Use these links to rapidly review the documentTABLE OF CONTENTS PART IV

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 29, 2011ORo

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 July 31, 2010 the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $446,917,000.

As
of April 1, 2011, there were 52,633,029 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 2011 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.



---





TABLE OF CONTENTS



PagePART IItem 1.

Business

1Item 1A.

Risk Factors

11Item 1B.

Unresolved Staff Comments

14Item 2.

Properties

14Item 3.

Legal Proceedings

15Item 4.

(Removed and Reserved)

16PART IIItem 5.

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

17Item 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

36Item 8.

Financial Statements and Supplementary
Data

38Item 9.

Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

85Item 9A.

Controls and Procedures

85Item 9B.

Other Information

88PART IIIItem 10.

Directors, Executive Officers and Corporate
Governance

88Item 11.

Executive Compensation

88Item 12.

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

88Item 13.

Certain Relationships and Related Transactions and Director
Independence

88Item 14.

Principal Accounting Fees and Services

88PART IVItem 15.

Exhibits and Financial Statement Schedules

89Signatures

92


i

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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 to be
the automotive solutions provider of choice for the value-oriented customer. Our primary operating unit is our Supercenter format (averaging 20,600 sq.ft.), which serves both
"do-it-for-me" ("DIFM", which includes service labor, installed merchandise and tires) and retail (which includes "do-it-yourself", or
"DIY", and commercial) customers with the highest quality service offerings and merchandise. Most of our Supercenters 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. 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 (averaging 5,800 sq.ft.). The Service & Tire Centers are designed to capture market share and leverage our
existing Supercenters and support infrastructure. In 2010, we introduced new, smaller format (14,000 sq.ft.) Supercenters. The new, smaller Supercenters are designed to provide our customers with our
complete offering of automotive service, tires, parts and accessories in a more efficient and cost-effective footprint. In total, as of January 29, 2011, the Company operated
approximately 11,930,000 of gross square feet of retail space, including service bays.

In
fiscal 2010, we opened 28 new Service & Tire Centers and seven new Supercenters. We are targeting a total of 50 new Service & Tire Centers and five Supercenters in
fiscal 2011, and 75 new Service & Tire Centers and ten Supercenters in fiscal 2012. We expect to lease new Service & Tire Center and Supercenter locations, as we believe that there are
sufficient existing available locations in the marketplace with attractive lease terms to enable our expansion.

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 29,
2011

January 30,
2010

January 31,
2009Parts and accessories


63.5
%

63.9
%

65.1
%Tires


16.9


16.4


16.3Total merchandise sales


80.4


80.3


81.4Service labor


19.6


19.7


18.6Total revenues


100.0
%

100.0
%

100.0
%


As
of January 29, 2011, 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

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

NUMBER OF STORES AT END OF FISCAL YEARS 2007 THROUGH 2010

State

2010
Year End

Opened

Closed

2009
Year End

Opened

Closed

2008
Year End

Opened

Closed

2007
Year EndAlabama


1








1








1








1Arizona


22








22








22








22Arkansas


1








1








1








1California


129


6


1


124


6





118








118Colorado


7








7








7








7Connecticut


7








7








7








7Delaware


7








7


1





6








6Florida


60


7





53


10





43








43Georgia


25


3





22








22








22Illinois


29


4





25


3





22








22Indiana


7








7








7








7Kentucky


4








4








4








4Louisiana


8








8








8








8Maine


1








1








1








1Maryland


19


1





18








18








18Massachusetts


7


1





6








6








6Michigan


5








5








5








5Minnesota


3








3








3








3Missouri


1








1








1








1Nevada


12








12








12








12New Hampshire


4








4








4








4New Jersey


32


1





31


2





29








29New Mexico


8








8








8








8New York


31


2





29








29








29North Carolina


8








8








8








8Ohio


12


2





10








10








10Oklahoma


5








5








5








5Pennsylvania


51


6





45


3





42








42Puerto Rico


27








27








27








27Rhode Island


2








2








2








2South Carolina


6








6








6








6Tennessee


7








7








7








7Texas


49


2





47








47








47Utah


6








6








6








6Virginia


16








16








16








16Washington


2








2








2








2Total


621


35


1
(1)

587


25





562








562


(1)During
fiscal 2010 the lease at one of our nine Pep Express locations expired and was not renewed.


INDUSTRY OVERVIEW

The automotive aftermarket retail and service industry is in the mature stage of its life cycle and while the retail space is dominated
by a small number of companies with large market shares, the automotive service business is highly fragmented. Over the past decade, consumers have moved away from DIY and toward DIFM due to
increasing vehicle complexity and electronic content, and

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decreasing
availability of diagnostic equipment and know-how. In addition, while this needs-based industry has a dedicated DIY customer base, the number of consumers who would prefer to
have a professional fix their vehicle fluctuates with economic cycles. The drop in disposable income during the most recent recession forced some former DIFM consumers to work on their own vehicles.
Weak labor and credit markets, depressed new vehicles sales and the increasing average length of vehicle ownership compounded this trend. The broader economic recovery is expected to increase
disposable income, which will likely result in the reversal of this recent trend.

We
expect the shift away from DIY and toward DIFM to increase as the economy recovers, and continue for the foreseeable future. In anticipation of the change in consumer behavior we have
adopted a long-term strategy of leading with our automotive service offerings and aggressively expanding our commercial business, while maintaining our DIY customer base through our
innovative marketing programs in order to capitalize on the forecasted long-term growth of the DIFM industry and decline of the DIY business.

BUSINESS STRATEGY

Our vision for Pep Boys is to take our industry-leading position in automotive services and accessories and to be 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 DIY 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 and our goal to be the preferred employer in our industry by focusing on associate hiring practices, training and development, and rewarding associate performance through
performance-based compensation 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. We have a rewards program that benefits customers whether they choose to do it themselves or have us do it for them and 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 (Automotive Service Excellence) 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. We believe that offering a broad assortment of private label and branded
tires at competitive prices provides a competitive advantage to the Company since DIY competitors do not sell tires and related services. In order to further leverage our tire business, we are in the
process of introducing a new interactive web application which allows customers to shop for the tire that best fits their needs and simultaneously schedule installation services at one of our stores.

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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 35 new stores in 201028 Service & Tire Centers and
seven Supercenters. Our plans call for 55 new locations in 2011, followed by 85 in 2012. The typical Service & Tire Center is full service with approximately six service bays and
$1.0 million in expected annual sales. Our Service & Tire Centers offer customer convenience, allowing us to be close to our customers' home or work and generally serve a higher
demographic customer than our Supercenters. To further leverage our store investment, we are focused on expanding our vehicle fleet business by communicating our value offering to local and national
fleet accounts through targeted marketing, improving store execution and expanding our dedicated fleet resources.

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. We are able to leverage our Superhub stores, which have a
larger assortment of product than our normal Supercenter, to satisfy customer needs for slow-moving product by delivering this product to requesting Supercenters on demand. 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, DIY 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 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 2010, the Company's capital expenditures totaled $70.3 million which, in addition to our regularly-scheduled facility
improvements, included the addition of 35 stores and the upgrade of our store computer systems hardware. Our fiscal 2011 capital expenditures are expected to be approximately $80.0 million,
which includes the addition of approximately 50 Service & Tire Centers, five Supercenters and the conversion of 24 Supercenters into Superhubs. These expenditures are expected to be funded from
cash on hand and net cash generated from operating activities. Additional capacity, if needed, exists under our revolving credit facility.

SERVICES AND PRODUCTS

The Company operates a total of 6,259 service bays in 613 of its 621 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 26,000
items, while Service & Tire Centers average approximately 3,400 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.

4

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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, batteries, starters,
and ignitions under the name VALUEGRADE. All products sold by the Company under various private label names were approximately 31% of the Company's merchandise sales in fiscal 2010 and 2009, and 28%
in fiscal 2008.

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 29, 2011, approximately 80% or 454 of the Company's 568 Supercenters and Pep Express stores provided commercial parts
delivery as compared to approximately 80% or 451 stores at the end of fiscal 2009.

In
2009, the Company began a 20-store pilot program designed to fulfill the Company's goal to be the automotive solutions provider of choice for mobile electronics and
installation services. The Company re-organized its automotive audio product lines to include radios, speakers, amplifiers, remote starters and alarm systems from the most popular brands.
The key to this program is the addition of expert sales and installation technicians to service our customers' needs. As of January 29, 2011, the installation program was available at 110
stores and the Company expects to double the number of stores offering this service in fiscal 2011. We also added five new Speed Shops to existing Supercenters during fiscal 2010, bringing our total
number of Speed Shops to seven. Speed Shops create a differentiated retail experience for automotive enthusiasts by stocking high-performance and specialty products.

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.

We
believe that targeted advertising and promotions play important roles in succeeding in today's environment. We are constantly working to understand our customers' wants and needs so
that we can build long-lasting, loyal relationships. We utilize promotions, advertising, and loyalty card programs to promote our service and repair capabilities, merchandise offerings and
our 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

5

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customers.
These promotions will be supplemented by extensive direct marketing and grass-roots campaigns and occasional print campaigns. Finally, we utilize in-store signage, creative
product placement and promotions to help educate customers about products that fit their needs.

The
Company maintains a web site located at www.pepboys.com. It serves as a 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. Consumers can schedule a service appointment on our web site with our eServe application, as well as keep track
of all their maintenance and service records electronically through our online Glovebox application. 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.

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 Executive Vice President of Stores who in turn reports to the President and Chief Executive Officer. As of January 29, 2011, a Retail Manager's and a Service Manager's average
length of service with the Company is approximately 8.6 and 5.5 years, respectively.

Supervision
and control over individual stores is facilitated by Area Directors and Divisional Vice Presidents making regular visits to stores and utilizing the Company's computer system
and operational handbooks. 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."

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. Recently, we consolidated certain of our slow-moving
hard parts inventory that had previously been stocked at each of our five warehouses into our centrally-located Indianapolis warehouse that can service each of our stores with overnight delivery of
these parts, when necessary.

The
Company also operates certain of its Supercenters as Superhubs, which have a larger assortment of auto parts than our normal Supercenter. Implementation of the Superhub concept
enabled local expansion of our auto parts product assortment in a cost effective manner. We are now able to satisfy customer needs for slow-moving auto parts by carrying limited amounts of
this product at Superhub locations. These Superhubs then deliver this product to requesting Supercenters to fulfill customer demand. Superhubs are generally replenished from distribution centers
multiple times per week. As of January 29, 2011, the Company operated 19 Superhubs within existing Supercenters, with plans to convert an additional 24 Superhubs in fiscal 2011.

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SUPPLIERS

During fiscal 2010, the Company's ten largest suppliers accounted for approximately 53% of the merchandise purchased. No single
supplier accounted for more than 20% of the Company's purchases. The Company has no long-term contracts under which it is required to purchase merchandise. 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. Recently, however, due to industry-wide supply constraints, the Company has experienced some difficulty in obtaining the full amount of its desired tire supply from its
current suppliers and, accordingly, is pursuing relationships with supplemental suppliers.

COMPETITION

The Company operates in a highly competitive environment. The Company encounters competition from nationwide and regional chains and
from local independent service providers 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, 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.

EMPLOYEES

At January 29, 2011, the Company employed 18,279 persons as follows:

Description

Full-time

%

Part-time

%

Total

%Retail


3,945


31.7


4,093


70.1


8,038


44.0Service center


7,201


57.9


1,668


28.6


8,869


48.5Store total


11,146


89.6


5,761


98.7


16,907


92.5Warehouses


539


4.3


71


1.2


610


3.3Offices


756


6.1


6


0.1


762


4.2Total employees


12,441


100.0


5,838


100.0


18,279


100.0


The
Company had no union employees as of January 29, 2011. At January 30, 2010, the Company employed 11,881 full-time and 5,837 part-time employees.

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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. 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. All our filings can be accessed through the Securities and Exchange Commission website at www.sec.gov and searching with our ticker symbol "PBY".

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, under the Investor
Relations/Financial Information/SEC Filings link. These reports are available on our website as soon as reasonably practicable after we electronically file or furnish such materials 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 215-430-9459 or write Pep Boys, Investor Relations,
3111 West Allegheny Avenue, Philadelphia, PA 19132 to request copies.

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Table of Contents

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 2011

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


47

4 years

President and Chief Executive Officer since June 2010Raymond L. Arthur


52

3 years

Executive Vice PresidentChief Financial Officer since May 2008William E. Shull III


52

3 years

Executive Vice PresidentStores since June 2010Scott A. Webb


47

4 years

Executive Vice PresidentMerchandising & Marketing since June 2010Joseph A. Cirelli


52

34 years

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


42

4 years

Senior Vice PresidentHuman Resources since July 2007Brian D. Zuckerman


41

12 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 received
the additional title of President on June 17, 2010. 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.

William
E. Shull III was named Executive Vice PresidentStores on June 17, 2010 after having joined the Company in September 2008 as Senior Vice
PresidentStores. Over the last 25 years Mr. Shull has held several senior management positions with a variety of retail and service companies where his focus was on building
and integrating store management teams into successfully profitable and cohesive units. 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.

Scott
A. Webb was named Executive Vice PresidentMerchandising & Marketing on June 17, 2010 after having joined the Company in September 2007 as Senior Vice
PresidentMerchandising & Marketing. Prior to joining Pep Boys, Mr. Webb 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.

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

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Senior
Vice PresidentService, Vice PresidentReal Estate and Development, Vice PresidentOperations Administration, and Vice PresidentCustomer
Satisfaction.

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.

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.

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Table of Contents

ITEM 1A    RISK FACTORS

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. If any of the events or circumstances described as risk below actually occurs,
our business, results of operations and/or financial condition could be materially and adversely affected.

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.

Our long-term strategic plan, which we update annually, 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 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:



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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.

Some
of the most important vendor relationships that we maintain are with our tire vendors. Recently, due to industry-wide supply constraints, the Company has experienced
some difficulty in obtaining the full amount of its desired tire supply from its current vendors and, accordingly, is pursuing relationships with supplemental vendors.

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 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.

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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:

Retail





Service





A
number of our competitors have more financial resources, are more geographically diverse, have a higher geographic market concentration 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 majorities 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

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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:



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. While the
economic climate improved somewhat in fiscal 2010, consumer spending has not returned to pre-recession levels. If the economy does not continue to strengthen, or if our efforts to
counteract the impacts of these trends are not sufficiently effective, our revenues could 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 our competitors 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 office building in Los Angeles, California. The Company also owns the following administrative regional officesapproximately 4,000 square feet of

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space
in each of Melrose Park, Illinois and Bayamon, Puerto Rico. The Company leases an administrative regional office of approximately 4,000 square feet in Carrollton, Texas.

Of
the 621 store locations operated by the Company at January 29, 2011, 232 are owned and 389 are leased. As of January 29, 2011, 126 of the 232 stores owned by the Company
are currently used as collateral under our Senior Secured Term Loan, due October 2013.

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 29, 2011:

Warehouse Locations

Products Warehoused

Approximate Square Footage

Owned or Leased

Stores Serviced

States ServicedSan Bernardino, CA

All


600,000

Leased


172

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

All


392,000

Owned


141

AL, FL, GA, LA, NC, PR, SC, TNMesquite, TX

All


244,000

Owned


71

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

All


403,000

Owned


70

IL, IN, KY, MI, MN, OH, PAChester, NY

All


402,000

Owned


167

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

Tires & Batteries


74,000

Leased


64

DE, NJ, PA, VA, MDMcDonough, GA

All except tires


30,000

Leased




Auxiliary warehouse spaceTotal




2,145,000


In addition to the distribution centers above, the Company leases three satellite warehouses comprising a total of 60,500 square feet. These
satellite warehouses stock approximately 37,000 Stock-Keeping Units (SKUs), serve an average of 1030 stores and have retail capabilities. Subsequently in fiscal 2011, the lease for
auxiliary warehouse space in McDonough, GA expired and was not renewed. 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 2011.

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 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 United States Environmental Protection Agency ("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 $5.0 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 $3.0 million
contingency accrual with respect to the restricted inventory. During fiscal 2009, the Company reversed approximately $2.0 million of the inventory accrual as a portion of the subject inventory
was released for sale by the EPA as remediation efforts had been completed. During the second quarter of fiscal 2010, the Company completed the remediation efforts and accordingly reversed
approximately $1.0 million of the inventory accrual. Further, the Company reached an agreement with the merchandise vendor to cover the entire cost of retrofitting a portion of the remaining
subject merchandise and to accept the balance of the subject inventory for return for full

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Table of Contents

credit.
During the second quarter of fiscal 2010, the formal settlement agreement between the Company and the EPA became effective and the Company paid the monetary penalty.

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 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.

ITEM 4    (REMOVED AND RESERVED)

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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 4,634 registered shareholders as of April 1, 2011. 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 2010Fourth quarter

$
15.96

$
11.37

$
0.03Third quarter


12.00


8.82


0.03Second quarter


13.26


7.86


0.03First quarter


13.42


8.08


0.03Fiscal 2009Fourth quarter

$
9.29

$
7.76

$
0.03Third quarter


10.69


8.40


0.03Second quarter


10.83


5.87


0.03First quarter


8.52


2.76


0.03


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 had no impact on the Company's consolidated financial statements, except for the reclassification of the shares within the shareholders equity section of the Company's Consolidated Balance
Sheets.

EQUITY COMPENSATION PLANS

The following table sets forth the Company's shares authorized for issuance under its equity compensation plans at January 29,
2011:

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


2,493,181

$
6.28


1,818,706


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Table of Contents

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 2006 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.; 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.

GRAPHIC

Company/Index

Jan. 2006

Jan. 2007

Jan. 2008

Jan. 2009

Jan. 2010

Jan. 2011Pep Boys

$
100.00

$
104.71

$
77.54

$
20.14

$
59.04

$
99.97S&P SmallCap 600 Index

$
100.00

$
109.90

$
103.18

$
63.68

$
88.49

$
115.87Peer Group

$
100.00

$
114.07

$
97.16

$
82.35

$
111.82

$
167.33S&P 600 Automotive Retail Index

$
100.00

$
130.47

$
82.07

$
22.48

$
62.30

$
88.54


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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. 29, 2011

Jan. 30, 2010

Jan. 31, 2009

Feb. 2, 2008

Feb. 3, 2007(dollar amounts are in thousands, except per share data)STATEMENT OF OPERATIONS DATA(6)Merchandise sales

$
1,598,168

$
1,533,619

$
1,569,664

$
1,749,578

$
1,853,077Service revenue


390,473


377,319


358,124


388,497


390,778Total revenues


1,988,641


1,910,938


1,927,788


2,138,075


2,243,855Gross profit from merchandise sales(7)


487,788
(1)

448,815
(2)

440,502
(3)

443,626
(4)

533,276Gross profit from service revenue(7)


34,564
(1)

37,292
(2)

24,930
(3)

42,611
(4)

33,004Total gross profit


522,352
(1)

486,107
(2)

465,432
(3)

486,237
(4)

566,280Selling, general and administrative expenses


442,239


430,261


485,044


518,373


546,399Net gain from disposition of assets


2,467


1,213


9,716


15,151


8,968Operating profit (loss)


82,580


57,059


(9,896
)

(16,985
)

28,849Non-operating income


2,609


2,261


1,967


5,246


7,023Interest expense


26,745


21,704
(5)

27,048
(5)

51,293


49,342Earnings (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle


58,444
(1)

37,616
(2)

(34,977
)(3)

(63,032
)(4)

(13,470
)Earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle


37,171


24,113


(28,838
)

(37,438
)

(7,071
)Discontinued operations, net of tax


(540
)

(1,077
)(2)

(1,591
)(3)

(3,601
)(4)

4,333Cumulative effect of change in accounting principle, net of tax














189Net earnings (loss)


36,631


23,036


(30,429
)

(41,039
)

(2,549
)BALANCE SHEET DATAWorking capital

$
203,367

$
205,525

$
179,233

$
195,343

$
163,960Current ratio


1.36 to 1


1.40 to 1


1.33 to 1


1.35 to 1


1.27 to 1Merchandise inventories

$
564,402

$
559,118

$
564,931

$
561,152

$
607,042Property and equipment-net

$
700,981

$
706,450

$
740,331

$
780,779

$
906,247Total assets

$
1,556,672

$
1,499,086

$
1,552,389

$
1,583,920

$
1,767,199Long-term debt, excluding current maturities

$
295,122

$
306,201

$
352,382

$
400,016

$
535,031Total stockholders' equity

$
478,460

$
443,295

$
423,156

$
470,712

$
567,755DATA PER COMMON SHAREBasic earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle

$
0.71

$
0.46

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


0.70


0.44


(0.58
)

(0.79
)

(0.05
)Diluted earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle


0.70


0.46


(0.55
)

(0.72
)

(0.13
)Diluted earnings (loss)


0.69


0.44


(0.58
)

(0.79
)

(0.05
)Cash dividends declared


0.12


0.12


0.27


0.27


0.27Book value


9.10


8.46


8.10


9.10


10.53Common share price range:High


15.96


10.83


12.56


22.49


16.55Low


7.86


2.76


2.62


8.25


9.33OTHER STATISTICSReturn on average stockholders' equity(8)


7.9
%

5.3
%

(6.8
)%

(7.9
)%

(0.4
)%Common shares issued and outstanding


52,585,131


52,392,967


52,237,750


51,752,677


53,934,084Capital expenditures

$
70,252

$
43,214

$
151,883
(9)
$
43,116

$
53,903Number of stores


621


587


562


562


593Number of service bays


6,259


6,027


5,845


5,845


6,162


(1)Includes
a pretax benefit of $5.9 million due to the reduction in reserve for excess inventory which reduced merchandise cost of sales
and an aggregate pretax charge of $1.0 million for asset impairment, of which $0.8 million was charged to merchandise cost of sales and $0.2 million was charged to service cost of
sales.(2)Includes
an aggregate pretax charge of $3.1 million for asset impairment, of which $2.2 million was charged to merchandise cost
of sales, $0.7 million was charged to service cost of sales and $0.2 million (pretax) was charged to discontinued operations.


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Table of Contents

(3)Includes
an aggregate pretax charge of $5.4 million for asset impairment, of which $2.8 million was charged to merchandise cost
of sales, $0.6 million was charged to service cost of sales and $1.9 million (pretax) was charged to discontinued operations.(4)Includes
an aggregate pretax charge of $11.0 million for the asset impairment and closure of 31 stores, of which $5.4 million
was charged to merchandise cost of sales, $1.8 million was charged to service cost of sales and $3.8 million (pretax) was charged to discontinued operations. In addition, we recorded a
pretax $32.8 million inventory impairment charge to cost of merchandise sales for the discontinuance of certain product offerings.(5)Fiscal
2009 includes a gain from debt retirement of $6.2 million. Fiscal 2008 includes a gain from debt retirement of
$3.5 million, partially offset by a $1.2 million charge for deferred financing costs.(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 $117.1 million.


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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 2010 and 2009 and developments affecting our
financial condition as of January 29, 2011. 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 on to our customers facilitating our vision to be 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") 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 2010, we opened 28 new Service & Tire Centers and seven new Supercenters. We are targeting a total of 50 new Service & Tire Centers
and five Supercenters in fiscal 2011 and 75 Service & Tire Centers and 10 Supercenters in fiscal 2012. As of January 29, 2011, we operated 560 Supercenters and 53 Service & Tire
Centers, as well as 8 legacy Pep Express (retail only) stores throughout 35 states and Puerto Rico.

EXECUTIVE SUMMARY

Fiscal 2010 was our second consecutive profitable year marked by an increase in net earnings of $13.6 million, or 59%. Fiscal
2010 net earnings were $36.6 million as compared to $23.0 million in fiscal 2009. Our diluted earnings per share for fiscal 2010 were $0.69 as compared to $0.44 in fiscal 2009. The
increase in profitability was the result of positive comparable store sales across all lines of business and improved total gross profit margins partially offset by higher selling, general and
administrative expenses and higher interest expense.

Total
revenue for fiscal 2010 increased 4.1% compared to the prior year. For fiscal 2010, our comparable store sales (sales generated by locations in operation during the same period of
the prior year) increased by 2.7% compared to a decrease of 1.2% for the prior year. The increase in comparable store sales was comprised of a 1.1% increase in comparable store service revenue and a
3.1% increase in comparable store merchandise sales.

Sales
of services and non-discretionary products are primarily impacted by miles driven, which had returned to pre-recession low single-digit growth rates from
March 2010 through November 2010, in part due to lower gasoline prices. As gasoline prices in recent months have been trending higher, we

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expect
to see a negative impact on miles driven. However, we cannot predict future fluctuations in gasoline prices, nor the ultimate impact of such fluctuations on miles driven in future periods.
There are also various factors occurring within the current economy that affect both our consumer and our industry, including the impact of the recent recession, higher unemployment and a tighter
credit environment, which we believe have aided our sales of non-discretionary product and services as customers have focused on maintaining their existing vehicles rather than purchasing
new vehicles. Despite the recent increase in new car sales (which still remain significantly below historical levels), the median age of the U.S. light vehicle fleet continues to trend in our
industry's favor. Given the nature of these macroeconomic factors, we cannot predict whether or for how long these trends will continue, nor can we predict to what degree these trends will impact us
in the future. However, these same trends have negatively impacted sales in our discretionary product categories like accessories and complementary merchandise since fiscal 2009, although the rate of
decline has moderated significantly since then.

In
2010, we continued our "surround sound" media campaign that utilizes television, radio and direct mail advertising to communicate our "DOES EVERYTHING. FOR
LESS." brand vision and focused on "execution excellence" in our stores in order earn the TRUST of our customers every day. We believe these efforts are responsible for
increased customer traffic in our stores in all lines of business for fiscal 2010.

RESULTS OF OPERATIONS

The following discussion explains the material changes in our results of operations for the years ended January 29, 2011 and
January 30, 2010 and January 31, 2009.

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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 29, 2011
(Fiscal 2010)

Jan 30, 2010
(Fiscal 2009)

Jan 31, 2009
(Fiscal 2008)

Fiscal 2010 vs.
Fiscal 2009

Fiscal 2009 vs.
Fiscal 2008Merchandise sales


80.4
%

80.3
%

81.4
%

4.2
%

(2.3
)%Service revenue(1)


19.6


19.7


18.6


3.5


5.4Total revenues


100.0


100.0


100.0


4.1


(0.9
)Costs of merchandise sales(2)


69.5
(3)

70.7
(3)

71.9
(3)

(2.4
)

3.9Costs of service revenue(2)


91.1
(3)

90.1
(3)

93.0
(3)

(4.7
)

(2.1
)Total costs of revenues


73.7


74.6


75.9


(2.9
)

2.6Gross profit from merchandise sales


30.5
(3)

29.3
(3)

28.1
(3)

8.7


1.9Gross profit from service revenue


8.9
(3)

9.9
(3)

7.0
(3)

(7.3
)

49.6Total gross profit


26.3


25.4


24.1


7.5


4.4Selling, general and administrative expenses


22.2


22.5


25.2


(2.8
)

11.3Net gain from disposition of assets


0.1


0.1


0.5


103.4


(87.5
)Operating profit (loss)


4.2


3.0


(0.5
)

44.7


676.6Non-operating income


0.1


0.1


0.1


15.4


14.9Interest expense


1.3


1.1


1.4


(23.2
)

19.8Earnings (loss) from continuing operations before income taxes


2.9


2.0


(1.8
)

55.4


207.5Income tax expense (benefit)


36.4
(4)

35.9
(4)

17.6
(4)

(57.5
)

(320.0
)Earnings (loss) from continuing operations


1.9


1.3


(1.5
)

54.2


183.6Discontinued operations, net of tax





(0.1
)

(0.1
)

49.9


32.3Net earnings (loss)


1.8


1.2


(1.6
)

59.0


175.7


(1)Service
revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any
installed parts or materials.(2)Costs
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 and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs and maintenance and
depreciation and amortization expenses.(3)As
a percentage of related sales or revenue, as applicable.(4)As
a percentage of earnings (loss) from continuing operations before income taxes.


Fiscal 2010 vs. Fiscal 2009

Total revenue and comparable store sales for fiscal 2010 increased 4.1% and 2.7%, respectively, over the prior year. Total revenue for
fiscal 2010 increased by $77.7 million to $1,988.6 million from $1,910.9 million in fiscal 2009. The 2.7% increase in comparable store revenues consisted of a 1.1% increase in
comparable store service revenue and a 3.1% increase in comparable store merchandise sales. While our total revenue figures were favorably impacted by our opening of 35 new stores in fiscal

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2010,
a new store is not added to our comparable store sales base until it reaches its 13th month of operation. Non-comparable store sales contributed an additional
$25.9 million of total revenues in fiscal 2010 as compared to fiscal 2009. Total comparable store sales increased due to growth in customer counts in all three lines of business combined with
an increase in the total average transaction amount per customer.

Total
merchandise sales increased 4.2%, or $64.5 million, to $1,598.2 million in fiscal 2010 as compared to $1,533.6 million in fiscal 2009. Comparable store
merchandise sales increased 3.1%, or $47.7 million, as compared to the prior year, driven primarily by increased customer counts across all lines of business as well as an increase in the
average transaction amount per customer. The balance of the increase in merchandise sales was due to the contribution from our non-comparable stores. Total service revenue increased 3.5%,
or $13.2 million, to $390.5 million in fiscal 2010 compared to $377.3 million in fiscal 2009. Comparable store service revenue increased 1.1%, or $4.2 million, as compared
to the prior year, due to higher customer counts partially offset by a decrease in average transaction amount per customer. The balance of the increase in service revenue was primarily due to the
contribution from our non-comparable store base which accounted for an additional $9.0 million of service revenue.

In
fiscal 2010, comparable customer count increased versus fiscal 2009 in all lines of business due to our traffic-driving promotional events and rewards program and our improved
customer experience resulting from better store execution. Our core automotive parts and tires categories, which make up approximately 79% of our merchandise sales, experienced a 3.6% increase in
comparable store sales. We believe that utilizing innovative marketing programs to communicate our value-priced, differentiated merchandise assortment will continue to drive increased customer counts
and that our
continued focus on delivering a better customer experience than our competitors will convert those increased customer counts into sales improvements consistently over all lines of business.

Gross
profit from merchandise sales increased by $39.0 million, or 8.7%, to $487.8 million in fiscal 2010 from $448.8 million in fiscal 2009. Gross profit margin
from merchandise sales increased to 30.5% for fiscal 2010 from 29.3% for fiscal 2009. Gross profit from merchandise sales for fiscal 2010 included a net benefit of $6.2 million comprised of a
$5.9 million reduction in our reserve for excess inventory (see below) and the reversal of an inventory related accrual of approximately $1.0 million partially offset by an
$0.8 million asset impairment charge. Gross profit from merchandise sales for fiscal 2009 included a net benefit of $0.4 million comprised of the reversal of inventory related accruals
of approximately $2.0 million and a $0.6 million gain from an insurance settlement, largely offset by a $2.2 million asset impairment charge. Excluding these items from both
years, gross profit margin from merchandise sales improved by 90 basis points to 30.1% in fiscal 2010 from 29.2% in the prior year. This improvement was primarily due to less inventory shrinkage,
lower defective product expense and increased merchandise sales, which better leveraged fixed store occupancy costs such as rent and utilities and warehousing costs such as payroll and out bound
freight-costs.

In
fiscal 2010 we reduced our reserve for excess inventory by $5.9 million, of which $4.6 million was recorded in the fourth quarter, as a result of significant
improvements in the quality of our inventory, including: (i) improving inventory management, including timely return of excess product to vendors for full credit; (ii) maintaining
relatively flat inventory levels despite the investment in new stores; (iii) reducing inventory lead times and safety stock requirements, including consolidating slow-moving hard
parts inventory into one centrally located warehouse, which led to significant reductions in slower moving parts inventory at our distribution centers; and (iv) increasing our inventory
turnover ratio, which is reflected in our increased comparable store sales.

Gross
profit from service revenue decreased by $2.7 million, or 7.3%, to $34.6 million in fiscal 2010 from $37.3 million in the prior year. Gross profit margin from
service revenue decreased to 8.9% for fiscal 2010 from 9.9% for fiscal 2009. Gross profit from service revenue for fiscal 2010 included a

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$0.2 million
asset impairment charge related to previously closed stores. Gross profit from service revenue for fiscal 2009 included a $0.7 million asset impairment charge related to
previously closed stores. Excluding these items from both years, gross profit margin from service revenue decreased to 8.9% for fiscal 2010 from 10.1% in the prior year. The decrease in gross profit
from service revenue was due to the opening of new Service & Tire Centers, which while in their ramp up stage for sales incur their full amount of fixed expenses, including payroll and
occupancy costs (rent, utilities and building maintenance). Our new Service & Tire Centers negatively impacted gross margins by 134 basis points in fiscal 2010. Excluding the impact of new
Service & Tire Centers and the impairment charges described above, gross profit from service revenue increased to 10.7% for fiscal 2010 from 10.5% for fiscal 2009. The increase in gross profit,
exclusive of new locations, was primarily due to increased service revenues which better leveraged fixed store occupancy costs and, to a lesser extent, labor costs.

Selling,
general and administrative expenses as a percentage of revenue decreased to 22.2% in fiscal 2010 from 22.5% in fiscal 2009. Selling, general and administrative expenses
increased $12.0 million, or 2.8%, to $442.2 million. The increase was primarily due to higher payroll and related expenses of $5.6 million, higher media expense of
$4.9 million and increased travel costs of $1.4 million. The reduction as a percentage of sales reflects improved leverage of selling, general and administrative expenses achieved
through increased sales in fiscal 2010.

Net
gains from the disposition of assets increased by $1.3 million to $2.5 million in fiscal 2010 from $1.2 million in fiscal 2009. Fiscal 2010 includes
$2.1 million in net settlement proceeds from the disposition of a previously closed property, while fiscal 2009 reflects an aggregate gain of $1.3 million from three store sale and
leaseback transactions.

Interest
expense for fiscal 2010 was $26.7 million, an increase of $5.0 million, compared to $21.7 million in fiscal 2009. Interest expense for fiscal 2009 included
a $6.2 million gain from the retirement of debt. Excluding this item, interest expense decreased by $1.2 million in fiscal 2010 compared to fiscal 2009 primarily due to reduced debt
levels.

Income
tax expense for fiscal 2010 was $21.3 million, or an effective rate of 36.4%, as compared to $13.5 million, or an effective rate of 35.9%, for fiscal 2009. The
fiscal 2010 effective tax rate includes a $2.1 million benefit related to the reduction of a valuation allowance on certain state net operating losses and credits. The fiscal 2009 effective tax
rate includes a $1.2 million benefit due to the allocation of additional costs to certain jurisdictions thereby reducing past and future tax liabilities.

As
a result of the foregoing, we reported net earnings of $36.6 million for fiscal 2010, an increase of $13.6 million, or 59%, as compared to net earnings of
$23.0 million for fiscal 2009. Our diluted earnings per share were $0.69 for fiscal 2010 as compared to $0.44 for fiscal 2009.

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.

Total
merchandise sales decreased 2.3% to $1,533.6 million compared to $1,569.7 million in fiscal 2008. Total service revenue increased 5.4% to $377.3 million from
$358.1 million 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

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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, as discussed in
the "Business" section of our Form 10-K. 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 $8.3 million to $448.8 million for fiscal 2009 from $440.5 million 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 $2.0 million
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
$0.6 million, mostly offset by an asset impairment charge of $2.2 million 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 $2.8 million and a $3.0 million 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 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 $12.4 million, 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 $0.7 million and $0.6 million, 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
$54.8 million or 11.4%. The decrease was primarily due to lower media expense of $21.2 million, lower legal expenses and professional services fees of $13.3 million, reduced
payroll and related expenses of $7.5 million, lower travel expenses of $2.3 million and improved general liability claims expense of $1.3 million.

Net
gains from the disposition of assets for fiscal 2009 and fiscal 2008 reflect gains of $1.2 million and $9.7 million, 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.

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Interest
expense was $21.7 million in fiscal 2009, a decline of $5.3 million compared to the prior year. Fiscal 2009 and 2008 included gains from the retirement of debt of
$6.2 million and $3.5 million, respectively. Fiscal 2008 also included a $1.2 million charge for deferred financing costs related to our revolving credit facility that was
replaced. Excluding these items, interest expense declined by $1.4 million from fiscal 2008 to fiscal 2009 primarily due to reduced debt levels.

Income
tax expense was $13.5 million, or an effective rate of 35.9%, for fiscal 2009 as compared to an income tax benefit of $6.1 million, or an effective rate of 17.6%,
for fiscal 2008. The current year effective tax rate includes a benefit of $1.2 million 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 $1.1 million in fiscal 2009 versus $1.6 million in fiscal 2008. Fiscal 2009 and 2008 included, on a pre-tax
basis, impairment charges of $0.2 million and $1.9 million, respectively.

As
a result of the foregoing, we reported net earnings of $23.0 million for fiscal 2009, an increase of $53.5 million from our net loss of $30.4 million in fiscal
2008. Our basic and diluted earnings per share were $0.44 for fiscal 2009 as compared to our basic and diluted loss per share of $0.58 in the prior year.

Discontinued Operations

The analysis of our results of continuing operations excludes the operating results of closed stores, where the customer base could not
be maintained, 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: (1) the Service business, defined as
Do-It-For-Me (service labor, installed merchandise and tires) and (2) the Retail business, defined as Do-It-Yourself (retail
merchandise) and commercial. Generally, specialized automotive retailers focus on either the Service or Retail area of the business. We believe that operation in both the Service and Retail 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 merchandise that we install in customer vehicles 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

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commercial
sales 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 29,
2011

January 30,
2010

January 31,
2009Retail sales(1)

$
1,046,772

$
1,013,308

$
1,058,021Service center revenue(2)


941,869


897,630


869,767Total revenues

$
1,988,641

$
1,910,938

$
1,927,788Gross profit from retail sales(3)

$
306,176

$
275,051

$
273,262Gross profit from service center revenue(4)


216,176


211,056


192,170Total gross profit

$
522,352

$
486,107

$
465,432


(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. Occupancy costs include
utilities, rents, real estate and property taxes, repairs and maintenance and depreciation and amortization expenses.(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.


CAPITAL & LIQUIDITY

Capital Resources and Needs

Our cash requirements arise principally from (1) the purchase of inventory and capital expenditures related to existing and new
stores, offices and distribution centers, (2) debt service and (3) 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 operating activities was $117.2 million for fiscal 2010, as compared to $87.2 million for fiscal 2009. The $30.0 million
improvement was due to increased net earnings (net of non-cash adjustments) of $24.9 million and a favorable change in operating assets and liabilities of $5.9 million,
offset by an increase in cash used in discontinued operations of $0.9 million. The change in operating assets and liabilities was primarily due to a favorable change in merchandise inventories
net of accounts payable of $4.8 million. Taking into consideration changes in our trade payable program liability (shown as cash flows from financing activities on the consolidated statement of
cash flows), inventory net of accounts payable improved by $24.8 million primarily due to increased inventory purchases and an improvement in our vendor trade payable terms. The ratio of
accounts payable, including our trade payable program, to inventory was 47.3% at January 29, 2011, and 42.4% at January 30, 2010. The favorable change in all other long-term
assets and liabilities was due to increased accruals for payroll tax in the current year due to timing of payments to taxing authorities mostly offset by a discretionary contribution to our defined
benefit pension plan of $5.0 million (see Note 13 to the consolidated financial statements) in the current year.

Cash
used in investing activities was $72.1 million for fiscal 2010 as compared to $29.9 million for fiscal 2009. Capital expenditures were $70.3 million and
$43.2 million, for fiscal 2010 and fiscal 2009, respectively. Capital expenditures for fiscal 2010, in addition to our regularly-scheduled store and distribution center improvements, included
the addition of seven new Supercenters and 28 new Service & Tire Centers and the upgrade of our store systems hardware. During fiscal 2010, we sold

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seven
properties classified as held for disposal for net proceeds of $4.3 million, of which $0.6 million is included in discontinued operations, completed one sale leaseback transaction
for net proceeds of $1.6 million and received $2.1 million in net settlement proceeds from the disposition of a previously closed property. During fiscal 2009, we sold four properties
classified as held for disposal for net proceeds of $3.6 million, of which $1.8 million is reported in discontinued operations, and completed four leaseback transactions for net proceeds
of $12.9 million. During fiscal 2009, we acquired substantially all of the assets (other than real property) of Florida Tire, Inc. for $2.7 million. In connection with the
acquisition, we recorded a contingent liability of $1.7 million, of which $0.3 million was paid in fiscal 2010. During fiscal 2010, we used $9.6 million as collateral for retained
liabilities included within existing insurance programs in lieu of previously outstanding letters of credit. This collateral is recorded within Other Long-Term Assets on the Consolidated
Balance Sheet as of January 29, 2011.

Our
targeted capital expenditures for fiscal 2011 are expected to be approximately $80.0 million. Our fiscal 2011 capital expenditures include the addition of approximately 50
Service & Tire Centers, five Supercenters and the conversion of 24 Supercenters into Superhubs. These expenditures are expected to be funded by cash on hand and net cash generated from
operating activities. Additional capacity, if needed, exists under our existing line of credit.

In
fiscal 2010, cash provided by financing activities was $5.8 million, as compared to cash used in financing activities of $39.4 million in the prior year. The
$45.2 million improvement was primarily due to increased net borrowings under our trade payable program of $20.0 million combined with the net repayment, in fiscal 2009, of
$23.9 million of borrowings under our credit facility. The trade payable program is funded by various bank participants who have the ability, but not the obligation, to
purchase, directly from our vendors, account receivables owed by Pep Boys. In fiscal 2010, we increased the availability under this financing program to $100.0 million from $50.0 million
in fiscal 2009. As of January 29, 2011 and January 30, 2010, we had an outstanding balance (classified as trade payable program liability on the consolidated balance sheet) of
$56.3 million and $34.1 million, respectively. Additionally, in fiscal 2010, we repurchased $10.0 million of our outstanding 7.50% Senior Subordinated Notes for
$10.2 million. In fiscal 2009 we repurchased $17.0 million of the 7.50% Senior Subordinated Notes for $10.7 million.

We
anticipate that cash on hand and cash generated by operating activities will exceed our expected cash requirements in fiscal year 2010. In addition, we expect to have excess
availability under our existing revolving credit agreement during the entirety of fiscal year 2011. As of January 29, 2011, we had no borrowings on our revolving credit facility and undrawn
availability of $138.2 million.

Our
working capital was $203.4 million and $205.5 million at January 29, 2011 and January 30, 2010, respectively. Our long-term debt less current
maturities, as a percentage of our total capitalization, was 38.2% and 40.9% at January 29, 2011 and January 30, 2010, respectively.

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The following chart represents our total contractual obligations and commercial commitments as of January 29, 2011:

Contractual Obligations

Total

Within 1 year

From 1 to 3
years

From 3 to 5
years

After 5
years(dollars amounts in thousands)Long-term debt(1)

$
296,201

$
1,079

$
147,557

$
147,565

$
Operating leases


747,617


86,730


166,052


147,435


347,400Expected scheduled interest payments on long-term debt


71,526


21,498


40,234


9,794


Other long-term obligations(2)


20,830











Total contractual obligations

$
1,136,174

$
109,307

$
353,843

$
304,794

$
347,400


(1)Long-term
debt includes current maturities.(2)Primarily
includes pension obligation of $12.4 million, income tax liabilities and asset retirement obligations. We made voluntary
contributions of $5.0 million and $19.9 million to our pension plans in fiscal 2010 and 2008, respectively. Future plan contributions are dependent upon actual plan asset returns and
interest rates. See Note 13 of the Notes to Consolidated Financial Statements in "Item 8 Financial Statements and Supplementary Data" for further discussion of our pension plans. The
above table does not reflect the timing of projected settlements for our recorded asset retirement obligation costs of $5.6 million, income tax liabilities of $2.8 million and pension
obligation of $12.4 million because we cannot make a reliable estimate of the timing of the related cash payments.


Commercial Commitments

Total

Within 1
year

From 1 to 3
years

From 3 to 5
years

After 5
years(dollar amounts in thousands)Commercial letters of credit

$
259

$
259

$


$


$
Standby letters of credit


107,583


107,331


252





Surety bonds


10,256


10,256








Purchase obligations(1)(2)


5,048


5,048








Total commercial commitments

$
123,146

$
122,894

$
252

$


$



(1)Our
open purchase orders are based on current inventory or operational needs and are fulfilled by our vendors within short periods of time. We
currently do not have minimum purchase commitments under our vendor supply agreements and generally, our open purchase orders (orders that have not been shipped) are not binding agreements. Those
purchase obligations that are in transit from our vendors at January 29, 2011 that we do not have legal title to are considered commercial commitments.(2)In
fiscal 2010, we entered into a commercial commitment to purchase 1.5 million gallons of oil products at various prices over a
one-year period. At January 29, 2011, we expect to meet the cumulative minimum purchase requirements under this contract and to completely satisfy and terminate this contract during
fiscal 2011.




On December 14, 2004, we issued $200.0 million aggregate principal amount of 7.50% Senior Subordinated Notes (the
"Notes") due December 15, 2014. During fiscal 2010 and 2009, the Company repurchased Notes in the principal amount of $10.0 million and $17.0 million, respectively. On
January 29, 2011, the outstanding balance of these Notes was $147.6 million.

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Our Senior Secured Term Loan (the "Term Loan") is due October, 2013. 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 accrues at the London Interbank Offered Rate (LIBOR)
plus 2.0% on this facility.

As
of January 29, 2011, 126 stores collateralized the Senior Secured Term Loan. The outstanding balance under the Term Loan at the end of fiscal 2010 was $148.6 million.
The $1.1 million decline in the outstanding balance was due to quarterly principal payments of $0.3 million.



On January 16, 2009, we entered into a Revolving Credit Agreement (the "Agreement") with available borrowings up to
$300.0 million. 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
$6.8 million were capitalized and are being amortized over the five 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 29, 2011, there were no outstanding borrowings
under the Agreement.

The
weighted average interest rate on all debt borrowings during fiscal 2010 and 2009 was 6.3% and 4.2%, 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 $50.0 million 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 29, 2011, the Company had no borrowings outstanding under the Revolving Credit Agreement, additional availability of approximately $138.2 million and was in
compliance with its financial covenants.



We have a 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 total availability under the new program was $100.0 million as of January 29, 2011. There was an outstanding
balance of $56.3 million and $34.1 million under this program as of January 29, 2011 and January 30, 2010, respectively.

We
have letter of credit arrangements in connection with our risk management, import merchandising and vendor financing programs. We were contingently liable for $0.3 million in
outstanding commercial letters of credit as of January 29, 2011, and $107.6 million and $103.3 million in outstanding standby letters of credit as of January 29, 2011 and
January 30, 2010, respectively.

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We
are also contingently liable for surety bonds in the amount of approximately $10.3 million and $10.2 million as of January 29, 2011 and January 30, 2010,
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 29, 2011 were $747.6 million.



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 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 $14.4 million payment and recorded a charge of $6.0 million. The SERP currently consists of only the defined
contribution plan which we refer to as our "Account Plan."

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. For fiscal
2010 and 2009, the Company's contributions were conditional upon the achievement of certain pre-established financial performance goals which were met. The Company's savings plans'
contribution expense was $3.0 million, $3.1 million and $3.3 million in fiscal 2010, 2009 and 2008, 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 2010, 2009 and 2008 was $6.3 million, $6.4 million and $11.9 million, respectively. The fiscal 2008 pension expense includes
a SERP settlement charge of $6.0 million. Pension expense is calculated based upon a number of actuarial assumptions, including an expected return on plan assets of 6.95% and a discount rate of
6.1%. 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. While we had no minimum funding requirement during fiscal 2010, we made a $5.0 million discretionary contribution to the defined benefit pension plan in
October 2010. In fiscal 2008, we contributed an aggregate of $19.9 million to our pension plans to fund the retirement obligations and for the termination of the

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defined
benefit portion of the SERP. Based upon the current status of the plans, we do not expect to make any cash contributions in fiscal 2011. See Note 13 of Notes to Consolidated Financial
Statements in "Item 8 Financial Statements and Supplementary Data" for further discussion of our pension plans.

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

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Change in Assumption (dollars in thousands)

Impact on Annual
Pension Expense

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


Increase $405


Increase $3,0950.50 percentage point increase in discount rate


Decrease $405


Decrease $3,0955.00 percentage point decrease in expected rate of return on assets


Increase $135


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


Decrease $135







34

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RECENT ACCOUNTING STANDARDS

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. The adoption of ASC 718 resulted in a
$1.2 million net of tax charge to retained earnings on February 3, 2008.

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 adoption of ASU 2009-13 did not have a material impact on the 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 the reconciliation of level 3 inputs includes separately
reported information on purchases, sales, issuances and settlements. The increased disclosures should be reported for each class of assets or liabilities.

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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. ASU 2010-06 was 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 did not have a material impact on the Company's
consolidated financial statements.

In
December 2010, the FASB issued ASU 2010-29 "Business Combinations (Topic 805)Disclosure of Supplementary Pro Forma Information for Business Combinations" (ASU
2010-29). This accounting standard update clarifies that SEC registrants presenting comparative financial statements should disclose in their pro forma information revenue and earnings of
the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental
pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro
forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on
or after December 15, 2010 with early adoption permitted. The Company does not believe the adoption of those requirements of ASU 2010-29 will have a material impact on the
consolidated results of operations and financial condition.

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 and prices.

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 29, 2011, there were no outstanding borrowings under the agreement. Additionally, the Company has a Senior Secured Term Loan facility with a balance of
$148.6 million at January 29, 2011, 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 2010. The risk related to changes in the three month LIBOR rate are substantially mitigated by our interest rate swap.

At
January 29, 2011, the fair value of the Company's fixed rate debt instruments, principally the $147.6 million 7.50% Senior Subordinated Notes, due December 15,
2014, was $149.8 million. At January 30, 2010, the fair value of the Company's fixed rate debt instruments, principally the $157.6 million 7.50% Senior Subordinated Notes, due
December 15, 2014, was $148.9 million. The Company determines fair value on its fixed rate debt by using quoted market prices and current interest rates.

Interest Rate Swaps

The Company entered into an interest rate swap for a notional amount of $145.0 million that is designated as a cash flow hedge
on the first $145.0 million of the Company's 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. As of January 29, 2011 and January 30, 2010, the fair value of the swap was a net $16.4 million payable recorded within other long-term
liabilities on the balance sheet.

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Other

In the second quarter of fiscal 2010, the Company entered into a price stability agreement ("Agreement") that is also designated as a
cash flow hedge. This Agreement is intended to hedge the price risks associated with the market volatility of retail gasoline. This hedge is deemed to be fully effective and all adjustments in the
hedge's fair value have been recorded to accumulated other comprehensive loss. The effect of this Agreement on the Company's condensed consolidated financial statements is immaterial. This Agreement
expired on January 31, 2011.

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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 29, 2011 and
January 30, 2010, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 29, 2011. 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 29, 2011 and January 30, 2010, and the results of their operations and their cash flows for each of the three fiscal years in the period ended
January 29, 2011, 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, presents 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 29, 2011, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 11, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.

DELOITTE &
TOUCHE LLP

Philadelphia,
Pennsylvania
April 11, 2011

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CONSOLIDATED BALANCE SHEETS

The Pep BoysManny, Moe & Jack and Subsidiaries

(dollar amounts in thousands, except share data)

January 29,
2011

January 30,
2010ASSETSCurrent assets:Cash and cash equivalents

$
90,240

$
39,326Accounts receivable, less allowance for uncollectible accounts of $1,551 and $1,488


19,540


22,983Merchandise inventories


564,402


559,118Prepaid expenses


28,542


24,784Other current assets


60,337


65,428Assets held for disposal


475


4,438Total current assets


763,536


716,077Property and equipmentnet


700,981


706,450Deferred income taxes


66,019


58,171Other long-term assets


26,136


18,388Total assets

$
1,556,672

$
1,499,086LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
210,440

$
202,974Trade payable program liability


56,287


34,099Accrued expenses


236,028


242,416Deferred income taxes


56,335


29,984Current maturities of long-term debt


1,079


1,079Total current liabilities


560,169


510,552Long-term debt less current maturities


295,122


306,201Other long-term liabilities


70,046


73,933Deferred gain from asset sales


152,875


165,105Commitments 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


295,361


293,810Retained earnings


402,600


374,836Accumulated other comprehensive loss


(17,028
)

(17,691
)Treasury stock, at cost15,971,910 shares and 16,164,074 shares


(271,030
)

(276,217
)Total stockholders' equity


478,460


443,295Total liabilities and stockholders' equity

$
1,556,672

$
1,499,086


See
notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF OPERATIONS

The Pep BoysManny, Moe & Jack and Subsidiaries

(dollar amounts in thousands, except per share data)

Year ended

January 29,
2011

January 30,
2010

January 31,
2009Merchandise sales

$
1,598,168

$
1,533,619

$
1,569,664Service revenue


390,473


377,319


358,124Total revenues


1,988,641


1,910,938


1,927,788Costs of merchandise sales


1,110,380


1,084,804


1,129,162Costs of service revenue


355,909


340,027


333,194Total costs of revenues


1,466,289


1,424,831


1,462,356Gross profit from merchandise sales


487,788


448,815


440,502Gross profit from service revenue


34,564


37,292


24,930Total gross profit


522,352


486,107


465,432Selling, general and administrative expenses


442,239


430,261


485,044Net gain from disposition of assets


2,467


1,213


9,716Operating profit (loss)


82,580


57,059


(9,896
)Non-operating income


2,609


2,261


1,967Interest expense


26,745


21,704


27,048Earnings (loss) from continuing operations before income taxes and discontinued operations


58,444


37,616


(34,977
)Income tax expense (benefit)


21,273


13,503


(6,139
)Earnings (loss) from continuing operations before discontinued operations


37,171


24,113


(28,838
)Loss from discontinued operations, net of tax benefit of $(291), $(580) and $(857)


(540
)

(1,077
)

(1,591
)Net earnings (loss)

$
36,631

$
23,036

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

$
0.71

$
0.46

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


(0.01
)

(0.02
)

(0.03
)Basic earnings (loss) per share

$
0.70

$
0.44

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

$
0.70

$
0.46

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


(0.01
)

(0.02
)

(0.03
)Diluted earnings (loss) per share

$
0.69

$
0.44

$
(0.58
)


See
notes to the consolidated financial statements

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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 Stock

Accumulated
Other
Comprehensive
LossAdditional
Paid-in
Capital

Retained
Earnings

Benefit
Trust

Total
Stockholders'
EquityShares

Amount

Shares

AmountBalance, 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
)




443,295Comprehensive income:Net earnings











36,631














36,631Changes in net unrecognized other postretirement benefit costs, net of tax of $344




















582





582Fair market value adjustment on derivatives, net of tax of $48




















81





81Total comprehensive income


























37,294Cash dividends ($.12 per share)











(6,323
)













(6,323
)Effect of stock options and related tax benefits











(2,023
)

96,590


2,608








585Effect of restricted stock unit conversions








(1,946
)




61,042


1,647








(299
)Stock compensation expense








3,497

















3,497Dividend reinvestment plan











(521
)

34,532


932








411Balance, January 29, 2011


68,557,041

$
68,557

$
295,361

$
402,600


(15,971,910
)
$
(271,030
)
$
(17,028
)
$


$
478,460


See notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

The Pep BoysManny, Moe & Jack and Subsidiaries

(dollar amounts in thousands)

Year EndedJanuary 29,
2011

January 30,
2010

January 31,
2009Cash flows from operating activities:Net earnings (loss)

$
36,631

$
23,036

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


540


1,077


1,591Depreciation and amortization


74,151


70,529


73,207Amortization of deferred gain from asset sales


(12,602
)

(12,325
)

(10,285
)Stock compensation expense


3,497


2,575


2,743Loss (gain) from debt retirement


200


(6,248
)

(3,460
)Deferred income taxes


18,572


13,446


(6,258
)Net gain from dispositions of assets


(2,467
)

(1,213
)

(9,716
)Loss from asset impairment


970


2,884


3,427Other


(479
)

345


537Changes in operating assets and liabilities:Decrease in accounts receivable, prepaid expenses and other


7,060


7,175


23,904(Increase) decrease in merchandise inventories


(5,284
)

7,039


(3,779
)Increase (decrease) in accounts payable


7,466


(9,640
)

(33,083
)Decrease in accrued expenses


(8,394
)

(13,238
)

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


(1,200
)

2,384


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


118,661


87,826


(38,586
)Net cash used in discontinued operations


(1,466
)

(603
)

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


117,195


87,223


(39,507
)Cash flows from investing activities:Cash paid for master lease property








(117,121
)Cash paid for property and equipment


(70,252
)

(43,214
)

(34,762
)Proceeds from dispositions of assets


7,515


14,776


210,635Life insurance proceeds received








15,588Acquisition of Florida Tire, Inc.


(288
)

(2,695
)

Collateral investment and other


(9,638
)

(500
)

Net cash (used in) provided by continuing operations


(72,663
)

(31,633
)

74,340Net cash provided by discontinued operations


569


1,762


4,386Net cash (used in) provided by investing activities


(72,094
)

(29,871
)

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


21,795


249,704


205,162Payments under line of credit agreements


(21,795
)

(273,566
)

(223,345
)Borrowings on trade payable program liability


347,068


192,324


196,680Payments on trade payable program liability


(324,880
)

(190,155
)

(179,004
)Payments for finance issuance costs








(6,936
)Proceeds from lease financing








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


(11,279
)

(11,990
)

(26,798
)Dividends paid


(6,323
)

(6,286
)

(14,111
)Other


1,227


611


878Net cash provided by (used in) financing activities


5,813


(39,358
)

(38,813
)Net increase in cash and cash equivalents


50,914


17,994


406Cash and cash equivalents at beginning of year


39,326


21,332


20,926Cash and cash equivalents at end of year

$
90,240

$
39,326

$
21,332Supplemental cash flow information:Cash paid for interest, net of amounts capitalized

$
23,098

$
24,509

$
26,548Cash received from income tax refunds

$
195

$
921

$
Cash paid for income taxes

$
890

$
4,768

$
1,330Non-cash investing activities:Accrued purchases of property and equipment

$
2,926

$
1,738

$
1,214


See notes to the consolidated financial statements

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

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 of America ("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 operates in the U.S. automotive aftermarket, which has two general lines of business: (1) the Service business, defined
as Do-It-For-Me, or "DIFM" (service labor, installed merchandise and tires) and (2) the Retail business, defined as Do-It-Yourself,
or "DIY" (retail merchandise) and commercial. The Company's primary store format is the Supercenter, which houses both retail and repair services in one building. 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 2010, which ended January 29, 2011, fiscal
2009, which ended January 30, 2010, and fiscal 2008 which ended January 31, 2009 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 $486.0 million

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

and
$482.0 million as of January 29, 2011 and January 30, 2010, respectively. During fiscal 2010, 2009 and 2008, the effect of LIFO layer liquidations on gross profit was
immaterial.

The
Company's inventory, consisting primarily of auto parts and accessories, is used on vehicles typically having longer lives. Because of this, along with the Company's historical
experience of returning excess inventory to the Company's vendors for full credit, the risk of obsolescence is minimal. The Company establishes a reserve for excess inventory for instances where less
than full credit will be received for such returns and where the Company anticipates items will be sold at retail prices that are less than recorded costs. The reserve is based on management's
judgment, including estimates and assumptions regarding marketability of products, the market value of inventory to be sold in future periods and on historical experiences where the Company received
less than full credit from vendors for product returns.

In
fiscal 2010, the Company reduced its reserve for excess inventory by $5.9 million to $5.4 million from $11.3 million primarily due to improved inventory
management, including timely return of excess product to vendors for credit. However, in future periods the Company may be exposed to material losses should the Company's vendors alter their policy
with regard to accepting excess inventory returns.

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. Property and equipment information follows:

(dollar amounts in thousands)

January 29,
2011

January 30,
2010Land

$
204,023

$
204,709Buildings and improvements


848,268


826,804Furniture, fixtures and equipment


685,481


695,072Construction in progress


8,781


1,550Accumulated depreciation and amortization


(1,045,572
)

(1,021,685
)Property and equipmentnet

$
700,981

$
706,450


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

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

payroll
costs for employees devoting time to the software projects. These costs are amortized over a 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 the Company directly from its vendors. The Company, in turn, makes the regularly
scheduled full vendor payments to the bank participants.

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. 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 income tax positions, the Company records 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 2010.

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 and the product is delivered to
the customer. 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. Revenue from gift card sales is recognized upon gift card redemption. The Company's gift cards do not have expiration dates. The Company recognizes
breakage on gift cards when, among other things, sufficient gift card history is available to estimate potential breakage and the Company determines there are no legal obligations to remit the value
of unredeemed gift cards to the relevant jurisdictions. Estimated breakage revenue is immaterial for all periods presented.

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

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

receive
a certificate that may be redeemed on future purchases within 90 days of issuance. The retail value of points earned by loyalty program members is included in accrued liabilities as
deferred income and recorded as a reduction of revenue at the time the points are earned, based on the historic and projected rate of redemption. The Company recognizes deferred revenue and the cost
of the free products distributed to loyalty program members when the awards are redeemed. The cost of the free products distributed to program members is recorded within costs of revenues.

A
portion of the Company's transactions includes the sale of auto parts that contain a core component. These components represent the recyclable portion of the auto part. Customers are
not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component.
The Company refunds that same amount upon the customer returning a used core to the store at a later date. The
Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned by the customer.

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 customers. Occupancy costs include
utilities, rents, real estate and property taxes, repairs, maintenance, depreciation and amortization expenses.

VENDOR SUPPORT FUNDSThe Company receives various incentives in the form of discounts and allowances from its vendors based on purchases or for
services that the Company provides to the vendors. These incentives received from vendors include rebates, allowances and promotional funds and are generally based upon a percentage of the gross
amount purchased. Funds are recorded when title of goods purchased have transferred to the Company as the amount is known and not contingent on future events. The amount of funds to be received are
subject to vendor agreements and ongoing negotiations that may be impacted in the future based on 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. Such allowances were immaterial for all periods presented.

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 historical experience. These costs are included in either costs of merchandise sales or costs of service revenue in the consolidated statement of
operations.

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
reserve for warranty activity for the years ended January 29, 2011 and January 30, 2010, respectively, are as follows:

(dollar amounts in thousands)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


694Additions related to sales in the current year


12,261Warranty costs incurred in the current year


(12,282
)Balance, January 29,2011

$
673


ADVERTISINGThe Company expenses the costs of advertising the first time the advertising takes place. Gross advertising expense for fiscal 2010, 2009
and 2008 was $57.5 million, $52.6 million and $73.7 million, respectively, and is recorded in selling, general and administrative expenses. No advertising costs were recorded as
assets as of January 29, 2011 or January 30, 2010.

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.

DISCONTINUED OPERATIONSThe Company's discontinued operations reflect the operating results for closed stores where the customer base could not be
maintained. 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.

ACCOUNTING FOR STOCK-BASED COMPENSATIONAt January 29, 2011, the Company has two stock-based employee compensation plans, which are described
in Note 14, "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).

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 has six operating segments defined by geographic regions which are Northeast, Mid-Atlantic, Southeast,
Central, West and Southern CA. Each segment serves both DIY and DIFM lines of business. The Company aggregates all of its operating segments and has one reportable segment. Sales by major product
categories are as follows:

Year ended(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Parts and accessories

$
1,261,678

$
1,219,396

$
1,255,975Tires


336,490


314,223


313,689Service labor


390,473


377,319


358,124Total revenues

$
1,988,641

$
1,910,938

$
1,927,788


SIGNIFICANT SUPPLIERSDuring fiscal 2010, the Company's ten largest suppliers accounted for approximately 53% of merchandise purchased. No single
supplier accounted for more than 20% 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. Open purchase orders are based on current inventory or operational needs and are fulfilled by 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 historical
claims experience.

RECLASSIFICATIONCertain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect
on reported totals for assets, liabilities, shareholders' equity, cash flows or net income.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENT ACCOUNTING STANDARDS

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. The adoption of ASC 718 resulted in a
$1.2 million net of tax charge to retained earnings on February 3, 2008.

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 adoption of ASU 2009-13 did not have a material impact on the 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 the reconciliation of level 3 inputs includes
separately reported information on purchases, sales, issuances and 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. ASU 2010-06 was 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 did not have a material impact on the Company's consolidated financial
statements.

In
December 2010, the FASB issued ASU 2010-29 "Business Combinations (Topic 805)Disclosure of Supplementary Pro Forma Information for Business
Combinations" (ASU 2010-29). This accounting standard update clarifies that SEC registrants presenting comparative financial statements should disclose in their pro forma
information revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The
update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business
combinations entered into in fiscal years beginning on or after December 15, 2010 with early adoption permitted. The Company does not believe the adoption of those requirements of
ASU 2010-29 will have a material impact on the consolidated results of operations and financial condition.

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

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 $4.4 million for Florida Tire
including contingent consideration of $1.7 million. The Company has completed the purchase accounting for the Florida Tire acquisition and has recorded net assets of $4.4 million,
including goodwill of $2.5 million.

NOTE 3OTHER CURRENT ASSETS

The following are the components of other current assets:

(dollar amounts in thousands)

January 29,
2011

January 30,
2010Reinsurance receivable

$
57,532

$
61,599Income taxes receivable


1,608


3,600Other


1,197


229Total

$
60,337

$
65,428


NOTE 4ACCRUED EXPENSES

The following are the components of accrued expenses:

(dollar amounts in thousands)

January 29,
2011

January 30,
2010Casualty and medical risk insurance

$
146,667

$
150,006Accrued compensation and related taxes


31,990


33,832Sales tax payable


12,809


11,813Other


44,563


46,765Total

$
236,029

$
242,416


NOTE 5DEBT AND FINANCING ARRANGEMENTS

The following are the components of debt and financing arrangements:

(dollar amounts in thousands)

January 29,
2011

January 30,
20107.50% Senior Subordinated Notes, due December 2014

$
147,565

$
157,565Senior Secured Term Loan, due October 2013


148,636


149,715Revolving Credit Agreement, through January 2014





296,201


307,280Current maturities


(1,079
)

(1,079
)Total

$
295,122

$
306,201


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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 5DEBT AND FINANCING ARRANGEMENTS (Continued)



On December 14, 2004, the Company issued $200.0 million aggregate principal amount of 7.50% Senior Subordinated Notes
(the "Notes") due December 2014. During fiscal 2010 and 2009, the Company repurchased Notes in the principal amount of $10.0 million and $17.0 million, respectively, resulting in a loss
from debt repurchases of $0.2 million and a gain from debt repurchases of $6.2 million, respectively.



The Company has a Senior Secured Term Loan facility (the "Term Loan") due October 2013. This facility is secured by a collateral pool
consisting of real property and improvements associated with stores, which is adjusted periodically based upon real estate values and borrowing levels. Interest accrues at the London Interbank Offered
Rate (LIBOR) plus 2.0% on this facility. As of January 29, 2011, 126 stores collateralized the Term Loan.



On January 16, 2009, the Company entered into a new Revolving Credit Agreement (the "Agreement") with available borrowings up to
$300.0 million. The Company's ability to borrow under the Revolving Credit Agreement is based on a specific borrowing base consisting of inventory and accounts receivable. Total fees of
$6.8 million were capitalized and are being amortized over the five 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 29, 2011, there were no outstanding borrowings
under the Agreement.

The
weighted average interest rate on all debt borrowings during fiscal 2010 and 2009 was 6.3% and 4.2%, respectively.



Several of the Company's debt agreements require compliance with covenants. The most restrictive of these requirements is contained in
the Revolving Credit Agreement. During any period the availability under the Agreement drops below the greater of $50,000 or 17.5% of the borrowing base, the Company is 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 Agreement, which would result in a cross-default under the Notes
and Term Loan.

As
of January 29, 2011, the Company had no borrowings outstanding under the Revolving Credit Agreement, additional availability of approximately $138.2 million and was in
compliance with its financial covenants.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 5DEBT AND FINANCING ARRANGEMENTS (Continued)



On April 6, 2009, the Company entered into a vendor financing program with availability up to $50.0 million which is
funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by the Company directly from vendors. The Company, in turn, makes the regularly
scheduled full vendor payments to the bank participants. The availability under the program was subsequently increased to $100.0 million in December, 2010. There was an outstanding balance of
$56.3 million and $34.1 million under the program as of January 29, 2011 and January 30, 2010, respectively.

The
Company has letter of credit arrangements in connection with its risk management, import merchandising and vendor financing programs. The Company was contingently liable for
$0.3 million in outstanding commercial letters of credit as of January 29, 2011, and $107.6 million and $103.3 million in outstanding standby letters of credit as of
January 29, 2011 and January 30, 2010, respectively.

The
Company is also contingently liable for surety bonds in the amount of approximately $10.3 million and $10.2 million as of January 29, 2011 and January 30,
2010, respectively. The surety bonds guarantee certain 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:

(dollar amounts in thousands)
Fiscal Year

Long-Term Debt2011

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


147,565Thereafter


Total

$
296,201


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 $298.3 million and $290.8 million as of January 29, 2011 and
January 30, 2010.

NOTE 6LEASE AND OTHER COMMITMENTS

During 2008, the Company sold 63 owned properties to an independent third party, and concurrent with the sale, entered into agreements to lease the properties back from the purchaser.
Net proceeds from this sale were $211.5 million. Each lease has an initial term of 15 years, four five-year renewal options, and annual incremental rental increases that are
1.5% of the prior year's rentals. The Company immediately recognized a $7.7 million gain on the sale of these properties and deferred an $89.9 million gain. The Company determined that
it had continuing involvement in two properties relating to an environmental indemnity and recorded $8.5 million of the transaction's total net proceeds as a borrowing and as a financing
activity in the Statement of Cash Flows. Subsequently, during fiscal

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 6LEASE AND OTHER COMMITMENTS (Continued)

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 two properties
as sale-leaseback transactions and recorded a $4.0 million deferred gain. Of the total net proceeds for these properties, $76.0 million together with $41.2 million of
cash on hand were used to finance the purchase of 29 properties for $117.1 million 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 $12.9 million. 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.
The Company recognized a gain of $1.2 million on the sale of these properties and recorded a deferred gain of $6.4 million.

In
fiscal 2010, the Company sold one property to an unrelated third party. Net proceeds from this sale were $1.6 million. Concurrent with this sale, the Company entered into an
agreement to lease the property back from the purchaser over a minimum lease term of 15 years. The Company classified this lease as an operating lease. The Company actively uses this property
and considers the lease as a normal leaseback. The Company recorded a deferred gain of $0.4 million.

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

(dollar amounts in thousands)
Fiscal Year

Operating
Leases2011

$
86,7302012


84,8832013


81,1692014


76,8452015


70,590Thereafter


347,400Aggregate minimum lease payments

$
747,617


Rental
expenses incurred for operating leases in fiscal 2010, 2009, and 2008 were $79.7 million, $75.3 million and $77.2 million, respectively, and are recorded
primarily in cost of revenues. The deferred gain for all sale leaseback transactions is being recognized in costs of merchandise sales and costs of service revenues over the minimum term of these
leases.

NOTE 7ASSET RETIREMENT OBLIGATIONS

The Company records asset retirement obligations as incurred and when 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

53

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 7ASSET RETIREMENT OBLIGATIONS (Continued)

the
removal of leasehold improvements from stores upon termination of store leases. The obligations are recorded as liabilities at fair value using discounted cash flows and are accreted over the
lease term. Costs associated with the obligations are capitalized and amortized over the estimated remaining useful life of the asset.

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.
Changes in assumptions reflect favorable experience with the rate of occurrence of obligations and expected settlement dates. The liability for asset retirement obligations activity from
January 31, 2009 through January 29, 2011 is as follows:

(dollar amounts in thousands)Asset retirement obligation at January 31, 2009

$
7,130Change in assumptions


(466
)Settlements


(154
)Accretion expense


214Asset retirement obligation at January 30, 2010


6,724Change in assumptions


(1,192
)Settlements


(120
)Accretion expense


194Asset retirement obligation at January 29, 2011

$
5,606


NOTE 8INCOME TAXES

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

Year Ended(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Current:Federal

$


$
398

$
(464
)State


491


(511
)

1,276Foreign


2,210


149


433Deferred:Federal(1)


20,309


13,820


(8,717
)State


(1,818
)

42


754Foreign


81


(395
)

579Total income tax expense/(benefit) from continuing operations(a)

$
21,273

$
13,503

$
(6,139
)


(1)Excludes
tax benefit recorded to discontinued operations of $0.3 million, $0.6 million and $0.9 million in fiscal 2010,
2009 and 2008, respectively.


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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

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 29,
2011

January 30,
2010

January 31,
2009Statutory tax rate


35.0
%

35.0
%

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


2.4


2.4


(1.2
)Job credits


(0.3
)

(0.9
)

(1.5
)Texas law change impact








(6.4
)Tax uncertainty adjustment


0.2


(0.5
)

(1.3
)Valuation allowance


(3.5
)




8.9Non deductible expenses


0.5


0.3


5.3Stock compensation


0.2


0.8


3.9Foreign taxes, net of federal


2.4


(0.7
)

2.0Officer's life insurance gain on surrender value


0.0


0.0


4.3Other, net


(0.5
)

(0.5
)

3.436.4
%

35.9
%

(17.6
)%


55

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 8INCOME TAXES (Continued)

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

(dollar amounts in thousands)

January 29,
2011

January 30,
2010Deferred tax assets:Employee compensation

$
3,060

$
3,293Store closing reserves


1,064


1,741Legal reserve


569


769Benefit accruals


3,576


4,628Net operating loss carryforwardsFederal


2,527


911Net operating loss carryforwardsState


107,941


105,375Tax credit carryforwards


17,086


18,503Accrued leases


12,107


12,078Interest rate derivatives


5,960


5,872Deferred gain on sale leaseback


61,904


66,613Deferred revenue


5,871


5,332Other


2,570


2,523Gross deferred tax assets


224,235


227,638Valuation allowance


(104,486
)

(108,416
)119,749


119,222Deferred tax liabilities:Depreciation

$
44,634

$
34,601Inventories


57,538


49,364Real estate tax


3,132


2,885Insurance and other


2,574


1,998Gain on debt buyback


2,187


2,187110,065


91,035Net deferred tax asset

$
9,684

$
28,187


As
of January 29, 2011 and January 30, 2010, the Company had available tax net operating losses that can be carried forward to future years. The Company has
$2.5 million of deferred tax assets related to federal net operating loss carryforwards which begin to expire in 2027. The Company has $4.5 million of deferred tax assets related to
state tax net operating loss carryforwards related to unitary filings of which 8% will expire in the next five years for which a full valuation allowance has been recorded. The balance of the
Company's net operating loss carryforwards relate to separate company filing jurisdictions that will expire in various years beginning in 2011 for which full valuation allowances have been recorded.

The
tax credit carryforward at January 29, 2011 consists of $7.3 million of alternative minimum tax credits, $3.4 million of work opportunity credits and
$6.4 million of state and Puerto Rico tax credits of which $3.3 million have full valuation allowances recorded against them. The tax credit carryforward at January 30, 2010
consists of $7.2 million of alternative minimum tax credits, $3.3 million of work

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 8INCOME TAXES (Continued)

opportunity
credits and $8.0 million of state and Puerto Rico tax credits of which $5.5 million have full valuation allowances recorded against them.

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 it is more likely than not that
the asset will not be recoverable, a valuation allowance must be established. The Company considers future projections of income and tax planning strategies, such as the potential sale of real estate
to generate taxable income sufficient to utilize the deferred tax assets. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense
will be impacted. After considering all this evidence, the Company released $3.2 million of gross valuation allowances on certain state net operating loss carryforwards and state credits during
fiscal 2010.

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 2010 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:

(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Unrecognized tax benefit balance at the beginning of the year

$
2,411

$
2,458

$
3,847Gross increases for tax positions taken in prior years


1,331


646


147Gross decreases for tax positions taken in prior years





(526
)

(831
)Gross increases for tax positions taken in current year


389


296


313Settlements taken in current year





(271
)

(311
)Lapse of statute of limitations





(192
)

(707
)Unrecognized tax benefit balance at the end of the year

$
4,131

$
2,411

$
2,458


The
Company recognizes potential interest and penalties for unrecognized tax benefits in income tax expense and, accordingly, the Company recognized no material income tax expense in
fiscal 2010 and an income tax benefit of $0.4 million during fiscal 2009 related to potential interest and penalties associated with uncertain tax positions. At January 29, 2011,
January 30, 2010, and January 31, 2009, the Company has recorded $0.2 million, $0.2 million, and $1.0 million, respectively, for the payment of interest and
penalties which are excluded from the unrecognized tax benefit noted above.

Unrecognized
tax benefits include $1.4 million, $1.3 million, and $1.5 million, at January 29, 2011, January 30, 2010 and January 31, 2009,
respectively, of tax benefits that, if recognized, would affect the Company's annual effective tax rate. The Company believes it is reasonably possible that the amount will increase or decrease within
the next twelve months; however, it is not currently possible to estimate the impact of the change.

57

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 9STOCKHOLDERS' EQUITY

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 had no impact on the Company's consolidated financial statements, except for the reclassification of the shares within the
shareholders equity section of the Company's Consolidated Balance Sheets. The Company uses its treasury shares to satisfy share requirements to its employees under its compensation plans and dividend
reinvestment program.

NOTE 10ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Year Ended(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Net earnings (loss)

$
36,631

$
23,036

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


582


595


(958
)Derivative financial instrument adjustment


81


(211
)

(2,934
)Comprehensive income (loss)

$
37,294

$
23,420

$
(34,321
)


The
components of accumulated other comprehensive loss are:

Year Ended(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Defined benefit plan adjustment, net of tax

$
(6,576
)
$
(7,158
)
$
(7,753
)Derivative financial instrument adjustment, net of tax


(10,452
)

(10,533
)

(10,322
)Accumulated other comprehensive loss

$
(17,028
)
$
(17,691
)
$
(18,075
)


NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS

During fiscal 2010, the Company recorded an $0.8 million impairment charge related to two stores classified as held and used. The Company used a probability-weighted approach and
estimates of expected future cash flows to determine the fair value of these stores. Discount and growth rate
assumptions were derived from current economic conditions, management's expectations and projected trends of current operating results. The fair market value estimate is classified as a Level 3
measure within the fair value hierarchy. Of the $0.8 million impairment charge, $0.6 million was charged to merchandise cost of sales, and $0.2 million was charged to service cost
of sales.

During
fiscal 2007, the Company recorded charges of $15.6 million related to store closures. The reserve balance includes remaining rent on leases net of sublease income, other
contractual obligations

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS (Continued)

associated
with leased properties and employee severance. The following details the reserve activity for the three years in the period ended January 29, 2011.

(dollar amounts in thousands)

Severance and
other costs

Lease
Expenses

TotalBalance, 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


2,112Accretion of present value of liabilities





111


111Change in assumptions about future sublease income, lease termination





1,122


1,122Cash payments





(1,095
)

(1,095
)Balance, January 30, 2010





2,250


2,250Accretion of present value of liabilities





81


81Change in assumptions about future sublease income, lease termination





163


163Cash payments





(1,253
)

(1,253
)Balance, January 29, 2011

$


$
1,241

$
1,241


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
is estimated using market appraisals for comparable properties and is classified as a Level 2 (as described in Note 16) 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:

(dollar amounts in thousands)

January 29,
2011

January 30,
2010Land

$
190

$
2,980Buildings and improvements


285


5,453Accumulated depreciation





(3,995
)Property and equipmentnet

$
475

$
4,438Number of properties


1


8


During
fiscal 2010, the Company sold seven stores for $4.3 million and recorded a net gain of $0.5 million in earnings from continuing operations. The
Company classifies the one remaining property as held for disposal as it continues to actively market the property at a price the Company believes reasonable given current market conditions and
expects to sell this property within the next twelve months. In addition, during fiscal 2010, the Company recorded a $0.2 million impairment charge related to a store classified as held for
disposal. The Company lowered its selling price reflecting declines in the commercial real estate market. Substantially all of this impairment was charged to merchandise cost of sales.

59

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 11STORE CLOSURES AND ASSET IMPAIRMENTS (Continued)

During
fiscal 2009, the Company sold four stores for $3.6 million and recorded a net gain of $0.2 million of which $0.1 million is reported in discontinued
operations. The Company also decided to reopen one store and moved the carrying value of $1.7 million to property and equipment. During fiscal 2009 in response to a continuing weak real estate
market, the Company reduced its prices for certain properties and recorded a $3.1 million impairment charge, of which $2.2 million was charged to merchandise cost of sales,
$0.7 million was charged to service cost of sales and $0.2 million (pretax) was charged to discontinued operations.

During
fiscal 2008, the Company sold six stores for $6.7 million and recorded a net gain of $0.4 million of which $0.1 million is reported in discontinued
operations. During fiscal 2008 in response to a continuing weak real estate market, the Company reduced its prices for certain properties and recorded a $5.4 million impairment charge, of which
$2.8 million was charged to merchandise cost of sales, $0.6 million was charged to service cost of sales and $1.9 million (pretax) was charged to discontinued operations.

NOTE 12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 2010 and 2009 and
as such were included in the diluted earnings per share calculation. Stock options were anti-dilutive in fiscal 2008, as the Company generated a net loss, and are excluded from the diluted
earnings per share calculation.

60

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 12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(dollar amounts in thousands, except per share amounts)

January 29,
2011

January 30,
2010

January 31,
2009(a)

Earnings (loss) from continuing operations before discontinued operations

$
37,171

$
24,113

$
(28,838
)Loss from discontinued operations, net of tax benefit of $(291), $(580) and $(857)


(540
)

(1,077
)

(1,591
)Net earnings (loss)

$
36,631

$
23,036

$
(30,429
)(b)

Basic average number of common shares outstanding during period


52,677


52,397


52,136Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price


485


270


(c)

Diluted average number of common shares assumed outstanding during period


53,162


52,667


52,136Basic earnings (loss) per share:Earnings (loss) from continuing operations (a/b)

$
0.71

$
0.46

$
(0.55
)Discontinued operations, net of tax


(0.01
)

(0.02
)

(0.03
)Basic earnings (loss) per share

$
0.70

$
0.44

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

$
0.70

$
0.46

$
(0.55
)Discontinued operations, net of tax


(0.01
)

(0.02
)

(0.03
)Diluted earnings (loss) per share

$
0.69

$
0.44

$
(0.58
)


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 978,000 and 1,125,000 as of
January 29, 2011, and January 30, 2010, respectively. In fiscal 2008, all outstanding stock options and non-vested restricted stock units were excluded because they were
anti-dilutive.

NOTE 13BENEFIT PLANS

DEFINED BENEFIT AND CONTRIBUTION PLANS

On December 31, 2008, the Company paid $14.4 million to terminate the defined benefit portion of its Supplemental
Executive Retirement Plan (SERP) and recorded a $6.0 million 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

61

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)

expense
for the Account Plan was $1.2 million, $0.8 million and $0.2 million for fiscal 2010, 2009 and 2008, respectively.

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 $3.0 million, $3.1 million and $3.3 million in fiscal 2010, 2009 and 2008, respectively.

The
Company also has a defined benefit pension plan covering 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 Ended(dollar amounts in thousands)

January 29,
2011

January 30,
2010

January 31,
2009Service cost

$


$


$
110Interest cost


2,561


2,539


3,346Expected return on plan assets


(2,151
)

(1,804
)

(2,450
)Amortization of transitional obligation








150Amortization of prior service cost


14


14


340Recognized actuarial loss


1,672


1,766


975Net periodic benefit cost


2,096


2,515


2,471Settlement charge








6,005Total pension expense

$
2,096

$
2,515

$
8,476


62

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)

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

Year EndedJanuary 29,
2011

January 30,
2010

January 31,
2009Benefit obligation assumptions:Discount rate


5.70
%

6.10
%

7.00
%Rate of compensation increase


N/A


N/A


N/APension expense assumptions:Discount rate


6.10
%

7.00
%

6.50
%Expected return on plan assets


6.95
%

6.70
%

6.70
%Rate of compensation expense


N/A


N/A


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 29, 2011 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 a long-term rate of return on assets of 6.95% for fiscal
2010 and 6.70% for fiscal 2009 and 2008.

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13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(dollar amounts in thousands)

January 29,
2011

January 30,
2010Change in benefit obligation:Benefit obligation at beginning of year

$
42,744

$
36,996Interest cost


2,561


2,539Actuarial loss


2,454


4,626Benefits paid


(1,641
)

(1,417
)Benefit obligation at end of year

$
46,118

$
42,744Change in plan assets:Fair value of plan assets at beginning of year

$
31,857

$
27,692Actual return on plan assets (net of expenses)


3,847


5,582Employer contributions


5,000


Benefits paid


(1,641
)

(1,417
)Fair value of plan assets at end of year

$
39,063

$
31,857Unfunded status at fiscal year end

$
(7,055
)
$
(10,887
)Net amounts recognized on consolidated balance sheet at fiscal year endNoncurrent benefit liability (included in other long-term liabilities)

$
(7,055
)
$
(10,887
)Net amount recognized at fiscal year end

$
(7,055
)
$
(10,887
)Amounts recognized in accumulated other comprehensive income (pre-tax) at fiscal year endActuarial loss

$
10,402

$
11,316Prior service cost


40


54Net amount recognized at fiscal year end

$
10,442

$
11,370Other comprehensive (income) loss attributable to change in pension liability recognition

$
(928
)
$
(932
)Accumulated benefit obligation at fiscal year end

$
46,118

$
42,744Other informationEmployer contributions expected in fiscal 2011

$


$
Estimated actuarial loss and prior service cost amortization in fiscal 2011

$
1,530

$
1,642


64

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)

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

(dollar amounts in thousands)2012

$
1,8692013


1,9842014


2,1142015


2,2322016


2,35820172021


13,857




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 the 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. The target asset allocation is 50% equity
securities and 50% fixed income. The investment policy requires that the asset allocation be maintained within certain

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)

ranges.
The weighted average asset allocations and asset allocation ranges by asset category are as follows:

Weighted Average Asset Allocations

January 29,
2011

January 30,
2010

Asset
Allocation
RangesTotal equities


52
%

48
%

4555
%Domestic equities


31
%

32
%

2838
%Non-US equities


21
%

17
%

1222
%Fixed income


48
%

52
%

4555
%


The
table below provides the fair values of the Company's pension plan assets at January 29, 2011, by asset category. The table also identifies the level of inputs used to
determine the fair value of assets in each category (see Note 16 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.

(dollar amounts in thousands)
Asset Category

Fair Value at
January 29,
2011

Level 1

Level 2

Level 3Money market fund

$
48

$
48

$


$
Domestic equitiesUS Small/Mid Cap Growth


1,299





1,299


US Small/Mid Cap Value


1,298





1,298


US Large Cap Passive


9,566





9,566


Non-U.S. equitiesNon-US Core Equity


8,087





8,087


Fixed incomeLong Duration


13,271





13,271


Long Duration Passive


4,244





4,244


Guaranteed annuity contracts


1,250








1,250Total

$
39,063

$
48

$
37,765

$
1,250


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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)



(dollar amounts in thousands)
Asset Category

Fair Value at
January 30,
2010

Level 1

Level 2

Level 3Money market fund

$
36

$
36

$


$
Domestic equitiesUS Small/Mid Cap Growth


988





988


US Small/Mid Cap Value


996





996


US Large Cap Passive


8,110





8,110


Non-U.S. equitiesNon-US Core Equity


5,279





5,279


Fixed incomeLong Duration


6,702





6,702


Long Duration Passive


8,538





8,538


Guaranteed annuity contracts


1,208








1,208Total

$
31,857

$
36

$
30,613

$
1,208


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 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.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 13BENEFIT PLANS (Continued)

The
following table provides a summary of changes in fair value of Level 3 financial assets during fiscal 2010:

(dollar amounts in thousands)

Fair ValueBalance, January 30, 2010

$
1,208Transfers from other investments


1,610Interest income and gains


131Administrative fees


(58
)Benefits paid during the period


(1,641
)Balance, January 29, 2011

$
1,250


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 $6.2 million at January 29, 2011
and $3.4 million at January 30, 2010, respectively, which are recorded primarily in other long-term liabilities.

NOTE 14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 29, 2011, there were 2,493,181 awards outstanding and 1,818,706 awards
available for grant under the 2009 Plan.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 14EQUITY COMPENSATION PLANS (Continued)

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 29, 2011 is adequate to satisfy such activity during the next twelve-month
period.

The
following table summarizes the options under the plans:

Fiscal Year 2010Shares

Weighted Average
Exercise PriceOutstandingbeginning of year


1,682,325

$
8.14Granted


307,653


10.30Exercised


(96,590
)

6.05Forfeited


(26,477
)

5.97Expired


(35,109
)

13.24Outstandingend of year


1,831,802


8.55Vested and expected to vest optionsend of year


1,785,734


8.56Options exercisableend of year


849,614

$
10.66


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

Fiscal 2010

Fiscal 2009

Fiscal 2008Weighted average fair value at grant date per option

$
4.28

$
2.10

$
3.47Intrinsic value of options exercised

$
609

$
43

$
8


The
aggregate intrinsic value of outstanding options, exercisable options and expected to vest options at January 29, 2011 was $10.9 million, $3.8 million and
$6.9 million, respectively. At January 29,

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 14EQUITY COMPENSATION PLANS (Continued)

2011,
the weighted average remaining contractual term of outstanding options, exercisable options and expected to vest options was 4.5 years, 3.2 years and 5.5 years,
respectively. At January 29, 2011, there was approximately $1.6 million 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 1.3 years.

The
following table summarizes information about non-vested stock awards (RSUs) since January 30, 2010:

Number of
RSUs

Weighted Average
Fair ValueNonvested at January 30, 2010


232,593

$
13.76Granted


362,283


9.32Forfeited


(11,962
)

12.78Vested


(150,583
)

12.36Nonvested at January 29, 2011


432,331

$
10.16


The
following table summarizes information about RSUs during the last three fiscal years:

(dollar amounts in thousands)

Fiscal 2010

Fiscal 2009

Fiscal 2008Weighted average fair value at grant date per unit

$
9.32

$
9.18

$
11.25Fair value at vesting date

$
1,861

$
1,455

$
5,441Intrinsic value at conversion date

$
809

$
675

$
1,586Tax benefits realized from conversions

$
301

$
251

$
589


At
January 29, 2011, there was approximately $2.7 million of total unrecognized pre-tax compensation cost related to non-vested RSUs, which is
expected to be recognized over a weighted-average period of 1.9 years.

The
Company recognized approximately $1.4 million, $1.0 million, and $0.6 million of compensation expense related to stock options, and approximately
$2.1 million, $1.6 million, and $2.1 million of compensation expense related to restricted stock units, included in selling, general and administrative expenses for fiscal 2010,
2009, and 2008, respectively. The related tax benefit recognized was approximately $1.3 million, $1.0 million and $1.0 million for fiscal 2010, 2009 and 2008, respectively.

Expected
volatility is based on historical volatilities for a time period similar to that of the expected term and the expected term of the options is based on actual experience. 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 2010, 2009 and
2008 is estimated on the date of grant using the Black-Scholes option-pricing model and, in certain situations where the grant includes

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 14EQUITY COMPENSATION PLANS (Continued)

both
a market and a service condition, the Month Carlo simulation model is used. The following are the weighted-average assumptions:

Year endedJanuary 29,
2011

January 30,
2010

January 31,
2009Dividend yield


1.35
%

2.3
%

2.93
%Expected volatility


56
%

65
%

45
%Risk-free interest rate range:High


2.0
%

2.3
%

3.2
%Low


0.9
%

1.6
%

2.7
%Ranges of expected lives in years


45


45


34


During
fiscal 2010, the Company granted approximately 105,000 restricted stock units that will vest if the employees remain continuously employed through the third anniversary date of
the grant and the Company achieves certain financial targets for fiscal year 2012. The number of underlying shares that may be issued upon vesting will range from 0% to 150%, depending upon the
Company achieving a return on invested capital target for fiscal year 2012. The fair value of these awards was $10.34 at the date of the grant. The Company also granted approximately 52,000 restricted
stock units that will vest if the employees remain continuously employed through the third anniversary date of the grant and will
become exercisable if the Company achieves a total shareholder return target in fiscal 2012. The number of underlying shares that may become exercisable will range from 0% to 175% depending upon
whether the market condition is achieved. The Company used a Monte Carlo simulation to estimate a $12.99 grant date fair value. The non-vested stock award table reflects the maximum
vesting of underlying shares for performance and market based awards granted in 2010.

During
fiscal 2010, the Company granted approximately 52,000 restricted stock units to its non-employee directors of the board that vested immediately. In the first quarter
of 2010, the Company granted approximately 61,000 restricted stock units related to officer's deferred bonus match under the Company's non-qualified deferred compensation plan, which vest
over a three year period.

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. The amounts reflected as financing cash inflows and operating cash outflows in the Consolidated Statement of Cash Flows for fiscal 2010,
2009 and 2008 are immaterial.

NOTE 15INTEREST RATE SWAP AGREEMENT

The Company entered into an interest rate swap for a notional amount of $145.0 million that is designated as a cash flow hedge on the first $145.0 million of the Company's
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. As of
January 29, 2011 and January 30, 2010, the fair value of the swap was a net $16.4 million payable recorded within other long-term liabilities on the balance sheet.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 16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.



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. The Company carries these investments at fair value. As a result, the Company has determined that its cash equivalents in their entirety are classified as a Level 1 measure
within the fair value hierarchy.



Collateral investments include monies on deposit that are restricted. The Company carries these investments at fair value. As a result,
the Company has determined that its collateral investments 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 $145.0 million of the Company's 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
derivatives fall within Level 2 of the fair value hierarchy.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 16FAIR VALUE MEASUREMENTS (Continued)



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, the Company has determined that contingent
considerations are 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 29,
2011(dollar amounts in thousands)
Description

Level 1

Level 2

Level 3Assets:Cash and cash equivalents

$
90,240

$
90,240

$


$
Collateral investments(1)


9,638


9,638





Liabilities:Current liabilitiesContingent consideration(2)


288








288Other liabilitiesDerivative liability(3)


16,424





16,424Contingent consideration(3)


1,224








1,224


(1)included
in other long-term assets(2)included
in accrued liabilities(3)included
in other long-term liabilities


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

Level 1

Level 2

Level 3Assets:Cash and cash equivalents

$
39,326

$
39,326

$


$
Liabilities:Other long-term liabilitiesDerivative liability(1)


16,401





16,401


Contingent consideration


1,660








1,660


(1)included
in other long-term assets


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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 16FAIR VALUE MEASUREMENTS (Continued)




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

(dollar amounts in thousands)

Amount of Loss
in Other
Comprehensive
Income
(Effective Portion)

Earnings
Statement
Classification

Amount of Loss
Recognized in
Earnings
(Effective Portion)Fiscal 2010

$
14

Interest expense

$
6,905Fiscal 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 $0.2 million, $3.1 million and $5.4 million in fiscal 2010, 2009 and 2008, respectively. The fair values were based on selling prices
of comparable properties, net of expected disposal costs. These measures of fair value, and related inputs, are considered level 2 measures under the fair value hierarchy.

NOTE 17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 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 United States Environmental Protection Agency ("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 $5.0 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 $3.0 million contingency accrual with respect to the restricted inventory. During
fiscal 2009, the Company reversed approximately $2.0 million of the inventory accrual as a portion of the subject inventory was released for sale by the EPA as remediation efforts had been
completed. During the second quarter of fiscal 2010, the Company completed the remediation efforts and accordingly reversed approximately $1.0 million of the inventory accrual. Further, the
Company reached an agreement with the merchandise vendor to cover the entire cost of retrofitting a portion of the remaining subject merchandise and to accept the balance of the subject inventory for
return for full credit. During the second quarter of fiscal 2010, the formal settlement agreement between the Company and the EPA became effective and the Company paid the monetary penalty.

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 17LEGAL MATTERS (Continued)

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 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.

NOTE 18QUARTERLY FINANCIAL DATA (UNAUDITED)

Earnings
Per Share from
Continuing
OperationsEarnings
Per Share



Market Price
Per ShareEarnings
from
Continuing
OperationsTotal
Revenues

Gross
Profit

Operating
Profit



Cash
Dividends
Per ShareEarnings

Basic

Diluted

Basic

Diluted

High

LowYear Ended January 29, 20114th quarter

$
477,389

$
124,400

$
17,605

$
8,538

$
8,365

$
0.16

$
0.16

$
0.16

$
0.16

$
0.0300

$
15.96

$
11.373rd quarter


496,364


125,856


15,125


5,674


5,718


0.11


0.11


0.11


0.11


0.0300


12.00


8.822nd quarter


504,855


134,501


23,842


10,799


10,598


0.21


0.20


0.20


0.20


0.0300


13.26


7.861st quarter


510,033


137,595


26,008


12,160


11,950


0.23


0.23


0.23


0.23


0.0300


13.42


8.08Year 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


2.76




In the fourth quarter of 2010, the Company recorded a $4.6 million reduction to its reserve for excess inventory and an income
tax benefit of $1.0 million related to the reduction of a valuation allowance on certain state net operating loss carryforwards and credits.

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION

The Company's 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. (the "Pep Boys of Delaware"), Pep BoysManny Moe & Jack of
Puerto Rico, Inc. and PBY Corporation (as of January 29, 2011), (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 29, 2011 and January 30, 2010 and
the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for fiscal 2010, 2009 and 2008 for (i) the Company ("Pep Boys") on a parent
only basis, with its investment in

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THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

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.

On
January 29, 2011, The Pep BoysManny, Moe & Jack of Pennsylvania made a capital contribution of $264.0 million to Pep Boys of Delaware consisting of
intercompany receivables due from the latter. This contribution resulted in an increase in the Pep Boys' investment in subsidiaries and the Subsidiary Guarantors' stockholders' equity. On
January 30, 2011, the Company merged PBY Corporation into Pep Boys of Delaware and accordingly, The Pep Boys Manny Moe & Jack of California became the wholly owned subsidiary of Pep Boys
of Delaware. Had this merger occurred

76

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

prior
to the end of fiscal year 2010, it would not have affected the presentation of the following condensed consolidating information.

CONDENSED CONSOLIDATING BALANCE SHEET

(dollar amounts in thousands)
As of January 29, 2011

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedASSETSCurrent assets:Cash and cash equivalents

$
52,214

$
28,477

$
9,549

$


$
90,240Accounts receivable, net


8,976


10,564








19,540Merchandise inventories


198,062


366,340








564,402Prepaid expenses


11,839


17,649


16,202


(17,148
)

28,542Other current assets


2,260


461


62,655


(5,039
)

60,337Assets held for disposal





475








475Total current assets


273,351


423,966


88,406


(22,187
)

763,536Property and equipmentnet


236,853


452,230


30,862


(18,964
)

700,981Investment in subsidiaries


2,093,479








(2,093,479
)

Intercompany receivable





1,375,958


79,270


(1,455,228
)

Deferred income taxes


15,749


50,270








66,019Other long-term assets


24,941


1,195








26,136Total assets

$
2,644,373

$
2,303,619

$
198,538

$
(3,589,858
)
$
1,556,672LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
210,440

$


$


$


$
210,440Trade payable program liability


56,287











56,287Accrued expenses


23,341


62,168


167,667


(17,148
)

236,028Deferred income taxes


23,024


38,350





(5,039
)

56,335Current maturities of long-term debt


1,079











1,079Total current liabilities


314,171


100,518


167,667


(22,187
)

560,169Long-term debt less current maturities


295,122











295,122Other long-term liability


35,870


34,176








70,046Deferred gain from asset sales


65,522


106,317





(18,964
)

152,875Intercompany liabilities


1,455,228








(1,455,228
)

Total stockholders' equity


478,460


2,062,608


30,871


(2,093,479
)

478,460Total liabilities and stockholders' equity

$
2,644,373

$
2,303,619

$
198,538

$
(3,589,858
)
$
1,556,672


77

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

(dollar amounts in thousands)
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


78

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(dollar amounts in thousands)
Year ended January 29, 2011

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation/
Elimination

ConsolidatedMerchandise sales

$
550,017

$
1,048,151

$


$


$
1,598,168Service revenue


140,716


249,757








390,473Other revenue








22,944


(22,944
)

Total revenues


690,733


1,297,908


22,944


(22,944
)

1,988,641Costs of merchandise sales


387,425


724,586





(1,631
)

1,110,380Costs of service revenue


124,675


231,387





(153
)

355,909Costs of other revenue








16,709


(16,709
)

Total costs of revenues


512,100


955,973


16,709


(18,493
)

1,466,289Gross profit from merchandise sales


162,592


323,565





1,631


487,788Gross profit from service revenue


16,041


18,370





153


34,564Gross profit from other revenue








6,235


(6,235
)

Total gross profit


178,633


341,935


6,235


(4,451
)

522,352Selling, general and administrative expenses


158,699


290,111


346


(6,917
)

442,239Net gain from dispositions of assets


1,873


594








2,467Operating profit


21,807


52,418


5,889


2,466


82,580Non-operating (expenses) income


(16,271
)

81,965


2,468


(65,553
)

2,609Interest expenses (income)


65,422


26,497


(2,087
)

(63,087
)

26,745(Loss) earnings from continuing operations before income taxes


(59,886
)

107,886


10,444





58,444Income tax (benefit) expenses


(20,064
)

37,666


3,671





21,273Equity in earnings of subsidiaries


76,519








(76,519
)

Earnings (loss) from continuing operations


36,697


70,220


6,773


(76,519
)

37,171Loss from discontinued operations, net of tax


(66
)

(474
)







(540
)Net earnings (loss)

$
36,631

$
69,746

$
6,773

$
(76,519
)
$
36,631


79

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(dollar amounts in thousands)
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


54,622


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


80

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(dollar amounts in thousands)
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
)


81

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(dollar amounts in thousands)
January 29, 2011

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-Guarantors

Consolidation
Elimination

ConsolidatedCash flows from operating activities:Net earnings (loss)

$
36,631

$
69,746

$
6,773

$
(76,519
)
$
36,631Adjustments to reconcile net earnings (loss) to net cash provided by (used in) continuing operations:Net loss from discontinued operations


66


474








540Depreciation and amortization


28,143


45,699


682


(373
)

74,151Amortization of deferred gain from asset sales


(4,202
)

(8,773
)




373


(12,602
)Stock compensation expense


3,497











3,497Equity in earnings of subsidiaries


(76,519
)







76,519


Loss on debt retirement


200











200Deferred income taxes


11,918


6,328


326





18,572Gain from disposition of assets


(1,873
)

(594
)







(2,467
)Loss from asset impairments


970











970Dividends received from subsidiary


2,466








(2,466
)

Other


(272
)

(207
)







(479
)Changes in operating assets and liabilities:Decrease (increase) in accounts receivable, prepaid expenses and other


6,322


(1,359
)

2,110


(13
)

7,060Increase in merchandise inventories


(2,748
)

(2,536
)







(5,284
)Increase in accounts payable


7,466











7,466(Decrease) in accrued expenses


(2,210
)

(435
)

(5,762
)

13


(8,394
)Increase (decrease) in other long-term liabilities


1,694


(2,894
)







(1,200
)Net cash provided by (used in) continuing operations


11,549


105,449


4,129


(2,466
)

118,661Net cash used in discontinued operations


(64
)

(1,402
)







(1,466
)Net cash provided by (used in) operating activities


11,485


104,047


4,129


(2,466
)

117,195Cash flows from investing activities:Cash paid for property and equipment


(33,182
)

(37,070
)







(70,252
)Proceeds from disposition of assets


2,957


4,558








7,515Acquisition of Florida Tire, Inc.


(288
)










(288
)Collateral investments


(9,638
)










(9,638
)Net cash used in continuing operations


(40,151
)

(32,512
)







(72,663
)Net cash provided by discontinued operations





569








569Net cash used in investing activities


(40,151
)

(31,943
)







(72,094
)Cash flows from financing activities:Borrowings under line of credit agreements


7,606


14,189








21,795Payments under line of credit agreements


(7,606
)

(14,189
)







(21,795
)Borrowings on trade payable program liability


347,068











347,068Payments on trade payable program liability


(324,880
)










(324,880
)Long-term debt and capital lease obligation payments


(11,279
)










(11,279
)Intercompany borrowings (payments)


49,223


(53,906
)

4,683





Dividends paid


(6,323
)




(2,466
)

2,466


(6,323
)Other


1,227











1,227Net cash provided by (used in) financing activities


55,036


(53,906
)

2,217


2,466


5,813Net increase in cash


26,370


18,198


6,346





50,914Cash and cash equivalents at beginning of year


25,844


10,279


3,203





39,326Cash and cash equivalents at end of year

$
52,214

$
28,477

$
9,549

$


$
90,240


82

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(dollar amounts in thousands)
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


83

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Table of Contents

THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended January 29, 2011, January 30, 2010 and January 31, 2009

NOTE 19SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(dollar amounts in thousands)
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


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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 ProceduresOur disclosure controls and procedures
(as defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are designed to provide reasonable assurance that the information required to be
disclosed is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
The
term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act (15 U.S.C. 78a et seq.) 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 an issuer in the reports that it files or submits under the Exchange Act
is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. The Company's management, with the participation of the Company's chief executive officer and chief financial officer, evaluated the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer concluded that our
disclosure controls and procedures as of the end of the period covered by this report were effective in providing reasonable assurance that the information required to be disclosed by the Company in
reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management,
including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There
were no changes to the Company's internal control over financial reporting that occurred during the quarter ended January 29, 2011 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.

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.

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Management
assessed the effectiveness of the Company's internal control over financial reporting as of January 29, 2011 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 29, 2011 was effective.

Deloitte &
Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report, which is included on page 67 herein, on the
Company's internal control over financial reporting as of January 29, 2011.

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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 29, 2011, based
on 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 29, 2011, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the fiscal year ended January 29, 2011 of the Company and our report dated April 11, 2011 expressed an unqualified opinion on those financial statements and
financial statement schedule.

DELOITTE &
TOUCHE LLP

Philadelphia,
Pennsylvania
April 11, 2011

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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 2010 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 2010 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 215-430-9459 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.

88

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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 29, 2011 and January 30, 2010

39Consolidated Statements of OperationsYears ended January 29, 2011, January 30, 2010 and January 31, 2009

40Consolidated Statements of Stockholders' EquityYears ended January 29, 2011, January 30, 2010 and January 31, 2009

41Consolidated Statements of Cash FlowsYears ended January 29, 2011, January 30, 2010 and January 31, 2009

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

94All 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(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.(10.2)*

Form of Change of Control between the Company and certain officers of the Company.

Filed herewith


89

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Table of Contents

(10.3)*

Form of Non-Competition Agreement between the Company and certain officers of the Company.

Filed herewith(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 January 1, 2010.

Filed herewith(10.7)*

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.(10.8)*

Amendment and restatement as of January 1, 2010 of The Pep Boys Savings Plan.

Filed herewith(10.9)*

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.(10.10)*

The Pep Boys Deferred Compensation Plan, as amended and restated

Incorporated by reference from the Company's Form 8-K dated December 23, 2008.(10.11)*

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.(10.12)*

Account Plan

Filed herewith(10.13)*

Flexible Employee Benefits Trust

Incorporated by reference from the Company's Form 8-K filed May 6, 1994.(10.14)*

The Pep Boys Grantor Trust Agreement

Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.(10.15)

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.

Filed herewith(10.16)

Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.

Filed herewith


90

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Table of Contents

(10.17)

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.

Filed herewith(10.18)

Second Amendment dated April 5, 2011 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.

Filed herewith(12.00)

Computation of Ratio of Earnings to Fixed Charges

Filed herewith(21)

Subsidiaries of the Company

Filed herewith(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


---

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

Dated: April 11, 2011

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

/s/ RAYMOND L. ARTHURRaymond L. Arthur Executive Vice President and
Chief Financial Officer
(Principal Financial 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

President and Chief Executive Officer; Director (Principal Executive Officer)

April 11, 2011/s/ RAYMOND L. ARTHUR Raymond L. Arthur

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

April 11, 2011/s/ SANJAY SOOD Sanjay Sood

Vice President and Corporate Controller (Chief Accounting Officer)

April 11, 2011/s/ MAX LUKENS Max Lukens

Chairman of the Board

April 11, 2011/s/ M. SHÂN ATKINS M. Shân Atkins

Director

April 11, 2011/s/ ROBERT H. HOTZ Robert H. Hotz

Director

April 11, 2011/s/ JAMES MITAROTONDA James Mitarotonda

Director

April 11, 2011


92

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Table of Contents

Signature

Capacity

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

Director

April 11, 2011/s/ JANE SCACCETTI Jane Scaccetti

Director

April 11, 2011/s/ JOHN T. SWEETWOOD John T. Sweetwood

Director

April 11, 2011/s/ NICK WHITE Nick White

Director

April 11, 2011/s/ JAMES A. WILLIAMS James A. Williams

Director

April 11, 2011


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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
(dollar amounts in thousands)

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 29, 2011

$
1,488

$
2,595

$


$
2,532

$
1,551Year ended January 30, 2010

$
1,912

$
1,705

$


$
2,129

$
1,488Year ended January 31, 2009

$
1,937

$
4,679

$


$
4,704

$
1,912


(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 29, 2011

$
1,031

$


$
60,740

$
60,715

$
1,056Year ended January 30, 2010

$
1,144

$


$
60,603

$
60,716

$
1,031Year ended January 31, 2009

$
1,232

$


$
57,899

$
57,987

$
1,144


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


94

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