of certain entities considered to be
variable interest entities (VIEs). An entity is considered to be a VIE when it has equity
investors who lack the characteristics of having a controlling financial interest, or its
capital is insufficient to permit it to finance its activities without additional subordinated
financial support. Consolidation of a VIE by an investor is required when it is determined
that the investor will absorb a majority of the VIEs expected losses or residual returns if
they occur. FIN 46 provides certain exceptions to these rules, relating to qualifying special
purpose entities (QSPEs) subject to the requirements of SFAS No. 140. Upon its original
issuance, FIN 46 required that VIEs created after January 31, 2003 would be consolidated
immediately, while VIEs created prior to February 1, 2003 were to be consolidated as of July
1, 2003. F-10




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  In October 2003, the FASB deferred the effective date for consolidation of VIEs created prior
to February 1, 2003 to December 31, 2003 for calendar year-end companies, with earlier
application encouraged.In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarify some of the
provisions of the original interpretation and to exempt certain entities from its
requirements. FIN 46R provides special effective date provisions to enterprises that fully or
partially applied to FIN 46 prior to the issuance of the revised interpretation. In
particular, entities that have already adopted FIN 46 are not required to adopt FIN 46R until
the quarterly reporting period ended May 1, 2004. Adoption of the required sections of FIN
46, as modified and interpreted, including the provisions of FIN 46R, did not have any effect
on the Companys consolidated financial statements or disclosures.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 requires that an issuer classify
a financial instrument that is within its scope as a liability (or an asset in some
circumstances), many of which were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003 and for
pre-existing instruments as of the beginning of the first interim period beginning after June
15, 2003. Initial adoption of this accounting pronouncement did not have a material impact on
the Companys consolidated financial statements.The FASBs Emerging Issues Task Force (EITF) Issue No. 02-16, Accounting By A Customer
(Including A Reseller) For Cash Consideration Received From A Vendor addressed the accounting treatment
for vendor allowances. The adoption of EITF Issue No. 02-16 in 2003 did not have a material impact on the
Companys financial position or results of operations.In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based
Payment. This statement revised SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS
No. 123) and requires a fair value measurement of all stock-based payments to employees,
including grants of employee stock options and recognition of those expenses in the statements
of operations. This statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods and services and focuses on
accounting for transactions in which an entity obtains employee services in share-based
payment transactions. In addition, SFAS No. 123R will require the recognition of compensation
expense over the period during which an employee is required to provide service in exchange
for an award. The effective date of this standard is interim and annual periods beginning
after June 15, 2005. The Company is currently evaluating the impact of this statement and has
not yet determined the method of adoption under SFAS No. 123R and whether the adoption will
result in amounts that are similar to the pro forma disclosures required under SFAS No. 123.2.
    RELATED PARTY TRANSACTIONSThe Company purchases merchandise from and sells merchandise to affiliates of Schottenstein
Stores Corporation (SSC), direct owner of approximately 57.0% of the Companys common shares. The related party transactions are as follows (in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Purchases of merchandise from affiliates
    
    $
    4,676
    
    
    $
    12,597
    
    
    $
    13,238
  The Company also leases certain store and warehouse locations owned by SSC as described in
Note 3.Accounts receivable from and payable to affiliates principally result from commercial
transactions with entities owned or controlled by SSC or intercompany transactions with SSC.
Settlement of affiliate receivables and payables are in the form of cash. These transactions
settle normally in 30 to 60 days.The Company shares certain personnel, administrative and service costs with SSC and its
affiliates. The costs of providing these services are allocated among the Company, SSC and its
affiliates without a premium. The allocated amounts are not significant. SSC does not charge
the Company for general corporate management services. In the opinion of the Company and SSC
management, the aforementioned charges are reasonable.The Company participated in SSCs self-insurance program for general liability, casualty loss
and certain state workers compensation programs, which
participation ended in fiscal 2004. The Company expensed $0.3 million, $1.1
million and $11.9 million in fiscal years F-11




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  2004, 2003 and 2002, respectively, for such program. Estimates for self-insured programs are
determined by independent actuaries based on actuarial assumptions, which incorporate
historical incurred claims and incurred but not reported (IBNR) claims.The Company also makes contributions to a private charitable foundation controlled by SSC.
During fiscal year 2002 the Company expensed $1.7 million of contributions. During fiscal year
2004 and 2003 no contributions were recorded.Cerberus Partners, L.P. as a beneficial owner of approximately 22.0% of the outstanding shares, is also a related party.See Notes 3, 5 and 6 to the consolidated financial statements for additional related party
disclosures.3.
    LEASESThe Company leases stores and warehouses under various arrangements with related and unrelated
parties. Such leases expire through 2024 and in most cases provide for renewal options.
Generally, the Company is required to pay real estate taxes, maintenance, insurance and
contingent rentals based on sales in excess of specified levels. The Company subleases space in a number of
its facilities to related and unrelated parties. The total amount of
income recorded for these subleases were $1.9 million, $2.0 million
and $1.8 million in fiscal 2004, 2003 and 2002, respectively.The Company has several leasing agreements with SSC and affiliates. Under a Master Lease
Agreement, as amended, the Company leases 5 store locations owned by SSC, and also leases or
subleases from SSC or affiliates of SSC 31 store locations, 5 warehouse facilities and a
parcel of land for an annual minimum rent of $24.5 million and additional contingent rents
based on aggregate sales in excess of specified sales trends for the store locations. Leases
and subleases with related parties are for initial periods generally ranging from five to
twenty years, provide for renewal options and require the Company to pay real estate taxes,
maintenance and insurance.SSC operates a chain of furniture stores, five of which operate in separate space subleased
from the Company at five of its store locations. Three of these furniture store subleases
(the Furniture Subleases) are for a term concurrent with the respective lease between the
Company and a third party landlord. These Furniture Subleases provide for the payment by SSC
of base rent and other charges in amounts at least equal to its pro rata share based on square
footage and its pro rata share of any percentage rent based on its gross sales. Two
additional furniture store subleases are for periods shorter than the Companys lease. SSC
paid to the Company pursuant to these subleases the following (in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Minimum rentals:
    
    $
    694
    
    
    $
    1,132
    
    
    $
    1,076Contingent rentals:
    
    
    641
    
    
    
    263
    
    
    
    341Total
    
    $
    1,335
    
    
    $
    1,395
    
    
    $
    1,417
  The total cost of assets held under capital leases at January 29, 2005 and January
31, 2004 was $36.3 million and $37.4 million, respectively. Assets held under capital leases
are amortized over the terms of the related leases. The accumulated amortization for these
assets was $10.3 million and $7.4 million at January 29, 2005 and January 31, 2004,
respectively.Future minimum lease payments required under the aforementioned leases, exclusive of real
estate taxes, insurance and maintenance costs, at January 29, 2005 are as follows (in
thousands): F-12




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Operating LeasesFiscal
    
    
    
    
    
    Unrelated
    
    
    Related
    
    
    CapitalYear
    
    Total
    
    
    Party
    
    
    Party
    
    
    Leases2005
    
    $
    152,799
    
    
    $
    132,045
    
    
    $
    20,754
    
    
    $
    3,4382006
    
    
    150,800
    
    
    
    130,484
    
    
    
    20,316
    
    
    
    3,4382007
    
    
    144,184
    
    
    
    124,711
    
    
    
    19,473
    
    
    
    3,5152008
    
    
    135,624
    
    
    
    117,294
    
    
    
    18,330
    
    
    
    3,5712009
    
    
    125,227
    
    
    
    107,617
    
    
    
    17,610
    
    
    
    3,585Future Years
    
    
    631,253
    
    
    
    534,250
    
    
    
    97,003
    
    
    
    44,735Total minimum lease payments
    
    $
    1,339,887
    
    
    $
    1,146,401
    
    
    $
    193,486
    
    
    $
    62,282Less amount representing interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,558
    )Present value of minimum lease payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,724Less current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (590
    )Total long-term portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,134
  The composition of rental expense (in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Minimum rentals:Unrelated parties
    
    $
    117,770
    
    
    $
    103,925
    
    
    $
    101,221Related parties
    
    
    24,549
    
    
    
    21,837
    
    
    
    19,539Contingent rentals:Unrelated parties
    
    
    17,746
    
    
    
    15,735
    
    
    
    3,975Related parties
    
    
    111
    
    
    
    156
    
    
    
    208Total
    
    $
    160,176
    
    
    $
    141,653
    
    
    $
    124,943
  Many of the Companys leases contain fixed escalations of the minimum annual lease
payments during the original term of the lease. For these leases, the Company recognizes
rental expense on a straight-line basis and records the difference between the average rental
amount charged to expense and the amount payable under the lease as deferred rent. At the end
of fiscal 2004 and 2003, the balance of deferred rent was $25.4 million and $20.3 million,
respectively, and is included in other noncurrent liabilities. Certain store and warehouse
leases provided landlord incentives totaling $37.4 million and $31.1 million in fiscal 2004
and 2003, respectively. These incentives are recorded as long term-liabilities in the
accompanying consolidated balance sheet and are amortized as a reduction of rent expense over
the remaining minimum lease term.4.
    RESTATEMENT OF FINANCIAL STATEMENTSDuring February 2005, the Office of the Chief Accountant of the SEC issued a letter to the
AICPA expressing its views regarding certain lease related accounting issues and their
application under GAAP. Following the release of the SEC letter, many retail companies
reviewed their previous interpretations of these lease accounting issues and announced that
they would restate their results for previous periods.After reviewing its accounting for leasing transactions, the Company concluded that it will
correct certain errors in its accounting for two types of leasing transactions. First, the
Companys statements of cash flows reflected construction allowances as a reduction of capital
expenditures (within investing cash flows) rather than as an operating lease activity
(within operating cash flows). Second, the Company had excluded the build-out period of its
stores from its straight line rent expense calculations.The Company restated its consolidated balance sheet at January 31, 2004 and the consolidated
statements of operations, shareholders equity and cash flows for the years ended January 31, 2004 and February 1,
2003, and the effected notes herein.The significant effects of the corrections of the errors to the financial statements is as follows: F-13




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended January 31, 2004As reported
    
    
    Adjustments
    
    
    As restatedConsolidated Balance Sheets:Accumulated
depreciation and amortization
    
    $
    (314,206
    )
    
    $
    (1,004
    )
    
    $
    (315,210
    )Property and equipment, net
    
    
    251,818
    
    
    
    (1,004
    )
    
    
    250,814Deferred income taxes and other assets
    
    
    31,616
    
    
    
    4,580
    
    
    
    36,196Total assets
    
    
    863,945
    
    
    
    3,576
    
    
    
    867,521Accrued taxes
    
    
    42,066
    
    
    
    4,580
    
    
    
    46,646Other noncurrent liabilities
    
    
    55,841
    
    
    
    3,576
    
    
    
    59,417Retained earnings
    
    
    74,321
    
    
    
    (4,580
    )
    
    
    69,741Total shareholders equity
    
    
    216,767
    
    
    
    (4,580
    )
    
    
    212,187Total liabilities and shareholders equity
    
    
    863,945
    
    
    
    3,576
    
    
    
    867,521Consolidated Statements of Operations:Selling, general and administrative expenses
    
    $
    (974,171
    )
    
    $
    (773
    )
    
    $
    (974,944
    )Operating profit
    
    
    32,431
    
    
    
    (773
    )
    
    
    31,658Loss before cumulative effect of accounting
change and income taxes
    
    
    (6,164
    )
    
    
    (773
    )
    
    
    (6,937
    )Loss before cumulative effect of accounting change
    
    
    (4,446
    )
    
    
    (773
    )
    
    
    (5,219
    )Net Loss
    
    
    (4,446
    )
    
    
    (773
    )
    
    
    (5,219
    )Basic and diluted earnings per share
    
    
    (0.13
    )
    
    
    (0.02
    )
    
    
    (0.15
    )Consolidated Statements of Cash Flows:Net Loss
    
    $
    (4,446
    )
    
    $
    (773
    )
    
    $
    (5,219
    )Depreciation and Amortization
    
    
    52,979
    
    
    
    453
    
    
    
    53,432Deferred income taxes and other noncurrent liabilities
    
    
    3,875
    
    
    
    (2,114
    )
    
    
    1,761Proceeds from lease incentives
    
    
    5,433
    
    
    
    1,661
    
    
    
    7,094Accrued expenses
    
    
    (23,658
    )
    
    
    773
    
    
    
    (22,885
    )Net cash provided by operating activities
    
    
    6,174
    
    
    
    5,433
    
    
    
    11,607Net cash used in investing activities
    
    
    (63,250
    )
    
    
    (5,433
    )
    
    
    (68,683
    )
 Year Ended February 1, 2003As reported
    
    
    Adjustments
    
    
    As restatedConsolidated Statements of Operations:Selling, general and administrative expenses
    
    $
    (906,017
    )
    
    $
    (772
    )
    
    $
    (906,789
    )Operating profit
    
    
    37,478
    
    
    
    (772
    )
    
    
    36,706Loss before cumulative effect of accounting
change and income taxes
    
    
    (1,910
    )
    
    
    (772
    )
    
    
    (2,682
    )Loss before cumulative effect of accounting change
    
    
    (1,585
    )
    
    
    (772
    )
    
    
    (2,357
    )Net Loss
    
    
    (3,665
    )
    
    
    (772
    )
    
    
    (4,437
    )Basic and diluted earnings per share
    
    
    (0.11
    )
    
    
    (0.02
    )
    
    
    (0.13
    )Consolidated Statements of Cash Flows:Net Loss
    
    $
    (3,665
    )
    
    $
    (772
    )
    
    $
    (4,437
    )Depreciation and Amortization
    
    
    53,406
    
    
    
    250
    
    
    
    53,656Deferred income taxes and other noncurrent liabilities
    
    
    11,450
    
    
    
    (2,863
    )
    
    
    8,587Proceeds from lease incentives
    
    
    7,246
    
    
    
    2,613
    
    
    
    9,859Accrued expenses
    
    
    5,547
    
    
    
    772
    
    
    
    6,319Net cash provided by operating activities
    
    
    90,286
    
    
    
    7,246
    
    
    
    97,532Net cash used in investing activities
    
    
    (34,354
    )
    
    
    (7,246
    )
    
    
    (41,600
    )
 F-14




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. LONG-TERM OBLIGATIONS AND NOTES PAYABLE Long-term obligations consist of the following (in thousands): 1/29/05
    
    
    1/31/04Credit facilities:Revolving credit facility
    
    $
    140,000
    
    
    $
    125,000Term loans  related parties
    
    
    100,000
    
    
    
    100,000Discount on term loan  related parties
    
    
    (759
    )
    
    
    (2,784
    )Senior subordinated convertible loan  related parties
    
    
    75,000
    
    
    
    75,000314,241
    
    
    
    297,216Capital lease obligations
    
    
    29,724
    
    
    
    30,265Other
    
    
    21
    
    
    
    200343,986
    
    
    
    327,681Less current maturities
    
    
    (611
    )
    
    
    (741
    )$
    343,375
    
    
    $
    326,940Letters of Credit Outstanding
    
    $
    29,589
    
    
    $
    23,353Availability under revolving credit facility
    
    $
    145,001
    
    
    $
    137,690Accrued interest to related parties
    
    $
    4,128
    
    
    $
    628
 At January 29, 2005, Value City Department Stores, Inc., together with certain other
subsidiaries of the Company, had $525.0 million of financing that consists of three separate
credit facilities (collectively, the Credit Facilities): (i) a three-year $350.0 million
revolving credit facility (the Revolving Loan), (ii) two $50.0 million term loan facilities
provided equally by Cerberus Partners, L.P. and SSC (the Term Loans), and (iii) an amended
and restated $75.0 million senior subordinated convertible loan facility, initially entered
into by the Company on March 15, 2000, which is held equally by Cerberus Partners, L.P. and
SSC (the Convertible Loan). These Credit Facilities are guaranteed by the Company and
substantially all of its subsidiaries. The Company is not subject to any financial covenants; however, the Credit Facilities contain
numerous restrictive covenants relating to the Companys management and operation. These
non-financial covenants include, among other restrictions, limitations on indebtedness,
guarantees, mergers, acquisitions, fundamental corporate changes, financial reporting
requirements, budget approval, disposition of assets, investments, loans and advances, liens,
dividends, stock purchases, transactions with affiliates, issuance of securities and the
payment of and modifications to debt instruments under these agreements. These Credit
Facilities are also subject to an Intercreditor Agreement which provides for an established
order of payment of obligations from the proceeds of collateral upon default (the
Intercreditor Agreement). $350 Million Revolving Credit Facility Under the Revolving Credit Facility, the borrowing base formula is structured in a manner that
allows the Company and its subsidiaries availability based on the value of their inventories
and accounts receivable. Primary security for the Revolving Loan is provided by a first
priority lien on all of the inventory and accounts receivable of the Company, as well as
certain intercompany notes and payment intangibles. Subject to the Intercreditor Agreement,
the Revolving Loan also has a second priority-perfected security interest in all of the first
priority collateral securing the Term Loans. Interest on borrowings is calculated at the
banks base rate plus 0.0% to 0.5% or at the Eurodollar offer rate plus 2.00% to 2.75%,
depending upon the level of average excess availability the Company maintains. During fiscal
2004, the Company extended the maturity dates of the Revolving Loan by one year. As a result,
the maturity date of the Revolving Loan, which originally matured on June 11, 2005, was
extended to June 11, 2006, under substantially the same terms and conditions. F-15




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $100 Million Term Loans  Related Parties The Term Loans are comprised of a $50.0 million Term Loan B and a $50.0 million Term Loan
C. All obligations under the Term Loans are senior debt and, subject to the Intercreditor
Agreement, have the same rights and privileges as the Revolving Credit Facility and the Senior
Subordinated Convertible Loan. The Company and its principal subsidiaries are obligated on the
facility. During fiscal 2004, the Company extended the maturity dates of the Term Loans by one
year. As a result, the maturity date of the Term Loans, which originally matured on June 11,
2005, was extended to June 11, 2006, under substantially the same terms and conditions. . The Term
Loans stated rate of interest per annum depends on whether the Company elects to pay
interest in cash or a paid-in-kind (PIK) option. During the first two years of this
facility, the Company could have elected to pay all interest in PIK. During the final two
years of the Term Loans, the stated rate of interest is 15.0% if paid in cash or 15.5% by PIK
and the PIK option is limited to 50% of the interest due. For the years ended January 29, 2005
and January 31, 2004 the Company elected to pay interest in cash. The Company issued 2,954,792 warrants (Warrants) to purchase shares of common stock, at an
initial exercise price of $4.50 per share, to the Term Loan C Lenders. The Warrants are
exercisable at any time prior to June 11, 2012. The Company has granted the Term Loan C
Lenders registration rights with respect to the shares issuable upon exercise of the Warrants.
The $6.1 million value ascribed to the Warrants was estimated as of the date of issuance using
the Black-Scholes pricing model with the following assumptions: risk-free interest rate of
5.6%; expected life of 10 years; expected volatility of 47%; illiquidity discount of 10%; and
an expected dividend yield of 0%. The related debt discount is amortized into interest expense
over the life of the debt. The number of shares issuable varies upon the occurrence of the following: (i) the issuance of
additional shares of common stock without consideration or for a consideration per share less
than the Warrant exercise price; (ii) the declaration of any dividend; (iii) the combination
or consolidation of the outstanding shares of common stock into a lesser number of shares;
(iv) the issuance or sale of additional shares at a price per share less than the current
market price but greater than the Warrant exercise price; (v) the issuance of convertible
securities which are convertible into shares of common stock; and/or (vi) the exchange of
 shares in a merger or other business combination. $75 Million Senior Subordinated Convertible Loan  Related Parties The Company amended and restated its $75.0 million Senior Subordinated Convertible Loan
Agreement on June 11, 2002 (the Convertible Loan). As amended, borrowings under the
convertible loan will bear interest at 10% per annum. At the Companys option, interest may be
PIK from the closing date to the second anniversary thereof, and thereafter, at the option of
the Company, up to 50% of the interest due may be PIK until maturity. PIK interest accrued
with respect to the convertible loan is added to the outstanding principal balance, on a
quarterly basis and is payable in cash upon the maturity of the debt. The convertible loan is
guaranteed by all principal subsidiaries and is secured by a lien on assets junior to liens
granted in favor of the Lenders on the Revolving Credit Agreement and Term Loans. The
Convertible Loan is not subject to prepayment for five years from the closing date. The agent
has the right to designate two observers to the Board of Directors for so long as the agent is
the beneficial owner of at least 50% of the advances initially made by it and has the right to
designate two individuals to the Board of Directors for so long as the agent is the beneficial
owner of at least 50% of the conversion shares issued or issuable upon conversion of the
advances initially made by it. The Convertible Loan is convertible at the option of the holders into shares of Retail
Ventures, Inc. common stock at a conversion price of $4.50. The maturity date is June 10,
2009. F-16




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other Debt Items The Company utilized an interest rate swap agreement to effectively establish long-term fixed
rates on borrowings under the Credit Agreement, thus reducing the impact of interest rate
changes on future income. These swap agreements, which were designated as cash flow hedges,
involved the receipt of variable rate amounts in exchange for fixed rate interest payments
over the life of the agreements. The Companys swap agreement expired April 2003. The weighted average interest rate on borrowings under the Companys credit facilities during
fiscal year 2004, 2003 and 2002 was 8.5%, 8.4% and 7.8%, respectively. The book value of notes payable and long-term debt approximates fair value at January 29,
2005. The carrying amount of the revolving line of credit approximates fair value as a result
of the variable rate-based borrowings. The carrying amount of the term loan and subordinated
debt also approximates fair value, as this was the available financing in the marketplace
during the fiscal year. On June 11, 2002, the Company refinanced its previous financing arrangement and recorded $3.3
million loss on the extinguishment of debt resulting from the write-off of deferred financing
costs. This write-off is included in interest expense, net. At January 29, 2005, future annual long-term debt payments are as follows (in thousands): Fiscal year
    
    Amount2005
    
    $
    212006
    
    
    240,0002007
    
    
    2008
    
    
    2009
    
    
    75,000Later years
    
    
    Total principal amount
    
    
    315,021Unamortized discount
    
    
    (759
    )Total
    
    $
    314,262
 6. PENSION BENEFIT PLANS The Company has three qualified defined benefit pension plans (plans) assumed at the time of
acquisition of three separate companies. The Companys funding policy is to contribute
annually the amount required to meet ERISA funding standards and to provide not only for
benefits attributed to service to date but also for those anticipated to be earned in the
future. The Company uses a January 31 measurement date for its plans. The following provides a reconciliation of projected benefit obligations, plan assets and
funded status of all plans as of January 29, 2005 and January 31, 2004 (in thousands): Year Ended1/29/05
    
    
    1/31/04Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    24,393
    
    
    $
    20,691Service cost
    
    
    43
    
    
    
    35Interest cost
    
    
    1,401
    
    
    
    1,292Benefits paid
    
    
    (1,120
    )
    
    
    (952
    )Actuarial loss
    
    
    1,871
    
    
    
    3,327Projected benefit obligation at end of year
    
    $
    26,588
    
    
    $
    24,393
 F-17




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended1/29/05
    
    
    1/31/04Change in plan assets:Fair market value at beginning of year
    
    $
    18,369
    
    
    $
    15,269Actual (loss) return on plan assets
    
    
    1,272
    
    
    
    2,931Employer contributions
    
    
    1,659
    
    
    
    1,320Benefits paid
    
    
    (1,120
    )
    
    
    (952
    )Other
    
    
    (278
    )
    
    
    (199
    )Fair market value at end of year
    
    $
    19,902
    
    
    $
    18,369Reconciliation of funded status:Funded status
    
    $
    (6,686
    )
    
    $
    (6,023
    )Unrecognized actuarial loss
    
    
    12,111
    
    
    
    10,378Unrecognized transition obligation
    
    
    (222
    )
    
    
    (260
    )Accrued benefit cost
    
    $
    5,203
    
    
    $
    4,095
 Amounts recognized in the consolidated balance sheet consisted of (in thousands): Year Ended1/29/05
    
    
    1/31/04Accrued benefit cost
    
    $
    (6,626
    )
    
    $
    (5,923
    )Accumulated other comprehensive income
    
    
    11,829
    
    
    
    10,018Net amount recognized
    
    $
    5,203
    
    
    $
    4,095
 The plans accumulated benefit obligation was $26.5 million at January 29, 2005, and $24.3
million at January 31, 2004. Year Ended(in thousands)1/29/05
    
    
    1/31/04Projected benefit obligation
    
    $
    26,588
    
    
    $
    24,393Accumulated benefit obligation
    
    $
    26,528
    
    
    $
    24,293Fair value of plan assets
    
    $
    19,902
    
    
    $
    18,369
 The components of net periodic benefit cost are comprised of the following (in
thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Service cost
    
    $
    43
    
    
    $
    35
    
    
    $
    29Interest cost
    
    
    1,401
    
    
    
    1,292
    
    
    
    1,280Expected return on plan assets
    
    
    (1,436
    )
    
    
    (1,286
    )
    
    
    (1,453
    )Amortization of transition (asset) obligation
    
    
    (37
    )
    
    
    (75
    )
    
    
    (75
    )Amortization of prior-service cost
    
    
    
    
    
    
    
    
    
    
    (8
    )Amortization of net loss
    
    
    580
    
    
    
    596
    
    
    
    198Net periodic benefit cost
    
    $
    551
    
    
    $
    562
    
    
    $
    (29
    )
 The amount included within accumulated other comprehensive loss arising from a change in the
additional minimum pension liability was $1.8 million at January 29, 2005,
$1.4 million at January 31, 2004 and $3.7 million at February 2, 2003. F-18




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assumptions used in each year of the actuarial computations were: Year Ended1/29/05
    
    1/31/04Discount rate
    
    
    5.75
    %
    
    
    6.0
    %Rate of increase in compensation levels
    
    
    4.0
    %
    
    
    4.0
    %Expected long-term rate of return
    
    
    8.0
    %
    
    
    8.0
    %
 The expected long-term rate of return was based on historical average annual returns
for S&P 500, Russell 2000 and LB Intermediate Term Government for 10 years and since
inception of the assets. The weighted average allocation of plan assets by category is as follows: Year Ended1/29/05
    
    1/31/04Equity securities
    
    
    49.1
    %
    
    
    48.4
    %Fixed securities
    
    
    44.7
    
    
    
    45.0Commercial mortgage
    
    
    5.5
    
    
    
    5.8Other
    
    
    0.7
    
    
    
    0.8100.0
    %
    
    
    100.0
    %
 The Companys investment strategy is to meet the liabilities of the plans as they are due and
to maximize the return on invested assets within appropriate risk tolerances. The Companys funding policy is to contribute an amount annually that satisfies the minimum
funding requirements of ERISA and that is tax deductible under the Internal Revenue Code. The
Company anticipates contributing approximately $2.5 million in fiscal 2005 to meet minimum
funding requirements. The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid (in thousands): Fiscal year
    
    Amount2005
    
    $
    1,1112006
    
    
    1,1492007
    
    
    1,1442008
    
    
    1,1512009
    
    
    1,1682010-2014
    
    
    6,799
 7. OTHER BENEFIT PLANS The Company
maintains a 401(k) Plan (the Plan) for its employees. Employees who attain
age twenty-one are eligible to defer compensation as of the first day of the month following
60 days of employment and may contribute up to thirty percent of their compensation to the
Plan on a pre-tax basis, subject to IRS limitations. As of the first day of the month
following an employees completion of one year of service as defined under the terms of the
Plan, the Company matches employee deferrals into the Plan, 100% on the first 3% of eligible
compensation deferred and 50% on the next 2% of eligible compensation deferred. Additionally,
the Company may contribute a discretionary profit sharing amount to the Plan each year. The
Company incurred costs associated with the 401(k) Plan of $4.7 million, $5.9 million and $5.8
million for fiscal years 2004, 2003 and 2002, respectively. The Company recently became aware of an issue involving its 401(k) and profit sharing plan.
From September 2001 until July 13, 2004, the Company failed to register the Companys common
shares transferred to participants in its 401(k) plan and the interests of those participants
in that plan, which may also be deemed securities requiring registration. In addition, prior
to November 2004, the Company failed to deliver a prospectus that complied in all respects
with SEC requirements. The Company intends to offer a 30-day right of rescission to those
participants who
received its common shares in violation of applicable securities laws during the one year
period preceding the date of F-19




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the rescission offer, the statute of limitations period the Company believes may apply to
claims for rescission under applicable laws, or possibly a longer or shorter period. Under the rescission offer, the participants will be entitled to require the Company to
repurchase shares at the price per share of the Companys common shares when the shares were
transferred to the participants account, plus interest at a rate to be determined. Based
upon the Companys preliminary investigation, it currently believes that up to approximately
700,000 common shares transferred to 401(k) plan participants since September 2001 may not
have been properly registered in accordance with the Securities Act of 1933. The Company has undertaken certain curative action under the applicable securities laws and is
also investigating its obligations to undertake any other curative action which may be
required under applicable laws. While the Company cannot predict the possible effect of
federal or state regulatory action, the Company does not believe that these violations will
have a material adverse effect on the Companys financial position or results of operations. The Company provides an Employee Stock Purchase Plan (ESPP). Eligibility requirements are
similar to the 401(k) Plan. Eligible employees can purchase common shares of the Company
through payroll deductions. The Company will match 15% of employee investments up to a maximum
investment level. Plan costs to the Company for all fiscal periods presented are not material
to the consolidated financial statements. While investigating the unregistered sale of shares in connection with the 401(k) Plan, we
also discovered that approximately 640,000 of our common shares sold to our employees through
our ESPP may not have complied with applicable federal or state law. Through the ESPP,
eligible employees can purchase our common shares through payroll deductions and we match 15%
of employee investments up to a maximum investment level. While all of our common shares were
acquired on the open market and in compliance with the provisions of the ESPP, because the
 shares were not registered, participants may have a right to rescind their purchases. The
Company has not yet determined whether or not it will make a rescission offer to participants
in the ESPP and accordingly may be liable for the purchase price of their shares acquired
through the ESPP which were not issued in compliance with the Securities Act or applicable
state securities laws. Certain employees of the Company are covered by union-sponsored, collectively bargained,
multi-employer pension plans, the costs of which are not material to the consolidated
financial statements. 8. SHAREHOLDERS EQUITY The Company issued 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 market value of the shares at the date of grant is recorded as deferred
compensation expense. 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. Deferred compensation is charged to expense on a
straight-line basis during the period that the restrictions lapse. The Company issued 2,954,792 warrants (Warrants) to purchase shares of common stock, at an
initial exercise price of $4.50 per share, to the Term Loan C Lenders and has outstanding at
January 29, 2005 a $75.0 million Senior Subordinated Convertible Loan which is convertible at
the option of the holders into shares of Retail Ventures, Inc. common stock at a conversion
price of $4.50. See Note 5 to the consolidated financial statements for additional long-term
obligations and notes payable disclosure. As of January 29, 2005 and January 31, 2004, the Company had outstanding approximately 198,000
and 251,000 restricted shares, respectively, which are less than 1% of the common shares
outstanding and the diluted shares. F-20




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  9.
    STOCK OPTION PLANS The Company has a 2000 Stock Incentive Plan that provides for the issuance of options to
purchase up to 13,000,000 common shares or the issuance of restricted stock to management, key
employees of the Company and affiliates, consultants as defined, and directors of the Company.
Options generally vest 20% per year on a cumulative basis. Options granted under the 2000
Stock Plan remain exercisable for a period of ten years from the date of grant. An option to purchase 2,500 common shares is automatically granted to each non-employee
director on the first New York Stock Exchange trading day in each calendar quarter. The
exercise price for each option is the fair market value of the common shares on the date of
grant. All 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 the Company. The Company has a 1991 Stock Option Plan that provided for the grant of options to purchase up
to 4,000,000 common shares. Such options are exercisable 20% per year on a cumulative basis
and remain exercisable for a period of ten years from the date of grant. On February 2, 2002, the Company issued 2,720,000 performance-based stock options. The vesting
period of the performance-based stock options was either eight years or earlier if certain
performance criteria were met. In connection with executive
employment agreements, however, all of these
outstanding stock options became fully exercisable, and all restrictions imposed on any
outstanding shares of performance-based stock lapsed, on the effective date of termination of
the executives employment. During fiscal 2004 and fiscal 2003 the Company contingently awarded 1,653,000 options and
990,000 options, respectively, subject to an Option Price Protection Provision (OPPP). These
contingent options were awarded at the greater of market value or $4.50 and are subject to a
vesting schedule or a performance vesting formula, as applicable. The OPPP provides that until
the Company receives certain approvals from lenders the issue of these options is contingent.
Further, if any of these contingent options would have vested before they are actually
granted, at or after that time, the grantee may exercise the OPPP on some or all of the
contingent options that would have vested. Pursuant to an OPPP exercise the grantee is
compensated by the Company in the amount of the gain, if any, represented by the difference
between the stock closing price on the New York Stock Exchange on the date of the exercise and
the strike price per share. The OPPP does not apply once contingent options are actually
granted. Compensation expense for these contingent options was $0.4 million in fiscal 2004 and
$0.3 million in fiscal 2003. The following table summarizes the Companys stock option plans and related Weighted Average
Exercise Prices (WAEP) (shares in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Shares

    
    WAEP
    
    

Shares

    
    WAEP
    
    

Shares

    
    WAEPOutstanding beginning of year
    
    
    9,266
    
    
    $
    4.94
    
    
    
    8,921
    
    
    $
    5.36
    
    
    
    3,693
    
    
    $
    8.07Granted
    
    
    90
    
    
    
    6.95
    
    
    
    833
    
    
    
    2.44
    
    
    
    6,664
    
    
    
    4.30Exercised
    
    
    (143
    )
    
    
    
    
    
    
    (20
    )
    
    
    3.04
    
    
    
    
    
    
    
    Canceled
    
    
    (1,499
    )
    
    
    5.25
    
    
    
    (468
    )
    
    
    8.47
    
    
    
    (1,436
    )
    
    
    7.38Outstanding end of year
    
    
    7,714
    
    
    
    4.85
    
    
    
    9,266
    
    
    
    4.94
    
    
    
    8,921
    
    
    
    5.36Options exercisable end of year
    
    
    6,055
    
    
    $
    5.12
    
    
    
    2,845
    
    
    $
    6.50
    
    
    
    1,651
    
    
    $
    8.98Shares available for additional grants
    
    
    5,498
    
    
    
    
    
    
    
    7,436
    
    
    
    
    
    
    
    7,821
 F-21




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes information about stock options outstanding as of January 29,
2005 (shares in thousands): Options OutstandingWeightedAverageRemaining
    
    
    
        
    
Options ExercisableRange of Exercise Prices
    
    Shares
    
    
    Contract Life
    
    
    WAEP
    
    
    Shares
    
    
    WAEP$   1.68    $  4.49
    
    
    1,104,000
    
    
    8 yrs
    
    $
    2.26
    
    
    
    405,200
    
    
    $
    2.37$   4.50   $10.00
    
    
    6,348,850
    
    
    7 yrs
    
    $
    4.93
    
    
    
    5,392,470
    
    
    $
    4.91$ 10.01
 $21.44
    
    
    261,500
    
    
    5 yrs
    
    $
    13.78
    
    
    
    257,300
    
    
    $
    13.80
  10.
    COMMITMENTS AND CONTINGENCIES In March 2005, the Company announced the theft of credit card and other purchase information
relating to all customers who made purchases at 103 DSW stores between
mid-November 2004 and mid-February 2005. The Company now
believes that the theft occurred at 108 DSW stores The Company has contacted federal law enforcement
authorities, who are involved in the investigation. The Company is taking steps to address the
situation, including a review of the technology systems in conjunction with a leading computer
security firm, and also working with others to mitigate the situation. The Company cannot yet
reasonably estimate what the potential liability will be in connection with these events. The Company is involved in various legal proceedings that are incidental to the conduct of its
business. The Company estimates the range of liability related to pending litigation where
the amount and range of loss can be estimated. The Company records its best estimate of a
loss when the loss is considered probable. Where a liability is probable and there is a range
of estimated loss, the Company records the minimum estimated liability related to the claim.
In the opinion of management, the amount of any liability with respect to these proceedings
will not be material. As additional information becomes available, the Company assesses the
potential liability related to its pending litigation and revises the estimates. Revisions in
the Companys estimates and potential liability could materially impact its results of
operations.  11.
    INCOME TAXES The (benefit) provision for income taxes consists of the following (in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Current:Federal
    
    $
    9,967
    
    
    $
    198
    
    
    $
    3,523State and local
    
    
    3,923
    
    
    
    
    
    
    
    50313,890
    
    
    
    198
    
    
    
    4,026Deferred:Federal
    
    
    (29,245
    )
    
    
    (1,463
    )
    
    
    (2,697
    )State and local
    
    
    2,927
    
    
    
    (453
    )
    
    
    (385
    )(26,318
    )
    
    
    (1,916
    )
    
    
    (3,082
    )Income tax (benefit) expense
    
    $
    (12,428
    )
    
    $
    (1,718
    )
    
    $
    944
 A reconciliation of the expected income taxes based upon the statutory rate is as follows (in
thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Income tax (benefit) expense at federal statutory rate
    
    $
    (12,760
    )
    
    $
    (667
    )
    
    $
    500Jobs credit
    
    
    (800
    )
    
    
    (1,524
    )
    
    
    (926
    )State and local taxes, net
    
    
    (1,251
    )
    
    
    208
    
    
    
    641Non-deductible interest
    
    
    592
    
    
    
    662
    
    
    
    370Valuation allowance
    
    
    3,214
    
    
    
    1,467
    
    
    
    Write off of net operating loss
    
    
    3,072
    
    
    
    
    
    
    
    Other
    
    
    (4,495
    )
    
    
    (1,864
    )
    
    
    359$
    (12,428
    )
    
    $
    (1,718
    )
    
    $
    944
 F-22




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the net deferred tax asset as of January 29, 2005 and January 31, 2004 are
(in thousands): Year Ended1/29/05
    
    
    1/31/04Deferred tax assets:Basis differences in inventory
    
    $
    12,867
    
    
    $
    14,884Basis differences in property and equipment
    
    
    17,173
    
    
    
    14,589Deferred compensation
    
    
    
    
    
    
    1,009Amortization of lease acquisition costs
    
    
    
    
    
    
    1,308Acquired assets
    
    
    
    
    
    
    2,036Net operating loss
    
    
    23,774
    
    
    
    12,322Federal tax credit
    
    
    6,103
    
    
    
    2,963Contribution carry forward
    
    
    330
    
    
    
    1,467Valuation allowance
    
    
    (4,150
    )
    
    
    (1,467
    )Tenant allowance
    
    
    1,315
    
    
    
    1,478Capital leases
    
    
    2,489
    
    
    
    1,362Other comprehensive loss
    
    
    4,760
    
    
    
    4,008Workers Compensation
    
    
    8,353
    
    
    
    Deferred revenue
    
    
    5,007
    
    
    
    Accrued expenses
    
    
    11,137
    
    
    
    17,198Accrued rent
    
    
    10,065
    
    
    
    3,576Other
    
    
    233
    
    
    
    2,14899,456
    
    
    
    78,881Deferred tax liabilities:Prepaid expenses
    
    
    (5,823
    )
    
    
    Gain/loss
    
    
    
    
    
    
    (2,708
    )State and local taxes
    
    
    
    
    
    
    (4,941
    )(5,823
    )
    
    
    (7,649
    )Total net
    
    $
    93,633
    
    
    $
    71,232
 The net deferred tax asset is recorded in the Companys consolidated balance sheet as follows
(in thousands): Year Ended1/29/05
    
    
    1/31/04Current deferred tax asset
    
    $
    64,359
    
    
    $
    44,933Non-current deferred tax asset
    
    
    29,274
    
    
    
    26,299Net deferred tax asset
    
    $
    93,633
    
    
    $
    71,232
 The Company has determined that there is a probability that future taxable income may not be
sufficient to fully utilize deferred tax assets (state net operating losses and charitable
contribution carry forwards) which expire in future years at various dates depending on the
state jurisdiction. Therefore, an allowance of $4.2 million was needed at the end of fiscal
2004.
Based on available data, the Company believes it is more likely than
not that the remaining deferred tax assets will be realized. The state and city net operating loss carry forward is approximately $351 million and is
available to reduce state and city taxable income from 2006 to 2024. The federal general
business tax credit carry forward is approximately $1.6 million of which $0.2 million will
expire in 2022; $0.1 million will expire in 2023 and $1.3 million will expire in 2024. Also,
the federal AMT credit carry forward amount is $4.5 million.  12.
    SEGMENT REPORTING The Company is managed in three operating segments: Value City, DSW and Filenes Basement. All
of the operations are located in the United States. The Company has identified such segments
based on management responsibility and measures segment profit as operating profit (loss),
which is defined as income (loss) before interest expense and income taxes. F-23




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended January 29, 2005 (in thousands): FilenesValue City
    
    
    DSW
    
    
    Basement
    
    
    TotalNet sales
    
    $
    1,430,721
    
    
    $
    937,184
    
    
    $
    371,726
    
    
    $
    2,739,631Operating (loss) profit
    
    
    (25,763
    )
    
    
    55,188
    
    
    
    (22,740
    )
    
    
    6,685Identifiable assets
    
    
    467,145
    
    
    
    357,885
    
    
    
    158,325
    
    
    
    983,355Capital expenditures
    
    
    27,679
    
    
    
    29,536
    
    
    
    26,640
    
    
    
    83,855Depreciation and
Amortization
    
    
    29,928
    
    
    
    18,527
    
    
    
    7,656
    
    
    
    56,111
 Year ended January 31, 2004 (in thousands): FilenesValue City
    
    
    DSW
    
    
    Basement
    
    
    TotalNet sales
    
    $
    1,504,674
    
    
    $
    772,631
    
    
    $
    316,901
    
    
    $
    2,594,206Operating profit (loss) (as restated)
    
    
    8,339
    
    
    
    26,170
    
    
    
    (2,851
    )
    
    
    31,658Identifiable assets (as restated)
    
    
    498,125
    
    
    
    227,790
    
    
    
    141,606
    
    
    
    867,521Capital expenditures
    
    
    38,582
    
    
    
    21,017
    
    
    
    9,102
    
    
    
    68,701Depreciation and
Amortization (as restated)
    
    
    32,087
    
    
    
    14,825
    
    
    
    6,520
    
    
    
    53,432
 Year ended February 1, 2003 (in thousands): FilenesValue City
    
    
    DSW
    
    
    Basement
    
    
    TotalNet sales
    
    $
    1,518,595
    
    
    $
    628,964
    
    
    $
    303,160
    
    
    $
    2,450,719Operating
profit (loss) (as restated)
    
    
    24,341
    
    
    
    14,639
    
    
    
    (2,274
    )
    
    
    36,706Capital expenditures
    
    
    26,136
    
    
    
    12,260
    
    
    
    3,388
    
    
    
    41,784Depreciation and
Amortization (as restated)
    
    
    41,761
    
    
    
    5,424
    
    
    
    6,471
    
    
    
    53,656
 The following sets forth sales by each major merchandise category (in thousands): Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Apparel and ready to wear
    
    $
    1,083,195
    
    
    $
    1,112,789
    
    
    $
    1,144,024Hard goods and home furnishings
    
    
    512,169
    
    
    
    493,511
    
    
    
    466,759Shoes and other footwear
    
    
    1,144,267
    
    
    
    987,906
    
    
    
    839,936Total
    
    $
    2,739,631
    
    
    $
    2,594,206
    
    
    $
    2,450,719
  13.
    QUARTERLY FINANCIAL DATA (UNAUDITED) QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) Year Ended January 29, 2005 1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.
    
    
    4th Qtr.05/01/04
    
    
    07/31/04
    
    
    10/30/04
    
    
    01/29/0513 Weeks
    
    
    13 Weeks
    
    
    13 Weeks
    
    
    13 WeeksRestated*
    
    
    Restated*
    
    
    Restated*Net sales
    
    $
    646,300
    
    
    $
    631,654
    
    
    $
    699,738
    
    
    $
    761,939Cost of sales
    
    
    (386,867
    )
    
    
    (372,088
    )
    
    
    (419,776
    )
    
    
    (484,484
    )Gross profit
    
    
    259,433
    
    
    
    259,566
    
    
    
    279,962
    
    
    
    277,455
 F-24




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.
    
    
    4th Qtr.05/01/04
    
    
    07/31/04
    
    
    10/30/04
    
    
    01/29/0513 Weeks
    
    
    13 Weeks
    
    
    13 Weeks
    
    
    13 WeeksRestated*
    
    
    Restated*
    
    
    Restated*Selling, general and administrative expenses
    
    
    (254,606
    )
    
    
    (249,664
    )
    
    
    (273,962
    )
    
    
    (298,213
    )License fees and other income
    
    
    1,557
    
    
    
    1,566
    
    
    
    1,950
    
    
    
    1,641Operating profit (loss)
    
    
    6,384
    
    
    
    11,468
    
    
    
    7,950
    
    
    
    (19,117
    )Interest expense, netNon-related
    
    
    (2,780
    )
    
    
    (3,078
    )
    
    
    (3,123
    )
    
    
    (3,839
    )Related parties
    
    
    (6,615
    )
    
    
    (6,836
    )
    
    
    (6,815
    )
    
    
    (5,475
    )(Loss) income before income taxes
    
    
    (3,011
    )
    
    
    1,554
    
    
    
    (1,988
    )
    
    
    (28,431
    )Benefit (provision) for income taxes
    
    
    1,062
    
    
    
    (797
    )
    
    
    646
    
    
    
    11,517Net (loss) income
    
    $
    (1,949
    )
    
    $
    757
    
    
    $
    (1,342
    )
    
    $
    (16,914
    )Basic (loss) earnings per share (1)
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.50
    )Diluted (loss) earnings per share (1)
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.50
    )
 Year Ended January 31, 2004 1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.
    
    
    4th Qtr.05/03/03
    
    
    08/02/03
    
    
    11/01/03
    
    
    01/31/0413 Weeks
    
    
    13 Weeks
    
    
    13 Weeks
    
    
    13 WeeksRestated*
    
    
    Restated*
    
    
    Restated*
    
    
    Restated*Net sales
    
    $
    588,532
    
    
    $
    604,594
    
    
    $
    680,639
    
    
    $
    720,441Cost of sales
    
    
    (371,812
    )
    
    
    (368,228
    )
    
    
    (419,251
    )
    
    
    (433,923
    )Gross profit
    
    
    216,720
    
    
    
    236,366
    
    
    
    261,388
    
    
    
    286,518Selling, general and administrative expenses
    
    
    (230,227
    )
    
    
    (235,078
    )
    
    
    (249,790
    )
    
    
    (259,849
    )License fees and other income
    
    
    1,501
    
    
    
    1,291
    
    
    
    1,454
    
    
    
    1,364Operating (loss) profit
    
    
    (12,006
    )
    
    
    2,579
    
    
    
    13,052
    
    
    
    28,033Interest expense, netNon-related
    
    
    (4,207
    )
    
    
    (2,102
    )
    
    
    (2,959
    )
    
    
    (2,757
    )Related parties
    
    
    (6,383
    )
    
    
    (6,957
    )
    
    
    (6,615
    )
    
    
    (6,615
    )(Loss) income before income taxes
    
    
    (22,596
    )
    
    
    (6,480
    )
    
    
    3,478
    
    
    
    18,661Benefit (provision) for income taxes
    
    
    9,230
    
    
    
    2,639
    
    
    
    (2,770
    )
    
    
    (7,381
    )Net (loss) income
    
    $
    (13,366
    )
    
    $
    (3,841
    )
    
    $
    708
    
    
    $
    11,280Basic (loss) earnings per share (1)
    
    $
    (0.40
    )
    
    $
    (0.11
    )
    
    $
    0.02
    
    
    $
    0.33Diluted (loss) earnings per share (1)
    
    $
    (0.40
    )
    
    $
    (0.11
    )
    
    $
    0.02
    
    
    $
    0.24
 Year Ended
January 29, 2005  As previously reported 1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.05/01/04
    
    
    07/31/04
    
    
    10/30/0413 Weeks
    
    
    13 Weeks
    
    
    13 WeeksNet sales
    
    $
    646,300
    
    
    $
    631,654
    
    
    $
    699,738Cost of sales
    
    
    (386,867
    )
    
    
    (372,088
    )
    
    
    (419,776
    )Gross profit
    
    
    259,433
    
    
    
    259,566
    
    
    
    279,962Selling, general and administrative expenses
    
    
    (254,204
    )
    
    
    (249,261
    )
    
    
    (273,560
    )License fees and other income
    
    
    1,557
    
    
    
    1,566
    
    
    
    1,950Operating profit
    
    
    6,786
    
    
    
    11,871
    
    
    
    8,352Interest expense, netNon-related
    
    
    (2,780
    )
    
    
    (3,078
    )
    
    
    (3,123
    )Related parties
    
    
    (6,615
    )
    
    
    (6,836
    )
    
    
    (6,815
    )(Loss) income before income taxes
    
    
    (2,609
    )
    
    
    1,957
    
    
    
    (1,586
    )
 F-25




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.05/01/04
    
    
    07/31/04
    
    
    10/30/0413 Weeks
    
    
    13 Weeks
    
    
    13 WeeksBenefit (provision) for income taxes
    
    
    1,062
    
    
    
    (797
    )
    
    
    646Net (loss) income
    
    $
    (1,547
    )
    
    $
    1,160
    
    
    $
    (940
    )Basic (loss) earnings per share (1)
    
    $
    (0.05
    )
    
    $
    0.03
    
    
    $
    (0.03
    )Diluted (loss) earnings per share (1)
    
    $
    (0.05
    )
    
    $
    0.03
    
    
    $
    (0.03
    )
 Year Ended
January 31, 2004  As previously reported 1st Qtr.
    
    
    2nd Qtr.
    
    
    3rd Qtr.
    
    
    4th Qtr.05/03/03
    
    
    08/02/03
    
    
    11/01/03
    
    
    01/31/0413 Weeks
    
    
    13 Weeks
    
    
    13 Weeks
    
    
    13 WeeksNet sales
    
    $
    588,532
    
    
    $
    604,594
    
    
    $
    680,639
    
    
    $
    720,441Cost of sales
    
    
    (371,812
    )
    
    
    (368,228
    )
    
    
    (419,251
    )
    
    
    (433,923
    )Gross profit
    
    
    216,720
    
    
    
    236,366
    
    
    
    261,388
    
    
    
    286,518Selling, general and administrative expenses
    
    
    (230,034
    )
    
    
    (234,885
    )
    
    
    (249,597
    )
    
    
    (259,655
    )License fees and other income
    
    
    1,501
    
    
    
    1,291
    
    
    
    1,454
    
    
    
    1,364Operating (loss) profit
    
    
    (11,813
    )
    
    
    2,772
    
    
    
    13,245
    
    
    
    28,227Interest expense, netNon-related
    
    
    (4,207
    )
    
    
    (2,102
    )
    
    
    (2,959
    )
    
    
    (2,757
    )Related parties
    
    
    (6,383
    )
    
    
    (6,957
    )
    
    
    (6,615
    )
    
    
    (6,615
    )(Loss) income before income taxes
    
    
    (22,403
    )
    
    
    (6,287
    )
    
    
    3,671
    
    
    
    18,855Benefit (provision) for income taxes
    
    
    9,230
    
    
    
    2,639
    
    
    
    (2,770
    )
    
    
    (7,381
    )Net (loss) income
    
    $
    (13,173
    )
    
    $
    (3,648
    )
    
    $
    901
    
    
    $
    11,474Basic (loss) earnings per share (1)
    
    $
    (0.39
    )
    
    $
    (0.11
    )
    
    $
    0.03
    
    
    $
    0.34Diluted (loss) earnings per share (1)
    
    $
    (0.39
    )
    
    $
    (0.11
    )
    
    $
    0.03
    
    
    $
    0.25
   *
    
    See Note 4(1)
    
    (Loss) earnings per share calculations for each quarter are based on the applicable
weighted average shares outstanding for each period and may not necessarily be equal to
the full year per share amount.  14.
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (in thousands): A supplemental schedule of non-cash investing and financing activities is presented below: Year Ended1/29/05
    
    
    1/31/04
    
    
    2/1/03Cash paid during the year for:Interest
    
    $
    28,864
    
    
    $
    34,070
    
    
    $
    30,319Income taxes
    
    $
    12,540
    
    
    $
    2,298
    
    
    $
    7,324Issuance of warrants
    
    
    
    
    
    
    
    
    
    $
    6,074
 In June 2002, the Company issued warrants with a fair market value of $6,074,000, using the
Black Scholes model, to the holders of to the Term Loan C Lenders to purchase 2,954,792 shares
of common stock at the initial exercise price of $4.50 per share, subject to adjustment. The
Warrants are exercisable at any time prior to June 11, 2012. The Company has granted the Term
Loan C Lenders registration rights with respect to the shares issuable upon exercise of the
Warrants.  15.
    SUBSEQUENT EVENTS: In March 2005, the Company increased the ceiling under its revolving credit facility to $425
million. The increase of $75 million to the revolving credit facility was accomplished by
amendment under substantially the same terms to the existing revolving credit agreement which
expires in June 2006. In March
2005, the Company announced that DSW had filed a registration
statement with the SEC and plans to pursue an initial public offering
(IPO). The Company expects that DSW will complete the IPO
in 2005, subject to market conditions. After the IPO, the Company
expects to own a majority of the outstanding common shares of DSW. In March
2005, the Company closed two underperforming Value City stores. The
Company recorded a charge of approximately $1.7 million relating to the operating lease for one of these store locations. F-26




---



##### Table of Contents



RETAIL VENTURES, INC. 
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 (dollars in thousands)
 Column B
    
    
    Column C
    
    
    
    

    
    
    Column EBalance at
    
    
    Charges to
    
    
    Charges to
    
    
    
    
    
    
    Balance atColumn A
    
    Beginning
    
    
    Costs and
    
    
    Other
    
    

    Column D

    
    
    EndDescription

    of Period
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
(1)
    
    
    of PeriodAllowance deducted from asset to which it applies:Allowance for doubtful accounts:Year Ended:02/ 01/03

    
    1,793
    
    
    
    10
    
    
    
    
    
    
    
    907
    
    
    
    89601/31/04

    
    896
    
    
    
    33
    
    
    
    
    
    
    
    103
    
    
    
    82601/29/05

    
    826
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    766Inventory
Reserve:Year Ended:02/ 01/03

    
    33,540
    
    
    
    8,594
    
    
    
    
    
    
    
    9,659
    
    
    
    32,47501/31/04

    
    32,475
    
    
    
    6,569
    
    
    
    
    
    
    
    4,859
    
    
    
    34,18501/29/05

    
    34,185
    
    
    
    14,142
    
    
    
    
    
    
    
    5,545
    
    
    
    42,782Allowance for Sales Returns:Year Ended:02/ 01/03

    
    2,348
    
    
    
    528
    
    
    
    
    
    
    
    614
    
    
    
    2,26201/31/04

    
    2,262
    
    
    
    963
    
    
    
    
    
    
    
    15
    
    
    
    3,21001/29/05

    
    3,210
    
    
    
    1,861
    
    
    
    
    
    
    
    1,495
    
    
    
    3,576Store Closing Reserve:Year ended:02/ 01/03

    
    615
    
    
    
    1,099
    
    
    
    
    
    
    
    1,190
    
    
    
    52401/31/04

    
    524
    
    
    
    598
    
    
    
    
    
    
    
    
    
    
    
    1,12201/29/05

    
    1,122
    
    
    
    1,926
    
    
    
    
    
    
    
    1,736
    
    
    
    1,312
   (1)

    The deductions in Column D are amounts written off against the respective reserve. S-1




---



##### Table of Contents



INDEX TO EXHIBITS Exhibits marked with an
asterisk(*) are filed herewith 
 ExhibitNo.
    
    Description2.1
    
    
    Agreement and Plan of Merger among Value City Department Stores,
Inc., Retail Ventures, Inc. (the Company) and Value City Merger
Sub, Inc., effective as of October 8, 2003. Incorporated by
reference to Exhibit 2 to Form 8-K (file no. 1-10767) filed on
October 8, 2003.3.1
    
    
    Amended and Restated Articles of Incorporation of the Company.
Incorporated by reference to Exhibit 3(a) to Form 8-K (file No.
1-10767) filed on October 8, 2003.3.2
    
    
    Amended and Restated Code of Regulations of the Company.
Incorporated by reference to Exhibit 3(b) to Form 8-K (file No.
1-10767) filed on October 8, 2003.10.1
    
    
    Corporate Services Agreement, dated June 12, 2002, between the
Company and SSC. Incorporated by reference to Exhibit 10.6 to
Form 10-Q (file no. 1-10767) filed June 18, 2002.10.2
    
    
    License Agreement, dated June 5, 1991, between the Company and
SSC re: Service Marks. Incorporated by reference to Exhibit 10.2
to Amendment No. 1 to Form S-1 Registration Statement (file no.
33-40214) filed June 6, 1991.10.3#
    
    Form of Indemnification Agreement, dated 1991, between the
Company and its directors and executive officers. Incorporated by
reference to Exhibit 10.7 to Amendment No. 1 to Form S-1
Registration Statement (file no. 33-40214) filed June 6, 1991.10.4#
    
    Amended and Restated Retail Ventures, Inc. 1991 Stock Option
Plan. Incorporated by reference to Exhibit 4(a) to Amendment No.
1 to Form S-8 Registration Statement (file no. 333-45852) filed
October 16, 2003.10.5#
    
    Retail Ventures, Inc. Employee Stock Purchase Plan. Incorporated
by reference to Exhibit 4(a) to Amendment No. 1 to Form S-8
Registration Statement (file no. 33-46221) filed October 16,
2003.10.6#
    
    Retail Ventures, Inc. Amended and Restated 2000 Stock Incentive
Plan (the 2000 Stock Incentive Plan). Incorporated by reference
to Exhibit 4(a) to Amendment No. 1 to Form S-8 Registration
Statement (file no. 333-100398) filed on October 16, 2003.10.7#
    
    Amended and Restated Retail Ventures, Inc. Non-Employee Director
Stock Option Plan. Incorporated by reference to Exhibit 4(a) to
Form S-8 Registration Statement (file no. 333-45856) filed
October 16, 2003.10.8
    
    
    Sublease, dated April 25, 1991, between the Company, as
sublessor, and SSC, as sublessee, re: Baltimore, MD (Eastpoint)
furniture store location. Incorporated by reference to Exhibit
10.15.1 to Registration Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991.10.9
    
    
    Sublease, dated April 25, 1991, between the Company, as
sublessor, and SSC, as sublessee, re: Baltimore, MD (Westview)
furniture store location. Incorporated by reference to Exhibit
10.15.2 to Registration Statement on Form S-1 (file no. 33-40214)
filed April 29, 1991.10.10
    
    
    Sublease, dated April 25, 1991, between the Company, as
sublessor, and SSC, as sublessee, re: Lansing, MI furniture store
location. Incorporated by reference to Exhibit 10.15.3 to
Registration Statement on Form S-1 (file no. 33-40214) filed
April 29, 1991.10.11
    
    
    Sublease, dated April 25, 1991, between the Company, as
sublessor, and SSC, as sublessee, re: Louisville, KY (Preston
Highway) furniture store location. Incorporated by reference to
Exhibit 10.15.4 to Registration Statement on Form S-1 (file no.
33-40214) filed April 29, 1991.10.12
    
    
    Form of Assignment and Assumption Agreement between the Company,
as assignee, and SSC, as assignor, re: separate assignments of
leases for 31 stores. Incorporated by reference to Exhibit 10.16 to Registration Statement on Form S-1 (file no. 33-40214) filed April
29, 1991.10.13
    
    
    Lease Agreement, dated July 1, 1988, between the Company, by
assignment from SSC, dated April 25, 1991, as sublessee, and SSC,
as sublessor, re: Benwood, WV store location. Incorporated by
reference to Exhibit 10.19 to Form 10-K (file no.1-10767) filed
October 24, 1991.
 
 E-1




---



##### Table of Contents



ExhibitNo.
    
    Description10.14
    #
    
    Form of Restricted Stock Agreement between the Company and
certain employees. Incorporated by reference to Exhibit 10.27 to
Amendment No. 1 to Form S-1 Registration Statement (file no.
33-47252) filed April 27, 1992.10.15
    
    
    Lease, dated September 1, 1992, between the Company, as lessee,
and SSC, as lessor, re: South Bend/Mishawaka, IN store.
Incorporated by reference to Exhibit 10.29 to Form 10-K (file
no. 1-10767) filed October 22, 1992.10.16
    
    
    Lease, dated January 27, 1992, between the Company, as lessee,
and J.A.L. Realty Company, an affiliate of SSC, as lessor, re:3080 Alum Creek Drive, Columbus, OH warehouse. Incorporated by
reference to Exhibit 10.30 to Form 10-K (file no.1-10767) filed
October 22, 1992.10.16.1
    
    
    Exercise of the first five-year renewal option commencing
February 1, 1997 under lease, dated January 27, 1992, as amended,
between the Company, as lessee, and J.A.L. Realty Company, an
affiliate of SSC, as lessor, re: 3080 Alum Creek Drive, Columbus,
OH warehouse. Incorporated by reference to Exhibit 10.30.1 to
Form 10-Q (file no. 1-10767) filed March 19, 1996.10.17
    
    
    Lease, dated July 29, 1992, between the Company, as lessee, and
J.A.L. Realty Company, an affiliate of SSC, as lessor, re: 3232
Alum Creek Drive, Columbus, OH warehouse. Incorporated by
reference to Exhibit 10.31 to Form 10-K (file no.1-10767) filed
October 22, 1992.10.18
    
    
    Ground lease, dated April 15, 1994, between the Company, as
lessee, and J.A.L. Realty Company, an affiliate of SSC, as
lessor, re: 19 acres (Westerville Rd., Columbus, OH).
Incorporated by reference to Exhibit 10.35 to Form 10-K (file no.
1-10767) filed October 26, 1994.10.19
    
    
    Agreement of Lease, dated March 1, 1994, between the Company, as
tenant, and Jubilee Limited Partnership, an affiliate of SSC, as
landlord, re: Hobart, IN store. Incorporated by reference to
Exhibit 10.37 to Form 10-Q (file no. 1-10767) filed December 12,
1994.10.20
    
    
    Agreement of Lease, dated January 13, 1995, between the Company,
as tenant, and Westland Partners, an affiliate of SSC, as
landlord, re: Westland, MI store. Incorporated by reference to
Exhibit 10.39 to Form 10-Q, (file no. 1-10767) filed March 14,
1995.10.21
    
    
    Agreement of Lease, dated January 13, 1995, between the Company,
as tenant, and Taylor Partners, an affiliate of SSC, as landlord,
re: Taylor, MI store. Incorporated by reference to Exhibit 10.40
to Form 10-Q, (file no. 1-10767) filed March 14, 1995.10.22
    
    
    Lease, dated September 2, 1997, between the Company, as lessee,
and SSC-Fort Wayne L.L.C., an affiliate of SSC, as lessor.
Incorporated by reference to Exhibit 10.33.1 to Form 10-K (file
no. 1-10767) filed April 29, 2002.10.23
    
    
    Agreement of Lease, dated April 10, 1995, between the Company, as
tenant, and Independence Limited Liability Company, an affiliate
of SSC, as landlord, re: Charlotte, NC store. Incorporated by
reference to Exhibit 10.45 to Form 10-Q (file no. 1-10767) filed
December 12, 1995.10.24
    
    
    Sublease and Occupancy Agreement, dated December 15, 1995,
between the Company, SSC and SSC, dba Value City Furniture, re: Louisville, KY (Preston Highway) store. Incorporated by reference
to Exhibit 10.46 to Form 10-Q (file no. 1-10767) filed March 19,
1996.10.25
    
    
    Agreement of Lease, dated October 4, 1996, between the Company,
as tenant, and Hickory Ridge Pavilion, Ltd., an affiliate of SSC,
as landlord, re: Memphis, TN store. Incorporated by reference to
Exhibit 10.50 to Form 10-K (file no. 1-10767) filed November 1,
1996.10.26
    
    
    Agreement of Lease, dated October 30, 1998, between the Company,
as lessee, and Jubilee Limited Partnership, an affiliate of SSC,
as lessor, re: Calumet City, IL store. Incorporated by reference
to Exhibit 10.56 to Form 10-K (file no. 1-10767) filed April 30,
1999.10.27
    
    
    Agreement of Lease, dated September 29, 1998, between the
Company, as tenant, and Valley Fair Irvington, LLC, an affiliate
of SSC, as landlord, re: Irvington, NJ. Incorporated by reference
to Exhibit 10.57 to Form 10-K (file no. 1-10767) filed April 30,
1999.10.28
    
    
    Industrial Space LeaseNet, dated March 22, 2000, between 4300
East Fifth Avenue, LLC, an affiliate of SSC, as landlord, and
Shonac Corporation, as tenant, re: Building 6, Columbus
International Aircenter, Columbus, OH. Incorporated by reference
to Exhibit 10.60 to Form 10-K (file no. 1-10767) filed April 28,
2000.
 
 E-2




---



##### Table of Contents



ExhibitNo.
    
    Description10.29
    
    
    Lease, dated August 30, 2002, by and between Jubilee Limited
Partnership, an affiliate of SSC, and Shonac Corporation, re: Troy,
MI DSW Store. Incorporated by reference to Exhibit 10.44 to
Form 10-K (file no. 1-10767) filed April 29, 2004.10.29.1*
    
    

Assignment
and Assumption Agreement, dated October 23, 2002, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee,
re: Troy, MI DSW store.10.30
    
    
    Lease, dated October 8, 2003, by and between Jubilee Limited
Partnership, an affiliate of SSC, and Shonac Corporation, re: Denton,
TX DSW store. Incorporated by reference to Exhibit 10.46 to Form 10-K
(file no. 1-10767) filed April 29, 2004.10.30.1*
    
    

Assignment
and Assumption Agreement, dated December 18, 2003 between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee,
re: Denton, TX DSW store.10.31
    
    
    Lease, dated October 28, 2003, by and between JLP-RICHMOND LLC,
an affiliate of SSC, and Shonac Corporation, re: Richmond, VA DSW
store. Incorporated by reference to Exhibit 10.47 to Form 10-K
(file no. 1-10767) filed April 29, 2004.10.31.1*
    
    

Assignment
and Assumption Agreement, dated December 18, 2003, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee,
re: Richmond, VA DSW store.10.32#
    
    Employment Agreement, dated June 21, 2000, between James A.
McGrady and the Company. Incorporated by reference to Exhibit
10.46 (also listed as Exhibit 10.61) to Form 10-K (file no.
1-10767) filed May 4, 2001.10.33#
    
    Employment Agreement dated February 3, 2002 between John C.
Rossler and the Company. Incorporated by reference to Exhibit 10
to Form 10-Q (file no. 1-10767) filed September 12, 2002.10.34#
    
    Employment Agreement, dated February 3, 2002, between Edwin J.
Kozlowski and the Company. Incorporated by reference to Exhibit
10.43 to Form 10-K (file no. 1-10767) filed May 1, 2003.10.35#
    
    Employment Agreement, dated as of April 29, 2004, between Julia
A. Davis and the Company. Incorporated by reference to Exhibit
10.51 to Form 10-K (file no. 1-10767) filed April 29, 2004.10.36
    
    
    Loan and Security Agreement, dated as of June 11, 2002, by and
among National City Commercial Finance, Inc., as Administrative
Agent for the ratable benefit of the Revolving Credit Lenders,
National City Commercial Finance, Inc. and Fleet Retail Finance
Inc., as Collateral Agents for the ratable benefit of the
Revolving Credit Lenders, the Revolving Credit Lenders, National
City Bank, as L/C Issuer, and Value City Department Stores, Inc.,
as agent for the Borrowers named therein. Incorporated by
reference to Exhibit 10.1 to Form 10-Q (file no. 1-10767) filed
June 18, 2002.10.36.1
    
    
    First Amendment to Loan and Security Agreement, dated as of
October 7, 2003, by and among National City Commercial Finance,
Inc., as Administrative Agent for the ratable benefit of the
Revolving Credit Lenders, National City Commercial Finance, Inc.
and Fleet Retail Finance Inc., as Collateral Agents for the
ratable benefit of the Revolving Credit Lenders, the Revolving
Credit Lenders, National City Bank, as L/C Issuer, and Value City
Department Stores, Inc., as agent for the Borrowers named
therein. Incorporated by reference to Exhibit 10(a) to Form 8-K
(file No. 1-10767) filed October 8, 2003.10.36.2
    
    
    Second Amendment to Loan and Security Agreement, dated as of July
29, 2004, by and among National City Business Credit, Inc., as
Administrative Agent for the ratable benefit of the Revolving Credit Lenders, National City Business Credit, Inc.
and Fleet Retail Group, Inc., as Collateral Agents for the
ratable benefit of the Revolving Credit Lenders, National City
Bank, as L/C Issuer, the Revolving Credit Lenders, and Value City
Department Stores, Inc., as agent for the Borrowers named
therein. Incorporated by reference to Exhibit 10.1 to Form 10-Q
(file no. 1-10767) filed September 8, 2004.10.36.3
    
    
    Joinder and Third Amendment to Loan and Security Agreement, dated
as of December 29, 2004, by and among National City Business
Credit, Inc., as Administrative Agent for the ratable benefit of
the Revolving Credit Lenders, National City Business Credit, Inc.
and Fleet Retail Group, Inc., as Collateral Agents for the
ratable benefit of the Revolving Credit Lenders, National City
Bank, as L/C Issuer, the Revolving Credit Lenders, and Value City
Department Stores LLC, as agent for the Borrowers named therein.
Incorporated by reference to Exhibit 10.1 to Form 8-K (file no.
1-10767) filed January 4, 2005.10.37
    
    
    Financing Agreement, dated as of June 11, 2002, by and among
Value City Department Stores, Inc., Shonac Corporation, DSW Shoe
Warehouse, Inc., Gramex Retail Stores, Inc., VCM Ltd., Filenes
Basement, Inc., GB Retailers, Inc., Value City Limited
Partnership, and Value City of Michigan, Inc., as Borrowers, the
Lenders named therein, and Cerberus Partners, L.P., as Agent for
the Lenders. Incorporated by reference to Exhibit 10.2 to Form
10-Q (file no. 1-10767) filed June 18, 2002.
 
 E-3




---



##### Table of Contents



ExhibitNo.
    
    Description10.37.1
    
    
    First Amendment to the Financing Agreement, dated as of October
7, 2003, by and among Value City Department Stores, Inc., Shonac
Corporation, DSW Shoe Warehouse, Inc., Gramex Retail Stores,
Inc., Filenes Basement, Inc., GB Retailers, Inc., Value City
Limited Partnership, and Value City of Michigan, Inc., as
Borrowers, J.S. Overland Delivery, Inc., Value City Department
Stores Services, Inc., Westerville Road GP, Inc. and Westerville
Road LP, Inc., as Initial Guarantors, Retail Ventures, Inc.,
Retail Ventures Jewelry, Inc., Retail Ventures Services, Inc.,
and Retail Ventures Imports, Inc., as Additional Guarantors, the
Lenders named therein, and Cerberus Partners, L.P., as Agent for
the Lenders. Incorporated by reference to Exhibit 10(b) to Form
8-K (file No. 1-10767) filed October 8, 2003.10.37.2
    
    
    Second Amendment to Financing Agreement, dated as of July 29,
2004, by and among the Borrowers named therein, the Guarantors
named therein, the Lenders named therein, and Cerberus Partners,
L.P., as Agent for the Lenders. Incorporated by reference to
Exhibit 10.2 to Form 10-Q (file no. 1-10767) filed September 8,
2004.10.37.3
    
    
    Third Amendment to Financing Agreement, dated as of December 29,
2004, by and among the Borrowers named therein, the Guarantors
named therein, the Lenders named therein, and Cerberus Partners,
L.P., as Agent for the Lenders. Incorporated by reference to
Exhibit 10.2 to Form 8-K (file no. 1-10767) filed January 4,
2005.10.38
    
    
    Amended and Restated Senior Convertible Loan Agreement, dated as
of June 11, 2002, by and among Value City Department Stores,
Inc., as Borrower, Shonac Corporation, DSW Shoe Warehouse, Inc.,
Gramex Retail Stores, Inc., VCM, Ltd., Filenes Basement, Inc.,
GB Retailers, Inc., J.S. Overland Delivery, Inc., Value City
Department Stores Services, Inc., Value City Limited Partnership,
Value City of Michigan, Inc., Westerville Road GP, Inc. and
Westerville Road LP, Inc., as Guarantors, the Lenders named
therein, and Schottenstein Stores Corporation, as Agent for
itself and the other Lenders. Incorporated by reference to
Exhibit 10.3 to Form 10-Q (file no. 1-10767) filed June 18, 2002.10.38.1
    
    
    Amendment No. 1 to Amended and Restated Senior Convertible Loan
Agreement, dated as of June 11, 2002, by and among Value City
Department Stores, Inc., as Borrower, Shonac Corporation, DSW
Shoe Warehouse, Inc., Gramex Retail Stores, Inc., VCM, Ltd.,
Filenes Basement, Inc., GB Retailers, Inc., J.S. Overland
Delivery, Inc., Value City Department Stores Services, Inc.,
Value City Limited Partnership, Value City of Michigan, Inc., Westerville Road GP, Inc. and Westerville Road LP, Inc., as Initial Guarantors, the
Lenders named therein, and Schottenstein Stores Corporation, as Agent and as a Lender.
Incorporated by reference to Exhibit 10.3.1 to Form 10-Q (file no. 1-10767) filed
June 18, 2002.10.38.2
    
    
    Amendment No. 2 to Amended and Restated Senior Convertible Loan
Agreement, dated as of October 7, 2003, by and among Value City
Department Stores, Inc., as Borrower, Shonac Corporation, DSW
Shoe Warehouse, Inc., Gramex Retail Stores, Inc., Filenes
Basement, Inc., GB Retailers, Inc., Value City Limited
Partnership, Value City of Michigan, Inc., J.S. Overland
Delivery, Inc., Value City Department Stores Services, Inc.,
Westerville Road GP, Inc. and Westerville Road LP, Inc., as
Initial Guarantors, Retail Ventures, Inc., Retail Ventures
Jewelry, Inc., Retail Ventures Services, Inc., and Retail
Ventures Imports, Inc., as Additional Guarantors, the Lenders
named therein, and Cerberus Partners, L.P., as Agent for the
Lenders. Incorporated by reference to Exhibit 10(c) to Form 8-K
(file No. 1-10767) filed October 8, 2003.10.38.3
    
    
    Amendment No. 3 to Amended and Restated Senior Convertible Loan
Agreement, dated as of December 29, 2004, by and among Value City
Department Stores LLC, as Borrower, the Guarantors named therein,
the Lenders named therein, and Cerberus Partners, L.P., as Agent
for the Lenders. Incorporated by reference to Exhibit 10.3 to
Form 8-K (file no. 1-10767) filed January 4, 2005.10.39
    
    
    Amended and Restated Registration Rights Agreement, dated as of
June 11, 2002 by and among Value City Department Stores, Inc. and
Cerberus Partners, L.P. and SSC, as Initial Holders. Incorporated
by reference to Exhibit 10.4 to Form 10-Q (file no. 1-10767)
filed June 18, 2002.10.40
    
    
    Form of Common Stock Purchase Warrants issued by the Company to
Cerberus Partners, L.P. and SSC. Incorporated by reference to
Exhibit 10.5 to Form 10-Q (file no. 1-10767) filed June 18, 2002.10.41#
    

Value
City Department Stores, Inc. 2003 Incentive Compensation Plan.
Incorporated by reference to Exhibit 10.41 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.42#
    
    Employment Agreement, effective November 1, 2004, between Retail
Ventures, Inc. and Heywood Wilansky. Incorporated by reference to
Exhibit 10.1 to Form 8-K/A (file no. 1-10767) filed November 24,
2004.10.43#
    

Employment
Agreement, effective October 10, 2003, between Value
City Department Stores, Inc. and Steven E. Miller. Incorporated by
reference to Exhibit 10.43 to Form 10-K (file no. 1-10767)
filed April 14, 2005.
 
 E-4




---



##### Table of Contents






ExhibitNo.
    
    Description10.44
    
    
    Agreement of Lease, dated March 1, 1994, between Jubilee Limited
Partnership, an affiliate of SSC, and Value City Department
Stores, Inc., as modified by First Lease Modification, dated
November 1, 1994, re: Merrilville, IN Value City store.  Incorporated by
reference to Exhibit 10.44 to Form 10-K (file no. 1-10767)
filed April 14, 2005.10.45
    
    
    Lease Agreement, dated July 7, 1987, by and between Schottenstein
Trustees, an affiliate of SSC, and Schottenstein Stores Corp. dba
Schottensteins Department Store, as modified by Lease Extension
and Modification Agreement, dated March 12, 1998, by and between
Schottenstein Trustees and Value City Department Stores, Inc. dba
Schottensteins East Department Store, re: 6055 E. Main Street,
Columbus, OH Value City store. Incorporated by
reference to Exhibit 10.45 to Form 10-K (file no. 1-10767)
filed April 14, 2005.10.46
    
    
    Industrial Space Lease  Net, dated May 18, 2000, by and between
4300 East Fifth Avenue LLC, an affiliate of SSC, and Value City
Department Stores, Inc., re: 4020 East Fifth Avenue, Columbus, OH
warehouse. Incorporated by
reference to Exhibit 10.46 to Form 10-K (file no. 1-10767)
filed April 14, 2005.10.47
    
    
    Industrial Space Lease  Net, dated May 18, 2000, by and between
4300 East Fifth Avenue LLC, an affiliate of SSC, and Value City
Department Stores, Inc., re: 4320-30 East Fifth Avenue, Columbus,
OH warehouse. Incorporated by reference to Exhibit 10.47 to
Form 10-K (file no. 1-10767) filed April 14, 2005.10.48
    
    
    Sublease, dated May 2000, by and between SSC, as sublessor, and
Shonac Corporation dba DSW Shoe Warehouse, as sublessee, re:
Pittsburgh, PA DSW store. Incorporated by reference to
Exhibit 10.48 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.48
    .1*
    
    Assignment and Assumption Agreement, dated January 8, 2001, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: 451 Clariton
Boulevard, Pittsburgh, PA DSW store.10.49
    
    
    Lease, dated May 2000, by and between Jubilee-Richmond LLC, an
affiliate of SSC, and DSW Shoe Warehouse, Inc. (as assignee of
Shonac Corporation), re: Glen Allen, VA DSW store. Incorporated by
reference to Exhibit 10.49 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.50
    
    
    Lease, dated February 28, 2001, by and between
Jubilee-Springdale, LLC, an affiliate of SSC, and Shonac
Corporation dba DSW Shoe Warehouse, re: Springdale, OH DSW store. Incorporated by
reference to Exhibit 10.50 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.50
    .1*
    
    Assignment and Assumption Agreement, dated May 11, 2001, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Springdale, OH DSW
store.10.51
    
    
    Agreement of Lease, dated 1997, between Shoppes of Beavercreek
Ltd., an affiliate of SSC, and Shonac Corporation (assignee of SSC
d/b/a Value City Furniture through Assignment of Tenants Leasehold
Interest and Amendment No. 1 to Agreement of Lease, dated
February 28, 2001), re: Beavercreek, OH DSW Store. Incorporated by
reference to Exhibit 10.51 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.51
    .1*
    
    Assignment and Assumption Agreement, dated May 11, 2001, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Beavercreek, OH DSW
store.10.52
    
    
    Lease, dated February 28, 2001, by and between JLP-Chesapeake,
LLC, an affiliate of SSC, and Shonac Corporation, re: Chesapeake,
VA DSW store. Incorporated by
reference to Exhibit 10.52 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.52
    .1*
    
    Assignment and Assumption Agreement, dated May 11, 2001, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Chesapeake, VA DSW
store.10.53
    
    
    Ground Lease Agreement, dated April 30, 2002, by and between
Polaris Mall, LLC, a Delaware limited liability company, and
SSC-Polaris LLC, an affiliate of SSC, as modified by Sublease
Agreement, dated April 30, 2002, by and between SSC-Polaris LLC, as sublessor, and DSW Shoe Warehouse, Inc., as
sublessee (assignee of Shonac Corporation), re: Columbus, OH (Polaris) DSW store. Incorporated by
reference to Exhibit 10.53 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.53
    .1*
    
    Assignment and Assumption Agreement, dated August 6, 2002, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Columbus, OH
(Polaris) DSW store.10.54
    
    
    Lease, dated August 30, 2002, by and between JLP-Cary LLC, an
affiliate of SSC, and Shonac Corporation, re: Cary, NC DSW store. Incorporated by
reference to Exhibit 10.54 to Form 10-K
(file no. 1-10767) filed April 14, 2005.
 
 E-5




---



##### Table of Contents



ExhibitNo.
    
    Description10.54
    .1*
    
    Assignment and Assumption Agreement, dated October 23, 2002, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Cary, NC DSW store.10.55
    
    
    Lease, dated August 30, 2002, by and between JLP-Madison LLC, an
affiliate of SSC, and Shonac Corporation, re: Madison, TN DSW
store. Incorporated by
reference to Exhibit 10.55 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.55
    .1*
    
    Assignment and Assumption Agreement, dated October 23, 2002, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Madison, TN DSW
store.10.56
    
    
    Lease, dated July 19, 2000, by and between Jubilee Limited
Partnership, an affiliate of SSC, and Value City Department
Stores, Inc., as modified by Lease Modification Agreement, dated
November 2, 2000, re: 3704 W. Dublin-Granville Rd., Columbus, OH
DSW/Filenes combo store. Incorporated by
reference to Exhibit 10.56 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.57
    
    
    Master Store Lease, dated April 25, 1991, by and between SSC and
Value City Department Stores, Inc., as modified by First
Amendment to Master Store Lease, dated February 3, 1992, and
Second Amendment to Master Store Lease, Dated March 18, 2005, by
and between SSC and Value City Department Stores LLC and Value
City of Michigan, Inc., re: 4 store locations (Clarksville, IN,
Springdale, OH, Louisville, KY (Dixie Highway), and Beckley, WV). Incorporated by
reference to Exhibit 10.57 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.58
    
    
    Lease, dated September 24, 2004, by and between K&S Maple Hill
Mall, L.P., an affiliate of SSC, and Shonac Corporation, re:
Kalamazoo, MI DSW Store. Incorporated by reference to
Exhibit 10.58 to Form 10-K (file no. 1-10767) filed
April 14, 2005.10.58
    .1*
    
    Assignment and Assumption Agreement, dated February 28, 2005, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: Kalamazoo, MI DSW
store.10.59
    
    
    Lease, dated November 2004, by and between KSK Scottsdale Mall,
L.P., an affiliate of SSC, and Shonac Corporation, re: South
Bend, IN DSW store. Incorporated by reference to Exhibit 10.59
to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.59
    .1*
    
    Assignment and Assumption Agreement, dated March 18, 2005, between Shonac
Corporation, as assignor, and DSW Shoe Warehouse, Inc., as assignee, re: South Bend, IN DSW
store.10.60
    
    
    Lease Agreement, dated March 18, 2005, by and between SSC and
Value City of Michigan, Inc., re: Flint, MI DSW store. Incorporated
by reference to Exhibit 10.60 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.61
    
    

Lease
Agreement, dated September 2, 1997, by and between SSC-Barboursville, L.L.C., an affiliate of SSC, and Value City Department
Stores, Inc., re: Barboursville, WV store. Incorporated by reference
to Exhibit 10.61 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.62#
    
    Sample Nonqualified Stock Option Award Agreement issued by the
Company pursuant to the 2000 Stock Incentive Plan. Incorporated by
reference to Exhibit 10.62 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.63#
    
    Sample Price Protected Stock Option Award Agreement issued by the
Company pursuant to the 2000 Stock Incentive Plan. Incorporated by
reference to Exhibit 10.63 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.64#
    

Sample
Equity Compensation Approval Notice and Agreement issued by the
Company to certain employees. Incorporated by
reference to Exhibit 10.64 to Form 10-K
(file no. 1-10767) filed April 14, 2005.10.65
    

Master
Sublease, dated April 25, 1991, between the Company, as
sublessee, and SSC, as sublessor, re: two stores (Covington, KY and
Greenwood, IN). Incorporated by reference to Exhibit 10.11 to
Registration Statement on Form S-1 (file no. 33-40214) filed
April 29, 1991.10.66#
    

Form
of Idemnification Agreement between the Company and its directors and
officers. Incorporated by reference to Exhibit 10(b) to
Registration Statement on Form S-8 (file no. 333-117341) filed
July 13, 2004.10.67*
    
    

Lease
Agreement, dated November 5, 1992, by and between Value City
Department Stores, Inc. (successor to SSC d/b/a Elyria Value City
Shopping Center), as sublessor, and SSC d/b/a Value City Furniture
#17, as sublessee, as modified by Sublease Extension and Modification
Agreement, dated October 11, 2001, re: Elyria, OH store. 
 E-6




---



##### Table of Contents



ExhibitNo.
    
    Description10.68*
    
    

Agreement
of Lease, dated March 6, 1996, between Value City of Michigan,
Inc. (assignee of MRSLV Saginaw, L.L.C.), as sublessor, and SSC d/b/a
Value City Furniture, as sublessee, re: Saginaw Michigan store.21
    
    
    List of Subsidiaries. Incorporated by
reference to Exhibit 21 to Form 10-K
(file no. 1-10767) filed April 14, 2005.23*
    
    
    Consent of Independent
Registered Public Accounting Firm.24
    
    
    Power of Attorney. Incorporated by
reference to Exhibit 24 to Form 10-K
(file no. 1-10767) filed April 14, 2005.31.1*
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Executive
Officer.31.2*
    
    
    Rule 13a-14(a)/15d-14(a) Certification  Principal Financial
Officer.32.1*
    
    
    Section 1350 Certification  Principal Executive Officer.32.2*
    
    
    Section 1350 Certification  Principal Financial Officer.
   *
    
    Filed herewith.#
    
    Management contract or compensatory plan or arrangement. 
 E-7