Table of Contents

		Per Share				Total
Public offering price		$	19.00			$	267,187,500
Underwriting discounts		$	1.33			$	18,703,125
Proceeds to DSW Inc. (before expenses)		$	17.67			$	248,484,375

	CIBC World Markets

	Johnson Rice & Company L.L.C.

---

Table of Contents

---

		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			9
FORWARD-LOOKING STATEMENTS			22
USE OF PROCEEDS			23
DIVIDEND POLICY			24
CAPITALIZATION			25
DILUTION			26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA			27
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA			31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			33
BUSINESS			52
MANAGEMENT			64
THE TRANSACTIONS			81
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			82
PRINCIPAL SHAREHOLDERS			95
DESCRIPTION OF INDEBTEDNESS			97
DESCRIPTION OF CAPITAL STOCK			101
SHARES ELIGIBLE FOR FUTURE SALE			105
MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES			107
UNDERWRITING			109
LEGAL MATTERS			114
EXPERTS			114
WHERE YOU CAN FIND MORE INFORMATION			114
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

---

Table of Contents

1

---

Table of Contents

2

---

Table of Contents

3

---

Table of Contents

4

---

Table of Contents

5

---

Table of Contents

6

---

Table of Contents

7

---

Table of Contents

8

---

Table of Contents

	We intend to open new DSW stores at an increased rate compared to historical years, which could strain our resources and have a material adverse effect on our business and financial performance.

	We may be unable to open all the 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, either of which could have a material adverse effect on our business, financial condition and results of operations.

	•	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;
	•	open new stores at costs not significantly greater than those anticipated;
	•	successfully open new DSW stores in regions of the United States in which we currently have few or no stores;
	•	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.

9

---

Table of Contents

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 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.

	•	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.

10

---

Table of Contents

	Our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons, which could result in a decline in the price of our Class A Common Shares.

	•	changes in our merchandising strategy;
	•	timing and concentration of new DSW store openings and related pre-opening and other start-up costs;
	•	levels of pre-opening expenses associated with new DSW stores;
	•	changes in our merchandise mix;
	•	changes in and regional variations in demographic and population characteristics;
	•	timing of promotional events;
	•	seasonal fluctuations due to weather conditions;
	•	actions by our competitors; and
	•	general U.S. economic conditions and, in particular, the retail sales environment.

	We rely on a single distribution center. The loss or disruption of our centralized distribution center or our failure in the future to add additional distribution facilities could have an adverse effect on our business and operations.

11

---

Table of Contents

	Following this offering, we will continue to be dependent on Retail Ventures to provide us with many key services for our business.

	Our failure to retain our existing senior management team and to continue to attract qualified new personnel could adversely affect our business.

	We may be unable to compete favorably in our highly competitive market.

12

---

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 footwear and accessories.

	We rely on foreign sources for our merchandise, and our business is therefore subject to risks associated with international trade.

	•	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;
	•	U.S. laws 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.

13

---

Table of Contents

	Following the completion of this offering, our new secured revolving credit facility could limit our operational flexibility.

	We will incur increased costs as a result of being a public company.

	DSW has not been operated as an entity separate from Value City and Retail Ventures since 1998, and, as a result, our historical and pro forma financial information may not be indicative of DSW’s historical financial results or future financial performance.

	We face 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 relating to DSW customers. This security breach could adversely affect our reputation and business and subject us to liability.

14

---

Table of Contents

	After this offering, we will continue to be controlled directly by Retail Ventures and indirectly by SSC, whose interests may differ from other shareholders.

	•	the election of directors;
	•	mergers or other business combinations; and
	•	acquisitions or dispositions of assets.

15

---

Table of Contents

	After this offering, SSC and Retail Ventures or its affiliates may compete directly against us.

	Some of our directors and officers may also serve as directors or officers of Retail Ventures, and may have conflicts of interest because they may own Retail Ventures stock or options to purchase Retail Ventures stock, or they may receive cash- or equity-based awards based on the performance of Retail Ventures.

	We do not expect to pay dividends in the foreseeable future.

16

---

Table of Contents

	If our existing shareholders or holders of rights to purchase our Common Shares sell the shares they own, or if Retail Ventures distributes its Common Shares to its shareholders, it could adversely affect the price of our Class A Common Shares.

17

---

Table of Contents

	There currently exists no market for our Class A Common Shares. An active trading market may not develop for our Class A Common Shares. If our share price fluctuates after this offering, you could lose all or a significant part of your investment.

	•	actual or anticipated variations in comparable store sales or quarterly operating results;
	•	changes in financial estimates by research analysts;
	•	actual or anticipated changes in the U.S. economy or the retailing environment;
	•	terrorist acts or wars;
	•	changes in the market volatility of other shoe or retail companies;
	•	announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; and
	•	actual or anticipated sales or distributions of Common Shares by Retail Ventures, SSC, Cerberus, or Back Bay, as well as our officers and directors, whether in the market, in subsequent public offerings or in a distribution to shareholders.

	Investors purchasing Class A Common Shares in this offering will incur substantial and immediate dilution.

	Our amended articles of incorporation, amended and restated code of regulations and Ohio state law contain provisions that may have the effect of delaying or preventing a change in control of DSW. This could adversely affect the value of your shares.

18

---

Table of Contents

	The new agreements we are entering into with Retail Ventures in connection with this offering could restrict our operations and adversely affect our financial condition.

	We may be prevented from issuing stock to raise capital, to effectuate acquisitions or to provide equity incentives to members of our management and board of directors.

19

---

Table of Contents

	Our prior and continuing relationship with Retail Ventures exposes us to risks attributable to Retail Ventures’ businesses.

	Possible future sales of Class A Common Shares by Retail Ventures, SSC, Cerberus and Back Bay could adversely affect prevailing market prices for the Class A Common Shares.

20

---

Table of Contents

21

---

Table of Contents

22

---

Table of Contents

	•	to repay $190.0 million of intercompany indebtedness owed to Retail Ventures, plus the accrued interest related thereto, which was $2.7 million as of April 30, 2005; and
	•	the remainder for working capital and other general corporate purposes, including paying down $40.0 million under the new DSW secured revolving credit facility. This 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.

23

---

Table of Contents

24

---

Table of Contents

	•	on an actual basis;
	•	on a pro forma basis to give effect to the incurrence of an additional $25.0 million of intercompany indebtedness incurred to fund a dividend to Retail Ventures, and the amendment of our articles of incorporation pursuant to which the outstanding common shares of DSW were changed into 27,702,667 Class B Common Shares of DSW; and
	•	on a pro forma as adjusted for this offering basis to give further effect to (i) our issuance and sale of 14,062,500 Class A Common Shares in this offering at a public offering price of $19.00 per share, (ii) issuance of 100,000 restricted Class A Common Shares and stock units, (iii) the deduction of estimated underwriting discounts and offering expenses payable by us, (iv) the repayment of $190.0 million of intercompany indebtedness incurred to fund dividends to Retail Ventures and the application of the net proceeds of this offering, as described under “Use of Proceeds” and (v) expected borrowings under our new secured revolving credit facility (none). We expect to issue these restricted shares and stock units immediately following the pricing of but prior to the consummation of this offering; however, the issuance of the restricted shares and stock units referred to in (ii) above remains subject to approval by the DSW board of directors prior to the consummation of this offering.

					As of April 30, 2005
													Pro Forma
													As Adjusted
													for this
					Actual				Pro Forma				Offering
					(Dollars in thousands)
Cash					$	13,718			$	13,718			$	22,587
Short-term debt						—				—				—
Long-term debt
	Retail Ventures revolving credit facility				$	40,000			$	40,000				—
	New DSW revolving credit facility					—				—			$	—
	Intercompany indebtedness					165,000				190,000	(1)			—
			Total debt		$	205,000			$	230,000			$	—
Equity:
		Common Shares, no par value, 500 shares authorized, 410.09 shares outstanding actual; no shares authorized or outstanding, pro forma or pro forma as adjusted to give effect to this offering			$	—			$	—			$	—
		Class A Common Shares, no par value, 170,000,000 shares authorized; no shares outstanding, actual and pro forma; 14,162,500 shares outstanding, pro forma as adjusted to give effect to this offering				—				—				—
		Class B Common Shares, no par value, 100,000,000 shares authorized; no shares outstanding, actual; 27,702,667 shares outstanding, pro forma and pro forma as adjusted to give effect to this offering				—				—				—
		Preferred Shares, no par value, 100,000,000 shares authorized, no shares outstanding actual, pro forma and pro forma as adjusted to give effect to this offering				—				—				—
		Additional paid-in capital				—				—				241,541
		Retained earnings				20,806				(4,194	)			(4,194	)
		Total equity			$	20,806			$	(4,194	)		$	237,347
			Total capitalization		$	225,806			$	225,806			$	237,347

(1)	Represents $190.0 million of intercompany indebtedness incurred to fund dividends to Retail Ventures. Of this $190.0 million of intercompany indebtedness, $25.0 million was incurred subsequent to April 30, 2005.

25

---

Table of Contents

Initial public offering price per share		$	19.00
Pro forma net tangible book value per share as of April 30, 2005		$	(0.43	)
Increase in pro forma net tangible book value per share attributable to this offering		$	5.33
Pro forma net tangible book value per share after giving effect to this offering		$	4.90
Dilution per share to new investors		$	14.10

			Shares Purchased								Total Consideration
			Number				Percentage				Amount				Percentage
											($ in millions)
Retail Ventures				27,702,667				66.3	%		$	101.4				27.5	%
New investors				14,062,500				33.7	%		$	267.2				72.5	%
	Total			41,765,167				100	%		$	368.6				100	%

	•	the percentage of Common Shares held by Retail Ventures will decrease to approximately 63.1% of the total number of Common Shares outstanding; and
	•	the number of Common Shares held by new investors will be increased to 16,171,875 shares, or approximately 36.9% of the total number of our Common Shares outstanding after this offering.

26

---

Table of Contents

	•	the consummation of this offering;
	•	the incurrence of $25.0 million of additional intercompany indebtedness incurred to fund a dividend to Retail Ventures, for total intercompany indebtedness incurred during the period of $190.0 million;
	•	the repayment of $190.0 million of intercompany indebtedness incurred to fund dividends to Retail Ventures and $2.7 million of accrued interest related thereto, and the application of net proceeds as set forth under “Use of Proceeds”;
	•	the completion of the Transactions;
	•	the reallocation of shoe warehousing and distribution costs allocated to the leased shoe departments of Value City, using the allocation parameters set forth in the shared services agreement; and
	•	the incurrence of additional estimated operating expenses, including the reallocation of corporate department charges between Retail Ventures and DSW and the net cost of services to be provided under the shared services agreement.

27

---

Table of Contents

						Operating				Pro Forma As
		Actual				Adjustments				Adjusted
		(Dollars in thousands, except per share amounts)
Net sales		$	281,806			$				$	281,806
Cost of sales			(199,008	)			22	(1)			(198,986	)
Gross profit			82,798				22				82,820
Operating expenses(2)			(67,745	)			(470	)(3)			(68,215	)
Operating profit(2)			15,053				(448	)			14,605
Interest expense			(3,521	)			3,521	(4)			—
Earnings before income taxes(2)			11,532				3,073				14,605
Income taxes			(4,552	)			(1,213	)(5)			(5,765	)
Net income(2)		$	6,980			$	1,860			$	8,840
Unaudited pro forma as adjusted basic net income per share(6)										$	0.21
Shares used in computing unaudited pro forma as adjusted basic net income per share(6)											41,865,167
Unaudited pro forma as adjusted diluted net income per share(6)										$	0.21
Shares used in computing unaudited pro forma as adjusted diluted net income per share(6)											41,865,167

(1)	Reflects the reallocation of shoe warehousing and distribution costs allocated to the leased shoe departments of Value City, using the allocation parameters set forth in the shared services agreement.
(2)	Actual and pro forma results for the thirteen week period ended April 30, 2005 include a $6.5 million pre-tax charge and a $3.9 million after-tax charge in operating profit and net income, respectively, related to the reserve for estimated losses associated with the theft of credit card and other purchase information.
(3)	Reflects additional estimated operating expenses, including the reallocation of corporate department charges between Retail Ventures and DSW and the cost of services to be provided under the shared services agreement from Retail Ventures to DSW (net of income to be earned from services provided by DSW to Retail Ventures).
(4)	Reflects the elimination of interest on borrowings under the revolving credit facility and on $165.0 million of indebtedness incurred to fund a dividend to Retail Ventures, which we expect to repay upon completion of this offering.
(5)	The effective tax rate applied to the pro forma adjustments is 39.5%, the tax rate that was in effect for the thirteen week period ended April 30, 2005.
(6)	During the thirteen week period ended April 30, 2005, DSW operated as a wholly-owned subsidiary of Retail Ventures and, accordingly, did not have publicly traded shares outstanding. Unaudited pro forma as adjusted basic and diluted net income per share is computed by dividing unaudited pro forma as adjusted net income by the number of common shares. For this calculation, we have assumed that there will be 41,865,167 Common Shares outstanding after this offering.

28

---

Table of Contents

						Operating				Pro Forma As
		Actual				Adjustments				Adjusted
		(Dollars in thousands, except per share amounts)
Net sales		$	961,089			$				$	961,089
Cost of sales			(690,878	)			3,006	(1)			(687,872	)
Gross profit			270,211				3,006				273,217
Operating expenses			(214,102	)			(7,201	)(2)			(221,303	)
Operating profit			56,109				(4,195	)			51,914
Interest expense			(2,734	)			2,734	(3)			—
Earnings before income taxes			53,375				(1,461	)			51,914
Income taxes			(18,420	)			504	(4)			(17,916	)
Net income		$	34,955			$	(957	)		$	33,998
Unaudited pro forma as adjusted basic net income per share(5)										$	0.81
Shares used in computing unaudited pro forma as adjusted basic net income per share(5)											41,865,167
Unaudited pro forma as adjusted diluted net income per share(5)										$	0.81
Shares used in computing unaudited pro forma as adjusted diluted net income per share(5)											41,865,167

(1)	Reflects the reallocation of shoe warehousing and distribution costs allocated to the leased shoe departments of Value City, using the allocation parameters set forth in the shared services agreement.
(2)	Reflects additional estimated operating expenses, including the reallocation of corporate department charges between Retail Ventures and DSW and the cost of services to be provided under the shared services agreement from Retail Ventures to DSW (net of income to be earned from services provided by DSW to Retail Ventures).
(3)	Reflects the elimination of interest on borrowings under the revolving credit facility, which we expect to repay upon completion of this offering.
(4)	The effective tax rate applied to the pro forma adjustments is 34.5%, the tax rate that was in effect for the fiscal year ended January 29, 2005.
(5)	During the fiscal year ended January 29, 2005, DSW operated as a wholly-owned subsidiary of Retail Ventures and, accordingly, did not have publicly traded shares outstanding. Unaudited pro forma as adjusted basic and diluted net income per share is computed by dividing unaudited pro forma as adjusted net income by the number of common shares. For this calculation, we have assumed that there will be 41,865,167 Common Shares outstanding after this offering.

29

---

Table of Contents

																		Pro Forma As
										Pro Forma As								Adjusted for the
						Capital				Adjusted for								Offering and for
						Structure				Capital Structure				Offering				Capital Structure
		Actual				Adjustments				Adjustments				Adjustments(3)				Adjustments
		(Dollars in thousands)
Current assets		$	277,231							$	277,231			$	8,869			$	286,100
Property & equipment — net			91,055								91,055								91,055
Goodwill, tradenames & other			38,829								38,829								38,829
Total assets		$	407,115			$	0			$	407,115			$	8,869			$	415,984
Current liabilities		$	125,516							$	125,516			$	(2,672	)		$	122,844
Long term obligations			40,000	(1)							40,000				(40,000	)			—
Intercompany indebtedness owned to Retail Ventures			165,000				25,000				190,000	(2)			(190,000	)			—
Other non current liabilities			55,793								55,793								55,793
Common shareholders’ equity			20,806				(25,000	) (2)			(4,194	)			241,541				237,347
Total liabilities & shareholders’ equity		$	407,115			$	0			$	407,115			$	8,869			$	415,984

(1)	Represents borrowings on the existing revolving credit facility of Value City, which are attributable to DSW.
(2)	Represents the issuance of $190.0 million of intercompany indebtedness incurred to fund dividends to Retail Ventures. Of this $190.0 million of intercompany indebtedness, $25.0 million was incurred subsequent to April 30, 2005.
(3)	Represents the issuance of 14,062,500 Class A Common Shares at an assumed aggregate initial offering price of $267.2 million, or $19.00 per share, the payment of estimated fees and expenses assumed to be $25.6 million, and the application of the net proceeds as set forth under “Use of Proceeds.”

30

---

Table of Contents

																									For the Thirteen Week
					For the Fiscal Year Ended																				Period Ended
					2/3/01(1)				2/2/02				2/1/03				1/31/04				1/29/05				5/1/04				4/30/05
					(Unaudited)																				(Unaudited)				(Unaudited)
					(Dollars in thousands except net sales per average gross square foot)
Statement of Income Data:
	Net sales(2)				$	421,548			$	523,509			$	644,345			$	791,348			$	961,089			$	232,559			$	281,806
	Gross profit				$	103,675			$	123,396			$	158,756			$	202,927			$	270,211			$	67,587			$	82,798
	Operating profit(3)				$	9,955			$	4,668			$	17,781			$	28,053			$	56,109			$	13,805			$	15,053
	Net income(3)				$	5,242			$	239			$	8,060			$	14,807			$	34,955			$	7,816			$	6,980
Balance Sheet Data:
	Total assets				$	230,660			$	232,821			$	295,703			$	291,184			$	395,437			$	319,919			$	407,115
	Working capital(4)				$	2,687			$	60,121			$	87,141			$	103,244			$	138,919			$	123,923			$	151,715
	Current ratio(5)					1.03				1.77				2.07				2.39				2.28				2.57				2.21
	Long term obligations(6)				$	513			$	325			$	54,116			$	35,000			$	55,000			$	45,000			$	205,000
Other Data:
	Number of DSW stores:(7)
		Beginning of period				58				78				104				126				142				142				172
			New stores			20				26				22				16				31				9				7
			Closed/re-categorized stores(7)			0				0				0				0				1				0				2
		End of period				78				104				126				142				172				151				177
		Comparable DSW stores (units)				44				54				74				102				124				125				139
		DSW store square footage added(8)				544,999				684,086				584,652				386,734				835,020				251,637				181,371
			Average gross square footage(9)			1,536,307				2,217,108				2,912,545				3,364,094				4,010,245				3,704,437				4,440,123
			Net sales per average gross sq. ft.(10)		$	267			$	230			$	214			$	214			$	217			$	57			$	57
	Number of leased shoe departments at end of period					16				16				113				168				224				172				231
		Affiliated leased shoe departments				16				16				16				17				22				20				25
		Non-affiliated leased shoe departments				0				0				97				151				202				152				206
	Total comparable store sales change(11)					19.1	%			0.0	%			0.1	%			5.9	%			5.0	%			11.0	%			4.4	%

	(1)	Fiscal 2000 includes 53 weeks; all other years contain 52 weeks.
	(2)	Includes net sales of leased shoe departments.
	(3)	Results for the thirteen week period ended April 30, 2005 include a $6.5 million pre-tax charge, and a $3.9 million after-tax charge in operating profit and net income, respectively, related to the reserve for estimated losses associated with the theft of credit card and other purchase information.

31

---

Table of Contents

	(4)	Working capital represents current assets less current liabilities.
	(5)	Current ratio represents current assets divided by current liabilities.
	(6)	Comprised of borrowings under the Value City revolving credit facility, except for the amounts outstanding as of April 30, 2005, which also include $165.0 million of intercompany indebtedness incurred to fund a dividend to Retail Ventures. We expect to repay this intercompany indebtedness with the net proceeds of this offering.
	(7)	Number of DSW stores for each fiscal period presented prior to the first quarter of fiscal 2005 includes two combination DSW/Filene’s Basement stores which were re-categorized as leased shoe departments in the first quarter of fiscal 2005.
	(8)	DSW square footage added represents the total amount of square footage added during the period attributable to new store openings for DSW stores only; it does not reflect changes in square footage of leased shoe departments.
	(9)	Average gross square footage represents the monthly average of square feet for DSW stores only for each period presented and consequently reflects the effect of opening stores in different months throughout the period.

(10)	Net sales per average gross square foot is the result of dividing net sales for DSW stores only for the period presented by average gross square foot calculated as described in footnote 8 above.
(11)	Comparable DSW stores and comparable leased shoe departments are those units that have been in operation for at least 14 months at the beginning of the fiscal year. Stores or leased shoe departments, as the case may be, are added to the comparable base at the beginning of the year and are dropped for comparative purposes in the month that they are closed.

32

---

Table of Contents

33

---

Table of Contents

	Sources of Revenue

	Expansion Strategy

	Key Financial and Non-Financial Measures

34

---

Table of Contents

	Fiscal Year; Seasonality

	Separation Agreements

35

---

Table of Contents

36

---

Table of Contents

	Critical Accounting Policies and Estimates.

37

---

Table of Contents

	•	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 the revenue is recognized upon redemption of the gift cards.
	•	Cost of Sales and Merchandise Inventories. Merchandise inventories are stated at the lower of cost, determined using the first-in, first-out basis, or market, using the retail inventory method. The retail inventory method is widely used in the retail industry due to its practicality. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profit 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 $14.2 million and $11.5 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 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.
	We include in the cost of sales expenses associated with warehousing, distribution and store occupancy. Warehousing costs are comprised of labor, benefits and other labor-related costs associated with the operations of the warehouse, which are primarily payroll-related taxes and benefits. The non-labor costs associated with warehousing include rent, depreciation, insurance, utilities and maintenance and other operating costs that are passed to us from the landlord. Distribution costs include the transportation of merchandise to the warehouse and from the warehouse to our stores. Store occupancy costs include rent, utilities, repairs, maintenance and janitorial costs and other costs associated with licenses and occupancy-related taxes, which are primarily real estate taxes passed to us by our landlords.

	•	Asset Impairment and Long-lived Assets. We must periodically evaluate the carrying amount of our long-lived assets, primarily property and equipment, and finite life intangible assets when events and circumstances warrant such a review to ascertain if any assets have been impaired. The carrying amount of a long-lived asset is considered impaired when the carrying value of the asset exceeds the expected future cash flows (undiscounted and without interest) from the asset. Our reviews are conducted down at the lowest identifiable level, which include a store. The impairment loss recognized is the excess of the carrying value, based on discounted future cash flows, of the asset over its fair value. Should an impairment loss be realized, it will be included in operating expenses. The amount of impairment losses recorded during fiscal 2004 was $0.9 million, while in fiscal 2003 and 2002 the amounts of impairment losses were immaterial to the financial statements. 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 the total cost of claims for health and welfare, workers compensation and casualty insurance exceed those anticipated, reserves recorded may not be sufficient, and, to the extent actual results vary from assumptions, earnings would be impacted.

38

---

Table of Contents

	•	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 and provide us with the ability to communicate with our customers and enhance our understanding of their spending trends. Upon reaching the target spending 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 operating 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.
	•	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.

														For the Thirteen Week
		For the Fiscal Year Ended												Period Ended
		February 1,				January 31,				January 29,				May 1,				April 30,
		2003				2004				2005				2004				2005
		(52 Weeks)				(52 Weeks)				(52 Weeks)				(13 Weeks)				(13 Weeks)
Net sales, including sales from leased departments			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			(75.4	)			(74.4	)			(71.9	)			(70.9	)			(70.6	)
Gross profit			24.6				25.6				28.1				29.1				29.4
Operating expenses			(21.9	)			(22.1	)			(22.3	)			(23.1	)			(24.1	)
Operating profit			2.7				3.5				5.8				6.0				5.3
Interest expense, net			(0.6	)			(0.3	)			(0.3	)			(0.3	)			(1.2	)
Income before income taxes			2.1				3.2				5.5				5.7				4.1
Provision for income taxes			(0.9	)			(1.3	)			(1.9	)			(2.3	)			(1.6	)
Net income			1.2	%			1.9	%			3.6	%			3.4	%			2.5	%

39

---

Table of Contents

40

---

Table of Contents

41

---

Table of Contents

42

---

Table of Contents

	Quarterly Operations Data

		Quarter Ended
		(Dollars in thousands)
		FY 2004																FY 2005
		5/1/04				7/31/04				10/30/04				1/29/05				4/30/05
Net sales		$	232,559			$	234,403			$	262,444			$	231,683			$	281,806
Cost of sales			(164,972	)			(167,464	)			(184,991	)			(173,451	)			(199,008	)
Gross profit			67,587				66,939				77,453				58,232				82,798
Operating expenses			(53,782	)			(51,305	)			(60,664	)			(48,351	)			(67,745	)
Operating profit			13,805				15,634				16,789				9,881				15,053
Interest expense			(726	)			(745	)			(989	)			(274	)			(3,521	)
Earnings before income taxes			13,079				14,889				15,800				9,607				11,532
Income tax (provision) benefit			(5,263	)			(5,992	)			(6,358	)			(807	)			(4,552	)
Net income		$	7,816			$	8,897			$	9,442			$	8,800			$	6,980
Comparable store sales change			11.0	%			3.0	%			0.8	%			5.8	%			4.4	%

		Quarter Ended
		(Dollars in thousands)
		FY 2003
		5/3/03				8/2/03				11/1/03				1/31/04
Net sales		$	186,715			$	197,327			$	221,421			$	185,885
Cost of sales			(144,718	)			(145,607	)			(161,523	)			(136,573	)
Gross profit			41,997				51,720				59,898				49,312
Operating expenses			(42,363	)			(42,904	)			(47,466	)			(42,141	)
Operating profit (loss)			(366	)			8,816				12,432				7,171
Interest expense			(924	)			(627	)			(634	)			(554	)
Earnings (loss) before income taxes			(1,290	)			8,189				11,798				6,617
Income tax (provision) benefit			535				(3,395	)			(4,890	)			(2,757	)
Net income (loss)		$	(755	)		$	4,794			$	6,908			$	3,860
Comparable store sales change			(3.5%)				4.8	%			12.0	%			11.6	%

	Overview

43

---

Table of Contents

	The DSW Separation

44

---

Table of Contents

45

---

Table of Contents

46

---

Table of Contents

	Operating Activities

47

---

Table of Contents

	Investing Activities

	Financing Activities

48

---

Table of Contents

		Payments due by period
																						No
						Less than												More than				Expiration
		Total				1 year				1-3 years				3-5 years				5 years				Date
		(dollars in thousands)
Long-term debt(1)		$	55,000				—			$	55,000				—				—				—
Operating lease obligations(2)			786,611			$	81,496				167,184			$	160,170			$	377,761				—
Construction commitments(3)			1,035				1,035				—				—				—				—
Purchase obligations(4)			3,160				1,794				1,246				120				—				—
Total		$	845,806			$	84,325			$	223,430			$	160,290			$	377,761				—

(1)	On or about the date of this offering, we expect to be released from our obligations under the Value City revolving credit facility, the Value City term loan facility and the Value City senior subordinated convertible loan facility. Simultaneously, we expect to enter into a new $150 million secured revolving credit facility.
(2)	Our operating leases require us to pay for common area maintenance costs and real estate taxes. In fiscal 2004, these common area maintenance costs and real estate taxes represented 25.6% of our required lease payments. These costs and taxes vary year by year and are based almost entirely on actual costs incurred and taxes paid incurred by the landlord. As such, they are not included in the lease obligations presented above.
(3)	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.
(4)	Many of our purchase obligations are cancelable by us without payment or penalty, and we have excluded such obligations, along with all associate employment and intercompany obligations.

49

---

Table of Contents

50

---

Table of Contents

51

---

Table of Contents

52

---

Table of Contents

	The Breadth of Our Product Offerings

	Our Distinctive and Convenient Store Layout

53

---

Table of Contents

	The Value Proposition Offered to Our Customers

	Demonstrated Ability to Consistently Deliver Profitable Growth

54

---

Table of Contents

	Expanding Our Store Base

	Driving Sales Through Enhanced Merchandising

55

---

Table of Contents

	Leveraging Our Operating Model

56

---

Table of Contents

	Strategy

	Merchandise Mix

57

---

Table of Contents

Category		Percent of Net Sales
Women’s			62%
Men’s			18%
Athletic			14%
Accessories and Other			6%

	Buying, Planning and Allocation

	Vendor Relationships

58

---

Table of Contents

	Strategy

	“Reward Your Style”

	Gift Card Program

59

---

Table of Contents

60

---

Table of Contents

61

---

Table of Contents

62

---

Table of Contents

63

---

Table of Contents

Name		Age		Position With Us
Jay L. Schottenstein		50		Chief Executive Officer and Chairman of the Board of Directors
Deborah L. Ferrée		51		President and Chief Merchandising Officer
Peter Z. Horvath		47		Executive Vice President and Chief Operating Officer
Julia A. Davis		44		Executive Vice President, General Counsel and Secretary
Derek Ungless		56		Executive Vice President and Chief Marketing Officer
Douglas J. Probst		41		Senior Vice President, Chief Financial Officer and Treasurer
Steven E. Miller		46		Senior Vice President and Controller
David J. Disque		54		Senior Vice President, Store Operations
Kathleen C. Maurer		45		Vice President, Human Resources
Timothy McDougall		46		Vice President, Real Estate, Store Planning and Construction
James A. McGrady		54		Director and Vice President
Heywood Wilansky		57		Director
Carolee Friedlander		63		Director Nominee
Philip B. Miller		66		Director Nominee
James D. Robbins		58		Director Nominee
Harvey L. Sonnenberg		63		Director Nominee
Allan J. Tanenbaum		58		Director Nominee

64

---

Table of Contents

65

---

Table of Contents

66

---

Table of Contents

	•	Class I Directors. Messrs. Wilansky, Sonnenberg, Tanenbaum and Ms. Friedlander, whose terms will expire at the 2006 annual meeting of shareholders; and
	•	Class II Directors. Messrs. Schottenstein, Miller, and Robbins, whose terms will expire at the 2007 annual meeting of shareholders.

67

---

Table of Contents

68

---

Table of Contents

69

---

Table of Contents

																		Long Term Compensation
						Annual Compensation												Awards								Payouts
																		Restricted
														Other Annual				Stock				Securities				LTIP				All Other
		Fiscal				Salary				Bonus				Compensation				Award(s)				Underlying				Payouts				Compensation
Name and Principal Position(1)		Year				($)				($)(3)				($)(4)				($)				Options				($)(5)				($)(6)
Jay L. Schottenstein(7)			2004			$	84,950	(2)			—				—				—				—				—				—
Chief Executive Officer and Chairman of the Board
Deborah L. Ferrée(8)			2004			$	553,083			$	710,938			$	12,038				—				—			$	345,000			$	8,037
President & Chief Merchandising Officer
Peter Z. Horvath(9)			2004			$	28,846				—				—				—				—				—				—
Chief Operating Officer
Douglas J. Probst(10)			2004				—				—				—				—				—				—				—
Chief Financial Officer
James A. McGrady(11)			2004			$	147,421			$	96,225				—				—				—				—			$	2,865
Chief Financial Officer, Treasurer and Secretary of Retail Ventures
Julia A. Davis(11)			2004			$	93,607			$	80,376				—				—				—				—			$	2,392
General Counsel of DSW and Retail Ventures
John C. Rossler(12)			2004			$	255,686			$	92,746			$	5,169				—				—			$	279,979			$	250,580
Former Chief Executive Officer and President of Retail Ventures
Edwin J. Kozlowski(12)			2004			$	182,621			$	66,198			$	27,440				—				—			$	69,560			$	188,299
Former Chief Operating Officer of Retail Ventures

(1)	In fiscal 2004, Ms. Ferrée, Mr. McGrady and Ms. Davis were the three most highly compensated officers who were still employed with us or Retail Ventures as of the end of fiscal 2004. None of our other executive officers received compensation for services rendered to DSW in an amount greater than $100,000 in fiscal 2004.
(2)	Includes amounts paid in respect of fiscal 2004 to Mr. Schottenstein as compensation for his role as Chairman of the Board of Directors of Retail Ventures, allocable to DSW. As of the date of his appointment as Chief Executive Officer, Mr. Schottenstein does not have a formal written employment agreement with DSW.
(3)	Includes amounts paid in respect of fiscal 2004 under the Value City Department Stores, Inc. 2003 Incentive Plan. In connection with the offering, we expect that our board will adopt and Retail Ventures, as sole shareholder, will approve the DSW Inc. 2005 Cash Incentive Plan. We expect that some of our named executive officers will participate in that plan.
(4)	SEC rules do not require the reporting of perquisites and other personal benefits to the extent that the aggregate amount of such compensation is the lesser of either $50,000 or 10% of the total annual salary and bonus reported for each named executive officer. For Ms. Ferrée and Mr. Rossler, the amounts reported related to legal expenses. For Mr. Kozlowski, the amounts reported include allocated amounts of $22,271 relating primarily to personal benefits and $5,169 in allocated legal expenses. For Messrs. Rossler and Kozlowski, the amounts allocable to DSW were determined as described in footnote (11) below.
(5)	In July 2002, the compensation committee of the board of directors of Retail Ventures recommended and the Board of Directors approved the establishment of a “value creation” program, pursuant to which cash payments were made to certain participants including Messrs. Rossler and Kozlowski and Ms. Ferrée. Mr. Rossler was awarded $805,000 in fiscal 2004, pursuant to the program, subject to a risk of forfeiture on termination of employment, $279,979 of which was allocable to DSW during fiscal 2004. Mr. Kozlowski was awarded $200,000 in fiscal 2004, pursuant to the program, subject to a risk of forfeiture on termination of employment, $69,560 of which was allocable to DSW during fiscal 2004. Ms. Ferrée was awarded an aggregate of $690,000 pursuant to the program, subject to a risk of forfeiture on termination of employment, $345,000 of which was paid during fiscal 2004. All obligations under the “value creation” program have been satisfied as of February 1, 2004, upon payment of the last installment.

70

---

Table of Contents

(6)	The amounts shown in this column for each named executive officer consist of contributions or other allocations to Retail Ventures’ 401(k) Plan and Associate Stock Purchase Plan for the named executive officer, as follows:

Name		401(K) Plan				Stock Purchase Plan
Jay L. Schottenstein		$	0			$	0
Deborah L. Ferrée		$	7,850			$	187
Peter Z. Horvath		$	0			$	0
Douglas J. Probst		$	0			$	0
James A. McGrady		$	2,865			$	0
Julia A. Davis		$	2,392			$	0
John C. Rossler		$	2,484			$	0
Edwin J. Kozlowski		$	2,741			$	0

		As to Mr. Rossler, the amount listed in the Summary Compensation Table also includes $248,096 in severance payments allocable to DSW that were accrued in fiscal 2004. Retail Ventures also paid premiums in the amount of $700 for a life insurance policy for Mr. Rossler pursuant to which Mr. Rossler would have received the benefit of any cash surrender value. The policy was terminated in May 20, 2004. As to Mr. Kozlowski, the amount listed in the Summary Compensation Table also includes $185,558 in severance payments allocable to DSW that were accrued in fiscal 2004, which includes the allocable cash value of an automobile awarded to Mr. Kozlowski as part of his severance. The portion of these amounts allocable to DSW was determined as described in footnote (11) below.
(7)		Mr. Schottenstein became Chief Executive Officer and Chairman of the Board of Directors of DSW in March 2005. We do not expect to enter into an employment agreement with Mr. Schottenstein. His annual salary is $250,000.
(8)		Ms. Ferrée entered into a new employment agreement effective as of November 2004. Her new annual salary is $700,000.
(9)		Mr. Horvath entered into a new employment agreement effective as of January 3, 2005. His annual salary is $500,000.
(10)		Mr. Probst entered into a new employment agreement effective as of March 14, 2005. His annual salary is $350,000.
(11)		The information in the table represents the portion of Mr. McGrady’s and Ms. Davis’ compensation allocable to DSW. This allocation is based on the net sales of DSW segment of the business of Retail Ventures for 2004 as compared with the total net sales of Retail Ventures and its subsidiaries for such year.
(12)		The employment of Messrs. Rossler and Kozlowski was terminated by the board of directors of Retail Ventures as of November 3, 2004. The information in the table represents portions of their respective compensation allocable to DSW. The portion allocable to DSW was determined as described in footnote (11) above.

Number of Securities

Value of Unexercised

Named

Number of

Underlying Unexercised

In-the-Money

Executive

Shares Acquired

Value

Options/SARs At Fiscal

Options/SARs At Fiscal

Officers

upon Exercise

Realized

Year End

Year End(1)

Exercisable/ Unexercisable

Exercisable/ Unexercisable

Jay L. Schottenstein

—

—

50,000/—

—/—

Deborah L. Ferrée

—

—

227,600/324,400

457,440/684,060

Peter Z. Horvath

—

—

—/—

—/—

Douglas J. Probst

—

—

—/—

—/—

James A. McGrady

—

—

243,000/332,000

462,150/687,900

Julia A. Davis

—

—

8,000/32,000

39,840/159,360

John C. Rossler

—

—

2,445,000/—

5,137,950/—

Edwin J. Kozlowski

—

—

1,720,000/—

3,629,200/—

(1)

Represents the total gain which would be realized if all in-the-money options held at year end were exercised, determined by multiplying the number of shares underlying the options by the difference in the per share option exercise price and the per share fair market value at year end of $6.61. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise price of the option.

71

---

Table of Contents

	The Retail Ventures Incentive Plans

	The Retail Ventures 1991 Option Plan

72

---

Table of Contents

	The Retail Ventures 2000 Stock Incentive Plan

	The Retail Ventures 2003 Incentive Plan

73

---

Table of Contents

	The Retail Ventures ESPP

74

---

Table of Contents

	The DSW 2005 Equity Plan

75

---

Table of Contents

	The DSW 2005 Cash Plan

76

---

Table of Contents

	Employment Agreements

77

---

Table of Contents

78

---

Table of Contents

	Termination of Employment

79

---

Table of Contents

80

---

Table of Contents

	•	We expect to be released from our obligations under the Value City revolving credit facilities, and we expect to enter into a new five-year secured revolving credit facility.
	•	We expect to be released from our obligations under the Value City term loan and senior subordinated convertible loan facilities.
	•	We expect to repay $190.0 million of intercompany indebtedness incurred to fund dividends to Retail Ventures.

81

---

Table of Contents

	Historical Relationship With Retail Ventures

82

---

Table of Contents

	Retail Ventures as our Controlling Shareholder

	Agreements Between Us And Retail Ventures

83

---

Table of Contents

	Agreements Relating to our Separation from Retail Ventures

	•	a master separation agreement;
	•	a shared services agreement and other intercompany arrangements;
	•	a tax separation agreement;
	•	an exchange agreement; and
	•	a footwear fixture agreement.

84

---

Table of Contents

85

---

Table of Contents

86

---

Table of Contents

								Annual
								Minimum Rent
								Payments as of
								January 29,
Store Location		Landlord		Expiration Date		Renewal Options		2005(1)
Glen Allen, Virginia		Jubilee — Richmond, LLC		October 2015		Three, with terms of five years each.		$	423,028
Fairfax, Virginia		Jubilee Limited Partnership		November 2009		Two, with terms of 10 years each.		$	519,100
Clariton Boulevard (Pittsburgh, Pennsylvania)		SSC		December 2017		Three, with terms of five, five and two years, respectively.		$	338,789
Troy, Michigan		Jubilee Limited Partnership		February 2013		Two, with terms of five years each.		$	512,000
Springdale, Ohio		Jubilee — Springdale, LLC		October 2016		Three, with terms of five years each.		$	568,000
Tampa, Florida(2)		JLPK — Dale Mabry, LLC		November 2018		Three, with terms of five years each.		$	314,292
Denton, Texas		Jubilee Limited Partnership		February 2019		Three, with terms of five years each.		$	319,790
Richmond, Virginia (Midlothian)		JLP — Richmond LLC		April 2019		Three, with terms of five years each.		$	420,000
Merrillville, Indiana (3)		Jubilee Limited Partnership		December 2017		Three, with terms of five years each.		$	360,000
Beavercreek, Ohio		Shoppes of Beavercreek, Ltd		September 2012		Three, with terms of five years each.		$	362,745
Chesapeake, Virginia		JLP — Chesapeake, LLC		July 2011		Four, with terms of five years each.		$	402,325
Columbus, Ohio (Polaris)		SSC — Polaris, LLC		October 2017		Four, with terms of five years each.		$	583,800
Cary, North Carolina		JLP — Cary, LLC		February 2018		Three, with terms of five years each.		$	424,782
Madison, Tennessee		JLP — Madison LLC		November 2017		Three, with terms of five years each.		$	252,992
Cincinnati, Ohio(2) (Eastgate)		Eastgate Pavilion, Ltd.		October 2019		Three, with terms of five years each.		$	331,941
Kalamazoo, Michigan (4) (Maple Hill Mall)		K&S Maple Hill Mall, L.P.				Three, with terms of five years each.		$	303,604
South Bend, Indiana (4) (Erskine Village)		KSK Scottsdale Mall, L.P.				Three, with terms of five years each.		$	325,000

(1)	For each lease, we also (a) pay percentage rent equal to approximately 2% annually of gross sales that exceed specified breakpoints that increase as the minimum rent increases and (b) pay a portion of expenses related to maintenance, real estate taxes and insurance.
(2)	These properties were sold to non-affiliated third parties in December 2004.
(3)	DSW occupies these premises under a license agreement entered into with Value City. Value City is the tenant under the lease entered into with the landlord.
(4)	These stores are expected to open in fiscal 2005, at which time the expiration date will be determined.

87

---

Table of Contents

88

---

Table of Contents

89

---

Table of Contents

90

---

Table of Contents

91

---

Table of Contents

92

---

Table of Contents

	•	If Retail Ventures or SSC learns about a corporate opportunity, it does not have to tell us about it and it is not a breach of any fiduciary duty for it to pursue such corporate opportunity for itself or to direct it elsewhere.
	•	If one of our directors or officers who is also a director or officer of Retail Ventures or SSC learns about a corporate opportunity, he or she shall not be liable to us or to our shareholders if Retail Ventures or SSC pursues the corporate opportunity for itself, directs it elsewhere or does not communicate information about the opportunity to us, if such director or officer acts in a manner consistent with the following policy:
	•	If the corporate opportunity is offered to one of our officers who is also a director but not an officer of Retail Ventures or SSC, the corporate opportunity belongs to us unless it was expressly offered to the officer in writing solely in his or her capacity as a director of Retail Ventures or SSC, in which case it belongs to Retail Ventures or SSC, as the case may be.
	•	If the corporate opportunity is offered to one of our directors who is not an officer of DSW, and who is also a director or officer of Retail Ventures or SSC, the corporate opportunity belongs to us only if it was expressly offered to the director in writing solely in his or her capacity as our director.
	•	If the corporate opportunity is offered to one of our officers, whether or not such person is also a director, who is also an officer of Retail Ventures or SSC, it belongs to us only if it is expressly offered to the officer in writing solely in his or her capacity as our officer or director.

	•	the relationship or interest is disclosed or is known to the board of directors or the committee approving the contract or transaction, and the board of directors or committee, in good faith reasonably justified by the facts, authorizes the contract or transaction by the affirmative vote of a majority of the directors who are not interested in the contract or transaction;
	•	the relationship or interest is disclosed or is known to the shareholders, and the shareholders approve the contract or transaction by the affirmative vote of the holders of a majority of the voting power of the corporation held by persons not interested in the contract or transaction; or
	•	the contract or transaction is fair at the time it is authorized or approved by the board of directors, a committee of the board of directors, or the shareholders.

93

---

Table of Contents

94

---

Table of Contents

	•	each person or entity who is known by us to beneficially own 5% or more of our outstanding Common Shares;
	•	each of our directors;
	•	each of our executive officers named in the Summary Compensation Table; and
	•	all our directors and executive officers as a group.

										Percentage of
										Shares
		Number of Shares								Beneficially								Percentage of
		Beneficially Owned(1)								Owned(1)(2)								Combined Voting
																		Power of All Classes
Name of Beneficial Owner		Class A				Class B				Class A				Class B				of Common Shares
Retail Ventures, Inc.(3)(4)			—				27,702,667				—				100%				94.0	%
Jay L. Schottenstein(5)(6)			2,734,336				—				16.3%				—				1.3	%
Deborah L. Ferrée(7)			—				—				—				—				—
Peter Z. Horvath			—				—				—				—				—
Douglas J. Probst			—				—				—				—				—
James A. McGrady(3)(8)			—				—				—				—				—
Julia A. Davis(3)(9)			—				—				—				—				—
Heywood Wilansky(3)(10)			—				—				—				—				—
Carolee Friedlander			—				—				—				—				—
Philip B. Miller			—				—				—				—				—
James D. Robbins			—				—				—				—				—
Harvey L. Sonnenberg			—				—				—				—				—
Allan J. Tanenbaum			—				—				—				—				—
Schottenstein Stores Corporation (6)(11)(12)			2,734,336				—				16.3%				—				1.3	%
Stephen Feinberg(11)(13)(14)			2,734,336				—				16.3%				—				1.3	%
All directors and executive officers as a group (12 persons)			2,734,336				—				16.3%				—				1.3	%

	(1)	Except as otherwise set forth in the footnotes below, each beneficial owner has the sole power to vote and dispose of all ordinary shares held by that beneficial owner. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. Common shares issuable pursuant to options or warrants, to the extent such options or warrants are exercisable within 60 days, are treated as beneficially owned and outstanding for the purpose of computing the percentage ownership of the person holding the option or warrant, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
	(2)	These numbers do not take into account any exercise of the underwriters’ option to purchase additional shares.
	(3)	Address is 3241 Westerville Road, Columbus, Ohio 43224.

95

---

Table of Contents

	(4)	Common shares of DSW held by Retail Ventures, Inc. are subject to a lien securing Retail Ventures’ obligations under the amended convertible loan provided by Cerberus and SSC to Value City, as well as a lien securing the $240 million intercompany note made payable to Retail Ventures by Value City.
	(5)	As of the date of this prospectus, Mr. Schottenstein was the beneficial owner of approximately 78.4% of the outstanding common shares of SSC. As described in footnote 11 below, SSC will have the right to acquire Class A Common Shares of DSW from Retail Ventures after the consummation of this offering pursuant to certain warrant agreements. Mr. Schottenstein was also the sole beneficial owner of 144,000 Retail Ventures common shares and held 52,500 Retail Ventures common shares through Glosser Brothers Acquisition, Inc., or GBA, of which Mr. Schottenstein was Chairman of the Board, President, a director and a trustee or co-trustee of family trusts that own 100% of the stock of GBA. Mr. Schottenstein has voting and investment power as co-trustee of a family trust that owns 30,000 Retail Ventures common shares, and is one of five trustees of a foundation that owns 67,944 Retail Ventures common shares. Mr. Schottenstein also held options convertible into 50,000 Retail Ventures common shares. As of the date of this prospectus, SSC was the beneficial owner of approximately 48.2% of the outstanding common shares of Retail Ventures.
	(6)	Address is 1800 Moler Road, Columbus, Ohio 43207.
	(7)	As of the date of this prospectus, Ms. Ferrée held options convertible into 452,000 Retail Ventures common shares.
	(8)	As of the date of this prospectus, Mr. McGrady was the beneficial owner of 6,000 Retail Ventures common shares, and held options convertible into 475,000 Retail Ventures common shares.
	(9)	As of the date of the prospectus, Ms. Davis held options convertible into 40,000 Retail Ventures common shares.

(10)	As of the date of the prospectus, Mr. Wilansky held options convertible into 250,000 Retail Ventures common shares.
(11)	Each of Cerberus and SSC will have the right to acquire Class A Common Shares of DSW from Retail Ventures after the consummation of this offering pursuant to certain warrant agreements. As described in footnote 14 below, Stephen Feinberg exercises sole voting and investment authority over all of our securities owned by Cerberus, directly or indirectly. For further discussion of these warrant agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — The DSW Separation,” “Certain Relationships and Related Party Transactions — Notes, Credit Agreements and Guarantees” and “Description of Indebtedness.”
(12)	According to a Schedule 13D filed by SSC on September 26, 2003 relating to Retail Ventures, Jay L. Schottenstein has power to vote and dispose of shares of Schottenstein Stores Corporation held by various trusts.
(13)	The address for Stephen Feinberg is c/o Cerberus Partners L.P., 299 Park Avenue, New York, New York 10171.
(14)	Stephen Feinberg exercises sole voting and investment authority over all of our securities owned by Cerberus, directly or indirectly. Thus, pursuant to Rule 13d-3 under the Exchange Act, Mr. Feinberg is deemed to beneficially own 2,734,336 of our Common Shares issuable to Cerberus upon the exercise of its warrants exclusively for DSW Common Shares. Under the terms of the warrants, Cerberus may not exercise the warrants, to the extent such exercise would cause Cerberus, together with its affiliates, to beneficially own a number of Class A Common Shares which would exceed 9.99% of our then outstanding Common Shares following such exercise, excluding for purposes of such determination Class A Common Shares issuable upon exercise of the additional warrants which have not been exercised. The number of shares in the second column does not reflect this limitation.

96

---

Table of Contents

97

---

Table of Contents

98

---

Table of Contents

99

---

Table of Contents

100

---

Table of Contents

101

---

Table of Contents

102

---

Table of Contents

	•	the chairman of the board, the president, or in case of the president’s death or disability, the vice president authorized to exercise the authority of the president;
	•	the directors by action at a meeting, or a majority of the incumbent directors acting without a meeting; or
	•	the holders of at least 50% of all shares outstanding and entitled to vote thereat.

103

---

Table of Contents

	•	one-fifth or more but less than one-third of the voting power;
	•	one-third or more but less than a majority of the voting power; and
	•	a majority or more of the voting power.

104

---

Table of Contents

105

---

Table of Contents

	•	one percent of the number of common shares then outstanding, which will equal approximately 418,652 Common Shares immediately after this offering; or
	•	the average weekly trading volume of the common shares on the NYSE during the four calendar weeks preceding the sale.

106

---

Table of Contents

107

---

Table of Contents

108

---

Table of Contents

			Number of
Underwriter			Shares
Lehman Brothers Inc.				7,541,870
Goldman, Sachs & Co.				2,399,690
CIBC World Markets Corp.				2,399,690
Johnson Rice & Company L.L.C.				1,371,250
Fidelity Capital Markets, a division of National Financial Services LLC				50,000
HSBC Securities (USA) Inc.				50,000
Loop Capital Markets, LLC				50,000
Muriel Siebert & Co., Inc.				50,000
NatCity Investments, Inc.				50,000
Ryan Beck & Co.				50,000
Stifel, Nicolaus & Company, Incorporated				50,000
	Total			14,062,500

	•	the obligation to purchase all our Class A Common Shares offered hereby, if any of the shares are purchased;
	•	the representations and warranties made by us to the underwriters are true;
	•	there is no material change in the financial markets; and
	•	we deliver customary closing documents to the underwriters.

		No Exercise				Full Exercise
Per share		$	1.33			$	1.33
Total		$	18,703,125			$	21,508,594

109

---

Table of Contents

	•	during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event; or
	•	prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

	•	the history and prospects for the industry in which we compete,
	•	our financial information,
	•	the ability of our management and our business potential and earning prospects,
	•	the prevailing securities markets at the time of this offering, and
	•	the recent market prices of, and the demand for, publicly traded shares of generally comparable companies.

110

---

Table of Contents

	•	Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
	•	A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in this offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering.
	•	Syndicate covering transactions involve purchases of our Common Shares in the open market after the distribution has been completed in order to cover syndicate short positions.
	•	Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the Common Shares originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

111

---

Table of Contents

112

---

Table of Contents

	(a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with Legislative Decree No. 385 of September 1, 1993 (Decree No. 385), Legislative Decree No. 58 of February 24, 1998, CONSOB Regulation No. 11971 or May 14, 1999 and any other applicable laws and regulations;
	(b) made (i) to professional investors (operatori qualificati) as defined in Article 31, second paragraph of CONSOB Regulation No. 11422 of July 1, 1998, as amended, or Regulation No. 11522, (ii) in circumstances where an exemption from the rules governing solicitations to the public at large applies pursuant to Article 100 of Legislative Decree No. 58 of February 24, 1998 and Article 33, first paragraph, of CONSOB Regulation No. 11971 of May 14, 1999, as amended or (iii) to persons located in the Republic of Italy who submit an unsolicited request to purchase shares; and
	(c) in compliance with all relevant Italian securities and tax laws and regulations.

113

---

Table of Contents

114

---

Table of Contents

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004			F-3
Consolidated Statements of Income for the years ended January 29, 2005, January 31, 2004 and February 1, 2003.			F-4
Consolidated Statements of Shareholder’s Equity for the years ended January 29, 2005, January 31, 2004 and February 1, 2003.			F-5
Consolidated Statements of Cash Flows for the years ended January 29, 2005, January 31, 2004 and February 1, 2003.			F-6
Notes to Consolidated Financial Statements			F-7
Schedule II-Valuation and Qualifying Accounts			F-19
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited):
Condensed Consolidated Balance Sheet as of April 30, 2005 (unaudited)			F-20
Condensed Consolidated Statements of Income for the three months ended April 30, 2005 and May 1, 2004 (unaudited)			F-21
Condensed Consolidated Statements of Shareholder’s Equity for the three months ended April 30, 2005 and May 1, 2004 (unaudited)			F-22
Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2005 and May 1, 2004 (unaudited)			F-23
Notes to Condensed Consolidated Financial Statements			F-24

F-1

---

Table of Contents

F-2

---

Table of Contents

					January 29,				January 31,
					2005				2004
					(In thousands,
					except share amounts)
ASSETS
CURRENT ASSETS:
	Cash and equivalents				$	8,339			$	7,076
	Accounts receivable					2,291				2,264
	Inventories					208,015				150,019
	Prepaid expenses and other assets					8,940				8,847
	Deferred income taxes					20,261				9,202
			Total current assets			247,846				177,408
ADVANCES TO AFFILIATES						23,676				1,440
PROPERTY AND EQUIPMENT — At cost:
	Furniture, fixtures and equipment					81,605				58,729
	Leasehold improvements					70,936				60,255
	Capital leases — furniture, fixtures and equipment					—				1,227
			Total property and equipment — at cost			152,541				120,211
	Less accumulated depreciation					(62,485	)			(46,068	)
			Property and equipment — net			90,056				74,143
GOODWILL						25,899				25,899
TRADENAMES AND OTHER INTANGIBLES — Net						7,079				7,943
DEFERRED INCOME TAXES AND OTHER ASSETS						881				4,351
TOTAL					$	395,437			$	291,184
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
	Accounts payable				$	72,120			$	52,237
	Accrued expenses:
		Compensation				6,804				7,215
		Taxes				12,560				9,940
		Other				17,443				4,634
	Current maturities of long-term obligations					—				138
			Total current liabilities			108,927				74,164
LONG-TERM OBLIGATIONS — Net of current maturities						55,000				35,000
OTHER NONCURRENT LIABILITIES						52,684				38,149
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER’S EQUITY:
	Common stock — no par value:
		Authorized — 500 shares
		Outstanding — 410.09 shares
	Paid in capital					101,442				101,442
	Retained earnings					77,384				42,429
			Total shareholder’s equity			178,826				143,871
TOTAL					$	395,437			$	291,184

F-3

---

Table of Contents

		January 29,				January 31,				February 1,
		2005				2004,				2003
		(In thousands)
NET SALES		$	961,089			$	791,348			$	644,345
COST OF SALES			(690,878	)			(588,421	)			(485,589	)
GROSS PROFIT			270,211				202,927				158,756
OPERATING EXPENSES			(214,102	)			(174,874	)			(140,975	)
OPERATING PROFIT			56,109				28,053				17,781
INTEREST EXPENSE — NET			(2,734	)			(2,739	)			(3,874	)
EARNINGS BEFORE INCOME TAXES			53,375				25,314				13,907
INCOME TAX PROVISION			(18,420	)			(10,507	)			(5,847	)
NET INCOME		$	34,955			$	14,807			$	8,060

F-4

---

Table of Contents

			Number of
			Common				Paid in				Retained
			Shares				Capital				Earnings				Total
			(In thousands, except share amounts)
BALANCE — February 2, 2002				410.09			$	101,442			$	19,562			$	121,004
	Net income											8,060				8,060
BALANCE — February 1, 2003				410.09				101,442				27,622				129,064
	Net income											14,807				14,807
BALANCE — January 31, 2004				410.09				101,442				42,429				143,871
	Net income											34,955				34,955
BALANCE — January 29, 2005				410.09			$	101,442			$	77,384			$	178,826

F-5

---

Table of Contents

					January 29,				January 31,				February 1,
					2005				2004				2003
					(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income					$	34,955			$	14,807			$	8,060
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization					18,275				15,478				12,986
	Amortization of debt issuance costs					469				479				529
	Deferred income taxes					(7,813	)			26				(3,715	)
	Loss on fixed assets					968				585				40
	Change in working capital, assets and liabilities:
		Accounts receivable				(27	)			2,965				(3,227	)
		Inventories				(57,996	)			(8,907	)			(24,475	)
		Prepaid expenses and other assets				(338	)			(641	)			41
		Advances to/from affiliates				(22,236	)			20,574				(33,020	)
		Accounts payable				19,883				(8,995	)			1,732
		Proceeds from lease incentives				11,509				6,394				9,159
		Other noncurrent liabilities				3,026				386				176
		Accrued expenses				15,019				1,973				876
			Net cash provided by (used in) operating activities			15,694				45,124				(30,838	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures					(34,293	)			(22,324	)			(23,140	)
			Cash used in investing activities			(34,293	)			(22,324	)			(23,140	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Payments of capital lease obligations					(138	)			(205	)			(169	)
	Net increase (decrease) in revolving credit facility					20,000				(19,000	)			54,000
	Debt issuance costs					—				—				(1,437	)
			Net cash provided by (used in) financing activities			19,862				(19,205	)			52,394
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS						1,263				3,595				(1,584	)
CASH AND EQUIVALENTS — Beginning of year						7,076				3,481				5,065
CASH AND EQUIVALENTS — End of year					$	8,339			$	7,076			$	3,481
SUPPLEMENTAL DISCLOSURES:
	Cash paid for interest				$	2,138			$	2,121			$	3,280
	Cash paid for income taxes				$	3,998			$	898			$	2,552

F-6

---

Table of Contents

	Cash and Equivalents — Cash 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 — Accounts receivables are 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 and no significant change in interest rates.
	Long-Term Debt — The carrying amount approximates fair value as a result of the variable rate-based borrowings.

F-7

---

Table of Contents

F-8

---

Table of Contents

			January 29,				January 31,
			2005				2004
			(In thousands)
Tradenames:
	Gross		$	12,750			$	12,750
	Accumulated amortization			(5,738	)			(4,887	)
Subtotal				7,012				7,863
	Useful life			15				15
Favorable leases:
	Gross			140				140
	Accumulated amortization			(73	)			(60	)
Subtotal				67				80
	Useful life			14				14
Tradenames and other intangible assets — net			$	7,079			$	7,943

Fiscal Year		(In thousands)
2004		$	864
2005			864
2006			861
2007			854
2008			854
2009			854

F-9

---

Table of Contents

F-10

---

Table of Contents

F-11

---

Table of Contents

F-12

---

Table of Contents

			Operating Leases
							Unrelated				Related
Fiscal Year			Total				Party				Party
			(In thousands)
2005			$	81,496			$	73,674			$	7,822
2006				84,349				75,951				8,398
2007				82,835				74,199				8,636
2008				81,088				72,215				8,873
2009				79,082				70,280				8,802
Future years				377,761				316,593				61,168
	Total minimum lease payments		$	786,611			$	682,912			$	103,699

			January 29,				January 31,				February 1,
			2005				2004				2003
			(In thousands)
Minimum rentals:
	Unrelated parties		$	63,172			$	52,326			$	47,411
	Related parties			6,152				6,011				4,224
Contingent rentals:
	Unrelated parties			13,692				10,785				434
	Related parties			6,931				5,796				4,896
Total			$	89,947			$	74,918			$	56,965

			January 31,
			2004
			(In
			thousands)
Assets held under capital leases:
	Equipment		$	1,227
	Accumulated depreciation and amortization			(1,128	)
	Net book value		$	99

F-13

---

Table of Contents

		January 29,				January 31,
		2005				2004
		(In thousands)
Revolving credit facility		$	55,000			$	35,000
Capital lease obligations			—				138
			55,000				35,138
Less current maturities			—				(138	)
		$	55,000			$	35,000
Letters of credit outstanding		$	14,854			$	11,370
Availability under revolving credit facility		$	108,544			$	119,995

F-14

---

Table of Contents

			January 29,				January 31,				February 1,
			2005				2004				2003
			(In thousands)
Current:
	Federal		$	21,438			$	8,711			$	7,019
	State and local			4,803				1,770				2,543
				26,241				10,481				9,562
Deferred:
	Federal			(6,843	)			(27	)			(2,274	)
	State and local			(978	)			53				(1,441	)
				(7,821	)			26				(3,715	)
Income tax expense			$	18,420			$	10,507			$	5,847

F-15

---

Table of Contents

		January 29,				January 31,				February 1,
		2005				2004				2003
		(In thousands)
Income tax expense at federal statutory rate		$	18,681			$	8,860			$	4,868
State and local taxes — net			2,538				1,188				651
Non-deductible amortization			—				298				298
WOTC — net			(119	)			(131	)			(108	)
Officer compensation			—				169				—
Meals and entertainment			201				123				138
Currently deductible expenses and other			(2,881	)			—				—
		$	18,420			$	10,507			$	5,847

			January 29,				January 31,
			2005				2004
			(In thousands)
Deferred tax assets:
	Basis differences in inventory		$	5,418			$	3,513
	Basis differences in property and equipment			859				—
	Tenant allowance			1,406				—
	State and local tax NOLs			5,043				5,018
	Alternative Minimum Tax credit carryforward			1,634				1,634
	Amortization			—				622
	Accrued rent			7,042				4,995
	Workers compensation			1,443				—
	Accrued expenses			3,708				—
	Accrued bonus			—				726
	Other			3,640				2,041
				30,193				18,549
Deferred tax liabilities:
	Amortization			(2,785	)			—
	Prepaid expenses			(2,569	)			—
	Accrued bonus			(1,336	)			—
	Capital leases			—				(1,672	)
	Basis differences in property and equipment			—				(526	)
	Accrued expenses			—				(773	)
	State and local taxes			(3,192	)			(3,080	)
				(9,882	)			(6,051	)
Total — net			$	20,311			$	12,498

F-16

---

Table of Contents

		January 29,				January 31,
		2005				2004
		(In thousands)
Current deferred tax asset		$	20,261			$	9,202
Non-current deferred tax asset			50				3,296
Total — net		$	20,311			$	12,498

F-17

---

Table of Contents

F-18

---

Table of Contents

Column A			Column B				Column C								Column D				Column E
			Balance at				Charge to				Charges								Balance
			Beginning				Costs and				to Other								at End of
			of Period				Expenses				Accounts				Deductions				Period
			(Dollars in thousands)
Description
Allowance deduction from asset to which it applies:
Inventory Reserve:
	Year Ended:
	2/1/2003		$	9,054			$	3,702			$	—			$	1,367			$	11,389
	1/31/2004			11,389				3,730				—				3,614				11,505
	1/29/2005			11,505				2,697				—				—				14,202
Allowance for Sales Returns:
	Year Ended:
	2/1/2003		$	726			$	—			$	—			$	107			$	619
	1/31/2004			619				786				—				—				1,405
	1/29/2005			1,405				176				—				109				1,472
Store Closing Reserve:
	Year Ended:
	2/1/2003		$	1,117			$	—			$	—			$	989			$	128
	1/31/2004			128				1,249				—				574				803
	1/29/2005			803				129				—				400				532

F-19

---

Table of Contents

				April 30, 2005
				(In thousands,
				except share
				amounts)
ASSETS
CURRENT ASSETS:
	Cash and equivalents			$	13,718
	Accounts receivable, net				3,065
	Inventories				228,086
	Prepaid expenses and other assets				9,035
	Deferred income taxes				23,327
		Total current assets			277,231
PROPERTY AND EQUIPMENT — NET					91,055
GOODWILL					25,899
TRADENAMES AND OTHER INTANGIBLES — Net					6,863
DEFERRED INCOME TAXES AND OTHER ASSETS					6,067
TOTAL ASSETS				$	407,115
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	82,020
	Accrued expenses:
		Compensation			3,593
		Taxes			14,644
		Other			25,259
		Total current liabilities			125,516
ADVANCES FROM AFFILIATES					649
LONG-TERM OBLIGATIONS — Net of current maturities					40,000
INTERCOMPANY NOTE TO PARENT					165,000
OTHER NONCURRENT LIABILITIES					55,144
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER’S EQUITY:
	Common shares — without par value:
		Authorized — 500 shares
		Outstanding — 410.09 shares
	Paid in capital				—
	Retained earnings				20,806
		Total shareholder’s equity			20,806
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY				$	407,115

F-20

---

Table of Contents

			Three Months Ended
			April 30,				May 1,
			2005				2004
			(In thousands)
NET SALES			$	281,806			$	232,559
COST OF SALES				(199,008	)			(164,972	)
GROSS PROFIT				82,798				67,587
OPERATING EXPENSES				(67,745	)			(53,782	)
OPERATING PROFIT				15,053				13,805
INTEREST EXPENSE — NET
	NON-RELATED PARTIES			(849	)			(726	)
	RELATED PARTIES			(2,672	)			—
EARNINGS BEFORE INCOME TAXES				11,532				13,079
INCOME TAX PROVISION				(4,552	)			(5,263	)
NET INCOME			$	6,980			$	7,816

F-21

---

Table of Contents

		Number of
		Common				Paid in				Retained
		Shares				Capital				Earnings				Total
		(In thousands, except share amounts)
BALANCE — January 31, 2004			410.09			$	101,442			$	42,429			$	143,871
Net income											7,816				7,816
BALANCE — May 1, 2004			410.09			$	101,442			$	50,245			$	151,687
BALANCE — January 29, 2005			410.09			$	101,442			$	77,384			$	178,826
Net income											6,980				6,980
Dividend to parent							(101,442	)			(63,558	)			(165,000	)
BALANCE — April 30, 2005			410.09			$	0			$	20,806			$	20,806

F-22

---

Table of Contents

			Three Months Ended
			April 30,				May 1,
			2005				2004
			(In thousands)
Cash flows from operating activities:
Net Income			$	6,980			$	7,816
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization				4,719				4,363
Amortization of debt issuance costs				98				140
Deferred income taxes				(3,213	)			31
Loss on disposal of assets				14				30
Change in working capital, assets and liabilities:
	Accounts receivable			(774	)			(2,758	)
	Inventories			(20,071	)			(20,846	)
	Prepaid expenses and other assets			(5,136	)			1,152
	Advances to/from affiliates			24,325				1,718
	Accounts payable			9,900				4,104
	Proceeds from lease incentives			1,828				4,233
	Other noncurrent liabilities			632				1,757
	Accrued expenses			6,752				432
Net cash provided by operating activities				26,054				2,172
Cash flows from investing activities:
Capital expenditures				(5,579	)			(7,334	)
Net cash used in investing activities				(5,579	)			(7,334	)
Cash flows from financing activities:
Payments on capital lease obligations				—				(54	)
Net (decrease) increase in revolving credit facility				(15,000	)			10,000
Debt issuance costs				(96	)			—
Net cash (used in) provided by financing activities				(15,096	)			9,946
Net increase in cash and equivalents				5,379				4,784
Cash and equivalents, beginning of period				8,339				7,076
Cash and equivalents, end of period			$	13,718			$	11,860

F-23

---

Table of Contents

1.	BUSINESS OPERATIONS

2.	BASIS OF PRESENTATION

3.	ADOPTION OF ACCOUNTING STANDARDS

4.	LONG-TERM OBLIGATIONS

F-24

---

Table of Contents

5.	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

		Three Months
		Ended
		April 30,				May 1,
		2005				2004
		(In thousands)
Cash paid during the period for:
Interest to non-related parties		$	1,021			$	554
Income taxes		$	494			$	1,024

6.	COMMITMENTS AND CONTINGENCIES

F-25

---

Table of Contents

7.	SUBSEQUENT EVENTS

F-26

---

Table of Contents

---

Table of Contents