Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 30, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission file number 1-3381

The Pep BoysManny, Moe & Jack(Exact name of registrant as specified in its charter)

Pennsylvania(State or other jurisdiction of
incorporation or organization)

23-0962915(I.R.S. employer identification no.)3111 West Allegheny Avenue,
Philadelphia, PA(Address of principal executive office)

19132(Zip code)


215-430-9000(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Stock, $1.00 par value

New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


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

As of the close of business on August 2, 2009 the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $456,221,486.

As
of April 2, 2010, there were 52,448,473 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the Company's fiscal year, for the Company's 2010 Annual Meeting of Shareholders are incorporated by reference into Part III of this
Form 10-K.



---





Table of Contents



TABLE OF CONTENTS

PagePART IItem 1.

Business

1Item 1A.

Risk Factors

10Item 1B.

Unresolved Staff Comments

13Item 2.

Properties

13Item 3.

Legal Proceedings

14Item 4.

(Removed and Reserved)

15PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

16Item 6.

Selected Financial Data

19Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

37Item 8.

Financial Statements and Supplementary Data

38Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

87Item 9A.

Controls and Procedures

87Item 9B.

Other Information

91PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

91Item 11.

Executive Compensation

91Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

91Item 13.

Certain Relationships and Related Transactions and Director Independence

91Item 14.

Principal Accounting Fees and Services

91PART IVItem 15.

Exhibits and Financial Statement Schedules

92Signatures

95


i

---





Table of Contents

PART I

ITEM 1    BUSINESS

GENERAL

The Pep BoysManny, Moe & Jack and subsidiaries ("the Company") began operations in 1921 and is the only national
chain offering automotive service, tires, parts and accessories. This positioning allows us to streamline the distribution channel and pass the savings on to our customer facilitating our vision of
becoming the automotive solutions provider of choice for the value-oriented customer. Our primary operating unit is our Supercenter format, which serves both
"do-it-for-me" ("DIFM", which includes service labor, installed merchandise and tires) and "do-it-yourself" ("DIY", or retail) customers
with the highest quality service offerings and merchandise. In most of our Supercenters, we also have a commercial sales program that provides commercial credit and prompt delivery of tires, parts and
other products to local, regional and national repair shops and dealers.

The
Company operates approximately 11,686,000 of gross square feet of retail space, including service bays. The Supercenters average approximately 20,700 square feet, Service &
Tire Centers average 6,800 square feet and the Pep Express stores average 9,500 square feet.

In
2009, as part of our long-term strategy to lead with automotive service, we began complementing our existing Supercenter store base with Service & Tire Centers.
These Service & Tire Centers are designed to capture market share and leverage our existing Supercenters and support infrastructure. We currently plan to lease Service & Tire Center
locations, as we believe that there are sufficient existing available locations with attractive lease terms to enable our expansion. We are targeting a total of 40 new Service & Tire Centers in
fiscal 2010, and 80 in fiscal 2011. In fiscal 2009, we opened 24 new Service & Tire Centers including ten locations acquired through our purchase of Florida Tire, Inc. and one new
Supercenter.

The
following table sets forth the percentage of total revenues from continuing operations contributed by each class of similar products or services for the Company and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein:

Year endedJanuary 30,
2010

January 31,
2009

February 2,
2008Parts and accessories


63.9
%

65.1
%

66.6
%Tires


16.4


16.3


15.2Total merchandise sales


80.3


81.4


81.8Service labor


19.7


18.6


18.2Total revenues


100.0
%

100.0
%

100.0
%


As
of January 30, 2010, the Company operated its stores in 35 states and Puerto Rico. The following table indicates, by state, the number of stores the Company had in operation at
the end of

1

---



Table of Contents

each
of the last five fiscal years, and the number of stores opened and closed by the Company during each of the last four fiscal years:

NUMBER OF STORES AT END OF FISCALS 2006 THROUGH 2009

State

2009
Year
End

Closed

Opened

2008
Year
End

Closed

Opened

2007
Year
End

Closed

Opened

2006
Year
EndAlabama


1








1








1








1Arizona


22








22








22


1


1


22Arkansas


1








1








1








1California


124





6


118








118


3





121Colorado


7








7








7


1





8Connecticut


7








7








7


1





8Delaware


7





1


6








6








6Florida


53





10


43








43








43Georgia


22








22








22


3





25Illinois


25





3


22








22


1





23Indiana


7








7








7


2





9Kansas























2





2Kentucky


4








4








4








4Louisiana


8








8








8


2





10Maine


1








1








1








1Maryland


18








18








18


1





19Massachusetts


6








6








6


1





7Michigan


5








5








5


2





7Minnesota


3








3








3








3Missouri


1








1








1








1Nevada


12








12








12








12New Hampshire


4








4








4








4New Jersey


31





2


29








29





1


28New Mexico


8








8








8








8New York


29








29








29








29North Carolina


8








8








8


2





10Ohio


10








10








10


2





12Oklahoma


5








5








5


1





6Pennsylvania


45





3


42








42








42Puerto Rico


27








27








27








27Rhode Island


2








2








2


1





3South Carolina


6








6








6








6Tennessee


7








7








7








7Texas


47








47








47


7





54Utah


6








6








6








6Virginia


16








16








16








16Washington


2








2








2








2Total


587





25


562








562


33
(1)

2


593


(1)As
more fully described in Note 11Store Closures and Asset Impairments of the notes to the Consolidated Financial Statements included in
Item 8, the Company closed 31 stores during the fourth quarter of fiscal 2007.


2

---



Table of Contents




BUSINESS STRATEGY

Our vision for Pep Boys is to take what we believe to be our industry-leading position in automotive services and accessories and
become the automotive solutions provider of choice for the value-oriented customer. Our brand positioning"Pep Boys Does Everything. For Less" is designed to convey to customers the
breadth of the automotive services and merchandise that we offer and our value proposition. The four strategies to achieve our vision are to: (i) Earn the trust of our customers every day,
(ii) Lead with our service business and grow through our Service & Tire Centers, (iii) Establish a differentiated retail experience by leveraging our Automotive Superstore and
(iv) Leverage our Automotive Superstore to provide the most complete offering for our commercial customers.

Earn the TRUST of our Customers every day.We do this by delivering a customer experience that is based on Speed, Expertise, Respect
and Value. We
start with our associates, focusing on their hiring, training and development, and the conversion of their compensation to performance-based plans. In our stores, we strive to continuously improve the
customer experience by providing better looking and easier to shop stores and more consistent execution of our simplified and streamlined operations. We have developed a specific tailored marketing
plan for each of our markets to maximize our reach and efficiencies. These marketing programs focus on TV and radio promotions scheduled around traditional shopping holidays that focus on the most
frequently needed services. These promotions are supplemented by extensive direct marketing and grass-roots campaigns and occasional print campaigns. And our Rewards program that benefits customers
whether they choose to do it themselves or have us do it for them, helps to drive customer count increases and repeat business through discounted towing, free services and rewards points for
purchases.

Lead with our Service business and grow through our Service & Tire Centers.We do this by being a full servicetire,
maintenance
and repairshop thatDOES EVERYTHING. FOR LESS. Our full service capabilities, ASE-certified technicians and continuous
investment in training and equipment allow customers to rely on us for all of their automotive service and maintenance needs. We can provide these services at highly-competitive prices because our
size and business model allow us to buy quality parts at lower prices and pass those savings onto our customers.

Our
store growth plans are centered on a "hub and spoke" model, which calls for adding smaller neighborhood Service & Tire Centers to our existing Supercenter store base in order
to further leverage our existing inventories, distribution network, operations infrastructure and advertising spend. We opened 25 new stores in 200924 Service & Tire Centers and
one smaller prototype Supercenter. Our plans call for 40 more new locations in 2010, followed by 80 in 2011. The typical Service & Tire Center is full service with approximately six service
bays and $1 million in expected sales.
Our Supercenters were built to be destination stores. Our Service & Tire Centers offer customer convenience, allowing us to be close to our customers' home or work.

Establish a differentiated Retail experience by leveraging our Automotive Superstore.The size of our stores allows us to provide the
highest level
of replacement parts coverage and the broadest range of maintenance, performance and appearance products and accessories in the industry. As part of our commitment to carry the best assortment of
automotive aftermarket merchandise, we make assortment decisions by examining every merchandise category using market and demographic data to assure we have the best product in the right place. This
category management process ensures our assortment includes the appropriate coverage for service, retail and commercial consumers as well as allowing us to make good, sound decisions about price,
product and promotions.

Leverage our Automotive Superstore to provide the most complete offering for our Commercial customers.To further leverage our
inventory and
automotive aftermarket expertise, we continue to

3

---



Table of Contents

expand
our commercial operations. In addition to offering these customers parts and fluids, we enjoy a competitive advantage of also being able to offer tires, equipment, accessories and services.

STORE IMPROVEMENTS

In fiscal 2009, the Company's capital expenditures totaled $43,214,000 which included the addition of 25 stores and one regional tire
and battery distribution center, as well as other store and corporate improvements. Our fiscal 2010 capital expenditures are expected to be approximately $68,000,000 which includes the addition of
approximately 40 Service & Tire Centers and other store and corporate improvements. These expenditures are expected to be funded from cash on hand, net cash generated from operating activities
and the Company's existing line of credit.

SERVICES AND PRODUCTS

The Company operates a total of 6,027 service bays in 578 of its 587 locations. Each service location performs a full range of
automotive repair and maintenance services (except body work) and installs tires, hard parts and accessories.

Each
Pep Boys Supercenter and Pep Express store carries a similar product line, with variations based on the number and type of cars in the markets where the store is located, while a
Pep Boys Service & Tire Center carries tires and a limited selection of our other products. A full complement of inventory at a typical Supercenter includes an average of approximately 25,000
items, while Service & Tire Centers average approximately 4,000 items. The Company's product lines include: tires (not stocked at Pep Express stores); batteries; new and remanufactured parts
for domestic and import vehicles; chemicals and maintenance items; fashion, electronic, and performance accessories; and a limited amount of select non-automotive merchandise that appeals
to automotive "Do-It-Yourself" customers, such as generators, power tools, personal transportation products and canopies.

In
addition to offering a wide variety of high quality name brand products, the Company sells an array of high quality products under various private label names. The Company sells tires
under the names DEFINITY, FUTURA® and CORNELL®, and batteries under the name PROSTART®. The Company also sells wheel covers under the name FUTURA®;
water pumps and cooling system parts under the name PROCOOL®; air filters, anti-freeze, chemicals, cv axles, lubricants, oil, oil filters, oil treatments, transmission fluids,
wheel rims and wiper blades under the name PROLINE®; alternators, battery booster packs, alkaline type batteries and starters under the name PROSTART®; power steering hoses,
chassis parts and power steering pumps under the name PROSTEER®; brakes under the name PROSTOP® and brakes, starters, and ignitions under the name VALUEGRADE. All products sold
by the Company under various private label names were approximately 31%, 28%, and 27% of the Company's merchandise sales in fiscal 2009, 2008, and 2007, respectively.

The
Company's commercial automotive parts delivery program, branded PEP EXPRESS PARTS®, is designed to increase the Company's market share with the professional installer and
to leverage inventory investment. The program satisfies the commercial customer's automotive inventory needs by taking advantage of the breadth and quality of the Company's parts inventory as well as
its experience supplying its own service bays and mechanics. As of January 30, 2010, approximately 80% or 451 of the Company's 562 Supercenters and Pep Express stores provided commercial parts
delivery as compared to approximately 76% or 428 stores at the end of fiscal 2008.

In
May 2009, the Company began a 20-store pilot program designed to fulfill the Company's goal of becoming the automotive solutions provider of choice for mobile electronics
and installation services. The Company re-organized our automotive audio product lines to include radios, speakers, amplifiers, remote starters and alarm systems from the most popular
brands. The key to this program was the addition of expert sales and installation technicians to service our customers' needs. In November 2009,

4

---



Table of Contents

we
added an additional 11 stores to the program and we expect to expand to a total of 150 stores by the end of the second quarter of fiscal 2010.

The
Company has a point-of-sale system in all of its stores, which gathers sales and inventory data by stock-keeping unit from each store on a daily basis. This
information is then used by the Company to help formulate its pricing, inventory, marketing, and merchandising strategies. The Company has an electronic parts catalog that allows our employees to
efficiently look up the parts that our customers need and to provide complete job solutions, advice and information for customer vehicles. The Company has an electronic work order system in all of its
service centers. This system creates a service history for each vehicle, provides customers with a comprehensive sales document and enables the Company to maintain a service customer database.

The
Company primarily uses an "Everyday Low Price" (EDLP) strategy in establishing its selling prices. Management believes that EDLP provides better value to its customers on a
day-to-day basis, helps level customer demand and allows more efficient management of inventories. On a periodic basis, the Company employs a promotional pricing strategy on
select items and service offers to drive increased customer traffic.

The
Company uses various forms of advertising to promote its service and repair capabilities , merchandise offerings and its commitment to customer service and satisfaction. The Company
is committed to an effective promotional schedule with TV and radio promotions that focus on the most frequently needed services and are scheduled around periods of time when automotive repair and
preventative maintenance are top of mind and relevant to our customers. These promotions will be supplemented by extensive direct marketing and grass-roots campaigns and occasional print campaigns.

The
Company maintains a website located at www.pepboys.com. It serves as an important portal to our Company, allowing consumers the freedom and convenience to access more information
about the organization, our stores and our service, tires, parts and accessories offerings online. The site also provides consumers with general and seasonal car care tips,
do-it-yourself vehicle maintenance and light repair guidance and safe driving pointers. Exclusive online coupons are available to site visitors who register their
e-mail addresses with us. These coupons cover special discounts on services and products at Pep Boys.

In
fiscal 2009, approximately 35% of the Company's total revenues were cash transactions with the remainder being co-branded credit card, other credit and debit card
transactions and commercial credit accounts.

STORE OPERATIONS AND MANAGEMENT

Most Pep Boys stores are open seven days a week. Each Supercenter has a Retail Manager and Service Manager (Service & Tire
Centers only have a Service Manager while Pep Express stores only have a Retail Manager) who report to geographic-specific Area Directors and Division Vice Presidents. The Division Vice Presidents
report to the Senior Vice President of Stores who in turn reports to the Chief Executive Officer. As of January 30, 2010, a Retail Manager's and a Service Manager's average length of service
with the Company is approximately 9.3 and 6.3 years, respectively.

Supervision
and control over individual stores is facilitated by means of the Company's computer system, operational handbooks and regular visits to stores by Area Directors and
Divisional Vice Presidents. All of the Company's advertising, accounting, purchasing, information technology, and most of its administrative functions are conducted at its corporate headquarters in
Philadelphia, Pennsylvania. Certain administrative functions for the Company's regional operations are performed at various regional offices of the Company. See "Item 2 Properties."

5

---



Table of Contents

INVENTORY CONTROL AND DISTRIBUTION

Most of the Company's merchandise is distributed to its stores from its warehouses by dedicated and contract carriers. Target levels of
inventory for each product are established for each warehouse and store based upon prior shipment history, sales trends and seasonal demand. Inventory on hand is compared to the target levels on a
weekly basis at each warehouse, potentially triggering re-ordering of merchandise from suppliers. In addition, each Pep Boys store has an automated inventory replenishment system that
orders additional inventory, generally from a warehouse, when a store's inventory on-hand falls below the target levels.

The
Company also maintains Superhub stores which have a larger assortment of product than our normal Supercenter. Implementation of the Superhub store concept enabled local expansion of
our product assortment in a cost effective manner. We are now able to satisfy customer needs for slow moving product by carrying limited amounts of this product at Superhub stores. These Superhubs
then deliver this product to requesting Supercenters to fulfill customer demand. Superhub stores are generally replenished from distribution centers multiple times per week.

SUPPLIERS

During fiscal 2009, the Company's ten largest suppliers accounted for approximately 52% of the merchandise purchased by the Company. No
single supplier accounted for more than 18% of the Company's purchases. The Company has no long-term contracts under which it is required to purchase merchandise except for a contract to
purchase bulk oil for use in the Company's service bays, which is anticipated to expire in 2010. Management believes that the relationships the Company has established with its suppliers are generally
good.

In
the past, the Company has not experienced difficulty in obtaining satisfactory sources of supply and believes that adequate alternative sources of supply exist, at similar cost, for
the types of merchandise sold in its stores.

COMPETITION

The Company operates in a highly competitive environment. The Company encounters competition from nationwide and regional chains and
from local independent service provides and merchants. The Company's competitors include general, full range, discount or traditional department stores which carry automotive parts and accessories
and/or have automotive service centers, as well as specialized automotive retailers. Generally, the specialized automotive retailers focus on either the "do-it-yourself" or
"do-it-for-me" areas of the business. The Company believes that its operation in both the "do-it-for-me" and
"do-it-yourself" areas of the business positively differentiates it from most of its competitors. However, certain competitors are larger in terms of sales volume, store size,
and/or number of stores. Therefore, these competitors have access to greater capital and management resources and have been operating longer or have more stores in particular geographic areas than the
Company. The principal methods of competition in our industry include store location, customer service and product offerings, quality and price.

REGULATION

The Company is subject to various federal, state and local laws and governmental regulations relating to the operation of its business,
including those governing the handling, storage and disposal of hazardous substances contained in the products it sells and uses in its service bays, the recycling of batteries, tires and used
lubricants, the sale of small engine merchandise and the ownership and operation of real property.

6

---



Table of Contents

EMPLOYEES

At January 30, 2010, the Company employed 17,718 persons as follows:

Description

Full-time

%

Part-time

%

Total

%Retail


3,839


32.3


4,233


72.5


8,072


45.6Service center


6,774


57.0


1,515


26.0


8,289


46.8Store total


10,613


89.3


5,748


98.5


16,361


92.4Warehouses


541


4.6


83


1.4


624


3.5Offices


727


6.1


6


0.1


733


4.1Total employees


11,881


100.0


5,837


100.0


17,718


100.0


The
Company had no union employees as of January 30, 2010. At January 31, 2009, the Company employed 12,169 full-time and 6,289 part-time employees.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained herein, including in "Item 1 Business" and "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations", constitute "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. The words "guidance," "expects,"
"anticipates," "estimates," "forecasts" and similar expressions are intended to identify these forward-looking statements. Forward-looking statements include management's expectations regarding
implementation of its long-term strategic plan, future financial performance, automotive aftermarket trends, levels of competition, business development activities, future capital
expenditures, financing sources and availability and the effects of regulation and litigation. Although we believe that the expectations reflected in these forward-looking statements are based on
reasonable assumptions, we can give no assurance that our expectations will be achieved. Our actual results may differ materially from the results discussed in the forward-looking statements due to
factors beyond our control, including the strength of the national and regional economies, retail and commercial consumers' ability to spend, the health of the various sectors of the automotive
aftermarket, the weather in geographical regions with a high concentration of our stores, competitive pricing, the location and number of competitors' stores, product and labor costs and the
additional factors described in our filings with the Securities and Exchange Commission ("SEC"). See
"Item 1A Risk Factors." We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

SEC REPORTING

We electronically file certain documents with, or furnish such documents to, the SEC, including annual reports on
Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, along with any related amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. From time-to-time, we may also file registration and related statements pertaining to equity or debt
offerings. You may read and copy any materials we file with the SEC at the SEC's Office of Filings and Information Services at 100 F Street, NE, Washington, DC 20549. You may obtain information
regarding the Office of Filings and Information Services by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file or furnish documents electronically with the SEC.

We
provide free electronic access to our annual, quarterly and current reports (and all amendments to these reports) on our Internet website, www.pepboys.com. These reports are available
on our website as soon as reasonably practicable after we electronically file or furnish such materials

7

---



Table of Contents

with
or to the SEC. Information on our website does not constitute part of this Annual Report, and any references to our website herein are intended as inactive textual references only.

Copies
of our SEC reports are also available free of charge. Please call our investor relations department at 215-430-9720 or write Pep Boys, Investor Relations,
3111 West Allegheny Avenue, Philadelphia, PA 19132 to request copies.

EXECUTIVE OFFICERS OF THE COMPANY

The following table indicates the name, age, tenure with the Company and position (together with the year of election to such position)
of the executive officers of the Company:

Name

Age

Tenure
with
Company
as of
April 2010

Position with the Company and Date of Election to PositionMichael R. Odell


46

3 years

Chief Executive Officer since September 2008Raymond L. Arthur


51

2 years

Executive Vice PresidentChief Financial Officer since May 2008Joseph A. Cirelli


51

33 years

Senior Vice PresidentBusiness Development since November 2007Troy E. Fee


41

3 years

Senior Vice PresidentHuman Resources since July 2007William E. Shull III


51

2 years

Senior Vice PresidentStores since September 2008Scott A. Webb


46

3 years

Senior Vice PresidentMerchandising & Marketing since September 2007Brian D. Zuckerman


40

11 years

Senior Vice PresidentGeneral Counsel & Secretary since March 2009


Michael R.
Odell was named Chief Executive Officer on September 22, 2008, after serving as Interim Chief Executive Officer since April 23, 2008. Mr. Odell
joined the Company in September 2007 as Executive Vice PresidentChief Operating Officer, after having most recently served as the Executive Vice President and General Manager of Sears
Retail & Specialty Stores. Mr. Odell joined Sears in its finance department in 1994 where he served until he joined Sears operations team in 1998. There he served in various executive
operations positions of increasing seniority, including as Vice President, StoresSears Automotive Group.

Raymond
L. Arthur joined Pep Boys in May 2008 after serving as Executive Vice President and Chief Financial Officer of Toys "R" Us Inc., from 2004 to 2006, where he oversaw its
strategic review and restructuring of company-wide operations, as well as managing the leveraged buy-out of the company. During his seven year tenure at Toys "R" Us,
Mr. Arthur also served as President and Chief Financial Officer of toysrus.com from 2000 to 2003 and as Corporate Controller of Toys "R" Us from 1999 to 2000. Prior to that, he worked in a
variety of roles of increasing responsibility for General Signal, American Home Products, American Cyanamid and in public accounting.

Joseph
A. Cirelli was named Senior Vice PresidentCorporate Development in November 2007. Since March 1977, Mr. Cirelli has served the Company in positions of
increasing seniority, including Senior Vice PresidentService, Vice PresidentReal Estate and Development, Vice PresidentOperations Administration, and Vice
PresidentCustomer Satisfaction.

8

---



Table of Contents

Troy
E. Fee, Senior Vice PresidentHuman Resources, joined the Company in July 2007, after having most recently served as the Senior Vice President of Human Resources Shared
Services for TBC Corporation, then the parent company of Big O Tires, Tire Kingdom and National Tire & Battery. Mr. Fee has over 20 years experience in operations and human
resources in the tire and automotive service and repair business.

William
E. Shull III joined the Company in September 2008 as Senior Vice PresidentStores. Over the last 25 years Mr. Shull has held several senior management
positions where his focus was on building and integrating store management teams into successfully profitable and cohesive units. Some of his executive positions include SVPSales at The
Wiz; SVPMall Operations of TransWorld Entertainment; SVPOperations of Hollywood Entertainment; and in his 13 years at AutoZone he was instrumental in building the
foundation of the retail chain in 4 geographic regions and responsible for store communications, training, and served on several strategic initiative committees. He was also a principal and the COO of
a small, high-end custom electronics firm in Memphis TN, selling his stake in 2005.

Scott
A. Webb, Senior Vice PresidentMerchandising & Marketing, joined the Company in September 2007 after having most recently served as the Vice President,
Merchandising and Customer Satisfaction of AutoZone. Mr. Webb joined AutoZone in 1986 where he began his service in field management before transitioning, in 1992, to the Merchandising
function.

Brian
D. Zuckerman was named Senior Vice PresidentGeneral Counsel & Secretary on March 1, 2009 after having most recently served as Vice
PresidentGeneral Counsel & Secretary since 2003. Mr. Zuckerman joined the Company as a staff attorney in 1999. Prior to joining Pep Boys, Mr. Zuckerman practiced
corporate and securities law with two firms in Philadelphia.

Each
of the executive officers serves at the pleasure of the Board of Directors of the Company.

9

---





Table of Contents

ITEM 1A    RISK FACTORS

Our business faces significant risks. The risks described below may not be the only risks we face. If any of the events or
circumstances described as risks below actually occurs, our business, results of operations and or financial condition could be materially and adversely affected. The following section discloses all
known material risks that we face. However, it does not include risks that may arise in the future that are yet unknown nor existing risks that we do not judge material to the presentation of our
financial statements.

Risks Related to Pep Boys

We may not be able to successfully implement our business strategy, which could adversely affect our business, financial condition, results of operations and cash flows.

In fiscal 2007, we adopted our long-term strategic plan, which includes numerous initiatives to increase sales, enhance our
margins and increase our return on invested capital in order to increase our earnings and cash flow. If these initiatives are unsuccessful, or if we are unable to implement the initiatives efficiently
and effectively, our business, financial condition, results of operations and cash flows could be adversely affected.

Successful
implementation of our business strategy also depends on factors specific to the retail automotive aftermarket industry, many of which may be beyond our control (See "Risks
Related to Our Industry").

If we are unable to generate sufficient cash flows from our operations, our liquidity will suffer and we may be unable to satisfy our obligations.

We require significant capital to fund our business. While we believe we have the ability to sufficiently fund our planned operations
and capital expenditures for the next fiscal year, circumstances could arise that would materially affect our liquidity. For example, cash flows from our operations could be affected by changes in
consumer spending habits or the failure to maintain favorable vendor payment terms or our inability to successfully implement sales growth initiatives. We may be unsuccessful in securing alternative
financing when needed, on terms that we consider acceptable, or at all.

The
degree to which we are leveraged could have important consequences to your investment in our securities, including the following risks:



10

---



Table of Contents



We depend on our relationships with our vendors and a disruption of these relationships or of our vendors' operations could have a material adverse effect on our business
and results of operations.

Our business depends on developing and maintaining productive relationships with our vendors. Many factors outside our control may harm
these relationships. For example, financial difficulties that some of our vendors may face may increase the cost of the products we purchase from them or may interrupt our source of supply. In
addition, our failure to promptly pay, or order sufficient quantities of inventory from our vendors may increase the cost of products we purchase or may lead to vendors refusing to sell products to us
at all. A disruption of our vendor relationships or a disruption in our vendors' operations could have a material adverse effect on our business and results of operations.

We depend on our senior management team and our other personnel, and we face substantial competition for qualified personnel.

Our success depends in part on the efforts of our senior management team. Our continued success will also depend upon our ability to
retain existing, and attract additional, qualified field personnel to meet our needs. We face substantial competition, both from within and outside of the automotive aftermarket to retain and attract
qualified personnel. In addition, we believe that the number of qualified automotive service technicians in the industry is generally insufficient to meet demand.

We are subject to environmental laws and may be subject to environmental liabilities that could have a material adverse effect on us in the future.

We are subject to various federal, state and local environmental laws and governmental regulations relating to the operation of our
business, including those governing the handling, storage and disposal of hazardous substances contained in the products we sell and use in our service bays, the recycling of batteries, tires and used
lubricants, the ownership and operation of real property and the sale of small engine merchandise. When we acquire or dispose of real property or enter into financings secured by real property, we
undertake investigations that may reveal soil and/or groundwater contamination at the subject real property. All such known contamination has either been remediated, or is in the process of being
remediated. Any costs expected to be incurred related to such contamination are either covered by insurance or financial reserves or provided for in the consolidated financial statements. However,
there exists the possibility of additional soil and/or groundwater contamination on our real property where we have not undertaken an investigation. A failure by us to comply with environmental laws
and regulations could have a material adverse effect on us.

Risks Related to Our Industry

Our industry is highly competitive, and price competition in some segments of the automotive aftermarket or a loss of trust in our participation in the
"do-it-for-me" market, could cause a material decline in our revenues and earnings.

The automotive aftermarket retail and service industry is highly competitive and subjects us to a wide variety of competitors. We
compete primarily with the following types of businesses in each segment of the automotive aftermarket:

Do-It-Yourself



11

---



Table of Contents





Do-It-For-Me



A
number of our competitors have more financial resources, are more geographically diverse or have better name recognition than we do, which might place us at a competitive disadvantage
to those competitors. Because we seek to offer competitive prices, if our competitors reduce their prices we may also be forced to reduce our prices, which could cause a material decline in our
revenues and earnings.

With
respect to the service labor category, the majority of consumers are unfamiliar with their vehicle's mechanical operation and, as a result, often select a service provider based on
trust. Potential occurrences of negative publicity associated with the Pep Boys brand, the products we sell or installation or repairs performed in our service bays, whether or not factually accurate,
could cause consumers to lose confidence in our products and services in the short or long term, and cause them to choose our competitors for their automotive service needs.

Vehicle miles driven may decrease, resulting in a decline of our revenues and negatively affecting our results of operations.

Our industry depends on the number of vehicle miles driven. Factors that may cause the number of vehicle miles and our revenues and our
results of operations to decrease include:



12

---



Table of Contents



Economic factors affecting consumer spending habits may continue, resulting in a decline in revenues and may negatively impact our business.

Many economic and other factors outside our control, including consumer confidence, consumer spending levels, employment levels,
consumer debt levels and inflation, as well as the availability of consumer credit, affect consumer spending habits. A significant deterioration in the global financial markets and economic
environment, recessions or an uncertain economic outlook could adversely affect consumer spending habits and can result in lower levels of economic activity. The domestic and international political
situation also affects consumer confidence. Any of these events and factors could cause consumers to curtail spending, especially with respect to our more discretionary merchandise offerings, such as
automotive accessories, tools and personal transportation products.

During
fiscal 2009, there was significant deterioration in the global financial markets and economic environment, which negatively impacted consumer spending and our revenues. If these
adverse trends in economic conditions continue or worsen, or if our efforts to counteract the impacts of these trends are not sufficiently effective, our revenues would continue to decline, negatively
affecting our results of operations.

Consolidation among our competitors may negatively impact our business.

Our industry has experienced consolidation over time. If this trend continues or if they are able to achieve efficiencies in their
mergers, the Company may face greater competitive pressures in the market in which they operate.

ITEM 1B    UNRESOLVED STAFF COMMENTS

None.

ITEM 2    PROPERTIES

The Company owns its five-story, approximately 300,000 square foot corporate headquarters in Philadelphia, Pennsylvania and
a 60,000 square foot structure in Los Angeles, California. The Company also owns the following administrative regional officesapproximately 4,000 square feet of space in each of Melrose
Park, Illinois and Bayamon, Puerto Rico. The Company leases administrative regional offices of approximately 1,700 square feet in Whitemarsh, Maryland and approximately 4,000 square feet in
Carrollton, Texas.

Of
the 587 store locations operated by the Company at January 30, 2010, 231 are owned and 356 are leased. As of January 30, 2010, 126 of the 231 stores owned by the Company
are currently used as collateral under our Senior Secured Term Loan, due October 2013.

13

---



Table of Contents

The
following table sets forth certain information regarding the owned and leased warehouse space utilized by the Company to replenish its store locations at January 30, 2010:

Warehouse Locations

Products
Warehoused

Approximate
Square
Footage

Owned
or
Leased

Stores
Serviced

States ServicedSan Bernardino, CA

All


600,000

Leased


167

AZ, CA, NM, NV, UT, WAMcDonough, GA

All


392,000

Owned


137

AL, FL, GA, LA, NC, PR, SC, TN, VAMesquite, TX

All


244,000

Owned


68

AR, CO, LA, MO, NM, OK, TXPlainfield, IN

All


403,000

Owned


68

IL, IN, KY, MI, MN, OH, PA, TNChester, NY

All


400,400

Owned


147

CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VAPhiladelphia, PA

Tires & Batteries


43,000

Leased


47

DE, NJ, PAMcDonough, GA

All except tires


30,000

Leased




Auxiliary warehouse spaceTotal




2,112,400


In
addition to the distribution centers above, the Company leases four satellite warehouses of approximately 78,700 square feet each. These satellite warehouses stock approximately
36,000 Stock-Keeping Units (SKUs), serve an average of 10-30 stores and have retail capabilities. The Company anticipates that its existing and future warehouse space and its access to
outside storage will accommodate inventory necessary to support future store expansion and any increase in SKUs through the end of fiscal 2010.

ITEM 3    LEGAL PROCEEDINGS

In September 2006, the United States Environmental Protection Agency ("EPA") requested certain information from the Company as part of
an investigation to determine whether the Company had violated, and is in violation of, the Clean Air Act and its non-road engine regulations. The information requested concerned certain
generator and personal transportation merchandise offered for sale by the Company. In the fourth quarter of fiscal 2008, the EPA informed the Company that it believed that the Company had violated the
Clean Air Act by virtue of the fact that certain of this merchandise did not conform to their corresponding EPA Certificates of Conformity. During the third quarter of fiscal 2009, the Company and the
EPA reached a settlement in principle of this matter requiring that the Company (i) pay a monetary penalty of $5 million, (ii) take certain corrective action with respect to
certain inventory that had been restricted from sale during the course of the investigation, (iii) implement a formal compliance program and (iv) participate in certain
non-monetary emission offset activities. The Company had previously accrued an amount equal to the agreed upon civil penalty and a $3 million contingency accrual with respect to the
restricted inventory. During each of the third and fourth quarters of fiscal 2009, the Company reversed approximately $1 million of the inventory accrual as a portion of the subject inventory
was released for sale.

The
Company is also party to various other actions and claims arising in the normal course of business.

The
Company believes that amounts accrued for awards or assessments in connection with all such matters are adequate and that the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position. However, there exists a reasonable possibility of loss in excess of the amounts accrued, the amount of which cannot currently be estimated.
While the Company does not believe that the amount of such excess loss could be material to the Company's

14

---



Table of Contents

financial
position, any such loss could have a material adverse effect on the Company's results of operations in the period(s) during which the underlying matters are resolved.

ITEM 4    (REMOVED AND RESERVED)

15

---





Table of Contents

PART II

ITEM 5    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of The Pep BoysManny, Moe & Jack is listed on the New York Stock Exchange under the symbol "PBY."
There were 4,998 registered shareholders as of April 2, 2010. The following table sets forth for the periods listed, the high and low sale prices and the cash dividends paid on the Company's
common stock.

MARKET PRICE PER SHARE

Market Price Per ShareCash Dividends
Per ShareHigh

LowFiscal 2009Fourth quarter

$
9.29

$
7.76

$
0.0300Third quarter


10.69


8.40


0.0300Second quarter


10.83


5.87


0.0300First quarter


8.52


2.76


0.0300Fiscal 2008Fourth quarter

$
5.31

$
2.62

$
0.0675Third quarter


9.49


3.00


0.0675Second quarter


10.36


6.40


0.0675First quarter


12.56


8.59


0.0675


On
September 7, 2006, the Company renewed its share repurchase program and reset the authority back to $100,000,000 for repurchases to be made from time to time in the open market
or in privately negotiated transactions. During the first quarter of fiscal 2007, the Company repurchased 2,702,460 shares of Common Stock for $50,841,000. The Company also disbursed during the first
quarter of fiscal 2007, $7,311,000 for 494,800 shares of Common Stock repurchased during the fourth quarter of fiscal 2006. This program expired on September 30, 2007.

On
March 12, 2009, the Board of Directors reduced the quarterly cash dividend to $0.03 per share. It is the present intention of the Board of Directors to continue to pay this
quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial
condition, and capital needs of the Company and other factors which the Board of Directors deems relevant.

On
January 26, 2010, the Company terminated the flexible employee benefits trust (the "Trust") that was established on April 29, 1994 to fund a portion of the Company's
obligations arising from various employee compensation and benefit plans. In accordance with the terms of the Trust, upon its termination, the Trust's sole asset, consisting of 2,195,270 shares of the
Company's common stock, was transferred to the Company in exchange for the full satisfaction and discharge of all intercompany indebtedness then owed by the Trust to the Company. The termination of
the Trust has no impact on the Company's consolidated financial statements, except for the reclassification of the shares from within the shareholders equity section of the Company's Consolidated
Balance Sheets.

16

---



Table of Contents

EQUITY COMPENSATION PLANS

The following table sets forth the Company's shares authorized for issuance under its equity compensation plans at January 30,
2010:

Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)

Weighted
average
exercise price
of outstanding
options,
warrants and
rights (b)

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column (a))Equity compensation plans approved by security holders


2,005,775

$
6.83


2,240,075


STOCK PRICE PERFORMANCE

The following graph compares the cumulative total return on shares of Pep Boys stock over the past five years with the cumulative total
return on shares of companies in (1) the Standard & Poor's SmallCap 600 Index, (2) the S&P 600 Automotive Retail Index and (3) an index of peer and comparable
companies as determined by the Company. The comparison assumes that $100 was invested in January 2005 in Pep Boys Stock and in each of the indices and assumes reinvestment of dividends. The
S&P 600 Automotive Retail Index consists of companies in the S&P SmallCap 600 index that meet the definition of the automotive retail classification, and is currently comprised of: Group 1
Automotive, Inc.; Lithia Motors, Inc.; Midas, Inc.; Monro Muffler Brake, Inc.; Sonic Automotive, Inc.; and The Pep BoysManny, Moe & Jack. The
companies currently comprising the Peer Group are: Aaron's, Inc.; Advance Auto Parts, Inc.; AutoZone, Inc.; Big 5 Sporting Goods Corp.; Cabelas, Inc.;
Conn's, Inc.; Dick's Sporting Goods, Inc.; Gander Mountain Co.; HHGregg, Inc.; Midas, Inc.; Monro Muffler Brake, Inc.; O'Reilly Automotive, Inc.;
PetSmart, Inc.; RadioShack Corp.; Rent-A-Center, Inc.; Tractor Supply Co.; West Marine, Inc.

17

---



Table of Contents

GRAPHIC

Company/Index

Jan. 2005

Jan. 2006

Jan. 2007

Jan. 2008

Jan. 2009

Jan. 2010Pep Boys

$
100

$
96.28

$
100.82

$
74.66

$
19.39

$
56.85S&P SmallCap 600 Index

$
100

$
121.83

$
133.89

$
125.70

$
77.58

$
107.81Peer Group

$
100

$
106.38

$
121.59

$
103.35

$
87.78

$
119.43S&P 600 Automotive Retail Index(1)

$
100

$
130.35

$
170.07

$
106.98

$
29.30

$
81.20


---

18

---





Table of Contents

ITEM 6    SELECTED FINANCIAL DATA

The following tables set forth the selected financial data for the Company and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere herein.

Fiscal Year Ended

Jan. 30,
2010

Jan. 31,
2009

Feb. 2,
2008

Feb. 3,
2007

Jan. 28,
2006(dollar amounts are in thousands, except share and per share data)STATEMENT OF OPERATIONS DATA(6)Merchandise sales

$
1,533,619

$
1,569,664

$
1,749,578

$
1,853,077

$
1,830,632Service revenue


377,319


358,124


388,497


390,778


378,342Total revenues


1,910,938


1,927,788


2,138,075


2,243,855


2,208,974Gross profit from merchandise sales(7)


448,815
(1)

440,502
(3)

443,626
(4)

533,276


470,019Gross profit from service revenue(7)


37,292
(1)

24,930
(3)

42,611
(4)

33,004


32,276Total gross profit


486,107
(1)

465,432
(3)

486,237
(4)

566,280


502,295Selling, general and administrative expenses


430,261


485,044


518,373


546,399


519,600
(5)Net gain from disposition of assets


1,213


9,716


15,151


8,968


4,826Operating profit (loss)


57,059


(9,896
)

(16,985
)

28,849


(12,479)
(5)Non-operating income


2,261


1,967


5,246


7,023


3,897Interest expense


21,704
(2)

27,048
(2)

51,293


49,342


49,040Earnings (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle


37,616
(1)

(34,977)
(3)

(63,032)
(4)

(13,470
)

(57,622)
(5)Earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle


24,113


(28,838
)

(37,438
)

(7,071
)

(36,595
)Discontinued operations, net of tax


(1,077)
(1)

(1,591)
(3)

(3,601)
(4)

4,333


1,088Cumulative effect of change in accounting principle, net of tax











189


(2,021
)Net earnings (loss)


23,036


(30,429
)

(41,039
)

(2,549
)

(37,528
)BALANCE SHEET DATAWorking capital

$
205,525

$
179,233

$
195,343

$
163,960

$
247,526Current ratio


1.40 to 1


1.33 to 1


1.35 to 1


1.27 to 1


1.43 to 1Merchandise inventories

$
559,118

$
564,931

$
561,152

$
607,042

$
616,292Property and equipment-net

$
706,450

$
740,331

$
780,779

$
906,247

$
947,389Total assets

$
1,499,086

$
1,552,389

$
1,583,920

$
1,767,199

$
1,821,753Long-term debt, excluding current maturities

$
306,201

$
352,382

$
400,016

$
535,031

$
586,239Total stockholders' equity

$
443,295

$
423,156

$
470,712

$
567,755

$
594,565DATA PER COMMON SHAREBasic earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle

$
0.46

$
(0.55
)
$
(0.72
)
$
(0.13
)
$
(0.67
)Basic earnings (loss) net


0.44


(0.58
)

(0.79
)

(0.05
)

(0.69
)Diluted earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principal


0.46


(0.55
)

(0.72
)

(0.13
)

(0.67
)Diluted earnings (loss) net


0.44


(0.58
)

(0.79
)

(0.05
)

(0.69
)Cash dividends declared


0.12


0.27


0.27


0.27


0.27Book value per share


8.46


8.10


9.10


10.53


10.97Common share price range:High


10.83


12.56


22.49


16.55


18.80Low


2.76


2.62


8.25


9.33


11.75OTHER STATISTICSReturn on average stockholders' equity(8)


5.3
%

(6.8
)%

(7.9
)%

(0.4
)%

(6.0
)%Common shares issued and outstanding


52,392,967


52,237,750


51,752,677


53,934,084


54,208,803Capital expenditures

$
43,214

$
151,883
(9)
$
43,116

$
53,903

$
92,083Number of stores


587


562


562


593


593Number of service bays


6,027


5,845


5,845


6,162


6,162


(1)Includes
an aggregate pretax charge of $3,110 for asset impairment, of which $2,211 was charged to merchandise cost of sales, $673 was charged to service
cost of sales and $226 (pretax) was charged to discontinued operations.(2)Fiscal
2009 includes gain from debt retirement of $6,248. Fiscal 2008 includes a gain from debt retirement of $3,460, partially offset by a $1,172 charge
for deferred financing costs.


19

---



Table of Contents

(3)Includes
an aggregate pretax charge of $5,353 for asset impairment, of which $2,779 was charged to merchandise cost of sales, $648 was charged to service
cost of sales and $1,926 (pretax) was charged to discontinued operations.(4)Includes
an aggregate pretax charge of $10,963 for the asset impairment and closure of 31 stores, of which $5,350 was charged to merchandise cost of sales,
$1,849 was charged to service cost of sales and $3,764 (pretax) was charged to discontinued operations. In addition we recorded a pretax $32,803 inventory impairment charge to cost of merchandise
sales for the discontinuance of certain product offerings.(5)Includes
a pretax charge of $4,200 related to an asset impairment charge reflecting the remaining value of a commercial sales software asset, which was
included in selling, general and administrative expenses.(6)Statement
of operations data reflects 53 weeks for the fiscal year ended February 3, 2007 while the other fiscal years reflect
52 weeks.(7)Gross
profit from merchandise sales includes the cost of products sold, buying, warehousing and store occupancy costs. Gross profit from service revenue
includes the cost of installed products sold, buying, warehousing, service payroll and related employee benefits and occupancy costs. Occupancy costs include utilities, rents, real estate and property
taxes, repairs and maintenance and depreciation and amortization expenses. Our gross profit may not be comparable to those of our competitors due to differences in industry practice regarding the
classification of certain costs.(8)Return
on average stockholders' equity is calculated by taking the net earnings (loss) for the period divided by average stockholders' equity for the year.(9)Includes
the purchase of master lease assets for $117,121.


20

---





Table of Contents

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion and analysis explains the results of our operations for fiscal 2009 and 2008 and significant developments
affecting our financial condition as of January 30, 2010. This discussion and analysis below should be read in conjunction with Item 6 "Selected Consolidated Financial Data," and our
consolidated financial statements and the notes included elsewhere in this report. The discussion and analysis contains "forward looking statements" within the meaning of The Private Securities
Litigation Reform Act of 1995. Forward looking statements include management's expectations regarding implementation of its long-term strategic plan,
future financial performance, automotive aftermarket trends, levels of competition, business development activities, future capital expenditures, financing sources and availability and the effects of
regulation and litigation. Actual results may differ materially from the results discussed in the forward looking statements due to a number of factors beyond our control, including those set forth
under the section entitled "Item 1A Risk Factors" elsewhere in this report.

Introduction

The Pep Boys-Manny, Moe & Jack is the only national chain offering automotive service, tires, parts and accessories.
This positioning allows us to streamline the distribution channel and pass the savings to the customer facilitating our vision of becoming the automotive solutions provider of choice for the
value-oriented customer. The majority of our stores are in a Supercenter format, which serves both "do-it-for-me" ("DIFM", which includes service labor, installed
merchandise and tires) and "do-it-yourself" ("DIY", or retail) customers with the highest quality service offerings and merchandise. Most of our Supercenters also have a
commercial sales program that provides delivery of tires, parts and other products to automotive repair shops and dealers. In 2009, as part of our long-term strategy to lead with
automotive service, we began complementing our existing Supercenter store base with Service & Tire Centers. These Service & Tire Centers are designed to capture market share and leverage
our existing Supercenter and support infrastructure. During fiscal 2009, we opened 24 new Service & Tire Centers, including ten locations acquired through our purchase of the assets of Florida
Tire, Inc., and opened one new prototype Supercenter. We are targeting a total of 40 new Service & Tire Centers in fiscal 2010 and 80 in fiscal 2011. As of January 30, 2010, we
operated 553 Supercenters and 25 Service & Tire Centers, as well as nine legacy Pep Express (retail only) stores throughout 35 states and Puerto Rico.

EXECUTIVE SUMMARY

During fiscal 2009, the Company continued to focus on executing its long-term strategic plan and reported its first
profitable year since fiscal 2004. For fiscal 2009, earnings from continuing operations before taxes increased by $72,593,000 to $37,616,000, compared to a loss from continuing operations before taxes
of $34,977,000 in the prior year. Net earnings for fiscal 2009 increased by $53,465,000 to $23,036,000, compared to a net loss of $30,429,000 in the prior year. Our increase in profitability resulted
primarily from increased service revenues, increased gross profit margins and lower selling, general and administrative expenses due to continued disciplined spending control. Our diluted earnings per
share for fiscal 2009 was $0.44, a $1.02 improvement over the $0.58 loss per diluted share recorded in fiscal 2008 (see Results of Operations).

For
fiscal 2009, our comparable sales (sales generated by locations in operation during the same period of the prior year) decreased by 1.2% compared to a decrease of 8.0% in the prior
year. The decrease in comparable sales was comprised of a 4.7% increase in comparable service revenue and a 2.6% decrease in comparable merchandise sales. The difficult macroeconomic environment,
including

21

---



Table of Contents

continued
high unemployment and tight credit, negatively impacted sales of our discretionary product categories such as accessories and complementary merchandise. Sales of
non-discretionary product categories such as service and hard parts have benefited somewhat from this environment, as customers have focused on maintaining their existing vehicles rather
than purchasing new vehicles. In addition, our non-discretionary product categories are primarily impacted by miles driven, which stabilized in the second half of 2009 after having
declined for the previous year. We believe that the stabilization in miles driven is primarily due to lower gasoline prices.

The
Company remains focused on refining and expanding the parts assortment to improve our in stock position, improving execution and the customer experience and utilizing television and
radio advertising to communicate our value offerings. In fiscal 2009, we were able to successfully increase customer traffic and sales in our service and commercial businesses.

RESULTS OF OPERATIONS

The following discussion explains the material changes in our results of operations for the years ended January 30, 2010,
January 31, 2009 and February 2, 2008.

Analysis of Statement of Operations

The following table presents, for the periods indicated, certain items in the consolidated statements of operations as a percentage of
total revenues (except as otherwise provided) and the percentage change in dollar amounts of such items compared to the indicated prior period.

Percentage of Total Revenues

Percentage ChangeYear ended

Jan 30, 2010
(Fiscal 2009)

Jan 31, 2009
(Fiscal 2008)

Feb 2, 2008
(Fiscal 2007)

Fiscal 2009 vs.
Fiscal 2008

Fiscal 2008 vs.
Fiscal 2007Merchandise sales


80.3
%

81.4
%

81.8
%

(2.3
)%

(10.3
)%Service revenue(1)


19.7


18.6


18.2


5.4


(7.8
)Total revenues


100.0


100.0


100.0


(0.9
)

(9.8
)Costs of merchandise sales(2)


70.7
(3)

71.9
(3)

74.6
(3)

3.9


13.5Costs of service revenue(2)


90.1
(3)

93.0
(3)

89.0
(3)

(2.1
)

3.7Total costs of revenues


74.6


75.9


77.3


2.6


11.5Gross profit from merchandise sales


29.3
(3)

28.1
(3)

25.4
(3)

1.9


(0.7
)Gross profit from service revenue


9.9
(3)

7.0
(3)

11.0
(3)

49.6


(41.5
)Total gross profit


25.4


24.1


22.7


4.4


(4.3
)Selling, general and administrative expenses


22.5


25.2


24.2


11.3


6.4Net gain from disposition of assets


0.1


0.5


0.7


(87.5
)

(35.9
)Operating profit (loss)


3.0


(0.5
)

(0.8
)

676.6


41.7Non-operating income


0.1


0.1


0.2


14.9


(62.5
)Interest expense


1.1


1.4


2.4


19.8


47.3Earnings (loss) from continuing operations before income taxes


2.0


(1.8
)

(2.9
)

207.5


44.5Income tax expense (benefit)


35.9
(4)

17.6
(4)

40.6
(4)

(320.0
)

(76.0
)Earnings (loss) from continuing operations


1.3


(1.5
)

(1.8
)

183.6


23.0Discontinued operations, net of tax


(0.1
)

(0.1
)

(0.1
)

32.3


55.8Net earnings (loss)


1.2


(1.6
)

(1.9
)

175.7


25.9


---

22

---



Table of Contents

Fiscal 2009 vs. Fiscal 2008

Total revenue and comparable sales for fiscal 2009 decreased 0.9% and 1.2%, respectively as compared to the prior year. The 1.2%
decrease in comparable store revenues consisted of a 4.7% increase in comparable service revenue offset by a 2.6% decrease in comparable merchandise sales. While our total revenue figures were
favorably impacted by our opening of 25 new
stores in fiscal 2009, a new store is not added to our comparable store sales base until it reaches its 13th month of operation. Stores are removed from the comparable store sales base upon
their relocation or closure. Once a relocated store reaches its 13th month of operation at its new location, it is added back into our comparable store sales base. Square footage increases are
immaterial and accordingly, are not considered in our calculations of comparable store sales data.

Total
merchandise sales decreased 2.3% to $1,533,619,000 compared to $1,569,664,000 in fiscal 2008. Total service revenue increased 5.4% to $377,319,000 from $358,124,000 in the prior
year. The decrease in merchandise sales was primarily due to weaker sales in our retail business stemming from less discretionary spending by our customers and lower DIY customer counts. Excluding
sales of discretionary products such as generators, electronics and transportation products, our DIY core automotive sales remained relatively flat year over year. Service revenues increased in fiscal
2009 as compared to fiscal 2008 primarily due to increased customer counts.

During
fiscal 2009, customer traffic generated by improved store execution, promotional events and an improved hard parts inventory position resulted in an increase in service and
commercial customer count. However, total customer count declined as a result of a decrease in DIY customer count. We believe the decrease in retail customer count is due to reduced spending as a
result of the current economic environment and our competitors continuing to open new stores as well as the result of the long-term industry decline in the DIY business. In addition, we
carry a large assortment of more discretionary retail product that is more susceptible to consumer spending deferrals. We continue to believe that providing a differentiated merchandise assortment,
better customer experience, low-price value proposition and innovative marketing will stem the overall decline in customer counts and sales over the long-term. In fact,
customer count in our DIY space declined at a much lower rate in fiscal 2009 as compared to the prior year and we experienced our first increase in total customer count and sales in our third fiscal
quarter since the first quarter of fiscal 2004, and the fourth quarter of fiscal 2006, respectively.

Gross
profit from merchandise sales increased by $8,313,000 to $448,815,000 for fiscal 2009 from $440,502,000 in the prior year. Gross profit from merchandise sales increased to 29.3%
for fiscal 2009 from 28.1% for fiscal 2008. Gross profit from merchandise sales in fiscal 2009 includes the reversal of inventory accruals of approximately $2,000,000 established in the prior year
related to our temporarily restricting the sale of certain small engine merchandise that was subject to an ongoing EPA inquiry and a gain from insurance settlements of $562,000, mostly offset by an
asset impairment charge of $2,211,000 as a result of continued declines in real estate values of previously closed locations. In the prior year, gross profit from merchandise sales included an asset
impairment charge of $2,779,000 and a $3,000,000 inventory accrual due to the EPA inquiry referred to above. Excluding these adjustments from both years, gross profit from merchandise sales increased
to 29.2% for fiscal 2009 from 28.4% in the prior year. Gross profit from merchandise sales increased despite a 2.3% decrease in merchandise

23

---



Table of Contents

sales
as discussed above, primarily as a result of an improvement in inventory shrinkage, lower in-bound freight costs, lower warehousing costs (which declined by 40 basis points to 3.7%
of merchandise sales) and lower store occupancy costs (which declined by 20 basis points to
11.4% of merchandise sales.) Warehousing costs declined primarily due to lower out-bound freight costs to stores and occupancy costs declined due to lower building maintenance costs and
the elimination of equipment leasing costs.

Gross
profit from service revenue increased to 9.9% for fiscal 2009 from 7.0% in fiscal 2008. Gross profit from service revenue increased by $12,362,000, or 49.6%. Both the current year
and the prior year gross profit from service revenue included an asset impairment charge related to previously closed stores of $673,000 and $648,000, respectively. Excluding these adjustments from
both years, gross profit from service revenues increased to 10.1% for fiscal 2009 from 7.1% in the prior year. The increase in gross profit was primarily due to increased service revenue which
resulted in higher absorption of fixed expenses such as occupancy costs and, to a certain extent, labor costs.

Selling,
general and administrative expenses, decreased to 22.5% of total revenues in fiscal 2009 from 25.2% in fiscal 2008. Selling, general and administrative expenses decreased
$54,783,000 or 11.4%. The decrease was primarily due to lower media expense of $21,235,000, lower legal expenses and professional services fees of $13,300,000, reduced payroll and related expenses of
$7,459,000, lower travel expenses of $2,280,000 and improved general liability claims expense of $1,346,000.

Net
gains from the disposition of assets for fiscal 2009 and fiscal 2008 reflect gains of $1,213,000 and $9,716,000, respectively, primarily as a result of sale leaseback transactions.
The Company completed sale leaseback transactions on four stores during fiscal 2009, as compared to sale leaseback transactions on approximately 70 stores in fiscal 2008.

Interest
expense was $21,704,000 in fiscal 2009, a decline of $5,344,000 compared to the prior year. Fiscal 2009 and 2008 included gains from the retirement of debt of $6,248,000 and
$3,460,000, respectively. Fiscal 2008 also included a $1,172,000 charge for deferred financing costs related to our revolving credit facility that was replaced. Excluding these items, interest expense
declined by $1,384,000 from fiscal 2008 to fiscal 2009 primarily due to reduced debt levels.

Income
tax expense was $13,503,000 or an effective rate of 35.9% for the fiscal 2009 as compared to an income tax benefit of $6,139,000 or an effective rate of 17.6% for the fiscal 2008.
The current year effective tax rate includes a benefit of $1,200,000 due to the allocation of additional costs to certain jurisdictions thereby reducing past and future tax liabilities. The prior year
effective tax rate was impacted by the non-deductibility of certain expenses for tax purposes, the recognition of gain for tax on surrender of life insurance policies and the establishment
of a valuation allowance on certain state net operating losses and credits.

Loss
from discontinued operations, net of tax, was $1,077,000 in fiscal 2009 versus $1,591,000, in fiscal 2008. Fiscal 2009 and 2008 included, on a pre-tax basis, impairment
charges of $226,000 and $1,926,000, respectively.

As
a result of the foregoing, we reported net earnings of $23,036,000 for fiscal 2009, an increase of $53,465,000 from our net loss of $30,429,000 in fiscal 2008. Our basic and diluted
earnings per share were $0.44 as compared to our basic and diluted loss per share of $0.58 in the prior year.

Fiscal 2008 vs. Fiscal 2007

Total revenues for fiscal 2008 decreased 9.8% to $1,927,788,000 compared to $2,138,075,000 for fiscal 2007. This decrease was primarily
due to weaker sales in our retail business stemming from lower customer counts and the de-emphasis of non-core automotive merchandise. Comparable revenues decreased by 8.0%,
consisting of an 8.4% decrease in comparable merchandise sales and a 6.2% decrease in comparable service revenue.

24

---



Table of Contents

In
late fiscal 2007 and the first half of fiscal 2008, as part of our long-term strategic plan, we rebalanced our inventory through an aggressive mark-down and
sell through program of non-core and unproductive merchandise in order to allow us to allocate a larger portion of our inventory investment to core automotive merchandise. This action was
taken because our core automotive merchandise, which is utilized in each of our lines of business (DIY and DIFM) carries a higher gross product margin, requires less promotional activity and
communicates to our customers our commitment to fulfilling all of their automotive aftermarket needs. Merchandise sales declined in fiscal 2008 as compared to fiscal 2007 as a result of our decision
to exit non-core and unproductive products and lower customer counts.

Gross
profit from merchandise sales increased, as a percentage of merchandise sales, to 28.1% in fiscal 2008 from 25.4% in fiscal 2007. The decrease in dollars was $3,124,000 or a 0.7%
decrease from fiscal 2007. The prior year included an inventory impairment charge of $32,803,000 and a $5,350,000 asset impairment charge resulting from the closure of 20 stores. Included in fiscal
2008 is an asset and inventory impairment charge of $5,779,000. The asset impairment charge was primarily for certain closed locations as a result of the decline in real estate values and the
inventory impairment charge was due to our temporarily restricting certain small engine merchandise for sale that is the subject of an ongoing EPA inquiry. Excluding these adjustments from both years,
gross profit as a percent of merchandise sales increased from 27.5% in fiscal 2007 to 28.4 in fiscal 2008. In dollars, merchandise gross profit decreased $35,498,000 or 7.4% primarily due to reduced
merchandise sales. A further breakdown of our gross profit from merchandise sales excluding the items mentioned above is as follows: Our product gross margins improved by 170 basis points to 44.4% and
warehousing costs declined by 16 basis points to 4.0% of merchandise sales. These improvements were partially offset by
increased occupancy costs of 90 basis points as a result of increased rental obligations stemming from the sale-leaseback transactions.

Gross
profit from service revenue declined as a percentage of service revenue to 7.0% in fiscal 2008 from 11.0% in fiscal 2007. Gross profit dollars from service revenue declined by
41.5% in fiscal 2008 or $17,681,000 from fiscal 2007. The fiscal 2007 included a $1,849,000 asset impairment charge related to the closure of 20 closed stores while fiscal 2008 included an additional
asset impairment charge of $648,000. Excluding these adjustments, gross profit from service revenue declined by $18,882,000. As a percentage of service revenues, gross margin declined from 11.4% in
fiscal 2007 to 7.1% in fiscal 2008 primarily due to a $30,373,000 decline in service revenue as discussed above and higher workers compensation expense, partly offset by lower service payroll and
related expenses. The decline in sales volume resulted in reduced leverage of fixed expenses such as occupancy costs and to a certain extent labor costs.

Selling,
general and administrative expenses, as a percentage of total revenues, increased to 25.2% for fiscal 2008 as compared to 24.2% for fiscal 2007, however total selling general
and administrative expenses declined by $33,329,000 or 6.4% over the prior year. This decrease in dollars was the result of expense control initiatives, with major reductions in compensation and
compensation related benefits of $29,377,000 and lower media expense of $4,776,000 as compared to the same period in fiscal 2007.

Net
gain from disposition of assets for fiscal 2008 and fiscal 2007 reflect gains of $9,716,000 and $15,151,000, respectively. The $5,435,000 decrease resulted from the decline in the
immediate recognition of gain on the sale leaseback transactions that were completed in the prior year as compared to those completed in the current year.

Interest
expense decreased $24,245,000 or 47.3% to $27,048,000 in fiscal 2008 from $51,293,000 in fiscal 2007 primarily due to reduced debt levels as a result of applying proceeds from
our sale leaseback transactions. Included in fiscal 2008 are a gain of $3,460,000 due to debt repurchases and a $1,172,000 charge for deferred financing costs related to our previous credit facility.
Fiscal 2007 includes a $5,900,000 charge for deferred financing costs resulting from the repayment of $162,558,000

25

---



Table of Contents

of
our Senior Secured Term Loan facility and the reclassification from other comprehensive loss for the portion of the related interest rate swap that is no longer designated as a hedge. Excluding
these adjustments, interest expense declined by $16,057,000 or 35.4%.

Non-operating
income as a percentage of total revenues decreased from 0.2% in fiscal 2007 to 0.1% in fiscal 2008. This decrease of $3,279,000 was due to lower investment
balances in fiscal 2008 as compared to fiscal 2007.

Loss
from discontinued operations was $1,591,000 in fiscal 2008 versus $3,601,000, in fiscal 2007. Fiscal 2008 included impairment charges of $1,926,000 due to declines in real estate
values. Fiscal 2007 included impairment charges of $3,764,000 due to 11 store closures in the fourth quarter of fiscal 2007.

Our
income tax benefit as a percentage of loss from continuing operations before income taxes was 17.6%, or $6,139,000, for fiscal 2008 versus 40.6%, or $25,594,000, for fiscal 2007. The
decline in the effective rate was due to the non-deductibility of certain expenses for tax purposes, the recognition of a gain for tax on the surrender of life insurance policies and the
establishment of a valuation allowance on certain state net operating losses and credits.

As
a result of the foregoing, our net loss decreased by $10,610,000 in fiscal 2008 to $30,429,000 from $41,039,000 in fiscal 2007. The Company's basic and diluted loss per share improved
$0.21 per share in fiscal 2008 to a loss of $0.58 per share versus a loss of $0.79 per share in fiscal 2007.

Discontinued Operations

In the third quarter of fiscal 2007, we adopted our long-term strategic plan. One of the initial steps in this plan was the
identification of 31 low-return stores for closure. We have accounted for these store closures and recognize impairments in accordance with the provisions established for exit or disposal
activities. Accordingly, our discontinued operations for all periods presented reflect the operating results for 11 of the 31 closed stores because we do not believe that the customers of these stores
are likely to become customers of other Pep Boys stores due to geographical considerations. The operating results for the other 20 closed stores are included in continuing operations because we
believe that the customers of these stores are likely to become customers of other Pep Boys stores that are in close proximity.

The
analysis of our results of continuing operations excludes the operating results of the above-referenced 11 stores which have been classified as discontinued operations for all
periods presented.

Industry Comparison

We operate in the U.S. automotive aftermarket, which has two general lines of business: the Service Business defined as
Do-It-For-Me (service labor, installed merchandise and tires) and the Retail Business defined as Do-It-Yourself (retail merchandise) and
commercial. Generally, specialized automotive retailers focus on either the Retail or Service area of the business. We believe that operation in both the Retail and Service areas positively
differentiates us from most of our competitors. Although we manage our performance at a store level in aggregation, we believe that the following presentation, which includes the reclassification of
revenue from installed products from retail sales to service center revenue, shows an accurate comparison against competitors within the two sales arenas. We compete in the Retail area of the business
through our retail sales floor and commercial sales

26

---



Table of Contents

business.
Our Service Center business competes in the Service area of the industry. The following table presents the revenues and gross profit for each area of the business.

Fiscal Year ended(dollar amounts in thousands)

January 30,
2010

January 31,
2009

February 2,
2008Retail sales(1)

$
1,013,308

$
1,058,021

$
1,226,175Service center revenue(2)


897,630


869,767


911,900Total revenues

$
1,910,938

$
1,927,788

$
2,138,075Gross profit from retail sales(3)

$
275,051

$
273,262

$
277,206Gross profit from service center revenue(4)


211,056


192,170


209,031Total gross profit

$
486,107

$
465,432

$
486,237


(1)Excludes
revenues from installed products.(2)Includes
revenues from installed products.(3)Gross
profit from retail sales includes the cost of products sold, buying, warehousing and store occupancy costs.(4)Gross
profit from service center revenue includes the cost of installed products sold, buying, warehousing, service center payroll and related employee
benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses.


Effects of Inflation

We use the LIFO method of inventory valuation. Thus, the cost of merchandise sold approximates current cost. Although we cannot
accurately determine the precise effect of inflation on operations, we do not believe inflation has had a material effect on revenues or results of operations during all fiscal years presented.

27

---



Table of Contents

CAPITAL & LIQUIDITY

Capital Resources and Needs

Our cash requirements arise principally from the purchase of inventory, capital expenditures related to existing and new stores,
offices and distribution centers, debt service and contractual obligations. Cash flows realized through the sales of automotive services, tires, parts and accessories are our primary source of
liquidity. Net cash provided by continuing operations was $87,223,000 for fiscal 2009 compared to a use of cash of $39,507,000 in fiscal 2008. The $126,730,000 improvement from the prior year was due
to a $72,749,000 increase in our net earnings (net of non-cash adjustments) and a $53,663,000 favorable change in operating assets and liabilities. The change in operating assets and
liabilities was primarily due to favorable changes in inventory of $10,818,000, accounts payable of $23,443,000 and in all other assets and liabilities of $19,402,000. The improved cash flows from
inventory resulted from more disciplined inventory management, including reduced seasonal inventory purchases, inventory lead times and safety stocks.
The improvement in accounts payable after taking into consideration changes in the trade payable program liability (shown as cash flows from financing activities on the Consolidated Statements of Cash
Flows) improved by $7,936,000 primarily due to the timing of our accounts payable cycle. The favorable change in all other assets and liabilities was due to reduced accounts receivable as a result of
improved collection of vendor allowances and trade receivables. In addition, in the prior year, we expended approximately $5,000,000 to convert our vacation plan to a paid time off plan, satisfied
approximately $19,918,000 of liabilities associated with the defined benefit portion of the executive supplemental retirement plan and paid $4,539,000 in connection with reducing the notional value on
our interest rate swap.

Cash
used in investing activities was $29,871,000 for fiscal 2009 as compared to cash provided of $78,726,000 in fiscal 2008. During fiscal 2009, we sold four properties that were
classified as held for sale for net proceeds of $3,602,000, of which $1,758,000 is included in discontinued operations. We also completed sale leaseback transactions on four stores for net proceeds of
$12,863,000. During fiscal 2009, we acquired substantially all of the assets (other than real property) of Florida Tire, Inc. for $2,695,000. In connection with the acquisition, we recorded a
contingent liability of $1,660,000 which could result in future payments through November 2013. Fiscal 2008 included positive cash flows of $211,470,000 primarily due to sale leaseback transactions.
The proceeds were used primarily to repurchase 29 properties for $117,121,000 that were previously leased under a master operating lease. Capital expenditures were $43,214,000 and $34,762,000, for
fiscal 2009 and fiscal 2008, respectively. Capital expenditures for the current year were for improvement of our existing stores and distribution centers, opening of new Service & Tire Centers
and one prototype Supercenter.

Our
fiscal 2010 capital expenditures are expected to be approximately $68,000,000 which includes the addition of approximately 40 Service & Tire Centers and required expenditures
for our existing stores, offices and distribution centers. These expenditures are expected to be funded by cash on hand, net cash generated from operating activities and opportunistic single store
sale leaseback transactions. Additional capacity, if needed, exists under our line of credit.

In
fiscal 2009 and fiscal 2008, we used cash in financing activities of $39,358,000 and $38,813,000, respectively. In fiscal 2009, we repurchased $16,970,000 of our outstanding 7.5%
Senior Subordinated Notes for $10,722,000 and repaid $23,862,000 of borrowings under our credit facility. In fiscal 2008, we used the proceeds from the sale leaseback transactions discussed above to
reduce debt obligations under our then existing credit facility and to repurchase $25,465,000 principal amount of our 7.5% Senior Secured Notes for $22,005,000.

We
anticipate that cash on hand, cash generated by operating activities, and cash provided by opportunistic single store sale leaseback transactions will exceed our expected cash
requirements in fiscal 2010. In addition, we expect to have excess availability under our existing line of credit during the

28

---



Table of Contents

entirety
of fiscal 2010. As of January 30, 2010, we had undrawn availability under our Revolving Credit Agreement of $137,848,000.

Our
working capital was $205,525,000 and $179,233,000 at January 30, 2010 and January 31, 2009, respectively. Our long-term debt, as a percentage of our total
capitalization, was 41% and 45% at January 30, 2010 and January 31, 2009, respectively.

As
of January 30, 2010, we had an outstanding balance of $34,099,000 (classified as trade payable program liability on the condensed consolidated balance sheet) under our vendor
financing program. The vendor financing program, which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by us directly from our
vendors.



The following chart represents our total contractual obligations and commercial commitments as of January 30, 2010:

Contractual Obligations

Total

Due in less
than 1 year

Due in 1-3 years

Due in 3-5 years

Due after
5 years(dollars in thousands)Long-term debt(1)

$
307,280

$
1,079

$
2,158

$
304,043

$
Operating leases


776,285


81,601


158,165


141,329


395,190Expected scheduled interest payments on long-term debt


97,188


22,528


44,794


29,866


Other long-term obligations(2)


23,462


53








Total contractual obligations

$
1,204,215

$
105,261

$
205,117

$
475,238

$
395,190


---

Commercial Commitments

Total

Due in less
than 1 year

Due in
1-3 years

Due in
3-5 years

Due after
5 years(dollar amounts in thousands)Import letters of credit

$
5

$
5

$


$


$
Standby letters of credit


103,289


103,289








Surety bonds


10,169


8,618


1,551





Purchase obligations(1)(2)


9,047


9,047








Total commercial commitments

$
122,510

$
120,959

$
1,551

$


$



---

29

---



Table of Contents



On December 14, 2004, we issued $200,000,000 aggregate principal amount of 7.50% Senior Subordinated Notes due
December 15, 2014. During fiscal 2009 and 2008, the Company repurchased notes in the principal amount of $16,970,000 and $25,465,000, respectively. On January 30, 2010, the outstanding
balance of these notes was $157,565,000.



On January 27, 2006, we entered into a $200,000,000 Senior Secured Term Loan facility due January 27, 2011. This facility
is secured by a collateral pool consisting of real property and improvements associated with our stores, which is adjusted periodically based upon real estate values and borrowing levels. Interest at
the rate of London Interbank Offered Rate (LIBOR) plus 3.0% on this facility was payable starting in February 2006. Proceeds from this facility were used to satisfy and discharge our then outstanding
$43,000,000 6.88% Medium Term Notes due March 6, 2006 and $100,000,000 6.92% Term Enhanced Remarketable Securities (TERMS) due July 7, 2016 and to reduce borrowings under our line of
credit by approximately $39,000,000.

On
October 27, 2006, we amended and restated the Senior Secured Term Loan facility to (i) increase the size from $200,000,000 to $320,000,000, (ii) extend the
maturity from January 27, 2011 to October 27, 2013 and (iii) reduce the interest rate from LIBOR plus 3.00% to LIBOR plus 2.75%.Proceeds were used to satisfy and discharge
$119,000,000 in outstanding 4.25% convertible Senior Notes due June 1, 2007.

On
February 15, 2007, we further amended the Senior Secured Term Loan facility to reduce the interest rate from LIBOR plus 2.75% to LIBOR plus 2.00%.

On
November 27, 2007, we sold the land and buildings for 34 owned properties to an independent third party. We used $162,558,000 of the net proceeds to prepay a portion of the
Senior Secured Term Loan facility. This prepayment reduced the principal amount of the facility to $155,000,000 and reduced the scheduled quarterly repayments from $800,000 to $391,000. In addition,
the prepayment resulted in the recognition in interest expense of approximately $5,900,000 of deferred financing fees and the reclassification from other comprehensive loss for the portion of the
related interest rate swap that is no longer designated as a hedge.

As
of January 30, 2010, 126 stores collateralized the Senior Secured Term Loan. The outstanding balance under the Term loan at the end of fiscal 2009 was $149,715,000. The
$1,079,000 decline in the outstanding balance was due to quarterly principal payments.



On January 16, 2009, we entered into a new Revolving Credit Agreement with available borrowings up to $300,000,000. Our ability
to borrow under the Revolving Credit Agreement is based on a specific borrowing base consisting of inventory and accounts receivable. Total incurred fees of $6,754,000 were capitalized and are
amortized over the 5 year life of the facility. The interest rate on this credit line is LIBOR or Prime plus 2.75% to 3.25% based upon the then current availability under the agreement. Fees
based on the unused portion of the agreement range from 37.5 to 75.0 basis points. As of January 30, 2010, there were no outstanding borrowings under the agreement.

30

---



Table of Contents

The
weighted average interest rate on all debt borrowings during fiscal 2009 and 2008 were 4.2% and 5.8%, respectively.



Several of our debt agreements require compliance with covenants. The most restrictive of these requirements is contained in our
Revolving Credit Agreement. During any period when the availability under the Revolving Credit Agreement drops below the greater of $50,000,000 or 17.5% of the borrowing base, we are required to
maintain a consolidated fixed charge
coverage ratio of at least 1.1:1.0, calculated as the ratio of (a) EBITDA (net income plus interest charges, provision for taxes, depreciation and amortization expense, non-cash
stock compensation expenses and other non-recurring, non-cash items) minus capital expenditures and income taxes paid to (b) the sum of debt service charges and
restricted payments made. The failure to satisfy this covenant would constitute an event of default under the Revolving Credit Agreement, which would result in a cross-default under our 7.50% Senior
Subordinated Notes and Senior Secured Term Loan.

As
of January 30, 2010, the Company had no borrowings outstanding under the Revolving Credit Agreement, additional availability of approximately $137,848,000 and was in compliance
with its financial covenants.



On June 29, 2007, we entered into a vendor financing program with availability up to $65,000,000. Under this program, our factor
made accelerated and discounted payment to our vendors and we in turn, made our regularly-scheduled full vendor payments to the factor. The availability was subsequently reduced to $40,000,000. On
April 6, 2009, we replaced this program with a new program which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by us
directly from our vendors. There was an outstanding balance of $34,099,000 and $31,930,000 under these programs as of January 30, 2010 and January 31, 2009, respectively.

We
have letter of credit arrangements in connection with our risk management, import merchandising and vendor financing programs. We were contingently liable for $5,000 and $354,000 in
outstanding import letters of credit and $103,289,000 and $86,502,000 in outstanding standby letters of credit as of January 30, 2010 and January 31, 2009, respectively.

We
are also contingently liable for surety bonds in the amount of approximately $10,169,000 and $9,235,000 as of January 30, 2010 and January 31, 2009, respectively. The
surety bonds guarantee certain of our payments (for example utilities, easement repairs, licensing requirements and customs fees).



We lease certain property and equipment under operating leases and lease financings which contain renewal and escalation clauses, step
rent provisions, capital improvements
funding and other lease concessions. These provisions are considered in the calculation of our minimum lease payments which are recognized as expense on a straight-line basis over the
applicable lease term. Any lease payments that are based upon an existing index or rate are included in our minimum lease payment calculations. Total operating lease commitments as of
January 30, 2010 were $776,285,000.



The Company has a Supplemental Executive Retirement Plan (SERP). This unfunded plan had a defined benefit component that provided key
employees designated by the Board of Directors with

31

---



Table of Contents

retirement
and death benefits. Retirement benefits were based on salary and bonuses; death benefits were based on salary. Benefits paid to a participant under the defined pension plan are deducted
from the benefits otherwise payable under the defined benefit portion of the SERP. On January 31, 2004, we amended and restated our SERP. This amendment converted the defined benefit portion of
the SERP to a defined contribution portion for certain unvested participants and all future participants. On December 31, 2008, the Company terminated the defined benefit portion of the SERP
with a $14,441,000 payment and recorded a charge of $6,005,000. The SERP currently consists of only the defined contribution plan which we refer to as our "Account Plan."

The
Company has two qualified 401(k) savings plans, which cover all full-time employees who are at least 21 years of age with one or more years of service. The Company
contributes the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation. For fiscal 2009, and again for fiscal 2010, the Company's contributions were
conditional upon the achievement of certain pre-established financial performance goals. The Company's savings plans' contribution expense was $3,111,000, $3,286,000 and $3,480,000 in
fiscal 2009, 2008 and 2007, respectively.

We
also have a defined benefit pension plan covering our full-time employees hired on or before February 1, 1992. As of December 31, 1996, the Company froze the
accrued benefits under the plan and active participants became fully vested. The plan's trustee will continue to maintain and invest plan assets and will administer benefits payments. Pension plan
assets are stated at fair market value and are composed primarily of money market funds, and collective trust funds primarily invested in equity and fixed income investments.

The
expense under these plans for fiscal 2009, 2008 and 2007 was $6,415,000, $11,925,000 and $7,532,000, respectively. The fiscal 2008 pension expense includes a SERP settlement charge
of
$6,005,000. Pension expense is calculated based upon a number of actuarial assumptions, including an expected return on plan assets of 6.7% and a discount rate of 6.5%. In developing the expected
return on asset assumptions, we evaluated input from our actuaries, including their review of asset class return expectations. The discount rate utilized for the pension plans is based on a model bond
portfolio with durations that match the expected payment patterns of the plans. We continue to evaluate our actuarial assumptions and make adjustments as necessary for the existing plans. In fiscal
2008, we contributed an aggregate of $19,918,000 to our pension plans to fund the retirement obligations and for the termination of the defined benefit portion of the SERP. Based upon the current
funded status of the Account Plan, we do not expect to make any cash contributions in fiscal 2010. See Note 14 of Notes to Consolidated Financial Statements in "Item 8 Financial
Statements and Supplementary Data" for further discussion of our pension plans.

32

---





Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives,
product returns and warranty obligations, bad debts, inventories, income taxes, financing operations, restructuring costs, retirement benefits, share-based compensation, risk participation agreements,
contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, 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. Actual results may differ from these estimates under
different assumptions or conditions.

We
believe that the following represent our more critical estimates and assumptions used in the preparation of the consolidated financial statements:



33

---



Table of Contents



Change in Assumption (dollars in thousands)

Impact on Annual
Pension Expense

Impact on Projected
Benefit Obligation0.50 percentage point decrease in discount rate


Increase $343


Increase $2,6830.50 percentage point increase in discount rate


Decrease $343


Decrease $2,6835.00 percentage point decrease in expected rate of return on assets


Increase $107


5.00 percentage point increase in expected rate of return on assets


Decrease $107







34

---



Table of Contents



35

---



Table of Contents

RECENT ACCOUNTING STANDARDS

In December 2008, the Financial Accounting Standards Board (FASB) issued updated guidance on employers' disclosures about
postretirement benefit plan assets, which is included in the Accounting Standards Codification (ASC) 715 "CompensationRetirement Benefits." The guidance requires additional disclosures
about plan assets of a defined benefit pension or other postretirement plans and is effective for fiscal years ending after December 15, 2009. The adoption did not have a material impact on the
Company's consolidated financial position or results of operations as it only amends the required disclosures.

In
October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13 "Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangements a consensus
of the FASB Emerging Issues Task Force," (ASU 2009-13). This update eliminates the residual method of allocation and requires that consideration be allocated to all deliverables using the
relative selling price method. ASU 2009-13 is effective for material revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.
The Company does not believe the adoption of ASU 2009-13 will have a material impact on its consolidated financial statements.

In
January 2010, the FASB issued ASU 2010-06 "Fair Value MeasurementsImproving Disclosures on Fair Value Measurements" (ASU 2010-06). This guidance
requires new disclosures surrounding transfers in and out of level 1 or 2 in the fair value hierarchy and also requires that in the reconciliation of level 3 inputs, the entity should
report separately information on purchases, sales, issuances or settlements. The increased disclosures should be reported for each class of assets or liabilities. ASU 2010-06 also
clarifies existing disclosures for the level of disaggregating, disclosures about valuation techniques and
inputs used to determine level 2 or 3 fair value measurements and includes conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets ASC 715. ASU
2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances or settlements in the
roll forward activity for level 3 fair value measurements which are effective for interim and annual periods beginning after December 15, 2010. The adoption of ASU 2010-06
for requirements that are effective December 15, 2009 did not have a material affect on the Company's consolidated financial statements. The Company is evaluating the impact on its consolidated
financial statements for those requirements of ASU 2010-06 which are effective December 15, 2010.

36

---



Table of Contents

ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has market rate exposure in its financial instruments due to changes in interest rates.

Variable and Fixed Rate Debt

The Company's Revolving Credit Agreement bears interest at LIBOR or Prime plus 2.75% to 3.25% based upon the then current availability
under the facility. At January 30, 2010, there were no outstanding borrowings under the agreement. Additionally, the Company has a Senior Secured Term Loan facility with a balance of
$149,715,000 at January 30, 2010, that bears interest at three month LIBOR plus 2.00%. Excluding our interest rate swap, a one percent change in the LIBOR rate would have affected net earnings
by approximately $1.0 million for fiscal 2009.

At
January 30, 2010, the fair value of the Company's fixed rate debt instruments, principally the $157,565,000 7.50% Senior Subordinated Notes, due December 15, 2014,was
$148,899,000.

At
January 31, 2009, the Company had outstanding $179,050,000 of fixed rate notes with an aggregate fair market value of $84,301,000. The Company determines fair value on its
fixed rate debt by using quoted market prices and current interest rates.

Interest Rate Swaps

On November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000,000. The Company has
designated the swap a cash flow hedge on the first $200,000,000 of the Company's $320,000,000 Senior Secured Tem Loan facility. The interest rate swap converts the variable LIBOR portion of the
interest payments to a fixed rate of 5.036% and terminates in October 2013.

On
November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. The Company used $162,558,000 of the net proceeds from the
transaction to prepay a portion of the Senior Secured Term Loan facility which eliminated a portion of the future interest payments hedged by the November 2, 2006 interest rate swap. The
Company discontinued hedge accounting for the unmatched portion of the November 2, 2006 swap and reclassified a $2,259,000 pre-tax loss from other comprehensive income to interest
expense. On November 27, 2007, the Company re-designated $145,000,000 notional amount of the interest rate swap as a cash flow hedge to fully match the future interest payments
under the Senior Secured Term Loan facility. As a result, all future changes in the fair value of this interest rate swap that has been re-designated as a hedge will be recorded to
accumulated other comprehensive loss. From the period of November 27, 2007 through February 1, 2008 the Company incurred interest expense of $1,907,000 for changes in fair value related
to the $55,000,000 unmatched portion of this swap. On February 1, 2008, the Company recorded $4,539,000 within accrued expenses to reduce the notional amount of the interest rate swap to
$145,000,000 from the original $200,000,000 amount. The $4,539,000 was paid on February 4, 2008. As of January 30, 2010 and January 31, 2009, respectively, the fair value of the
swap was a net $16,401,000 and $15,808,000 payable recorded within other long-term liabilities on the balance sheet.

37

---





Table of Contents

ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
The Pep BoysManny, Moe & Jack
Philadelphia, Pennsylvania

We
have audited the accompanying consolidated balance sheets of The Pep BoysManny, Moe & Jack and subsidiaries (the "Company") as of January 30, 2010 and
January 31, 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 30, 2010. Our
audits also included the financial statement schedule 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 The Pep BoysManny, Moe & Jack and
subsidiaries as of January 30, 2010 and January 31, 2009 and the results of their operations and their cash flows for each of the three fiscal years in the period ended
January 30, 2010, 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 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
January 30, 2010, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 12, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.

DELOITTE &
TOUCHE LLP

Philadelphia,
Pennsylvania
April 12, 2010

38

---





Table of Contents

CONSOLIDATED BALANCE SHEETS        The Pep BoysManny, Moe & Jack and Subsidiaries        (dollar amounts in thousands, except share data)

January 30,
2010

January 31,
2009ASSETSCurrent assets:Cash and cash equivalents

$
39,326

$
21,332Accounts receivable, less allowance for uncollectible accounts of
$1,488 and $1,912


22,983


28,831Merchandise inventories


559,118


564,931Prepaid expenses


24,784


25,390Other current assets


65,428


62,421Assets held for disposal


4,438


12,653Total current assets


716,077


715,558Property and equipmentnet


706,450


740,331Deferred income taxes


58,171


77,708Other long-term assets


18,388


18,792Total assets

$
1,499,086

$
1,552,389LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
202,974

$
212,340Trade payable program liability


34,099


31,930Accrued expenses


242,416


254,754Deferred income taxes


29,984


35,848Current maturities of long-term debt


1,079


1,453Total current liabilities


510,552


536,325Long-term debt less current maturities


306,201


352,382Other long-term liabilities


73,933


70,322Deferred gain from asset sales


165,105


170,204Commitments and contingenciesStockholders' equity:Common stock, par value $1 per share: authorized 500,000,000 shares; issued 68,557,041 shares


68,557


68,557Additional paid-in capital


293,810


292,728Retained earnings


374,836


358,670Accumulated other comprehensive loss


(17,691
)

(18,075
)Less cost of shares in treasury16,164,074 shares and 14,124,021 shares


276,217


219,460Less cost of shares in benefits trust2,195,270 shares





59,264Total stockholders' equity


443,295


423,156Total liabilities and stockholders' equity

$
1,499,086

$
1,552,389


See
notes to the consolidated financial statements

39

---





Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS        The Pep BoysManny, Moe & Jack and Subsidiaries        (dollar amounts in thousands, except per share data)

Year ended

January 30,
2010

January 31,
2009

February 2,
2008Merchandise sales

$
1,533,619

$
1,569,664

$
1,749,578Service revenue


377,319


358,124


388,497Total revenues


1,910,938


1,927,788


2,138,075Costs of merchandise sales


1,084,804


1,129,162


1,305,952Costs of service revenue


340,027


333,194


345,886Total costs of revenues


1,424,831


1,462,356


1,651,838Gross profit from merchandise sales


448,815


440,502


443,626Gross profit from service revenue


37,292


24,930


42,611Total gross profit


486,107


465,432


486,237Selling, general and administrative expenses


430,261


485,044


518,373Net gain from disposition of assets


1,213


9,716


15,151Operating profit (loss)


57,059


(9,896
)

(16,985
)Non-operating income


2,261


1,967


5,246Interest expense


21,704


27,048


51,293Earnings (loss) from continuing operations before income taxes and discontinued operations


37,616


(34,977
)

(63,032
)Income tax expense (benefit)


13,503


(6,139
)

(25,594
)Earnings (loss) from continuing operations before discontinued operations


24,113


(28,838
)

(37,438
)Loss from discontinued operations, net of tax benefit of $(580), $(857) and $(2,463)


(1,077
)

(1,591
)

(3,601
)Net earnings (loss)

$
23,036

$
(30,429
)
$
(41,039
)Basic earnings (loss) per share:Earnings (loss) from continuing operations before discontinued operations

$
0.46

$
(0.55
)
$
(0.72
)Loss from discontinued operations, net of tax


(0.02
)

(0.03
)

(0.07
)Basic earnings (loss) per share

$
0.44

$
(0.58
)
$
(0.79
)Diluted earnings (loss) per share:Earnings (loss) from continuing operations before discontinued operations

$
0.46

$
(0.55
)
$
(0.72
)Loss from discontinued operations, net of tax


(0.02
)

(0.03
)

(0.07
)Diluted earnings (loss) per share

$
0.44

$
(0.58
)
$
(0.79
)


See
notes to the consolidated financial statements

40

---





Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        The Pep BoysManny, Moe & Jack and Subsidiaries        (dollar amounts in thousands, except share
data)

Common Stock





Treasury StockShares

Amount

Additional
Paid-in
Capital

Retained
Earnings

Shares

Amount

Accumulated
Other
Comprehensive
Loss

Benefit
Trust

Total
Stockholders'
EquityBalance, February 3, 2007


68,557,041

$
68,557

$
289,384

$
463,797


(12,427,687
)
$
(185,339
)
$
(9,380
)
$
(59,264
)
$
567,755Comprehensive loss:Net loss











(41,039
)













(41,039
)Changes in net unrecognized other postretirement benefit costs, net of tax of $1,455




















2,462





2,462Fair market value adjustment on derivatives, net of tax of ($4,367)




















(7,388
)




(7,388
)Total comprehensive loss


























(45,965
)Cash dividends ($.27 per share)











(14,177
)













(14,177
)Effect of uncertainty for income taxes











(155
)













(155
)Change in measurement date of retirement benefit effect, net of tax











(189
)







123





(66
)Effect of stock options and related tax benefits








1,752


(1,332
)

291,125


4,984








5,404Effect of restricted stock unit conversions








(4,818
)




176,256


3,038








(1,780
)Stock compensation expense








9,756

















9,756Repurchase of common stock














(2,702,460
)

(50,841
)







(50,841
)Dividend reinvestment plan











(86
)

53,672


867








781Balance, February 2, 2008


68,557,041


68,557


296,074


406,819


(14,609,094
)

(227,291
)

(14,183
)

(59,264
)

470,712Effect of Split Dollar accounting, net of tax











(1,165
)













(1,165
)Comprehensive loss:Net loss











(30,429
)













(30,429
)Changes in net unrecognized other postretirement benefit costs, net of tax of ($566)




















(958
)




(958
)Fair market value adjustment on derivatives, net of tax of ($1,734)




















(2,934
)




(2,934
)Total comprehensive loss


























(34,321
)Cash dividends ($.27 per share)











(14,111
)













(14,111
)Effect of stock options and related tax benefits








(1,154
)

(37
)

3,750


60








(1,131
)Effect of restricted stock unit conversions








(4,935
)




279,458


4,512








(423
)Stock compensation expense








2,743

















2,743Dividend reinvestment plan











(2,407
)

201,865


3,259








852Balance, January 31, 2009


68,557,041


68,557


292,728


358,670


(14,124,021
)

(219,460
)

(18,075
)

(59,264
)

423,156Comprehensive income:Net earnings











23,036














23,036Changes in net unrecognized other postretirement benefit costs, net of tax of $352




















595





595Fair market value adjustment on derivatives, net of tax of ($125)




















(211
)




(211
)Total comprehensive income


























23,420Cash dividends ($.12 per share)











(6,286
)













(6,286
)Reclassification of Benefits Trust














(2,195,270
)

(59,264
)




59,264


Effect of stock options and related tax benefits











(209
)

22,000


355








146Effect of restricted stock unit conversions








(1,493
)




81,726


1,321








(172
)Stock compensation expense








2,575

















2,575Dividend reinvestment plan











(375
)

51,491


831








456Balance, January 30, 2010


68,557,041

$
68,557

$
293,810

$
374,836


(16,164,074
)
$
(276,217
)
$
(17,691
)
$


$
443,295


See notes to the consolidated financial statements

41

---





Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS        The Pep BoysManny, Moe & Jack and Subsidiaries        (dollar amounts in thousands)

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Cash flows from operating activities:Net earnings (loss)

$
23,036

$
(30,429
)
$
(41,039
)Adjustments to reconcile net earnings (loss) to net cash provided by (used in) continuing operations:Net loss from discontinued operations


1,077


1,591


3,601Depreciation and amortization


70,529


73,207


81,036Amortization of deferred gain from asset sales


(12,325
)

(10,285
)

(1,030
)Stock compensation expense


2,575


2,743


9,756Inventory impairment








32,803Gain from debt retirement


(6,248
)

(3,460
)

Deferred income taxes


13,446


(6,258
)

(28,187
)Gain from dispositions of assets


(1,213
)

(9,716
)

(15,151
)Loss from asset impairment


2,884


3,427


7,199Change in fair value of de-designated derivatives





177


9,268Increase in cash surrender value of life insurance policies








(4,928
)Other


345


360


(828
)Changes in operating assets and liabilities:Decrease (increase) in accounts receivable, prepaid expenses and other


7,175


23,904


(1,579
)Decrease (increase) in merchandise inventories


7,039


(3,779
)

13,087Decrease in accounts payable


(9,640
)

(33,083
)

(20,066
)(Decrease) increase in accrued expenses


(13,238
)

(34,993
)

10,083Increase (decrease) in other long-term liabilities


2,384


(11,992
)

(3,224
)Net cash provided by (used in) continuing operations


87,826


(38,586
)

50,801Net cash (used in) provided by discontinued operations


(603
)

(921
)

1,983Net cash provided by (used in) operating activities


87,223


(39,507
)

52,784Cash flows from investing activities:Cash paid for master lease property





(117,121
)

Cash paid for property and equipment


(43,214
)

(34,762
)

(43,116
)Proceeds from dispositions of assets


14,776


210,635


162,712Life insurance proceeds received





15,588


30,045Acquisition of Florida Tire, Inc.


(2,695
)




Other


(500
)




Net cash (used in) provided by continuing operations


(31,633
)

74,340


149,641Net cash provided by (used in) discontinued operations


1,762


4,386


(379
)Net cash (used in) provided by investing activities


(29,871
)

78,726


149,262Cash flows from financing activities:Borrowings under line of credit agreements


249,704


205,162


570,094Payments under line of credit agreements


(273,566
)

(223,345
)

(545,617
)Borrowings on trade payable program liability


192,324


196,680


142,884Payments on trade payable program liability


(190,155
)

(179,004
)

(142,620
)Payments for finance issuance costs





(6,936
)

(85
)Proceeds from lease financing





8,661


4,827Long-term debt and capital lease obligation payments


(11,990
)

(26,798
)

(165,695
)Dividends paid


(6,286
)

(14,111
)

(14,177
)Repurchase of common stock








(58,152
)Other


611


878


5,537Net cash used in financing activities


(39,358
)

(38,813
)

(203,004
)Net increase (decrease) in cash and cash equivalents


17,994


406


(958
)Cash and cash equivalents at beginning of year


21,332


20,926


21,884Cash and cash equivalents at end of year

$
39,326

$
21,332

$
20,926Supplemental cash flow information:Cash paid for interest, net of amounts capitalized

$
24,509

$
26,548

$
44,129Cash received from income tax refunds

$
921

$


$
59Cash paid for income taxes

$
4,768

$
1,330

$
3,147Non-cash investing activities:Accrued purchases of property and equipment

$
1,738

$
1,214

$
1,985


See notes to the consolidated financial statements

42

---





Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        Years ended January 30, 2010,
January 31, 2009 and February 2, 2008        (dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Pep BoysManny, Moe & Jack and subsidiaries (the "Company") consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"). The preparation of the Company's financial statements requires the Company to make estimates and assumptions that affect the reported amounts of
assets, liabilities, net sales, costs and expenses, as well as the disclosure of contingent assets and liabilities and other related disclosures. The Company bases its estimates on historical
experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of the
Company's assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and the Company
includes any revisions to its estimates in the results for the period in which the actual amounts become known.

The
Company believes the significant accounting policies described below affect the more significant judgments and estimates used in the preparation of its consolidated financial
statements. Accordingly, these are the policies the Company believes are the most critical to aid in fully understanding and evaluating the historical consolidated financial condition and results of
operations.

BUSINESSThe Company is engaged principally in automotive repair and maintenance and in the sale of automotive tires, parts and
accessories through a
chain of stores. The Company currently operates stores in 35 states and Puerto Rico.

FISCAL YEAR ENDThe Company's fiscal year ends on the Saturday nearest to January 31. Fiscal 2009, which ended January 30,
2010, fiscal
2008, which ended January 31, 2009, and fiscal 2007 which ended February 2, 2008 were all comprised of 52 weeks.

PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All
intercompany balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTSCash equivalents include all short-term, highly liquid investments with an initial maturity of three months
or
less when purchased. All credit and debit card transactions that settle in less than seven days are also classified as cash and cash equivalents.

ACCOUNTS RECEIVABLEAccounts receivable are primarily comprised of amounts due from commercial customers. The Company records an
allowance for
doubtful accounts based upon an evaluation of the credit worthiness of its customers. The allowance is reviewed for adequacy at least quarterly, and adjusted as necessary. Specific accounts are
written off against the allowance when management determines the account is uncollectible.

MERCHANDISE INVENTORIESMerchandise inventories are valued at the lower of cost or market. Cost is determined by using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) method of costing inventory had been used by the Company, inventory would have been $482,022 and $493,886
as of January 30, 2010 and January 31, 2009, respectively. During fiscal 2009, 2008 and 2007, the effect of LIFO layer liquidations on gross profit was immaterial.

43

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
Company also records adjustments for potentially excess and obsolete inventories based on current inventory levels, the historical analysis of product sales and current market
conditions. The nature of the Company's inventory is such that the risk of obsolescence is minimal and excess inventory has historically been returned to the Company's vendors for credit. The Company
records these adjustments when less than full credit is expected from a vendor or when market value is lower than recorded costs. These adjustments are reviewed on a quarterly basis for adequacy. The
Company's inventory adjustments for these matters were $12,992 and $15,874 as of January 30, 2010 and January 31, 2009, respectively.

During
the third quarter of fiscal 2007, the Company recorded an inventory impairment charge of $32,803 in costs of merchandise sales for the discontinuance and planned exit of certain
non-core merchandise products adopted as one of the initial steps in the Company's long-term strategic plan.

PROPERTY AND EQUIPMENTProperty and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line
method over the following estimated useful lives: building and improvements, 5 to 40 years, and furniture, fixtures and equipment, 3 to 10 years. Maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included in the determination of net income. The Company reviews
long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Property and equipment
information follows:

January 30, 2010

January 31, 2009Property and equipmentLand

$
204,709

$
207,608Buildings and improvements


826,804


822,950Furniture, fixtures and equipment


695,072


685,707Construction in progress


1,550


2,576Accumulated depreciation and amortization


(1,021,685
)

(978,510
)Property and equipmentnet

$
706,450

$
740,331


LEASESThe Company amortizes leasehold improvements over the lesser of the lease term or the economic life of those assets. Generally,
for stores the
lease term is the base lease term and for distribution centers the lease term includes the base lease term plus certain renewal option periods for which renewal is reasonably assured and for which
failure to exercise the renewal option would result in an economic penalty to the Company. The calculation of straight-line rent expense is based on the same lease term with consideration
for step rent provisions, escalation clauses, rent holidays and other lease concessions. The Company expenses rent during the construction or build-out phase of the lease.

SOFTWARE CAPITALIZATIONThe Company capitalizes certain direct development costs associated with internal-use software, including
external direct costs of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a

44

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

period
not to exceed five years beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as
incurred.

TRADE PAYABLE PROGRAM LIABILITYIn April 2009 the Company replaced the previously existing trade payable program with a new program
which is funded
by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by us directly from our vendors and we in turn make our regularly scheduled full vendor
payments to the bank participants. The total availability under the new program was $50,000 as of January 30, 2010.

INCOME TAXESThe Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are determined based
upon enacted
tax laws and rates applied to the differences between the financial statement and tax bases of assets and liabilities.

The
Company recognizes taxes payable for the current year, as well as deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company
believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. Cumulative losses in recent years constitute "negative evidence" that recovery is
not more likely than not, which must be rebutted by "positive evidence" to avoid establishing a valuation allowance. To establish this positive evidence, the Company considers various tax planning
strategies for generating taxable income sufficient to utilize the deferred tax assets, including the potential sale of real estate and the conversion of the Company's inventory accounting policy from
LIFO to FIFO. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted.

In
evaluating our income tax positions, we record liabilities for potential exposures. These tax liabilities are adjusted in the period actual developments give rise to such change.
Those developments could be, but are not limited to, settlement of tax audits, expiration of the statute of limitations, and changes in the tax code and regulations, along with varying application of
tax policy and administration within
those jurisdictions. Refer to Note 8 for further discussion of income taxes and changes in unrecognized tax benefit during fiscal 2009.

SALES TAXESThe Company presents sales net of sales taxes in its consolidated statements of operations.

REVENUE RECOGNITIONThe Company recognizes revenue from the sale of merchandise at the time the merchandise is sold. Service revenues
are recognized
upon completion of the service. Service revenue consists of the labor charged for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials.
The Company records revenue net of an allowance for estimated future returns. The Company establishes reserves for sales returns and allowances based on current sales levels and historical return
rates. Gift cards are recorded as deferred revenue until redeemed for product or services. The Company does not record any revenue from cards which are never utilized by customers.

45

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
the first quarter of fiscal 2009, the Company launched a Customer Loyalty program. The program allows members to earn points for each qualifying purchase. Points earned allow members
to receive a certificate that may be redeemed on future purchases. The retail value of points earned by our loyalty program members is included in accrued liabilities and recorded as a reduction of
revenue at the time the points are earned, based on the historic and projected rate of redemption.

COSTS OF REVENUESCosts of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of
service
revenue include service center payroll and related employee benefits, service center occupancy costs and cost of providing free or discounted towing services to our customers. Occupancy costs include
utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses.

VENDOR SUPPORT FUNDSThe Company receives various incentives in the form of discounts and allowances from its vendors based on the
volume of
purchases or for services that the Company
provides to the vendors. These incentives received from vendors include rebates, allowances and promotional funds. Typically, these funds are dependent on purchase volume. The amounts received are
subject to changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise for the Company.

Generally
vendor support funds are earned based on purchases or product sales. These incentives are treated as a reduction of inventories and are recognized as a reduction to cost of
sales as the inventories are sold. Certain vendor allowances are used exclusively for promotions and to offset certain other direct expenses if the Company determines the allowances are for specific,
identifiable incremental expenses.

WARRANTY RESERVEThe Company provides warranties for both its merchandise sales and service labor. Warranties for merchandise are
generally covered
by the respective vendors, with the Company covering any costs above the vendor's stipulated allowance. Service labor is warranted in full by the Company for a limited specific time period. The
Company establishes its warranty reserves based on experience. These costs are included in either our costs of merchandise sales or costs of service revenue in the consolidated statement of
operations.

The
reserve for warranty activity for the years ended January 30, 2010 and January 31, 2009, respectively, are as follows:

Balance, February 2, 2008

$
247Additions related to sales in the current year


13,439Warranty costs incurred in the current year


(12,889
)Balance, January 31, 2009


797Additions related to sales in the current year


15,572Warranty costs incurred in the current year


(15,675
)Balance, January 30, 2010

$
694


46

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ADVERTISINGThe Company expenses the costs of advertising the first time the advertising takes place. Gross advertising expense for
fiscal 2009, 2008
and 2007 was $52,565, $73,700 and $78,475, respectively. No advertising costs were recorded as assets as of January 30, 2010 or January 31, 2009.

STORE OPENING COSTSThe costs of opening new stores are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETSThe Company evaluates the ability to
recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to
the extent the carrying value exceeds fair value. In addition, the Company reports assets to be disposed of at the lower of the carrying amount or the fair market value less selling costs. See
discussion of current year impairments in Note 11, "Store Closures and Asset Impairments."

EARNINGS PER SHAREBasic earnings per share are computed by dividing earnings by the weighted average number of common shares
outstanding during the
year. Diluted earnings per share are computed by dividing earnings by the weighted average number of common shares outstanding during the year plus incremental shares that would have been outstanding
upon the assumed exercise of dilutive stock options.

ACCOUNTING FOR STOCK-BASED COMPENSATIONAt January 30, 2010, the Company has two stock-based employee compensation plans, which are
described
in Note 15, "Equity Compensation Plans." Compensation costs relating to share-based payment transactions are recognized in the financial statements. The cost is measured at the grant date,
based on the calculated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award).

COMPREHENSIVE LOSSOther comprehensive loss includes pension liability and fair market value of cash flow hedges.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIESThe Company may enter into interest rate swap agreements to hedge the exposure to
increasing rates with
respect to its certain variable rate debt agreements. The Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at
fair value.

SEGMENT INFORMATIONThe Company operates in one industry, the automotive aftermarket, principally using a Supercenter layout which
houses both retail
and service centers in one building. The Company has six operating segments defined by geographic regions which are Northeast, Mid-Atlantic, Southeast, Central, West and Southern CA. Each
segment serves both our DIY and our DIFM lines of

47

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

business.
The Company aggregates all of its operating segments and has one reportable segment. Sales by major product categories are as follows:

Year ended

January 30,
2010

January 31,
2009

February 2,
2008Parts and accessories

$
1,219,396

$
1,255,975

$
1,423,891Tires


314,223


313,689


325,687Service labor


377,319


358,124


388,497Total revenues

$
1,910,938

$
1,927,788

$
2,138,075


SIGNIFICANT SUPPLIERSDuring fiscal 2009, the Company's ten largest suppliers accounted for approximately 52% of merchandise purchased.
No single
supplier accounted for more than 18% of the Company's purchases. The Company has no long-term contracts or minimum purchase commitments under which the Company is required to purchase
merchandise except for a contract to purchase bulk oil for use in the Company's service bays, which is anticipated to expire in 2010. Our open purchase orders are based on current inventory or
operational needs and are fulfilled by our vendors within short periods of time and generally are not binding agreements.

SELF INSURANCEThe Company has risk participation arrangements with respect to workers'
compensation, general liability, automobile liability, and other casualty coverages. The Company has a wholly owned captive insurance subsidiary through which it reinsures this retained exposure. This
subsidiary uses both risk sharing treaties and third party insurance to manage this exposure. In addition, the Company self insures certain employee-related health care benefit liabilities. The
Company maintains stop loss coverage with third party insurers through which it reinsures certain of its casualty and health care benefit liabilities. The Company records both liabilities and
reinsurance receivables using actuarial methods utilized in the insurance industry based upon our historical claims experience.

RECENT ACCOUNTING STANDARDS

In June 2006, the Financial Accounting Standards Board (FASB) issued guidance for accounting for uncertainty in income taxes, which is
included in the Accounting Standards Codification (ASC) 740 "Income Taxes." In connection with ASC 740, the Company recorded a net decrease to retained earnings of $155,000 and reclassified certain
previously recognized deferred tax attributes as liabilities.

In
September 2006, the FASB issued guidance for accounting for pension and other postretirement plans which were included in ASC 715 "CompensationRetirement Benefits." ASC
715 requires entities to:



48

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



The
Company adopted the requirement to recognize the funded status of a benefit plan and the additional disclosure requirements at February 3, 2007. At February 2, 2008,
the Company adopted the requirement to measure plan assets and benefit obligations as of the date of the Company's fiscal year end. The change of measurement date from a calendar year to the Company's
fiscal year resulted in a net charge to retained earnings of $189,000 and a credit to accumulated other comprehensive loss of $123,000. This net charge to retained earnings represents the
after-tax pension expense for the period from January 1, 2008 to February 2, 2008. ASC 715 did not have a material impact on the Company's consolidated financial position or
results of operations after February 2, 2008.

In
March 2007, the FASB issued guidance on accounting for split dollar life insurance arrangements which was included in ASC 718 "CompensationStock Compensation." This ASC
provides guidance on determining whether a liability for the postretirement benefit associated with a collateral assignment split-dollar life insurance arrangement should be recorded. ASC 718 also
provides guidance on how a company should recognize and measure the asset in a collateral assignment split-dollar life insurance contract. The original guidance for accounting for split dollar life
insurance arrangements was effective for fiscal years beginning after December 15, 2007. ASC 718 resulted in a $1,165,000 net of tax charge to retained earnings on February 3, 2008.

In
March 2008, the FASB issued guidance for disclosures about derivative instruments and hedging activities which was included in ASC 815 "Derivatives and Hedging." This ASC requires
increased qualitative, quantitative, and credit-risk disclosures. Qualitative disclosures include how and why an entity uses derivatives or hedging activity, how the entity is accounting
for these activities and how the instruments affect the entity's financial position, financial performance and cash flows. Quantitative disclosures include information (in a tabular format) about the
fair value of the derivative instruments, including gains and losses, and should contain more detailed information about the location of the derivative instrument in the entity's financial statements.
Credit-risk disclosures include information about the existence and nature of credit risk-related contingent features included in derivative instruments.
Credit-risk-related contingent features can be defined as those that require entities, upon the occurrence of a credit event (e.g., credit rating downgrade), to settle
derivative instruments or to post collateral. The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. ASC 815 did not
have a material impact on the Company's consolidated financial position or results of operations as it only relates to required disclosures.

In
December 2008, the FASB issued FASB Staff Position (FSP) 132(R)-1 which gave guidance on employers' disclosures about postretirement benefit plan assets, which is included
in ASC 715 "CompensationRetirement Benefits." The guidance requires additional disclosures about plan assets of a defined benefit pension or other postretirement plan and is effective for
fiscal years ending after

49

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

December 15,
2009. The adoption did not have a material impact on the Company's consolidated financial position or results of operations as it only amends the required disclosures.

In
October 2009, the FASB issued Accounting Standards Update 2009-13 "Revenue Recognition (Topic 605)Multiple-Deliverable Revenue Arrangements a consensus of the
FASB Emerging Issues Task Force," (ASU 2009-13). This update eliminates the residual method of allocation and requires that consideration be allocated to all deliverables using the
relative selling price method. ASU 2009-13 is effective for material revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.
The Company does not believe the adoption of ASU 2009-13 will have a material impact on its consolidated financial statements.

In
January 2010, the FASB issued Accounting Standards Update 2010-06 "Fair Value MeasurementsImproving Disclosures on Fair Value Measurements" (ASU
2010-06). This guidance requires new disclosures surrounding transfers in and out of level 1 or 2 in the fair value hierarchy and also requires that in the reconciliation of
level 3 inputs, the entity should report separately information on purchases, sales, issuances or settlements. The increased disclosures should be reported for each class of assets or
liabilities. ASU 2010-06 also clarifies existing disclosures for the level of disaggregation, disclosures about valuation techniques and inputs used to determine level 2 or 3 fair
value measurements and includes conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets ASC 715. ASU 2010-06 is effective for interim and
annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances or settlements in the roll forward activity for level 3 fair value
measurements which are effective for interim and annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 for requirements that are effective
December 15, 2009 did not have a material affect on the Company's consolidated financial statements. The Company is evaluating the impact on its consolidated financial statements for those
requirements of ASU 2010-06 which are effective December 15, 2010.

NOTE 2BUSINESS COMBINATIONS

On October 31, 2009, the Company acquired substantially all of the assets (other than real property) and certain liabilities of Florida Tire, Inc. ("Florida Tire"), a
privately held automotive service and tire business located in the Orlando Florida area consisting of 10 service locations. The Company agreed to pay up to $4,418 for Florida Tire including contingent
consideration of $1,660. The Company has completed the purchase accounting for the Florida Tire acquisition and has recorded net assets of $4,354, including goodwill of $2,549.

50

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 3OTHER CURRENT ASSETS

The following are the components of other current assets:

January 30,
2010

January 31,
2009Reinsurance premiums and receivable

$
61,599

$
62,014Income taxes receivable


3,600


163Other


229


244Total

$
65,428

$
62,421


NOTE 4ACCRUED EXPENSES

The following are the components of accrued expenses:

January 30,
2010

January 31,
2009Casualty and medical risk insurance

$
150,006

$
154,046Accrued compensation and related taxes


33,832


34,818Sales tax payable


11,813


11,458Other


46,765


54,432Total

$
242,416

$
254,754


NOTE 5DEBT AND FINANCING ARRANGEMENTS

The following are the components of debt and financing arrangements:

January 30,
2010

January 31,
20097.50% Senior Subordinated Notes, due December 2014

$
157,565

$
174,535Senior Secured Term Loan, due October 2013


149,715


150,794Revolving Credit Agreement, through January 2014





23,862Lease financing obligations, payable through October 2022





4,515Capital lease obligations, payable through October 2009





129307,280


353,835Current maturities


(1,079
)

(1,453
)Total

$
306,201

$
352,382


51

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 5DEBT AND FINANCING ARRANGEMENTS (Continued)



On December 14, 2004, we issued $200,000 aggregate principal amount of 7.50% Senior Subordinated Notes due December 15,
2014. During fiscal 2009 and 2008, the Company repurchased notes in the principal amount of $16,970 and $25,465, respectively.



On January 27, 2006, we entered into a $200,000 Senior Secured Term Loan facility due January 27, 2011. This facility is
secured by a collateral pool consisting of real property and improvements associated with our stores, which is adjusted periodically based upon real estate values and borrowing levels. Interest at the
rate of London Interbank Offered Rate (LIBOR) plus 3.0% on this facility was payable starting in February 2006. Proceeds from this facility were used to satisfy and discharge our then outstanding
$43,000 6.88% Medium Term Notes due March 6, 2006 and $100,000 6.92% Term Enhanced Remarketable Securities (TERMS) due July 7, 2016 and to reduce borrowings under our line of credit by
approximately $39,000.

On
October 27, 2006, we amended and restated the Senior Secured Term Loan facility to (i) increase the size from $200,000 to $320,000, (ii) extend the maturity from
January 27, 2011 to October 27, 2013 and (iii) reduce the interest rate from LIBOR plus 3.00% to LIBOR plus 2.75%. Proceeds were used to satisfy and discharge $119,000 in
outstanding 4.25% convertible Senior Notes due June 1, 2007.

On
February 15, 2007, we further amended the Senior Secured Term Loan facility to reduce the interest rate from LIBOR plus 2.75% to LIBOR plus 2.00%.

On
November 27, 2007, we sold the land and buildings for 34 owned properties to an independent third party. We used $162,558 of the net proceeds to prepay a portion of the Senior
Secured Term Loan facility. This prepayment reduced the principal amount of the facility to $155,000 and reduced the scheduled quarterly repayments from $800 to $391. In addition, the prepayment
resulted in the recognition in interest expense of approximately $5,900 of deferred financing fees and the reclassification from other comprehensive loss for the portion of the related interest rate
swap that was no longer designated as a hedge.

As
of January 30, 2010, 126 stores collateralized the Senior Secured Term Loan.



On December 2, 2004, the Company further amended its amended and restated line of credit agreement. The amendment increased the
amount available for borrowings to $357,500 with an ability, upon satisfaction of certain conditions, to increase such amount to $400,000. The amendment also reduced the interest rate under the
agreement to LIBOR plus 1.75% (after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25% incremental increases as excess availability falls below $50,000). The amendment also
provided the flexibility, upon satisfaction of certain conditions, to release up to $99,000 of reserves required as of December 2, 2004 under the line of credit agreement to support certain
operating leases. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate on borrowings under the line of credit

52

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 5DEBT AND FINANCING ARRANGEMENTS (Continued)

agreement
was 7.51% at February 2, 2008. On January 16, 2009, the Company terminated this Revolving Credit Agreement and recognized in interest expense $1,172 of deferred financing
costs.

On
January 16, 2009, we entered into a new Revolving Credit Agreement with available borrowings up to $300,000. Our ability to borrow under the Revolving Credit Agreement is based
on a specific borrowing base consisting of inventory and accounts receivable. Total incurred fees of $6,754 were capitalized and are amortized over the 5 year life of the agreement. The
interest rate on this credit line is LIBOR or Prime plus 2.75% to 3.25% based upon the then current availability under the agreement. Fees based on the unused portion of the facility range from 37.5
to 75.0 basis points. As of January 30, 2010, there were no outstanding borrowings under the agreement.

The
weighted average interest rate on all debt borrowings during fiscal 2009 and 2008 were 4.2% and 5.8%, respectively.



Several of our debt agreements require compliance with covenants. The most restrictive of these requirements is contained in our
Revolving Credit Agreement. During any period the availability under the Revolving Credit Agreement drops below the greater of $50,000 or 17.5% of the borrowing base, we are required to maintain a
consolidated fixed charge coverage ratio of at least 1.1:1.0, calculated as the ratio of (a) EBITDA (net income plus interest charges, provision for taxes, depreciation and amortization
expense, non-cash stock compensation expenses and other non-recurring, non-cash items) minus capital expenditures and income taxes paid to (b) the sum of
debt service charges and restricted payments made. The failure to satisfy this covenant would constitute an event of default under the Revolving Credit Agreement, which would result in a cross-default
under our 7.50% Senior Subordinated Notes and Senior Secured Term Loan.

As
of January 30, 2010, the Company had no borrowings outstanding under the Revolving Credit Agreement, additional availability of approximately $137,848 and was in compliance
with its financial covenants.



On June 29, 2007, we entered into a vendor financing program with a new lender with availability up to $65,000. Under this
program, our factor made accelerated and discounted payment to our vendors and we in turn, made our regularly-scheduled full vendor payments to the factor. The availability was subsequently reduced to
$40,000. On April 6, 2009, we replaced this program by a new $50,000 program which is funded by various bank participants who have the ability, but not the obligation, to purchase account
receivables owed by us directly from our vendors. There was an outstanding balance of $34,099 and $31,930 under these programs as of January 30, 2010 and January 31, 2009, respectively.

We
have letter of credit arrangements in connection with our risk management, import merchandising and vendor financing programs. We were contingently liable for $5 and $354 in

53

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 5DEBT AND FINANCING ARRANGEMENTS (Continued)

outstanding
import letters of credit and $103,289 and $86,502 in outstanding standby letters of credit as of January 30, 2010 and January 31, 2009, respectively.

We
are also contingently liable for surety bonds in the amount of approximately $10,169 and $9,235 as of January 30, 2010 and January 31, 2009, respectively. The surety
bonds guarantee certain of our payments (for example utilities, easement repairs, licensing requirements and customs fees).

The
annual maturities of all long-term debt for the next five fiscal years are:

Fiscal Year



Long-Term Debt2010

Senior Secured Term Loan, due October 2013

$
1,0792011

Senior Secured Term Loan, due October 2013


1,0792012

Senior Secured Term Loan, due October 2013


1,0792013

Senior Secured Term Loan, due October 2013


146,4782014

7.50% Senior Subordinated Notes, due December 2014


157,565Thereafter


Total

$
307,280


Interest
rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not
quoted on an exchange. The estimated fair value of long-term debt including current maturities was $290,754 and $200,276 as of January 30, 2010 and January 31, 2009.

NOTE 6LEASE AND OTHER COMMITMENTS

On November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. Net proceeds from this sale were $162,918. Concurrent with the
sale, the Company entered into agreements to lease the stores back from the purchaser over minimum lease terms of 15 years. Each property has a separate lease with an initial term of
15 years and four five-year renewal options. The leases contain provisions to set rent at fair market value upon exercise of the renewal options. The leases have yearly incremental
rental increases based on either CPI, with certain limitations, or fair market value. The Company discounted the minimum lease payments, reflecting escalation amounts, during the initial term of
15 years using its then incremental borrowing rate. For properties where the value of the land was greater than 25% of the property value, the building component was evaluated separately. The
Company classified 33 of these leases as operating leases, actively uses these properties and considers the leases as normal leasebacks. Gain on the sales of these properties of $13,971 was recognized
immediately upon execution of the sale and an $87,625 gain was deferred. The immediate gain represents those properties sold where the realized gain exceeds the present value of the minimum lease
payments. The deferred gain is being recognized over the minimum term of these leases. The Company determined that it had continuing involvement in one property relating to an environmental indemnity
and recorded $4,742 of the transaction's total net proceeds as a borrowing and as a financing activity in the Statement of Cash Flows. During the first quarter of fiscal 2009, the Company provided the
necessary documentation to satisfy its indemnity and

54

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 6LEASE AND OTHER COMMITMENTS (Continued)

removed
its continuing involvement with this property. The Company then recorded the sale of this property as a sale-leaseback transaction, removing the asset and related lease financing
and recording an $829 deferred gain which is being recognized in costs of merchandise sales and costs of service revenues over the remaining minimum term of the lease.

During
2008, the Company sold 63 owned properties to an independent third party. Net proceeds from this sale were $211,470. Concurrent with the sale, the Company entered into agreements
to lease the properties back from the purchaser over a minimum lease term of 15 years. Each property has a separate lease with initial terms of 15 years and four five-year
renewal options of which none were considered bargain renewal options. The second through the fourth renewal options are at
fair market rents. The leases have yearly incremental rental increases that are 1.5% of the prior year's rentals. The Company discounted the minimum lease payments, reflecting escalation amounts,
during the initial term of 15 years using its then incremental borrowing rate. For properties where the value of the land was greater than 25% of the property value, the building component was
evaluated separately. The Company classified these 61 leases as operating leases, actively uses these properties and considers the leases as normal leasebacks. Accordingly, a $7,655 gain on the sale
of these properties was recognized immediately upon execution of the sale and an $89,930 gain was deferred. The immediate gain represents those properties sold where the realized gain exceeds the
present value of the minimum lease payments. The deferred gain is being recognized over the minimum term of these leases. The Company determined that it had continuing involvement in two properties
relating to an environmental indemnity and recorded $8,479 of the transaction's total net proceeds as a borrowing and as a financing activity in the Statement of Cash Flows. Subsequently, during
fiscal 2008, the Company provided the necessary documentation to satisfy its indemnity and removed its continuing involvement with these properties. The Company then recorded the sale of these
properties as sale-leaseback transactions, removing the assets and related lease financing and recorded a $3,963 deferred gain which is being recognized in costs of merchandise sales and
costs of service revenues over the remaining minimum term of the leases. Of the total net proceeds for these properties, $75,951 together with $41,170 of cash on hand were used to finance, the
purchase of 29 properties for $117,121 that were previously leased under a master operating lease.

In
fiscal 2009, the Company sold four properties to unrelated third parties. Net proceeds from these sales were $12,863. Concurrent with these sales, the Company entered into agreements
to lease the properties back from the purchasers over minimum lease terms of 15 years. Each property has a separate lease with an initial term of 15 years and four five-year
renewal options. Every five years, the leases have rent increases of an amount equal to the lesser of 8% of the monthly rent due in the immediately preceding lease year or the percentage of the CPI
increase between five year anniversaries. The Company classified these leases as operating leases, actively uses these properties and considers the leases as normal leasebacks. A $1,202 gain on the
sale of these properties was recognized immediately upon execution of the sale and a $6,396 gain was deferred. The deferred gain is being recognized in costs of merchandise sales and costs of service
revenues over the minimum term of these leases.

55

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 6LEASE AND OTHER COMMITMENTS (Continued)

Assets
accounted for under the financing method are summarized as follows:

January 30,
2010

January 31,
2009Land

$


$
1,859Buildings





2,258Equipment





2,349Accumulated depreciation





(2,829
)Property and equipmentnet

$


$
3,637


The
aggregate minimum rental payments for all leases having initial terms of more than one year are as follows:

Year

Operating Leases2010

$
81,6012011


80,4882012


77,6772013


73,1892014


68,140Thereafter


395,190Aggregate minimum lease payments

$
776,285


Rental
expenses incurred for operating leases in fiscal 2009, 2008, and 2007 were $75,265, $77,150 and $69,255, respectively.

NOTE 7ASSET RETIREMENT OBLIGATIONS

The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the Company. The obligation principally represents the removal of leasehold improvements from our stores upon termination of our store leases. The
fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and
amortized over the estimated remaining useful life of the asset, generally for periods of 15 years.

56

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 7ASSET RETIREMENT OBLIGATIONS (Continued)

The
Company has recorded a liability pertaining to the asset retirement obligation in accrued expenses and other long-term liabilities on its consolidated balance sheet. The
liability for asset retirement obligations activity from February 2, 2008 through January 30, 2010 is as follows:

Asset retirement obligation at February 2, 2008

$
7,346Change in assumptions


(380
)Settlements


(99
)Accretion expense


263Asset retirement obligation at January 31, 2009

$
7,130Change in assumptions


(466
)Settlements


(154
)Accretion expense


214Asset retirement obligation at January 30, 2010

$
6,724


NOTE 8INCOME TAXES

The provision (benefit) for income taxes includes the following:

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Current:Federal

$
398

$
(464
)
$
(3,646
)State


(511
)

1,276


654Foreign


149


433


2,187Deferred:Federal(a)


13,820


(8,717
)

(20,570
)State


42


754


(3,761
)Foreign


(395
)

579


(458
)Total income tax expense/(benefit) from continuing operations(a)

$
13,503

$
(6,139
)
$
(25,594
)


(a)Excludes
tax benefit recorded to discontinued operations of $580 in fiscal 2009, $857 in fiscal 2008 and $2,463 in fiscal 2007.


57

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 8INCOME TAXES (Continued)




A
reconciliation of the statutory federal income tax rate to the effective rate for income tax expense (benefit) follows:

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Statutory tax rate


35.0
%

(35.0
)%

(35.0
)%State income taxes, net of federal tax


2.4


(1.2
)

(3.1
)Job credits


(0.9
)

(1.5
)

(0.9
)Texas law change impact





(6.4
)

Tax uncertainty adjustment


(0.5
)

(1.3
)

(4.2
)Valuation allowance





8.9


Non deductible expenses


0.3


5.3


0.1Stock compensation


0.8


3.9


Foreign taxes, net of federal


(0.7
)

2.0


(1.0
)Officer's life insurance gain on surrender value


0.0


4.3


3.2Other, net


(0.5
)

3.4


0.335.9
%

(17.6
)%

(40.6
)%


58

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 8INCOME TAXES (Continued)

Items
that gave rise to significant portions of the deferred tax accounts are as follows:

January 30,
2010

January 31,
2009Deferred tax assets:Employee compensation

$
3,293

$
3,649Store closing reserves


1,741


576Legal reserve


769


1,826Benefit accruals


4,628


4,998Net operating loss carryforwardsFederal


911


8,608Net operating loss carryforwardsState


105,375


104,671Tax credit carryforwards


18,503


18,243Accrued leases


12,078


13,588Interest rate derivatives


5,872


4,861Deferred gain on sale leaseback


66,613


69,746Other


2,183


5,668Gross deferred tax assets


221,966


236,434Valuation allowance


(108,416
)

(107,212
)$
113,550

$
129,222Deferred tax liabilities:Depreciation

$
34,601

$
35,153Inventories


45,879


47,403Real estate tax


2,885


2,946Insurance and other


1,998


1,860$
85,363

$
87,362Net deferred tax asset

$
28,187

$
41,860


As
of January 30, 2010 and January 31, 2009, the Company had available tax net operating losses that can be carried forward to future years. The Company has $911 of federal
net operating loss carryforwards (tax effected) which begin to expire in 2026. The Company has $4,410 of state tax net operating loss carryforwards (tax effected) related to unitary filings of which
10% will expire in the next five years beginning in 2010. The balance of the Company's net operating loss carryforwards relate to separate company filing jurisdictions that will expire in various
years beginning in 2010 and have full valuation allowances against them.

The
tax credit carryforward at January 30, 2010 consists of $7,232 of alternative minimum tax credits, $3,267 of work opportunity credits and $8,004 of state and Puerto Rico tax
credits. The tax credit carryforward at January 30, 2009 consists of $6,970 of alternative minimum tax credits, $3,064 of work opportunity credits, $8,152 of state and Puerto Rico tax credits,
and $57 of charitable contribution carryforward.

59

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 8INCOME TAXES (Continued)

The
temporary differences between the book and tax treatment of income and expenses result in deferred tax assets and liabilities, which are included within the consolidated balance
sheets. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes that recovery is not more
likely than not, a valuation allowance must be established. Cumulative losses in recent years constitute "negative evidence" that a recovery is not more likely than not, which must be rebutted by
"positive evidence" to avoid establishing a valuation allowance. To establish this positive evidence, the Company considers various tax planning strategies for generating income sufficient to utilize
the deferred tax assets, including the potential sale of real estate and the conversion of the Company's accounting policy for its inventory from LIFO to FIFO. After considering all this evidence, the
Company had valuation allowances for these matters of $108,416 and $107,212 as of January 30, 2010 and January 31, 2009, respectively.

The
Company and its subsidiaries file income tax returns in the U.S. federal, various states and Puerto Rico jurisdictions. The Company's U.S. federal returns for tax years 2004 and
forward are subject to examination. State and local income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. In Puerto Rico,
the 2004 through 2008 tax years are subject to examination by the Puerto Rico tax authorities. The Company has various state income tax returns in the process of examination.

A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

January 30,
2010

January 31,
2009

February 2,
2008Unrecognized tax benefit balance at the beginning of the year

$
2,458

$
3,847

$
6,392Gross increases for tax positions taken in prior years


646


147


1,550Gross decreases for tax positions taken in prior years


(526
)

(831
)

(371
)Gross increases for tax positions taken in current year


296


313


503Settlements taken in current year


(271
)

(311
)

Lapse of statute of limitations


(192
)

(707
)

(4,227
)Unrecognized tax benefit balance at the end of the year

$
2,411

$
2,458

$
3,847


The
Company recognizes potential interest and penalties for unrecognized tax benefits in income tax expense and, accordingly, during fiscal 2009, the Company recognized approximately
$449 benefit of potential interest and penalties associated with uncertain tax positions. At January 30, 2010, January 31, 2009, and February 2, 2008, the Company has recorded
approximately $200, $971, and $1,172 respectively, for the payment of interest and penalties which are excluded from the $2,411 unrecognized tax benefit noted above.

60

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 8INCOME TAXES (Continued)

Included
in the unrecognized tax benefit of $2,411, $2,458, and $3,847 at January 30, 2010, January 31, 2009 and February 2, 2008 was $1,331, $1,526, and $2,244
respectively, of tax benefits that, if recognized, would affect our annual effective tax rate.

NOTE 9STOCKHOLDERS' EQUITY

SHARE REPURCHASETREASURY STOCKOn September 7, 2006, the Company renewed its share repurchase program and reset the authority
back to $100,000 for repurchases to be made from time to time in the open market or in privately negotiated transactions through September 30, 2007. During the first quarter of fiscal 2007, the
Company repurchased 2,702,460 shares of Common Stock for $50,841. This program expired on September 30, 2007.

All
of these repurchased shares were placed into the Company's treasury. A portion of the treasury shares will be used by the Company to provide benefits to employees under its
compensation plans and in conjunction with the Company's dividend reinvestment program.

BENEFITS TRUSTOn January 26, 2010, the Company terminated the flexible employee benefits trust (the "Trust") that was established
on
April 29, 1994 to fund a portion of the Company's obligations arising from various employee compensation and benefit plans. In accordance with the terms of the Trust, upon its termination, the
Trust's sole asset, consisting of 2,195,270 shares of the Company's common stock, was transferred to the Company in exchange for the full satisfaction and discharge of all intercompany indebtedness
then owed by the Trust to the Company. The termination of the Trust has no impact on the Company's consolidated financial statements, except for the reclassification of the shares from within the
shareholders equity section of the Company's Consolidated Balance Sheets.

61

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 10ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following are the components of other comprehensive income (loss):

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Net earnings (loss)

$
23,036

$
(30,429
)
$
(41,039
)Other comprehensive income (loss), net of tax:Defined benefit plan adjustment


595


(958
)

2,462Derivative financial instrument adjustment


(211
)

(2,934
)

(7,388
)Comprehensive income (loss)

$
23,420

$
(34,321
)
$
(45,965
)


The
components of accumulated other comprehensive loss are:

January 30,
2010

January 31,
2009

February 2,
2008Defined benefit plan adjustment, net of tax

$
(7,158
)
$
(7,753
)
$
(6,795
)Derivative financial instrument adjustment, net of tax


(10,533
)

(10,322
)

(7,388
)Accumulated other comprehensive loss

$
(17,691
)
$
(18,075
)
$
(14,183
)


NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS

During fiscal 2007, the Company recorded charges of $15,551 related to store closures which included a $10,963 impairment charge to fixed assets, $2,906 in long-term lease
and other related obligations, net of subleases, $155 in workforce reduction costs, and store breakdown costs of $1,527. The impairment of fixed assets includes the adjustment to the market value of
those owned stores that were classified as assets held for disposal and the impairment of leasehold improvements. The assets held for disposal have been valued at the lower of their carrying amount or
their estimated fair value,
net of disposal costs. The long-term lease and other related obligations represent the fair value of such obligations less the estimated net sublease income.

The
store closure costs are reflected in fiscal 2007 Statement of Operations as follows:

Cost of
Merchandise
Sales

Cost of
Service
Revenue

Selling,
General and
Administrative

Discontinued
Operations
(pre-tax)

TotalImpairment of fixed assets

$
5,350

$
1,849

$


$
3,764

$
10,963Long-term lease obligations, net of sub-lease


1,479


493





934


2,906Workforce reduction








111


44


155Store breakdown cost








1,102


425


1,527Total

$
6,829

$
2,342

$
1,213

$
5,167

$
15,551


During
fiscal 2009 and 2008, the Company did not close any stores, however, the Company recorded $3,110 and $5,353, respectively, of asset impairment charges, to reflect
declines in the commercial real estate market for vacant properties. For fiscal 2009, $2,211 was charged to

62

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS (Continued)

merchandise
cost of sales, $673 was charged to service cost of sales and $226 (pretax) was charged to discontinued operations. For fiscal 2008, $2,779 was charged to merchandise cost of sales, $648
was charged to service cost of sales and $1,926 (pretax) was charged to discontinued operations

The
following details the reserve activity for the three years in the period ended January 30, 2010. The ending reserve balance includes remaining rent on leases net of sublease
income, other contractual obligations associated with leased properties and employee severance.

Severance and
other costs

Lease
Expenses

TotalBalance, February 3, 2007

$
109

$
690

$
799Store closure charge


155


2,906


3,061Accretion of present value of liabilities





641


641Change in assumptions about future sublease income, lease termination, contractual obligations and severance





(627
)

(627
)Cash payments


(97
)

(36
)

(133
)Balance, February 2, 2008


167


3,574


3,741Accretion of present value of liabilities





300


300Change in assumptions about future sublease income, lease termination, contractual obligations and severance


(109
)

102


(7
)Cash payments


(58
)

(1,864
)

(1,922
)Balance, January 31, 2009





2,112


2,112Store closure charge








Accretion of present value of liabilities





111


111Change in assumptions about future sublease income and lease termination





1,122


1,122Cash payments





(1,095
)

(1,095
)Balance, January 30, 2010

$


$
2,250

$
2,250


A
store is classified as "held for disposal" when (i) the Company has committed to a plan to sell, (ii) the building is vacant and the property is available
for sale, (iii) the Company is actively marketing the property for sale, (iv) the sale price is reasonable in relation to its current fair value and (v) the Company expects to
complete the sale within one year. Assets held for disposal have been valued at the lower of their carrying amount or their estimated fair value, net of disposal costs. The fair value of these assets
are estimated using market appraisals for comparable properties and are classified as a Level 2 measure within the fair value hierarchy. No depreciation expense is recognized during the period
the asset is held for disposal. Assets held for disposal follows:

January 30,
2010

January 31,
2009Land

$
2,980

$
7,332Buildings and improvements


5,453


11,265Accumulated depreciation


(3,995
)

(5,944
)Property and equipmentnet

$
4,438

$
12,653Number of properties


8


13


63

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS (Continued)

During
fiscal 2009, the Company sold four stores for $3,602 and recorded a net gain of $155 of which $109 is reported in discontinued operations. The company also decided
to reopen one store and moved the asset value of $1,658 to property and equipment. In response to a continuing weak real estate market, the Company reduced its prices for certain properties and
recorded a $3,110 impairment charge. The Company classifies properties as held for disposal as it continues to actively market these properties at prices the Company believes reasonable given current
market conditions and expects to sell these properties within the next twelve months.

During
fiscal 2008, the Company sold six properties for $6,694 and recorded a net gain of $428 of which $52 is reported in discontinued operations. On August 2, 2008, the Company
purchased 29 master lease properties of which four were classified as "held for disposal." In response to a weak real estate market, the Company reduced its prices and recorded a $3,075 impairment
charge during fiscal 2008.

NOTE 12DISCONTINUED OPERATIONS

The Company's discontinued operations reflect the operating results for closed stores where the customer base was lost. Below is a summary of the results of discontinued operations:

Year ended

January 30, 2010

January 31, 2009

February 2, 2008Merchandise sales

$


$


$
21,422Service revenue








3,988Total revenues

$


$


$
25,410Loss from discontinued operations (pretax)

$
(1,657
)
$
(2,448
)
$
(6,064
)


Loss
from discontinued operations relates to expenses for previously closed stores and principally includes costs for rent, taxes, payroll, repairs and maintenance, asset
impairments, and gains or losses on disposal.

NOTE 13EARNINGS PER SHARE

Basic earnings per share is based on net earnings divided by the weighted average number of shares outstanding during the period. Stock options were dilutive in fiscal 2009 and as such
were included in the diluted earnings per share calculation. Stock options were anti-dilutive in fiscal 2008 and 2007. Anti-dilutive options are excluded from the diluted
earnings per share calculation for years 2008 and 2007 as the Company generated a net loss for these fiscal years.

64

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 13EARNINGS PER SHARE (Continued)

The
following schedule presents the calculation of basic and diluted earnings per share for earnings (loss) from continuing operations:

Year Ended(in thousands, except per share amounts)

January 30,
2010

January 31,
2009

February 2,
2008(a)

Earnings (loss) from continuing operations

$
24,113

$
(28,838
)
$
(37,438
)Discontinued operations, net of tax


(1,077
)

(1,591
)

(3,601
)Net earnings (loss)

$
23,036

$
(30,429
)
$
(41,039
)(b)

Basic average number of common shares outstanding during period


52,397


52,136


52,130Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market
price


270





(c)

Diluted average number of common shares assumed outstanding during period


52,667


52,136


52,130Basic earnings (loss) per share:Earnings (loss) from continuing operations (a/b)

$
0.46

$
(0.55
)
$
(0.72
)Discontinued operations, net of tax


(0.02
)

(0.03
)

(0.07
)Basic earnings (loss) per share

$
0.44

$
(0.58
)
$
(0.79
)Diluted earnings (loss) per share:Earnings (loss) from continuing operations (a/c)

$
0.46

$
(0.55
)
$
(0.72
)Discontinued operations, net of tax


(0.02
)

(0.03
)

(0.07
)Diluted earnings (loss) per share

$
0.44

$
(0.58
)
$
(0.79
)


At
January 30, 2010, certain stock options were excluded from the calculations of diluted earnings per share because their exercise prices were greater than the
average market price of the common shares for the period then ended and therefore would be anti-dilutive. The total number of such shares excluded from the diluted earnings per share
calculation were 1,125,000. All outstanding stock options and non-vested restricted stock units were excluded from the computation of diluted EPS because they were
anti-dilutive for fiscal 2008 and fiscal 2007.

NOTE 14BENEFIT PLANS

DEFINED BENEFIT AND CONTRIBUTION PLANS

On December 31, 2008, the Company paid $14,441 to terminate the defined benefit portion of its Supplemental Executive Retirement
Plan (SERP) and recorded a $6,005 settlement charge. The Company continues to maintain the non-qualified defined contribution portion of the SERP plan (Account Plan) for key employees
designated by the Board of Directors. The Company's contribution expense for the Account Plan was $790, $163 and $440 for fiscal 2009, 2008 and 2007, respectively.

65

---





Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

The
Company has a qualified 401(k) savings plan and a separate savings plan for employees residing in Puerto Rico, which cover all full-time employees who are at least
21 years of age with one or more years of service. The Company contributes the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation under both
savings plans. The Company's savings plans' contribution expense was $3,111, $3,286 and $3,480 in fiscal 2009, 2008 and 2007, respectively.

We
also have a defined benefit pension plan covering our full-time employees hired on or before February 1, 1992. As of December 31, 1996, the Company froze the
accrued benefits under the plan and active participants became fully vested. The plan's trustee will continue to maintain and invest plan assets and will administer benefits payments. The Company uses
a fiscal year end measurement date for determining benefit obligations and the fair value of plan assets of its plans. The actuarial computations are made using the "projected unit credit method."
Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan.

Pension
expense follows:

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Service cost

$


$
110

$
166Interest cost


2,539


3,346


3,419Expected return on plan assets


(1,804
)

(2,450
)

(2,320
)Amortization of transitional obligation





150


163Amortization of prior service cost


14


340


370Recognized actuarial loss


1,766


975


1,814Net periodic benefit cost


2,515


2,471


3,612Settlement charge





6,005


Total pension expense

$
2,515

$
8,476

$
3,612


66

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

The
following actuarial assumptions were used to determine benefit obligation and pension expense:

Year EndedJanuary 30,
2010

January 31,
2009

February 2,
2008Benefit obligation assumptions:Discount rate


6.10
%

7.00
%

6.50
%Rate of compensation increase


N/A


N/A


4.00
%(1)Pension expense assumptions:Discount rate


7.00
%

6.50
%

5.90
%Expected return on plan assets


6.70
%

6.70
%

6.30
%Rate of compensation expense


N/A


4.00
%(1)

4.00
%(1)


(1)Bonuses
are assumed to be 25% of base pay for the SERP.


The
Company selected the discount rate for the benefit obligation at January 30, 2010 to reflect a rate commensurate with a model bond portfolio with durations that match the
expected payment patterns of the plans. To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for
returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.70% long-term rate of return on assets assumption for
fiscal 2009 and 2008 and 6.30% for fiscal 2007.

67

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

The
following table sets forth the reconciliation of the benefit obligation, fair value of plan assets and funded status of the Company's defined benefit plans:

Year ended

January 30,
2010

January 31,
2009Change in benefit obligation:Benefit obligation at beginning of year

$
36,996

$
56,533Service cost





110Interest cost


2,539


3,346Curtailment gain





(2,606
)Actuarial loss


4,626


828Benefits paid


(1,417
)

(21,215
)Benefit obligation at end of year

$
42,744

$
36,996Change in plan assets:Fair value of plan assets at beginning of year

$
27,692

$
37,280Actual return on plan assets (net of expenses)


5,582


(8,291
)Employer contributions





19,918Benefits paid


(1,417
)

(21,215
)Fair value of plan assets at end of year

$
31,857

$
27,692Unfunded status at fiscal year end

$
(10,887
)
$
(9,304
)Net amounts recognized on consolidated balance sheet at fiscal year endCurrent benefit liability (included in accrued expenses)

$


$
Noncurrent benefit liability (included in other long-term liabilities)


(10,887
)

(9,304
)Net amount recognized at fiscal year end

$
(10,887
)
$
(9,304
)Amounts recognized in accumulated other comprehensive income (pre-tax) at fiscal year endNet loss

$
11,316

$
12,233Prior service cost


54


68Net amount recognized at fiscal year end

$
11,370

$
12,301Other comprehensive (income) loss attributable to change in pension liability recognition

$
(932
)
$
1,493Accumulated benefit obligation at fiscal year end

$
42,744

$
36,996Other informationEmployer contributions expected in fiscal 2010

$


$
Estimated prior service cost amortization in fiscal 2010

$
1,642

$
1,760


68

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

Benefit
payments, including amounts to be paid from Company assets, as appropriate, are expected to be paid as follows:

2011

$
1,7852012


1,8742013


2,0032014


2,1352015


2,2672016  2020


13,405




Investment policies are established in accordance with the Company's Benefits Committee (the "Committee") responsibilities to the
participants of the Plan and its beneficiaries, and in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA). The objective of the plan is to meet current and future
benefit payment needs within the constraints of diversification and prudent risk taking. The Plan is diversified across asset classes to achieve an optimal balance between risk and return and between
income and growth of assets through capital appreciation. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified. The Company
believes that the diversification of its assets minimizes the risk due to concentration of the Plan assets.

The
Company updates its long-term, strategic asset allocations annually using various analytics to determine the optimal asset mix and consideration of plan liability
characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. Actual allocations to each asset class vary from target allocations due to
periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions (such as private equity and real estate), and the timing
of benefit payments and contributions. Short term investments and exchange-traded derivatives are used to rebalance the actual asset allocation to the target asset allocation. The asset allocation is
monitored and rebalanced on a monthly basis.

The
manager of our investments provides advice and recommendations to help the Committee discharge its fiduciary responsibilities in furtherance of the Plan's goals and objectives. The
Manager has the discretion to allocate assets among funds within each asset class to conform to strategic targets and ranges established by the Committee. Our target asset allocation is 50% equity
securities and 50% fixed income. Equity securities include Pep Boys common stock in the amounts of $0 and $200 (0.6% of total plan assets) at January 30, 2010 and January 31, 2009,
respectively. The investment policy

69

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

requires
that the asset allocation be maintained within certain ranges. The weighted average asset allocations and asset allocation ranges by asset category are as follows:

Weighted Average Asset Allocations

January 30,
2010

January 31,
2009

Asset Allocation
RangesTotal equities


48
%

44
%

45  55
%Domestic equities


32
%




28  38
%Non-US equities


17
%




12  22
%Fixed income


52
%

56
%

45  55
%


The
table below provides the fair values of the company's pension plan assets at January 30, 2010, by asset category. The table also identifies the level of inputs used to
determine the fair value of assets in each category (see Note 17 for definition of levels). The significant amount of Level 2 investments in the table results from including in this
category, investments in pooled funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market basis, and fixed income securities
that are valued using model based pricing services.

Asset Category

Level 1

Level 2

Level 3

Fair ValueMoney market fund

$
36







$
36Domestic equitiesUS Small/Mid Cap Growth




$
988





988US Small/Mid Cap Value





996





996US Large Cap Passive





8,110





8,110Non-U.S. equitiesNon-US Core Equity





5,279





5,279Fixed incomeLong Duration





6,702





6,702Long Duration Passive





8,538





8,538Guaranteed annuity contracts







$
1,208


1,208Total

$
36

$
30,613

$
1,208

$
31,857


Generally,
investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by
qualified persons, transactions and bona fide offers.

Money
market funds are valued using a market approach based on the quoted market prices of identical instruments. These investments are classified within Level 1 of the fair value
hierarchy.

Domestic
equities, non-US equities, and both Long Duration fixed income securities consist of collective trust (CT) funds. CTs are comprised of shares or units in commingled
funds that are not

70

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 14BENEFIT PLANS (Continued)

publicly
traded. The underlying assets in these funds (equity securities and fixed income securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily
available. CTs are valued at their net asset values (NAVs) that are calculated by the investment manager of the fund and have daily or monthly liquidity. These investments are classified within
Level 2 of the fair value hierarchy.

Guaranteed
annuity contracts (GACs) are annuity insurance contracts. GACs are primarily invested in public bonds with some small placement in common stock, private placement bonds and
commercial mortgage products. The GACs are valued based on unobservable inputs, as observable inputs are not available, using valuation methodologies to determine fair value. GACs are deemed to be
Level 3 investments.

The
following table provides a summary of changes in fair value of our Level 3 financial assets during fiscal 2009:

Fair
ValueBalance, February 1, 2009

$
884Transfers from other investments


1,558Interest income and gains


240Administrative fees


(57
)Benefits paid during the period


(1,417
)Balance, January 30, 2010

$
1,208


DEFERRED COMPENSATION PLAN

The Company maintains a non-qualified deferred compensation plan that allows its officers and certain other employees to
defer up to 20% of their annual salary and 100% of their annual bonus. Additionally, the first 20% of an officer's bonus deferred into the Company's stock is matched by the Company on a
one-for-one basis with Company stock that vests and is expensed over three years. The shares required to satisfy distributions of voluntary bonus deferrals and the accompanying
match in the Company's stock are issued from its treasury account.

RABBI TRUST

The Company establishes and maintains a deferred liability for the non-qualified deferred compensation plan and the Account
Plan. The Company plans to fund this liability by remitting the officers' deferrals to a Rabbi Trust where these deferrals are invested
in variable life insurance policies. These assets are included in non-current other assets. Accordingly, all gains and losses on these underlying investments, which are held in the Rabbi
Trust to fund the deferred liability, are recognized in the Company's Consolidated Statement of Operations. Under these plans, there were liabilities of $3,440 at January 30, 2010 and $2,699 at
January 31, 2009, respectively.

71

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 15EQUITY COMPENSATION PLANS

The Company has a stock-based compensation plan originally approved by the stockholders on May 21, 1990 under which it has previously granted non-qualified stock
options and incentive stock options to key employees and members of its Board of Directors. There are no awards remaining available for grant under the 1990 Plan. The Company has a stock-based
compensation plan originally approved by the stockholders on June 2, 1999 under which it has previously granted and may continue to grant non-qualified stock options, incentive
stock options and restricted stock units (RSUs) to key employees and members of its Board of Directors. On June 24, 2009, the stockholders renamed the 1999 Plan to the 2009 Plan, extended its
terms to December 31, 2014 and increased the number of shares issuable thereunder by 1,500,000. As of January 30, 2010, there were 2,005,775 awards outstanding and 2,240,075 awards
available for grant under the 2009 Plan.

Incentive
stock options and non-qualified stock options previously granted under the 1990 and 2009 plans (i) to non-officers, vest fully on the third
anniversary of their grant date and (ii) to officers, vest in equal tranches over three or four year periods.

Generally,
all options granted prior to March 3, 2004 carry an expiration date of ten years and options granted on or after March 3, 2004 carry an expiration date of seven
years.

RSUs
previously granted to non-officers vest fully on the third anniversary of their grant date. RSUs previously granted to officers vest in equal tranches over three or four
year periods.

The
Company has also granted RSUs under the 2009 plan in conjunction with its non-qualified deferred compensation plan. Under the deferred compensation plan, the first 20% of
an officer's bonus deferred into the Company's stock fund is matched by the Company on a one-for-one basis with RSUs that vest over a three-year period, with one
third vesting on each of the first three anniversaries of the grant date.

The
exercise price, term and other conditions applicable to future stock option and RSU grants under the 2009 plan are generally determined by the Board of Directors; provided that the
exercise price of stock options must be at least 100% of the quoted market price of the common stock on the grant date. The Company currently satisfies all share requirements resulting from RSU
conversions and
option exercises from its treasury stock. The Company believes its treasury share balance at January 30, 2010 is adequate to satisfy such activity during the next twelve-month period.

The
following table summarizes the options under our plans:

Fiscal Year 2009Shares

Weighted Average
Exercise PriceOutstandingbeginning of year


915,711

$
13.20Granted


948,184


4.50Exercised


(22,000
)

6.64Forfeited


(8,748
)

12.12Expired


(150,822
)

15.89Outstandingend of year


1,682,325


8.14Vested and expected to vest optionsend of year


1,578,753


8.30Options exercisableend of year


589,437

$
13.24


72

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 15EQUITY COMPENSATION PLANS (Continued)

The
following table summarizes information about options during the last three fiscal years (dollars in thousands except per option amount):

Fiscal 2009

Fiscal 2008

Fiscal 2007Weighted average fair value at grant date per option

$
2.10

$
3.47

$
5.04Intrinsic value of options exercised

$
43

$
8

$
2,194


The
aggregate intrinsic value of outstanding options, exercisable options and expected to vest options at January 30, 2010 was $4,128, $284 and $3,528, respectively. At
January 30, 2010, the weighted average remaining contractual term of outstanding options, exercisable options and expected to vest options was 4.8 years, 2.5 years and
5.9 years, respectively. At January 30, 2010, there was approximately $1,592 of total unrecognized pre-tax compensation cost related to non-vested stock options,
which is expected to be recognized over a weighted average period of 1.5 years.

The
following table summarizes information about non-vested stock awards (RSUs) since January 31, 2009:

Number of
RSUs

Weighted Average
Fair ValueNonvested at January 31, 2009


319,009

$
13.66Granted


30,927


9.18Forfeited


(8,754
)

14.42Vested


(108,589
)

14.04Nonvested at January 30, 2010


232,593

$
13.76


The
following table summarizes information about RSUs during the last three fiscal years (dollars in thousands except per unit amounts):

Fiscal 2009

Fiscal 2008

Fiscal 2007Weighted average fair value at grant date per unit

$
9.18

$
11.25

$
15.56Fair value at vesting date

$
1,455

$
5,441

$
3,341Intrinsic value at conversion date

$
675

$
1,586

$
3,773Tax benefits realized from conversions

$
251

$
589

$
1,402


At
January 30, 2010, there was approximately $1,510 of total unrecognized pre-tax compensation cost related to non-vested RSUs, which is expected to be
recognized over a weighted-average period of 1.2 years.

The
Company recognized approximately $1,010, $641, and $3,060 of compensation expense related to stock options, and approximately $1,565, $2,102, and $6,696 of compensation expense
related to restricted stock units, included in selling, general and administrative expenses for fiscal 2009, 2008, and 2007, respectively. The related tax benefit recognized was approximately $957,
$1,019 and $3,624 for fiscal 2009, 2008 and 2007, respectively.

73

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 15EQUITY COMPENSATION PLANS (Continued)

Expected
volatility is based on historical volatilities for a time period similar to that of the expected term. In estimating the expected term of the options, the Company has utilized
the "simplified method" allowable under the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No.107, "Share-Based Payment" through December 31, 2007 and changed to an
actual experience method during fiscal 2008. The risk-free rate is based on the U.S. treasury yield curve for issues with a remaining term equal to the expected term. The fair value of
each option granted during fiscal 2009, 2008 and 2007 is estimated on the date of grant using the Black-Scholes option-pricing model and, in certain situations where the grant includes both a market
and a service condition as described more fully below, the Month Carlo simulation model is used. The following are the weighted-average assumptions:

Year endedJanuary 30,
2010

January 31,
2009

February 2,
2008Dividend yield


2.3
%

2.93
%

1.79
%Expected volatility


65
%

45
%

39
%Risk-free interest rate range:High


2.3
%

3.2
%

5.0
%Low


1.6
%

2.7
%

3.5
%Ranges of expected lives in years


4-5


3-4


4-5


During
fiscal 2009, the Company granted 736,000 stock options with a weighted average grant date fair value of $1.69. These options have a seven year term and include both a service and
a market appreciation vesting requirement. These options vest over a three year period with a third vesting on each of the three grant date anniversaries provided the market price of the Company's
stock has appreciated by a certain amount. From the date of grant, the market price of the Company's stock must have appreciated, for at least 15 consecutive trading days, by $2.00 above grant price
or more for 536,000 options and by $6.88 above grant price or more for 200,000 options in order to vest. The
Company used a Monte Carlo simulation model to estimate the expected term and is recording the compensation expense over the service period for each separately vesting portion of the options granted.
During fiscal 2009, the $2.00 market appreciation vesting requirement was satisfied.

The
Company reflects in its consolidated statement of cash flows any tax benefits realized upon the exercise of stock options or issuance of RSUs in excess of that which is associated
with the expense recognized for financial reporting purposes. Approximately $9, $3 and $1,104 are reflected as financing cash inflows and operating cash outflows in the Consolidated Statement of Cash
Flows for fiscal 2009, 2008 and 2007, respectively.

NOTE 16INTEREST RATE SWAP AGREEMENT

On November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000. The Company has designated the swap as a cash flow hedge on the first
$200,000 of the Company's $320,000 Senior Secured Term Loan facility. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in
October 2013. The Company did not meet the documentation requirements to apply hedge accounting at inception or as

74

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 16INTEREST RATE SWAP AGREEMENT (Continued)

of
February 3, 2007 and, accordingly, recorded the increase in the fair value of the interest rate swap of $1,490 as a reduction to interest expense. The Company documented that the swap met
the requirements for hedge accounting on April 9, 2007, and prospectively records the effective portion of the change in fair value of the swap through accumulated other comprehensive loss.

On
November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. The Company used $162,558 of the net proceeds from this
transaction to prepay a portion of the Senior Secured Term Loan facility which eliminated a portion of the future interest payments hedged by the November 2, 2006 interest rate swap. The
Company concluded that it
was not probable that those future interest payments would occur. The Company discontinued hedge accounting for the unmatched portion of the November 2, 2006 swap and reclassified a $2,259
pre-tax loss from other comprehensive income to interest expense. Concurrent with this transaction, the Company re-designated $145,000 notional amount of the interest rate swap
as a cash flow hedge to fully match the future interest payments under the Senior Secured Term Loan facility. As a result, all future changes in this interest rate swap's fair value that has been
re-designated as a hedge will be recorded to accumulated other comprehensive loss. From the period of November 27, 2007 through February 1, 2008 the Company incurred interest
expense of $1,907 for changes in fair value related to the $55,000 unmatched portion of this swap. On February 1, 2008, the Company recorded $4,539 within accrued expenses to reduce the
notional amount of the interest rate swap to $145,000 from the original $200,000 amount. The $4,539 was paid on February 4, 2008. As of January 30, 2010 and January 31, 2009,
respectively, the fair value of the swap was a net $16,401 and $15,808 payable recorded within other long-term liabilities on the balance sheet.

NOTE 17FAIR VALUE MEASUREMENTS

The Company's fair value measurements consist of (a) non-financial assets and liabilities that are recognized or disclosed at fair value in the Company's financial
statements on a recurring basis (at least annually) and (b) all financial assets and liabilities.

Fair
value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of
the measurement date. There is a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best
information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the
valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

75

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 17FAIR VALUE MEASUREMENTS (Continued)



The Company's long-term investments, interest rate swap agreements and contingent consideration are measured at fair value
on a recurring basis. The information in the following paragraphs and tables primarily addresses matters relative to these assets and liabilities.



Cash equivalents, other than credit card receivables, include highly liquid investments with an original maturity of three months or
less at acquisition. We carry these investments at fair value. As a result, we have determined that our cash equivalents in their entirety are classified as a Level 1 measure within the fair
value hierarchy.



The Company has one interest rate swap designated as a cash flow hedge on $145,000 of the Company's $149,715 Senior Secured Term Loan
facility that expires in October 2013. The Company values this swap using observable market data to discount projected cash flows and for credit risk adjustments. The inputs used to value our
derivatives fall within Level 2 of the fair value hierarchy.



The Company has recorded contingent consideration as a result of the acquisition of Florida Tire. The consideration may be paid to the
seller on each six month anniversary of the closing date until the deferred purchase price is paid in full, subject to acceleration or cancellation clauses. The calculation of the contingent
consideration is based on a weighted average probability scenario that includes management's assumptions on expected future cash flows. As a result, we have determined that our contingent
consideration is classified as a Level 3 measure within the fair value hierarchy.

The
following table provides information by level for assets and liabilities that are measured at fair value, on a recurring basis.

Fair Value Measurements
Using Inputs Considered asFair Value
at
January 30,
2010Description

Level 1

Level 2

Level 3Assets:Cash and cash equivalents

$
39,326

$
39,326Liabilities:Other long-term liabilitiesDerivative liability(a)


16,401





16,401Contingent consideration


1,660








1,660


(a)included
in other long-term liabilities


76

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 17FAIR VALUE MEASUREMENTS (Continued)




The
following represents the impact of fair value accounting for the Company's derivative liability on its consolidated financial statements:

Amount of Loss in
Other Comprehensive
Income
(Effective Portion)

Earnings Statement
Classification

Amount of Loss
Recognized in Earnings
(Effective Portion)Fiscal 2009

$
373

Interest expense

$
5,796




Certain assets are measured at fair value on a non-recurring basis, that is, the assets are subject to fair value
adjustments in certain circumstances such as when there is evidence of impairment. In response to a continuing weak real estate market, the Company reduced its prices for certain properties held for
disposal and recorded impairment charges of $3,110 and $5,353 for fiscal 2009 and 2008, respectively. The fair values were based on selling prices of comparable properties. These measures of fair
value, and related inputs, are considered level 2 measures under the fair value hierarchy.

NOTE 18LEGAL MATTERS

In September 2006, the United States Environmental Protection Agency ("EPA") requested certain information from the Company as part of an investigation to determine whether the Company
had violated, and is in violation of, the Clean Air Act and its non-road engine regulations. The information requested concerned certain generator and personal transportation merchandise
offered for sale by the Company. In the fourth quarter of fiscal 2008, the EPA informed the Company that it believed that the Company had violated the Clean Air Act by virtue of the fact that certain
of this merchandise did not conform to their corresponding EPA Certificates of Conformity. During the third quarter of fiscal 2009, the Company and the EPA reached a settlement in principle of this
matter requiring that the Company (i) pay a monetary penalty of $5 million, (ii) take certain corrective action with respect to certain inventory that had been restricted from
sale during the course of the investigation, (iii) implement a formal compliance program and (iv) participate in certain non-monetary emission offset activities. The Company
had previously accrued an amount equal to the agreed upon civil penalty and a $3 million contingency accrual with respect to the restricted inventory. During each of the third and fourth
quarters of fiscal 2009, the Company reversed $1 million of the inventory accrual as a portion of the subject inventory was released for sale.

The
Company is also party to various other actions and claims arising in the normal course of business.

The
Company believes that amounts accrued for awards or assessments in connection with all such matters are adequate and that the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position. However, there exists a reasonable possibility of loss in excess of the amounts accrued, the amount of which cannot currently be estimated.
While the Company does not believe that the amount of such excess loss could be material to the Company's financial position, any such loss could have a material adverse effect on the Company's
results of operations in the period(s) during which the underlying matters are resolved.

77

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 19QUARTERLY FINANCIAL DATA (UNAUDITED)

Earnings
(Loss)
Per Share
from
Continuing
OperationsEarnings
(Loss)
Per Share



Market Price
Per ShareEarnings
(loss) from
Continuing
OperationsTotal
Revenues

Gross
Profit

Operating
Profit
(loss)

Earnings
(Loss)

Cash
Dividends
Per ShareBasic

Diluted

Basic

Diluted

High

LowYear Ended January 30, 20104th quarter

$
452,896

$
110,047

$
6,760

$
2,835

$
2,268

$
0.05

$
0.06

$
0.04

$
0.04

$
0.0300

$
9.29

$
7.763rd quarter


472,643


118,269


10,056


2,357


2,124


0.05


0.04


0.04


0.04


0.0300


10.69


8.402nd quarter


488,911


128,190


18,692


7,858


7,735


0.15


0.15


0.15


0.15


0.0300


10.83


5.871st quarter


496,488


129,601


21,551


11,063


10,909


0.21


0.21


0.21


0.21


0.0300


8.52


2.76Year Ended January 31, 20094th quarter

$
465,536

$
92,188

$
(31,250
)
$
(32,827
)
$
(33,267
)
$
(0.63
)
$
(0.63
)
$
(0.63
)
$
(0.63
)
$
0.0675

$
5.31

$
2.623rd quarter


464,166


114,844


(5,036
)

(7,054
)

(7,282
)

(0.13
)

(0.13
)

(0.14
)

(0.14
)

0.0675


9.49


3.002nd quarter


500,043


130,434


11,908


5,752


5,448


0.11


0.11


0.10


0.10


0.0675


10.36


6.401st quarter


498,043


127,966


14,482


5,291


4,672


0.10


0.10


0.09


0.09


0.0675


12.56


8.59


In the fourth quarter of 2009, the Company recorded an income tax benefit of $1,200 due to the allocation of additional costs to certain
jurisdictions.

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION

The Company's 7.50% Senior Subordinated Notes (the "Notes") are fully and unconditionally and joint and severally guaranteed by certain of the Company's direct and indirectly
wholly-owned subsidiariesnamely, The Pep Boys Manny Moe & Jack of California, The Pep BoysManny Moe & Jack of Delaware, Inc., Pep BoysManny
Moe & Jack of Puerto Rico, Inc. and PBY Corporation, (collectively, the "Subsidiary Guarantors"). The Notes are not guaranteed by the Company's wholly owned subsidiary, Colchester
Insurance Company.

The
following condensed consolidating information presents, in separate columns, the condensed consolidating balance sheets as of January 30, 2010 and January 31, 2009 and
the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for fiscal 2009, 2008 and 2007 for (i) the Company ("Pep Boys") on a parent
only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Subsidiary Guarantors on a combined basis including the consolidation by PBY Corporation of its wholly
owned subsidiary, The Pep Boys Manny Moe & Jack of California, (iii) the subsidiary of the Company that does not guarantee the Notes, and (iv) the Company on a consolidated basis.

78

---





Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of January 30, 2010

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
25,844

$
10,279

$
3,203

$


$
39,326Accounts receivable, net


13,032


9,951








22,983Merchandise inventories


195,314


363,804








559,118Prepaid expenses


12,607


15,070


14,255


(17,148
)

24,784Other current assets


1,101


2,667


67,038


(5,378
)

65,428Assets held for disposal


1,045


3,393








4,438Total current assets


248,943


405,164


84,496


(22,526
)

716,077Property and equipmentnet


232,115


462,128


31,544


(19,337
)

706,450Investment in subsidiaries


1,755,426








(1,755,426
)

Intercompany receivable





1,058,132


83,953


(1,142,085
)

Deferred income taxes


11,200


46,971








58,171Other long-term assets


17,566


822








18,388Total assets

$
2,265,250

$
1,973,217

$
199,993

$
(2,939,374
)
$
1,499,086LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
202,974

$


$


$


$
202,974Trade payable program liability


34,099











34,099Accrued expenses


24,042


62,106


173,429


(17,161
)

242,416Deferred income taxes


6,626


28,723





(5,365
)

29,984Current maturities of long-term debt


1,079











1,079Total current liabilities


268,820


90,829


173,429


(22,526
)

510,552Long-term debt less current maturities


306,201











306,201Other long-term liability


35,125


38,808








73,933Deferred gain from asset sales


69,724


114,718





(19,337
)

165,105Intercompany liabilities


1,142,085








(1,142,085
)

Total stockholders' equity


443,295


1,728,862


26,564


(1,755,426
)

443,295Total liabilities and stockholders' equity

$
2,265,250

$
1,973,217

$
199,993

$
(2,939,374
)
$
1,499,086


79

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

As of January 31, 2009

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
12,753

$
6,393

$
2,186

$


$
21,332Accounts receivable, net


16,571


12,260








28,831Merchandise inventories


199,304


365,627








564,931Prepaid expenses


13,597


15,820


13,919


(17,946
)

25,390Other current assets


1,193


11


66,797


(5,580
)

62,421Assets held for disposal


1,830


10,823








12,653Total current assets


245,248


410,934


82,902


(23,526
)

715,558Property and equipmentnet


239,859


487,956


32,226


(19,710
)

740,331Investment in subsidiaries


1,699,568








(1,699,568
)

Intercompany receivable





989,077


85,145


(1,074,222
)

Deferred income taxes


24,075


53,633








77,708Other long-term assets


17,614


1,178








18,792Total assets

$
2,226,364

$
1,942,778

$
200,273

$
(2,817,026
)
$
1,552,389LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
212,331

$
9

$


$


$
212,340Trade payable program liability


31,930











31,930Accrued expenses


28,802


67,748


175,985


(17,781
)

254,754Deferred income taxes


16,355


25,238





(5,745
)

35,848Current maturities of long-term debt and obligations under capital leases


1,208


245








1,453Total current liabilities


290,626


93,240


175,985


(23,526
)

536,325Long-term debt and obligations under capital leases less current maturities


332,682


19,700








352,382Other long-term liability


34,868


35,454








70,322Deferred gain from asset sales


70,810


119,104





(19,710
)

170,204Intercompany liabilities


1,074,222








(1,074,222
)

Stockholders' equity


423,156


1,675,280


24,288


(1,699,568
)

423,156Total liabilities and stockholders' equity

$
2,226,364

$
1,942,778

$
200,273

$
(2,817,026
)
$
1,552,389


80

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended January 30, 2010

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedMerchandise sales

$
521,428

$
1,012,191

$


$


$
1,533,619Service revenue


133,240


244,079








377,319Other revenue








22,904


(22,904
)

Total revenues


654,668


1,256,270


22,904


(22,904
)

1,910,938Costs of merchandise sales


363,320


723,116





(1,632
)

1,084,804Costs of service revenue


115,123


225,057





(153
)

340,027Costs of other revenue








19,821


(19,821
)

Total costs of revenues


478,443


948,173


19,821


(21,606
)

1,424,831Gross profit from merchandise sales


158,108


289,075





1,632


448,815Gross profit from service revenue


18,117


19,022





153


37,292Gross profit from other revenue








3,083


(3,083
)

Total gross profit


176,225


308,097


3,083


(1,298
)

486,107Selling, general and administrative expenses


151,008


282,700


318


(3,765
)

430,261Net gain from dispositions of assets


886


327








1,213Operating profit


26,103


25,724


2,765


2,467


57,059Non-operating (expenses) income


(15,516
)

86,810


2,473


(71,506
)

2,261Interest expenses (income)


63,477


29,353


(2,087
)

(69,039
)

21,704(Loss) earnings from continuing operations before income taxes


(52,890
)

83,181


7,325





37,616Income tax (benefit) expenses


(17,638
)

28,559


2,582





13,503Equity in earnings of subsidiaries


58,325








(58,325
)

Earnings (loss) from continuing operations


23,073


56,622


4,743


(58,325
)

24,113Loss from discontinued operations, net of tax


(37
)

(1,040
)







(1,077
)Net earnings (loss)

$
23,036

$
53,582

$
4,743

$
(58,325
)
$
23,036


81

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended January 31, 2009

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedMerchandise sales

$
531,068

$
1,038,596

$


$


$
1,569,664Service revenue


124,206


233,918








358,124Other revenue








22,939


(22,939
)

Total revenues


655,274


1,272,514


22,939


(22,939
)

1,927,788Costs of merchandise sales


391,186


739,608





(1,632
)

1,129,162Costs of service revenue


110,515


222,831





(152
)

333,194Costs of other revenue








19,621


(19,621
)

Total costs of revenues


501,701


962,439


19,621


(21,405
)

1,462,356Gross profit from merchandise sales


139,882


298,988





1,632


440,502Gross profit from service revenue


13,691


11,087





152


24,930Gross profit from other revenue








3,318


(3,318
)

Total gross profit


153,573


310,075


3,318


(1,534
)

465,432Selling, general and administrative expenses


178,650


310,098


296


(4,000
)

485,044Net gain from dispositions of assets


3,392


6,324








9,716Operating (loss) profit


(21,685
)

6,301


3,022


2,466


(9,896
)Non-operating (expense) income


(15,383
)

111,434


2,543


(96,627
)

1,967Interest expense (income)


90,313


34,281


(3,385
)

(94,161
)

27,048(Loss) earnings from continuing operations before income taxes


(127,381
)

83,454


8,950





(34,977
)Income tax (benefit) expense


(41,417
)

32,192


3,086





(6,139
)Equity in earnings of subsidiaries


55,683








(55,683
)

(Loss) earnings from continuing operations


(30,281
)

51,262


5,864


(55,683
)

(28,838
)Loss from discontinued operations, net of tax


(148
)

(1,443
)







(1,591
)Net (loss) earnings

$
(30,429
)
$
49,819

$
5,864

$
(55,683
)
$
(30,429
)


82

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended February 2, 2008

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedMerchandise sales

$
600,611

$
1,148,967

$


$


$
1,749,578Service revenue


135,110


253,387








388,497Other revenue








24,592


(24,592
)

Total revenues


735,721


1,402,354


24,592


(24,592
)

2,138,075Costs of merchandise sales


455,204


852,124





(1,376
)

1,305,952Costs of service revenue


116,453


229,844





(411
)

345,886Costs of other revenue








18,989


(18,989
)

Total costs of revenues


571,657


1,081,968


18,989


(20,776
)

1,651,838Gross profit from merchandise sales


145,407


296,843





1,376


443,626Gross profit from service revenue


18,657


23,543





411


42,611Gross profit from other revenue








5,603


(5,603
)

Total gross profit


164,064


320,386


5,603


(3,816
)

486,237Selling, general and administrative expenses


181,225


343,093


338


(6,283
)

518,373Net gain from dispositions of assets


3,095


12,056








15,151Operating (loss) profit


(14,066
)

(10,651
)

5,265


2,467


(16,985
)Non-operating (expense) income


(15,384
)

133,428


2,630


(115,428
)

5,246Interest expense (income)


126,073


43,338


(5,157
)

(112,961
)

51,293(Loss) earnings from continuing operations before income taxes


(155,523
)

79,439


13,052





(63,032
)Income tax (benefit) expense


(56,041
)

25,881


4,566





(25,594
)Equity in earnings of subsidiaries


59,537








(59,537
)

(Loss) earnings from continuing operations


(39,945
)

53,558


8,486


(59,537
)

(37,438
)Loss from discontinued operations, net of tax


(1,094
)

(2,507
)







(3,601
)Net (loss) earnings

$
(41,039
)
$
51,051

$
8,486

$
(59,537
)
$
(41,039
)


83

---





Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

January 30, 2010

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-
Guarantors

Consolidation
Elimination

ConsolidatedCash flows from operating activities:Net earnings (loss)

$
23,036

$
53,582

$
4,743

$
(58,325
)
$
23,036Adjustments to reconcile net earnings (loss) to net cash (used in) provided by continuing operations:Net loss from discontinued operations


37


1,040








1,077Depreciation and amortization


25,405


44,815


682


(373
)

70,529Amortization of deferred gain from asset sales


(4,078
)

(8,620
)




373


(12,325
)Stock compensation expense


2,575











2,575Equity in earnings of subsidiaries


(58,325
)







58,325


Gain on debt retirement


(6,248
)










(6,248
)Deferred income taxes


2,919


10,147


380





13,446Gain from disposition of assets


(886
)

(327
)







(1,213
)Loss from asset impairments


785


2,099








2,884Dividends received from subsidiary


2,467








(2,467
)

Other


204


141








345Changes in operating assets and liabilities:Decrease (increase) in accounts receivable, prepaid expenses and other


8,232


520


(957
)

(620
)

7,175Decrease in merchandise inventories


5,216


1,823








7,039Decrease in accounts payable


(9,640
)










(9,640
)Decrease in accrued expenses


(5,303
)

(5,999
)

(2,556
)

620


(13,238
)(Decrease) increase in other long-term liabilities


(790
)

3,174








2,384Net cash (used in) provided by continuing operations


(14,394
)

102,395


2,292


(2,467
)

87,826Net cash used in discontinued operations


(37
)

(566
)







(603
)Net cash (used in) provided by operating activities


(14,431
)

101,829


2,292


(2,467
)

87,223Cash flows from investing activities:Cash paid for property and equipment


(18,132
)

(25,082
)







(43,214
)Proceeds from disposition of assets


4,845


9,931








14,776Acquisition of Florida Tire, Inc.


(2,695
)










(2,695
)Other


(500
)










(500
)Net cash used in continuing operations


(16,482
)

(15,151
)







(31,633
)Net cash provided by discontinued operations





1,762








1,762Net cash used in investing activities


(16,482
)

(13,389
)







(29,871
)Cash flows from financing activities:Borrowings under line of credit agreements


88,237


161,467








249,704Payments under line of credit agreements


(96,669
)

(176,897
)







(273,566
)Borrowings on trade payable program liability


192,324











192,324Payments on trade payable program liability


(190,155
)










(190,155
)Long-term debt and capital lease obligation payments


(11,930
)

(60
)







(11,990
)Intercompany borrowings (payments)


67,872


(69,064
)

1,192





Dividends paid


(6,286
)




(2,467
)

2,467


(6,286
)Other


611











611Net cash provided by (used in) financing activities


44,004


(84,554
)

(1,275
)

2,467


(39,358
)Net increase in cash


13,091


3,886


1,017





17,994Cash and cash equivalents at beginning of year


12,753


6,393


2,186





21,332Cash and cash equivalents at end of year

$
25,844

$
10,279

$
3,203

$


$
39,326


84

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

January 31, 2009

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-
Guarantors

Consolidation
Elimination

ConsolidatedCash flows from operating activities:Net (loss) earnings

$
(30,429
)
$
49,819

$
5,864

$
(55,683
)
$
(30,429
)Adjustments to reconcile net (loss) earnings to net cash (used in) provided by continuing operations:Net loss from discontinued operations


148


1,443








1,591Depreciation and amortization


25,442


47,427


682


(344
)

73,207Amortization of deferred gain from asset sale


(3,468
)

(7,161
)




344


(10,285
)Stock compensation expense


2,743











2,743Equity in earnings of subsidiaries


(55,683
)







55,683


Gain on debt retirement


(3,460
)










(3,460
)Deferred income taxes


10,733


(17,190
)

199





(6,258
)Gain from disposition of assets


(3,394
)

(6,322
)







(9,716
)Loss from asset impairments


531


2,896








3,427Other


365


172








537Dividends received from subsidiary


2,464








(2,464
)

Changes in operating assets and liabilities:Decrease in accounts receivable, prepaid expenses and other


17,926


2,211


5,079


(1,312
)

23,904Increase in merchandise inventories


(328
)

(3,451
)







(3,779
)Decrease in accounts payable


(33,083
)










(33,083
)(Decrease) increase in accrued expenses


(28,591
)

211


(7,925
)

1,312


(34,993
)Decrease in other long-term liabilities


(10,154
)

(1,838
)







(11,992
)Net cash (used in) provided by continuing operations


(108,238
)

68,217


3,899


(2,464
)

(38,586
)Net cash used in discontinued operations


(82
)

(839
)







(921
)Net cash (used in) provided by operating activities


(108,320
)

67,378


3,899


(2,464
)

(39,507
)Cash flows from investing activities:Cash paid for property and equipment


(44,727
)

(107,156
)







(151,883
)Proceeds from disposition of assets


64,876


145,759








210,635Life insurance proceeds received


15,588











15,588Net cash provided by continuing operations


35,737


38,603








74,340Net cash provided by discontinued operations


3,047


1,339








4,386Net cash provided by investing activities


38,784


39,942








78,726Cash flows from financing activities:Borrowings under line of credit agreements


87,659


117,503








205,162Payments under line of credit agreements


(95,428
)

(127,917
)







(223,345
)Borrowings on trade payable program liability


196,680











196,680Payments on trade payable program liability


(179,004
)










(179,004
)Payments for finance issuance costs


(6,847
)

(89
)







(6,936
)Proceeds from lease financing


4,676


3,985








8,661Long-term debt and capital lease obligation payments


(26,459
)

(339
)







(26,798
)Intercompany borrowings (payments)


102,037


(100,725
)

(1,312
)




Dividends paid


(14,111
)




(2,464
)

2,464


(14,111
)Other


878











878Net cash provided by (used in) financing activities


70,081


(107,582
)

(3,776
)

2,464


(38,813
)Net increase (decrease) in cash


545


(262
)

123





406Cash and cash equivalents at beginning of year


12,208


6,655


2,063





20,926Cash and cash equivalents at end of year

$
12,753

$
6,393

$
2,186

$


$
21,332


85

---



Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 30, 2010, January 31, 2009 and February 2, 2008

(dollar amounts in thousands, except share and per share data)

NOTE 20SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

As of February 2, 2008

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-
Guarantors

Consolidation
Elimination

ConsolidatedCash flows from operating activities:Net (loss) earnings

$
(41,039
)
$
51,051

$
8,486

$
(59,537
)
$
(41,039
)Adjustments to reconcile net (loss) earnings to net cash (used in) provided by continuing operations:Net loss (earnings) from discontinued operations


1,094


2,507








3,601Depreciation and amortization


28,606


52,168


683


(421
)

81,036Amortization of deferred gain from asset sale


(718
)

(733
)




421


(1,030
)Stock compensation expense


9,756











9,756Inventory impairment


12,413


20,390








32,803Equity in earnings of subsidiaries


(59,537
)







59,537


Deferred income taxes


11,550


(39,929
)

192





(28,187
)Gain from dispositions of assets


(3,095
)

(12,056
)







(15,151
)Loss from asset impairment


1,772


5,427








7,199Other


(1,008
)

180








(828
)Change in fair value of de-designated derivatives


9,268











9,268Dividends received from subsidiary


2,467








(2,467
)

Increase in cash surrender value of life insurance policies


(4,928
)










(4,928
)Changes in operating assets and liabilities:(Increase) decrease in accounts receivable, prepaid expenses and other


(6,238
)

(1,782
)

6,896


(455
)

(1,579
)Increase in merchandise inventories


57


13,030








13,087Decrease in accounts payable


(20,066
)










(20,066
)Increase (decrease) in accrued expenses


20,932


107


(11,411
)

455


10,083(Decrease) increase in other long-term liabilities


(6,265
)

3,041








(3,224
)Net cash (used in) provided by continuing operations


(44,979
)

93,401


4,846


(2,467
)

50,801Net cash provided by discontinued operations


659


1,324








1,983Net cash (used in) provided by operating activities


(44,320
)

94,725


4,846


(2,467
)

52,784Cash flows from investing activities:Cash paid for property and equipment


(17,128
)

(25,988
)







(43,116
)Proceeds from dispositions of assets


46,907


115,805








162,712Life insurance proceeds received


30,045











30,045Net cash provided by continuing operations


59,824


89,817








149,641Net cash (used in) discontinued operations


(108
)

(271
)







(379
)Net cash provided by investing activities


59,716


89,546








149,262Cash flows from financing activities:Borrowings under line of credit agreements


231,458


338,636








570,094Payments under line of credit agreements


(221,529
)

(324,088
)







(545,617
)Borrowings on trade payable program liability


142,884











142,884Payments on trade payable program liability


(142,620
)










(142,620
)Payments for finance issuance costs





(85
)







(85
)Proceeds from lease financing





4,827








4,827Long-term debt and capital lease obligation payments


(165,654
)

(41
)







(165,695
)Intercompany borrowings (payments)


205,484


(204,811
)

(673
)




Dividends paid


(14,177
)




(2,467
)

2,467


(14,177
)Other


5,537











5,537Repurchase of common stock


(58,152
)










(58,152
)Net cash (used in) provided by financing activities


(16,769
)

(185,562
)

(3,140
)

2,467


(203,004
)Net (decrease) increase in cash


(1,373
)

(1,291
)

1,706





(958
)Cash and cash equivalents at beginning of year


13,581


7,946


357





21,884Cash and cash equivalents at end of year

$
12,208

$
6,655

$
2,063

$


$
20,926


86

---





Table of Contents

ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A    CONTROLS AND PROCEDURES

Disclosure Controls and ProceduresThe Company's management evaluated, with the participation of its principal executive officer and
principal
financial officer, the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures mean the Company's controls and
other procedures that are designed to ensure that information required to be disclosed by the Company in its reports that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in its reports that the Company communicated to its management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company's management recognizes that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based upon the evaluation of the Company's disclosure controls and procedures, as of the end of the period covered by this report, the Company's principal executive officer
and principal financial officer concluded that, as of such date, the Company's disclosure controls and procedures were effective at the reasonable assurance level.

There
were no changes to the Company's internal control over financial reporting that occurred during the quarter ended January 30, 2010 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.

87

---



Table of Contents

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of The Pep Boys-Manny, Moe and Jack (the Company) is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive officer and
principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America.

The
Company's internal control over financial reporting includes 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 generally accepted accounting principles, 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.

As
of January 30, 2010, management assessed the effectiveness of the Company's internal control over financial reporting as of January 30, 2010 based on the criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management determined
that the Company's internal control over financial reporting as of January 30, 2010 was effective.

Deloitte &
Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report, which is included on page 70 herein, on the
Company's internal control over financial reporting as of January 30, 2010.

88

---



Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
The Pep BoysManny, Moe & Jack
Philadelphia, Pennsylvania

We
have audited the internal control over financial reporting of The Pep BoysManny, Moe & Jack and subsidiaries (the "Company") as of January 30, 2010, based
on the criteria established inInternal 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, included in the accompanying Management's Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 generally accepted accounting principles. 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 generally accepted accounting principles, 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, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2010, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

89

---



Table of Contents

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended January 30, 2010 of the Company and our report dated April 12, 2010 expressed an unqualified opinion on those financial statements and financial
statement schedule.

DELOITTE &
TOUCHE LLP

Philadelphia,
Pennsylvania
April 12, 2010

90

---



Table of Contents

ITEM 9B    OTHER INFORMATION

None.

PART III

ITEM 10    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The material contained in the Company's definitive proxy statement, which will be filed pursuant to Regulation 14A not later
than 120 days after the end of the Company's 2009 fiscal year (the "Proxy Statement"), under the captions "Nominees for Election", "Corporate Governance" and
"SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" is hereby incorporated herein by reference.

The
information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I of this Form 10-K, in
accordance with General Instruction G (3).

The
Company has adopted a Code of Ethics applicable to all of its associates including its executive officers. The Code of Ethics, together with any amendments thereto or waivers
thereof, are posted on the Company's website www.pepboys.com under the "Investor RelationsCorporate Governance" section.

In
addition, the Board of Directors Code of Conduct and the charters of our audit, human resources and nominating and governance committees may also be found under the "Investor
RelationsCorporate Governance" section of our website. As required by the New York Stock Exchange ("NYSE"), promptly following our 2009 Annual Meeting, our Chief Executive Officer
certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards. Copies of our corporate governance materials are available free of charge from
our investor relations department. Please call 215-430-9720 or write Pep Boys, Investor Relations, 3111 West Allegheny Avenue, Philadelphia, PA 19132.

ITEM 11    EXECUTIVE COMPENSATION

The material contained in the Proxy Statement under the captions "How are Directors Compensated?", "Director
Compensation Table" and "EXECUTIVE COMPENSATION" other than the material under "Compensation Committee Report" is hereby incorporated herein by reference.

The
information regarding equity compensation plans called for by Item 201(d) of Regulation S-K is included in Item 5 of this
Form 10-K.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The material contained in the Proxy Statement under the caption "SHARE OWNERSHIP" is hereby incorporated herein by reference.

ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The material contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions" and
"Corporate Governance" is hereby incorporated herein by reference.

ITEM 14    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The material contained in the Proxy Statement under the caption "Registered Public Accounting Firm's Fees" is hereby
incorporated herein by reference.

91

---





Table of Contents

PART IV

ITEM 15    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Page1.

The following consolidated financial statements of The Pep BoysManny, Moe & Jack are included in Item 8Report of Independent Registered Public Accounting Firm

38Consolidated Balance SheetsJanuary 30, 2010 and January 31, 2009

39Consolidated Statements of OperationsYears ended January 30, 2010, January 31, 2009 and February 2,
2008

40Consolidated Statements of Stockholders' EquityYears ended January 30, 2010, January 31, 2009 and
February 2, 2008

41Consolidated Statements of Cash FlowsYears ended January 30, 2010, January 31, 2009 and February 2,
2008

42Notes to Consolidated Financial Statements

432.

The following consolidated financial statement schedule of The Pep BoysManny, Moe & Jack is includedSchedule II Valuation and Qualifying Accounts and Reserves

97All other schedules have been omitted because they are not applicable or not required or the required information is included
in the consolidated financial statements or notes thereto.3.

Exhibits

92


(3.1
)
Amended and Restated Articles of Incorporation

Incorporated by reference from the Company's 10-K dated February 14, 2009.(3.2
)
By-Laws amended and restated

Incorporated by reference from the Company's 8-K dated February 17, 2010.(4.1
)
Indenture, dated December 14, 2004, between the Company and Wachovia Bank, National Association, as trustee, including form of security.

Incorporated by reference from the Company's Form 8-K dated December 15, 2004.(4.2
)
Supplemental Indenture, dated December 14, 2004, between the Company and Wachovia Bank, National Association, as trustee.

Incorporated by reference from the Company's Form 8-K dated December 15, 2004.(4.3
)
Dividend Reinvestment and Stock Purchase Plan dated January 4, 1990

Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-32857).(10.1
)*
Medical Reimbursement Plan of the Company

Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 1982.


92

---



Table of Contents

(10.2
)*
Form of Change of Control between the Company and certain officers of the Company.

Incorporated by reference from the Company's Form 8-K dated December 23, 2008.(10.3
)*
Form of Non-Competition Agreement between the Company and certain officers of the Company.

Incorporated by reference from the Company's Form 8-K dated December 23, 2008.(10.4
)*
The Pep BoysManny, Moe & Jack 1990 Stock Incentive PlanAmended and Restated as of March 26, 2001.

Incorporated by reference from the Company's Form 10-K for the year ended February 1, 2003.(10.5
)*
The Pep BoysManny, Moe & Jack 2009 Stock Incentive Plan.

Incorporated by reference from the Company's 8-K dated June 24, 2009.(10.6
)*
The Pep BoysManny, Moe & Jack Pension PlanAmended and Restated as of September 10, 2001.

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 2003.(10.7
)*
The Pep Boys-Manny, Moe & Jack Pension Plan Amendment 2005-1

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.(10.8
)*
Long-Term Disability Salary Continuation Plan amended and restated as of March 26, 2002.

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 2003.(10.9
)*
Amendment and restatement as of September 3, 2002 of The Pep Boys Savings Plan.

Incorporated by reference from the Company's Form 10-Q for the quarter ended November 2, 2002.(10.10
)*
The Pep Boys Savings Plan Amendment 2004-1

Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2004.(10.11
)*
The Pep Boys Savings Plan Amendment 2005-1

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.(10.12
)*
The Pep Boys Savings Plan Amendment 2007-1

Incorporated by reference from the Company's Form 10-Q for the quarter ended August 4, 2007.(10.13
)*
Amendment and restatement as of September 3, 2002 of The Pep Boys Savings PlanPuerto Rico.

Incorporated by reference from the Company's Form 10-Q for the quarter ended November 2, 2002.(10.14
)*
The Pep Boys Deferred Compensation Plan, as amended and restated

Incorporated by reference from the Company's Form 8-K dated December 23, 2008.(10.15
)*
The Pep Boys Annual Incentive Bonus Plan (amended and restated as of January 31, 2009)

Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2009.(10.16
)*
Account Plan


93

---



Table of Contents

(10.17
)*
Flexible Employee Benefits Trust

Incorporated by reference from the Company's Form 8-K filed May 6, 1994.(10.18
)*
The Pep Boys Grantor Trust Agreement

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.(10.19
)
Credit Agreement, dated January 16, 2009, by and among the Company, as Lead Borrower, Bank of America, N.A., as Administrative Agent and the other parties thereto.

Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2009.(10.20
)
Master Lease Agreement, dated October 18, 2004, between the Company and with RBS Lombard, Inc.

Incorporated by reference from the Company's Form 8-K dated October 19, 2004.(10.21
)
Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.

Incorporated by reference from the Company's Form 8-K filed October 30, 2006.(10.22
)
First Amendment dated February 15, 2007 to Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other
parties thereto.

Incorporated by reference from the Company's Form 8-K filed February 16, 2007.(12.00
)
Computation of Ratio of Earnings to Fixed Charges

Filed herewith(21
)
Subsidiaries of the Company

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.(23
)
Consent of Independent Registered Public Accounting Firm

Filed herewith(31.1
)
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith(31.2
)
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith(32.1
)
Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith(32.2
)
Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith


*Management
contract or compensatory plan or arrangement.


94

---





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
Annual Report of Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 12 , 2010

THE PEP BOYSMANNY, MOE & JACK(REGISTRANT)By:

/s/ RAYMOND L. ARTHUR Raymond L. Arthur Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature

Capacity

Date/s/ MICHAEL R. ODELL Michael R. Odell

Chief Executive Officer; Director (Principal Executive Officer)

April 12, 2010/s/ RAYMOND L. ARTHUR Raymond L. Arthur

Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer)

April 12, 2010/s/ MAX LUKENS Max Lukens

Chairman of the Board

April 12, 2010/s/ M. SHÂN ATKINS M. Shân Atkins

Director

April 12, 2010/s/ ROBERT H. HOTZ Robert H. Hotz

Director

April 12, 2010/s/ JAMES MITAROTONDA James Mitarotonda

Director

April 12, 2010


95

---



Table of Contents

Signature

Capacity

Date/s/ DR. IRVIN D. REID Dr. Irvin D. Reid

Director

April 12, 2010/s/ JANE SCACCETTI Jane Scaccetti

Director

April 12, 2010/s/ JOHN T. SWEETWOOD John T. Sweetwood

Director

April 12, 2010/s/ NICK WHITE Nick White

Director

April 12, 2010/s/ JAMES A. WILLIAMS James A. Williams

Director

April 12, 2010


96

---





Table of Contents

FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT TO  THE REQUIREMENTS OF FORM 10-K

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Column A

Column B

Column C

Column D

Column EDescription

Balance at
Beginning of Period

Additions Charged
to Costs
and Expenses

Additions Charged
to Other
Accounts

Deductions(1)

Balance at
End of Period(in thousands)ALLOWANCE FOR
DOUBTFUL ACCOUNTS:Year ended
January 30, 2010

$
1,912

$
1,705

$


$
2,129

$
1,488Year ended
January 31, 2009

$
1,937

$
4,679

$


$
4,704

$
1,912Year ended
February 2, 2008

$
1,505

$
2,420

$


$
1,988

$
1,937


(1)Uncollectible
accounts written off.


Column A

Column B

Column C

Column D

Column EDescription

Balance at
Beginning of Period

Additions Charged
to Costs
and Expenses

Additions Charged
to Other
Accounts(2)

Deductions(2)

Balance at
End of Period(in thousands)SALES RETURNS AND
ALLOWANCES:Year ended
January 30, 2010

$
1,144

$


$
60,603

$
60,716

$
1,031Year ended
January 31, 2009

$
1,232

$


$
57,899

$
57,987

$
1,144Year ended
February 2, 2008

$
1,296

$


$
63,471

$
63,535

$
1,232


(2)Sales
return and allowance activity is recorded through a reduction of merchandise sales and costs of merchandise sales.


97

---



QuickLinks