Table ofContents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 
| **x**                                                   | ** ** | **Quarterly Report Pursuant to Section 13  or 15(d) of the Securities Exchange Act of 1934**  |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                    |       |                                                                                                    |
| **For the quarterly period ended August 1,  2009** |
|                                                    |       |                                                                                                    |
| **OR**                                                  |
|                                                    |       |                                                                                                    |
| **o**                                                   | ** ** | **Transition Report Pursuant to Section 13  or 15(d) of the Securities Exchange Act of 1934** |

 

**For thetransition period from            to            **

 

**CommissionFile No.  1-3381**

 

**The PepBoys - Manny, Moe & Jack**

(Exact name of registrant as specified inits charter)

 

| **Pennsylvania**                            | ** ** | **23-0962915**              |
|---------------------------------------------|------------|-----------------------------|
| (State or other jurisdiction of             |       | (I.R.S. Employer ID number) |
| incorporation or organization)              |       |                        |
|                                        |       |                        |
| **3111 W. Allegheny Ave. Philadelphia, PA** | ** ** | **19132**                   |
| (Address of principal executive offices)    |       | (Zip code)                  |

 

**215-430-9000**

(Registrant’stelephone number, including area code)

 

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

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWebsite, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o No o

 

Indicateby checkmark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer  o |   | Accelerated filer x         |
|----------------------------|--------|----------------------------------|
|                       |   |                             |
| Non-accelerated filer o    |   | Smaller reporting company o |

 

Indicate by check mark whether the registrant isa shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes  o  No  x

 

As of August 28, 2009, there were52,322,470 shares of the registrant’s Common Stock outstanding.

 

 

 

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Tableof Contents

 

Index

 
| ** **                           | ** **                                                                                                                                                            | **Page** |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| PART I -  FINANCIAL INFORMATION |                                                                                                                                                                  |
|                                 |                                                                                                                                                                  |     |
| Item 1.                              | Condensed Consolidated  Financial Statements (Unaudited)                                                                                                              |     |
|                                 |                                                                                                                                                                  |     |
|                                 | Condensed  Consolidated Balance Sheets - August 1, 2009 and January 31, 2009                                                                                | 3        |
|                                 |                                                                                                                                                                  |     |
|                                 | Condensed  Consolidated Statements of Operations and Changes in Retained Earnings -  Thirteen and Twenty-six Weeks Ended August 1, 2009 and August 2,  2008 | 4        |
|                                 |                                                                                                                                                                  |     |
|                                 | Condensed  Consolidated Statements of Cash Flows - Twenty-six Weeks Ended August 1,  2009 and August 2, 2008                                                | 5        |
|                                 |                                                                                                                                                                  |     |
|                                 | Notes to the Condensed Consolidated Financial  Statements                                                                                                             | 6 - 19   |
|                                 |                                                                                                                                                                  |     |
| Item 2.                              | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                           | 20       |
|                                 |                                                                                                                                                                  |     |
| Item 3.                              | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                           | 25       |
|                                 |                                                                                                                                                                  |     |
| Item 4.                              | Controls and  Procedures                                                                                                                                              | 26       |
|                                 |                                                                                                                                                                  |     |
| Item 5.                              | Other Information                                                                                                                                                     | 26       |
|                                 |                                                                                                                                                                  |     |
| PART II  - OTHER INFORMATION    | 26                                                                                                                                                                    |
|                                 |                                                                                                                                                                  |     |
| Item 1.                              | Legal Proceedings                                                                                                                                                     | 26       |
|                                 |                                                                                                                                                                  |     |
| Item 1A.                             | Risk Factors                                                                                                                                                          | 27       |
|                                 |                                                                                                                                                                  |     |
| Item 2.                              | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                          | 27       |
|                                 |                                                                                                                                                                  |     |
| Item 3.                              | Defaults  Upon Senior Securities                                                                                                                                      | 27       |
|                                 |                                                                                                                                                                  |     |
| Item 4.                              | Submission  of Matters to a Vote of Security Holders                                                                                                                  | 27       |
|                                 |                                                                                                                                                                  |     |
| Item 5.                              | Other Information                                                                                                                                                     | 27       |
|                                 |                                                                                                                                                                  |     |
| Item 6.                              | Exhibits                                                                                                                                                              | 28       |
|                                 |                                                                                                                                                                  |     |
| SIGNATURES                           | 29                                                                                                                                                                    |
|                                 |                                                                                                                                                                  |     |
| INDEX  TO EXHIBITS                   | 30                                                                                                                                                                    |

 

2

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Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated FinancialStatements (Unaudited)

 

THE PEP BOYS - MANNY, MOE & JACKAND SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(dollar amounts in thousands, exceptshare data)

UNAUDITED

 
| ** **                                                                                                         | ** ** | **August 1,  2009** | ** ** | **January 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                         |       |                     |       |                       |       |
| Current Assets:                                                                                                    |       |                     |       |                       |       |
| Cash and cash equivalents                                                                                          |       | $                        | 21,886     |                       | $          | 21,332 |   |
| Accounts receivable, less allowance for  uncollectible accounts of $1,799 and $1,912                               |       | 21,801                   |       | 28,831                     |       |
| Merchandise inventories                                                                                            |       | 548,763                  |       | 564,931                    |       |
| Prepaid expenses                                                                                                   |       | 18,567                   |       | 25,390                     |       |
| Other                                                                                                              |       | 53,151                   |       | 62,421                     |       |
| Assets held for disposal                                                                                           |       | 9,912                    |       | 12,653                     |       |
| Total Current Assets                                                                                               |       | 674,080                  |       | 715,558                    |       |
|                                                                                                               |       |                     |       |                       |       |
| Property and Equipment - net                                                                                       |       | 719,008                  |       | 740,331                    |       |
| Deferred income taxes                                                                                              |       | 77,578                   |       | 77,708                     |       |
| Other                                                                                                              |       | 18,092                   |       | 18,792                     |       |
| Total Assets                                                                                                       |       | $                        | 1,488,758  |                       | $          | 1,552,389 |   |
|                                                                                                               |       |                     |       |                       |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                     |       |                     |       |                       |       |
| Current Liabilities:                                                                                               |       |                     |       |                       |       |
| Accounts payable                                                                                                   |       | $                        | 222,974    |                       | $          | 212,340 |   |
| Trade payable program liability                                                                                    |       | 2,614                    |       | 31,930                     |       |
| Accrued expenses                                                                                                   |       | 236,144                  |       | 254,754                    |       |
| Deferred income taxes                                                                                              |       | 41,118                   |       | 35,848                     |       |
| Current maturities of long-term debt and  obligations under capital leases                                         |       | 1,079                    |       | 1,453                      |       |
| Total Current Liabilities                                                                                          |       | 503,929                  |       | 536,325                    |       |
|                                                                                                               |       |                     |       |                       |       |
| Long-term debt and obligations under capital  lease, less current maturities                                       |       | 308,335                  |       | 352,382                    |       |
| Other long-term liabilities                                                                                        |       | 69,872                   |       | 70,322                     |       |
| Deferred gain from asset sales                                                                                     |       | 164,947                  |       | 170,204                    |       |
| Commitments and Contingencies                                                                                      |       |                     |       |                       |       |
| Stockholders’ Equity:                                                                                         |       |                     |       |                       |       |
| Common Stock, par value $1 per share:  Authorized 500,000,000 shares;

   Issued  68,557,041 shares |       | 68,557                   |       | 68,557                     |       |
| Additional paid-in capital                                                                                         |       | 293,037                  |       | 292,728                    |       |
| Retained earnings                                                                                                  |       | 373,963                  |       | 358,670                    |       |
| Accumulated other comprehensive loss                                                                               |       | (16,477                  | )          | (18,075                    | )          |
| Less cost of shares in treasury - 14,042,311  shares and 14,124,021 shares                                         |       | 218,141                  |       | 219,460                    |       |
| Less cost of shares in benefits trust - 2,195,270  shares                                                          |       | 59,264                   |       | 59,264                     |       |
| Total Stockholders’ Equity                                                                                    |       | 441,675                  |       | 423,156                    |       |
| Total Liabilities and Stockholders’ Equity                                                                    |       | $                        | 1,488,758  |                       | $          | 1,552,389 |   |

 

Seenotes to condensed consolidated financial statements.

 

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THE PEP BOYS - MANNY, MOE & JACKAND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

AND CHANGES IN RETAINEDEARNINGS

(dollar amounts in thousands, except pershare amounts)

UNAUDITED

 
| ** **                                                           | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                           | ** ** | **August 1,  2009**           | ** ** | **August 2,  2008**             | ** ** | **August 1,  2009** | ** ** | **August 2,  2008** | ** ** |
| Merchandise Sales                                                    |       | $                                  | 392,071    |                                 | $          | 408,077 |   | $ | 790,248 |   | $ | 811,411 |   |
| Service Revenue                                                      |       | 96,840                             |       | 91,966                               |       | 195,151 |   | 186,675 |   |
| Total Revenues                                                       |       | 488,911                            |       | 500,043                              |       | 985,399 |   | 998,086 |   |
| Costs of Merchandise Sales                                           |       | 275,790                            |       | 284,416                              |       | 556,825 |   | 570,339 |   |
| Costs of Service Revenue                                             |       | 84,931                             |       | 85,193                               |       | 170,783 |   | 169,347 |   |
| Total Costs of Revenues                                              |       | 360,721                            |       | 369,609                              |       | 727,608 |   | 739,686 |   |
| Gross Profit from Merchandise Sales                                  |       | 116,281                            |       | 123,661                              |       | 233,423 |   | 241,072 |   |
| Gross Profit from Service Revenue                                    |       | 11,909                             |       | 6,773                                |       | 24,368 |   | 17,328 |   |
| Total Gross Profit                                                   |       | 128,190                            |       | 130,434                              |       | 257,791 |   | 258,400 |   |
| Selling, General and Administrative Expenses                         |       | 109,482                            |       | 122,603                              |       | 217,535 |   | 241,618 |   |
| Net Gain (Loss) from Dispositions of Assets                          |       | (16                                | )     | 4,077                                |       | (13 | )  | 9,608 |   |
| Operating Profit                                                     |       | 18,692                             |       | 11,908                               |       | 40,243 |   | 26,390 |   |
| Non-operating Income                                                 |       | 539                                |       | 1,162                                |       | 942 |   | 1,492 |   |
| Interest Expense                                                     |       | 6,466                              |       | 6,452                                |       | 8,402 |   | 11,879 |   |
| Earnings From Continuing Operations Before Income  Taxes             |       | 12,765                             |       | 6,618                                |       | 32,783 |   | 16,003 |   |
| Income Tax Expense                                                   |       | 4,907                              |       | 866                                  |       | 13,862 |   | 4,960 |   |
| Net Earnings From Continuing Operations                              |       | 7,858                              |       | 5,752                                |       | 18,921 |   | 11,043 |   |
| Discontinued Operations, Net of Tax                                  |       | (123                               | )          | (304                                 | )          | (277 | ) | (923 | )  |
| Net Earnings                                                         |       | 7,735                              |       | 5,448                                |       | 18,644 |   | 10,120 |   |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Retained Earnings, beginning of period                               |       | 367,882                            |       | 406,819                              |       | 358,670 |   | 406,819 |   |
| Cumulative effect adjustment for adoption of EITF  06-10, net of tax |       | —                             |       | —                               |       | — |   | (1,165 | )  |
| Cash Dividends                                                       |       | (1,577                             | )          | (3,533                               | )          | (3,152 | ) | (7,028 | ) |
| Effect of Stock Options                                              |       | (8                                 | )          | (25                                  | )          | (8 | ) | (37 | ) |
| Dividend Reinvestment Plan                                           |       | (69                                | )          | (358                                 | )          | (191 | ) | (358 | ) |
| Retained Earnings, end of period                                     |       | $                                  | 373,963    |                                 | $          | 408,351 |   | $ | 373,963 |   | $ | 408,351 |   |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Basic and Diluted Earnings Per Share:                                |       |                               |       |                                 |       |   |   |   |   |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Net Earnings from Continuing Operations                              |       | $                                  | 0.15       |                                 | $          | 0.11 |   | $ | 0.36 |   | $ | 0.21 |   |
| Discontinued Operations, Net of Tax                                  |       | —                             |       | (0.01                                | )     | — |   | (0.02 | )  |
| Earnings Per Share                                                   |       | $                                  | 0.15       |                                 | $          | 0.10 |   | $ | 0.36 |   | $ | 0.19 |   |
|                                                                 |       |                               |       |                                 |       |   |   |   |   |
| Cash Dividends Per Share                                             |       | $                                  | 0.0300     |                                 | $          | 0.0675 |   | $ | 0.0600 |   | $ | 0.1350 |   |

 

Seenotes to condensed consolidated financial statements.

 

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THE PEP BOYS -MANNY, MOE & JACK AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amountsin thousands)

UNAUDITED

 
| **Twenty-six Weeks Ended**                                                  | ** ** | **August 1,  2009** | ** ** | **August 2,  2008** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                                                            | ** ** | ** **               | ** ** | ** **               | ** ** |
| Cash  Flows from Operating Activities:                                                |       |                     |       |                     |       |
| Net  Earnings                                                                         |       | $                        | 18,644     |                     | $          | 10,120 |   |
| Adjustments  to reconcile net earnings to net cash provided by continuing operations: |       |                     |       |                     |       |
| Net  loss from discontinued operations                                                |       | 277                      |       | 923                      |       |
| Depreciation  and amortization                                                        |       | 35,338                   |       | 36,928                   |       |
| Amortization  of deferred gain from asset sales                                       |       | (6,086                   | )          | (4,297                   | )     |
| Stock  compensation expense                                                           |       | 1,284                    |       | 1,872                    |       |
| Gain  from debt retirement                                                            |       | (6,248                   | )          | (3,460                   | )     |
| Deferred  income taxes                                                                |       | 4,455                    |       | (670                     | )          |
| Loss  (gain) from dispositions of assets                                              |       | 13                       |       | (9,608                   | )          |
| Other                                                                                 |       | 235                      |       | 478                      |       |
| Changes  in Operating Assets and Liabilities:                                         |       |                     |       |                     |       |
| Decrease  in accounts receivable, prepaid expenses and other                          |       | 24,143                   |       | 26,024                   |       |
| Decrease  in merchandise inventories                                                  |       | 16,168                   |       | 943                      |       |
| Increase  (decrease) in accounts payable                                              |       | 10,634                   |       | (16,700                  | )          |
| Decrease  in accrued expenses                                                         |       | (18,658                  | )          | (34,449                  | )          |
| Increase  (decrease) in other long-term liabilities                                   |       | 1,972                    |       | (475                     | )     |
| Net  cash provided by continuing operations                                           |       | 82,171                   |       | 7,629                    |       |
| Net  cash used in discontinued operations                                             |       | (543                     | )          | (415                     | )     |
| Net  Cash Provided by Operating Activities                                            |       | 81,628                   |       | 7,214                    |       |
|                                                                                  |       |                     |       |                     |       |
| Cash  Flows from Investing Activities:                                                |       |                     |       |                     |       |
| Cash  paid for master lease properties                                                |       | —                   |       | (117,121                 | )     |
| Cash  paid for property and equipment                                                 |       | (17,481                  | )          | (13,989                  | )          |
| Proceeds  from dispositions of assets                                                 |       | 1,098                    |       | 208,211                  |       |
| Other                                                                                 |       | (500                     | )          | —                   |       |
| Net  cash (used in) provided by continuing operations                                 |       | (16,883                  | )     | 77,101                   |       |
| Net  cash provided by discontinued operations                                         |       | 1,758                    |       | —                   |       |
| Net  Cash (Used in) Provided by Investing Activities                                  |       | (15,125                  | )     | 77,101                   |       |
|                                                                                  |       |                     |       |                     |       |
| Cash  Flows from Financing Activities:                                                |       |                     |       |                     |       |
| Borrowings  under line of credit agreements                                           |       | 222,017                  |       | 98,504                   |       |
| Payments  under line of credit agreements                                             |       | (244,284                 | )          | (140,019                 | )          |
| Borrowings  on trade payable program liability                                        |       | 35,300                   |       | 85,408                   |       |
| Payments  on trade payable program liability                                          |       | (64,616                  | )          | (71,450                  | )          |
| Payment  for finance issuance cost                                                    |       | —                   |       | (182                     | )     |
| Proceeds  from lease financing                                                        |       | —                   |       | 8,661                    |       |
| Long-term  debt and capital lease obligations payments                                |       | (11,451                  | )          | (23,339                  | )          |
| Dividends  paid                                                                       |       | (3,152                   | )          | (7,028                   | )          |
| Other                                                                                 |       | 237                      |       | 419                      |       |
| Net  Cash Used in Financing Activities                                                |       | (65,949                  | )          | (49,026                  | )          |
| Net  Increase in Cash and Cash Equivalents                                            |       | 554                      |       | 35,289                   |       |
| Cash  and Cash Equivalents at Beginning of Period                                     |       | 21,332                   |       | 20,926                   |       |
| Cash  and Cash Equivalents at End of Period                                           |       | $                        | 21,886     |                     | $          | 56,215 |   |
|                                                                                  |       |                     |       |                     |       |
| Supplemental  Disclosure of Cash Flow Information:                                    |       |                     |       |                     |       |
| Cash  paid for income taxes                                                           |       | $                        | 2,585      |                     | $          | 558 |   |
| Cash  paid for interest                                                               |       | $                        | 12,366     |                     | $          | 13,859 |   |
| Accrued  purchases of property and equipment                                          |       | $                        | 1,170      |                     | $          | 1,075 |   |

 

Seenotes to condensed consolidated financial statements.

 

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THEPEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

(dollaramounts in thousands)

 

NOTE1. Condensed Consolidated Financial Statements

 

Thecondensed consolidated balance sheet as of August 1, 2009, the condensedconsolidated statements of operations and changes in retained earnings for thethirteen and twenty-six week periods ended August 1, 2009 and August 2,2008 and the condensed consolidated statements of cash flows for the twenty-sixweek periods ended August 1, 2009 and August 2, 2008 are unaudited.In the opinion of management, all adjustments necessary to present fairly thefinancial position, results of operations and cash flows at August 1, 2009and for all periods presented have been made.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted, as permitted by Rule 10-01of the Securities and Exchange Commission’s Regulation S-X, “Interim FinancialStatements”. It is suggested that these condensed consolidated financialstatements be read in conjunction with the financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for thefiscal year ended January 31, 2009. The results of operations for thethirteen and twenty-six week periods ended August 1, 2009 are not necessarilyindicative of the operating results for the full fiscal year.

 

The Company’s fiscal year ends on the Saturdaynearest January 31. Accordingly, references to fiscal years 2008 and 2009refer to the years ended January 31, 2009 and January 30, 2010,respectively.

 

The Company has evaluated subsequent events andtransactions for recognition or disclosure that occurred after the balancesheet date of August 1, 2009, through the filing of these financialstatements, which occurred on September 9, 2009.

 

NOTE2. New Accounting Standards

 

In April 2009, the Financial AccountingStandards Board (FASB) jointly issued FASB Staff Position No. 107-1, “InterimDisclosures about Fair Value of Financial Instruments” (FSP No. 107-1) andAccounting Practices Bulletin Opinion No. 28-1 (APB No. 28-1). FSP No. 107-1and APB No. 28-1 amend SFAS No. 107 “Disclosures about Fair Value ofFinancial Instruments”, to require disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as wellas in annual financial statements. FSP No. 107-1 and APB No. 28-1 areeffective for interim reporting periods ending after June 15, 2009. Theadoption of FSP No. 107-1 and APB No. 28-1 did not have a materialaffect on the Company’s consolidated financial statements.

 

NOTE 3. Accounting for Stock-Based Compensation

 

The Company has stock-based compensation plans,under which it grants stock options and restricted stock units to key employeesand members of its Board of Directors.

 

In accordance with FASB Statement No. 123(R),“Share-Based Payment” (SFAS No. 123(R)), the Company generally recognizescompensation expense on a straight-line basis over the vesting period. Asummary of total compensation expense and associated income tax benefitrecognized related to stock-based compensation follows:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **August 1, 2009**       | ** ** | **August 2, 2008**         | ** ** | **August 1, 2009** | ** ** | **August 2, 2008** | ** ** |
| Compensation expense                             |       | $                                  | 716        |                                 | $          | 550 |   | $ | 1,284 |   | $ | 1,872 |   |
| Income tax benefit                               |       | 266                                |       | 204                                  |       | 477 |   | 695 |   |
|                                                  |            |                                    |            |                                      |            |  |  |  |  |  |  |  |  |

 

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Stock Options

 

The following table summarizes the options underthe Company’s plan:

 
| ** **                               | ** ** | **Number of Shares** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|
| Outstanding — January 31, 2009 |       | 915,711                        |       |
| Granted                                  |       | 948,184                        |       |
| Exercised                                |       | (500                           | )          |
| Forfeited                                |       | (8,048                         | )          |
| Expired                                  |       | (92,300                        | )          |
| Outstanding — August 1, 2009   |       | 1,763,047                      |       |

 

Duringthe twenty-six weeks ending August 1, 2009 and August 2, 2008, theCompany granted 948,184 and 344,312 stock options with a weighted average grantdate fair value of $2.10 and $3.51, respectively. These options have a sevenyear term and vest over a three year period with a third vesting on each of thefirst three anniversaries of the grant date.

 

Ofthose options granted during fiscal year 2009, 736,000 options have a marketappreciation requirement and will vest on each of the first three anniversariesof the grant date provided that the market price of the Company’s stock hasalso appreciated by a certain amount. From the date of grant, the market priceof the Company’s stock must have appreciated, for at least 15 consecutivetrading days, by $2.00 above the grant price or more for 536,000 options and by$6.88 above the grant price or more for 200,000 options, in order to vest. TheCompany used a Monte Carlo simulation model to estimate the expected term andis recording the compensation expense over the service period for eachseparately vesting portion of the options granted. At May 2, 2009, the$2.00 market appreciation vesting requirement was satisfied.

 

Expectedvolatility is based on historical volatilities for a time period similar tothat of the expected term. The Company utilizes an actual experience method toestimate the expected term of the options. The risk-free rate is based on theU.S. treasury yield curve for issues with a remaining term equal to theexpected term. The fair value of each option granted is estimated on the dateof the grant using the Black-Scholes option-pricing model or, in thosesituations where the grant includes both a market and a service condition asdescribed more fully above, the Monte Carlo simulation model. The following arethe weighted-average assumptions:

 
| ** **                        | ** ** | **August 1,  2009** | ** ** | **August 2,  2008** | ** ** |
|-----------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Dividend yield                    |       | 2.3                      | %          | 3.0                      | %          |
| Expected volatility               |       | 65.2                     | %          | 45.4                     | %          |
| Risk-free interest rate range:    |       |                     |       |                     |       |
| High                              |       | 2.3                      | %          | 2.8                      | %          |
| Low                               |       | 1.6                      | %          | 2.8                      | %          |
| Ranges of expected lives in years |       | 4 - 5                    |       | 4 - 5                    |       |

 

Restricted Stock Units

 

During the twenty-six weeks ending August 1,2009 and August 2, 2008, the Company issued 28,546 and 263,871 restrictedstock units (RSUs) with a weighted average grant date fair value of $9.15 and$11.37, respectively.

 

NOTE 4. Merchandise Inventories

 

Merchandise inventories are valued at the lowerof 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 onlyat the end of each fiscal year based on inventory and costs at that time.Accordingly, interim LIFO calculations must be based on management’s estimatesof 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 $488,123 and $493,886 as of August 1, 2009 and January 31,2009, respectively.

 

TheCompany provides for estimated inventory shrinkage based upon historical levelsand the results of its cycle counting program.

 

The Company also provides for potentially excessand obsolete inventories based on current inventory levels, the historicalanalysis of product sales and current market conditions. The nature of theCompany’s inventory is such that the risk of obsolescence is minimal and excessinventory has historically been returned to the Company’s vendors for credit.The Company records a provision when less than full credit is expected from avendor or when market is lower than recorded costs. These provisions arerevised, if necessary, on a quarterly basis for adequacy. The Company’sinventory is recorded net of provisions for these matters, which were $17,568and 

 

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$15,874 at August 1, 2009 and January 31,2009, respectively.

 

NOTE 5. Property and Equipment

 

The Company’s property and equipment as of August 1,2009 and January 31, 2009, respectively, was as follows:

 
| **(dollar amounts in thousands)** | ** ** | **August 1, 2009** | ** ** | **January 31, 2009** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
|                                             |       |                    |       |                      |       |
| Property  and Equipment - at cost:               |       |                    |       |                      |       |
| Land                                             |       | $                       | 205,716    |                      | $          | 207,608 |   |
| Buildings  and improvements                      |       | 824,924                 |       | 822,950                   |       |
| Furniture,  fixtures and equipment               |       | 697,043                 |       | 685,707                   |       |
| Construction  in progress                        |       | 2,623                   |       | 2,576                     |       |
| Accumulated  depreciation and amortization       |       | (1,011,298              | )          | (978,510                  | )          |
| Property  and Equipment – net               |       | $                       | 719,008    |                      | $          | 740,331 |   |

 

NOTE 6. Income Taxes

 

The company accounts for income taxes inaccordance with Statement of Financial Accounting Standards No. 109, “Accountingfor Income Taxes” (SFAS No. 109) and Financial Accounting Standard BoardInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN48).

 

Under SFAS No. 109, the temporarydifferences between the book and tax treatment of income and expenses result indeferred tax assets and liabilities, which are included within the consolidatedbalance sheets. The Company must assess the likelihood that any recordeddeferred tax assets will be recovered against future taxable income. To theextent the Company believes it is more likely than not that the asset will notbe recoverable, a valuation allowance must be established. Cumulative losses inrecent years constitute “negative evidence” that a recovery is not more likelythan not, which must be rebutted by “positive evidence” to avoid establishing avaluation allowance. To establish this positive evidence, the Company considersvarious tax planning strategies for generating income sufficient to utilize thedeferred tax assets, including the potential sale of real estate and theconversion of the Company’s accounting policy for its inventory from LIFO toFIFO. After considering all this evidence, the Company did not have anymaterial change to its valuation allowance for the thirteen weeks andtwenty-six weeks ended August 1, 2009.

 

FIN 48 prescribes a recognition threshold and ameasurement attribute for the financial statement recognition and measurementof tax positions taken or expected to be taken in a tax return. For thosebenefits to be recognized, a tax position must be more-likely-than-not to besustained upon examination by taxing authorities. The amount recognized ismeasured as the largest amount of benefit that is greater than 50 percentlikely of being realized upon ultimate settlement. During the thirteen weeksended August 1, 2009, the Company reduced its gross unrecognized incometax benefits by approximately $877, of which $426 was interest, due tosettlement of a previously established liability with the applicable taxingauthority.

 

NOTE 7. Discontinued Operations

 

For the thirteen weeks ended August 1, 2009and August 2, 2008, the discontinued stores had pre-tax losses of $189 and$432, respectively, and for the twenty-six weeks ended August 1, 2009 and August 2,2008, pre-tax losses of $426 and $1,420, respectively.

 

A store location is classified as “held fordisposal” when (i) the Company has committed to a plan to sell the storelocation, (ii) the store location is vacant and is available for sale, (iii) theCompany is actively marketing the store location for sale, (iv) the saleprice is reasonable in relation to its current fair value and (v) theCompany expects to complete the sale within one year from the date the storelocation is first classified as held for disposal. No depreciation expense isrecognized during the period the asset is held for disposal.

 

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The Company has classified certain closed storeproperties as assets held for disposal on its balance sheets. The carryingvalues of these assets follow:

 
| **(dollar amounts in thousands)** | ** ** | **August 1, 2009** | ** ** | **January 31, 2009** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
|                                             |       |                    |       |                      |       |
| Land                                             |       | $                       | 5,480      |                      | $          | 7,332 |   |
| Buildings  and improvements                      |       | 9,025                   |       | 11,265                    |       |
| Accumulated  depreciation and amortization       |       | (4,593                  | )          | (5,944                    | )          |
| Assets  held for disposal                        |       | $                       | 9,912      |                      | $          | 12,653 |   |

 

During the twenty-six week period ending August 1,2009, the Company sold three properties that were classified as held fordisposal for net proceeds of $2,783 and recognized a net gain of $89. TheCompany had ten properties held for disposal at August 1, 2009 andthirteen properties held for disposal at January 31, 2009, respectively.

 

The following details the twenty-six weeks offiscal year 2009 activity, principally related to lease commitments, in thereserve for closed stores:

 
| **(dollar amount in thousands)**                                                                | ** ** | **Lease  Expenses** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|
| Balance  at January 31, 2009                                                                              | ** ** | **$**               | 2,112      | ** ** |
| Accretion  of present value of liabilities                                                                     |       | 41                  |       |
| Change  in assumptions about future sublease income, lease termination, contractual  obligations and severance |       | 191                 |       |
| Cash  payments                                                                                                 |       | (527                | )          |
| Balance  at August 1, 2009                                                                                | ** ** | **$**               | 1,817      | ** ** |

 

NOTE 8. Pension and Savings Plan

 

Pension expense includes the following:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **August 1, 2009**       | ** ** | **August 2, 2008**         | ** ** | **August 1, 2009** | ** ** | **August 2, 2008** | ** ** |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Service cost                                     |       | $                                  | —     |                                 | $          | 17 |   | $ | — |   | $ | 60 |   |
| Interest cost                                    |       | 649                                |       | 859                                  |       | 1,270 |   | 1,744 |   |
| Expected return on plan assets                   |       | (365                               | )          | (610                                 | )          | (902 | ) | (1,225 | ) |
| Amortization of transition obligation            |       | —                             |       | 41                                   |       | — |   | 82 |   |
| Amortization of prior service cost               |       | 7                                  |       | 93                                   |       | 7 |   | 185 |   |
| Amortization of net loss                         |       | 559                                |       | 205                                  |       | 884 |   | 508 |   |
| Net periodic benefit cost                        |       | $                                  | 850        |                                 | $          | 605 |   | $ | 1,259 |   | $ | 1,354 |   |

 

On December 31, 2008, the Companyterminated the defined benefit portion of the Company’s Executive SupplementalRetirement Plan (SERP) and converted the defined contribution portion of theSERP into the Company’s Account Plan. The Company’s expense for the AccountPlan was approximately $263 and $202 for the thirteen weeks ended August 1,2009 and August 2, 2008, respectively, and approximately $526 and $307 forthe twenty-six weeks ended August 1, 2009 and August 2, 2008,respectively.

 

The Company has two qualified savings plans thatcover all full-time employees who are at least 21 years of age with one or moreyears of service. Generally, the Company contributes the lesser of 50% of thefirst 6% of a participant’s contributions or 3% of the participant’s compensation.The Company’s savings plans’ expense was approximately $719 and $991 for thethirteen weeks ended August 1, 2009 and August 2, 2008, respectively,and approximately $1,797 and $2,043 for the twenty-six weeks ended August 1,2009 and August 2, 2008, respectively. The Company’s contribution to theseplans for fiscal 2009 is contingent upon meeting certain performance metrics.

 

NOTE 9. Sale-Leaseback Transactions

 

During the first quarter of fiscal year 2008,the Company sold 41 owned properties to independent third parties. Net proceedsfrom these sales were $135,519. Concurrent with the sale, the Company enteredinto agreements to lease the properties back from the 

 

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purchaser over a minimum lease term of 15 years.The Company classified 40 of these leases as operating leases in accordancewith FASB Statement of Financial Accounting Standards (SFAS) No. 13, “Accountingfor Leases”, (SFAS No. 13) as amended by FASB Statement of FinancialAccounting Standards (SFAS) No. 98, “Accounting for Leases – an amendmentof FASB Statements No. 13, 66, and 91 and a rescission of FASB Statement No. 26and Technical Bulletin No. 79-11” (SFAS No. 98). The Company activelyuses these properties and considers the leases as normal leasebacks. A $5,531gain on the sale of these properties was recognized immediately upon executionof the sale and a $61,292 gain was deferred. The deferred gain is beingrecognized over the minimum term of these leases. The Company initially hadcontinuing involvement in one property relating to an environmental indemnityand, accordingly, recorded $4,583 of the transaction’s total net proceeds as aborrowing and as a financing activity in the Condensed Consolidated Statementof Cash Flows. During the second quarter of fiscal year 2008, the Companyprovided the necessary documentation to satisfy its indemnity and remove itscontinuing involvement with this property. The Company then recorded the saleof this property as a sale-leaseback transaction, removing the asset andrelated lease financing and recorded a $1,515 deferred gain that is beingrecognized over the remaining minimum term of this lease.

 

During the second quarter of fiscal year 2008,the Company sold 22 properties to an independent third party. Net proceeds fromthis sale were $75,951. Concurrent with the sale, the Company entered intoagreements to lease the properties back from the purchaser over a minimum leaseterm of 15 years. The Company classified 21 of these leases as operatingleases in accordance with SFAS No. 13 as amended by SFAS No. 98. TheCompany actively uses these properties and considers the leases as normalleasebacks. A $2,124 gain on the sale of these properties was recognizedimmediately upon execution of the sale and a $28,638 gain was deferred. Thedeferred gain is being recognized over 15 years. The Company had a continuinginvolvement in one property and, accordingly, recorded $3,896 of thetransaction’s total net proceeds as a debt borrowing and as a financingactivity in the Condensed Consolidated Statement of Cash Flows. During thethird quarter of fiscal year 2008, the Company provided the necessarydocumentation to satisfy its indemnity and removed its continuing involvementwith this property. The Company then recorded the sale of this property as asale-leaseback transaction, removing the asset and related lease financing andrecorded a $2,448 deferred gain that is being recognized over the remainingterm of the lease.

 

Of the 566 store locations operated by theCompany at August 1, 2009, 235 are owned and 331 are leased.

 

NOTE 10. Debt and Financing Arrangements

 
| **(dollar amounts in thousands)**                              | ** ** | **August 1,  2009** | ** ** | **January 31,  2009** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| 7.50% Senior Subordinated Notes, due December 2014                       |       | $                        | 157,565    |                       | $          | 174,535 |   |
| Senior Secured Term Loan, due October 2013                               |       | 150,254                  |       | 150,794                    |       |
| Lease financing obligations                                                   |       | —                   |       | 4,515                      |       |
| Capital lease obligations                                                     |       | —                   |       | 129                        |       |
| Revolving Credit Agreement, expiring January 2014                        |       | 1,595                    |       | 23,862                     |       |
|                                                                          |       | 309,414                  |       | 353,835                    |       |
| Less current maturities                                                       |       | 1,079                    |       | 1,453                      |       |
| Long-term debt and obligations under capital  leases, less current maturities |       | $                        | 308,335    |                       | $          | 352,382 |   |

 

On January 16, 2009, the Company enteredinto a new Revolving Credit Agreement with available borrowings up to $300,000.The Company’s ability to borrow under the Revolving Credit Agreement is basedon a specific borrowing base consisting of inventory and accounts receivable.The interest rate on this credit line is LIBOR or Prime plus 2.75% to 3.25%based upon the then current availability under the facility.

 

During the twenty-six week period ending August 1,2009 and August 2, 2008, the Company repurchased $16,970 and $25,465,respectively of its outstanding 7.5% Senior Subordinated Notes for $10,722 and$22,005, respectively resulting in a pre-tax gain of $6,248 and $3,460,respectively. The gain is reflected in interest expense on the accompanyingCondensed Consolidated Statement of Operations and Changes in RetainedEarnings.

 

As of August 1, 2009, 126 of the 235 storesowned by the Company, with an estimated fair market value of $300,965, arecurrently used as collateral under our Senior Secured Term Loan due October,2013.

 

Several of the Company’s debt agreements requirecompliance with covenants. The most restrictive of which is contained in theCompany’s revolving credit agreement. During any period that the Company’savailability under its revolving credit agreement drops below $50,000 theCompany is required to maintain a consolidated fixed charge coverage ratio, ofat least 1.1:1.0, calculated as the ratio of (a) EBITDA (net income plusinterest charges, provision for taxes, depreciation and amortization expense,non-cash stock compensation expenses and other non-recurring, non-cash items)minus capital expenditures and income taxes paid to (b) the sum of debtservice charges and restricted payments made. The failure to satisfy thiscovenant would constitute an event of default under the 

 

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Company’s revolving credit agreement, whichwould result in a cross-default under the Company’s 7.5% Senior Subordinated Notesand Senior Secured Term Loan.

 

As of August 1, 2009, the Company hadadditional availability under the revolving credit agreement of approximately$126,311 and was in compliance with its financial covenants.

 

The Company determines fair value on its fixedrate debt by using quoted market prices and current interest rates. For debtissues that are not quoted on an exchange, the Company determines fair value byreference to debt issues with similar terms and maturities. The estimated fairvalue of long-term debt including current maturities was $272,135 and $200,276as of August 1, 2009 and January 31, 2009, respectively.

 

NOTE 11. Warranty Reserve

 

The Company provides warranties for both itsmerchandise sales and service labor. Warranties for merchandise are generallycovered by the respective vendors, with the Company covering any costs abovethe vendor’s stipulated allowance. Service labor warranties are covered in fullby the Company on a limited lifetime basis. The Company establishes itswarranty reserves based on historical data of warranty transactions.

 

The reserve for warranty costs activity follows:

 
| ** **                                       | ** ** | **Twenty-six  Weeks Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **August 1, 2009**     | ** ** | **August 2, 2008** | ** ** |
| Beginning Balance                                |       | $                                | 797        |   | $ | 247 |   |
|                                             |       |                             |       |   |   |
| Additions related to current period sales        |       | 7,864                            |       | 7,641 |   |
|                                             |       |                             |       |   |   |
| Warranty costs incurred in current period        |       | (7,968                           | )          | (7,266 | ) |
|                                             |       |                             |       |   |   |
| Ending Balance                                   |       | $                                | 693        |   | $ | 622 |   |

 

NOTE 12. Earnings Per Share

 
| ** **                                                            | ** ** | ** **                                                                                                                     | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| **(in thousands, except per share amounts)** | ** ** | **August 1,  2009**                                                                                                       | ** ** | **August 2,  2008**           | ** ** | **August 1,  2009**             | ** ** | **August 2,  2008** | ** ** |
| * *                                                              | * *   | * *                                                                                                                       | * *   | * *                           | * *   | * *                             | * *   | * * | * * | * * | * * |
| (a)                                                                   |       | Net  Earnings From Continuing Operations                                                                                       |       | $                                  | 7,858      |                                 | $          | 5,752 |   | $ | 18,921 |   | $ | 11,043 |   |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
|                                                                  |       | Discontinued Operations, Net of Tax                                                                                            |       | (123                               | )          | (304                                 | )     | (277 | ) | (923 | )  |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
|                                                                  |       | Net Earnings                                                                                                                   |       | $                                  | 7,735      |                                 | $          | 5,448 |   | $ | 18,644 |   | $ | 10,120 |   |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
| (b)                                                                   |       | Basic average number of common shares outstanding  during period                                                               |       | 52,384                             |       | 52,153                               |       | 52,359 |   | 52,109 |   |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
|                                                                  |       | Common shares assumed issued upon exercise of  dilutive stock options, net of assumed repurchase, at the average market  price |       | 315                                |       | 83                                   |       | 179 |   | 95 |   |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
| (c)                                                                   |       | Diluted average number of common shares assumed  outstanding during period                                                     |       | 52,699                             |       | 52,236                               |       | 52,538 |   | 52,204 |   |
|                                                                  |       |                                                                                                                           |       |                               |       |                                 |       |   |   |   |   |
| ** **                                                            | ** ** | **Basic Earnings per Share:**                                                                                                  | ** ** | ** **                         | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                  |       | Net Earnings From Continuing Operations (a/b)                                                                                  |       | $                                  | 0.15       |                                 | $          | 0.11 |   | $ | 0.36 |   | $ | 0.21 |   |
|                                                                  |       | Discontinued Operations, Net of Tax                                                                                            |       | —                             |       | (0.01                                | )     | — |   | (0.02 | )  |
|                                                                  |       | Basic Earnings per Share                                                                                                       |       | $                                  | 0.15       |                                 | $          | 0.10 |   | $ | 0.36 |   | $ | 0.19 |   |
| ** **                                                            | ** ** | ** **                                                                                                                     | ** ** | ** **                         | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                  |       | **Diluted Earnings per Share:**                                                                                                |       |                               |       |                                 |       |   |   |   |   |
|                                                                  |       | Net Earnings From Continuing Operations (a/c)                                                                                  |       | $                                  | 0.15       |                                 | $          | 0.11 |   | $ | 0.36 |   | $ | 0.21 |   |
|                                                                  |       | Discontinued Operations, Net of Tax                                                                                            |       | —                             |       | (0.01                                | )     | — |   | (0.02 | )  |
|                                                                  |       | Diluted Earnings per Share                                                                                                     |       | $                                  | 0.15       |                                 | $          | 0.10 |   | $ | 0.36 |   | $ | 0.19 |   |

 

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At August 1, 2009 and August 2, 2008,respectively, there were 2,033,000 and 2,459,000 outstanding options andrestricted stock units. Certain stock options were excluded from thecalculation of diluted earnings per share because their exercise prices weregreater than the average market price of the common shares for the periods thenended and therefore would be anti-dilutive. The total number of such sharesexcluded from the diluted earnings per share calculation are 973,000 and1,781,000 for the twenty-six weeks ended August 1, 2009 and August 2,2008, respectively.

 

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NOTE 13. Supplemental Guarantor Information

 

The Company’s 7.50% Senior Subordinated Notes(the “Notes”) are fully and unconditionally and joint and severally guaranteedby certain of the Company’s direct and indirectly wholly-owned subsidiaries -namely, The Pep Boys Manny Moe & Jack of California, Pep Boys — MannyMoe & Jack of Delaware, Inc., Pep Boys — Manny Moe &Jack of Puerto Rico, Inc. and PBY Corporation, (collectively, the “SubsidiaryGuarantors”). The Notes are not guaranteed by the Company’s wholly ownedsubsidiary, Colchester Insurance Company.

 

The following condensed consolidatinginformation presents, in separate columns, the condensed consolidating balancesheets as of August 1, 2009 and January 31, 2009 and the relatedcondensed consolidating statements of operations for the thirteen andtwenty-six weeks ended August 1, 2009 and August 2, 2008 andcondensed consolidating statements of cash flows for the twenty-six weeks endedAugust 1, 2009 and August 2, 2008 for (i) the Company (“Pep Boys”)on a parent only basis, with its investment in subsidiaries recorded under theequity method, (ii) the Subsidiary Guarantors on a combined basisincluding the consolidation by PBY Corporation of its wholly owned subsidiary,The Pep Boys Manny Moe & Jack of California, (iii) the subsidiaryof the Company that does not guarantee the Notes, and (iv) the Company ona consolidated basis.

 

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)

(unaudited)

 
| **As of August 1, 2009**                                  | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidation/  Elimination** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|--------------------------------------|------------|---------------------------------|------------|------------------|------------|
| **ASSETS**                                                                    |       |              |       |                       |       |                                 |       |                            |       |             |       |
| Current  Assets:                                                              |       |              |       |                       |       |                                 |       |                            |       |             |       |
| Cash  and cash equivalents                                                    |       | $                 | 13,012     |                       | $          | 4,864                                |       | $                               | 4,010      |             | $          | — |   | $ | 21,886 |   |
| Accounts  receivable, net                                                     |       | 9,562             |       | 12,239                     |       | —                               |       | —                          |       | 21,801           |       |
| Merchandise  inventories                                                      |       | 192,213           |       | 356,550                    |       | —                               |       | —                          |       | 548,763          |       |
| Prepaid  expenses                                                             |       | 9,863             |       | 10,410                     |       | 6,498                                |       | (8,204                          | )          | 18,567           |       |
| Other                                                                         |       | 571               |       | 14                         |       | 57,990                               |       | (5,424                          | )          | 53,151           |       |
| Assets  held for disposal                                                     |       | 1,830             |       | 8,082                      |       | —                               |       |                            |       | 9,912            |       |
| Total  Current Assets                                                         |       | 227,051           |       | 392,159                    |       | 68,498                               |       | (13,628                         | )          | 674,080          |       |
| Property  and Equipment—Net                                              |       | 236,020           |       | 470,627                    |       | 31,885                               |       | (19,524                         | )          | 719,008          |       |
| Investment  in subsidiaries                                                   |       | 1,729,916         |       | —                     |       | —                               |       | (1,729,916                      | )          | —           |       |
| Intercompany  receivable                                                      |       | —            |       | 1,032,118                  |       | 75,909                               |       | (1,108,027                      | )          | —           |       |
| Deferred  income taxes                                                        |       | 25,817            |       | 51,761                     |       | —                               |       | —                          |       | 77,578           |       |
| Other                                                                         |       | 17,245            |       | 847                        |       | —                               |       | —                          |       | 18,092           |       |
| Total  Assets                                                                 |       | $                 | 2,236,049  |                       | $          | 1,947,512                            |       | $                               | 176,292    |             | $          | (2,871,095 | ) | $ | 1,488,758 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                 | ** ** | ** **        | ** ** | ** **                 | ** ** | ** **                           | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Current  Liabilities:                                                         |       |              |       |                       |       |                                 |       |                            |       |             |       |
| Accounts  payable                                                             |       | $                 | 222,965    |                       | $          | 9                                    |       | $                               | —     |             | $          | — |   | $ | 222,974 |   |
| Trade  payable program liability                                              |       | 2,614             |       | —                     |       | —                               |       | —                          |       | 2,614            |       |
| Accrued  expenses                                                             |       | 31,480            |       | 60,455                     |       | 152,413                              |       | (8,204                          | )          | 236,144          |       |
| Deferred  income taxes                                                        |       | 17,735            |       | 28,807                     |       |                                 |       | (5,424                          | )          | 41,118           |       |
| Current  maturities of long-term debt and obligations under capital leases    |       | 1,079             |       | —                     |       | —                               |       | —                          |       | 1,079            |       |
| Total  Current Liabilities                                                    |       | 275,873           |       | 89,271                     |       | 152,413                              |       | (13,628                         | )          | 503,929          |       |
| Long-term  debt and obligations under capital leases, less current maturities |       | 307,298           |       | 1,037                      |       | —                               |       | —                          |       | 308,335          |       |
| Other  long-term liabilities                                                  |       | 34,367            |       | 35,505                     |       | —                               |       | —                          |       | 69,872           |       |
| Deferred  gain from asset sales                                               |       | 68,809            |       | 115,662                    |       | —                               |       | (19,524                         | )          | 164,947          |       |
| Intercompany  liabilities                                                     |       | 1,108,027         |       | —                     |       | —                               |       | (1,108,027                      | )          | —           |       |
| Total  Stockholders’ Equity                                              |       | 441,675           |       | 1,706,037                  |       | 23,879                               |       | (1,729,916                      | )          | 441,675          |       |
| Total  Liabilities and Stockholders’ Equity                              |       | $                 | 2,236,049  |                       | $          | 1,947,512                            |       | $                               | 176,292    |             | $          | (2,871,095 | ) | $ | 1,488,758 |   |

 

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| **As of January 31, 2009**                                               | ** ** | **Pep  Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantors** | ** ** | **Consolidation/  Elimination** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------|------------|----------------------------|------------|----------------------------------|------------|---------------------------------|------------|------------------|------------|
| **ASSETS**                                                                    |       |          |       |                       |       |                             |       |                            |       |             |       |
| Current Assets:                                                               |       |          |       |                       |       |                             |       |                            |       |             |       |
| Cash and cash equivalents                                                     |       | $             | 12,753     |                       | $          | 6,393                            |       | $                               | 2,186      |             | $          | — |   | $ | 21,332 |   |
| Accounts receivable, net                                                      |       | 16,571        |       | 12,260                     |       | —                           |       | —                          |       | 28,831           |       |
| Merchandise inventories                                                       |       | 199,304       |       | 365,627                    |       | —                           |       | —                          |       | 564,931          |       |
| Prepaid expenses                                                              |       | 13,597        |       | 15,820                     |       | 13,919                           |       | (17,946                         | )          | 25,390           |       |
| Other                                                                         |       | 1,193         |       | 11                         |       | 66,797                           |       | (5,580                          | )          | 62,421           |       |
| Assets held for disposal                                                      |       | 1,830         |       | 10,823                     |       | —                           |       | —                          |       | 12,653           |       |
| Total Current Assets                                                          |       | 245,248       |       | 410,934                    |       | 82,902                           |       | (23,526                         | )          | 715,558          |       |
| Property and Equipment—Net                                               |       | 239,859       |       | 487,956                    |       | 32,226                           |       | (19,710                         | )          | 740,331          |       |
| Investment in subsidiaries                                                    |       | 1,699,568     |       | —                     |       | —                           |       | (1,699,568                      | )          | —           |       |
| Intercompany receivable                                                       |       | —        |       | 989,077                    |       | 85,145                           |       | (1,074,222                      | )          | —           |       |
| Deferred income taxes                                                         |       | 24,075        |       | 53,633                     |       | —                           |       | —                          |       | 77,708           |       |
| Other                                                                         |       | 17,614        |       | 1,178                      |       | —                           |       | —                          |       | 18,792           |       |
| Total Assets                                                                  |       | $             | 2,226,364  |                       | $          | 1,942,778                        |       | $                               | 200,273    |             | $          | (2,817,026 | ) | $ | 1,552,389 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                |       |          |       |                       |       |                             |       |                            |       |             |       |
| Current Liabilities:                                                          |       |          |       |                       |       |                             |       |                            |       |             |       |
| Accounts payable                                                              |       | $             | 212,331    |                       | $          | 9                                |       | $                               | —     |             | $          | — |   | $ | 212,340 |   |
| Trade payable program liability                                               |       | 31,930        |       | —                     |       | —                           |       | —                          |       | 31,930           |       |
| Accrued expenses                                                              |       | 28,802        |       | 67,748                     |       | 175,985                          |       | (17,781                         | )          | 254,754          |       |
| Deferred income taxes                                                         |       | 16,355        |       | 25,238                     |       | —                           |       | (5,745                          | )          | 35,848           |       |
| Current maturities of long-term debt and  obligations under capital leases    |       | 1,208         |       | 245                        |       | —                           |       | —                          |       | 1,453            |       |
| Total Current Liabilities                                                     |       | 290,626       |       | 93,240                     |       | 175,985                          |       | (23,526                         | )          | 536,325          |       |
| Long-term debt and obligations under capital  leases, less current maturities |       | 332,682       |       | 19,700                     |       | —                           |       | —                          |       | 352,382          |       |
| Other long-term liabilities                                                   |       | 34,868        |       | 35,454                     |       | —                           |       | —                          |       | 70,322           |       |
| Deferred gain from asset sales                                                |       | 70,810        |       | 119,104                    |       | —                           |       | (19,710                         | )          | 170,204          |       |
| Intercompany liabilities                                                      |       | 1,074,222     |       | —                     |       | —                           |       | (1,074,222                      | )          | —           |       |
| Stockholders’ Equity                                                     |       | 423,156       |       | 1,675,280                  |       | 24,288                           |       | (1,699,568                      | )          | 423,156          |       |
| Total Liabilities and Stockholders’ Equity                               |       | $             | 2,226,364  |                       | $          | 1,942,778                        |       | $                               | 200,273    |             | $          | (2,817,026 | ) | $ | 1,552,389 |   |

 

14

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Table ofContents

 

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS

(dollars in thousands)

(unaudited)

 
| ** **                                                       | ** ** | ** **        | ** ** | **Subsidiary** | ** ** | **Subsidiary Non-** | ** ** | **Consolidation /** | ** ** | ** **       | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|--------------------------|------------|--------------------------|------------|------------------|------------|
| **Thirteen Weeks Ended August 1, 2009** | ** ** | **Pep Boys** | ** ** | **Guarantors** | ** ** | **Guarantors**           | ** ** | **Elimination**          | ** ** | **Consolidated** | ** ** |
|                                                             |       |              |       |           |       |                     |       |                     |       |             |       |
| Merchandise Sales                                                |       | $                 | 133,660    |           | $          | 258,411                  |       | $                        | —     |             | $          | — |   | $ | 392,071 |   |
| Service Revenue                                                  |       | 34,046            |       | 62,794         |       | —                   |       | —                   |       | 96,840           |       |
| Other Revenue                                                    |       | —            |       | —         |       | 5,722                    |       | (5,722                   | )          | —           |       |
| Total Revenues                                                   |       | 167,706           |       | 321,205        |       | 5,722                    |       | (5,722                   | )          | 488,911          |       |
| Costs of Merchandise Sales                                       |       | 95,456            |       | 180,743        |       | —                   |       | (409                     | )          | 275,790          |       |
| Costs of Service Revenue                                         |       | 28,951            |       | 56,018         |       | —                   |       | (38                      | )          | 84,931           |       |
| Costs of Other Revenue                                           |       | —            |       | —         |       | 5,337                    |       | (5,337                   | )          | —           |       |
| Total Costs of Revenues                                          |       | 124,407           |       | 236,761        |       | 5,337                    |       | (5,784                   | )          | 360,721          |       |
| Gross Profit from Merchandise Sales                              |       | 38,204            |       | 77,668         |       | —                   |       | 409                      |       | 116,281          |       |
| Gross Profit from Service Revenue                                |       | 5,095             |       | 6,776          |       | —                   |       | 38                       |       | 11,909           |       |
| Gross Profit from Other Revenue                                  |       | —            |       | —         |       | 385                      |       | (385                     | )          | —           |       |
| Total Gross Profit                                               |       | 43,299            |       | 84,444         |       | 385                      |       | 62                       |       | 128,190          |       |
| Selling, General and Administrative Expenses                     |       | 39,240            |       | 70,720         |       | 77                       |       | (555                     | )          | 109,482          |       |
| Net Gain (Loss) from Dispositions of Assets                      |       | 13                |       | (29            | )          | —                   |       | —                   |       | (16              | )          |
| Operating Profit                                                 |       | 4,072             |       | 13,695         |       | 308                      |       | 617                      |       | 18,692           |       |
| Non-Operating (Expense) Income                                   |       | (4,039            | )          | 21,508         |       | 620                      |       | (17,550                  | )          | 539              |       |
| Interest Expense (Income)                                        |       | 17,016            |       | 6,904          |       | (521                     | )          | (16,933                  | )          | 6,466            |       |
| (Loss) Earnings from Continuing Operations Before  Income Taxes  |       | (16,983           | )          | 28,299         |       | 1,449                    |       | —                   |       | 12,765           |       |
| Income Tax (Benefit) Expense                                     |       | (7,940            | )          | 12,232         |       | 615                      |       | —                   |       | 4,907            |       |
| Equity in Earnings of Subsidiaries                               |       | 16,781            |       | —         |       | —                   |       | (16,781                  | )          | —           |       |
| Net Earnings from Continuing Operations                          |       | 7,738             |       | 16,067         |       | 834                      |       | (16,781                  | )          | 7,858            |       |
| Discontinued Operations, Net of Tax                              |       | (3                | )          | (120           | )          | —                   |       | —                   |       | (123             | )          |
| Net Earnings                                                     |       | $                 | 7,735      |           | $          | 15,947                   |       | $                        | 834        |             | $          | (16,781 | ) | $ | 7,735 |   |

 
| ** **                                                       | ** ** | ** **        | ** ** | **Subsidiary** | ** ** | **Subsidiary Non-** | ** ** | **Consolidation /** | ** ** | ** **       | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|--------------------------|------------|--------------------------|------------|------------------|------------|
| **Thirteen Weeks Ended August 2, 2008** | ** ** | **Pep Boys** | ** ** | **Guarantors** | ** ** | **Guarantors**           | ** ** | **Elimination**          | ** ** | **Consolidated** | ** ** |
|                                                             |       |              |       |           |       |                     |       |                     |       |             |       |
| Merchandise Sales                                                |       | $                 | 139,512    |           | $          | 268,565                  |       | $                        | —     |             | $          | — |   | $ | 408,077 |   |
| Service Revenue                                                  |       | 31,870            |       | 60,096         |       | —                   |       | —                   |       | 91,966           |       |
| Other Revenue                                                    |       | —            |       | —         |       | 5,703                    |       | (5,703                   | )          | —           |       |
| Total Revenues                                                   |       | 171,382           |       | 328,661        |       | 5,703                    |       | (5,703                   | )          | 500,043          |       |
| Costs of Merchandise Sales                                       |       | 96,714            |       | 188,112        |       | —                   |       | (410                     | )          | 284,416          |       |
| Costs of Service Revenue                                         |       | 28,467            |       | 56,763         |       | —                   |       | (37                      | )          | 85,193           |       |
| Costs of Other Revenue                                           |       | —            |       | —         |       | 3,485                    |       | (3,485                   | )          | —           |       |
| Total Costs of Revenues                                          |       | 125,181           |       | 244,875        |       | 3,485                    |       | (3,932                   | )          | 369,609          |       |
| Gross Profit from Merchandise Sales                              |       | 42,798            |       | 80,453         |       | —                   |       | 410                      |       | 123,661          |       |
| Gross Profit from Service Revenue                                |       | 3,403             |       | 3,333          |       | —                   |       | 37                       |       | 6,773            |       |
| Gross Profit from Other Revenue                                  |       | —            |       | —         |       | 2,218                    |       | (2,218                   | )          | —           |       |
| Total Gross Profit                                               |       | 46,201            |       | 83,786         |       | 2,218                    |       | (1,771                   | )          | 130,434          |       |
| Selling, General and Administrative Expenses                     |       | 46,963            |       | 77,958         |       | 70                       |       | (2,388                   | )          | 122,603          |       |
| Net Gain from Dispositions of Assets                             |       | 2,747             |       | 1,330          |       | —                   |       | —                   |       | 4,077            |       |
| Operating Profit                                                 |       | 1,985             |       | 7,158          |       | 2,148                    |       | 617                      |       | 11,908           |       |
| Non-Operating (Expense) Income                                   |       | (3,851            | )          | 33,015         |       | 636                      |       | (28,638                  | )          | 1,162            |       |
| Interest Expense (Income)                                        |       | 27,277            |       | 8,025          |       | (829                     | )          | (28,021                  | )          | 6,452            |       |
| (Loss) Earnings from Continuing Operations Before  Income Taxes  |       | (29,143           | )          | 32,148         |       | 3,613                    |       | —                   |       | 6,618            |       |
| Income Tax (Benefit) Expense                                     |       | (6,017            | )          | 5,979          |       | 904                      |       | —                   |       | 866              |       |
| Equity in Earnings of Subsidiaries                               |       | 28,646            |       | —         |       | —                   |       | (28,646                  | )          | —           |       |
| Net Earnings from Continuing Operations                          |       | 5,520             |       | 26,169         |       | 2,709                    |       | (28,646                  | )          | 5,752            |       |
| Discontinued Operations, Net of Tax                              |       | (72               | )          | (232           | )          | —                   |       | —                   |       | (304             | )          |
| Net Earnings                                                     |       | $                 | 5,448      |           | $          | 25,937                   |       | $                        | 2,709      |             | $          | (28,646 | ) | $ | 5,448 |   |

 

15

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Table ofContents

 
| ** **                                                         | ** ** | ** **        | ** ** | ** **     | ** ** | **Subsidiary** | ** ** | ** **             | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|----------------|------------|------------------------|------------|------------------|------------|
| ** **                                                         | ** ** | ** **        | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | **Consolidation**      | ** ** | ** **       | ** ** |
| **Twenty-six Weeks Ended August 1, 2009** | ** ** | **Pep Boys** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **/ Elimination** | ** ** | **Consolidated** | ** ** |
| Merchandise Sales                                                  |       | $                 | 269,988    |           | $          | 520,260        |       | $                      | —     |             | $          | — |   | $ | 790,248 |   |
| Service Revenue                                                    |       | 68,859            |       | 126,292        |       | —         |       | —                 |       | 195,151          |       |
| Other Revenue                                                      |       | —            |       | —         |       | 11,445         |       | (11,445                | )          | —           |       |
| Total Revenues                                                     |       | 338,847           |       | 646,552        |       | 11,445         |       | (11,445                | )          | 985,399          |       |
| Costs of Merchandise Sales                                         |       | 191,474           |       | 366,167        |       | —         |       | (816                   | )          | 556,825          |       |
| Costs of Service Revenue                                           |       | 57,764            |       | 113,095        |       | —         |       | (76                    | )          | 170,783          |       |
| Costs of Other Revenue                                             |       | —            |       | —         |       | 12,142         |       | (12,142                | )          | —           |       |
| Total Costs of Revenues                                            |       | 249,238           |       | 479,262        |       | 12,142         |       | (13,034                | )          | 727,608          |       |
| Gross Profit from Merchandise Sales                                |       | 78,514            |       | 154,093        |       | —         |       | 816                    |       | 233,423          |       |
| Gross Profit from Service Revenue                                  |       | 11,095            |       | 13,197         |       | —         |       | 76                     |       | 24,368           |       |
| Gross Profit from Other Revenue                                    |       | —            |       | —         |       | (697           | )          | 697                    |       | —           |       |
| Total Gross Profit                                                 |       | 89,609            |       | 167,290        |       | (697           | )          | 1,589                  |       | 257,791          |       |
| Selling, General and Administrative Expenses                       |       | 77,222            |       | 139,802        |       | 155            |       | 356                    |       | 217,535          |       |
| Net Gain (Loss) from Dispositions of Assets                        |       | 14                |       | (27            | )          | —         |       | —                 |       | (13              | )          |
| Operating Profit                                                   |       | 12,401            |       | 27,461         |       | (852           | )          | 1,233                  |       | 40,243           |       |
| Non-Operating (Expense) Income                                     |       | (8,050            | )          | 42,779         |       | 1,239          |       | (35,026                | )          | 942              |       |
| Interest Expense (Income)                                          |       | 28,400            |       | 14,838         |       | (1,043         | )          | (33,793                | )          | 8,402            |       |
| (Loss) Earnings from Continuing Operations Before  Income Taxes    |       | (24,049           | )          | 55,402         |       | 1,430          |       | —                 |       | 32,783           |       |
| Income Tax (Benefit) Expense                                       |       | (11,105           | )          | 24,361         |       | 606            |       | —                 |       | 13,862           |       |
| Equity in Earnings of Subsidiaries                                 |       | 31,581            |       | —         |       | —         |       | (31,581                | )          | —           |       |
| Net Earnings from Continuing Operations                            |       | 18,637            |       | 31,041         |       | 824            |       | (31,581                | )          | 18,921           |       |
| Discontinued Operations, Net of Tax                                |       | 7                 |       | (284           | )          | —         |       | —                 |       | (277             | )          |
| Net Earnings                                                       |       | $                 | 18,644     |           | $          | 30,757         |       | $                      | 824        |             | $          | (31,581 | ) | $ | 18,644 |   |

 
| ** **                                                         | ** ** | ** **        | ** ** | ** **     | ** ** | **Subsidiary** | ** ** | ** **             | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|----------------|------------|------------------------|------------|------------------|------------|
| ** **                                                         | ** ** | ** **        | ** ** | **Subsidiary** | ** ** | **Non-**       | ** ** | **Consolidation**      | ** ** | ** **       | ** ** |
| **Twenty-six Weeks Ended August 2, 2008** | ** ** | **Pep Boys** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **/ Elimination** | ** ** | **Consolidated** | ** ** |
| Merchandise Sales                                                  |       | $                 | 278,125    |           | $          | 533,286        |       | $                      | —     |             | $          | — |   | $ | 811,411 |   |
| Service Revenue                                                    |       | 65,243            |       | 121,432        |       | —         |       | —                 |       | 186,675          |       |
| Other Revenue                                                      |       | —            |       | —         |       | 11,370         |       | (11,370                | )          | —           |       |
| Total Revenues                                                     |       | 343,368           |       | 654,718        |       | 11,370         |       | (11,370                | )          | 998,086          |       |
| Costs of Merchandise Sales                                         |       | 195,048           |       | 376,109        |       | —         |       | (818                   | )          | 570,339          |       |
| Costs of Service Revenue                                           |       | 57,081            |       | 112,341        |       | —         |       | (75                    | )          | 169,347          |       |
| Costs of Other Revenue                                             |       | —            |       | —         |       | 9,291          |       | (9,291                 | )          | —           |       |
| Total Costs of Revenues                                            |       | 252,129           |       | 488,450        |       | 9,291          |       | (10,184                | )          | 739,686          |       |
| Gross Profit from Merchandise Sales                                |       | 83,077            |       | 157,177        |       | —         |       | 818                    |       | 241,072          |       |
| Gross Profit from Service Revenue                                  |       | 8,162             |       | 9,091          |       | —         |       | 75                     |       | 17,328           |       |
| Gross Profit from Other Revenue                                    |       | —            |       | —         |       | 2,079          |       | (2,079                 | )          | —           |       |
| Total Gross Profit                                                 |       | 91,239            |       | 166,268        |       | 2,079          |       | (1,186                 | )          | 258,400          |       |
| Selling, General and Administrative Expenses                       |       | 89,416            |       | 154,462        |       | 160            |       | (2,420                 | )          | 241,618          |       |
| Net Gain from Dispositions of Assets                               |       | 3,303             |       | 6,305          |       | —         |       | —                 |       | 9,608            |       |
| Operating Profit                                                   |       | 5,126             |       | 18,111         |       | 1,919          |       | 1,234                  |       | 26,390           |       |
| Non-Operating (Expense) Income                                     |       | (7,955            | )          | 61,490         |       | 1,284          |       | (53,327                | )          | 1,492            |       |
| Interest Expense (Income)                                          |       | 51,113            |       | 14,735         |       | (1,876         | )          | (52,093                | )          | 11,879           |       |
| (Loss) Earnings from Continuing Operations Before  Income Taxes    |       | (53,942           | )          | 64,866         |       | 5,079          |       | —                 |       | 16,003           |       |
| Income Tax (Benefit) Expense                                       |       | (16,490           | )          | 19,896         |       | 1,554          |       | —                 |       | 4,960            |       |
| Equity in Earnings of Subsidiaries                                 |       | 47,777            |       | —         |       | —         |       | (47,777                | )          | —           |       |
| Net Earnings from Continuing Operations                            |       | 10,325            |       | 44,970         |       | 3,525          |       | (47,777                | )          | 11,043           |       |
| Discontinued Operations, Net of Tax                                |       | (205              | )          | (718           | )          | —         |       | —                 |       | (923             | )          |
| Net Earnings                                                       |       | $                 | 10,120     |           | $          | 44,252         |       | $                      | 3,525      |             | $          | (47,777 | ) | $ | 10,120 |   |

 

16

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Table ofContents

 

CONDENSED CONSOLIDATINGSTATEMENT OF CASH FLOWS

(dollars in thousands)

(unaudited)

 
| **Twenty-six Weeks Ended August 1, 2009**                             | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|------------------|------------|
| **Cash Flows from Operating  Activities:**                                                     |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Earnings                                                                                   |       | $                 | 18,644     |                       | $          | 30,757                               |       | $                                     | 824        |             | $          | (31,581 | ) | $ | 18,644 |   |
| Adjustments to Reconcile Net Earnings to Net Cash  (Used in) Provided By Continuing Operations |       | (25,378           | )          | 23,636                     |       | 662                                  |       | 30,348                                |       | 29,268           |       |
| Changes in operating assets and liabilities                                                    |       | 34,293            |       | 7,631                      |       | (7,665                               | )          | —                                |       | 34,259           |       |
| Net cash provided by (used in) continuing  operations                                          |       | 27,559            |       | 62,024                     |       | (6,179                               | )     | (1,233                                | )          | 82,171           |       |
| Net cash provided by (used in) discontinued  operations                                        |       | 7                 |       | (550                       | )          | —                               |       | —                                |       | (543             | )          |
| Net Cash Provided by (Used in) Operating  Activities                                           |       | 27,566            |       | 61,474                     |       | (6,179                               | )     | (1,233                                | )          | 81,628           |       |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net cash used in continuing operations                                                         |       | (9,616            | )          | (7,267                     | )          | —                               |       | —                                |       | (16,883          | )          |
| Net cash provided by discontinued operations                                                   |       | —            |       | 1,758                      |       | —                               |       | —                                |       | 1,758            |       |
| Net Cash Used in Investing Activities                                                          |       | (9,616            | )     | (5,509                     | )     | —                               |       | —                                |       | (15,125          | )          |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Cash (Used In) Provided by Financing  Activities                                           |       | (17,691           | )     | (57,494                    | )          | 8,003                                |       | 1,233                                 |       | (65,949          | )          |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Increase (Decrease) in Cash and Cash  Equivalents                                          |       | 259               |       | (1,529                     | )          | 1,824                                |       | —                                |       | 554              |       |
| Cash and Cash Equivalents at Beginning of Period                                               |       | 12,753            |       | 6,393                      |       | 2,186                                |       | —                                |       | 21,332           |       |
| Cash and Cash Equivalents at End of Period                                                     |       | $                 | 13,012     |                       | $          | 4,864                                |       | $                                     | 4,010      |             | $          | — |   | $ | 21,886 |   |
|                                                                                                |            |                   |            |                            |            |                                      |            |                                       |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 
| **Twenty-six Weeks Ended August 2, 2008**                             | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|------------------|------------|
| **Cash Flows from Operating  Activities:**                                                     |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Earnings                                                                                   |       | $                 | 10,120     |                       | $          | 44,252                               |       | $                                     | 3,525      |             | $          | (47,777 | ) | $ | 10,120 |   |
| Adjustments to Reconcile Net Earnings to Net Cash  (Used in) Provided By Continuing Operations |       | (36,176           | )          | 10,648                     |       | 534                                  |       | 47,160                                |       | 22,166           |       |
| Changes in operating assets and liabilities                                                    |       | (24,557           | )          | 1,242                      |       | (1,342                               | )          | —                                |       | (24,657          | )          |
| Net cash (used in) provided by continuing  operations                                          |       | (50,613           | )          | 56,142                     |       | 2,717                                |       | (617                                  | )          | 7,629            |       |
| Net cash used in discontinued operations                                                       |       | (133              | )          | (282                       | )          | —                               |       | —                                |       | (415             | )          |
| Net Cash (Used in) Provided by Operating  Activities                                           |       | (50,746           | )          | 55,860                     |       | 2,717                                |       | (617                                  | )          | 7,214            |       |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Cash Provided by Investing Activities                                                      |       | 27,584            |       | 49,517                     |       | —                               |       | —                                |       | 77,101           |       |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Cash Provided by (Used in) Financing  Activities                                           |       | 53,713            |       | (105,714                   | )          | 2,358                                |       | 617                                   |       | (49,026          | )          |
|                                                                                           |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Net Increase (Decrease) in Cash and Cash  Equivalents                                          |       | 30,551            |       | (337                       | )          | 5,075                                |       | —                                |       | 35,289           |       |
| Cash and Cash Equivalents at Beginning of Period                                               |       | 12,208            |       | 6,655                      |       | 2,063                                |       | —                                |       | 20,926           |       |
| Cash and Cash Equivalents at End of Period                                                     |       | $                 | 42,759     |                       | $          | 6,318                                |       | $                                     | 7,138      |             | $          | — |   | $ | 56,215 |   |
|                                                                                                |            |                   |            |                            |            |                                      |            |                                       |            |                  |            |  |  |  |  |  |  |  |  |  |  |

 

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NOTE 14. Commitments and Contingencies

 

In September 2006, the United StatesEnvironmental Protection Agency (“EPA”) requested certain information from theCompany as part of an investigation to determine whether the Company hadviolated, and is in violation of, the Clean Air Act and its non-road engineregulations. The information requested concerned certain generator and personaltransportation merchandise offered for sale by the Company. In the fourthquarter of fiscal year 2008, the EPA informed the Company that it believed thatthe Company had violated the Clean Air Act by virtue of the fact that certainof this merchandise did not conform to their corresponding EPA Certificates ofConformity and that unless the EPA and the Company were able to reach asettlement, the EPA was prepared to commence a civil action. The Company iscurrently engaged in settlement discussions with the EPA that would call forthe payment of a civil penalty and certain injunctive relief. As a result ofthese discussions, the Company has accrued an amount equal to its estimate ofthe civil penalty that the Company is prepared to pay to settle the matter andhas temporarily restricted from sale, and taken a partial asset impairmentagainst certain inventory. If the Company is not able to reach a settlementwith the EPA on mutually acceptable terms, the Company is prepared tovigorously defend any civil action filed.

 

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

 

The Company believes that amounts accrued forawards or assessments in connection with all such matters are adequate and thatthe ultimate resolution of these matters will not have a material adverseeffect on the Company’s financial position. However, there exists a reasonablepossibility of loss in excess of the amounts accrued, the amount of whichcannot currently be estimated. While the Company does not believe that the amountof such excess loss could be material to the Company’s financial position, anysuch loss could have a material adverse effect on the Company’s results ofoperations in the period(s) during which the underlying matters areresolved.

 

NOTE 15. Other Comprehensive Income

 

The following are the components of othercomprehensive income:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **August 1,  2009**           | ** ** | **August 2,  2008**             | ** ** | **August 1,  2009** | ** ** | **August 2,  2008** | ** ** |
| Net earnings                                     |       | $                                  | 7,735      |                                 | $          | 5,448 |   | $ | 18,644 |   | $ | 10,120 |   |
| Other comprehensive income (loss), net of tax:   |       |                               |       |                                 |       |   |   |   |   |
| Defined benefit plan adjustment                  |       | 356                                |       | 213                                  |       | 560 |   | 487 |   |
| Derivative financial instrument adjustment       |       | 990                                |       | 1,637                                |       | 1,038 |   | 3,060 |   |
| Other Comprehensive Income                       |       | $                                  | 9,081      |                                 | $          | 7,298 |   | $ | 20,242 |   | $ | 13,667 |   |

 

The components of accumulated othercomprehensive loss are:

 
| **(dollar amounts in thousands)**        | ** ** | **August 1, 2009** | ** ** | **January 31, 2009** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| Defined benefit plan adjustment, net of tax             |       | $                       | (7,193     | )                         | $          | (7,753 | ) |
| Derivative financial instrument adjustment, net of  tax |       | (9,284                  | )          | (10,322                   | )          |
| Accumulated other comprehensive loss                    |       | $                       | (16,477    | )                         | $          | (18,075 | ) |

 

NOTE 16. Fair Value Measurements

 

Effective February 3, 2008, the Companyadopted FASB Statement No. 157, “Fair Value Measurement” (SFAS No. 157),which defines fair value, establishes a framework for measuring fair value andexpands disclosure requirements about fair value measurements. This standarddefines fair value as the price received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date. SFAS No. 157 establishes a framework for measuring fairvalue by creating a hierarchy of valuation inputs used to measure fair value,and although it does not require additional fair value measurements, it doesapply to other accounting pronouncements that require or permit fair valuemeasurements.

 

The hierarchy prioritizes the inputs into threebroad levels:

 

Level 1 inputs—unadjusted quoted prices inactive markets for identical assets or liabilities that the Company has theability to access. An active market for the asset or liability is one in whichtransactions for the asset or liability occur with sufficient frequency and 

 

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volume to provide ongoing pricing information.

 

Level 2 inputs—inputs other than quoted marketprices included in Level 1 that are observable, either directly or indirectly,for the asset or liability. Level 2 inputs include, but are not limited to,quoted prices for similar assets or liabilities in an active market, quotedprices for identical or similar assets or liabilities in markets that are notactive and inputs other than quoted market prices that are observable for theasset or liability, such as interest rate curves and yield curves observable atcommonly quoted intervals, volatilities, credit risk and default rates.

 

Level 3 inputs—unobservable inputs for the assetor liability.

 

The following table provides the fair valuemeasurement amounts for assets and liabilities recorded on the Company’sCondensed Consolidated Balance Sheet at fair value as of August 1, 2009:

 
| **(dollar amounts in thousands)** | ** ** | **Fair Value  at**      | ** ** | **Fair Value Measurements  Using Inputs Considered as** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Description**                                  | ** ** | **August 1, 2009** | ** ** | **Level 1**                                                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                      |       |                         |       |                                                                             |       |   |   |   |   |
| Cash and Cash Equivalents                        |       | $                            | 21,886     |                                                                             | $          | 21,886 |   |   |   |   |   |
| Assets held for disposal                         |       | 9,912                        |       |                                                                             |       | $ | 9,912 |   |   |   |
| Investments (a)                                  |       | 500                          |       | 500                                                                              |       |   |   |   |   |
|                                             |       |                         |       |                                                                             |       |   |   |   |   |
| **Liabilities:**                                 |       |                         |       |                                                                             |       |   |   |   |   |
| Derivative liability (b)                         |       | 14,336                       |       |                                                                             |       | 14,336 |   |   |   |
|                                                  |            |                              |            |                                                                                  |            |  |  |  |  |  |  |  |

 

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(a)          included inother long-term assets

(b)         included inother long-term liabilities

 

The Company has one interest rate swapdesignated as a cash flow hedge on $145,000 of the Company’s $150,254 SeniorSecured Term Loan facility that expires in October, 2013. The swap is used tominimize interest rate exposure and overall interest costs by converting thevariable interest rate to a fixed rate of 5.036%. Since February 1, 2008,this swap was deemed to be fully effective and pursuant to SFAS No. 133,all adjustments in the interest rate swap’s fair value have been recorded toAccumulated Other Comprehensive Loss.

 

The table below shows the effect of the Company’sinterest rate swap on the Condensed Consolidated Statement of Operations forthe periods indicated:

 
| **(dollar amounts in thousands)** | ** ** | **Amount  of Gain in********Other  Comprehensive Income********(Effective  Portion)** | ** ** | **Earnings  Statement  Classification** | ** **       | **Amount  of Loss  Recognized in Earnings  (Effective Portion) (a)** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|-----------------------------------------|------------------|----------------------------------------------------------------------|------------|
| Thirteen weeks ended August 1, 2009         |       | $                                                                                     | 962        |                                    | Interest expense |                                                                 | $          | (1,385 | ) |
| Twenty-six weeks ended August 1, 2009       |       | $                                                                                     | 925        |                                    | Interest expense |                                                                 | $          | (2,431 | ) |

 

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(a) representsthe effective portion of the loss reclassified from accumulated othercomprehensive loss

 

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Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations

 

The discussion and analysis below should be readin conjunction with (i) the condensed consolidated interim financialstatements and the notes to such financial statements included elsewhere inthis Quarterly Report on Form 10-Q and (ii) the consolidatedfinancial statements and the notes to such financial statements included inItem 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-Kfor the fiscal year ended January 31, 2009.

 

OVERVIEW

 

The Pep Boys-Manny, Moe & Jack is theonly national chain offering automotive service, tires, parts and accessories,positioning us to achieve our vision of becoming the automotive solutionsprovider of choice for the value-oriented customer. Our primary operating unitis our SUPERCENTER format, which serves both “do-it-for-me” DIFM (servicelabor, installed merchandise and tires) and “do-it-yourself” DIY (retail)customers with the highest quality service offerings and merchandise. In mostof our SUPERCENTERS, we also have a commercial sales program that providescommercial credit and prompt delivery of tires, parts and other products tolocal, regional and national repair shops and dealers. As part of our long-termstrategy to lead with automotive service, in 2009 we began complementing ourexisting SUPERCENTER store base with service and tire centers. These serviceand tire centers are designed to capture market share and leverage our existingSUPERCENTERS and support infrastructure. In the second quarter of 2009, weopened three new service and tire centers. As of August 1, 2009, weoperated 552 SUPERCENTERS and five service and tire centers, as well as ninelegacy PEP BOYS EXPRESS (retail only) stores throughout 35 states and PuertoRico. Subsequent to the end of our second quarter, we opened two additionalservice and tire centers, bringing the total number of centers opened duringfiscal year 2009 to six.

 

The prototypical service and tire center isexpected to have between four and eight service bays, preferably six. Thecapital investment for a prototype, including inventory net of payables, isprojected to be approximately $450,000 to $550,000 and a prototype is expectedto generate approximately $1,000,000 to $1,500,000 in sales and $150,000 to$250,000 of EBITDA annually. We currently plan to lease service and tire centerlocations, as we believe that there are sufficient existing available locationswith attractive lease terms to enable our expansion. We are targeting a totalof 15 new service and tire centers in fiscal year 2009 and 20 to 40 in fiscal2010 to prove the concept and economics.

 

For the thirteen weeks ended August 1,2009, our comparable sales (sales generated by locations in operation duringthe same period) decreased by 2.3% compared to a decrease of 7.5% for the thirteenweeks ended August 2, 2008. This decrease in comparable sales in thesecond quarter of fiscal 2009 was comprised of a 4.0% decrease in comparablemerchandise sales partially offset by a 5.2% increase in comparable servicerevenue. The difficult macro environment, including higher unemployment,negatively impacts sales in our discretionary product categories as consumersdefer spending, while sales of non discretionary service and hard parts have benefitedfrom recent trends. We believe that the steep decline in new car sales during2008 and the first half of 2009 will continue to generate additional servicerevenues and hard parts sales as consumers spend more maintaining and repairingtheir aging vehicles. In part, offsetting the decline in new car sales is milesdriven (miles driven affect wear items such as tires) which declined for thethirteenth straight month in March. In April and June, miles driven increasedover the prior year reflecting in part lower gasoline prices. We believegasoline prices impact our customers behavior when it comes to maintaining anddriving their cars. Changes in gasoline prices significantly impact the amountof discretionary income available to consumers each month. The average price ofgasoline declined to $2.50 per gallon in the thirteen weeks ended August 1,2009 as compared to $4.01 per gallon in the thirteen weeks ended August 2,2008. We also believe that accesory sales are, in part, prompted by consumers’purchases of vehicles, whether pre-owned or new.

 

To capitalize on these trends, we continue tofocus on refining and expanding our parts assortment to improve our in stockposition, improving execution and the customer experience and utilizingtelevision and radio advertising to communicate our value offerings. In thethirteen and twenty-six weeks ended August 1, 2009, we were able tosuccessfully increase customer traffic and sales in our service and commercialbusinesses.

 

Our net earnings for the thirteen weeks ended August 1,2009 were $7,735,000, a $2,287,000 improvement over the net earnings of$5,448,000 reported for the thirteen weeks ended August 2, 2008. Thisincrease in profitability resulted primarily from increased sales and grossprofit margins in our service business and lower Selling, General and Administrativeexpenses due to continued disciplined spending control, partially offset bylower gains from sales of assets and an increase in income tax expense.

 

Our net earnings per share for the thirteen andtwenty-six weeks ended August 1, 2009 were $0.15 and $0.36 per share,respectively, as compared to $0.10 and $0.19 per share for the correspondingperiods ended August 2, 2008, respectively. (See Results of Operations).

 

The following discussion explains thesignificant developments affecting our financial condition and material changesin our results of 

 

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operations for the thirteen weeks and twenty-sixweeks ended August 1, 2009. We recommend that you also read the auditedconsolidated financial statements, footnotes and Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K for the fiscal year ended January 31,2009.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our cash requirements arise principally from thepurchase of inventory and capital expenditures related to existing and newstores, offices and distribution centers, debt service and contractualobligations. Cash flows realized through the sales of automotive services,tires, parts and accessories are our primary source of liquidity. Net cashprovided by operating activities was $81,628,000 in the twenty-six weeks ended August 1,2009 compared to $7,214,000 in the twenty-six weeks ended August 2, 2008.The $74,414,000 improvement from the prior year was due to a $15,626,000increase in our net earnings (net of non-cash adjustments) and a $58,916,000favorable change in operating assets and liabilities. The change in operatingassets and liabilities was primarily due to favorable changes in inventory of$15,225,000, accounts payable of $27,334,000 and in all other assets andliabilities of $16,357,000. The decline in inventory resulted from moredisciplined inventory management, including reduced seasonal inventorypurchases, inventory lead times and safety stocks. The improvement in accountspayable resulted primarily from our transition to a new trade payable financingpartner. On April 6, 2009, a previously existing program was replaced bythis new program which is funded by various bank participants who have theability, but not the obligation, to purchase directly from our vendors theiraccount receivables owed by us. This transition has temporarily resulted in anet reduction in our trade payable financing program of $29,316,000, as vendorstypically participating on the financing program were shifted to our normaltrade payables until such time as they transition back to the financing program(expected to be sometime in the third quarter). As of August 1, 2009, wehad an outstanding balance of $2,614,000 (classified as trade payable programliability on the consolidated balance sheet) under our current vendor financingprogram. The favorable change in all other assets and liabilities was due toreduced accounts receivable as a result of improved collection of vendorallowances and as a result of lower declines in accrued expenses due in part toa payment in the prior year first quarter of $4,539,000 in connection withreducing the notional value on an interest rate swap by $55,000,000.

 

Cash used in investing activities was$15,125,000 for the twenty-six week period ended August 1, 2009 ascompared to net cash provided by investing activities of $77,101,000 in thetwenty-six weeks ended August 2, 2008. During 2008, we generated$208,211,000 from the disposition of assets primarily due to sale-leasebacktransactions, the proceeds of which were used to repurchase 29 properties for$117,121,000 that were previously leased under a master operating lease. Duringthe twenty-six week period ending August 1, 2009, we sold three propertiesthat were classified as held for sale for net proceeds of $2,783,000 andrecognized a net gain of $89,000. Capital expenditures in the first twenty-sixweeks of 2009 and 2008 were $17,481,000 and $13,989,000, respectively. Capitalexpenditures for the current year were for maintenance of our existing storesand distribution centers, and for the opening of the new service and tirecenters.

 

Our fiscal year 2009 capital expenditures areexpected to be approximately $50,000,000 which includes the addition ofapproximately 15 service and tire centers and required expenditures for ourexisting stores, offices and distribution centers. These expenditures areexpected to be funded by net cash generated from operating activities and ourexisting line of credit.

 

In the twenty-six weeks ended August 1,2009 and August 2, 2008, we used cash in financing activities of$65,949,000 and $49,026,000, respectively. In the current year, we repurchased$16,970,000 of our outstanding 7.5% Senior Subordinated Notes for $10,722,000,repaid $22,267,000 of borrowings under our credit facility and repaid$29,316,000 on borrowings under our trade payable financing program asdiscussed above. In the prior year, we used the proceeds from thesale-leaseback transactions discussed above to reduce debt obligations underour then existing credit facility, and to repurchase $25,465,000 principalamount of our 7.5% Senior Secured Notes for $22,005,000.

 

We anticipate that cash provided by operatingactivities, our existing line of credit and cash on hand will exceed ourexpected cash requirements in fiscal year 2009. We expect to have excessavailability under our existing line of credit during the entirety of fiscalyear 2009. We also have substantial owned real estate which we believe we canmonetize, if necessary, through additional sale leaseback or other financingtransactions. As of August 1, 2009, we had undrawn availability under ourrevolving credit facility of $126,311,000.

 

Our working capital was $170,151,000 and$179,233,000 at August 1, 2009 and January 31, 2009, respectively.Our long-term debt, as a percentage of our total capitalization, was 41% and45% at August 1, 2009 and January 31, 2009, respectively.

 

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RESULTS OF OPERATIONS

 

Thirteen Weeks Ended August 1, 2009 vs.Thirteen Weeks Ended August 2, 2008

 

The following table presents for the periodsindicated certain items in the consolidated statements of operations as apercentage of total revenues (except as otherwise provided) and the percentagechange in dollar amounts of such items compared to the indicated prior period.

 
| ** **                                               | ** ** | **Percentage of Total Revenues**  | ** ** | **Percentage Change**                             | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Thirteen Weeks Ended**                       | ** ** | **August 1, 2009  (Fiscal 2009)** | ** ** | **August 2, 2008   (Fiscal 2008)** | ** ** | **Favorable  (Unfavorable)** | ** ** |
|                                                     |       |                                             |       |                                                   |       |   |   |
| Merchandise Sales                                        |       | 80.2                                             | %          | 81.6                                                   | %          | (3.9 | )% |
| Service Revenue (1)                                      |       | 19.8                                             |       | 18.4                                                   |       | 5.3 |   |
| Total Revenue                                            |       | 100.0                                            |       | 100.0                                                  |       | (2.2 | ) |
| Costs of Merchandise Sales (2)                           |       | 70.3                                             | (3)        | 69.7                                                   | (3)        | 3.0 |   |
| Costs of Service Revenue (2)                             |       | 87.7                                             | (3)        | 92.6                                                   | (3)        | 0.3 |   |
| Total Costs of Revenue                                   |       | 73.8                                             |       | 73.9                                                   |       | 2.4 |   |
| Gross Profit from Merchandise Sales                      |       | 29.7                                             | (3)        | 30.3                                                   | (3)        | (6.0 | ) |
| Gross Profit from Service Revenue                        |       | 12.3                                             | (3)        | 7.4                                                    | (3)        | 75.8 |   |
| Total Gross Profit                                       |       | 26.2                                             |       | 26.1                                                   |       | (1.7 | ) |
| Selling, General and Administrative Expenses             |       | 22.4                                             |       | 24.5                                                   |       | 10.7 |   |
| Net (Loss) Gain from Dispositions of Assets              |       | —                                           |       | 0.8                                                    |       | (100.4 | ) |
| Operating Profit                                         |       | 3.8                                              |       | 2.4                                                    |       | 57.0 |   |
| Non-operating Income                                     |       | 0.1                                              |       | 0.2                                                    |       | (53.6 | ) |
| Interest Expense                                         |       | 1.3                                              |       | 1.3                                                    |       | (0.2 | ) |
| Earnings from Continuing Operations Before Income  Taxes |       | 2.6                                              |       | 1.3                                                    |       | 92.9 |   |
| Income Tax Expense                                       |       | 38.4                                             | (4)        | 13.1                                                   | (4)        | (466.6 | ) |
| Net Earnings from Continuing Operations                  |       | 1.6                                              |       | 1.2                                                    |       | 36.6 |   |
| Discontinued Operations, Net of Tax                      |       | —                                           |       | (0.1                                                   | )          | 59.5 |   |
| Net Earnings                                             |       | 1.6                                              |       | 1.1                                                    |       | 42.0 |   |

 

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| (1) |   | Service  revenue consists of the labor charge for installing merchandise or  maintaining or repairing vehicles, excluding the sale of any installed parts  or materials.                                                                                                                                                                                                                  |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Costs  of merchandise sales include the cost of products sold, buying, warehousing  and store occupancy costs. Costs of service revenue include service center  payroll and related employee benefits and service center occupancy costs.  Occupancy costs include utilities, rents, real estate and property taxes,  repairs and maintenance and depreciation and amortization expenses. |
| (3) |   | As  a percentage of related sales or revenue, as applicable.                                                                                                                                                                                                                                                                                                                              |
| (4) |   | As  a percentage of Earnings from Continuing Operations Before Income Taxes.                                                                                                                                                                                                                                                                                                              |

 

Total revenue for the thirteen weeks ended August 1,2009 decreased 2.2% while comparable store revenue decreased 2.3% as comparedto the thirteen weeks ended August 2, 2008. The 2.3% decrease incomparable store revenues consisted of a 4.0% decrease in comparablemerchandise sales that was partially offset by an increase of 5.2% incomparable service revenue. The decrease in merchandise sales was primarily dueto weaker sales in our retail business stemming from lower customer counts andless discretionary spending by our customers.

 

In the second quarter of 2009, customer trafficgenerated by two promotional events resulted in an increase in service andcommercial customer count. However, total customer count declined in the secondquarter of 2009 as a result of a decrease in DIY retail customer count. Webelieve the decrease in retail customer count is a result of our competitorscontinuing to open new stores, the long term industry decline in the DIYbusiness and overall reduced spending due to the current economic environment.In addition, we carry a large assortment of more discretionary retail productthat is more susceptible to consumer spending deferrals. We continue to believethat providing a differentiated merchandise assortment, better customerexperience, value proposition and innovative marketing will stem the overalldecline in customer counts and sales over the long term.

 

Gross profit as a percentage of merchandisesales decreased from 30.3% for the second quarter of 2008 to 29.7% for thesecond quarter of 2009. Gross profit decreased by $7,380,000 primarily due tothe reduced sales as discussed above. Product gross profit margins declined 90basis points as a result of increased product promotions and an overall changein product mix, offset by lower occupancy, warehousing and other costs whichimproved by 30 basis points.

 

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Gross profit from service revenue increased as apercentage of service revenue to 12.3 % for the second quarter of 2009 from7.4% for the second quarter of 2008. Gross profit from service sales grew by$5,136,000 or 75.8%. The increase in gross profit was primarily due to theincrease in service revenue which resulted in higher absorption of fixedexpenses such as occupancy costs and to a certain extent, labor costs.

 

Selling,General and Administrative expenses, as a percentage of total revenuesdecreased from 24.5% for the second quarter of 2008 to 22.4% for the secondquarter of 2009. Selling, General and Administrative expenses decreased$13,121,000 or 10.7%.  The decrease wasprimarily due to $1,255,000 in reduced payroll and related expenses, $5,584,000of less media expense, $2,963,000 of lower legal, expenses and professionalservices fees and $1,149,000 of lower travel expenses.

 

Net gains from the disposition of assets for thethirteen weeks ended August 2, 2008, reflects $4,077,000 in gains from thesale and leaseback of 22 stores.

 

Interest expense remained relatively flat at$6,466,000 compared to $6,452,000 for the prior year. The prior year included a$577,000 gain from the retirement of debt. Excluding this gain, interestexpense declined by $563,000 from 2008 to 2009 primarily due to reduced debtlevels.

 

Our income tax expense for the second quarter of2009 was $4,907,000 or an effective rate of 38.4% as compared to an expense of$866,000 or an effective rate of 13.1% for the second quarter of 2008. Thesecond quarter of 2009 included a $480,000 income tax benefit resulting fromthe settlement of uncertain tax benefits (See Note 6 to the CondensedConsolidated Financial Statements). The second quarter of 2008 included aone-time tax benefit of $2,200,000 resulting from the recording of a deferredtax asset due to a state tax law change.

 

Twenty-six Weeks Ended August 1, 2009 vs.Twenty-six Weeks Ended August 2, 2008

 

The following table presents for the periodsindicated certain items in the consolidated statements of operations as apercentage of total revenues (except as otherwise provided) and the percentagechange in dollar amounts of such items compared to the indicated prior period.

 
| ** **                                               | ** ** | **Percentage of Total Revenues**  | ** ** | **Percentage Change**                       | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| **Twenty-six Weeks Ended**                     | ** ** | **August 1, 2009  (Fiscal 2009)** | ** ** | **August 2, 2008  (Fiscal 2008)** | ** ** | **Favorable  (Unfavorable)** | ** ** |
| Merchandise Sales                                        |       | 80.2                                             | %          | 81.3                                             | %          | (2.6 | )% |
| Service Revenue (1)                                      |       | 19.8                                             |       | 18.7                                             |       | 4.5 |   |
| Total Revenue                                            |       | 100.0                                            |       | 100.0                                            |       | (1.3 | ) |
| Costs of Merchandise Sales (2)                           |       | 70.5                                             | (3)        | 70.3                                             | (3)        | 2.4 |   |
| Costs of Service Revenue (2)                             |       | 87.5                                             | (3)        | 90.7                                             | (3)        | (0.8 | ) |
| Total Costs of Revenue                                   |       | 73.8                                             |       | 74.1                                             |       | 1.6 |   |
| Gross Profit from Merchandise Sales                      |       | 29.5                                             | (3)        | 29.7                                             | (3)        | (3.2 | ) |
| Gross Profit from Service Revenue                        |       | 12.5                                             | (3)        | 9.3                                              | (3)        | 40.6 |   |
| Total Gross Profit                                       |       | 26.2                                             |       | 25.9                                             |       | (0.2 | ) |
| Selling, General and Administrative Expenses             |       | 22.1                                             |       | 24.2                                             |       | 10.0 |   |
| Net Gain from Dispositions of Assets                     |       | —                                           |       | 1.0                                              |       | (100.1 | ) |
| Operating Profit                                         |       | 4.1                                              |       | 2.6                                              |       | 52.5 |   |
| Non-operating Income                                     |       | 0.1                                              |       | 0.1                                              |       | (36.9 | ) |
| Interest Expense                                         |       | 0.9                                              |       | 1.2                                              |       | 29.3 |   |
| Earnings from Continuing Operations Before Income  Taxes |       | 3.3                                              |       | 1.6                                              |       | 104.9 |   |
| Income Tax Expense                                       |       | 42.3                                             | (4)        | 31.0                                             | (4)        | (179.5 | ) |
| Net Earnings from Continuing Operations                  |       | 1.9                                              |       | 1.1                                              |       | 71.3 |   |
| Discontinued Operations, Net of Tax                      |       | —                                           |       | (0.1                                             | )          | 70.0 |   |
| Net Earnings                                             |       | 1.9                                              |       | 1.0                                              |       | 84.2 |   |

 

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| (1) | Service  revenue consists of the labor charge for installing merchandise or  maintaining or repairing vehicles, excluding the sale of any installed parts  or materials.                                                                                                                                                                                                                  |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Costs  of merchandise sales include the cost of products sold, buying, warehousing  and store occupancy costs. Costs of service revenue include service center  payroll and related employee benefits and service center occupancy costs.  Occupancy costs include utilities, rents, real estate and property taxes,  repairs and maintenance and depreciation and amortization expenses. |
| (3) | As  a percentage of related sales or revenue, as applicable.                                                                                                                                                                                                                                                                                                                              |

 

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| (4) | As  a percentage of Earnings from Continuing Operations Before Income Taxes. |
|-----|------------------------------------------------------------------------------|

 

Total revenue and comparable store revenue forthe twenty-six weeks ended August 1, 2009 decreased 1.3%, as compared tothe twenty-six weeks ended August 2, 2008. Comparable merchandise salesdecreased 2.6% and was partially offset by an increase in comparable servicerevenue of 4.5%. The decrease in merchandise sales was primarily due to weakersales in our retail business stemming from lower customer counts and lessdiscretionary spending by our customers.

 

Gross profit as a percent of merchandise salesdecreased to 29.5% for the twenty-six weeks ended August 1, 2009 from29.7% for the twenty-six weeks ended August 2, 2008. Gross profit frommerchandise sales decreased $7,649,000 or 3.2% due to the reduced merchandisesales discussed above. Product gross profit margins declined by 90 basis pointsas result of increased product promotions and an overall change in product mix,offset by lower occupancy and warehousing costs, which improved by 70 basispoints.

 

Gross profit from service revenue increased as apercentage of service revenues to 12.5% for the twenty-six weeks ended August 1,2009 from 9.3% for the twenty-six weeks ended August 2, 2008. Gross profitfrom service sales increased by 40.6% or $7,040,000. This increase in grossprofit was primarily due to the increase in service revenue. The increase insales volume resulted in higher absorption of fixed expenses such as occupancycosts and to a certain extent, labor costs.

 

Selling, General and Administrative expenses, asa percentage of total revenues decreased from 24.2% for the twenty-six weeksended August 2, 2008 to 22.1% for the twenty-six weeks ended August 1,2009. Selling, General and Administrative expenses decreased $24,083,000 or10.0%. The decrease was primarily due to $5,015,000 in reduced payroll andrelated expenses, $11,050,000 of less media expense, $4,867,000 of lower legalexpenses and professional services fees and $1,644,000 of lower travelexpenses.

 

Net gain from the disposition of assets for thetwenty-six weeks ended August 2, 2008 reflects gains of $9,608,000 fromthe sale and lease back of 63 stores.

 

Interest expense declined by $3,477,000 to$8,402,000 for the twenty-six weeks ended August 1, 2009 from $11,879,000for the twenty-six weeks ended August 2, 2008. Both periods included gainsfrom the retirement of debt of $6,248,000 and $3,460,000, respectively.Excluding these gains, interest expense declined by $689,000 from 2008 to 2009primarily due to reduced debt levels.

 

Income tax expense was $13,862,000 or aneffective rate of 42.3% for the twenty-six weeks ended August 1, 2009 ascompared to $4,960,000 or an effective rate of 31% for the twenty-six weeksended August 2, 2008. The prior year included a one-time tax benefit of$2,200,000 resulting from the recording of a deferred tax asset due to a statetax law change.

 

INDUSTRY COMPARISON

 

We operate in the U.S. automotive aftermarket,which has two general lines of business: the Service Business defined asDo-It-For-Me (service labor, installed merchandise and tires) and the RetailBusiness defined as Do-It-Yourself (retail merchandise) and commercial.Generally, specialized automotive retailers focus on either the Retail orService area of the business. We believe that operation in both the Retail andService areas of the business positively differentiates us from most of ourcompetitors. Although we manage our store performance at a store level inaggregation, we believe that the following presentation shows an accuratecomparison against competitors within the two sales arenas. We compete in theRetail area of the business through our retail sales floor and commercial salesbusiness. Our Service Center business competes in the Service area of theindustry. The following table presents the revenues and gross profit for eacharea of the business.

 

The following table presents the revenues andgross profit for each area of the business:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **August 1,**                 | ** ** | **August 2,**                   | ** ** | **August 1,** | ** ** | **August 2,** | ** ** |
| **(Dollar amounts in thousands)** | ** ** | **2009**                           | ** ** | **2008**                             | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Retail Sales (1)                                 |       | $                                  | 259,435    |                                 | $          | 275,890 |   | $ | 523,846 |   | $ | 549,215 |   |
| Service Center Revenue (2)                       |       | 229,476                            |       | 224,153                              |       | 461,553 |   | 448,871 |   |
| Total Revenues                                   |       | $                                  | 488,911    |                                 | $          | 500,043 |   | $ | 985,399 |   | $ | 998,086 |   |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Gross Profit from Retail Sales (3)               |       | $                                  | 70,746     |                                 | $          | 78,375 |   | $ | 144,301 |   | $ | 151,779 |   |
| Gross Profit from Service Center Revenue (3)     |       | 57,444                             |       | 52,059                               |       | 113,490 |   | 106,621 |   |
| Total Gross Profit                               |       | $                                  | 128,190    |                                 | $          | 130,434 |   | $ | 257,791 |   | $ | 258,400 |   |

 

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| (1) | Excludes  revenues from installed products. |
|-----|---------------------------------------------|

 

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| (2) | Includes  revenues from installed products.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Gross  Profit from Retail Sales includes the cost of products sold, buying,  warehousing and store occupancy costs. Gross Profit from Service Center  Revenue includes the cost of installed products sold, buying, warehousing,  service center payroll and related employee benefits and service center  occupancy costs. Occupancy costs include utilities, rents, real estate and  property taxes, repairs and maintenance and depreciation and amortization  expenses. |

 

NEW ACCOUNTING STANDARDS

 

In April 2009, the Financial AccountingStandards Board (FASB) jointly issued FASB Staff Position No. 107-1, “InterimDisclosures about Fair Value of Financial Instruments” (FSP No. 107-1) andAccounting Practices Bulletin Opinion No. 28-1 (APB No. 28-1). FSP No. 107-1and APB No. 28-1 amend SFAS No. 107 “Disclosures about Fair Value ofFinancial Instruments”, to require disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as wellas in annual financial statements. FSP No. 107-1 and APB No. 28-1 areeffective for interim reporting periods ending after June 15, 2009. Theadoption of FSP No. 107-1 and APB No. 28-1 did not have a materialaffect on the Company’s consolidated financial statements.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations discusses our condensedconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of thecondensed consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. Additionally, we estimateour interim product gross margins in accordance with Accounting PrinciplesBulletin No. 28, “Interim Financial Reporting.”

 

On an on-going basis, we evaluate our estimatesand judgments, including those related to customer incentives, product returnsand warranty obligations, bad debts, inventories, income taxes, financingoperations, restructuring costs, retirement benefits, risk participationagreements and contingencies and litigation. We base our estimates andjudgments on historical experience and on various other factors that we believeto be reasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities thatare not readily apparent from other sources. Actual results may differ fromthese estimates under different assumptions or conditions. For a detaileddiscussion of significant accounting policies that may involve a higher degreeof judgment or complexity, refer to “Critical Accounting Policies and Estimates”as reported in our Annual Report on Form 10-K for the fiscal year ended January 31,2009, which disclosures are hereby incorporated by reference.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein constitute “forward-lookingstatements” within the meaning of The Private Securities Litigation Reform Actof 1995. The words “guidance,” “expect,” “anticipate,” “estimates,” “forecasts”and similar expressions are intended to identify such forward-lookingstatements. Forward-looking statements include management’s expectations regardingimplementation of its long-term strategic plan, future financial performance,automotive aftermarket trends, levels of competition, business developmentactivities, future capital expenditures, financing sources and availability andthe effects of regulation and litigation. Although we believe that theexpectations reflected in such forward-looking statements are based onreasonable assumptions, we can give no assurance that our expectations will beachieved. Our actual results may differ materially from the results discussedin the forward-looking statements due to factors beyond our control, includingthe strength of the national and regional economies, retail and commercialconsumers’ ability to spend, the health of the various sectors of the automotiveaftermarket, the weather in geographical regions with a high concentration ofour stores, competitive pricing, the location and number of competitors’stores, product and labor costs and the additional factors described in ourfilings with the Securities and Exchange Commission (SEC). We assume noobligation to update or supplement forward-looking statements that becomeuntrue because of subsequent events.

 

Item 3. Quantitative andQualitative Disclosures About Market Risk

 

Our primary market risk exposure with regard tofinancial instruments is to changes in interest rates. Pursuant to the terms ofour revolving credit agreement, changes in LIBOR or the Prime Rate could affectthe rates at which we could borrow funds thereunder. At August 1, 2009, wehad borrowings of $1,595,000 under this facility. Additionally, we have a$150,254,000 Senior Secured Term Loan facility that bears interest at threemonth LIBOR plus 2.0%.

 

We have an interest rate swap for a notionalamount of $145,000,000, which is designated as a cash flow hedge on our SeniorSecured 

 

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Term Loan. We record the effective portion ofthe change in fair value through Accumulated Other Comprehensive Loss.

 

The fair value of the interest rate swap was$14,336,000 and $15,808,000 payable at August 1, 2009 and January 31,2009, respectively. Of the net $1,472,000 decrease in fair value during thetwenty-six weeks ended August 1, 2009, $925,000, net of tax, was recordedto accumulated other comprehensive loss on the condensed consolidated balancesheet.

 

Item 4.  Controls and Procedures.

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Our disclosure controls and procedures (asdefined in Rule 13a-15 of the Securities Exchange Act of 1934 (the “ExchangeAct”)) are designed to ensure that information required to be disclosed isaccumulated and communicated to our management, including our principalexecutive and principal financial officers, as appropriate to allow timelydecisions regarding required disclosure. The term disclosure controls andprocedures means controls and other procedures of an issuer that are designedto ensure that information required to be disclosed by the issuer in thereports that it files or submits under the Act (15 U.S.C. 78a et seq.) isrecorded, processed, summarized and reported, within the time periods specifiedin the Commission’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by an issuer in the reports that it filesor submits under the Act is accumulated and communicated to the issuer’smanagement, including its principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. The Company’s management, with theparticipation of the Company’s chief executive officer and chief financialofficer, evaluated the effectiveness of the Company’s disclosure controls andprocedures as of the end of the period covered by this report. Based on thatevaluation, the chief executive officer and chief financial officer concludedthat our disclosure controls and procedures as of the end of the period coveredby this report were functioning effectively and provide reasonable assurancethat the information required to be disclosed by the Company in reports filedunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIALREPORTING

 

No change in the Company’s internal control overfinancial reporting occurred during the fiscal quarter covered by this reportthat has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

Item 5.  Other Information

 

None.

 

PART II - OTHERINFORMATION

 

Item 1.  Legal Proceedings

 

In September 2006, the United StatesEnvironmental Protection Agency (“EPA”) requested certain information from theCompany as part of an investigation to determine whether the Company hadviolated, and is in violation of, the Clean Air Act and its non-road engineregulations. The information requested concerned certain generator and personaltransportation merchandise offered for sale by the Company. In the fourthquarter of fiscal year 2008, the EPA informed the Company that it believed thatthe Company had violated the Clean Air Act by virtue of the fact that certainof this merchandise did not conform to their corresponding EPA Certificates ofConformity and that unless the EPA and the Company were able to reach asettlement, the EPA was prepared to commence a civil action. The Company iscurrently engaged in settlement discussions with the EPA that would call forthe payment of a civil penalty and certain injunctive relief. As a result ofthese discussions, the Company has accrued an amount equal to its estimate ofthe civil penalty that the Company is prepared to pay to settle the matter andhas temporarily restricted from sale, and taken a partial asset impairmentagainst certain inventory. If the Company is not able to reach a settlement withthe EPA on mutually acceptable terms, the Company is prepared to vigorouslydefend any civil action filed.

 

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

 

The Company believes that amounts accrued forawards or assessments in connection with all such matters are adequate and thatthe ultimate resolution of these matters will not have a material adverseeffect on the Company’s financial position. However, there exists a reasonablepossibility of loss in excess of the amounts accrued, the amount of whichcannot currently be estimated. While the Company does not believe that theamount of such excess loss could be material to the Company’s financialposition, any such loss could have a material adverse effect on the Company’sresults of operations in the period(s) during which the underlying mattersare resolved.

 

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Item 1A.  Risk Factors

 

Therehave been no changes to the risks described in the Company’s previously filedAnnual Report on Form 10-K for the fiscal year ended January 31,2009.

 

Item 2.  Unregistered Sales of EquitySecurities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Submission of Matters to a Vote ofSecurity Holders

 

An annual meeting ofshareholders was held on June 24, 2009. The shareholders elected thedirectors shown below who were all the nominees for election.

 

DirectorsElected at Annual Meeting of Shareholders

 

| **Name**             | ** ** | **Votes For** | ** ** | **Votes****Withheld** | ** ** | **Votes  Abstaining** | ** ** |
|----------------------|------------|--------------------|------------|-----------------------|------------|-----------------------|------------|
| Jane Scaccetti       |       | 46,747,749         |       | 4,163,288             |       | 289,501               |       |
| John T. Sweetwood    |       | 46,620,007         |       | 4,348,080             |       | 232,451               |       |
| M. Shân Atkins  |       | 46,352,599         |       | 4,548,796             |       | 299,143               |       |
| Robert H. Hotz       |       | 46,530,397         |       | 4,372,801             |       | 297,340               |       |
| James A. Mitarotonda |       | 46,034,407         |       | 4,942,909             |       | 223,222               |       |
| Nick White           |       | 46,442,818         |       | 4,469,252             |       | 288,468               |       |
| James A. Williams    |       | 46,289,844         |       | 4,555,366             |       | 355,328               |       |
| Irvin D. Reid        |       | 32,727,151         |       | 18,178,163            |       | 295,224               |       |
| Michael  R. Odell    |       | 50,191,254         |       | 789,736               |       | 219,548               |       |
| Max L.  Lukens       |       | 49,978,175         |       | 929,199               |       | 293,164               |       |

 

The shareholders alsovoted on the proposal to ratify the appointment of the Company’s registeredpublic accounting firm, Deloitte & Touche LLP, with 50,659,565affirmative votes; 513,757 negative votes and 27,216 abstentions.

 

The shareholders alsovoted on the proposal to amend and restate the Company’s Stock Incentive Planwith 36,927,179 affirmative votes; 1,531,785 negative votes; 1,154,632abstentions and 11,586,942 broker non-votes.

 

The shareholders alsovoted on the proposal amend and restate the Company’s Annual Incentive Planwith 38,706,346 affirmative votes; 871,640 negative votes; 35,611 abstentionsand 11,586,941 broker non-votes.

 

The shareholders alsovoted on the shareholder proposal to reincorporate the Company to North Dakotawith 892,043 affirmative votes; 38,376,756 negative votes; 344,798 abstentionsand 11,586,941 broker non-votes.

 

Item 5.  Other Information

 

None.

 

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Item 6.  Exhibits

 
| (10.1) | The  Pep Boys — Manny, Moe & Jack 2009 Pension Plan Amendment                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                         |
| (10.2) | The  Pep Boys — Manny, Moe & Jack 2009 Savings Plan Amendment                                                                                  |
|   |                                                                                                                                                         |
| (10.3) | The  Pep Boys — Manny, Moe & Jack 2009 Incentive Plan (Incorporated by reference  from the Company’s Form 8-K dated June 24, 2009)   |
|   |                                                                                                                                                         |
| (10.4) | The  Pep Boys — Manny, Moe & Jack 2009 Annual Incentive Plan  (Incorporated by reference from the Company’s Form 8-K dated June 24, 2009) |
|   |                                                                                                                                                         |
| (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                                                    |
|   |                                                                                                                                                         |
| (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   |

 

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SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|   |                    |   | THE  PEP BOYS - MANNY, MOE & JACK                                                                            |
|--------|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|
|   |                    |   | (Registrant)                                                                                                          |
|   |                    |   |                                                                                                                  |
| Date:  | September 9,  2009 |   | by:                                                                                                                   | /s/  Raymond L. Arthur |
|   |                    |   |                                                                                                                  |
|   |                    |   | Raymond  L. Arthur                                                                                                    |
|   |                    |   | Executive  Vice President and Chief Financial Officer  (Principal Financial Officer and Principal Accounting Officer) |

 

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INDEX TO EXHIBITS

 
| (10.1) | The  Pep Boys — Manny, Moe & Jack 2009 Pension Plan Amendment                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                         |
| (10.2) | The  Pep Boys — Manny, Moe & Jack 2009 Savings Plan Amendment                                                                                  |
|   |                                                                                                                                                         |
| (10.3) | The  Pep Boys — Manny, Moe & Jack 2009 Incentive Plan (Incorporated by  reference from the Company’s Form 8-K dated June 24, 2009)   |
|   |                                                                                                                                                         |
| (10.4) | The  Pep Boys — Manny, Moe & Jack 2009 Annual Incentive Plan  (Incorporated by reference from the Company’s Form 8-K dated June 24, 2009) |
|   |                                                                                                                                                         |
| (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                                                    |
|   |                                                                                                                                                         |
| (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   |

 

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