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 1934    
|For the fiscal year ended February 2, 2008                      
|OR                                                              
|o                                                                | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the transition period
from                                to

Commission file number 1-3381

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

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

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

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

As of the close of business on August 4, 2007 the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $605,426,527.

As
of April 24, 2008, there were 51,772,230 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 Annual Meeting of Shareholders presently scheduled to be held on June 19, 2008 are incorporated by
reference into Part III of this Form 10-K.

---





TABLE OF CONTENTS

|         |  |                                                                                                              |  | Page
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I   |  |                                                                                                              |  |     
|Item 1.  |  | Business                                                                                                     |  | 1   
|Item 1A. |  | Risk Factors                                                                                                 |  | 8   
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 11  
|Item 2.  |  | Properties                                                                                                   |  | 11  
|Item 3.  |  | Legal Proceedings                                                                                            |  | 12  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 13  
|PART II  |  |                                                                                                              |  |     
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 14  
|Item 6.  |  | Selected Financial Data                                                                                      |  | 16  
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 17  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 32  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 34  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 82  
|Item 9A. |  | Controls and Procedures                                                                                      |  | 82  
|Item 9B. |  | Other Information                                                                                            |  | 86  
|PART III |  |                                                                                                              |  |     
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 86  
|Item 11. |  | Executive Compensation                                                                                       |  | 86  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 86  
|Item 13. |  | Certain Relationships and Related Transactions and Director Independence                                     |  | 86  
|Item 14. |  | Principal Accounting Fees and Services                                                                       |  | 86  
|PART IV  |  |                                                                                                              |  |     
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 87  
|         |  | Signatures                                                                                                   |  | 92  

---





PART I

ITEM 1    BUSINESS

GENERAL

The Pep BoysManny, Moe & Jack and subsidiaries ("the Company") fiscal year ends on the Saturday nearest to January 31. Fiscal year
2007, which ended February 2, 2008, was comprised of 52 weeks, fiscal year 2006, which ended February 3, 2007, was comprised of 53 weeks and fiscal year 2005, which ended
January 28, 2006, was comprised of 52 weeks.

The
Company is a leading automotive retail and service chain. The Company operates in one industry, the automotive aftermarket. The Company is engaged principally in the retail sale of
automotive parts, tires and accessories, automotive repairs and maintenance and the installation of parts. The Company's primary operating unit is its SUPERCENTER format. As of February 2,
2008, the Company operated 562 stores consisting of 552 SUPERCENTERS and one SERVICE & TIRE CENTER, having an aggregate of 5,845 service bays, as well as 9
non-service/non-tire format PEP BOYS EXPRESS stores. The Company operates approximately 11,514,000 gross square feet of retail space, including service bays. The SUPERCENTERS
average approximately 20,700 square feet and the PEP BOYS EXPRESS stores average approximately 9,500 square feet. The Company believes that its unique SUPERCENTER format offers the broadest
capabilities in the industry and positions the Company to gain market share and increase its profitability by serving "do-it-yourself" (retail) and
"do-it-for-me" (service labor, installed merchandise and tires) customers with the highest quality merchandise and service offerings.

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 endedFebruary 2, 2008

February 3, 2007

January 28, 2006Parts and Accessories

66.6
%
68.5
%
69.3
%Tires

15.2

14.1

13.6Total Merchandise Sales

81.8

82.6

82.9Service Labor

18.2

17.4

17.1Total Revenues

100.0
%
100.0
%
100.0
%


1

---



As
of February 2, 2008 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 each of the last five fiscal years, and the number of stores opened and closed by the Company during each of the last four fiscal years:

NUMBER OF STORES AT END OF FISCAL YEARS 2003 THROUGH 2007

|State          |  | 2007
Year
End |  | Closed |   | Opened |  | 2006
Year
End |    | Closed |  | Opened |  | 2005
Year
End |    | Closed |  | Opened |  | 2004
Year
End |  | Closed |  | Opened |  | 2003
Year
End
|-------------- |  | ------------- |  | ------ | - | ------ |  | ------------- | -- | ------ |  | ------ |  | ------------- | -- | ------ |  | ------ |  | ------------- |  | ------ |  | ------ |  | -------------
|Alabama        |  | 1             |  |       |   |       |  | 1             |    |       |  |       |  | 1             |    |       |  |       |  | 1             |  |       |  |       |  | 1            
|Arizona        |  | 22            |  | 1      |   | 1      |  | 22            |    |       |  |       |  | 22            |    |       |  |       |  | 22            |  |       |  |       |  | 22           
|Arkansas       |  | 1             |  |       |   |       |  | 1             |    |       |  |       |  | 1             |    |       |  |       |  | 1             |  |       |  |       |  | 1            
|California     |  | 118           |  | 3      |   |       |  | 121           |    |       |  |       |  | 121           |    | 1      |  |       |  | 122           |  |       |  |       |  | 122          
|Colorado       |  | 7             |  | 1      |   |       |  | 8             |    |       |  |       |  | 8             |    |       |  |       |  | 8             |  |       |  |       |  | 8            
|Connecticut    |  | 7             |  | 1      |   |       |  | 8             |    |       |  |       |  | 8             |    |       |  |       |  | 8             |  |       |  |       |  | 8            
|Delaware       |  | 6             |  |       |   |       |  | 6             |    |       |  |       |  | 6             |    |       |  |       |  | 6             |  |       |  |       |  | 6            
|Florida        |  | 43            |  |       |   |       |  | 43            |    |       |  |       |  | 43            |    |       |  |       |  | 43            |  |       |  |       |  | 43           
|Georgia        |  | 22            |  | 3      |   |       |  | 25            |    |       |  |       |  | 25            |    |       |  |       |  | 25            |  |       |  |       |  | 25           
|Illinois       |  | 22            |  | 1      |   |       |  | 23            |    |       |  |       |  | 23            |    |       |  |       |  | 23            |  |       |  |       |  | 23           
|Indiana        |  | 7             |  | 2      |   |       |  | 9             |    |       |  |       |  | 9             |    |       |  |       |  | 9             |  |       |  |       |  | 9            
|Kansas         |  |              |  | 2      |   |       |  | 2             |    |       |  |       |  | 2             |    |       |  |       |  | 2             |  |       |  |       |  | 2            
|Kentucky       |  | 4             |  |       |   |       |  | 4             |    |       |  |       |  | 4             |    |       |  |       |  | 4             |  |       |  |       |  | 4            
|Louisiana      |  | 8             |  | 2      |   |       |  | 10            | ** |       |  |       |  | 10            | ** |       |  |       |  | 10            |  |       |  |       |  | 10           
|Maine          |  | 1             |  |       |   |       |  | 1             |    |       |  |       |  | 1             |    |       |  |       |  | 1             |  |       |  |       |  | 1            
|Maryland       |  | 18            |  | 1      |   |       |  | 19            |    |       |  |       |  | 19            |    |       |  |       |  | 19            |  |       |  |       |  | 19           
|Massachusetts  |  | 6             |  | 1      |   |       |  | 7             |    |       |  |       |  | 7             |    |       |  |       |  | 7             |  |       |  |       |  | 7            
|Michigan       |  | 5             |  | 2      |   |       |  | 7             |    |       |  |       |  | 7             |    |       |  |       |  | 7             |  |       |  |       |  | 7            
|Minnesota      |  | 3             |  |       |   |       |  | 3             |    |       |  |       |  | 3             |    |       |  |       |  | 3             |  |       |  |       |  | 3            
|Missouri       |  | 1             |  |       |   |       |  | 1             |    |       |  |       |  | 1             |    |       |  |       |  | 1             |  |       |  |       |  | 1            
|Nevada         |  | 12            |  |       |   |       |  | 12            |    |       |  |       |  | 12            |    |       |  |       |  | 12            |  |       |  |       |  | 12           
|New Hampshire  |  | 4             |  |       |   |       |  | 4             |    |       |  |       |  | 4             |    |       |  |       |  | 4             |  |       |  |       |  | 4            
|New Jersey     |  | 29            |  |       |   | 1      |  | 28            |    |       |  |       |  | 28            |    |       |  |       |  | 28            |  |       |  |       |  | 28           
|New Mexico     |  | 8             |  |       |   |       |  | 8             |    |       |  |       |  | 8             |    |       |  |       |  | 8             |  |       |  |       |  | 8            
|New York       |  | 29            |  |       |   |       |  | 29            |    |       |  |       |  | 29            |    |       |  |       |  | 29            |  |       |  |       |  | 29           
|North Carolina |  | 8             |  | 2      |   |       |  | 10            |    |       |  |       |  | 10            |    |       |  |       |  | 10            |  |       |  |       |  | 10           
|Ohio           |  | 10            |  | 2      |   |       |  | 12            |    |       |  |       |  | 12            |    |       |  |       |  | 12            |  |       |  |       |  | 12           
|Oklahoma       |  | 5             |  | 1      |   |       |  | 6             |    |       |  |       |  | 6             |    |       |  |       |  | 6             |  |       |  |       |  | 6            
|Pennsylvania   |  | 42            |  |       |   |       |  | 42            |    |       |  |       |  | 42            |    |       |  |       |  | 42            |  |       |  |       |  | 42           
|Puerto Rico    |  | 27            |  |       |   |       |  | 27            |    |       |  |       |  | 27            |    |       |  |       |  | 27            |  |       |  |       |  | 27           
|Rhode Island   |  | 2             |  | 1      |   |       |  | 3             |    |       |  |       |  | 3             |    |       |  |       |  | 3             |  |       |  |       |  | 3            
|South Carolina |  | 6             |  |       |   |       |  | 6             |    |       |  |       |  | 6             |    |       |  |       |  | 6             |  |       |  |       |  | 6            
|Tennessee      |  | 7             |  |       |   |       |  | 7             |    |       |  |       |  | 7             |    |       |  |       |  | 7             |  |       |  |       |  | 7            
|Texas          |  | 47            |  | 7      |   |       |  | 54            |    |       |  |       |  | 54            |    | 1      |  |       |  | 55            |  |       |  |       |  | 55           
|Utah           |  | 6             |  |       |   |       |  | 6             |    |       |  |       |  | 6             |    |       |  |       |  | 6             |  |       |  |       |  | 6            
|Virginia       |  | 16            |  |       |   |       |  | 16            |    |       |  |       |  | 16            |    |       |  |       |  | 16            |  |       |  |       |  | 16           
|Washington     |  | 2             |  |       |   |       |  | 2             |    |       |  |       |  | 2             |    |       |  |       |  | 2             |  |       |  |       |  | 2            
|               |  |               |  |        |   |        |  |               |    |        |  |        |  |               |    |        |  |        |  |               |  |        |  |        |  |              
|Total          |  | 562           |  | 33     | * | 2      |  | 593           |    |       |  |       |  | 593           |    | 2      |  |       |  | 595           |  |       |  |       |  | 595          
|               |  |               |  |        |   |        |  |               |    |        |  |        |  |               |    |        |  |        |  |               |  |        |  |        |  |              

---

2

---



BUSINESS STRATEGY

On November 27, 2007, we announced our long-term strategic plan developed by our management team and approved by the Board of Directors. The
cornerstones of Pep Boys' five-year plan are to refocus on core automotive merchandise, optimize the Company's square footage productivity and add service bay market density through a "hub
and spoke" growth model. These initiatives are designed to drive revenue and profit growth in each of our lines of businessretail (do it yourself and commercial) and service centers
(labor plus installed merchandise and tires).



STORE IMPROVEMENTS

In fiscal 2007, the Company incurred $33,495,000 of its total capital expenditures of $41,953,000 to maintain and improve its stores. Approximately $16,884,000 of
these expenditures were in connection with the Company's store remodeling program, which we believe results in better merchandising within its retail business, promotes cross-selling and improves the
overall customer experience. In fiscal 2007, the Company grand reopened 136 remodeled stores. Our 2008 capital expenditures program is expected to be similar in size to fiscal 2007. The Company plans
to spend these funds on remerchandising and remodeling our locations to better support our core automotive business and the increased focus on tires. The funding is expected to come from net cash
generated from operating activities and the Company's existing line of credit.

PRODUCTS AND SERVICES

Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries a similar product line, with variations based on the number and type of cars registered in the
markets where the store is located. A full complement of inventory at a typical SUPERCENTER includes an average of approximately 22,000 items (approximately 20,000 items at a PEP BOYS EXPRESS store).
The Company's product lines include: tires (not stocked at PEP BOYS EXPRESS stores); batteries; new and remanufactured parts for domestic and import vehicles; chemicals and maintenance items; fashion,

3

---



electronic,
and performance accessories; and a limited amount of select non-automotive merchandise that appeals to automotive "Do-It-Yourself" customers, such as
generators, power tools, personal transportation products, and canopies.

In
addition to offering a wide variety of high quality name brand products, the Company sells an array of high quality products under various private label names. The Company sells tires
under the names CORNELL®, FUTURA® and DEFINITY; 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
and wiper blades under the name PROLINE® and ALLEGHENY®; alternators, battery booster packs and starters under the name PROSTART®; power steering hoses and power
steering pumps under the name PROSTEER®; brakes under the name PROSTOP®; brakes, starters and ignition under the name VALUEGRADE; paints under the name VARSITY®;
and electronics under the name SPX Audio®. All products sold by the Company under various private label names accounted for approximately 27% of the Company's merchandise sales in fiscal
2007, and approximately 24% and 22% in fiscal 2006 and 2005.

The
Company has service bays in 553 of its 562 locations. Each service department has the ability to perform most types of automotive repair and maintenance service (except body work).

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 its inventory investment. The program satisfies the installed merchandise customer by taking advantage of the breadth and quality of its parts inventory as well as its experience supplying
its own service bays and mechanics. As of February 2, 2008, approximately 72%, or 404, of the Company's stores provided commercial parts delivery.

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 and an electronic commercial invoicing system in
all of its stores. 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 weekly basis, the Company employs a promotional pricing strategy on
select items to drive increased customer traffic.

The
Company uses various forms of advertising to promote its product and service offerings, its service and repair capabilities and its commitment to customer service and satisfaction.
The Company is committed to an effective promotional schedule with a circular program, extra-effort promotions supported by Run of Paper (ROP) and radio and television advertising during highly
seasonal times of the year, including sponsoring a major NASCAR event, and various in-store promotions.

The
Company maintains a website located at www.pepboys.com. Pepboys.com is a multifaceted tool for connecting with existing and potential customers. It serves as an important portal to
our Company, allowing consumers the freedom and convenience to access more information about the organization, our stores and our parts, accessories, tire and service offerings online. The site helps
to establish Pep Boys as an automotive authority by providing consumers with general and seasonal car care tips, do-it-yourself vehicle maintenance and light repair guidance
and safe driving pointers. Exclusive online coupons give site visitors who share with us their e-mail addresses access to special discounts on products and services at their local Pep
Boys.

4

---



In
fiscal 2007, approximately 37% of the Company's total revenues were cash transactions with the remainder being co-branded credit card, other credit and debit card
transactions and commercial credit accounts.

The
Company does not experience significant seasonal fluctuation in the generation of its revenues.

STORE OPERATIONS AND MANAGEMENT

All Pep Boys stores are open seven days a week. Each SUPERCENTER has a Retail Manager and Service Manager (PEP BOYS EXPRESS STORES only have a Retail Manager) who
report up through a distinct organization of Area Directors and Divisional Vice Presidents specializing in operating their respective businesses. The Divisional Vice Presidents report to the Interim
Chief Executive Officer. The Interim Chief Executive Officer serves as the Company's principal operations officer. A Retail Manager's and a Service Manager's average length of service with the Company
is approximately 8.4 and 5.7 years, respectively.

Supervision
and control over individual stores is facilitated by means of the Company's computer system, operational handbooks and regular visits to stores by Area Directors and
Divisional Vice Presidents. All of the Company's advertising, accounting, purchasing, management information systems, and most of its administrative functions are conducted at its corporate
headquarters in Philadelphia, Pennsylvania. Certain administrative functions for the Company's divisional 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 primarily by dedicated and contract carriers. Target levels of inventory for
each product are established for each of the Company's warehouses and stores and are 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 merchandise from its suppliers.

Each
Pep Boys store has an automatic inventory replenishment system that automatically orders additional inventory, generally from a warehouse, when a store's inventory on hand falls
below the target levels. In addition, the Company's centralized buying system, coupled with continued advancement in its warehouse and distribution systems, has enhanced the Company's ability to
control its inventory.

SUPPLIERS

During fiscal 2007, the Company's ten largest suppliers accounted for approximately 43% of the merchandise purchased by the Company. No single supplier accounted
for more than 19% of the Company's purchases. The Company has no long-term contracts under which the Company is required to purchase merchandise except for a contract to purchase bulk oil
for use in the
Company's service bays, which expires in 2011. 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 substantially
similar cost, for the types of merchandise sold in its stores.

COMPETITION

The business of the Company is highly competitive. The Company encounters competition from nationwide and regional chains and from local independent merchants.
The Company's competitors

5

---



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-yourself" and "do-it-for-me" 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, availability
of product, customer service and product offerings, quality and price.

The
Company believes that the warranty policies in connection with the higher priced items it sells, such as tires, batteries, brake linings and other major automotive parts and
accessories, are comparable or superior to those of its competitors.

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, and the ownership and
operation of real property.

EMPLOYEES

At February 2, 2008, the Company employed 18,564 persons as follows:

Description

Full-time

%

Part-time

%

Total

%Retail

3,852

31.9

4,898

75.4

8,750

47.1Service Center

6,826

56.6

1,523

23.5

8,349

45.0STORE TOTAL

10,678

88.5

6,421

98.9

17,099

92.1Warehouses

623

5.1

64

1.0

687

3.7Offices

769

6.4

9

0.1

778

4.2TOTAL EMPLOYEES

12,070

100.0

6,494

100.0

18,564

100.0


The
Company had no union employees as of February 2, 2008. At February 3, 2007, the Company employed approximately 13,340 full-time and 5,454
part-time employees.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained herein, including in "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations", constitute "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. The words "guidance," "expects," "anticipates," "estimates,"
"forecasts" and similar expressions are intended to identify these forward-looking statements. Forward-looking statements include management's expectations regarding implementation of its long-term
strategic plan, future financial performance, automotive aftermarket trends, levels of competition, business development activities, future capital expenditures, financing sources and availability and
the effects of regulation and litigation. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our
expectations will be achieved. Our actual results may differ materially from the results discussed in the forward-looking statements due to factors beyond our control, including the strength of the
national and regional economies, retail and commercial consumers' ability to spend, the health of the various sectors of the automotive aftermarket, the

6

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weather
in geographical regions with a high concentration of our stores, competitive pricing, the location and number of competitors' stores, product and labor costs and the additional factors
described in our filings with the Securities and Exchange Commission ("SEC"). See, "Item 1A. Risk Factors." We assume no obligation to update or supplement forward-looking statements that
become untrue because of subsequent events.

SEC REPORTING

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

We
provide free electronic access to our annual, quarterly and current reports (and all amendments to these reports) on our Internet website, www.pepboys.com. These reports are available
on our website as soon as reasonably practicable after we electronically file or furnish such materials 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 from our investor relations department. Please call 215-430-9720 or write Pep Boys, Investor
Relations, 3111 West Allegheny Avenue, Philadelphia, PA 19132.

EXECUTIVE OFFICERS OF THE COMPANY

The following table indicates the names, ages and tenures with the Company and positions (together with the year of election to such positions) of the executive
officers of the Company:

|Name              |  | Age |  | Tenure
with
Company
as of
April 23, 2008 |  | Position with the Company and Date of Election to Position                                                                              
|----------------- |  | --- |  | ---------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Michael R. Odell  |  | 44  |  | 7 months                                 |  | Interim Chief Executive Officer named on April 23, 2008;
Executive Vice PresidentChief Operating Officer from September 2007April 2008
|Joseph A. Cirelli |  | 48  |  | 31 years                                 |  | Senior Vice PresidentBusiness Development since November 2007                                                                          
|Troy E. Fee       |  | 39  |  | 9 months                                 |  | Senior Vice PresidentHuman Resources since July 2007                                                                                   
|Scott A. Webb     |  | 44  |  | 7 months                                 |  | Senior Vice PresidentMerchandising & Marketing since September 2007                                                                    
|Harry F. Yanowitz |  | 41  |  | 5 years                                  |  | Senior Vice PresidentChief Financial Officer since August 2004                                                                         

Michael R. Odell was named Interim Chief Executive Officer on April 23, 2008. Mr. Odell joined the Company in September 2007 as
Executive Vice PresidentChief Operating Officer, after having

7

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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.

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

Troy
E. Fee, Senior Vice PresidentHuman Resources, joined the Company in July, 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 Tires & Battery. Mr. Fee has over 20 years experience in operations and human
resources in the tire and automotive service and repair business.

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

Harry
F. Yanowitz was named Senior Vice PresidentChief Financial Officer in August 2004. Mr. Yanowitz joined the Company in June 2003 as Senior Vice
PresidentStrategy & Business Development after having most recently served as Managing Director of Sherpa Investments, a private investment firm. Previously, he was President of
Chapters, Canada's largest book retailer. Prior to joining Chapters, Mr. Yanowitz was a consultant with Bain & Company. On January 17, 2008, the Company announced the planned
departure of Mr. Yanowitz in order to pursue other business interests. Mr. Yanowitz is expected to resign from his position with the Company shortly after the filing of the Company's
financial statements for fiscal 2007.

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

ITEM 1A    RISK FACTORS

Our business faces significant risks. The risks described below may not be the only risks we face. If any of the events or circumstances described as risks below
actually occurs, our business, results of operations 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.

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

8

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

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

We
require significant capital to fund our business. While we believe we have the ability to sufficiently fund our planned operations and capital expenditures for the next 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:



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. In addition, our failure to promptly pay, or order sufficient quantities of inventory from
our vendors may increase the cost of products we purchase or may lead to vendors refusing to sell products to us at all. A disruption of our vendor relationships or a disruption in our vendors'
operations could have a material adverse effect on our business and results of operations.

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

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

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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 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, and the ownership and operation of real property.
As a result of investigations undertaken in connection with a number of our store acquisitions and financings, we are aware that soil
or groundwater may be contaminated at some of our properties. Any failure by us to comply with environmental laws and regulations could have a material adverse effect on us.

Risks Related to Our Industry

Our industry is highly competitive, and price competition in some categories 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 category of the automotive aftermarket:

Do-It-Yourself



Do-It-For-Me



10

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

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

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

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



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. The Company also owns the
following administrative regional officesapproximately 4,000 square feet of space in each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition, the Company leases approximately
4,000 square feet of
space for administrative divisional offices in each of Decatur, Georgia and Addison, Texas. The Company owns a three-story, approximately 60,000 square foot structure in Los Angeles, California in
which it occupies 7,200 square feet and sublets the remaining square footage to tenants.

11

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In
the third quarter of fiscal 2007, the Company adopted a five-year strategic plan. One of the initial steps in this plan was the identification of 31 low-return
stores, which were closed by the end of fiscal year 2007. The Company also closed two other stores earlier in the year. During the fourth quarter of 2007, the Company sold and leased back 34 stores.
See further discussion on the sale leaseback transaction in Item 7Management's Discussion and Analysis.

Of
the 562 store locations operated by the Company at February 2, 2008, 259 are owned and 303 are leased. Of the 259 stores owned by the Company, 105 are used as collateral for
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 for its 562 store locations at February 2, 2008:

|Warehouse Locations |  | Products
Warehoused |  | Square
Footage |  | Owned or
Leased |  | Stores
Serviced |  | States Serviced                               
|------------------- |  | ------------------- |  | -------------- |  | --------------- |  | --------------- |  | ----------------------------------------------
|San Bernardino, CA  |  | All                 |  | 600,000        |  | Leased          |  | 161             |  | AZ, CA, NM, NV, UT, WA                        
|McDonough, GA       |  | All                 |  | 392,000        |  | Owned           |  | 127             |  | AL, FL, GA, LA, NC, PR, SC, TN, VA            
|Mesquite, TX        |  | All                 |  | 244,000        |  | Owned           |  | 69              |  | AR, CO, LA, MO, NM, OK, TX                    
|Plainfield, IN      |  | All                 |  | 403,000        |  | Leased          |  | 72              |  | IL, IN, KY, MI, MN, NY, OH, PA, TN, VA        
|Chester, NY         |  | All                 |  | 400,400        |  | Leased          |  | 133             |  | CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VA    
|Middletown, NY      |  | All except
tires    |  | 90,000         |  | Leased          |  |                |  | This facility does not ship
directly to stores
|McDonough, GA       |  | All except
tires    |  | 150,000        |  | Leased          |  |                |  | This facility does not ship
directly to stores
|                    |  |                     |  |                |  |                 |  |                 |  |                                               
|Total               |  |                     |  | 2,279,400      |  |                 |  | 562             |  |                                               
|                    |  |                     |  |                |  |                 |  |                 |  |                                               

In
addition to the above distribution centers, the Company operates four satellite warehouses. These satellite warehouses stock approximately 32,000 SKUs and serve an average of
12-15 stores, in addition to having retail capabilities. These locations were leased and comprised 78,700 square feet. Concurrently, during 2006, the Company reduced its outside storage
space to provide temporary storage of merchandise items from approximately 1,000,000 to 100,000 aggregate cubic feet. 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 stock-keeping units through the end of fiscal 2008.

ITEM 3    LEGAL PROCEEDINGS

During the fourth quarter of 2006 and the first quarter of 2007, the Company was served with four separate lawsuits brought by former associates employed in
California, each of which lawsuits purports to be a class action on behalf of all current and former California store associates. One or more of the lawsuits claim that the plaintiff was not paid for
(i) overtime, (ii) accrued vacation time, (iii) all time worked (i.e. "off the clock" work) and/or (iv) late or missed meal periods or rest breaks. The plaintiffs
also allege that the Company violated certain record keeping requirements arising out of the foregoing alleged violations. The lawsuits (i) claim these alleged practices are unfair business
practices, (ii) request back pay, restitution, penalties, interest and attorney fees and (iii) request that the Company be enjoined from committing further unfair business practices.
During the third quarter of

12

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2007,
the Company reached a settlement in principle regarding the accrued vacation time claims (which is scheduled to be considered by the court for final approval on May 5, 2008). The Company
continues to vigorously defend the remaining claims.

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, which amounts were increased by $6,250,000 in fiscal 2007, are adequate and that
the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. However, there exists a reasonable possibility of loss in excess of the amounts
accrued, the amount of which cannot currently be estimated. While the Company does not believe that the amount of such excess loss could be material to the Company's financial position, any such loss
could have a material adverse effect on the Company's results of operations in the period(s) during which the underlying matters are resolved.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended
February 2, 2008.

13

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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 5,414 registered
shareholders as of April 24, 2008. 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 year ended February 2, 2008Fourth Quarter

$
15.14

$
8.25

$
0.0675Third Quarter


17.97


13.50


0.0675Second Quarter


22.49


15.90


0.0675First Quarter


19.93


14.73


0.0675Fiscal year ended February 3, 2007Fourth Quarter

$
16.05

$
12.48

$
0.0675Third Quarter


14.58


9.33


0.0675Second Quarter


14.96


10.66


0.0675First Quarter


16.55


14.05


0.0675


It
is the present intention of the Company's Board of Directors to continue to pay regular quarterly cash dividends; 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
September 7, 2006, the Company renewed its share repurchase program and reset the authority back to $100,000,000 for repurchases to be made from time to time in the open market
or in privately negotiated transactions. During the first quarter of fiscal 2007, the Company repurchased 2,702,460 shares of Common Stock for $50,841,000. The Company also disbursed during the first
quarter of fiscal 2007, $7,311,000 for 494,800 shares of Common Stock repurchased during the fourth quarter of 2006. This program expired on September 30, 2007.

EQUITY COMPENSATION PLANS

The following table sets forth the Company's shares authorized for issuance under its equity compensation plans at February 2, 2008:

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

Weighted-average price
of outstanding options
(b)

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

2,347,089

$
12.97

1,444,982Equity compensation plans not approved by security holders

1,000,000

$
7.54

Total

3,347,089

$
11.34

1,444,982


14

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In
March of 2007, the Company adopted two standalone inducement plans under which it granted non-qualified stock options and RSUs to its then current President & Chief
Executive Officer in order to induce him to join the Company. As of February 2, 2008, there were no awards available for grant under these inducement plans.

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 Specialty Stores Index and (3) the S&P 600 Automotive Retail Index. Pep Boys moved
from the S&P 600 Specialty Stores Index to the S&P 600 Automotive Retail Index upon its formation in May 2005. Until such time as the S&P 600 Automotive Retail index has five
years of history, Pep Boys will show a comparison to both peer group indexes. The comparison assumes that $100 was invested in January 2003 in Pep Boys Stock and in each of the indices and assumes
reinvestment of dividends. The companies currently comprising the S&P 600 Automotive Retail Index are Group 1 Automotive, Inc.; Lithia Motors, Inc.; Midas, Inc.; Sonic
Automotive, Inc.; and The Pep BoysManny, Moe & Jack.

GRAPHIC

|Company/Index                    |  | Jan. 2003 |     | Jan. 2004 |   | Jan. 2005 |  | Jan. 2006 |     | Jan. 2007 |   | Jan. 2008
|-------------------------------- |  | --------- | --- | --------- | - | --------- |  | --------- | --- | --------- | - | ---------
|Pep Boys                         |  | $         | 100 |           | $ | 216       |  | $         | 164 |           | $ | 158      
|S&P SmallCap 600 Index           |  | $         | 100 |           | $ | 148       |  | $         | 169 |           | $ | 206      
|S&P 600 Specialty Stores Index   |  | $         | 100 |           | $ | 164       |  | $         | 150 |           | $ | 146      
|S&P 600 Automotive Retail Index* |  |           |     |           |   |           |  | $         | 100 |           | $ | 130      

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15

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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.

|Year ended                                                                                                             |      | Feb. 2,
2008 |            | Feb. 3,
2007 |   | Jan. 28,
2006 |       | Jan. 29,
2005 |            | Jan. 31,
2004 |  
|---------------------------------------------------------------------------------------------------------------------- | ---- | ------------ | ---------- | ------------ | - | ------------- | ----- | ------------- | ---------- | ------------- | -
|
|STATEMENT OF OPERATIONS DATA(5)                                                                                        |      |              |            |              |   |               |       |               |            |               |  
|Merchandise sales                                                                                                      |      | $            | 1,749,578  |              | $ | 1,853,077     |       | $             | 1,830,632  |               | $
|Service revenue                                                                                                        |      |              | 388,497    |              |   | 390,778       |       |               | 378,342    |               |  
|Total revenues                                                                                                         |      |              | 2,138,075  |              |   | 2,243,855     |       |               | 2,208,974  |               |  
|Gross profit from merchandise sales(6)                                                                                 |      |              | 443,626    | (1)          |   | 533,276       |       |               | 470,019    |               |  
|Gross profit from service revenue(6)                                                                                   |      |              | 42,611     | (1)          |   | 33,004        |       |               | 32,276     |               |  
|Total gross profit                                                                                                     |      |              | 486,237    | (1)          |   | 566,280       |       |               | 502,295    |               |  
|Selling, general and administrative expenses                                                                           |      |              | 518,373    |              |   | 546,399       |       |               | 519,600    | (2)           |  
|Net Gain (Loss) from Disposition of Assets                                                                             |      |              | 15,151     |              |   | 8,968         |       |               | 4,826      |               |  
|Operating (loss) profit                                                                                                |      |              | (16,985    | )            |   | 28,849        |       |               | (12,479)   | (2)           |  
|Non-operating income                                                                                                   |      |              | 5,246      |              |   | 7,023         |       |               | 3,897      |               |  
|Interest expense                                                                                                       |      |              | 51,293     |              |   | 49,342        |       |               | 49,040     |               |  
|(Loss) earnings from continuing operations before income taxes and cumulative effect of change in accounting principle |      |              | (63,032)   | (1)          |   | (13,470       | )     |               | (57,622)   | (2)           |  
|Net (loss) earnings from continuing operations before cumulative effect of change in accounting principle              |      |              | (37,438    | )            |   | (7,071        | )     |               | (36,595)   | (2)           |  
|Discontinued operations, net of tax                                                                                    |      |              | (3,601)    | (1)          |   | 4,333         |       |               | 1,088      |               |  
|Cumulative effect of change in accounting principle, net of tax                                                        |      |              |           |              |   | 189           |       |               | (2,021     | )             |  
|Net (loss) earnings                                                                                                    |      |              | (41,039    | )            |   | (2,549        | )     |               | (37,528    | )             |  
|BALANCE SHEET DATA                                                                                                     |      |              |            |              |   |               |       |               |            |               |  
|Working capital                                                                                                        |      | $            | 195,343    |              | $ | 163,960       |       | $             | 247,526    |               | $
|Current ratio                                                                                                          |      |              | 1.35 to 1  |              |   | 1.27 to 1     |       |               | 1.43 to 1  |               |  
|Merchandise inventories                                                                                                |      | $            | 561,152    |              | $ | 607,042       |       | $             | 616,292    |               | $
|Property and equipment-net                                                                                             |      |              | 780,779    |              |   | 906,247       |       |               | 947,389    |               |  
|Total assets                                                                                                           |      |              | 1,583,920  |              |   | 1,767,199     |       |               | 1,821,753  |               |  
|Long-term debt (includes all convertible debt)                                                                         |      |              | 400,016    |              |   | 535,031       |       |               | 586,239    |               |  
|Total stockholders' equity                                                                                             |      |              | 470,712    |              |   | 567,755       |       |               | 594,565    |               |  
|DATA PER COMMON SHARE                                                                                                  |      |              |            |              |   |               |       |               |            |               |  
|Basic (loss) earnings from continuing operations before cumulative effect of change in accounting principle            |      | $            | (0.72      | )            | $ | (0.13         | )     | $             | (0.67)     | (2)           | $
|Basic (loss) earnings                                                                                                  |      |              | (0.79      | )            |   | (0.05         | )     |               | (0.69)     | (2)           |  
|Diluted (loss) earnings from continuing operations before cumulative effect of change in accounting principle          |      |              | (0.72      | )            |   | (0.13         | )     |               | (0.67)     | (2)           |  
|Diluted net (loss) earnings                                                                                            |      |              | (0.79      | )            |   | (0.05         | )     |               | (0.69)     | (2)           |  
|Cash dividends declared                                                                                                |      |              | 0.27       |              |   | 0.27          |       |               | 0.27       |               |  
|Book value per share                                                                                                   |      |              | 9.10       |              |   | 10.53         |       |               | 10.97      |               |  
|Common share price range:                                                                                              |      |              |            |              |   |               |       |               |            |               |  
|                                                                                                                       | High |              |            | 22.49        |   |               | 16.55 |               |            | 18.80         |  
|                                                                                                                       | Low  |              |            | 8.25         |   |               | 9.33  |               |            | 11.75         |  
|OTHER STATISTICS                                                                                                       |      |              |            |              |   |               |       |               |            |               |  
|Return on average stockholders' equity(7)                                                                              |      |              | (7.9       | )%           |   | (0.4          | )%    |               | (6.0       | )%            |  
|Common shares issued and outstanding                                                                                   |      |              | 51,752,677 |              |   | 53,934,084    |       |               | 54,208,803 |               |  
|Capital expenditures                                                                                                   |      | $            | 41,953     |              | $ | 53,903        |       | $             | 92,083     |               | $
|Number of retail outlets                                                                                               |      |              | 562        |              |   | 593           |       |               | 593        |               |  
|Number of service bays                                                                                                 |      |              | 5,845      |              |   | 6,162         |       |               | 6,162      |               |  

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16

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

OVERVIEW

Introduction

Pep Boys is a leader in the automotive aftermarket, with over 560 stores and more than 5,800 service bays located throughout 35 states and Puerto Rico. All of our
stores feature the nationally recognized Pep Boys brand name, established through more than 80 years of providing high-quality automotive merchandise and services, and are
company-owned, ensuring chain-wide consistency for our customers. We are the only national chain offering automotive service, accessories, tires and parts under one roof, positioning us to
achieve our goal of becoming the category dominant one-stop shop for automotive maintenance and accessories.

Of
our 562 stores, 552 are what we refer to as SUPERCENTERS, which feature an average of 11 state-of-the-art service bays, with an average of
more than 20,000 square feet per SUPERCENTER. Our store size allows us to display and sell a more complete offering of merchandise in a wider array of categories than our competitors, with a
comprehensive tire offering. We leverage this investment in inventory through our ability to install what we sell in our service bays and by offering this merchandise to both commercial and retail
customers.

Our
fiscal year ends on the Saturday nearest January 31, which results in an extra week every six years. Our fiscal year ended February 2, 2008 was a 52-week
year with the fourth quarter including 13 weeks versus 14 weeks in fiscal 2006. Fiscal 2006 included 53 weeks. All other years included in this report are 52 weeks.

Fiscal
2007 was a year of significant change for Pep Boys during which our entire management team developed and, our Board of Directors approved, our long-term strategic
plan. The cornerstones of this five-year plan, which was announced on November 27, 2007, are to refocus on core automotive merchandise, optimize our square footage productivity and
add incremental service bay density through a "hub and spoke" growth model.

In
the third and fourth quarters of fiscal 2007, we began to implement the initial steps of our long-term strategic plan, including:



Total
revenues for the fiscal year ended February 2, 2008 were $2,138,075,000 as compared to the $2,243,855,000 recorded in the prior year. On a 52-week basis,
determined as the first 52 week period in the year, comparable merchandise sales decreased 4.2% and comparable service revenue increased 1.8%. Despite a very difficult macroeconomic environment
which negatively impacted our entire business throughout 2007, our service center revenue showed steady improvement throughout the year.

17

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We
attribute this improvement to our continued focus on our service center productivity, improved service manager retention and a renewed focus on tire sales.

Our
net loss per share for the year ended February 2, 2008 was $0.79 per share or a $0.74 per share increase over the $0.05 loss per share recorded in 2006. A significant portion
of this loss was attributable to the initial steps taken in accordance with our long-term strategic plan. During fiscal 2007, we also incurred approximately $7,700,000 in severance and
inducement compensation expense in order to strengthen our management team. These actions, which we believe strengthen our future, contributed to our disappointing fiscal 2007 financial results.

We
completed a sale-leaseback transaction on 34 Company-owned locations in the fourth quarter resulting in the repayment of $162,558,000 in long term debt. On
March 25, 2008, we consummated a sale and leaseback transaction on 18 properties for an aggregate purchase price of $63,600,000. On April 10, 2008, we consummated a
sale-leaseback transaction on 23 properties for an aggregate purchase price of $74,300,000. The proceeds from these two additional transactions are expected to be used to reduce
indebtedness. Each of the properties sold in these three transactions have been leased back to be operated as Pep Boys stores for a term of 15 years, with four 5-year renewal
options.

Our
cash flow from operating activities was $52,784,000 in fiscal 2007 and our capital expenditure program was $41,953,000.

During
fiscal 2007 we grand reopened 136 Stores in the following markets: Portland, ME; Boston, MA; Providence, RI; Springfield, MA; Hartford, CT; Shreveport, LA; Baton Rouge, LA;
Lafayette, LA; New Orleans, LA; Yuma, CA; Santa Barbara, CA; Bakersfield, CA; Fresno, CA; Sacramento, CA; Chico, CA; San Francisco, CA; Reno, NVtotaling 65 (first quarter);
Houston, TX; Austin, TX; San Antonio, TX; Corpus Christi, TX; Laredo, TX; Harlingen, TX; Atlanta, GA; Macon, GA; Savannah, GAtotaling 44 (second quarter); Puerto
Ricototaling 27 (fourth quarter).

CAPITAL & LIQUIDITY

Capital Resources and Needs

Our cash requirements arise principally from the purchase of inventory, capital expenditures related to existing stores, offices and distribution centers, service
our debt and contractual obligations.

Our
fiscal 2007 capital expenditures totaled $41,953,000, including the remodeling of 130 stores and the opening of two new SUPERCENTERS. Our fiscal 2008 capital expenditures are
expected to be similar to fiscal 2007, including comparable inventory levels.

In
fiscal 2007, we received $30,045,000 from the cancellation of certain company-owned life insurance policies. The proceeds from the surrender of these non-core assets were
used to repay borrowings under our revolving credit facility and general corporate purposes.

In
fiscal 2007, we repurchased $50,841,000 of Pep Boys stock and paid an additional $7,300,000 to settle shares purchased in the fourth quarter of 2006.

In
the fourth quarter of fiscal 2007, we prepaid $162,558,000 of debt under our Senior Secured Term Loan facility due in 2013 with the net proceeds from a sale-leaseback
transaction on 34 Company-owned locations.

On
or before August 1, 2008, we are obligated to purchase 29 properties that we currently rent under a master operating lease. We believe that the market value of these properties
exceeds their

18

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$116,318,000
purchase price, which will allow us to fund such obligation through sale-leaseback or other financing transactions.

We
anticipate that cash provided by operating activities, our existing line of credit, cash on hand, additional sale-leaseback financing transactions, and future access to
the capital markets will exceed our expected cash requirement in fiscal 2008.

Our
working capital was $195,343,000 at February 2, 2008, $163,960,000 at February 3, 2007 and $247,526,000 at January 28, 2006. Our long-term debt, as a
percentage of its total capitalization, was 46% at February 2, 2008, 49% at February 3, 2007 and 50% at January 28, 2006, respectively. As of February 2, 2008, we had a
$357,500,000 line of credit, with an availability of approximately $131,000,000. Our current portion of long term debt is $2,114,000 at February 2, 2008.



The following chart represents our total contractual obligations and commercial commitments as of February 2, 2008:

|Contractual Obligations                                                                                  |  | Total |           | Due in less
than 1 year |   | Due in
1 - 3 years |  | Due in
3 - 5 years |         | Due after
5 years
|-------------------------------------------------------------------------------------------------------- |  | ----- | --------- | ----------------------- | - | ------------------ |  | ------------------ | ------- | -----------------
|
|Long-term debt(1)                                                                                        |  | $     | 396,945   |                         | $ | 1,585              |  | $                  | 45,217  |                  
|Operating leases                                                                                         |  |       | 584,965   |                         |   | 68,240             |  |                    | 117,849 |                  
|Asset purchase obligation under operating lease(2)                                                       |  |       | 116,318   |                         |   | 116,318            |  |                    |        |                  
|Expected scheduled interest payments on all long-term debt, capital leases and lease finance obligations |  |       | 173,855   |                         |   | 29,074             |  |                    | 57,741  |                  
|Capital and lease financing obligations(1)                                                               |  |       | 5,185     |                         |   | 529                |  |                    | 647     |                  
|Other long-term obligations(3)                                                                           |  |       | 31,618    |                         |   | 2,865              |  |                    |        |                  
|                                                                                                         |  |       |           |                         |   |                    |  |                    |         |                  
|Total contractual obligations                                                                            |  | $     | 1,308,886 |                         | $ | 218,611            |  | $                  | 221,454 |                  
|                                                                                                         |  |       |           |                         |   |                    |  |                    |         |                  

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19

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|Commercial Commitments       |  | Total |        | Due in less
than 1 year |   | Due in
1 - 3 years |  | Due in
3 - 5 years |        | Due after
5 years
|---------------------------- |  | ----- | ------ | ----------------------- | - | ------------------ |  | ------------------ | ------ | -----------------
|
|Import letters of credit     |  | $     | 691    |                         | $ | 691                |  | $                  |       |                  
|Standby letters of credit    |  |       | 63,477 |                         |   | 39,477             |  |                    | 24,000 |                  
|Surety bonds                 |  |       | 6,598  |                         |   | 6,390              |  |                    | 208    |                  
|Purchase obligations(1)(2)   |  |       | 13,486 |                         |   | 11,823             |  |                    | 1,544  |                  
|                             |  |       |        |                         |   |                    |  |                    |        |                  
|Total commercial commitments |  | $     | 84,252 |                         | $ | 58,381             |  | $                  | 25,752 |                  
|                             |  |       |        |                         |   |                    |  |                    |        |                  

---



On January 27, 2006 we entered into a $200,000,000 Senior Secured Term Loan facility due January 27, 2011. This facility is secured by the real
property and improvements associated with 154 of our stores. Interest at the rate of London Interbank Offered Rate (LIBOR) plus 3.0% on this facility was payable starting in February 2006. Proceeds
from this facility were used to satisfy and discharge our then outstanding $43,000,000 6.88% Medium Term Notes due March 6, 2006 and $100,000,000 6.92% Term Enhanced Remarketable Securities
(TERMS) due July 7, 2016 and to reduce borrowings under our line of credit by approximately $39,000,000.

On
October 30, 2006, we amended and restated the Senior Secured Term Loan facility to (i) increase the size from $200,000,000 to $320,000,000, (ii) extend the
maturity from January 27, 2011 to October 27, 2013, (iii) reduce the interest rate from LIBOR plus 3.00% to LIBOR plus 2.75%. An additional 87 stores (bringing the total to 241
stores) were added to the collateral pool securing the facility. Proceeds were used to satisfy and discharge $119,000,000 in outstanding 4.25% convertible Senior Notes due June 1, 2007.

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

On
November 27, 2007, we sold the land and buildings for 34 owned properties to an independent third party. We used $162,558,000 of the net proceeds to prepay a portion of the
Senior Secured Term Loan facility. This prepayment reduced the principal amount of the facility to $155,000,000 and reduced the scheduled quarterly repayments from $800,000 to $391,000. In addition
the prepayment resulted in the recognition in interest expense of approximately $5,900,000 of deferred financing fees and the

20

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reclassification
from other comprehensive loss for the portion of the related interest rate swap that is no longer designated as a hedge. The number of stores in the collateral pool, which secures the
facility, was simultaneously reduced by 136 stores (bringing the total remaining collateral to 105 stores with an estimated fair market value of approximately $310,000,000).



On December 14, 2004, we issued $200,000,000 aggregate principal amount of 7.5% Senior Subordinated Notes due December 15, 2014.



On December 2, 2004, we further amended our amended and restated line of credit agreement. The amendment increased the amount available for borrowings to
$357,500,000, with an ability, upon satisfaction of certain conditions, to increase such amount to $400,000,000. The amendment also reduced the interest rate under the agreement to LIBOR plus 1.75%
(after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25% incremental increases as excess availability falls below $50,000,000). The amendment also provided the flexibility,
upon satisfaction of certain conditions, to release up to $99,000,000 of reserves required as of December 2, 2004 under the line of credit agreement to support certain operating leases. This
reserve was $73,924,000 on February 2, 2008. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate on borrowings under the line of
credit agreement was 7.51% and 7.67% at February 2, 2008 and February 3, 2007, respectively.



We also have other notes payable with aggregate principal balances of $248,000 and $268,000 and a weighted average interest rates of 8.0% and 8.0% at
February 2, 2008 and February 3, 2007, respectively. These notes mature at various times through August 2016. Certain of these notes are collateralized by land and buildings with an
aggregate carrying value of approximately $1,773,000 and $1,774,000 at February 2, 2008 and February 3, 2007, respectively.



Several of the Company's debt agreements require the maintenance of certain financial ratios and compliance with covenants. The most restrictive of these
covenants, an EBITDA requirement, is triggered if the Company's availability under its line of credit agreement drops below $50,000,000. As of February 2, 2008 the Company had an additional
availability of approximately $131,000,000 under its line of credit, and was in compliance with all covenants contained in its debt agreements.



In the third quarter of fiscal 2004, we entered into a vendor financing program with an availability of $20,000,000. Under this program, our factor made
accelerated and discounted payments to our vendors and we, in turn, made our regularly-scheduled full vendor payments to the factor. This program was terminated effective December, 2007. As of
February 2, 2008 and February 3, 2007, there was an outstanding balance of $0 and $13,990,000, respectively, under this program, classified as trade payable program liability in the
consolidated balance sheet.

On
June 29, 2007, we entered into a new vendor financing program with an availability up to $65,000,000. There was an outstanding balance of $14,254,000 under this program as of
February 2, 2008.

We
have letter of credit arrangements in connection with our risk management, import merchandising and vendor financing programs. We were contingently liable for $691,000 and $487,000 in
outstanding import letters of credit and $63,477,000 and $55,708,000 in outstanding standby letters of credit as of February 2, 2008 and February 3, 2007, respectively.

21

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We
are also contingently liable for surety bonds in the amount of approximately $6,598,000 and $11,224,000 as of February 2, 2008 and February 3, 2007, respectively. The
surety bonds guarantee certain of our payments (for example utilities, easement repairs, licensing requirements and customs fees).



In the third quarter of fiscal 2004, we entered into a $35,000,000 operating lease for certain operating equipment at an interest rate of LIBOR plus 2.25%. We
have evaluated this transaction in accordance with the guidance of Financial Accounting Standards Board Interpretation Number (FIN) 46 and re-evaluated the transaction under FIN 46R
and have determined that the Company is not required to consolidate the leasing entity. As of February 2, 2008, there was an outstanding commitment of $9,836,000 under the lease. The lease
includes a residual value guarantee with a maximum value of approximately $172,000. We expect the fair market value of the leased equipment to
substantially reduce or eliminate our payment under the residual guarantee at the end of the lease term. In accordance with FIN 45, we have recorded a liability for the fair value of the
guarantee related to this operating lease. As of February 2, 2008 and February 3, 2007, the current value of this liability was $38,000 and $71,000, respectively, which is recorded in
other long-term liabilities on the consolidated balance sheets.

On
August 1, 2003, we renegotiated $132,000,000 in operating leases. These leases, which expire on August 1, 2008, have lease payments with an effective rate of LIBOR plus
2.06%. We have evaluated this transaction in accordance with the guidance of FIN 46 and re-evaluated the transaction under FIN 46R and have determined that the Company is not
required to consolidate the leasing entity. We have exercised our option to purchase, on or before August 1, 2008, these properties and expect the fair market value of the leased real estate to
exceed the $116,318,000 purchase price. We expect to fund this obligation through sale-leaseback or other financing transactions. As of February 2, 2008, there was an outstanding
commitment of $116,318,000 under the lease.

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. In accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 13, as amended by SFAS No. 29, 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 February 2, 2008 were $584,965,000.



We have a defined benefit pension plan covering our full-time employees hired on or before February 1, 1992.

We
also have an unfunded Supplemental Executive Retirement Plan (SERP) that includes a defined benefit portion. 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. All vested participants under the defined
benefits portion of the SERP continue to accrue benefits according to the previous defined benefit formula.

The
expense under these plans for fiscal 2007, 2006, and 2005 was $3,612,000; $3,999,000 and $4,331,000, respectively. The fiscal 2007 expense is calculated based upon a number of
actuarial assumptions, including an expected return on plan assets of 6.30% and a discount rate of 5.90%. 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. In fiscal 2007, we contributed an aggregate of $661,000 to our pension plans. Based upon the current
funded status of the

22

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defined
benefit pension plan and the unfunded defined benefit portion of the SERP, aggregate cash contributions are expected to be $2,865,000 in fiscal 2008.

RESULTS OF OPERATIONS

The following discussion explains the material changes in our results of operations for the fifty-two weeks ended February 2, 2008, the
fifty-three weeks ended February 3, 2007 and fifty-two weeks ended January 28, 2006.

Discontinued Operations

In the third quarter of fiscal 2007, we adopted our long-term strategic plan. One of the initial steps in this plan was the identification of 31
low-return stores for closure. Immediately prior to their ultimate closure during the fourth quarter of fiscal 2007, these stores were operated as clearance centers. We are accounting for
these store closures in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" and
SFAS No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets." We recorded charges of $15,551,000 related to store closures which included a $10,963,000 impairment
charge to fixed assets. In accordance with SFAS No. 144, our discontinued operations for all periods presented reflect the operating results for 11 of the 31 closed stores because we do not
believe that the customers of these stores are likely to become customers of other Pep Boys stores due to geographical considerations. Discontinued operations for fiscal 2007 also reflect
pre-tax charges of $1,403,000 and $3,764,000 for store closure and impairment of fixed assets, respectively. The operating results for the other 20 closed stores are included in continuing
operations because we believe that the customers of these stores are likely to become customers of other Pep Boys stores that are in close proximity.

During
fiscal 2005, we sold a closed store for proceeds of $916,000 resulting in a pre-tax gain of $341,000, which was recorded in discontinued operations on the consolidated
statement of operations.

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

23

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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 Change |    
|----------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --- | ----------------- | ---
|
|Merchandise Sales                                                                                           |  | 81.8                         | %   | 82.6              | %  
|Service Revenue(1)                                                                                          |  | 18.2                         |     | 17.4              |    
|                                                                                                            |  |                              |     |                   |    
|Total Revenues                                                                                              |  | 100.0                        |     | 100.0             |    
|Costs of Merchandise Sales(2)                                                                               |  | 74.6                         | (3) | 71.2              | (3)
|Costs of Service Revenue(2)                                                                                 |  | 89.0                         | (3) | 91.6              | (3)
|Total Costs of Revenues                                                                                     |  | 77.3                         |     | 74.8              |    
|Gross Profit from Merchandise Sales                                                                         |  | 25.4                         | (3) | 28.8              | (3)
|Gross Profit from Service Revenue                                                                           |  | 11.0                         | (3) | 8.4               | (3)
|Total Gross Profit                                                                                          |  | 22.7                         |     | 25.2              |    
|Selling, General and Administrative Expenses                                                                |  | 24.2                         |     | 24.4              |    
|Net Gain from Disposition of Assets                                                                         |  | 0.7                          |     | 0.4               |    
|Operating (Loss) Profit                                                                                     |  | (0.8                         | )   | 1.3               |    
|Non-operating Income                                                                                        |  | 0.2                          |     | 0.3               |    
|Interest Expense                                                                                            |  | 2.4                          |     | 2.2               |    
|Loss from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle |  | (2.9                         | )   | (0.6              | )  
|Income Tax Benefit                                                                                          |  | (40.6)                       | (4) | (47.5)            | (4)
|Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  | (1.8                         | )   | (0.3              | )  
|Discontinued Operations, Net of Tax                                                                         |  | (0.1                         | )   | 0.2               |    
|Cumulative Effect of Change in Accounting Principle, Net of Tax                                             |  |                             |     |                  |    
|                                                                                                            |  |                              |     |                   |    
|Net Loss                                                                                                    |  | (1.9                         | )   | (0.1              | )  
|                                                                                                            |  |                              |     |                   |    

---

NM Not meaningful

24

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Fiscal 2007 vs. Fiscal 2006

Total revenues for fiscal 2007 decreased 4.7% to $2,138,075,000 in fiscal 2007 from $2,243,855,000. This decrease was primarily the result of weaker sales in our
retail business stemming from lower customer counts and the de-emphasis of non-core automotive merchandise. On a 52-week basis, comparable revenues decreased by
3.1%, consisting of a 1.8% increase in comparable service revenue and a 4.2% decrease in comparable merchandise sales. All stores included in the comparable sales store base as of the end of the
period are included in the comparable sales data calculations. Upon reaching its 13th month of operation, a store is added to our comparable sales store base. Stores are removed
from the comparables sales store base upon their relocation or closure. Once a relocated store reaches its 13th month of operation at its new location, it is added back into our
comparable sales store base. Square footage increases are infrequent and immaterial and, accordingly are not considered in our calculations of comparable sales data.

Gross
profit from merchandise sales decreased, as a percentage of merchandise sales, to 25.4% in fiscal 2007 from 28.8% in fiscal 2006. This decrease in dollars was $89,650,000 or a
16.8% decrease from the prior year. This decrease, as a percentage of merchandise sales, resulted primarily from decreased product margins, higher occupancy costs and higher rent expense offset, in
part, by lower warehousing and distribution costs. The 2.5% decrease in product margins resulted from recording a $32,803,000 inventory impairment charge associated with the markdown and
discontinuance of certain non core products as part of our longer term-strategic plan. Occupancy costs increased by $7,242,000 primarily due to the impairment charges of $5,350,000 related
to the 20 stores identified for closure that operated as clearance centers during the fourth quarter and rent expense increased by $4,128,000 primarily related to the change in fair value of the cash
flow hedge associated with variable lease payments on certain of stores, partially offset by lower equipment rental. Warehousing and distribution costs decreased by $7,083,000 due to a more efficient
store replenishment schedule and lower occupancy costs.

Gross
profit from service revenue increased, as a percentage of service revenue, to 11.0% in fiscal 2007 from 8.4% in fiscal 2006. The increase in dollars was $9,607,000 or a 29.1%
increase from the prior year. This increase as a percentage of service revenue resulted primarily from lower service associate costs (positive experience in workers compensation and medical claims) of
$15,124,000, partially offset by higher service associate compensation expense resulting from increased staffing levels in our service centers and impairment charges of $1,849,000 related to the 20
closed stores.

Selling,
general and administrative expenses, as a percentage of total revenues, decreased to 24.2% for fiscal 2007 as compared to 24.4% for fiscal 2006. This decrease in dollars was
$28,026,000 or 5.1% over the prior year. The dollar decrease resulted primarily from lower retail associate compensation expense of $15,744,000, lower retail associate costs of $8,349,000 (workers
compensation and medical) and reduced media expenditures of $5,700,000, partially offset by increased legal settlements and reserves.

Net
gain from disposition of assets increased, as a percentage of total revenue, to 0.7% for fiscal 2007 as compared to 0.4% for fiscal 2006. The $6,183,000 increase resulted from the
$13,971,000 gain
realized upon the consummation of our 34 store sale leaseback transaction which was required to be immediately recognized (the remaining portion will be amortized over the lease term).

Interest
expense increased $1,951,000 or 4.0% to $51,293,000 in fiscal 2007 from $49,342,000 in fiscal 2006. Included in fiscal 2007 was $5,900,000 in expense incurred due to the write
off of deferred financing costs resulting from the repayment of $162,558,000 of our Senior Secured Term Loan facility and the reclassification from other comprehensive loss for the portion of the
related interest rate swap that is no longer designated as a hedge. Included in fiscal 2006 was $4,200,000 of expense associated

25

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with
the early satisfaction and discharge of $119,000,000 4% Senior Convertible Notes due in June, 2007. In fiscal 2007, we experienced a lower weighted average interest rate and lower debt levels.

Non-operating
income as a percentage of total revenues decreased from 0.3% in fiscal 2006 to 0.2% in fiscal 2007. This decrease in dollars of $1,777,000 was due to the
shorter investment period of available funds in fiscal 2007 as compared to fiscal 2006.

Discontinued
operations was a loss, net of tax, of $3,601,000 in fiscal 2007 versus income, net of tax, of $4,333,000, in fiscal 2006. Fiscal 2007's loss resulted primarily from the
impairment charges and closure costs associated with the 11 stores closed in the fourth quarter that were reclassified to discontinued operations. Fiscal 2006's results for such locations includes a
gain, net of tax, of $4,468,000 on the sale of one location.

Our
income tax benefit as a percentage of loss from continuing operations before income taxes and cumulative effect of change in accounting principle was 40.6% or $25,594,000 versus
47.5% or $6,399,000. The decrease in the effective tax rate is primarily due to a non cash adjustment of $2,451,000 to our state deferred liabilities resulting from a change in our filing position in
2006, offset by an additional tax benefit of $4,227,000 recorded in 2007 relating to uncertain tax positions for tax years closed due to the statute of limitations and lower effective state tax rates.

Fiscal 2006 vs. Fiscal 2005

Total revenues for fiscal 2006 increased 1.2%. Fiscal 2006 included 53 weeks versus 52 weeks in fiscal 2005. The 1.2% increase in revenue was the
result of an additional week of sales along with increased improvement in our service counter operations. On a 52 week basis, we had a decrease in comparable revenues of 0.2%. Comparable
service revenue increased 1.3% while comparable merchandise sales decreased 0.5%. All stores that are included in the comparable sales store base as of the end of the period are included in our
comparable data calculations. Upon reaching its 13th month of operation, a store is added to our comparable sales store base. Stores are removed from the comparable sales store
base upon their relocation or closure. Once a relocated store reaches its 13th month of operation at its new location, it is added back into our comparable sales store base.
Square footage increases are infrequent and immaterial and, accordingly, are not considered in our calculations of comparable data.

Gross
profit from merchandise sales increased, as a percentage of merchandise sales, to 28.8% in fiscal 2006 from 25.7% in fiscal 2005. The increase in dollars was $63,257,000 or a 13.5%
increase from the prior year. This increase, as a percentage of merchandise sales, was due to improved product margins and decreased warehousing costs partially offset by higher occupancy costs. The
increase in merchandise margins resulted from the restructuring of our vendor agreements, lower freight costs and lower acquisition costs. Effective January 29, 2006, substantially all of our
vendor agreements were restructured to no longer identify specific incremental expenses for cooperative advertising; therefore all vendor support funds are now treated as a reduction of inventories
and are recognized as an increase to gross profit from merchandise sales when the inventories are sold, in accordance with EITF 02-16. Gross profit from merchandise sales from
fiscal 2006 improved by approximately $37,100,000 compared to fiscal 2005, primarily as a result of these changes. Warehousing costs were reduced due to a more efficient store replenishment schedule
and the absence in fiscal 2006 of certain costs associated with the fiscal 2005 relocation of our Southern California distribution center. Increased occupancy costs were the result of higher utility
costs and higher depreciation expense associated with our store remodel program. Our gross profit classification may not be comparable to the classification used by certain other entities. Some
entities (including us) include distribution, store occupancy, buying and other costs in cost of goods sold. Other entities exclude such costs from gross profit, including them instead in general and
administrative and / or sales and marketing expenses.

26

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Gross
profit from service revenue increased in fiscal 2006 as compared to fiscal 2005. The increase in dollars was $728,000 or a 2.3% increase from the prior year. This increase as a
percentage of service revenue was primarily due to lower workers compensation expense and repairs and maintenance costs offset by cost associated with providing free or discounted towing services to
our customers.

Net
gain from disposition of assets increased, as percentage of total revenue to 0.4% from 0.2% in fiscal 2005. The $4,142,000 increase resulted from the sale of one owned property and
the leasehold interest in another in 2006 versus the sale of one owned property in 2005.

Selling,
general and administrative expenses increased, as a percentage of total revenues, to 24.4% in fiscal 2006 from 23.5% in fiscal 2005. This was a $26,799,000 or 5.2% increase over
the prior year. This increase, as a percentage of total revenues, was due primarily to higher net media expense offset by reduced general office expense. The increase in net media expense was caused
by a change in our vendor agreements which resulted in a different application of EITF 02-16, whereby approximately $35,700,000 in vendor support funds were recorded as a reduction
to advertising cost in fiscal 2005 (see above explanation of vendor agreement restructuring). General office expense was
favorable by $5,007,000 primarily due to incurring a $4,200,000 software impairment charge in fiscal 2005.

Interest
expense increased $302,000 to $49,342,000 in fiscal 2006 from fiscal 2005. Included in fiscal 2006 was $4,200,000 of costs associated with the early satisfaction and discharge
of $119,000,000 4% Senior Convertible Notes due in June, 2007 and in fiscal 2005, $9,738,000 in interest and fees associated with the early satisfaction and discharge of our $43,000,000 6.88% Medium
Term Notes and $100,000,000 6.92% Term Enhanced Remarketable Securities (TERMS). Also in fiscal 2006, we incurred a higher weighted average interest rate, offset by lower debt levels and a reduction
to interest expense for the increase in the fair value of the interest rate swap of $1,490,000.

Non-operating
income increased as a percentage of total revenues from 0.2% in 2005 to 0.3% in 2006. This 80.2% increase of $3,126,000 was a result of interest earned on the
investment of funds used for the early satisfaction and discharge of the Senior Convertible Notes.

Our
income tax benefit as a percentage of loss from continuing operations before income taxes and cumulative effect of change in accounting principle increased to 47.5% or $6,399,000
versus 36.5% or $21,027,000. The increase in the effective rate is due to a non-cash adjustment of $2,451,000 to our state deferred liabilities resulting from a change in our filing
position.

Gain
from discontinued operations increased from $1,088,000, net of tax, in fiscal 2005 to $4,333,000, net of tax, in fiscal 2006 due primarily to the sale of an owned property.

Net
loss decreased in dollars and as a percentage of total revenues, due primarily to an increase in gross profit from merchandise sales as a percentage of merchandise sales, an increase
in gain on disposition of assets, increase in non-operating income offset by higher selling, general and administrative expenses.

27

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Industry Comparison

We operate in the U.S. automotive aftermarket, which has two general competitive arenas: the Do-It-For-Me ("DIFM") (service
labor, installed merchandise and tires) market and the Do-It-Yourself ("DIY") (retail merchandise) market. Generally, the specialized automotive retailers focus on either the
"DIY" or "DIFM" areas of the business. We believe that operation in both the "DIY" and "DIFM" areas of the business positively differentiates us from most of our competitors. Although we manage our
store performance at a store level in aggregation, we believe that the following presentation shows an accurate comparison against competitors within the two sales arenas. We compete in the "DIY" area
of the business through our retail sales floor and commercial sales business (Retail Sales). Our Service Center business (labor and installed merchandise and tires) competes in the "DIFM" area of the
industry. The following table presents the revenues and gross profit for each area of the business.

|                                            |  | Year ended
|------------------------------------------- |  | ----------
|
|Retail Sales(1)                             |  | $         
|Service Center Revenue(2)                   |  |           
|                                            |  |           
|Total Revenues                              |  | $         
|                                            |  |           
|Gross Profit from Retail Sales(3)           |  | $         
|Gross Profit from Service Center Revenue(3) |  |           
|                                            |  |           
|Total Gross Profit                          |  | $         
|                                            |  |           

---



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

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 and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported 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,

28

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risk
participation agreements and 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, although not all inclusive:



|Change in Assumption                               |  | Impact on Annual Pension Expense |  | Impact on Projected Benefit Obligation
|-------------------------------------------------- |  | -------------------------------- |  | --------------------------------------
|0.50 percentage point decrease in discount rate    |  | Increase $425,000                |  | Increase $3,520,000                   
|0.50 percentage point increase in discount rate    |  | Decrease $425,000                |  | Decrease $3,520,000                   
|5.0% decrease in expected rate of return on assets |  | Increase $186,000                |  |                                      
|5.0% increase in expected rate of return on assets |  | Decrease $186,000                |  |                                      



29

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RECENT ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines the term fair value, establishes a
framework for measuring it within generally

30

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accepted
accounting principles and expands disclosures about its measurements. In February 2008, the FASB issued Staff Position No. FAS 157-2 (FSP No.157-2), "Effective
Date of FASB Statement No. 157," that defers the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities. We do not anticipate that the
adoption of SFAS 157 in fiscal 2008 for financial assets and financial liabilities will have a material effect on our financial statements. SFAS 157 is effective for certain nonfinancial
assets and nonfinancial liabilities for financial statements issued for fiscal years beginning after November 15, 2008. We are currently evaluating the impact SFAS No. 157 will have on
our consolidated financial statements beginning in fiscal 2009.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Beginning in fiscal 2008 we have chosen not to
measure any asset or liability using SFAS 159.

In
March 2007, the EITF reached a consensus on Issue Number 06-10, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment
Split-Dollar Life Insurance Arrangements" (EITF 06-10). EITF 06-10 provides guidance to help companies determine whether a liability for the postretirement
benefit associated with a collateral assignment split-dollar life insurance arrangement should be recorded in accordance with either SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual
deferred compensation contract). EITF 06-10 also provides guidance on how a company should recognize and measure the asset in a collateral assignment split-dollar life insurance
contract. EITF 06-10 is effective for fiscal years beginning after December 15, 2007, although early adoption is permitted. We anticipate that the adoption of
EITF 06-10 will result in a $1,855,000 pretax charge to retained earnings on February 3, 2008.

In
June 2007, the FASB ratified EITF Issue Number 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards"
(EITF 06-11). EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on
equity-classified nonvested shares, (b) dividend equivalents on equity-classified nonvested share units, or (c) payments equal to the dividends paid on the underlying shares while an
equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under SFAS No. 123(R), "Share-Based Payment," and result in an
income tax deduction for the employer. A consensus was reached that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees
for equity-classified non-vested equity shares, non-vested equity share units, and outstanding equity share options should be recognized as an increase in additional
paid-in capital. EITF 06-11 is effective prospectively for the income tax benefits that result from dividends on equity-classified employee share-based payment awards
that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The Company has determined that the effects of EITF 06-11
will have an immaterial impact on its consolidated financial statements beginning in fiscal 2008.

In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations," which replaces SFAS No. 141, "Business Combinations." SFAS No. 141R, among other things,
establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling
interests in the acquired entity; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. Costs of the acquisition will be recognized separately from the business combination. SFAS
No. 141R applies to business combinations for fiscal years beginning after December 15, 2008.

31

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In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51." SFAS No. 160,
among other things, provides guidance and establishes amended accounting and reporting standards for a parent company's noncontrolling interest in a subsidiary. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008. We do not expect the adoption of SFAS No. 160 to have a material impact on our financial condition, results of operations or cash
flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 expands the disclosure requirements in SFAS
No. 133, "Accounting for
Derivative Instruments and Hedging Activities," about an entity's derivative instruments and hedging activities. SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statements.

ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Variable Rate Debt

Pursuant to terms of its revolving credit agreement, changes in LIBOR could affect the rates of which the Company could borrow funds there under. At
February 2, 2008, the Company had outstanding borrowings of $42,045,000 against the revolving credit agreement. Additionally, the Company has a Senior Secured Term Loan facility with a balance
of $154,652,000 at February 2, 2008, that bears interest at three month LIBOR plus 2.00%, and $116,318,000 of real estate operating leases and $9,836,000 of equipment operating leases which
have lease payments that vary based on changes in LIBOR. A one percent change in the LIBOR rate would have affected net loss by approximately $1,918,000 for the fiscal year ended February 2,
2008.

Fixed Rate Debt

The table below summarizes the fair value and contract terms of fixed rate debt instruments held by the Company at February 2, 2008:

(dollar amounts in thousands)

Amount

Average Interest RateFair value at February 2, 2008

$
199,137Expected maturities:2008

$
486

6.03
%2009


247

3.742010


258

3.742011


270

3.742012


281

3.74Thereafter


203,493

7.43
%Total Carrying Amount

$
205,035


At
February 3, 2007, the Company had outstanding $200,268,000 of fixed rate notes with an aggregate fair market value of $189,268,000.

The
Company determines fair value on its fixed rate debt by using quoted market prices and current interest rates.

32

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Interest Rate Swaps

On June 3, 2003, the Company entered into an interest rate swap for a notional amount of $130,000,000. The Company had designated the swap as a cash flow
hedge of the Company's real estate operating lease payments. The interest rate swap converts the variable LIBOR portion of the lease payment to a fixed rate of 2.90% and terminates on July 1,
2008. If the critical terms of the interest rate swap or hedge item do not change, the interest rate swap is considered to be highly effective with all changes in fair value included in other
comprehensive income. As of February 2, 2008 and February 3, 2007, the fair value was an asset of $22,000 and $4,150,000, respectively, recorded within other long-term assets
on the balance sheet. In the fourth quarter of fiscal 2006, the Company determined it was not in compliance with SFAS No. 133 for hedge accounting and, accordingly, recorded a reduction of rent
expense, which is included in Costs of Merchandise and Costs of Service Revenues, for the cumulative fair value change of $4,150,000. This change in fair value had previously been recorded in
Accumulated Other Comprehensive Income (Loss) on the consolidated balance sheets. The Company evaluated the impact of this error, along with three other errors discussed in the next sentence, on an
annual and quarterly basis and concluded there was no material impact on the fourth quarter of fiscal 2006 or any historical periods, on an individual or aggregate basis. The three other errors
consisted of: (i) $3,700,000 of amortization expense on leasehold improvements classified in land and therefore not depreciated, (ii) $500,000 of understated closed store reserves and
(iii) $400,000 of an overstated accrual for non-qualified defined contributions. The Company corrected these errors in the fourth quarter of fiscal 2006, resulting in no material
impact to the consolidated financial statements. The Company has removed its designation as a cash flow hedge on this transaction and records the change in fair value through its operating statement
until the date of termination.

On
November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000,000. The Company has designated the swap a cash flow hedge on the first
$200,000,000 of the Company's $320,000,000 senior secured notes. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in October
2013. The Company did not meet the documentation requirements of SFAS No. 133, at inception or as of February 3, 2007 and, accordingly, recorded the increase in the fair value of the
interest rate swap of $1,490,000 as a reduction to Interest Expense. The Company documented that the swap met the requirements of SFAS No. 133 for hedge accounting on April 9, 2007, and
prospectively records the effective portion of the change in fair value of the swap through Accumulated Other Comprehensive Loss. During the period from February 4, 2007 through April 8,
2007, a $974,000 expense was recorded in interest expense for the change in fair value of this swap.

On
November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. The Company used $162,558,000 of the net proceeds from such
transaction to prepay a portion of the Senior Secured Term Loan facility which eliminated a portion of the future interest payments hedged by the November 2, 2006 interest rate swap. The
Company concluded that it was not probable that those future interest payments would occur. In accordance with SFAS No. 133, the Company discontinued hedge accounting for the unmatched portion
of the November 2, 2006 swap and reclassified a $2,259,000 pre-tax loss applicable to the unmatched portion of the $200,000,000 interest rate swap from other comprehensive income to
interest expense. On November 27, 2007, the Company re-designated $145,000,000 notional amount of the interest rate swap as a cash flow hedge to fully match the future interest
payments under the Senior Secured Notes. As a result, all future changes in this interest rate swap's fair value that has been re-designated as a hedge will be recorded to
Accumulated Other Comprehensive Loss. From the period of November 27, 2007 through February 1, 2008, interest expense includes $4,166,000 related to the $55,000,000 unmatched portion of
this swap. On February 1, 2008, the Company recorded $4,539,000 within accrued expenses to reduce the notional amount of the interest rate swap to $145,000,000 from the original $200,000,000
amount. The $4,539,000 was paid on February 4, 2008. The fair value of the swap was a net $10,985,000 payable recorded within other long-term liabilities on the balance sheet at
February 2, 2008 and a net $1,372,000 receivable recorded within other long-term assets on the balance sheet at February 3, 2007.

33

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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 February 2, 2008 and
February 3, 2007, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended February 2, 2008. 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 February 2, 2008 and February 3, 2007, and the results of their operations and their cash flows for each of the three fiscal years in the period ended
February 2, 2008, 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.

As
discussed in Notes 1 and 13 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes,
Statement of Financial Accounting Standards ("SFAS") No. 158,Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans, SFAS No. 123 (revised 2004),Share-Based Payment,
and FIN 47,Accounting for Conditional Asset Retirement Obligations, as of February 4, 2007, February 3, 2007, January 29,
2006, and January 28, 2006, respectively.

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
February 2, 2008, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 30, 2008 expressed an adverse opinion on the Company's internal control over financial reporting because of a material
weakness.

Deloitte &
Touche LLP

Philadelphia,
Pennsylvania
April 30, 2008

34

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

|                                                                             |                                                                                               | February 2,
2008 |           | February 3,
2007 |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------- | --------- | ---------------- | -
|ASSETS                                                                       |                                                                                               |                  |           |                  |  
|Current Assets:                                                              |                                                                                               |                  |           |                  |  
|                                                                             | Cash and cash equivalents                                                                     |                  | $         | 20,926           |  
|                                                                             | Accounts receivable, less allowance for uncollectible accounts of $1,937 and $1,505           |                  |           | 29,450           |  
|                                                                             | Merchandise inventories                                                                       |                  |           | 561,152          |  
|                                                                             | Prepaid expenses                                                                              |                  |           | 43,842           |  
|                                                                             | Other                                                                                         |                  |           | 77,469           |  
|                                                                             | Assets held for disposal                                                                      |                  |           | 16,918           |  
|                                                                             |                                                                                               |                  |           |                  |  
|                                                                             | Total Current Assets                                                                          |                  |           | 749,757          |  
|                                                                             |                                                                                               |                  |           |                  |  
|Property and Equipmentat cost:                                              |                                                                                               |                  |           |                  |  
|                                                                             | Land                                                                                          |                  |           | 213,962          |  
|                                                                             | Buildings and improvements                                                                    |                  |           | 858,699          |  
|                                                                             | Furniture, fixtures and equipment                                                             |                  |           | 699,303          |  
|                                                                             | Construction in progress                                                                      |                  |           | 3,992            |  
|                                                                             |                                                                                               |                  |           |                  |  
|                                                                             |                                                                                               |                  | 1,775,956 |                  |  
|                                                                             | Less accumulated depreciation and amortization                                                |                  |           | 995,177          |  
|                                                                             |                                                                                               |                  |           |                  |  
|                                                                             | Total Property and EquipmentNet                                                              |                  |           | 780,779          |  
|                                                                             |                                                                                               |                  |           |                  |  
|Deferred income taxes                                                        |                                                                                               |                  | 20,775    |                  |  
|Other                                                                        |                                                                                               |                  | 32,609    |                  |  
|                                                                             |                                                                                               |                  |           |                  |  
|Total Assets                                                                 |                                                                                               | $                | 1,583,920 |                  | $
|                                                                             |                                                                                               |                  |           |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |                                                                                               |                  |           |                  |  
|Current Liabilities:                                                         |                                                                                               |                  |           |                  |  
|                                                                             | Accounts payable                                                                              |                  | $         | 245,423          |  
|                                                                             | Trade payable program liability                                                               |                  |           | 14,254           |  
|                                                                             | Accrued expenses                                                                              |                  |           | 292,623          |  
|                                                                             | Deferred income taxes                                                                         |                  |           |                 |  
|                                                                             | Current maturities of long-term debt and obligations under capital lease                      |                  |           | 2,114            |  
|                                                                             |                                                                                               |                  |           |                  |  
|                                                                             | Total Current Liabilities                                                                     |                  |           | 554,414          |  
|                                                                             |                                                                                               |                  |           |                  |  
|Long-term debt and obligations under capital leases, less current maturities |                                                                                               |                  | 400,016   |                  |  
|Other long-term liabilities                                                  |                                                                                               |                  | 72,183    |                  |  
|Deferred gain from asset sales                                               |                                                                                               |                  | 86,595    |                  |  
|Commitments and Contingencies                                                |                                                                                               |                  |           |                  |  
|Stockholders' Equity:                                                        |                                                                                               |                  |           |                  |  
|                                                                             | Common stock, par value $1 per share: Authorized 500,000,000 shares; Issued 68,557,041 shares |                  |           | 68,557           |  
|                                                                             | Additional paid-in capital                                                                    |                  |           | 296,074          |  
|                                                                             | Retained earnings                                                                             |                  |           | 406,819          |  
|                                                                             | Accumulated other comprehensive loss                                                          |                  |           | (14,183          | )
|                                                                             | Less cost of shares in treasury14,609,094 shares and 12,427,687 shares                       |                  |           | 227,291          |  
|                                                                             | Less cost of shares in benefits trust2,195,270 shares                                        |                  |           | 59,264           |  
|                                                                             |                                                                                               |                  |           |                  |  
|                                                                             | Total Stockholders' Equity                                                                    |                  |           | 470,712          |  
|                                                                             |                                                                                               |                  |           |                  |  
|Total Liabilities and Stockholders' Equity                                   |                                                                                               | $                | 1,583,920 |                  | $
|                                                                             |                                                                                               |                  |           |                  |  

See notes to the consolidated financial statements

35

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

|Year ended                                                                                                  |  | February 2,
2008 |           | February 3,
2007 |   | January 28,
2006 |  
|----------------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | ---------------- | - | ---------------- | -
|Merchandise Sales                                                                                           |  | $                | 1,749,578 |                  | $ | 1,853,077        |  
|Service Revenue                                                                                             |  |                  | 388,497   |                  |   | 390,778          |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Total Revenues                                                                                              |  |                  | 2,138,075 |                  |   | 2,243,855        |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Costs of Merchandise Sales                                                                                  |  |                  | 1,305,952 |                  |   | 1,319,801        |  
|Costs of Service Revenue                                                                                    |  |                  | 345,886   |                  |   | 357,774          |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Total Costs of Revenues                                                                                     |  |                  | 1,651,838 |                  |   | 1,677,575        |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Gross Profit from Merchandise Sales                                                                         |  |                  | 443,626   |                  |   | 533,276          |  
|Gross Profit from Service Revenue                                                                           |  |                  | 42,611    |                  |   | 33,004           |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Total Gross Profit                                                                                          |  |                  | 486,237   |                  |   | 566,280          |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Selling, General and Administrative Expenses                                                                |  |                  | 518,373   |                  |   | 546,399          |  
|Net Gain from Disposition of Assets                                                                         |  |                  | 15,151    |                  |   | 8,968            |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Operating (Loss) Profit                                                                                     |  |                  | (16,985   | )                |   | 28,849           |  
|Non-operating Income                                                                                        |  |                  | 5,246     |                  |   | 7,023            |  
|Interest Expense                                                                                            |  |                  | 51,293    |                  |   | 49,342           |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Loss from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle |  |                  | (63,032   | )                |   | (13,470          | )
|Income Tax Benefit                                                                                          |  |                  | (25,594   | )                |   | (6,399           | )
|                                                                                                            |  |                  |           |                  |   |                  |  
|Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  |                  | (37,438   | )                |   | (7,071           | )
|(Loss) Earnings from Discontinued Operations, Net of Tax of $(2,463); $1,796 and $625                       |  |                  | (3,601    | )                |   | 4,333            |  
|Cumulative Effect of Change in Accounting Principle, Net of Tax of $(78) and $1,161                         |  |                  |          |                  |   | 189              |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Net Loss                                                                                                    |  | $                | (41,039   | )                | $ | (2,549           | )
|                                                                                                            |  |                  |           |                  |   |                  |  
|Basic Loss per Share:                                                                                       |  |                  |           |                  |   |                  |  
|Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  | $                | (0.72     | )                | $ | (0.13            | )
|(Loss) Earnings from Discontinued Operations, Net of Tax                                                    |  |                  | (0.07     | )                |   | 0.08             |  
|Cumulative Effect of Change in Accounting Principle, Net of Tax                                             |  |                  |          |                  |   |                 |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Basic Loss per Share                                                                                        |  | $                | (0.79     | )                | $ | (0.05            | )
|                                                                                                            |  |                  |           |                  |   |                  |  
|Diluted Loss per Share:                                                                                     |  |                  |           |                  |   |                  |  
|Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  | $                | (0.72     | )                | $ | (0.13            | )
|(Loss) Earnings from Discontinued Operations, Net of Tax                                                    |  |                  | (0.07     | )                |   | 0.08             |  
|Cumulative Effect of Change in Accounting Principle, Net of Tax                                             |  |                  |          |                  |   |                 |  
|                                                                                                            |  |                  |           |                  |   |                  |  
|Diluted Loss per Share                                                                                      |  | $                | (0.79     | )                | $ | (0.05            | )
|                                                                                                            |  |                  |           |                  |   |                  |  

See
notes to the consolidated financial statements

36

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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
Loss |         |   |             |   |  
|-------------------------------------------------------------------------- |  | ------------ |  | - | ------ |  | - | -------------- | - | ------------------------------------ | ------- | - | ----------- | - | -
|
|
|Balance, January 29, 2005                                                  |  | 68,557,041   |  | $ | 68,557 |  | $ | 284,966        |   | $                                    | 536,780 |   | (11,305,130 | ) | $
|Comprehensive Loss:                                                        |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Net loss                                                                   |  |              |  |   |        |  |   |                |   |                                      | (37,528 | ) |             |   |  
|Minimum pension liability adjustment, net of tax                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Fair market value adjustment on derivatives, net of tax                    |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Total Comprehensive Loss                                                   |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Cash dividends ($.27 per share)                                            |  |              |  |   |        |  |   |                |   |                                      | (14,686 | ) |             |   |  
|Effect of stock options and related tax benefits                           |  |              |  |   |        |  |   | 1,719          |   |                                      | (2,520  | ) | 338,856     |   |  
|Effect of restricted stock unit conversions                                |  |              |  |   |        |  |   | (636           | ) |                                      |         |   | 28,981      |   |  
|Stock compensation expense                                                 |  |              |  |   |        |  |   | 2,049          |   |                                      |         |   |             |   |  
|Repurchase of Common Stock                                                 |  |              |  |   |        |  |   |                |   |                                      |         |   | (1,282,600  | ) |  
|Dividend reinvestment plan                                                 |  |              |  |   |        |  |   |                |   |                                      | (120    | ) | 66,925      |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Balance, January 28, 2006                                                  |  | 68,557,041   |  |   | 68,557 |  |   | 288,098        |   |                                      | 481,926 |   | (12,152,968 | ) |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Comprehensive Loss:                                                        |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Net loss                                                                   |  |              |  |   |        |  |   |                |   |                                      | (2,549  | ) |             |   |  
|Minimum pension liability adjustment, net of tax                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Fair market value adjustment on derivatives, net of tax                    |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Total Comprehensive Loss                                                   |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Cash dividends ($.27 per share)                                            |  |              |  |   |        |  |   |                |   |                                      | (14,757 | ) |             |   |  
|Incremental effect from adoption of FAS No. 158, net of tax                |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Effect of stock options and related tax benefits                           |  |              |  |   |        |  |   | (669           | ) |                                      | (657    | ) | 80,641      |   |  
|Effect of restricted stock unit conversions                                |  |              |  |   |        |  |   | (1,096         | ) |                                      |         |   | 74,107      |   |  
|Stock compensation expense                                                 |  |              |  |   |        |  |   | 3,051          |   |                                      |         |   |             |   |  
|Repurchase of Common Stock                                                 |  |              |  |   |        |  |   |                |   |                                      |         |   | (494,800    | ) |  
|Dividend reinvestment plan                                                 |  |              |  |   |        |  |   |                |   |                                      | (166    | ) | 65,333      |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Balance, February 3, 2007                                                  |  | 68,557,041   |  |   | 68,557 |  |   | 289,384        |   |                                      | 463,797 |   | (12,427,687 | ) |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Comprehensive Loss:                                                        |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Net loss                                                                   |  |              |  |   |        |  |   |                |   |                                      | (41,039 | ) |             |   |  
|Changes in net unrecognized other postretirement benefit costs, net of tax |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Fair market value adjustment on derivatives, net of tax                    |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Total Comprehensive Loss                                                   |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Cash dividends ($.27 per share)                                            |  |              |  |   |        |  |   |                |   |                                      | (14,177 | ) |             |   |  
|Incremental effect from adoption of FIN No. 48, net of tax                 |  |              |  |   |        |  |   |                |   |                                      | (155    | ) |             |   |  
|FAS No. 158 change in measurement date effect, net of tax                  |  |              |  |   |        |  |   |                |   |                                      | (189    | ) |             |   |  
|Effect of stock options and related tax benefits                           |  |              |  |   |        |  |   | 1,752          |   |                                      | (1,332  | ) | 291,125     |   |  
|Effect of restricted stock unit conversions                                |  |              |  |   |        |  |   | (4,818         | ) |                                      |         |   | 176,256     |   |  
|Stock compensation expense                                                 |  |              |  |   |        |  |   | 9,756          |   |                                      |         |   |             |   |  
|Repurchase of Common Stock                                                 |  |              |  |   |        |  |   |                |   |                                      |         |   | (2,702,460  | ) |  
|Dividend reinvestment plan                                                 |  |              |  |   |        |  |   |                |   |                                      | (86     | ) | 53,672      |   |  
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  
|Balance, February 2, 2008                                                  |  | 68,557,041   |  | $ | 68,557 |  | $ | 296,074        |   | $                                    | 406,819 |   | (14,609,094 | ) | $
|                                                                           |  |              |  |   |        |  |   |                |   |                                      |         |   |             |   |  

See notes to the consolidated financial statements

37

---





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

|                                                    |                                                        | Year ended                                                                                 |                                                                       
|--------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------
|
|Cash Flows from Operating Activities:               |                                                        |                                                                                            |                                                                       
|                                                    | Net Loss                                               |                                                                                            | $                                                                     
|                                                    |                                                        | Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Continuing Operations: |                                                                       
|                                                    |                                                        |                                                                                            | Net loss (earnings) from discontinued operations                      
|                                                    |                                                        |                                                                                            | Depreciation and amortization                                         
|                                                    |                                                        |                                                                                            | Cumulative effect of change in accounting principle, net of tax       
|                                                    |                                                        |                                                                                            | Amortization of deferred gain from asset sales                        
|                                                    |                                                        |                                                                                            | Accretion of asset disposal obligation                                
|                                                    |                                                        |                                                                                            | Loss on defeasance of convertible debt                                
|                                                    |                                                        |                                                                                            | Stock compensation expense                                            
|                                                    |                                                        |                                                                                            | Inventory impairment                                                  
|                                                    |                                                        |                                                                                            | Cancellation of vested stock options                                  
|                                                    |                                                        |                                                                                            | Deferred income taxes                                                 
|                                                    |                                                        |                                                                                            | Reduction in asset retirement liability                               
|                                                    |                                                        |                                                                                            | Gain from dispositions of assets                                      
|                                                    |                                                        |                                                                                            | Loss from asset impairment                                            
|                                                    |                                                        |                                                                                            | Change in fair value of derivatives                                   
|                                                    |                                                        |                                                                                            | Excess tax benefits from stock based awards                           
|                                                    |                                                        |                                                                                            | Increase in cash surrender value of life insurance policies           
|                                                    | Changes in operating assets and liabilities:           |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            | (Increase) decrease in accounts receivable, prepaid expenses and other
|                                                    |                                                        |                                                                                            | Decrease (increase) in merchandise inventories                        
|                                                    |                                                        |                                                                                            | (Decrease) increase in accounts payable                               
|                                                    |                                                        |                                                                                            | Increase (decrease) in accrued expenses                               
|                                                    |                                                        |                                                                                            | (Decrease) increase in other long-term liabilities                    
|                                                    |                                                        |                                                                                            |                                                                       
|                                                    | Net Cash Provided by (Used in) Continuing Operations   |                                                                                            |                                                                       
|                                                    | Net Cash Provided by (Used in) Discontinued Operations |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            |                                                                       
|Net Cash Provided by (Used in) Operating Activities |                                                        |                                                                                            | 52,784                                                                
|                                                    |                                                        |                                                                                            |                                                                       
|Cash Flows from Investing Activities:               |                                                        |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            | Cash paid for property and equipment                                  
|                                                    |                                                        |                                                                                            | Proceeds from dispositions of assets                                  
|                                                    |                                                        |                                                                                            | Proceeds from sales of assets held for disposal                       
|                                                    |                                                        |                                                                                            | Life insurance proceeds received (paid)                               
|                                                    |                                                        |                                                                                            | Premiums paid on life insurance policies                              
|                                                    |                                                        |                                                                                            |                                                                       
|                                                    | Net Cash Provided by (Used in) Continuing Operations   |                                                                                            |                                                                       
|                                                    | Net Cash (Used in) Provided by Discontinued Operations |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            |                                                                       
|Net Cash Provided by (Used in) Investing Activities |                                                        |                                                                                            | 149,262                                                               
|                                                    |                                                        |                                                                                            |                                                                       
|Cash Flows from Financing Activities:               |                                                        |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            | Borrowings under line of credit agreements                            
|                                                    |                                                        |                                                                                            | Payments under line of credit agreements                              
|                                                    |                                                        |                                                                                            | Excess tax benefits from stock based awards                           
|                                                    |                                                        |                                                                                            | Borrowings on trade payable program liability                         
|                                                    |                                                        |                                                                                            | Payments on trade payable program liability                           
|                                                    |                                                        |                                                                                            | Payments for finance issuance costs                                   
|                                                    |                                                        |                                                                                            | Proceeds from lease financing                                         
|                                                    |                                                        |                                                                                            | Proceeds from issuance of notes                                       
|                                                    |                                                        |                                                                                            | Reduction of long-term debt                                           
|                                                    |                                                        |                                                                                            | Reduction of convertible debt                                         
|                                                    |                                                        |                                                                                            | Payments on capital lease obligations                                 
|                                                    |                                                        |                                                                                            | Dividends paid                                                        
|                                                    |                                                        |                                                                                            | Repurchase of common stock                                            
|                                                    |                                                        |                                                                                            | Proceeds from exercise of stock options                               
|                                                    |                                                        |                                                                                            | Proceeds from dividend reinvestment plan                              
|                                                    |                                                        |                                                                                            |                                                                       
|Net Cash (Used in) Provided by Financing Activities |                                                        |                                                                                            | (203,004                                                              
|                                                    |                                                        |                                                                                            |                                                                       
|Net Decrease in Cash and Cash Equivalents           |                                                        |                                                                                            | (958                                                                  
|                                                    |                                                        |                                                                                            |                                                                       
|Cash and Cash Equivalents at Beginning of Year      |                                                        |                                                                                            | 21,884                                                                
|Cash and Cash Equivalents at End of Year            |                                                        | $                                                                                          | 20,926                                                                
|                                                    |                                                        |                                                                                            |                                                                       
|Cash paid for interest, net of amounts capitalized  |                                                        | $                                                                                          | 44,129                                                                
|Cash received from income tax refunds               |                                                        | $                                                                                          | 59                                                                    
|Cash paid for income taxes                          |                                                        | $                                                                                          | 3,147                                                                 
|Supplemental Disclosure of Cash Flow Information:   |                                                        |                                                                                            |                                                                       
|Non-cash investing activities:                      |                                                        |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            | Accrued purchases of property and equipment                           
|                                                    |                                                        |                                                                                            | Write off of equipment and recognition of insurance receivable        
|Non-cash financing activities:                      |                                                        |                                                                                            |                                                                       
|                                                    |                                                        |                                                                                            | Equipment capital leases                                              
|                                                    |                                                        |                                                                                            | Repurchase of common stock not settled                                

See notes to the consolidated financial statements

38

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESSThe Pep BoysManny, Moe & Jack and subsidiaries (the "Company") is engaged principally in the
retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of stores. The Company currently operates stores in 35 states and
Puerto Rico.

FISCAL YEAR ENDThe Company's fiscal year ends on the Saturday nearest to January 31. Fiscal year 2007, which ended
February 2, 2008, was comprised of 52 weeks, fiscal year 2006, which ended February 3, 2007, was comprised of 53 weeks and fiscal year 2005, which ended January 28,
2006, was 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.

USE OF ESTIMATESThe preparation of the Company's consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.

MERCHANDISE INVENTORIESMerchandise inventories are valued at the lower of cost or market. Cost is determined by using the
last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on inventory and costs at that
time. Accordingly, interim LIFO calculations must be based on management's estimates of expected fiscal year-end inventory levels and costs. If the first-in,
first-out (FIFO) method of costing inventory had been used by the Company, inventory would have been $555,188 and $600,035 as of February 2, 2008 and February 3, 2007,
respectively. During fiscal 2007 and 2006, the effect of LIFO layer liquidations on gross profit was immaterial.

The
Company also records valuation adjustments for potentially excess and obsolete inventories based on current inventory levels, the historical analysis of product sales and current
market conditions. The nature of the Company's inventory is such that the risk of obsolescence is minimal and excess inventory has historically been returned to the Company's vendors for credit. The
Company records those valuation adjustments when less than full credit is expected from a vendor or when market is lower than recorded costs. The valuation adjustments are revised, if necessary, on a
quarterly basis for adequacy. The Company's inventory is recorded net of valuation adjustments for these matters which were $11,167 and $13,462 as of February 2, 2008 and February 3,
2007, respectively.

During
the third quarter of fiscal 2007, the Company recorded a $32,803 inventory impairment for the discontinuance and planned exit of certain non-core merchandise products
adopted as one of the initial steps in the Company's five-year strategic plan. The impairment charge reduced the carrying value of the discontinued merchandise from $74,080 to $41,277. The
carrying value of the discontinued merchandise will be evaluated quarterly as compared to the estimated sell through that was utilized in determining the impairment. The inventory impairment was
recorded in cost of merchandise sales on

39

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

the
consolidated statement of operations. The carrying value of the discontinued merchandise at February 2, 2008 was $8,612.

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.

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

SOFTWARE CAPITALIZATIONThe Company, in accordance with AICPA Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", capitalizes certain direct development costs associated with internal-use software, including external direct costs
of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a 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.

CAPITALIZED INTERESTInterest on borrowed funds is capitalized in connection with the construction of certain
long-term assets. Capitalized interest was immaterial in fiscal years 2007, 2006 and 2005.

REVENUE RECOGNITIONThe Company recognizes revenue from the sale of merchandise at the time the merchandise is sold. Service
revenues are recognized upon completion of the service. 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. Return activity is immaterial to revenue and results of operations in all periods presented. Gift cards are recorded as
deferred revenue until redeemed for product or services. The Company does not record any revenue from cards which are never utilized by customers. Revenue from the sale of extended warranties are
recognized over the life of the warranty in proportion to the cost expected to be incurred based on historical experience.

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

ACCOUNTS RECEIVABLEAccounts receivable are primarily comprised of amounts due from commercial customers. The Company records
an allowance for doubtful accounts based on percentage of sales. The allowance is revised on a monthly basis against historical data for adequacy. Specific accounts are written off against the
allowance when management determines the account is uncollectible.

40

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

TRADE PAYABLE PROGRAM LIABILITYIn the third quarter of fiscal 2004, the Company entered into a vendor-financing program with
an availability of $20,000. Under this program, the factor made accelerated and discounted payments to the Company's vendors and the Company, in turn, made regularly scheduled full vendor payments to
the factor. This program was terminated effective December 2007. As of February 2, 2008 and February 3, 2007, there was an outstanding balance of $0 and $13,990, respectively, under this
program, classified as trade payable program liability in the consolidated balance sheet.

On
June 29, 2007, the Company entered into a new vendor-financing program with an availability up to $65,000. There was an outstanding balance of $14,254 under this program as of
February 2, 2008.

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

The
Company accounts for vendor support funds in accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor" (EITF 02-16). Rebates and other miscellaneous incentives 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 partially or fully offset certain other direct expenses. Such allowances would be offset against the appropriate expenses they offset, once the Company determines the
allowances are for specific, identifiable incremental expenses.

WARRANTY RESERVEThe Company provides warranties for both its merchandise sales and service labor. Warranties for merchandise
are generally covered by its vendors, with the Company covering any costs above the vendor's stipulated allowance. Service labor warranties are covered in full by the Company on a limited lifetime
basis. The Company establishes its warranty reserves based on historical data of warranty transactions. These costs are included in either our Costs of Merchandise Sales or Costs of Service Revenue.

Components
of the reserve for warranty costs for fiscal years ended February 2, 2008 and February 3, 2007, are as follows:

Balance at January 28, 2006

$
1,477Additions related to fiscal 2006 sales


9,320Warranty costs incurred in fiscal 2006


(10,152
)Balance at February 3, 2007


645Additions related to fiscal 2007 sales


7,937Warranty costs incurred in fiscal 2007


(8,335
)Balance at February 2, 2008

$
247


41

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

LEASESThe Company's policy is to amortize leasehold improvements over the lesser of the lease term or the economic life of
those assets. Generally, for the 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. The calculation for 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.

SERVICE REVENUEService revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles,
excluding the sale of any installed parts or materials.

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

PENSION AND RETIREMENT PLANSThe Company reports all information on its pension and savings plan benefits in accordance with
FASB Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions" and SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", as amended by SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits-an Amendment of FASB Statements
No. 87, 88 and 106 (revised 2003)" (SFAS 132R), as amended by SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans- an Amendment of FASB
Statements No. 87, 88, 106 and 132(R)".

INCOME TAXESThe Company uses the asset and liability method of accounting for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Under this method, 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
accounting for our tax reserves changed with the adoption of FIN 48, "Accounting for Uncertainty in Income Taxes", or FIN 48, on February 4, 2007. Refer to
Note 14 for further discussion of the impact of adopting FIN 48 and change in unrecognized tax benefit during fiscal 2007.

In
evaluating our income tax positions, we record reserves for potential exposures. These tax reserves 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 the evolution of tax code and regulations, along with varying application of tax
policy and administration within those jurisdictions.

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 Company's consolidated
balance sheets. The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent the Company believes that recovery is not more likely
than not, the Company must establish a valuation allowance. In this regard when determining whether or not we

42

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

should
establish a valuation allowance, the Company considers various tax planning strategies, including potential real estate transactions, as future taxable income. To the extent the Company
establishes a valuation allowance or change the allowance in a future period, income tax expense will be impacted. Actual results could differ from this assessment if adequate taxable income is not
generated in future periods from either operations or projected tax planning strategies.

ADVERTISINGThe Company expenses the production costs of advertising the first time the advertising takes place. Gross
advertising expense for 2007, 2006 and 2005 was $78,475; $84,206 and $85,809, respectively. No advertising costs were recorded as assets as of February 2, 2008 or February 3, 2007.

The
Company restructured substantially all of its vendor agreements in the fourth quarter of fiscal 2005 to provide flexibility in how the Company can use vendor support funds, and
eliminate the administrative burden associated with tracking the application of such funds. Therefore, in fiscal 2006, substantially all vendor support funds were treated as a reduction of inventories
and are recognized as a reduction to cost of merchandise sales as inventories are subsequently sold.

Prior
to fiscal year 2006, certain cooperative advertising reimbursements were netted against specific, incremental, identifiable costs incurred in connection with the selling of the
vendor's product. Cooperative advertising reimbursements of $35,702 for fiscal year 2005 were recorded as a reduction of advertising expense with the net amount included in selling, general and
administrative expenses in the consolidated statement of operations. Any excess reimbursements over these costs are characterized as a reduction of inventory and are recognized as a reduction of cost
of sales as the inventories are sold, in accordance with EITF 02-16. The amount of excess reimbursements recognized as a reduction of costs of sales was $53,753 for fiscal year
2005. The balance of excess reimbursements remaining in inventory was immaterial as of January 28, 2006.

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

IMPAIRMENT OF LONG-LIVED ASSETSThe Company accounts for long-lived assets in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard prescribes the method for asset impairment evaluation for long-lived assets and
certain identifiable intangibles that are both held and used or to be disposed of. The 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 the 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 7, "Store Closures and Asset Impairments."

EARNINGS PER SHAREEarnings per share for all periods have been computed in accordance with SFAS No. 128, "Earnings
Per Share" as amended by SFAS No. 123 (revised 2004), "Share-Based Payment." Basic earnings per share is computed by dividing earnings by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing earnings plus the interest on the convertible senior notes by the weighted average number of common shares outstanding
during the year plus the assumed conversion of dilutive convertible debt and incremental shares that would have been outstanding upon the assumed exercise of dilutive stock options. During fiscal
2007, no convertible notes were outstanding.

43

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

ACCOUNTING FOR STOCK-BASED COMPENSATIONAt February 2, 2008, the Company has three stock-based employee compensation
plans, which are described in Note 12, "Equity Compensation Plans."

Effective
January 29, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (SFAS No.123R)
requiring that compensation cost relating to share-based payment transactions be 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). Prior to January 29, 2006, the Company accounted for
share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and related interpretations.
The Company also followed the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The Company adopted SFAS No. 123R
using the modified prospective method and, accordingly, financial statement amounts for periods prior to January 29, 2006 have not been restated to reflect the fair value method of recognizing
compensation cost relating to share-based compensation.

The
Company recognized approximately $3,060 and $1,340 of compensation expense related to stock options, and approximately $6,696 and $1,711 of compensation expense related to restricted
stock units (RSUs), in its operating results (included in selling, general and administrative expenses) for fiscal 2007 and 2006, respectively. The related tax benefit recognized was approximately
$3,624 and $894 for fiscal 2007 and 2006. Compensation expense for RSUs was $2,049 for fiscal 2005 and was included in selling, general and administrative expenses. The cumulative effect from adopting
the provisions of SFAS No. 123R in fiscal year 2006 was $189 benefit, net of tax.

The
following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation for the fiscal year ended as follows:

January 28, 2006Net loss:As reported

$
(37,528
)Add: Stock-based compensation for RSU's, net of tax


1,301Less: Total stock-based compensation expense determined under fair value-based method, net of tax


(3,121
)Pro forma

$
(39,348
)Net loss per share:Basic:As reported

$
(0.69
)Pro forma

$
(0.72
)Diluted:As reported

$
(0.69
)Pro forma

$
(0.72
)


44

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

Expected
volatility is based on historical volatilities for a time period similar to that of the expected term. In estimating the expected term of the options, the Company has utilized
the "simplified method" allowable under the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 107,Share-Based Payment.
No options were granted from January 1, 2008 through February 2, 2008. The risk-free rate is based on the U.S. treasury yield curve for issues with a remaining term equal to
the expected term. The fair value of each option granted during fiscal years 2007, 2006 and 2005 is estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

Year endedFebruary 2,
2008

February 3,
2007

January 28,
2006Dividend yield

1.79
%
2.02
%
1.77
%Expected volatility

39
%
53
%
41
%Risk-free interest rate range:High

5.0
%
4.8
%
4.6
%Low

3.5
%
4.6
%
3.5
%Ranges of expected lives in years

4-5

5-7

3-8


SFAS
No. 123R also requires the Company to change the classification, in its consolidated statement of cash flows, of any excess tax benefits realized upon the exercise of stock
options or issuance of RSUs, in excess of that which is associated with the expense recognized for financial reporting purposes. Approximately $1,104 is reflected as a financing cash inflow rather
than as a reduction of income taxes paid in the consolidated statement of cash flows for fiscal year 2007.

COMPREHENSIVE LOSSComprehensive loss is reported in accordance with SFAS No. 130, "Reporting Comprehensive Income."
Other comprehensive loss includes minimum 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 variable rate lease and debt agreements, when the Company deems it prudent to do so. The Company reports derivatives and hedging activities in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. This statement establishes
accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.

SEGMENT INFORMATIONThe Company reports segment information in accordance with SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Company operates in one industry, the automotive aftermarket using a SUPERCENTER layout, which houses both retail and service centers in one
building. In accordance with SFAS No. 131, the Company

45

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

aggregates
all of its stores and reports one operating and reporting segment. Sales by major product categories are as follows:

Year ended

Feb. 2,
2008

Feb. 3,
2007

Jan. 28,
2006Parts and Accessories

$
1,423,891

$
1,537,076

$
1,531,409Tires


325,687


316,001


299,222Total Merchandise Sales


1,749,578


1,853,077


1,830,631Service Labor


388,497


390,778


378,343Total Revenues

$
2,138,075

$
2,243,855

$
2,208,974


SIGNIFICANT SUPPLIERSDuring fiscal 2007, the Company's ten largest suppliers accounted for approximately 43% of the
merchandise purchased by the Company. No single supplier accounted for more than 19% of the Company's purchases. The Company has no long-term contracts under which the Company is required
to purchase merchandise except for a contract to purchase bulk oil for use in the Company's service bays, which expires in 2011. Management believes that the relationships the Company has established
with its suppliers are generally good.

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 pools and third party insurance to manage this exposure. In addition, the Company self insures certain employee-related health care benefit liabilities. The Company maintains stop loss
coverage with third party insurers through which it reinsures certain of its casualty and health care benefit liabilities. The Company records both liabilities and reinsurance receivables using
actuarial methods utilized in the insurance industry based upon our historical claims experience.

RECENT ACCOUNTING STANDARDS

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements
No. 133 and 140" (SFAS No. 155). SFAS No. 155 simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS No. 133, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation.
SFAS No. 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company adopted this standard on February 4,
2007, which did not affect our consolidated financial statements.

In
March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140" (SFAS No. 156). SFAS
No. 156 amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," with respect to the accounting for separately recognized
servicing assets and servicing liabilities. SFAS No. 156 was effective for fiscal years beginning after September 15, 2006. The Company adopted this standard on February 4, 2007,
which did not affect our consolidated financial statements.

46

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

In
June 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), which clarifies
the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with the FASB Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The
Company adopted the provisions of FIN 48 on February 4, 2007. In connection with the adoption, the Company recorded a net decrease to retained earnings of $155 and
reclassified certain previously recognized deferred tax attributes as FIN 48 liabilities. The amount of unrecognized tax benefits including $734 of interest at February 4, 2007 was
$7,126 of which 2,244 would impact the Company's tax rate, if recognized. At February 2, 2008, the amount of the unrecognized tax benefit was $3,847. For additional information, see
Note 14, "Income Taxes."

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines the term fair value, establishes a framework for measuring it
within generally accepted accounting principles and expands disclosures about its measurements. In February 2008, the FASB issued Staff Position No. FAS 157-2 (FSP
No.157-2), "Effective Date of FASB Statement No. 157," that defers the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities.
The Company anticipates the adoption of SFAS 157 in fiscal 2008 for financial assets and financial liabilities will not have a material effect on the Company's financial statements.
SFAS 157 is effective for certain nonfinancial assets and nonfinancial liabilities for financial statements issued for fiscal years beginning after November 15, 2008. The Company is
currently evaluating the impact SFAS No. 157 will have on its consolidated financial statements beginning in fiscal 2009.

In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans- an Amendment of FASB Statements No. 87,
88, 106 and 132(R)" (SFAS 158). SFAS No. 158 requires entities to:



The
Company adopted the requirement to recognize the funded status of a benefit plan and the additional disclosure requirements at February 3, 2007. The requirement to measure
plan assets and benefit obligations as of the date of the employer's fiscal year-end is effective for fiscal years ending after December 15, 2008. At February 2, 2008, the
Company has adopted the SFAS No.158 requirement to measure plan assets and benefit obligations as of the date of the Company's fiscal year end. In accordance with SFAS 158, the change of
measurement date from a calendar year to the Company's fiscal year resulted in a net charge to Retained Earnings of $189 and a credit to

47

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

Accumulated
Other Comprehensive Loss of $123. This net charge to Retained Earnings represents the after-tax pension expense for the period from January 1, 2008 to February 2,
2008.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has not chosen to measure any
asset or liability using SFAS 159.

In
March 2007, the EITF reached a consensus on Issue Number 06-10, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment
Split-Dollar Life Insurance Arrangements" (EITF 06-10). EITF 06-10 provides guidance to help companies determine whether a liability for the postretirement
benefit associated with a collateral assignment split-dollar life insurance arrangement should be recorded in accordance with either SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (if, in substance, a postretirement benefit plan exists), or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual
deferred compensation contract). EITF 06-10 also provides guidance on how a company should recognize and measure the asset in a collateral assignment split-dollar life insurance
contract. EITF 06-10 is effective for fiscal years beginning after December 15, 2007, although early adoption is permitted. The Company anticipates the adoption of
EITF 06-10 will result in a $1,855 pretax charge to retained earnings on February 3, 2008.

In
June 2007, the FASB ratified EITF Issue Number 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards"
(EITF 06-11). EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on
equity-classified nonvested shares, (b) dividend equivalents on equity-classified nonvested share units, or (c) payments equal to the dividends paid on the underlying shares while an
equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under SFAS No. 123(R), "Share-Based Payment," and result in an
income tax deduction for the employer. A consensus was reached that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees
for equity-classified non-vested equity shares, non-vested equity share units, and outstanding equity share options should be recognized as an increase in additional
paid-in capital. EITF 06-11 is effective prospectively for the income tax benefits that result from dividends on equity-classified employee share-based payment awards
that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The Company has determined that the effects of EITF 06-11
will have an immaterial impact on its consolidated financial statements beginning in fiscal 2008.

In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations," which replaces SFAS No. 141, "Business Combinations." SFAS No. 141R, among other things,
establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling
interests in the acquired entity; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. Costs of the acquisition will be recognized separately from the business combination. SFAS
No. 141R applies prospectively, except for taxes, to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after
December 15, 2008.

48

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51." SFAS No. 160,
among other things, provides guidance and establishes amended accounting and reporting standards for a parent company's noncontrolling interest in a subsidiary. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial condition, results of operations
or cash flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 expands the disclosure requirements in SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," about an entity's derivative instruments and hedging activities. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently evaluating the impact SFAS No. 161 will have on its consolidated financial statements.

NOTE 2DEBT AND FINANCING ARRANGEMENTS

LONG-TERM DEBT

February 2,
2008

February 3,
20077.50% Senior Subordinated Notes, due December 2014

$
200,000

$
200,000Senior Secured Term Loan, due October 2013


154,652


320,000Other notes payable, 8.0%


248


268Lease financing obligations, payable through October 2022


4,786


Capital lease obligations payable through October 2009


399


685Line of credit agreement, through December 2009


42,045


17,568402,130


538,521Less current maturities


2,114


3,490Total Long-Term Debt

$
400,016

$
535,031




On January 27, 2006 the Company entered into a $200,000 Senior Secured Term Loan facility due January 27, 2011. This facility was secured by the
real property and improvements associated with 154 of the Company's stores. Interest at the rate of London Interbank Offered Rate (LIBOR) plus 3.0% on this facility was payable by the Company starting
in February 2006. Proceeds from this facility were used to satisfy and discharge the Company's then outstanding $43,000 6.88% Medium Term Notes due March 6, 2006 and $100,000 6.92% Term
Enhanced Remarketable Securities (TERMS) due July 7, 2016 and to reduce borrowings under the Company's line of credit by approximately $39,000.

On
October 27, 2006, the Company amended and restated the Senior Secured Term Loan facility to (i) increase the size from $200,000 to $320,000, (ii) extend the
maturity from January 27, 2011 to October 27, 2013, (iii) reduce the interest rate from LIBOR plus 3.00% to LIBOR plus 2.75%. An additional 87 stores (bringing the total to 241
stores) were added to the collateral pool securing the facility. Proceeds were used to satisfy and discharge $119,000 in outstanding 4.25% convertible Senior Notes due June 1, 2007 by deposit
into an escrow fund with an independent trustee. The right of the

49

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

holders
of the convertible notes to convert them into shares of the Company's common stock, at any time until the June 1, 2007 maturity date, survived such satisfaction and discharge, although
no notes were converted prior to maturity. The Company recorded a non-cash charge for the value of such conversion right, approximately $755 as determined by the Black-Scholes method, and
$430 for deferred financing cost.

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

On
November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. Concurrent with the sale, the Company entered into agreements
to lease the stores back from the purchaser over minimum lease terms of 15 years. The Company used $162,558 of the net proceeds to prepay a portion of the Senior Secured Term Loan facility. This
prepayment in conjunction with the ordinary amortization of the principal balance, reduced the principal amount of
the facility to $155,000 and reduced the scheduled quarterly repayments from $800 to $391. The number of stores in the collateral pool, which secures the facility, was simultaneously reduced by 136
stores (bringing the total remaining collateral to 105). The Company has continuing involvement in one property and has recorded the $4,742 proceeds, net of execution costs, as a debt borrowing and
continues to reflect the property on its balance sheet in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases."



On December 14, 2004, the Company issued $200,000 aggregate principal amount of 7.5% Senior Subordinated Notes due December 15, 2014.



On December 2, 2004, the Company further amended its amended and restated line of credit agreement. The amendment increased the amount available for
borrowings to $357,500, with an ability, upon satisfaction of certain conditions, to increase such amount to $400,000. The amendment also reduced the interest rate under the agreement to LIBOR plus
1.75% (after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25% incremental increases as excess availability falls below $50,000). The amendment also provided the
flexibility, upon satisfaction of certain conditions, to release up to $99,000 of reserved credit line availability required as of December 2, 2004 under the line of credit agreement to support
certain operating leases. This reserve was $73,924 on February 2, 2008. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate on
borrowings under the line of credit agreement was 7.51% and 7.67% at February 2, 2008 and February 3, 2007, respectively.

50

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)



In the third quarter of fiscal 2004, the Company entered into a vendor financing program with an availability of $20,000. Under this program, the Company's factor
makes accelerated and discounted payments to its vendors and the Company, in turn, makes its regularly scheduled full vendor payments to the factor. This program was terminated effective December
2007. As of February 2, 2008 and February 3, 2007, the Company had an outstanding balance of $0 and $13,990, respectively, under these arrangements, classified as trade payable program
liability in the consolidated balance sheets.



On June 29, 2007, the Company entered into a new vendor financing program with an availability up to $65,000. Under this program, the Company's factor
makes accelerated and discounted payments to its vendors and the Company, in turn, makes its regularly-scheduled full vendor payments to the factor. There was an outstanding balance of $14,254 under
the program as of February 2, 2008.

The
other notes payable have an aggregate principal balance of $248 and $268 and a weighted average interest rate of 8.0% and 8.0% at February 2, 2008 and February 3, 2007,
respectively, and mature at various times through August 2016. Certain of these notes are collateralized by land and buildings with an aggregate carrying value of approximately $1,773 and $1,774 at
February 2, 2008 and February 3, 2007, respectively.

Several
of the Company's debt agreements require the maintenance of certain financial ratios and compliance with covenants. The most restrictive of these covenants, an EBITDA
requirement, is triggered if the Company's availability under its line of credit agreement drops below $50,000. As of February 2, 2008 the Company had an availability of approximately $131,000
under its line of credit, and was in compliance with all covenants contained in its debt agreements.

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

Year

Long-Term
Debt

Capital
Leases

Lease Financing
Obligation

Total2008

$
1,585

$
258

$
271

$
2,1142009


43,630


141


247


44,0182010


1,587





258


1,8452011


1,589





270


1,8592012


1,591





281


1,872Thereafter


346,963





3,459


350,422Total

$
396,945

$
399

$
4,786

$
402,130


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 $691 and $487 in outstanding import letters of credit and $63,477 and $55,708 in outstanding standby letters of credit
as of February 2, 2008 and February 3, 2007, respectively. The Company was also contingently liable for surety bonds in the amount of approximately $6,598 and $11,224 at
February 2, 2008 and February 3, 2007, respectively.

51

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 3ACCRUED EXPENSES

The Company's accrued expenses as of February 2, 2008 and February 3, 2007, were as follows:

February 2, 2008

February 3, 2007Casualty and medical risk insurance

$
164,435

$
173,826Accrued compensation and related taxes


46,376


44,317Sales tax payable


12,367


11,286Other


69,445


62,851Total

$
292,623

$
292,280


NOTE 4OTHER CURRENT ASSETS

The Company's other current assets as of February 2, 2008 and February 3, 2007, were as follows:

February 2,
2008

February 3,
2007Reinsurance premiums and receivable

$
64,653

$
69,239Deferred income taxes


11,837


Income taxes receivable


873


Other


106


1,129Total

$
77,469

$
70,368


NOTE 5LEASE AND OTHER COMMITMENTS

On November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. Net proceeds from this sale were
$162,918. Concurrent with the sale, the Company entered into agreements to lease the stores back from the purchaser over minimum lease terms of 15 years. The Company classified 33 of these
leases as operating leases. The lease calls for an initial term of 15 years with four five-year renewal options. The leases have yearly incremental rental increases based on either CPI, with
certain limitations, or fair market value. A $13,971 gain on the sale of these properties was recognized immediately upon execution of the sale and an $87,625 gain was deferred. The deferred gain is
being recognized over the minimum term of these leases. The Company has recognized $1,030 of the deferred gain in the fourth quarter of fiscal 2007. The Company has
continuing involvement in one property and has recorded those associated net proceeds of $4,742, included in the total proceeds of $162,918, as a debt borrowing and as a financing activity in the
Statement of Cash Flows. Accordingly, the Company continues to reflect the property on its balance sheet in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for
Leases."

On
October 18, 2004, the Company entered into a Master Lease agreement providing for the lease of up to $35,000 of new point-of-sale hardware for the
Company's stores at an interest rate of LIBOR plus 2.25%. This Master Lease is reflected in the Company's consolidated financial statements as an operating lease. The Company has evaluated this
transaction in accordance with the guidance of FIN 46 and re-evaluated the transaction under FIN 46R and has determined that it is not required to consolidate the leasing
entity. The Company has an outstanding commitment of approximately $9,836

52

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

and
$14,938 on this operating lease facility as of February 2, 2008 and February 3, 2007. The lease includes a residual value guarantee with a maximum value of approximately $172. The
Company expects the fair market value of the leased equipment to substantially reduce or eliminate the Company's payment under the residual guarantee at the end of the lease term.

In
accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee related to this operating lease. As of February 2, 2008 and
February 3, 2007, the current value of this liability was $38 and $71, respectively, which is recorded in other long-term liabilities on the consolidated balance sheets.

On
August 1, 2003, the Company renegotiated $132,000 of store and distribution center operating leases. These leases, which expire on August 1, 2008, have lease payments
with an effective rate of LIBOR plus 2.06%. The Company has evaluated this transaction in accordance with the guidance of FIN 46 and re-evaluated the transaction under
FIN 46R and has determined that it is not required to consolidate the leasing entity.

As
of February 2, 2008 and February 3, 2007 there was an outstanding commitment of $116,318 and $117,627 under the leases. The Company has notified the lessor of the
Company's election to purchase, on or before August 1, 2008, 29 properties that are currently rented under this master operating lease.

The
Company leases certain property and equipment under operating leases, sale-leaseback financings and capital leases, which contain renewal and escalation clauses, step
rent provisions, capital improvements funding and other lease concessions. These provisions are considered in the Company's calculation of the Company's minimum lease payments, which are recognized as
expense on a straight-line basis over the applicable lease term. In accordance with SFAS No. 13, as amended by SFAS No. 29, any lease payments that are based upon an existing
index or rate are included in the Company's minimum lease payment calculations. Future minimum rental payments for noncancelable operating leases and capital leases in effect as of
February 2, 2008 are shown in the table below. All amounts are exclusive of lease obligations and sublease rentals applicable to stores for which reserves, in conjunction with the
restructuring, have previously been established.

The
net book values of assets under capital leases and sale-leaseback transactions accounted for under the financing method at February 2, 2008 summarized as follows:

February 2,
2008Land

$
1,859Buildings


2,258Equipment


2,349Total


6,466Accumulated depreciation


(2,430
)$
4,036


53

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

The
aggregate minimum rental payments for such leases having initial terms of more than one year are approximately:

Year

Operating
Leases

Capital
Leases

Lease Financing
Obligations2008

$
68,240

$
263

$
4452009


60,572


162


4122010


57,276


0


4142011


54,890


0


4152012


53,625


0


416Thereafter


290,362


0


4,137Aggregate minimum lease payments

$
584,965

$
425

$
6,239Less: interest on capital leases





(26
)

(1,453
)Present Value of Net Minimum Lease Payments




$
399

$
4,786


Rental
expenses incurred for operating leases in fiscal years 2007, 2006, and 2005 were $69,255, $59,313 and $67,056, respectively.

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, except for a contract to purchase bulk oil for use in the Company's service bays which expires in 2011, 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 February 2, 2008 are considered to be a contractual obligation.

NOTE 6STOCKHOLDERS' EQUITY

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

All
of these repurchased shares were placed into the Company's treasury. A portion of the treasury shares will be used by the Company to provide benefits to employees under its
compensation plans and in conjunction with the Company's dividend reinvestment program. As of February 2, 2008, the Company reflected 14,609,094 shares of its common stock at a cost of $227,291
as "cost of shares in treasury" on the Company's consolidated balance sheet.

RIGHTS AGREEMENTOn December 31, 1997, the Company distributed as a dividend one common share purchase right on each
of its common shares. The rights will not be exercisable or transferable apart from the Company's common stock until a person or group, as defined in the rights agreement (dated December 5,
1997), without the proper consent of the Company's Board of Directors, acquires 15% or more, or makes an offer to acquire 15% or more of the Company's outstanding stock. When exercisable, the rights
entitle the holder to purchase one share of the Company's common stock for $125. Under certain circumstances, including the acquisition of 15% of

54

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

the
Company's stock by a person or group, the rights entitle the holder to purchase common stock of the Company or common stock of an acquiring company having a market value of twice the exercise
price of the right.

The
rights do not have voting power and are subject to redemption by the Company's Board of Directors for $.01 per right anytime before a 15% position has been acquired and for
10 days thereafter, at which time the rights become non-redeemable. The rights expired on December 31, 2007.

BENEFITS TRUSTOn April 29, 1994, the Company established a flexible employee benefits trust with the intention of
purchasing up to $75,000 worth of the Company's common shares. The repurchased shares will be held in the trust and will be used to fund the Company's existing benefit plan obligations including
healthcare programs, savings and retirement plans and other benefit obligations. The trust will allocate or sell the repurchased shares through 2023 to fund these benefit programs. As shares are
released from the trust, the Company will charge or credit additional paid-in capital for the difference between the fair value of shares released and the original cost of the shares to
the trust. For financial reporting purposes, the trust is consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are eliminated. In
connection with the Dutch Auction self-tender offer, 37,230 shares were tendered at a price of $16.00 per share in fiscal 1999. At February 2, 2008, the Company has reflected
2,195,270 shares of its common stock at a cost of $59,264 as "cost of shares in benefits trust" on the Company's consolidated balance sheet.



In the third quarter of fiscal 2007, the Company adopted a long-term strategic plan. One of the initial steps in this plan was the identification of
31 low-return stores for closure. Immediately prior to their ultimate closures during the fourth quarter of fiscal 2007, these stores were operated as clearance centers. The Company is
accounting for these store closures in accordance with the provisions of SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" and SFAS No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets."

The
Company recorded charges of $15,551 related to store closures which included a $10,963 impairment charge to fixed assets, $2,906 in long-term lease and other related
obligations, net of subleases, $155 in workforce reduction costs, and store breakdown costs of $1,527. The impairment of fixed assets includes the adjustment to the market value of those owned stores
that are now classified as assets held for disposal in accordance with SFAS No. 144 and the impairment of leasehold improvements. The assets held for disposal have been valued at the lower of
their carrying amount or their estimated fair value, net of disposal costs. The long-term lease and other related obligations represent the fair value of such obligations less the
estimated net sublease income.

55

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

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

|                                              |  | Cost of
Merchandise
Sales |       | Cost of
Service
Revenue |   | Selling,
General and
Administrative |  | Discontinued
Operations
(pre-tax) |       | Total
|--------------------------------------------- |  | ------------------------- | ----- | ----------------------- | - | ----------------------------------- |  | --------------------------------- | ----- | -----
|Impairment of fixed assets                    |  | $                         | 5,350 |                         | $ | 1,849                               |  | $                                 |      |      
|Long-term lease obligations, net of sub-lease |  |                           | 1,479 |                         |   | 493                                 |  |                                   |      |      
|Workforce reduction                           |  |                           |      |                         |   |                                    |  |                                   | 111   |      
|Store breakdown cost                          |  |                           |      |                         |   |                                    |  |                                   | 1,102 |      
|                                              |  |                           |       |                         |   |                                     |  |                                   |       |      
|Total                                         |  | $                         | 6,829 |                         | $ | 2,342                               |  | $                                 | 1,213 |      
|                                              |  |                           |       |                         |   |                                     |  |                                   |       |      

Earlier
during fiscal 2007, the Company closed 2 stores in addition to the 31 low-return stores.

During
fiscal 2006, the Company recorded an $840 asset impairment charge principally related to one store location.

In
the fourth quarter of fiscal 2005, the Company recorded in selling, general and administrative expenses an impairment charge of $4,200 reflecting the remaining value of a commercial
sales software asset.

56

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

The
following details the reserve balances through February 2, 2008. The reserve includes remaining rent on leases net of sublease income, other contractual obligations associated
with leased properties and employee severance.

Severance

Lease
Expenses

Other Costs and
Contractual Obligations

TotalBalance at January 29, 2005

$


$
1,755

$
141

$
1,896Provision for present value of liabilities





119





119Change in assumptions about future sublease income, lease termination, contractual obligations and severance





(1,011
)

73


(938
)Cash payments





(675
)

(105
)

(780
)Balance at January 28, 2006

$


$
188

$
109

$
297Provision for present value of liabilities





677





677Change in assumptions about future sublease income, lease termination, contractual obligations and severance





839





839Cash payments





(1,014
)




(1,014
)Balance at February 3, 2007

$


$
690

$
109

$
799Store Closure Charge


155


2,906





3,061Provision for present value of liabilities





641





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





(627
)




(627
)Cash payments


(97
)

(36
)




(133
)Balance at February 2, 2008

$
58

$
3,574

$
109

$
3,741


NOTE 8DISCONTINUED OPERATIONS

In accordance with SFAS No. 144, the Company's discontinued operations reflect the operating results for the 11 of the 31 low-return stores
closed as part of the Company's long term strategic plan adopted in 2007. The remaining 20 stores operating results remain in continuing operations, as the Company believes that its remaining stores
will retain the cash flows lost from the closed locations. The results for the fiscal years ended February 3, 2007 and January 28, 2006 have been reclassified to show the results of
operations for the 11 closed stores in discontinued operations. Below is a summary of the results for discontinued operations:

Year ended

February 2,
2008

February 3,
2007

January 28,
2006Merchandise Sales

$
21,422

$
23,213

$
23,776Service Revenue


3,988


5,093


5,279Total Revenues


25,410


28,306


29,055(Loss) Earnings from Discontinued Operations Before Income Taxes

$
(6,064
)
$
6,129

$
1,713


57

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

Additionally,
the Company has made certain reclassifications to its consolidated balance sheets to reflect the assets held for disposal and assets from discontinued
operations. As of February 2, 2008, the balances reclassified to assets held for disposal were as follows:

February 2, 2008Land

$
9,976Buildings and improvements


15,805Total


25,781Less accumulated depreciation and amortization


(8,863
)Total Property and EquipmentNet

$
16,918


None
of the stores closed during fiscal 2007 have been sold as of February 2, 2008 and, accordingly, all remain in assets held for disposal.

During
fiscal 2006, we sold a store that we have leased back and will continue to operate for a one year period. Due to our significant continuing involvement with this store following
the sale, we reclassified back into continuing operations, for all periods presented, this store's revenues and costs that had been previously reclassified into discontinued operations during the
third quarter of fiscal 2005, in accordance with SFAS No. 144 and EITF 03-13.

During
fiscal 2005, the Company sold assets held for disposal for proceeds of $916, resulting in a gain of $341, which was recorded in discontinued operations on the consolidated
statement of operations.

NOTE 9SUPPLEMENTAL GUARANTOR INFORMATION

The Company's $200,000 aggregate principal amount of 7.50% Senior Subordinated Notes (the "Notes") are fully and unconditionally and joint and severally
guaranteed by certain of the Company's direct and indirectly wholly-owned subsidiariesnamely, The Pep Boys Manny Moe & Jack of California, Pep BoysManny, Moe &
Jack of Delaware, Inc., Pep BoysManny, Moe & Jack of Puerto Rico, Inc. and PBY Corporation, (collectively, the "Subsidiary Guarantors"). The Notes are not guaranteed
by the Company's wholly owned subsidiary, Colchester Insurance Company.

The
following condensed consolidating information presents, in separate columns, the condensed consolidating balance sheets as of February 2, 2008 and February 3, 2007 and
the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for the fiscal years ended February 2, 2008, February 3, 2007 and
January 28, 2006 for (i) the Company ("Pep Boys") on a parent only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Subsidiary Guarantors on a
combined basis including the consolidation by PBY Corporation of its wholly owned subsidiary, The Pep Boys Manny Moe & Jack of California, (iii) the subsidiary of the Company that does
not guarantee the Notes, and (iv) the Company on a consolidated basis.

58

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING BALANCE SHEET

|As of February 2, 2008                                                       |  | Pep Boys |           | Subsidiary
Guarantors |   | Subsidiary Non-
Guarantors |  | Consolidation/
Elimination |         | Consolidated |  
|---------------------------------------------------------------------------- |  | -------- | --------- | --------------------- | - | -------------------------- |  | -------------------------- | ------- | ------------ | -
|ASSETS                                                                       |  |          |           |                       |   |                            |  |                            |         |              |  
|Current Assets:                                                              |  |          |           |                       |   |                            |  |                            |         |              |  
|Cash and cash equivalents                                                    |  | $        | 12,208    |                       | $ | 6,655                      |  | $                          | 2,063   |              | $
|Accounts receivable, net                                                     |  |          | 15,580    |                       |   | 13,854                     |  |                            | 16      |              |  
|Merchandise inventories                                                      |  |          | 198,975   |                       |   | 362,177                    |  |                            |        |              |  
|Prepaid expenses                                                             |  |          | 21,368    |                       |   | 17,938                     |  |                            | 18,655  |              |  
|Other                                                                        |  |          | 21,272    |                       |   | 15                         |  |                            | 69,323  |              |  
|Assets held for disposal                                                     |  |          | 4,991     |                       |   | 11,927                     |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Current Assets                                                         |  |          | 274,394   |                       |   | 412,566                    |  |                            | 90,057  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Property and Equipmentat cost:                                              |  |          |           |                       |   |                            |  |                            |         |              |  
|Land                                                                         |  |          | 67,550    |                       |   | 139,981                    |  |                            | 12,893  |              |  
|Buildings and improvements                                                   |  |          | 287,088   |                       |   | 561,286                    |  |                            | 20,937  |              |  
|Furniture, fixtures and equipment                                            |  |          | 296,117   |                       |   | 403,186                    |  |                            |        |              |  
|Construction in progress                                                     |  |          | 3,445     |                       |   | 547                        |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|                                                                             |  |          | 654,200   |                       |   | 1,105,000                  |  |                            | 33,830  |              |  
|Less accumulated depreciation and amortization                               |  |          | 395,673   |                       |   | 595,602                    |  |                            | 922     |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Property and EquipmentNet                                             |  |          | 258,527   |                       |   | 509,398                    |  |                            | 32,908  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Investment in subsidiaries                                                   |  |          | 1,646,349 |                       |   |                           |  |                            |        |              |  
|Intercompany receivable                                                      |  |          |          |                       |   | 888,352                    |  |                            | 81,833  |              |  
|Deferred income taxes                                                        |  |          | 1,403     |                       |   | 19,372                     |  |                            |        |              |  
|Other                                                                        |  |          | 31,638    |                       |   | 971                        |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Assets                                                                 |  | $        | 2,212,311 |                       | $ | 1,830,659                  |  | $                          | 204,798 |              | $
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |  |          |           |                       |   |                            |  |                            |         |              |  
|Current Liabilities:                                                         |  |          |           |                       |   |                            |  |                            |         |              |  
|Accounts payable                                                             |  | $        | 245,414   |                       | $ | 9                          |  | $                          |        |              | $
|Trade payable program liability                                              |  |          | 14,254    |                       |   |                           |  |                            |        |              |  
|Accrued expenses                                                             |  |          | 57,320    |                       |   | 70,486                     |  |                            | 183,910 |              |  
|Deferred income taxes                                                        |  |          |          |                       |   | 8,167                      |  |                            |        |              |  
|Current maturities of long-term debt and obligations under capital leases    |  |          | 1,843     |                       |   | 271                        |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Current Liabilities                                                    |  |          | 318,831   |                       |   | 78,933                     |  |                            | 183,910 |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Long-term debt and obligations under capital leases, less current maturities |  |          | 369,657   |                       |   | 30,359                     |  |                            |        |              |  
|Other long-term liabilities                                                  |  |          | 38,109    |                       |   | 34,074                     |  |                            |        |              |  
|Deferred gain from sale of assets                                            |  |          | 44,817    |                       |   | 61,832                     |  |                            |        |              |  
|Intercompany liabilities                                                     |  |          | 970,185   |                       |   |                           |  |                            |        |              |  
|Stockholders' Equity:                                                        |  |          |           |                       |   |                            |  |                            |         |              |  
|Common stock                                                                 |  |          | 68,557    |                       |   | 2                          |  |                            | 100     |              |  
|Additional paid-in capital                                                   |  |          | 296,074   |                       |   | 386,857                    |  |                            | 3,900   |              |  
|Retained earnings                                                            |  |          | 406,819   |                       |   | 1,238,602                  |  |                            | 16,888  |              |  
|Accumulated other comprehensive loss                                         |  |          | (14,183   | )                     |   |                           |  |                            |        |              |  
|Less:                                                                        |  |          |           |                       |   |                            |  |                            |         |              |  
|Cost of shares in treasury                                                   |  |          | 227,291   |                       |   |                           |  |                            |        |              |  
|Cost of shares in benefits trust                                             |  |          | 59,264    |                       |   |                           |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Stockholders' Equity                                                   |  |          | 470,712   |                       |   | 1,625,461                  |  |                            | 20,888  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Liabilities and Stockholders' Equity                                   |  | $        | 2,212,311 |                       | $ | 1,830,659                  |  | $                          | 204,798 |              | $
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  

59

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING BALANCE SHEET

|As of February 3, 2007                                                       |  | Pep Boys |           | Subsidiary
Guarantors |   | Subsidiary Non-
Guarantors |  | Consolidation/
Elimination |         | Consolidated |  
|---------------------------------------------------------------------------- |  | -------- | --------- | --------------------- | - | -------------------------- |  | -------------------------- | ------- | ------------ | -
|ASSETS                                                                       |  |          |           |                       |   |                            |  |                            |         |              |  
|Current Assets:                                                              |  |          |           |                       |   |                            |  |                            |         |              |  
|Cash and cash equivalents                                                    |  | $        | 13,581    |                       | $ | 7,946                      |  | $                          | 357     |              | $
|Accounts receivable, net                                                     |  |          | 17,377    |                       |   | 12,205                     |  |                            |        |              |  
|Merchandise inventories                                                      |  |          | 211,445   |                       |   | 395,597                    |  |                            |        |              |  
|Prepaid expenses                                                             |  |          | 24,511    |                       |   | 13,469                     |  |                            | 20,044  |              |  
|Other                                                                        |  |          |          |                       |   | 2,255                      |  |                            | 75,038  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Current Assets                                                         |  |          | 266,914   |                       |   | 431,472                    |  |                            | 95,439  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Property and Equipmentat cost:                                              |  |          |           |                       |   |                            |  |                            |         |              |  
|Land                                                                         |  |          | 78,507    |                       |   | 166,767                    |  |                            | 12,893  |              |  
|Buildings and improvements                                                   |  |          | 310,952   |                       |   | 607,948                    |  |                            | 20,937  |              |  
|Furniture, fixtures and equipment                                            |  |          | 289,005   |                       |   | 395,037                    |  |                            |        |              |  
|Construction in progress                                                     |  |          | 2,654     |                       |   | 810                        |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|                                                                             |  |          | 681,118   |                       |   | 1,170,562                  |  |                            | 33,830  |              |  
|Less accumulated depreciation and amortization                               |  |          | 382,363   |                       |   | 576,186                    |  |                            | 239     |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Property and EquipmentNet                                             |  |          | 298,755   |                       |   | 594,376                    |  |                            | 33,591  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Investment in subsidiaries                                                   |  |          | 1,589,279 |                       |   |                           |  |                            |        |              |  
|Intercompany receivable                                                      |  |          |          |                       |   | 684,520                    |  |                            | 81,160  |              |  
|Deferred income taxes                                                        |  |          | 24,828    |                       |   |                           |  |                            |        |              |  
|Other                                                                        |  |          | 63,843    |                       |   | 4,141                      |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Assets                                                                 |  | $        | 2,243,619 |                       | $ | 1,714,509                  |  | $                          | 210,190 |              | $
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |  |          |           |                       |   |                            |  |                            |         |              |  
|Current Liabilities:                                                         |  |          |           |                       |   |                            |  |                            |         |              |  
|Accounts payable                                                             |  | $        | 265,480   |                       | $ | 9                          |  | $                          |        |              | $
|Trade payable program liability                                              |  |          | 13,990    |                       |   |                           |  |                            |        |              |  
|Accrued expenses                                                             |  |          | 43,815    |                       |   | 72,692                     |  |                            | 195,321 |              |  
|Deferred income taxes                                                        |  |          | 6,344     |                       |   | 28,724                     |  |                            |        |              |  
|Current maturities of long-term debt and obligations under capital leases    |  |          | 3,490     |                       |   |                           |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Current Liabilities                                                    |  |          | 333,119   |                       |   | 101,425                    |  |                            | 195,321 |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Long-term debt and obligations under capital leases, less current maturities |  |          | 523,735   |                       |   | 11,296                     |  |                            |        |              |  
|Other long-term liabilities                                                  |  |          | 53,330    |                       |   | 27,378                     |  |                            |        |              |  
|Intercompany liabilities                                                     |  |          | 765,680   |                       |   |                           |  |                            |        |              |  
|Stockholders' Equity:                                                        |  |          |           |                       |   |                            |  |                            |         |              |  
|Common stock                                                                 |  |          | 68,557    |                       |   | 2                          |  |                            | 100     |              |  
|Additional paid-in capital                                                   |  |          | 289,384   |                       |   | 386,857                    |  |                            | 3,900   |              |  
|Retained earnings                                                            |  |          | 463,797   |                       |   | 1,187,551                  |  |                            | 10,869  |              |  
|Accumulated other comprehensive loss                                         |  |          | (9,380    | )                     |   |                           |  |                            |        |              |  
|Less:                                                                        |  |          |           |                       |   |                            |  |                            |         |              |  
|Cost of shares in treasury                                                   |  |          | 185,339   |                       |   |                           |  |                            |        |              |  
|Cost of shares in benefits trust                                             |  |          | 59,264    |                       |   |                           |  |                            |        |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Stockholders' Equity                                                   |  |          | 567,755   |                       |   | 1,574,410                  |  |                            | 14,869  |              |  
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  
|Total Liabilities and Stockholders' Equity                                   |  | $        | 2,243,619 |                       | $ | 1,714,509                  |  | $                          | 210,190 |              | $
|                                                                             |  |          |           |                       |   |                            |  |                            |         |              |  

60

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|Year ended February 2, 2008                                                                                            |  | Pep Boys |          | Subsidiary
Guarantors |   | Subsidiary
Non-
Guarantors |   | Consolidation /
Elimination |        | Consolidated |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------- | -------- | --------------------- | - | -------------------------- | - | --------------------------- | ------ | ------------ | -
|Merchandise Sales                                                                                                      |  | $        | 600,611  |                       | $ | 1,148,967                  |   | $                           |       |              | $
|Service Revenue                                                                                                        |  |          | 135,110  |                       |   | 253,387                    |   |                             |       |              |  
|Other Revenue                                                                                                          |  |          |         |                       |   |                           |   |                             | 24,592 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Revenues                                                                                                         |  |          | 735,721  |                       |   | 1,402,354                  |   |                             | 24,592 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Costs of Merchandise Sales                                                                                             |  |          | 455,204  |                       |   | 852,124                    |   |                             |       |              |  
|Costs of Service Revenue                                                                                               |  |          | 116,453  |                       |   | 229,844                    |   |                             |       |              |  
|Costs of Other Revenue                                                                                                 |  |          |         |                       |   |                           |   |                             | 18,989 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Costs of Revenues                                                                                                |  |          | 571,657  |                       |   | 1,081,968                  |   |                             | 18,989 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Gross Profit from Merchandise Sales                                                                                    |  |          | 145,407  |                       |   | 296,843                    |   |                             |       |              |  
|Gross Profit from Service Revenue                                                                                      |  |          | 18,657   |                       |   | 23,543                     |   |                             |       |              |  
|Gross Loss from Other Revenue                                                                                          |  |          |         |                       |   |                           |   |                             | 5,603  |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Gross Profit                                                                                                     |  |          | 164,064  |                       |   | 320,386                    |   |                             | 5,603  |              |  
|Selling, General and Administrative Expenses                                                                           |  |          | 181,225  |                       |   | 343,093                    |   |                             | 338    |              |  
|Net Gain from Dispositions of Assets                                                                                   |  |          | 3,095    |                       |   | 12,056                     |   |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Operating (Loss) Profit                                                                                                |  |          | (14,066  | )                     |   | (10,651                    | ) |                             | 5,265  |              |  
|Non-Operating (Expense) Income                                                                                         |  |          | (15,384  | )                     |   | 133,428                    |   |                             | 2,630  |              |  
|Interest Expense (Income)                                                                                              |  |          | 126,073  |                       |   | 43,338                     |   |                             | (5,157 | )            |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle |  |          | (155,523 | )                     |   | 79,439                     |   |                             | 13,052 |              |  
|Income Tax (Benefit) Expense                                                                                           |  |          | (56,041  | )                     |   | 25,881                     |   |                             | 4,566  |              |  
|Equity in Earnings of Subsidiaries                                                                                     |  |          | 59,537   |                       |   |                           |   |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  |          | (39,945  | )                     |   | 53,558                     |   |                             | 8,486  |              |  
|Loss From Discontinued Operations, Net of Tax                                                                          |  |          | (1,094   | )                     |   | (2,507                     | ) |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Net (Loss) Earnings                                                                                                    |  | $        | (41,039  | )                     | $ | 51,051                     |   | $                           | 8,486  |              | $
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  

61

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|Year ended February 3, 2007                                                                                            |  | Pep Boys |          | Subsidiary
Guarantors |   | Subsidiary
Non-
Guarantors |  | Consolidation /
Elimination |        | Consolidated |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------- | -------- | --------------------- | - | -------------------------- |  | --------------------------- | ------ | ------------ | -
|Merchandise Sales                                                                                                      |  | $        | 645,873  |                       | $ | 1,207,204                  |  | $                           |       |              | $
|Service Revenue                                                                                                        |  |          | 136,102  |                       |   | 254,676                    |  |                             |       |              |  
|Other Revenue                                                                                                          |  |          |         |                       |   |                           |  |                             | 27,407 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Total Revenues                                                                                                         |  |          | 781,975  |                       |   | 1,461,880                  |  |                             | 27,407 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Costs of Merchandise Sales                                                                                             |  |          | 462,165  |                       |   | 857,636                    |  |                             |       |              |  
|Costs of Service Revenue                                                                                               |  |          | 124,441  |                       |   | 233,333                    |  |                             |       |              |  
|Costs of Other Revenue                                                                                                 |  |          |         |                       |   |                           |  |                             | 32,020 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Total Costs of Revenues                                                                                                |  |          | 586,606  |                       |   | 1,090,969                  |  |                             | 32,020 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Gross Profit from Merchandise Sales                                                                                    |  |          | 183,708  |                       |   | 349,568                    |  |                             |       |              |  
|Gross Profit from Service Revenue                                                                                      |  |          | 11,661   |                       |   | 21,343                     |  |                             |       |              |  
|Gross Loss from Other Revenue                                                                                          |  |          |         |                       |   |                           |  |                             | (4,613 | )            |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Total Gross Profit (Loss)                                                                                              |  |          | 195,369  |                       |   | 370,911                    |  |                             | (4,613 | )            |  
|Selling, General and Administrative Expenses                                                                           |  |          | 186,208  |                       |   | 355,328                    |  |                             | 355    |              |  
|Net Gain from Dispositions of Assets                                                                                   |  |          | 35       |                       |   | 8,933                      |  |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Operating Profit (Loss)                                                                                                |  |          | 9,196    |                       |   | 24,516                     |  |                             | (4,968 | )            |  
|Non-Operating (Expense) Income                                                                                         |  |          | (18,282  | )                     |   | 125,271                    |  |                             | 1,695  |              |  
|Interest Expense (Income)                                                                                              |  |          | 107,102  |                       |   | 49,003                     |  |                             | (5,207 | )            |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle |  |          | (116,188 | )                     |   | 100,784                    |  |                             | 1,934  |              |  
|Income Tax (Benefit) Expense                                                                                           |  |          | (41,445  | )                     |   | 34,400                     |  |                             | 646    |              |  
|Equity in Earnings of Subsidiaries                                                                                     |  |          | 71,932   |                       |   |                           |  |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  |          | (2,811   | )                     |   | 66,384                     |  |                             | 1,288  |              |  
|Earnings From Discontinued Operations, Net of Tax                                                                      |  |          | 73       |                       |   | 4,260                      |  |                             |       |              |  
|Cumulative Effect of Change in Accounting Principle, Net of Tax                                                        |  |          | 189      |                       |   |                           |  |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  
|Net (Loss) Earnings                                                                                                    |  | $        | (2,549   | )                     | $ | 70,644                     |  | $                           | 1,288  |              | $
|                                                                                                                       |  |          |          |                       |   |                            |  |                             |        |              |  

62

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

|Year ended January 28, 2006                                                                                            |  | Pep Boys |          | Subsidiary
Guarantors |   | Subsidiary
Non-
Guarantors |   | Consolidation /
Elimination |        | Consolidated |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------- | -------- | --------------------- | - | -------------------------- | - | --------------------------- | ------ | ------------ | -
|Merchandise Sales                                                                                                      |  | $        | 635,633  |                       | $ | 1,194,999                  |   | $                           |       |              | $
|Service Revenue                                                                                                        |  |          | 130,289  |                       |   | 248,053                    |   |                             |       |              |  
|Other Revenue                                                                                                          |  |          |         |                       |   |                           |   |                             | 29,500 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Revenues                                                                                                         |  |          | 765,922  |                       |   | 1,443,052                  |   |                             | 29,500 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Costs of Merchandise Sales                                                                                             |  |          | 469,444  |                       |   | 891,169                    |   |                             |       |              |  
|Costs of Service Revenue                                                                                               |  |          | 117,820  |                       |   | 228,246                    |   |                             |        |              |  
|Costs of Other Revenue                                                                                                 |  |          |         |                       |   |                           |   |                             | 34,188 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Costs of Revenues                                                                                                |  |          | 587,264  |                       |   | 1,119,415                  |   |                             | 34,188 |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Gross Profit from Merchandise Sales                                                                                    |  |          | 166,189  |                       |   | 303,830                    |   |                             |       |              |  
|Gross Profit from Service Revenue                                                                                      |  |          | 12,469   |                       |   | 19,807                     |   |                             |       |              |  
|Gross Loss from Other Revenue                                                                                          |  |          |         |                       |   |                           |   |                             | (4,688 | )            |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Total Gross Profit (Loss)                                                                                              |  |          | 178,658  |                       |   | 323,637                    |   |                             | (4,688 | )            |  
|Selling, General and Administrative Expenses                                                                           |  |          | 175,633  |                       |   | 338,952                    |   |                             | 327    |              |  
|Net (Loss) Gain from Dispositions of Assets                                                                            |  |          | (675     | )                     |   | 5,501                      |   |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Operating Profit (Loss)                                                                                                |  |          | 2,350    |                       |   | (9,814                     | ) |                             | (5,015 | )            |  
|Non-Operating (Expense) Income                                                                                         |  |          | (18,682  | )                     |   | 92,005                     |   |                             | 575    |              |  
|Interest Expense (Income)                                                                                              |  |          | 88,928   |                       |   | 33,987                     |   |                             | (3,874 | )            |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle |  |          | (105,260 | )                     |   | 48,204                     |   |                             | (566   | )            |  
|Income Tax (Benefit) Expense                                                                                           |  |          | (37,144  | )                     |   | 16,329                     |   |                             | (212   | )            |  
|Equity in Earnings of Subsidiaries                                                                                     |  |          | 30,793   |                       |   |                           |   |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle              |  |          | (37,323  | )                     |   | 31,875                     |   |                             | (354   | )            |  
|Earnings From Discontinued Operations, Net of Tax                                                                      |  |          | 649      |                       |   | 439                        |   |                             |       |              |  
|Cumulative Effect of Change in Accounting Principle, Net of Tax                                                        |  |          | (854     | )                     |   | (1,167                     | ) |                             |       |              |  
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  
|Net (Loss) Earnings                                                                                                    |  | $        | (37,528  | )                     | $ | 31,147                     |   | $                           | (354   | )            | $
|                                                                                                                       |  |          |          |                       |   |                            |   |                             |        |              |  

63

---





THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

As of February 2, 2008

Pep Boys

Subsidiary
Guarantors

Subsidiary
Non-
Guarantors

Consolidation
Elimination

ConsolidatedCash Flows from Operating Activities:Net (Loss) Earnings

$
(41,039
)
$
51,051

$
8,486

$
(59,537
)
$
(41,039
)Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations:Net loss (earnings) from discontinued operations


1,094


2,507








3,601Depreciation and amortization


28,606


52,168


683


(421
)

81,036Amortization of deferred gain from asset sale


(718
)

(733
)




421


(1,030
)Accretion of asset disposal obligation


96


180








276Stock compensation expense


9,756











9,756Inventory impairment


12,413


20,390








32,803Equity in earnings of subsidiaries


(59,537
)







59,537


Deferred income taxes


11,550


(39,929
)

192





(28,187
)Gain from dispositions of assets


(3,095
)

(12,056
)







(15,151
)Loss from asset impairment


1,772


5,427








7,199Change in fair value of derivatives


9,268











9,268Dividends received from subsidiary


2,467








(2,467
)

Excess tax benefits from stock based awards


(1,104
)










(1,104
)Increase in cash surrender value of life insurance policies


(4,928
)










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


(6,238
)

(1,782
)

6,896


(455
)

(1,579
)Increase in merchandise inventories


57


13,030








13,087Decrease in accounts payable


(20,066
)










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


20,932


107


(11,411
)

455


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


(6,265
)

3,041








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


(44,979
)

93,401


4,846


(2,467
)

50,801Net cash provided by discontinued operations


659


1,324








1,983Net Cash (Used in) Provided by Operating Activities


(44,320
)

94,725


4,846


(2,467
)

52,784Cash Flows from Investing Activities:Cash paid for property and equipment


(17,128
)

(25,988
)







(43,116
)Proceeds from dispositions of assets


46,907


115,805








162,712Life insurance proceeds received


30,045











30,045Net cash provided by continuing operations


59,824


89,817








149,641Net cash (used in) discontinued operations


(108
)

(271
)







(379
)Net Cash Provided by Investing Activities


59,716


89,546








149,262Cash Flows from Financing Activities:Borrowings under line of credit agreements


231,458


338,636








570,094Payments under line of credit agreements


(221,529
)

(324,088
)







(545,617
)Excess tax benefits from stock based awards


1,104











1,104Borrowings on trade payable program liability


142,884











142,884Payments on trade payable program liability


(142,620
)










(142,620
)Payments for finance issuance costs





(85
)







(85
)Proceeds from lease financing





4,827








4,827Reduction of long-term debt


(165,368
)

(41
)







(165,409
)Payments on capital lease obligations


(286
)










(286
)Intercompany borrowings (payments)


205,484


(204,811
)

(673
)




Dividends paid


(14,177
)




(2,467
)

2,467


(14,177
)Repurchase of common stock


(58,152
)










(58,152
)Proceeds from exercise of stock options


3,652











3,652Proceeds from dividend reinvestment plan


781











781Net Cash (Used in) Provided by Financing Activities


(16,769
)

(185,562
)

(3,140
)

2,467


(203,004
)Net (Decrease) Increase in Cash


(1,373
)

(1,291
)

1,706





(958
)Cash and Cash Equivalents at Beginning of Year


13,581


7,946


357





21,884Cash and Cash Equivalents at End of Year

$
12,208

$
6,655

$
2,063

$


$
20,926


64

---





THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|Year ended February 3, 2007                                                                           |  | Pep Boys |          | Subsidiary
Guarantors |   | Subsidiary
Non-
Guarantors |   | Consolidation
Elimination |         | Consolidated |  
|----------------------------------------------------------------------------------------------------- |  | -------- | -------- | --------------------- | - | -------------------------- | - | ------------------------- | ------- | ------------ | -
|Cash Flows from Operating Activities:                                                                 |  |          |          |                       |   |                            |   |                           |         |              |  
|Net (Loss) Earnings                                                                                   |  | $        | (2,549   | )                     | $ | 70,644                     |   | $                         | 1,288   |              | $
|Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations: |  |          |          |                       |   |                            |   |                           |         |              |  
|Net loss (earnings) from discontinued operations                                                      |  |          | (73      | )                     |   | (4,260                     | ) |                           |        |              |  
|Depreciation and amortization                                                                         |  |          | 31,440   |                       |   | 56,085                     |   |                           | 240     |              |  
|Cumulative effect of change in accounting principle                                                   |  |          | (189     | )                     |   |                           |   |                           |        |              |  
|Accretion of asset disposal obligation                                                                |  |          | 94       |                       |   | 172                        |   |                           |        |              |  
|Loss on defeasance of convertible debt                                                                |  |          | 755      |                       |   |                           |   |                           |        |              |  
|Stock compensation expense                                                                            |  |          | 3,051    |                       |   |                           |   |                           |        |              |  
|Cancellation of vested stock options                                                                  |  |          | (1,056   | )                     |   |                           |   |                           |        |              |  
|Equity in earnings of subsidiaries                                                                    |  |          | (71,932  | )                     |   |                           |   |                           |        |              |  
|Deferred income taxes                                                                                 |  |          | (11,598  | )                     |   | (3,055                     | ) |                           | 6,337   |              |  
|Gain from dispositions of assets                                                                      |  |          | (35      | )                     |   | (8,933                     | ) |                           |        |              |  
|Dividends received from subsidiaries                                                                  |  |          | 527      |                       |   |                           |   |                           |        |              |  
|Loss from asset impairment                                                                            |  |          | 550      |                       |   | 290                        |   |                           |        |              |  
|Change in fair value of derivatives                                                                   |  |          | (5,568   | )                     |   |                           |   |                           |        |              |  
|Excess tax benefits from stock based awards                                                           |  |          | (95      | )                     |   |                           |   |                           |        |              |  
|Increase in cash surrender value of life insurance policies                                           |  |          | (2,143   | )                     |   |                           |   |                           |        |              |  
|Changes in operating assets and liabilities:                                                          |  |          |          |                       |   |                            |   |                           |         |              |  
|Decrease (increase) in accounts receivable, prepaid expenses and other                                |  |          | 24,587   |                       |   | 7,113                      |   |                           | (5,712  | )            |  
|Increase (decrease) in merchandise inventories                                                        |  |          | (2,061   | )                     |   | 11,311                     |   |                           |        |              |  
|Increase in accounts payable                                                                          |  |          | 3,549    |                       |   |                           |   |                           |        |              |  
|(Decrease) increase in accrued expenses                                                               |  |          | (7,301   | )                     |   | (18,154                    | ) |                           | (151    | )            |  
|Increase (decrease) in other long-term liabilities                                                    |  |          | 23,195   |                       |   | (1,844                     | ) |                           |        |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net cash (used in) provided by continuing operations                                                  |  |          | (16,852  | )                     |   | 109,369                    |   |                           | 2,002   |              |  
|Net cash used in discontinued operations                                                              |  |          | (780     | )                     |   | (782                       | ) |                           |        |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net Cash (Used in) Provided by Operating Activities                                                   |  |          | (17,632  | )                     |   | 108,587                    |   |                           | 2,002   |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Cash Flows from Investing Activities:                                                                 |  |          |          |                       |   |                            |   |                           |         |              |  
|Cash paid for property and equipment                                                                  |  |          | (23,547  | )                     |   | (25,844                    | ) |                           | (33,830 | )            |  
|Proceeds from dispositions of assets                                                                  |  |          | 34,927   |                       |   | 9,464                      |   |                           |        |              |  
|Proceeds from life insurance policies                                                                 |  |          | (24,669  | )                     |   |                           |   |                           |        |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net cash (used in) continuing operations                                                              |  |          | (13,289  | )                     |   | (16,380                    | ) |                           | (33,830 | )            |  
|Net cash (used in) provided by discontinued operations                                                |  |          | (246     | )                     |   | 6,406                      |   |                           |        |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net Cash (Used in) Investing Activities                                                               |  |          | (13,535  | )                     |   | (9,974                     | ) |                           | (33,830 | )            |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Cash Flows from Financing Activities:                                                                 |  |          |          |                       |   |                            |   |                           |         |              |  
|Net borrowings under line of credit agreements                                                        |  |          | 195,762  |                       |   | 391,231                    |   |                           |        |              |  
|Payments under line of credit agreements                                                              |  |          | (211,960 | )                     |   | (423,602                   | ) |                           |        |              |  
|Excess tax benefits from stock based awards                                                           |  |          | 95       |                       |   |                           |   |                           |        |              |  
|Borrowings on trade payable program liability                                                         |  |          | 76,713   |                       |   |                           |   |                           |        |              |  
|Payments on trade payable program liability                                                           |  |          | (73,879  | )                     |   |                           |   |                           |        |              |  
|Payments for finance issuance costs                                                                   |  |          | (2,217   | )                     |   |                           |   |                           |        |              |  
|Proceeds from issuance of notes                                                                       |  |          | 121,000  |                       |   |                           |   |                           |        |              |  
|Reduction of long-term debt                                                                           |  |          | (2,263   | )                     |   |                           |   |                           |        |              |  
|Reduction of convertible debt                                                                         |  |          | (119,000 | )                     |   |                           |   |                           |        |              |  
|Payments on capital lease obligations                                                                 |  |          | (227     | )                     |   |                           |   |                           |        |              |  
|Intercompany borrowings (payments)                                                                    |  |          | 61,846   |                       |   | (65,249                    | ) |                           | 3,403   |              |  
|Dividends paid                                                                                        |  |          | (14,757  | )                     |   |                           |   |                           | (527    | )            |  
|Proceeds from exercise of stock options                                                               |  |          | 722      |                       |   |                           |   |                           |        |              |  
|Proceeds from dividend reinvestment plan                                                              |  |          | 894      |                       |   |                           |   |                           |        |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net Cash Provided by (Used in) Financing Activities                                                   |  |          | 32,729   |                       |   | (97,620                    | ) |                           | 2,876   |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Net Increase (Decrease) in Cash                                                                       |  |          | 1,562    |                       |   | 993                        |   |                           | (28,952 | )            |  
|Cash and Cash Equivalents at Beginning of Year                                                        |  |          | 12,019   |                       |   | 6,953                      |   |                           | 29,309  |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  
|Cash and Cash Equivalents at End of Year                                                              |  | $        | 13,581   |                       | $ | 7,946                      |   | $                         | 357     |              | $
|                                                                                                      |  |          |          |                       |   |                            |   |                           |         |              |  

65

---





THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

|Year Ended January 28, 2006                                                                           |  | Pep Boys |          | Subsidiary Guarantors |   | Subsidiary Non- Guarantors |   | Consolidation Elimination |        | Consolidated |  
|----------------------------------------------------------------------------------------------------- |  | -------- | -------- | --------------------- | - | -------------------------- | - | ------------------------- | ------ | ------------ | -
|Cash Flows from Operating Activities:                                                                 |  |          |          |                       |   |                            |   |                           |        |              |  
|Net (Loss) Earnings                                                                                   |  | $        | (37,528  | )                     | $ | 31,147                     |   | $                         | (354   | )            | $
|Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations: |  |          |          |                       |   |                            |   |                           |        |              |  
|Net earnings from discontinued operations                                                             |  |          | (649     | )                     |   | (439                       | ) |                           |       |              |  
|Depreciation and amortization                                                                         |  |          | 29,058   |                       |   | 49,891                     |   |                           |       |              |  
|Cumulative effect of change in accounting principle                                                   |  |          | 854      |                       |   | 1,167                      |   |                           |       |              |  
|Accretion of asset disposal obligation                                                                |  |          | 24       |                       |   | 84                         |   |                           |       |              |  
|Stock compensation expense                                                                            |  |          | 2,049    |                       |   |                           |   |                           |       |              |  
|Equity in earnings of subsidiaries                                                                    |  |          | (30,793  | )                     |   |                           |   |                           |       |              |  
|Deferred income taxes                                                                                 |  |          | (18,604  | )                     |   | (8,497                     | ) |                           | (691   | )            |  
|Net gain from reduction in asset retirement liability                                                 |  |          | (657     | )                     |   | (1,158                     | ) |                           |       |              |  
|Gain (loss) from dispositions of assets                                                               |  |          | 675      |                       |   | (5,501                     | ) |                           |       |              |  
|Loss on impairment of assets                                                                          |  |          | 4,200    |                       |   |                           |   |                           |       |              |  
|Increase in cash surrender value of life insurance policies                                           |  |          | (3,389   | )                     |   |                           |   |                           |       |              |  
|Changes in operating assets and liabilities:                                                          |  |          |          |                       |   |                            |   |                           |        |              |  
|Decrease (increase) in accounts receivable, prepaid expenses and other                                |  |          | 8,161    |                       |   | 11,161                     |   |                           | (3,073 | )            |  
|Increase in merchandise inventories                                                                   |  |          | (3,476   | )                     |   | (10,056                    | ) |                           |       |              |  
|Decrease in accounts payable                                                                          |  |          | (49,041  | )                     |   |                           |   |                           |       |              |  
|(Decrease) increase in accrued expenses                                                               |  |          | (20,019  | )                     |   | 2,711                      |   |                           | 16,858 |              |  
|(Decrease) increase in other long-term liabilities                                                    |  |          | (2,913   | )                     |   | 176                        |   |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net cash (used in) provided by continuing operations                                                  |  |          | (122,048 | )                     |   | 70,686                     |   |                           | 12,740 |              |  
|Net cash provided by (used in) discontinued operations                                                |  |          | 438      |                       |   | (203                       | ) |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net Cash (Used in) Provided by Operating Activities                                                   |  |          | (121,610 | )                     |   | 70,483                     |   |                           | 12,740 |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Cash Flows from Investing Activities:                                                                 |  |          |          |                       |   |                            |   |                           |        |              |  
|Cash paid for property and equipment                                                                  |  |          | (16,364  | )                     |   | (68,927                    | ) |                           |       |              |  
|Proceeds from dispositions of assets                                                                  |  |          | 978      |                       |   | 3,065                      |   |                           |       |              |  
|Proceeds from sales of assets held for disposal                                                       |  |          |         |                       |   | 6,913                      |   |                           |       |              |  
|Premium paid on life insurance policies                                                               |  |          | (605     | )                     |   |                           |   |                           |       |              |  
|Proceeds from life insurance policies                                                                 |  |          | 24,655   |                       |   |                           |   |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net cash provided by (used in) continuing operations                                                  |  |          | 8,664    |                       |   | (58,949                    | ) |                           |       |              |  
|Net cash provided by (used in) discontinued operations                                                |  |          | 825      |                       |   | (563                       | ) |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net Cash Provided by (Used in) Investing Activities                                                   |  |          | 9,489    |                       |   | (59,512                    | ) |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Cash Flows from Financing Activities:                                                                 |  |          |          |                       |   |                            |   |                           |        |              |  
|Net borrowings under line of credit agreements                                                        |  |          | 213,228  |                       |   | 414,838                    |   |                           |       |              |  
|Payments under line of credit agreements                                                              |  |          | (193,543 | )                     |   | (376,538                   | ) |                           |       |              |  
|Borrowings on trade payable program liability                                                         |  |          | 107,618  |                       |   |                           |   |                           |       |              |  
|Payments on trade payable program liability                                                           |  |          | (96,462  | )                     |   |                           |   |                           |       |              |  
|Payments for finance issuance costs                                                                   |  |          | (5,150   | )                     |   |                           |   |                           |       |              |  
|Proceeds from issuance of notes                                                                       |  |          | 200,000  |                       |   |                           |   |                           |       |              |  
|Reduction of long-term debt                                                                           |  |          | (183,459 | )                     |   |                           |   |                           |       |              |  
|Payments on capital lease obligations                                                                 |  |          | (383     | )                     |   |                           |   |                           |       |              |  
|Intercompany borrowings (payments)                                                                    |  |          | 49,475   |                       |   | (50,792                    | ) |                           | 1,317  |              |  
|Dividends paid                                                                                        |  |          | (14,686  | )                     |   |                           |   |                           |       |              |  
|Repurchase of stock options                                                                           |  |          | (15,562  | )                     |   |                            |   |                           |        |              |  
|Proceeds from exercise of stock options                                                               |  |          | 3,071    |                       |   |                           |   |                           |       |              |  
|Proceeds from dividend reinvestment plan                                                              |  |          | 961      |                       |   |                           |   |                           |       |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net Cash Provided by (Used in) Financing Activities                                                   |  |          | 65,108   |                       |   | (12,492                    | ) |                           | 1,317  |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Net (Decrease) Increase in Cash                                                                       |  |          | (47,013  | )                     |   | (1,521                     | ) |                           | 14,057 |              |  
|Cash and Cash Equivalents at Beginning of Year                                                        |  |          | 59,032   |                       |   | 8,474                      |   |                           | 15,252 |              |  
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  
|Cash and Cash Equivalents at End of Year                                                              |  | $        | 12,019   |                       | $ | 6,953                      |   | $                         | 29,309 |              | $
|                                                                                                      |  |          |          |                       |   |                            |   |                           |        |              |  

66

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 10BENEFIT PLANS



The Company has a defined benefit pension plan covering substantially all of its full-time employees hired on or before February 1, 1992.
Normal retirement age is 65. Pension benefits are based on salary and years of service. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to
meet the benefits to be paid to plan members in accordance with the requirements of ERISA.

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.

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 benefit payments.

The
Company also has a Supplemental Executive Retirement Plan (SERP). This unfunded plan has a defined benefit component that provides key employees designated by the Board of Directors
with retirement and death benefits. Retirement benefits are based on salary and bonuses; death benefits are 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, the Company amended and restated its SERP. This amendment converted the defined benefit plan to a defined contribution plan for certain unvested participants
and all future participants. All vested participants under the defined benefits portion will continue to accrue benefits according to the previous defined benefit formula.

The
Company uses a fiscal year-end measurement date for determining benefit obligations and the fair value of plan assets of its plans.

Pension
expense includes the following:

|                                        |  | Year ended |       
|--------------------------------------- |  | ---------- | ------
|
|Service cost                            |  | $          | 166   
|Interest cost                           |  |            | 3,419 
|Expected return on plan assets          |  |            | (2,320
|Amortization of transitional obligation |  |            | 163   
|Amortization of prior service cost      |  |            | 370   
|Recognized actuarial loss               |  |            | 1,814 
|                                        |  |            |       
|Net periodic benefit cost               |  |            | 3,612 
|FAS No. 88 settlement charge            |  |            |      
|                                        |  |            |       
|Total Pension Expense                   |  | $          | 3,612 
|                                        |  |            |       

67

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

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                                                                       |  | February 2,
2008 |                  | February 3,
2007 | 
|-------------------------------------------------------------------------------- |  | ---------------- | ---------------- | ---------------- | 
|Measurement Date                                                                 |  |                  | February 2, 2008 |                  | 
|Change in Benefit Obligation:                                                    |  |                  |                  |                  | 
|Benefit obligation at beginning of year                                          |  |                  | $  57,614        |                  | 
|Service cost                                                                     |  |                  | 166              |                  | 
|Interest cost                                                                    |  |                  | 3,419            |                  | 
|Plan amendment                                                                   |  |                  | 64               |                  | 
|FAS 158 change in measurement date                                               |  |                  | 299              |                  | 
|Actuarial (gain) loss                                                            |  |                  | (3,028           | )                | 
|Benefits paid                                                                    |  |                  | (2,001           | )                | 
|                                                                                 |  |                  |                  |                  | 
|Benefit obligation at end of year                                                |  |                  | $  56,533        |                  | 
|                                                                                 |  |                  |                  |                  | 
|Change in Plan Assets:                                                           |  |                  |                  |                  | 
|Fair value of plan assets at beginning of year                                   |  |                  | $  37,494        |                  | 
|Actual return on plan assets (net of expenses)                                   |  |                  | 933              |                  | 
|FAS 158 change in measurement date                                               |  |                  | 193              |                  | 
|Employer contributions                                                           |  |                  | 661              |                  | 
|Benefits paid                                                                    |  |                  | (2,001           | )                | 
|                                                                                 |  |                  |                  |                  | 
|Fair value of plan assets at end of year                                         |  |                  | $  37,280        |                  | 
|                                                                                 |  |                  |                  |                  | 
|Funded (Unfunded) Status at Fiscal Year End                                      |  |                  | $(19,253         | )                | 
|                                                                                 |  |                  |                  |                  | 
|Funded (Unfunded) Status at December 31                                          |  |                  |                  |                  | 
|                                                                                 |  |                  |                  |                  | 
|Funded (Unfunded) Status at Fiscal Year End                                      |  |                  |                  |                  | 
|Funded (unfunded) status at December 31                                          |  |                  |                  |                  | 
|Amount contributed after measurement date                                        |  |                  |                  |                  | 
|                                                                                 |  |                  |                  |                  | 
|Funded (unfunded) status at fiscal year end                                      |  |                  |                  |                  | 
|                                                                                 |  |                  |                  |                  | 
|Net Amounts Recognized on Consolidated Balance Sheet at Fiscal Year End          |  |                  |                  |                  | 
|Current benefit liability (included in accrued expenses)                         |  |                  | $  (2,865        | )                | 
|Noncurrent benefit liability (included in other long-term liabilities)           |  |                  | (16,388          | )                | 
|                                                                                 |  |                  |                  |                  | 
|Net amount recognized at fiscal year end                                         |  |                  | $(19,253         | )                | 
|                                                                                 |  |                  |                  |                  | 
|Amounts Recognized in Other Comprehensive Income (Pre-Tax) at Fiscal Year End    |  |                  |                  |                  | 
|Net loss                                                                         |  |                  | $    9,671       |                  | 
|Prior service cost                                                               |  |                  | 1,137            |                  | 
|                                                                                 |  |                  |                  |                  | 
|Net amount recognized at fiscal year end                                         |  |                  | $  10,808        |                  | 
|                                                                                 |  |                  |                  |                  | 
|Other Comprehensive Loss Attributable to Change in Pension Liability Recognition |  |                  | $    4,118       |                  | 
|Accumulated Benefit Obligation at Fiscal Year End                                |  |                  | 53,715           |                  | 
|Cash Flows                                                                       |  |                  |                  |                  | 
|Employer contributions expected during fiscal 2008 and 2007                      |  |                  | 2,865            |                  | 

68

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

The following table sets forth additional fiscal year-end information for the defined benefit portion of the Company's SERP for which
the accumulated benefit obligation is in excess of plan assets:

February 2,
2008

February 3,
2007Projected benefit obligation

$
18,369

$
17,499Accumulated benefit obligation


15,552


14,264


The
following actuarial assumptions were used by the Company to determine pension expense and to present disclosure benefit obligations:

|                                                                        |  | February 2,
2008 |      | February 3,
2007  |      | January 28,
2006  |     
|----------------------------------------------------------------------- |  | ---------------- | ---- | ----------------- | ---- | ----------------- | ----
|Weighted-Average Assumptions:                                           |  |                  |      |                   |      |                   |     
|Measurement date                                                        |  | February 2, 2008 |      | December 31, 2006 |      | December 31, 2005 |     
|Discount rate                                                           |  | 6.50             | %    | 5.90              | %    | 5.70              | %   
|Rate of compensation increase                                           |  | 4.00             | %(1) | 4.00              | %(1) | 4.00              | %(1)
|Weighted-Average Assumptions for Net Periodic Benefit Cost Development: |  |                  |      |                   |      |                   |     
|Discount rate                                                           |  | 5.90             | %    | 5.70              | %    | 5.75              | %   
|Expected return on plan assets                                          |  | 6.30             | %    | 6.30              | %    | 6.75              | %   
|Rate of compensation expense                                            |  | 4.00             | %(1) | 4.00              | %(1) | 4.00              | %(1)

---

To
develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns
for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.30% long-term rate of return on assets assumption.

The
Company selected the discount rate at February 2, 2008 to reflect a rate commensurate with a model bond portfolio with durations that match the expected payment patterns of
the plans.

Pension
plan assets are stated at fair market value and are composed primarily of money market funds, stock index funds, fixed income investments with maturities of less than five years,
and the Company's common stock.

Our
target asset allocation is 50% equity securities and 50% fixed income. The weighted average asset allocations by asset category are as follows:

Plan Assets

February 2,
2008

December 31,
2006Equity securities

54
%
54
%Fixed income

46
%
46
%Total

100
%
100
%


69

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

Equity
securities include Pep Boys common stock in the amounts of $640 (1.7% of total plan assets) and $817 (2.2% of total plan assets) at February 2, 2008 and
December 31, 2006, respectively.

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

2008

$
4,4042009


2,0792010


2,2132011


3,1452012


2,5202013  2017


17,518




As discussed above, the SERP includes a non-qualified defined contribution portion for key employees designated by the Board of Directors. The
Company's contribution expense for the defined contribution portion of the plan was $440, $603 and $560 for fiscal years 2007, 2006 and 2005, respectively.

The
Company has 401(k) savings plans, which cover all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes
the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation. The Company's savings plans' contribution expense was $3,480, $2,963 and $3,126 in fiscal
2007, 2006 and 2005, respectively.



In the first quarter of 2004, the Company adopted 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 the Company's 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 under the Stock Incentive Plans.



The Company has accounted for the non-qualified deferred compensation plan and the SERP in accordance with EITF 97-14, "Accounting
for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested." The Company establishes and maintains a deferred liability for these plans. The Company plans to
fund this liability by remitting the officers' deferrals to a Rabbi Trust where these deferrals are invested in various securities, including 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 $20,558 at February 2, 2008 and $20,761 at February 3, 2007, respectively.

70

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 11EARNINGS PER SHARE

For fiscal years 2007, 2006 and 2005, basic earnings per share are based on net earnings divided by the weighted average number of shares outstanding during the
period. Adjustments for the stock options were anti-dilutive in fiscal years 2007, 2006 and 2005 and therefore excluded from the calculation due to the Company's net loss for the year.
Additionally, adjustments for the convertible senior notes and purchase rights were anti-dilutive in all periods presented. During fiscal 2007, no convertible notes were outstanding.

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

|Year ended                                                                                     |                                                                                                | February 2,
2008 |            | February 3,
2007 |   | January 28,
2006 |      
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------- | ---------- | ---------------- | - | ---------------- | -----
|Net loss from continuing operations before cumulative effect of change in accounting principle |                                                                                                | $                | (37,438    | )                | $ | (7,071           | )    
|Average number of common shares outstanding during period                                      |                                                                                                |                  | 52,130,000 |                  |   | 54,318,000       |      
|                                                                                               |                                                                                                |                  |            |                  |   |                  |      
|Basic and Diluted Loss Per Share:                                                              |                                                                                                |                  |            |                  |   |                  |      
|                                                                                               | Net loss From Continuing Operations Before Cumulative Effect of Change in Accounting Principle |                  | $          | (0.72            | ) | $                | (0.13
|                                                                                               | (Loss) Earnings from Discontinued Operations, Net of Tax                                       |                  |            | (0.07            | ) |                  | 0.08 
|                                                                                               | Cumulative Effect of Change in Accounting Principle, Net of Tax                                |                  |            |                 |   |                  |     
|                                                                                               |                                                                                                |                  |            |                  |   |                  |      
|                                                                                               | Basic and Diluted Loss Per Share                                                               |                  | $          | (0.79            | ) | $                | (0.05
|                                                                                               |                                                                                                |                  |            |                  |   |                  |      

For
the years ended February 2, 2008, February 3, 2007 and January 28, 2006, there were 3,347,089; 2,459,618 and 4,802,970 options and restricted stock units that
were not included in the computation of diluted EPS because they were antidilutive for the periods.

NOTE 12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. As of February 2, 2008, there were 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. As of February 2, 2008, there
were 1,444,982 awards remaining available for grant under the 1999 Plan. The Company adopted two standalone inducement plans under which it granted non-qualified stock options and
RSUs to its current President & Chief Executive Officer in order to induce him join the Company. As of February 2, 2008, there were no awards available for grant under these inducement
plans.

Incentive
stock options and non-qualified stock options previously granted under the 1990 and 1999 plans (i) to non-officers, vest fully on the third
anniversary of their grant date and (ii) to officers

71

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

(other
than the current President & Chief Executive Officer), vest over a four-year period, with one-fifth vesting on each of the grant date and the next four
anniversaries thereof.

Non-qualified
stock options and RSUs granted to the current President & Chief Executive Officer vest over a three-year period, with one-quarter
vesting on each of the grant date and the next three anniversaries thereof.

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 (i) on or prior to
January 28, 2006, generally vest over a four-year period with one-fifth vesting on each of the grant date and the next four anniversaries thereof and (ii) after
January 28, 2006, generally vest over a four-year period with one-fourth vesting on each of the first four anniversaries of the grant date.

The
Company has also granted RSUs under the 1999 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 1999 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. The Company believes its Treasury share balance at February 2, 2008 is adequate to satisfy such activity during the next twelve-month period.

The
following table summarizes the options under our plans:

Fiscal 2007Shares

Weighted
Average
Exercise
PriceOutstandingbeginning of year

2,100,832

$
16.20Granted

1,084,091


15.29Exercised

(291,125
)

11.77Forfeited

(72,138
)

17.49Expired

(371,959
)

21.70Outstandingend of year

2,449,701


15.50Vested and expected to vest

2,415,378


15.49Options exercisable at year end

1,599,506


15.56


72

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

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

Fiscal 2007

Fiscal 2006

Fiscal 2005Weighted average fair value at grant date per option

$
5.04

$
10.04

$
7.66Intrinsic value at exercise date


2,194


370


2,531


The
aggregate intrinsic value of outstanding options at February 2, 2008 was $1,244; of which $1,242 was vested. At February 2, 2008, the weighted average remaining
contractual term of outstanding options and exercisable options is 4.4 years and 3.6 years. At February 2, 2008, the weighted average remaining contractual term and aggregate
intrinsic value of outstanding and expected to vest options is 4.4 years and $1,244. The cash received and related tax benefit realized from options exercised during fiscal year 2007 was $3,652
and $815 respectively. At February 2, 2008, there was approximately $2,835 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 1.1 years.

The
following table summarizes information about non-vested stock awards (RSUs) since February 3, 2007:

Number of
RSUs

Weighted
Average
Fair ValueNonvested at February 3, 2007

358,786

$
15.41Granted

764,529


15.56Forfeited

(65,167
)

16.77Vested

(347,203
)

14.89Nonvested at February 2, 2008

710,945

$
15.58


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

Fiscal 2007

Fiscal 2006

Fiscal 2005Weighted average fair value at grant date per unit

$
15.56

$
13.58

$
16.71Fair value at vesting date


3,341


1,660


881Intrinsic value at conversion date


3,773


1,075


679Tax benefits realized from conversions


1,402


734


248


At
February 2, 2008, there was approximately $7,341 of total unrecognized pre-tax compensation cost related to non-vested RSUs, which is expected to be
recognized over a weighted-average period of 3.6 years.

NOTE 13ASSET RETIREMENT OBLIGATIONS

At February 2, 2008, the Company has a liability pertaining to the asset retirement obligation in accrued expenses and other long-term
liabilities on its consolidated balance sheet. The following is a

73

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

reconciliation
of the beginning balance and ending carrying amounts of the Company's asset retirement obligation under SFAS 143 from January 28, 2006 through February 2, 2008:

Asset retirement obligation, January 28, 2006

$
6,775Asset retirement obligation incurred during the period


131Asset retirement obligation settled during the period


(130
)Accretion expense


269Asset retirement obligation, February 3, 2007

$
7,045Asset retirement obligation incurred during the period


290Asset retirement obligation settled during the period


(273
)Accretion expense


284Asset retirement obligation, February 2, 2008

$
7,346


In
the fourth quarter of fiscal 2005, the Company reviewed and revised its estimated settlement costs. The Company reversed $1,945 of the liability as the original estimates of the
contamination occurrence rate and the cost to remediate such contaminations proved to be higher than actual experience is yielding.

The
Company adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations," an interpretation of SFAS 143, "Asset Retirement Obligations" on January 28,
2006. This interpretation impacted the Company in recognition of legal obligations associated with surrendering its leased properties. These obligations were previously omitted from the Company's
SFAS 143 analysis due to their uncertain timing. The impact of adopting FIN 47 was the recognition of net additional leasehold improvement assets amounting to $470, an asset retirement
obligation of $3,652 and a charge of $3,182 ($2,021; net of tax), which was included in Cumulative Effect of Change in Accounting Principle in the accompanying consolidated statement of operations for
fiscal year 2005.

NOTE 14INCOME TAXES

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

Year endedFebruary 2, 2008

February 3, 2007

January 28, 2006Current:Federal

$
(3,646
)
$


$
State


654


933


1,008Foreign


2,187


105


631Deferred:Federal


(20,570
)

(4,745
)

(20,621
)State


(3,761
)

(3,007
)

(1,306
)Foreign


(458
)

315


(739
)$
(25,594
)
$
(6,399
)
$
(21,027
)


74

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 14INCOME TAXES

A reconciliation of the statutory federal income tax rate to the effective rate of the benefit for income taxes follows:

Year endedFebruary 2,
2008

February 3,
2007

January 28,
2006Statutory tax rate

35.0
%
35.0
%
35.0
%State income taxes, net of federal tax benefits

3.1

(3.6
)
0.9Job credits

0.9

5.8

0.8State deferred adjustment(a)



18.2

FIN 48 adjustment

4.2



Foreign taxes, net of federal benefits

1.0

(3.8
)
Other, net

(3.6
)
(4.1
)
(0.2
)40.6
%
47.5
%
36.5
%


---

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

February 2,
2008

February 3,
2007Deferred tax assets:Employee compensation

$
9,399

$
8,227Store closing reserves


2,388


741Legal


2,856


2,193Benefit accruals


3,224


1,998Net operating loss carryforwards


20,424


46,831Tax credit carryforwards


16,341


13,944Accrued leases


12,515


12,937Interest rate derivatives


4,078


1,305Deferred gain on sale leaseback


32,280


Other


5,458


3,566Gross deferred tax assets


108,963


91,742Valuation allowance


(4,077
)

(4,077
)$
104,886

$
87,665Deferred tax liabilities:Depreciation

$
36,582

$
51,017Inventories


31,490


37,544Real estate tax


2,610


2,414Insurance


810


793Other


782


$
72,274

$
91,768Net deferred tax asset

$
32,612

$
Net deferred tax liability

$


$
4,103


75

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

As
of February 2, 2008 and February 3, 2007, the Company had available tax net operating losses that can be carried forward to future years. The $227,895
net operating loss carryforward in 2007 consists of $46,716 of federal losses; $180,411 of state losses and $768 of Puerto Rico losses. The federal net operating loss begins to expire in 2025 while
the state net operating losses will expire in various years beginning in 2008 and the Puerto Rico losses will expire in 2014.

The
tax credit carryforward in 2007 consists of $6,541 of alternative minimum tax credits, $3,292 of work opportunity credits, $6,142 of state and Puerto Rico tax credits and $366 of
charitable contribution carryforward. The tax credit carryforward in 2006 consists of $4,772 of alternative minimum tax credits, $3,021 of work opportunity credits, $5,829 of state tax credits and
$322 of charitable contribution carryforward. Due to the uncertainty of the Company's ability to realize certain state tax attributes, valuation allowances of $4,077 were recorded at
February 2, 2008 and February 3, 2007, respectively.

On
February 4, 2007 the Company adopted the provisions of FIN 48. In connection with the adoption, we recorded a net decrease to retained earnings of $155 and reclassified
certain previously recognized deferred tax attributes as FIN 48 liabilities. The amount of unrecognized tax benefits at February 4, 2007 was $7,126 including accrued interest of $734.

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. The federal audit of tax years 2001, 2002 and 2003 was closed during the second quarter of fiscal 2007 resulting in the recognition of a $4,227 additional income
tax benefit due to the lapse of the statute of limitations. The impact of this recognition remains subject to examination by the various states through fiscal 2008. 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 2002 through 2007 tax years are currently under examination by their
respective tax authorities. The Company has various state income tax returns in the process of examination, appeals and litigation.

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

Unrecognized tax benefit balance at February 4, 2007

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


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


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


503Lapse of statute of limitations


(4,227
)Unrecognized tax benefit balance at February 2, 2008

$
3,847


The
Company recognizes potential interest and penalties for unrecognized tax benefits in income tax expense and, accordingly, during fiscal year 2007, the Company recognized
approximately $438 in potential interest and penalties associated with uncertain tax positions. At February 2, 2008 and February 4, 2007, the Company has recorded approximately $1,172
and $734, respectively, for the payment of interest and penalties which are excluded from the $3,847 unrecognized tax benefit noted above.

Included
in the unrecognized tax benefit of $3,847 at February 2, 2008 was $2,244 of tax benefits that, if recognized, would affect our annual effective tax rate. The Company is
undergoing examinations of its tax returns in certain jurisdictions. The Company has unrecognized tax benefits of approximately

76

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

$2,374
for which it is reasonably possible that the amount will increase or decrease within the next twelve months. However, based on the uncertainties associated with litigation and the status of
examination, it is not possible to estimate the impact of the change.

NOTE 15CONTINGENCIES

During the fourth quarter of 2006 and the first quarter of 2007, the Company was served with four separate lawsuits brought by former associates employed in
California, each of which lawsuits purports to be a class action on behalf of all current and former California store associates. One or more of the lawsuits claim that the plaintiff was not paid for
(i) overtime, (ii) accrued vacation time, (iii) all time worked (i.e. "off the clock" work) and/or (iv) late or missed meal periods or rest breaks. The plaintiffs
also allege that the Company violated certain record keeping requirements arising out of the foregoing alleged violations. The lawsuits (i) claim these alleged practices are unfair business
practices, (ii) request back pay, restitution, penalties, interest and attorney fees and (iii) request that the Company be enjoined from committing further unfair business practices.
During the third quarter of 2007, the Company reached a settlement in principle regarding the accrued vacation time claims (which is scheduled to be considered by the court for final approval on
May 5, 2008). The Company continues to vigorously defend the remaining claims.

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, which amounts were increased by $6,250 in fiscal 2007, are adequate and that the
ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. However, there exists a reasonable possibility of loss in excess of the amounts
accrued, the amount of which cannot currently be estimated. While the Company does not believe that the amount of such excess loss could be material to the Company's financial position, any such loss
could have a material adverse effect on the Company's results of operations in the period(s) during which the underlying matters are resolved.

NOTE 16INTEREST RATE SWAP AGREEMENT

On June 3, 2003, the Company entered into an interest rate swap for a notional amount of $130,000. The Company had designated the swap as a cash flow hedge
of the Company's real estate operating lease payments. The interest rate swap converts the variable LIBOR portion of the lease payment to a fixed rate of 2.90% and terminates on July 1, 2008.
If the critical terms of the interest rate swap or hedge item do not change, the interest rate swap is considered to be highly effective with all changes in fair value included in other comprehensive
income. As of February 2, 2008 and February 3, 2007, the fair value was an asset of $22 and $4,150, respectively, recorded within other long-term assets on the balance sheet.
In the fourth quarter of fiscal 2006, the Company determined it was not in compliance with SFAS No. 133 for hedge accounting and, accordingly, recorded a reduction of rent expense, which is
included in Costs of Merchandise and Costs of Service Revenues, for the cumulative fair value change of $4,150. This change in fair value had previously been recorded in Accumulated Other
Comprehensive Income (Loss) on the consolidated balance sheets. The Company evaluated the impact of this error, along with three other errors discussed in the next sentence, on an annual and quarterly
basis and concluded there was no material impact on the fourth quarter of fiscal

77

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

2006
or any historical periods, on an individual or aggregate basis. The three other errors consisted of: (i) $3,700 of amortization expense on leasehold improvements classified in land and
therefore not depreciated, (ii) $500 of understated closed store reserves and (iii) $400 of an overstated accrual for non-qualified defined contributions. The Company
corrected these errors in the fourth quarter of fiscal 2006, resulting in no material impact to the consolidated financial statements. The Company has removed its designation as a cash flow hedge on
this transaction and records the change in fair value through its operating statement until the date of termination.

On
November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000. The Company has designated the swap a cash flow hedge on the first $200,000
of the Company's $320,000 senior secured notes. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in October 2013. The
Company did not meet the documentation requirements of SFAS No. 133, at inception or as of February 3, 2007 and, accordingly, recorded the increase in the fair value of the interest rate
swap of $1,490 as a reduction to Interest Expense during fiscal 2006. The Company documented that the swap met the requirements of SFAS No. 133 for hedge accounting on April 9, 2007 and
prospectively records the effective portion of the change in fair value through Accumulated Other Comprehensive Loss. During the period from February 4, 2007 through April 8, 2007, a
$974 expense was recorded in interest expense for the change in fair value of this swap.

On
November 27, 2007, the Company sold the land and buildings for 34 owned properties to an independent third party. The Company used $162,558 of the net proceeds from such
transaction to prepay a portion of the Senior Secured Term Loan facility which eliminated a portion of the future interest payments hedged by the November 2, 2006 interest rate swap. The
Company concluded that it was not probable that those future interest payments would occur. In accordance with SFAS No. 133, the Company discontinued hedge accounting for the unmatched portion
of the November 2, 2006 swap and reclassified a $2,259 pre-tax loss applicable to the unmatched portion of the
$200,000 interest rate swap from other comprehensive income to interest expense. On November 27, 2007, the Company re-designated $145,000 notional amount of the $200,000 interest
rate swap as a cash flow hedge to fully match the future interest payments under the Senior Secured Notes. As a result, all future changes in this interest rate swap's fair value that has been
re-designated as a hedge will be recorded to Accumulated Other Comprehensive Loss. From the period of November 27, 2007 through February 1, 2008, the Company incurred
interest expense of $1,907 for changes in fair value related to the $55,000 unmatched portion of this swap. On February 1, 2008, the Company recorded $4,539 within accrued expenses to reduce
the notional amount of the interest rate swap to $145,000 from the original $200,000 amount. The $4,539 was paid on February 4, 2008. The fair value of the swap was a net $10,985 payable
recorded within other long-term liabilities on the balance sheet at February 2, 2008 and a net $1,372 receivable recorded within other long-term assets on the balance
sheet at February 3, 2007.

78

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 17FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as follows:

February 2, 2008

February 3, 2007Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair ValueAssets:Cash and cash equivalents

$
20,926

$
20,926

$
21,884

$
21,884Accounts receivable


29,450


29,450


29,582


29,582Interest rate swap derivatives


22


22


5,522


5,522Liabilities:Accounts payable


245,423


245,423


265,489


265,489Interest rate swap derivatives


10,985


10,985





Long-term debt including current maturities


402,130


381,347


538,521


530,721


CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

The carrying amounts approximate fair value because of the short maturity of these items.

INTEREST RATE SWAP DERIVATIVES

The fair value of the interest rate swap derivatives are obtained from dealer quotes. This value represents the estimated amount the Company would receive or pay
to terminate agreements, taking into consideration current interest rates and the creditworthiness of the counterparties.

LONG-TERM DEBT INCLUDING CURRENT MATURITIES

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
fair value estimates presented herein are based on pertinent information available to management as of February 2, 2008 and February 3, 2007. Although management is not
aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates,
and current estimates of fair value may differ significantly from amounts presented herein.

79

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 18QUARTERLY FINANCIAL DATA (UNAUDITED)

|                            |  |   |         |  |   |         |  |   |         |   |   | Net (Loss) Earnings Per Share From Continuing Operations Before Cumulative Effect of Change in Accounting Principle |   |   |         |   |   |       |   |   |       |  
|--------------------------- |  | - | ------- |  | - | ------- |  | - | ------- | - | - | ------------------------------------------------------------------------------------------------------------------- | - | - | ------- | - | - | ----- | - | - | ----- | -
|
|
|
|
|Year Ended February 2, 2008 |  |   |         |  |   |         |  |   |         |   |   |                                                                                                                     |   |   |         |   |   |       |   |   |       |  
|4th Quarter(1)              |  | $ | 517,639 |  | $ | 99,006  |  | $ | (13,544 | ) | $ | (18,505                                                                                                             | ) | $ | (20,403 | ) | $ | (0.36 | ) | $ | (0.36 | )
|3rd Quarter                 |  |   | 528,761 |  |   | 97,926  |  |   | (36,139 | ) |   | (25,926                                                                                                             | ) |   | (27,990 | ) |   | (0.50 | ) |   | (0.50 | )
|2nd Quarter                 |  |   | 552,092 |  |   | 148,716 |  |   | 16,860  |   |   | 3,948                                                                                                               |   |   | 4,179   |   |   | 0.08  |   |   | 0.08  |  
|1st Quarter                 |  |   | 539,583 |  |   | 140,589 |  |   | 15,838  |   |   | 3,050                                                                                                               |   |   | 3,175   |   |   | 0.06  |   |   | 0.06  |  
|Year Ended February 3, 2007 |  |   |         |  |   |         |  |   |         |   |   |                                                                                                                     |   |   |         |   |   |       |   |   |       |  
|4th Quarter                 |  | $ | 578,950 |  | $ | 148,834 |  | $ | 18,150  |   | $ | 7,936                                                                                                               |   | $ | 7,716   |   | $ | 0.15  |   | $ | 0.15  |  
|3rd Quarter                 |  |   | 543,923 |  |   | 136,289 |  |   | (1,592  | ) |   | (10,881                                                                                                             | ) |   | (10,914 | ) |   | (0.20 | ) |   | (0.20 | )
|2nd Quarter                 |  |   | 571,312 |  |   | 143,622 |  |   | 5,297   |   |   | (2,993                                                                                                              | ) |   | 1,352   |   |   | (0.06 | ) |   | (0.05 | )
|1st Quarter                 |  |   | 549,668 |  |   | 137,533 |  |   | 6,990   |   |   | (1,117                                                                                                              | ) |   | (703    | ) |   | (0.02 | ) |   | (0.02 | )

---

The Company reclassified prior quarter amounts to reflect the 11 closed stores reported as discontinued operations. Accordingly, all amounts below
represent the reclassification from the line item listed within continuing operations to discontinued operations. Below are the changes from the Company's previously reported, quarterly results:

|                            |  |   |        |   |   |        |   |   |        | Net (Loss) Earnings Per Share From Continuing Operations Before Cumulative Effect of Change in Accounting Principle |  
|--------------------------- |  | - | ------ | - | - | ------ | - | - | ------ | ------------------------------------------------------------------------------------------------------------------- | -
|
|
|
|Year Ended February 2, 2008 |  |   |        |   |   |        |   |   |        |                                                                                                                     |  
|3rd Quarter                 |  | $ | (6,615 | ) | $ | 2,318  |   | $ | 3,310  |                                                                                                                     | $
|2nd Quarter                 |  |   | (6,797 | ) |   | (1,422 | ) |   | (418   | )                                                                                                                   |  
|1st Quarter                 |  |   | (6,430 | ) |   | (1,203 | ) |   | (241   | )                                                                                                                   |  
|Year Ended February 3, 2007 |  |   |        |   |   |        |   |   |        |                                                                                                                     |  
|4th Quarter                 |  | $ | (7,196 | ) | $ | (1,249 | ) | $ | 10     |                                                                                                                     | $
|3rd Quarter                 |  |   | (6,926 | ) |   | (1,404 | ) |   | (243   | )                                                                                                                   |  
|2nd Quarter                 |  |   | (7,253 | ) |   | (1,480 | ) |   | (6,692 | )                                                                                                                   |  
|1st Quarter                 |  |   | (6,933 | ) |   | (1,345 | ) |   | (252   | )                                                                                                                   |  

Quarterly
and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not equal per
share amounts reported for year-to-date periods due to rounding each period.

80

---



THE PEP BOYSMANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Years ended February 2, 2008, February 3, 2007 and January 28, 2006

(dollar amounts in thousands, except share data)

NOTE 19SUBSEQUENT EVENTS

On March 25, 2008, the Company consummated a sale and leaseback transaction on 18 properties for an aggregate purchase price of $63.6 million. These
properties have been leased back to be operated as Pep Boys stores for a term of 15 years, with four 5-year renewal options. The proceeds from the sale were used to repay
indebtedness.

On
April 10, 2008, the Company consummated a sale-leaseback transaction on 23 properties for an aggregate purchase price of $74.3 million. These
properties have been leased back to be operated as Pep Boys stores for a term of 15 years, with four 5-year options. The proceeds from the sale are expected to be used to repay
indebtedness.

On
April 23, 2008, the Company announced the appointment of Michael R. Odell, former Chief Operating Officer, as interim Chief Executive Officer. Mr. Odell succeeds
Jeffrey C. Rachor who resigned on April 23, 2008.

81

---





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

None.

ITEM 9A    CONTROLS AND PROCEDURES

Disclosure Controls and ProceduresThe Company's management evaluated, with the participation of its principal executive
officer and principal financial officer, the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures mean the
Company's controls and other procedures that are designed to ensure that information required to be disclosed by the Company in its reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company in its reports that the Company communicated to its management, including its principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company's management recognizes that any controls and procedures, no matter how
well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Based upon the evaluation of the Company's disclosure controls and procedures, as of the end of the period covered by this report, the Company's principal
executive officer and principal financial officer concluded that, as of such date, the Company's disclosure controls and procedures were not effective at the reasonable assurance level, solely due to
the fact that there was a material weakness in our internal control over financial reporting (which is a subset of disclosure controls and procedures) as described below.

During
the second quarter of fiscal 2007, the Company determined it had a material weakness in its internal control over financial reporting related to preparation and review of the
Company's supplemental guarantor information note and condensed consolidated statements of cash flows presentation.

During
the third quarter of fiscal 2007, the Company discovered that the impairment charge related to the store closure portion of its five-year strategic plan should be
recorded in the third quarter instead of the fourth quarter as initially concluded. This resulted in the delayed filing with the SEC of the Company's Quarterly Report on Form 10-Q.
The Company considered this error in conjunction with the material weakness described above and concluded that the Company continued to have, in the aggregate, a material weakness in the financial
close and reporting process as of the end of third quarter of fiscal 2007.

Since
the conclusion of the second quarter of fiscal 2007, the Company has continued to implement changes designed to enhance the effectiveness of its financial close and reporting
process including (i) hiring staff and providing additional accounting research resources, (ii) improving process documentation and (iii) improving the review process by more
senior accounting personnel. However, as of February 2, 2008, the Company believes that its ongoing efforts to hire and train additional staff are not yet complete as evidenced, in part, by the
Company's delayed filing of this Annual Report on Form 10-K due to an error in the Company's analyses and documentation supporting the realizability of the Company's net deferred tax asset.
Accordingly, the Company cannot provide its constituents with reasonable assurance that the material weakness in the financial close and reporting process has been remediated.

Other
than these changes, the Company made no other changes to its internal control over financial reporting for the quarter ended February 2, 2008.

82

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

The
Company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have
a material effect on the financial statements.

As
of February 2, 2008, management assessed the effectiveness of the Company's internal control over financial reporting as of February 2, 2008 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 February 2, 2008 was not effective due to a material weakness in the design and operating effectiveness of the Company's
controls over the financial close and reporting process. This material weakness, originally determined in the second quarter of fiscal 2007, resulted in errors in our supplemental guarantor
information note and statements of cash flows presentation, for which previously issued annual and interim financial statements were restated, an error in the recording of our third quarter fiscal
2007 impairment charge for our store closures and an error in its analyses and documentation supporting the realizability of the Company's net deferred tax asset included in the annual financial
statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. 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.

Deloitte &
Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report, which is included on page 84 herein, on the
Company's internal control over financial reporting as of February 2, 2008.

83

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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 Pep BoysManny, Moe & Jack and subsidiaries' (the "Company's") internal control over financial reporting as of February 2, 2008 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 that 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.

A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness in the Company's controls over the financial close and
reporting process has been identified and included in management's assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit
of the consolidated financial statements and financial statement schedule as of and for the fiscal year ended February 2, 2008, of the Company and this report does not affect our report on such
financial statements and financial statement schedule.

84

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In
our opinion, because of the effects of the material weakness identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of February 2, 2008, based on the criteria established inInternal 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 February 2, 2008 of the Company and our report, dated April 30, 2008, expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule and included an explanatory paragraph relating to the Company's adoption of Financial Accounting Standards Board Interpretation ("FIN") 48, Accounting for Uncertainty in Income
Taxes,as of February 4, 2007.

Deloitte &
Touche LLP
Philadelphia, Pennsylvania
April 30, 2008

85

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ITEM 9B    OTHER INFORMATION

None.

PART III

ITEM 10    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The material contained in the registrant's definitive proxy statement, which will be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company's 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 2007 Annual Meeting, our President & CEO certified
to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards. Copies of our corporate governance materials are available free of charge from our
investor relations department. Please call 215-430-9720 or write Pep Boys, Investor Relations, 3111 West Allegheny Avenue, Philadelphia, PA 19132.

ITEM 11    EXECUTIVE COMPENSATION

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

86

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PART IV

ITEM 15    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

|                                                                                                               |                                                                                                                                                                                          | Page
|-------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|1.    The following consolidated financial statements of The Pep BoysManny, Moe & Jack are included in Item 8 |                                                                                                                                                                                          |     
|                                                                                                               | Report of Independent Registered Public Accounting Firm                                                                                                                                  |     
|                                                                                                               | Consolidated Balance SheetsFebruary 2, 2008 and February 2, 2007                                                                                                                        |     
|                                                                                                               | Consolidated Statements of OperationsYears ended February 2, 2008, February 3, 2007 and January 28, 2006                                                                                |     
|                                                                                                               | Consolidated Statements of Stockholders' EquityYears ended February 2, 2008, February 3, 2007 and January 28, 2006                                                                      |     
|                                                                                                               | Consolidated Statements of Cash FlowsYears ended February 2, 2008, February 3, 2007 and January 28, 2006                                                                                |     
|                                                                                                               | Notes to Consolidated Financial Statements                                                                                                                                               |     
|2.    The following consolidated financial statement schedule of The Pep BoysManny, Moe & Jack is included    |                                                                                                                                                                                          |     
|                                                                                                               | Schedule II Valuation and Qualifying Accounts and Reserves                                                                                                                               |     
|                                                                                                               | All 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                                                                                                 |                                                                                                                                                                                          |     

87

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|(3.1)   |  | Amended and Restated Articles of Incorporation                                                                                           |  | Incorporated by reference from the Company's Form 8-K dated December 20, 2007.                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------
|(3.2)   |  | By-Laws, as amended                                                                                                                      |  | Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-39225).        
|(3.3)   |  | Amendment to By-Laws (Declassification of Board of Directors)                                                                            |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 29, 2000.
|(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)* |  | Directors' Deferred Compensation Plan, as amended                                                                                        |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 30, 1988.
|(10.3)* |  | Form of Employment Agreement (Change of Control) between the Company and certain officers of the Company.                                |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended October 31, 1998.    
|(10.4)* |  | Form of Non-Competition Agreement between the Company and certain officers of the Company.                                               |  | Incorporated by reference from the Company's Form 8-K filed on February 10, 2006.                 
|(10.5)* |  | Employment Agreement dated March 13, 2007 between the Company and Jeffrey C. Rachor.                                                     |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.
|(10.6)* |  | The Pep BoysManny, Moe and 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.       
|(10.7)* |  | The Pep BoysManny, Moe and Jack 1999 Stock Incentive Planamended and restated as of September 15, 2005.                                |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended October 29, 2005.    

88

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|(10.8)*  |  | The Pep BoysManny, Moe & Jack Pension PlanAmended and Restated as of September 10, 2001.                 |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 2003 
|-------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------
|(10.9)*  |  | The Pep Boys-Manny, Moe & Jack Pension Plan Amendment 2005-1                                               |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.
|(10.10)* |  | 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.
|(10.11)* |  | Amendment and restatement as of September 3, 2002 of The Pep Boys Savings Plan.                            |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended November 2, 2002.    
|(10.12)* |  | The Pep Boys Savings Plan Amendment 2004-1                                                                 |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2004.
|(10.13)* |  | The Pep Boys Savings Plan Amendment 2005-1                                                                 |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.
|(10.14)* |  | The Pep Boys Savings Plan Amendment 2007-1                                                                 |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended August 4, 2007.      
|(10.15)* |  | 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.    
|(10.16)* |  | The Pep Boys Deferred Compensation Plan                                                                    |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2004.
|(10.17)* |  | The Pep Boys Annual Incentive Bonus Plan (amended and restated as of December 9, 2003)                     |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended January 31, 2004.
|(10.18)* |  | Amendment to and Restatement of the Executive Supplemental Pension Plan, effective as of January 31, 2004. |  | Incorporated by reference from The Company's Form 10-Q for the quarter ended May 1, 2004.         
|(10.19)* |  | Flexible Employee Benefits Trust                                                                           |  | Incorporated by reference from the Company's Form 8-K filed May 6, 1994.                          
|(10.20)* |  | The Pep Boys Grantor Trust Agreement                                                                       |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.

89

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|(10.21) |  | Second Amended and Restated Loan and Security Agreement, dated June 29, 2007, by and among the Company, Wachovia Bank, National Association, as Agent and other thereto.                                                                         |  | Incorporated by reference from the Company's Form 8K dated July 2, 2007.                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------
|(10.22) |  | Participation Agreement, dated as of August 1, 2003, among the Company, Wachovia Development Corporation, as the Borrower and the Lessor, the Lenders and Wachovia Bank, National Association, as Agent for the Lenders and the Secured
Parties. |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended August 2, 2003.      
|(10.23) |  | Amended and Restated Lease Agreement, dated as of August 1, 2003, between Wachovia Development Corporation, as Lessor, and the Company.                                                                                                          |  | Incorporated by reference from the Company's Form 10-Q for the quarter ended August 2, 2003.      
|(10.24) |  | Master Lease Agreement, dated October 18, 2004, between the Company and with RBS Lombard, Inc.                                                                                                                                                   |  | Incorporated by reference from the Company's Form 8-K dated October 19, 2004.                     
|(10.25) |  | Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.                                                                   |  | Incorporated by reference from the Company's Form 8-K filed October 30, 2006.                     
|(10.26) |  | First Amendment dated February 15, 2007 to Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.                        |  | Incorporated by reference from the Company's Form 8-K filed February 16, 2007.                    
|(10.27) |  | Confirmed Receivables Secured Program Agreement, dates as of June 29, 2007, between the Company and JP Morgan Chase Bank, National Association                                                                                                   |  | Incorporated by reference from the Company's Form 8-K dated July 2, 2007.                         
|(10.28) |  | Confirmed Receivables Secured Program Agreement, dated as of June 29, 2007, between the Company and JP Morgan Chase Bank, National Association                                                                                                   |  | Incorporated by reference from the Company's Form 8-K dated July 2, 2007.                         
|(12.00) |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                |  |                                                                                                   
|(21)    |  | Subsidiaries of the Company                                                                                                                                                                                                                      |  | Incorporated by reference from the Company's Form 10-K for the fiscal year ended February 3, 2007.
|(23)    |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                         |  |                                                                                                   
|(31.1)  |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               |  |                                                                                                   
|(31.2)  |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               |  |                                                                                                   

90

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|(32.1) |  | Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(32.2) |  | Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | 
|(b)    |  | None                                                                                                                                           |  | 

---

91

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report of
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|                      |  | THE PEP BOYSMANNY, MOE & JACK
(REGISTRANT)
|--------------------- |  | -------------------------------------------
|DATED: APRIL 30, 2008 |  | By:                                        

92

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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. ODELLMichael R. Odell         |  | Interim Chief Executive Officer
(Principal Executive Officer)                   |  | April 30, 2008
|/s/HARRY F. YANOWITZHarry F. Yanowitz       |  | Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |  | April 30, 2008
|/s/BERNARD K. MCELROYBernard K. McElroy     |  | Chief Accounting Officer and Treasurer
(Principal Accounting Officer)           |  | April 30, 2008
|/s/WILLIAM LEONARDWilliam Leonard           |  | Chairman of the Board                                                           |  | April 30, 2008
|/s/M. SHÂN ATKINSM. Shân Atkins             |  | Director                                                                        |  | April 30, 2008
|/s/PETER A. BASSIPeter A. Bassi             |  | Director                                                                        |  | April 30, 2008
|/s/ROBERT H. HOTZRobert H. Hotz             |  | Director                                                                        |  | April 30, 2008
|/s/THOMAS R. HUDSON JR.Thomas R. Hudson Jr. |  | Director                                                                        |  | April 30, 2008
|/s/JAMES A. MITAROTONDAJames A. Mitarotonda |  | Director                                                                        |  | April 30, 2008
|/s/DR. IRVIN D. REIDDr. Irvin D. Reid       |  | Director                                                                        |  | April 30, 2008
|/s/JANE SCACCETTIJane Scaccetti             |  | Director                                                                        |  | April 30, 2008
|/s/JOHN T. SWEETWOODJohn T. Sweetwood       |  | Director                                                                        |  | April 30, 2008
|/s/NICK WHITENick White                     |  | Director                                                                        |  | April 30, 2008
|/s/JAMES A. WILLIAMSJames A. Williams       |  | Director                                                                        |  | April 30, 2008

93

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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

|Column A                         |  | Column B |       | Column C |   | Column D |  | Column E
|-------------------------------- |  | -------- | ----- | -------- | - | -------- |  | --------
|
|
|ALLOWANCE FOR DOUBTFUL ACCOUNTS: |  |          |       |          |   |          |  |         
|Year Ended February 2, 2008      |  | $        | 1,505 |          | $ | 2,420    |  | $       
|Year Ended February 3, 2007      |  | $        | 1,188 |          | $ | 2,317    |  | $       
|Year Ended January 28, 2006      |  | $        | 1,030 |          | $ | 1,733    |  | $       

---

|Column A                      |  | Column B |       | Column C |   | Column D |  | Column E
|----------------------------- |  | -------- | ----- | -------- | - | -------- |  | --------
|
|
|SALES RETURNS AND ALLOWANCES: |  |          |       |          |   |          |  |         
|Year Ended February 2, 2008   |  | $        | 1,296 |          | $ |         |  | $       
|Year Ended February 3, 2007   |  | $        | 1,726 |          | $ |         |  | $       
|Year Ended January 28, 2006   |  | $        | 1,459 |          | $ |         |  | $       

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