Table of Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

**x****      Quarterly Report Pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934**

 

**For the quarterly period ended May 1, 2010**

 

**OR**

 

**o****         Transition ReportPursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**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 90 days.  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

 

Indicate by checkmarkwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of 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 May 28, 2010, there were 52,470,082shares of the registrant’s Common Stock outstanding.

 

 

 

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Table of Contents

 

Index

 
| ** **                           | ** ** | ** **                                                                                                                                      | ** ** | **Page** |
|--------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                 |       |                                                                                                                                            |
| PART I -  FINANCIAL INFORMATION |       |                                                                                                                                            |
|                                 |       |                                                                                                                                            |       |     |
| Item 1.                              |       | Condensed Consolidated  Financial Statements                                                                                                    |       | 3        |
|                                 |       |                                                                                                                                            |       |     |
|                                 |       | Condensed  Consolidated Balance Sheets — May 1, 2010 and January 30, 2010                                                        |       | 3        |
|                                 |       |                                                                                                                                            |       |     |
|                                 |       | Condensed  Consolidated Statements of Operations and Changes in Retained Earnings -  Thirteen Weeks Ended May 1, 2010 and May 2, 2009 |       | 4        |
|                                 |       |                                                                                                                                            |       |     |
|                                 |       | Condensed  Consolidated Statements of Cash Flows - Thirteen Weeks Ended May 1, 2010  and May 2, 2009                                  |       | 5        |
|                                 |       |                                                                                                                                            |       |     |
|                                 |       | Notes  to the Condensed Consolidated Financial Statements                                                                                       |       | 6 - 17   |
|                                 |       |                                                                                                                                            |       |     |
| Item 2.                              |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                     |       | 18       |
|                                 |       |                                                                                                                                            |       |     |
| Item 3.                              |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                     |       | 23       |
|                                 |       |                                                                                                                                            |       |     |
| Item 4.                              |       | Controls and  Procedures                                                                                                                        |       | 23       |
|                                 |       |                                                                                                                                            |       |     |
| Item 5.                              |       | Other Information                                                                                                                               |       | 23       |
|                                 |       |                                                                                                                                            |       |     |
|                                 |       |                                                                                                                                            |       |     |
| PART II  - OTHER INFORMATION    |       | 24                                                                                                                                              |
|                                 |       |                                                                                                                                            |       |     |
| Item 1.                              |       | Legal Proceedings                                                                                                                               |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 1A.                             |       | Risk Factors                                                                                                                                    |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 2.                              |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                    |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 3.                              |       | Defaults Upon  Senior Securities                                                                                                                |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 4.                              |       | (Removed and Reserved)                                                                                                                          |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 5.                              |       | Other Information                                                                                                                               |       | 24       |
|                                 |       |                                                                                                                                            |       |     |
| Item 6.                              |       | Exhibits                                                                                                                                        |       | 25       |
|                                 |       |                                                                                                                                            |       |     |
| SIGNATURES                           |       | 26                                                                                                                                              |
|                                 |       |                                                                                                                                            |       |     |
| INDEX TO  EXHIBITS                   |       | 27                                                                                                                                              |

 

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PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated FinancialStatements

 

THE PEP BOYS - MANNY, MOE & JACKAND SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(dollar amounts in thousands, exceptshare data)

UNAUDITED

 
| ** **                                                                                    | ** ** | **May 1,  2010** | ** ** | **January 30,  2010** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                    |       |                  |       |                       |       |
| Current  assets:                                                                              |       |                  |       |                       |       |
| Cash  and cash equivalents                                                                    |       | $                     | 87,806     |                       | $          | 39,326 |   |
| Accounts  receivable, less allowance for uncollectible accounts of $1,752 and $1,488          |       | 20,277                |       | 22,983                     |       |
| Merchandise  inventories                                                                      |       | 561,351               |       | 559,118                    |       |
| Prepaid  expenses                                                                             |       | 24,510                |       | 24,784                     |       |
| Other  current assets                                                                         |       | 58,787                |       | 65,428                     |       |
| Assets  held for disposal                                                                     |       | 2,490                 |       | 4,438                      |       |
| Total  current assets                                                                         |       | 755,221               |       | 716,077                    |       |
|                                                                                          |       |                  |       |                       |       |
| Property  and equipment - net                                                                 |       | 699,439               |       | 706,450                    |       |
| Deferred  income taxes                                                                        |       | 57,440                |       | 58,171                     |       |
| Other  long-term assets                                                                       |       | 17,541                |       | 18,388                     |       |
| Total  assets                                                                                 |       | $                     | 1,529,641  |                       | $          | 1,499,086 |   |
|                                                                                          |       |                  |       |                       |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                 |       |                  |       |                       |       |
| Current  liabilities:                                                                         |       |                  |       |                       |       |
| Accounts  payable                                                                             |       | $                     | 218,472    |                       | $          | 202,974 |   |
| Trade  payable program liability                                                              |       | 34,273                |       | 34,099                     |       |
| Accrued  expenses                                                                             |       | 245,242               |       | 242,416                    |       |
| Deferred  income taxes                                                                        |       | 33,082                |       | 29,984                     |       |
| Current  maturities of long-term debt                                                         |       | 1,079                 |       | 1,079                      |       |
| Total  current liabilities                                                                    |       | 532,148               |       | 510,552                    |       |
|                                                                                          |       |                  |       |                       |       |
| Long-term  debt less current maturities                                                       |       | 305,931               |       | 306,201                    |       |
| Other  long-term liabilities                                                                  |       | 74,250                |       | 73,933                     |       |
| Deferred  gain from asset sales                                                               |       | 162,328               |       | 165,105                    |       |
|                                                                                          |       |                  |       |                       |       |
| 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                                                                   |       | 293,363               |       | 293,810                    |       |
| Retained  earnings                                                                            |       | 384,451               |       | 374,836                    |       |
| Accumulated  other comprehensive loss                                                         |       | (17,223               | )          | (17,691                    | )          |
| Less  cost of shares in treasury — 16,088,014 shares and 16,164,074 shares               |       | 274,164               |       | 276,217                    |       |
| Total  stockholders’ equity                                                              |       | 454,984               |       | 443,295                    |       |
| Total  liabilities and stockholders’ equity                                              |       | $                     | 1,529,641  |                       | $          | 1,499,086 |   |

 

Seenotes to condensed consolidated financial statements.

 

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THE PEP BOYS - MANNY, MOE & JACKAND SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONSAND CHANGES IN RETAINED EARNINGS

(dollar amounts in thousands, except pershare amounts)

UNAUDITED

 
| **Thirteen weeks ended**                                                   | ** ** | **May 1, 2010** | ** ** | **May 2, 2009** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| Merchandise  sales                                                                   |       | $                         | 409,189    |                      | $          | 398,177 |   |
| Service  revenue                                                                     |       | 100,844                   |       | 98,311                    |       |
| Total  revenues                                                                      |       | 510,033                   |       | 496,488                   |       |
| Costs  of merchandise sales                                                          |       | 283,796                   |       | 281,035                   |       |
| Costs  of service revenue                                                            |       | 88,642                    |       | 85,852                    |       |
| Total  costs of revenues                                                             |       | 372,438                   |       | 366,887                   |       |
| Gross  profit from merchandise sales                                                 |       | 125,393                   |       | 117,142                   |       |
| Gross  profit from service revenue                                                   |       | 12,202                    |       | 12,459                    |       |
| Total  gross profit                                                                  |       | 137,595                   |       | 129,601                   |       |
| Selling,  general and administrative expenses                                        |       | 111,632                   |       | 108,053                   |       |
| Net  gain from dispositions of assets                                                |       | 45                        |       | 3                         |       |
| Operating  profit                                                                    |       | 26,008                    |       | 21,551                    |       |
| Non-operating  income                                                                |       | 584                       |       | 403                       |       |
| Interest  expense                                                                    |       | 6,608                     |       | 1,936                     |       |
| Earnings  from continuing operations before income taxes and discontinued operations |       | 19,984                    |       | 20,018                    |       |
| Income  tax expense                                                                  |       | 7,824                     |       | 8,955                     |       |
| Earnings  from continuing operations before discontinued operations                  |       | 12,160                    |       | 11,063                    |       |
| Loss  from discontinued operations, net of tax                                       |       | (210                      | )          | (154                      | )          |
| Net  earnings                                                                        |       | 11,950                    |       | 10,909                    |       |
|                                                                                 |       |                      |       |                      |       |
| Retained  earnings, beginning of period                                              |       | 374,836                   |       | 358,670                   |       |
| Cash  dividends                                                                      |       | (1,579                    | )          | (1,575                    | )          |
| Dividend  reinvested and other                                                       |       | (756                      | )          | (122                      | )          |
| Retained  earnings, end of period                                                    |       | $                         | 384,451    |                      | $          | 367,882 |   |
|                                                                                 |       |                      |       |                      |       |
| **Basic earnings per share:**                                                        |       |                      |       |                      |       |
| Earnings  from continuing operations before discontinued operations                  |       | $                         | 0.23       |                      | $          | 0.21 |   |
| Loss  from discontinued operations, net of tax                                       |       | —                    |       | —                    |       |
| Basic  earnings per share                                                            |       | $                         | 0.23       |                      | $          | 0.21 |   |
|                                                                                 |       |                      |       |                      |       |
| **Diluted earnings per share:**                                                      |       |                      |       |                      |       |
| Earnings  from continuing operations before discontinued operations                  |       | $                         | 0.23       |                      | $          | 0.21 |   |
| Loss  from discontinued operations, net of tax                                       |       | —                    |       | —                    |       |
| Diluted  earnings per share                                                          |       | $                         | 0.23       |                      | $          | 0.21 |   |
|                                                                                 |       |                      |       |                      |       |
| Cash  dividends per share                                                            |       | $                         | 0.03       |                      | $          | 0.03 |   |

 

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

 
| **Thirteen weeks ended**                                                    | ** ** | **May 1, 2010** | ** ** | **May 2, 2009** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| **Cash flows from operating activities:**                                             |       |                      |       |                      |       |
| Net  earnings                                                                         |       | $                         | 11,950     |                      | $          | 10,909 |   |
| Adjustments  to reconcile net earnings to net cash provided by continuing operations: |       |                      |       |                      |       |
| Loss  from discontinued operations, net of tax                                        |       | 210                       |       | 154                       |       |
| Depreciation  and amortization                                                        |       | 18,214                    |       | 17,373                    |       |
| Amortization  of deferred gain from asset sales                                       |       | (3,148                    | )          | (3,049                    | )          |
| Stock  compensation expense                                                           |       | 737                       |       | 568                       |       |
| Gain  on debt retirement                                                              |       | —                    |       | (6,248                    | )          |
| Deferred  income taxes                                                                |       | 3,552                     |       | 2,646                     |       |
| Other                                                                                 |       | (117                      | )          | 178                       |       |
| Changes  in operating assets and liabilities:                                         |       |                      |       |                      |       |
| Decrease  in accounts receivable, prepaid expenses and other                          |       | 10,581                    |       | 14,603                    |       |
| (Increase)  decrease in merchandise inventories                                       |       | (2,233                    | )          | 8,366                     |       |
| Increase  (decrease) in accounts payable                                              |       | 15,498                    |       | (18,446                   | )          |
| Increase  (decrease) in accrued expenses                                              |       | 3,231                     |       | (9,442                    | )          |
| Increase  in other long-term liabilities                                              |       | 603                       |       | 683                       |       |
| Net  cash provided by continuing operations                                           |       | 59,078                    |       | 18,295                    |       |
| Net  cash used in discontinued operations                                             |       | (324                      | )          | (318                      | )          |
| Net  cash provided by operating activities                                            |       | 58,754                    |       | 17,977                    |       |
|                                                                                  |       |                      |       |                      |       |
| **Cash flows from investing activities:**                                             |       |                      |       |                      |       |
| Cash  paid for property and equipment                                                 |       | (12,511                   | )          | (5,718                    | )          |
| Proceeds  from dispositions of assets                                                 |       | 3,143                     |       | 10                        |       |
| Other                                                                                 |       | (144                      | )          | —                    |       |
| Net  cash used in continuing operations                                               |       | (9,512                    | )          | (5,708                    | )          |
| Net  cash provided by discontinued operations                                         |       | 569                       |       | 1,758                     |       |
| Net  cash used in investing activities                                                |       | (8,943                    | )          | (3,950                    | )          |
|                                                                                  |       |                      |       |                      |       |
| **Cash flows from financing activities:**                                             |       |                      |       |                      |       |
| Borrowings  under line of credit agreements                                           |       | 1,029                     |       | 160,498                   |       |
| Payments  under line of credit agreements                                             |       | (1,029                    | )          | (158,522                  | )          |
| Borrowings  on trade payable program liability                                        |       | 68,342                    |       | 33,871                    |       |
| Payments  on trade payable program liability                                          |       | (68,168                   | )          | (37,337                   | )          |
| Debt  payments                                                                        |       | (270                      | )          | (11,110                   | )          |
| Dividends  paid                                                                       |       | (1,579                    | )          | (1,575                    | )          |
| Other                                                                                 |       | 344                       |       | 129                       |       |
| Net  cash used in financing activities                                                |       | (1,331                    | )          | (14,046                   | )          |
| Net  increase (decrease) in cash and cash equivalents                                 |       | 48,480                    |       | (19                       | )          |
| Cash  and cash equivalents at beginning of period                                     |       | 39,326                    |       | 21,332                    |       |
| Cash  and cash equivalents at end of period                                           |       | $                         | 87,806     |                      | $          | 21,313 |   |
|                                                                                  |       |                      |       |                      |       |
| Supplemental  disclosure of cash flow information:                                    |       |                      |       |                      |       |
| Cash  paid for income taxes                                                           |       | $                         | 70         |                      | $          | 831 |   |
| Cash  paid for interest                                                               |       | $                         | 2,616      |                      | $          | 3,830 |   |
| Accrued  purchases of property and equipment                                          |       | $                         | 1,302      |                      | $          | 599 |   |

 

Seenotes to condensed consolidated financial statements.

 

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THEPEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

 

NOTE1. Basis of Presentation

 

ThePep Boys — Manny, Moe & Jack and subsidiaries (the “Company”)consolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States (“U.S. GAAP”).The preparation of the Company’s financial statements requires the Company tomake estimates and assumptions that affect the reported amounts of assets,liabilities, net sales, costs and expenses, as well as the disclosure ofcontingent assets and liabilities and other related disclosures. The Companybases its estimates on historical experience and on various other assumptionsthat management believes to be reasonable under the circumstances, the resultsof which form the basis for making judgments about carrying values of theCompany’s assets and liabilities that are not readily apparent from othersources. Actual results could differ from those estimates, and the Companyincludes any revisions to its estimates in the results for the period in whichthe actual amounts become known.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with U.S. GAAP have been condensed or omitted, aspermitted by Rule 10-01 of the Securities and Exchange Commission’sRegulation S-X, “Interim Financial Statements.” It is suggested that thesecondensed consolidated financial statements be read in conjunction with thefinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the fiscal year ended January 30, 2010. The resultsof operations for the thirteen weeks ended May 1, 2010 are not necessarilyindicative of the operating results for the full fiscal year.

 

Thecondensed consolidated financial statements presented herein are unaudited. Inthe opinion of management, all adjustments necessary to present fairly thefinancial position, results of operations and cash flows as of May 1, 2010and for all periods presented have been made.

 

The Company’s fiscal year ends on the Saturdaynearest January 31. Accordingly, references to fiscal years 2010 and 2009refer to the years ended January 29, 2011 and January 30, 2010,respectively.

 

NOTE2. New Accounting Standards

 

In October 2009, theFASB issued Accounting Standards Update (ASU) 2009-13 “Revenue Recognition(Topic 605) — Multiple-Deliverable Revenue Arrangements a consensus of the FASBEmerging Issues Task Force,” (“ASU 2009-13”). This update eliminates theresidual method of allocation and requires that consideration be allocated toall deliverables using the relative selling price method. ASU 2009-13 iseffective for material revenue arrangements entered into or materially modifiedin fiscal years beginning on or after June 15, 2010. The Company does notbelieve the adoption of ASU 2009-13 will have a material impact on itsconsolidated financial statements.

 

InJanuary 2010, the FASB issued ASU 2010-06 “Fair Value Measurements —Improving Disclosures on Fair Value Measurements” (“ASU 2010-06”). Thisguidance requires new disclosures surrounding transfers in and out of level 1or 2 in the fair value hierarchy and also requires that in the reconciliationof level 3 inputs, the entity should report separately information onpurchases, sales, issuances or settlements. The increased disclosures should bereported for each class of assets or liabilities. ASU 2010-06 also clarifiesexisting disclosures for the level of disaggregating, disclosures aboutvaluation techniques and inputs used to determine level 2 or 3 fair valuemeasurements and includes conforming amendments to the guidance on employers’disclosures about postretirement benefit plan assets. ASU 2010-06 was effectivefor interim and annual reporting periods beginning after December 15, 2009except for the disclosures about purchases, sales, issuances or settlements inthe roll forward activity for level 3 fair value measurements which areeffective for interim and annual periods beginning after December 15,2010. The adoption of ASU 2010-06 did not have a material impact on the Company’sconsolidated financial statements.

 

NOTE 3. 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 $485.5 million and $482.0 million as of May 1, 2010and January 30, 2010, respectively.

 

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

 

The Company also records adjustments forpotentially excess and obsolete inventories based on current inventory levels,the historical analysis of product sales and current market conditions. Thenature of the Company’s inventory is such that the risk of obsolescence isminimal and excess inventory has historically been returned to the Company’svendors for credit. The Company records adjustments when less than full creditis expected from a vendor or when market is lower than recorded costs. Theseadjustments are reviewed on a quarterly basis for adequacy. The Company’sinventory adjustments for these matters were $13.5 million and $13.0 million atMay 1, 2010 and January 30, 2010, respectively.

 

NOTE 4. Property and Equipment

 

The Company’s property and equipment as of May 1,2010 and January 30, 2010 was as follows:

 
| **(dollar amounts in thousands)** | ** ** | **May 1, 2010** | ** ** | **January 30, 2010** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|---------------------------|------------|
|                                             |       |                 |       |                      |       |
| Property and equipment                           |       |                 |       |                      |       |
| Land                                             |       | $                    | 204,142    |                      | $          | 204,709 |   |
| Buildings and improvements                       |       | 829,000              |       | 826,804                   |       |
| Furniture, fixtures and equipment                |       | 703,014              |       | 695,072                   |       |
| Construction in progress                         |       | 1,535                |       | 1,550                     |       |
| Accumulated depreciation and  amortization       |       | (1,038,252           | )          | (1,021,685                | )          |
| Property and equipment — net                |       | $                    | 699,439    |                      | $          | 706,450 |   |

 

NOTE 5. 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. Thesecosts are included in either costs of merchandise sales or costs of servicerevenues in the condensed consolidated statement of operations.

 

The reserve for warranty cost activity for thethirteen weeks ended May 1, 2010 and the fifty-two weeks ended January 30,2010 is as follows:

 
| **(dollar amounts in thousands)** | ** ** | **May 1,********2010** | ** ** | **January 30, 2010** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Beginning  balance                               |       | $                           | 694        |                      | $          | 797 |   |
|                                             |       |                        |       |                      |       |
| Additions  related to current period sales       |       | 2,702                       |       | 15,572                    |       |
|                                             |       |                        |       |                      |       |
| Warranty  costs incurred in current period       |       | (2,702                      | )          | (15,675                   | )          |
|                                             |       |                        |       |                      |       |
| Ending  balance                                  |       | $                           | 694        |                      | $          | 694 |   |

 

NOTE 6. Debt and Financing Arrangements

 

The following are the components of debt andfinancing arrangements:

 
| **(dollar amounts in thousands)**         | ** ** | **May 1, 2010** | ** ** | **January 30, 2010** | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|---------------------------|------------|
| 7.50%  Senior Subordinated Notes, due December 2014 |       | $                    | 157,565    |                      | $          | 157,565 |   |
| Senior  Secured Term Loan, due October 2013         |       | 149,445              |       | 149,715                   |       |
| Revolving  Credit Agreement, expiring January 2014  |       | —               |       | —                    |       |
|                                                     |       | 307,010              |       | 307,280                   |       |
| Less  current maturities                                 |       | 1,079                |       | 1,079                     |       |
| Long-term  debt, less current maturities                 |       | $                    | 305,931    |                      | $          | 306,201 |   |

 

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During the first quarter of fiscal 2009, theCompany repurchased $17.0 million of its outstanding 7.50% Senior SubordinatedNotes (the “Notes”) for $10.7 million resulting in a gain of $6.2 million whichis reflected in interest expense on the accompanying condensed consolidatedstatement of operations and changes in retained earnings.

 

As of May 1, 2010, 126 of the Company’s 230owned stores were used as collateral under the Company’s Senior Secured TermLoan due October 2013.

 

On January 16, 2009, the Company enteredinto a new $300.0 million Revolving Credit Agreement. The Company’s ability toborrow under the Revolving Credit Agreement is based on a specific borrowingbase consisting of inventory and accounts receivable. The interest rate on thiscredit line is LIBOR or Prime plus 2.75% to 3.25% based upon the then currentavailability under the facility. As of May 1, 2010, there were nooutstanding borrowings under this agreement and $101.1 million of availabilitywas utilized to support outstanding letters of credit. Taking this into accountand the borrowing base requirements, as of May 1, 2010, there was $142.8million of availability remaining.

 

Several of the Company’s debt agreements requirecompliance with covenants. The most restrictive of these requirements iscontained in the Company’s Revolving Credit Agreement. During any period whenthe availability under the Revolving Credit Agreement drops below the greaterof $50.0 million or 17.5% of the borrowing base, the Company is required tomaintain a consolidated fixed charge coverage ratio of at least 1.1:1.0,calculated as the ratio of (a) EBITDA (net income plus interest charges,provision for taxes, depreciation and amortization expense, non-cash stockcompensation expenses and other non-recurring, non-cash items) minus capitalexpenditures and income taxes paid to (b) the sum of debt service chargesand restricted payments made. The failure to satisfy this covenant wouldconstitute an event of default under the Revolving Credit Agreement, whichwould result in a cross-default under the Company’s 7.50% Senior SubordinatedNotes and Senior Secured Term Loan. As of May 1, 2010, the Company was incompliance with all such financial covenants.

 

Interest rates that are currently available tothe Company for issuance of debt with similar terms and remaining maturitiesare used to estimate fair value for debt issues that are not quoted on anexchange. The estimated fair value of long-term debt including currentmaturities was $297.9 million and $290.8 million as of May 1, 2010 and January 30,2010, respectively.

 

NOTE 7. Sale-Leaseback Transactions

 

During the first quarter of fiscal year 2010,the Company sold one property to an unrelated third party. Net proceeds fromthis sale were $1.6 million. Concurrent with this sale, the Company enteredinto an agreement to lease the property back from the purchaser over a minimumlease term of 15 years. The Company classified this lease as an operatinglease. The Company actively uses this property and considers the lease as anormal leaseback. A deferred gain of $0.4 million is being recognized over theminimum term of the lease.

 

Of the 590 store locations operated by theCompany at May 1, 2010, 230 are owned and 360 are leased.

 

NOTE 8. Income Taxes

 

The Company recognizes taxes payable for thecurrent year, as well as deferred tax assets and liabilities for the future taxconsequences of events that have been recognized in the Company’s financialstatements or tax returns. The Company must assess the likelihood that anyrecorded deferred tax assets will be recovered against future taxable income.To the extent the Company believes it is more likely than not that the assetwill not be recoverable, a valuation allowance must be established. Cumulativelosses in recent years constitute “negative evidence” that a recovery is notmore likely than not, which must be rebutted by “positive evidence” to avoidestablishing a valuation allowance. To establish this positive evidence, theCompany considers various tax planning strategies for generating incomesufficient to utilize the deferred tax assets, including the potential sale ofreal estate and the conversion of the Company’s accounting policy for itsinventory from LIFO to FIFO.

 

For income tax benefits related to uncertain taxpositions 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 May 1, 2010, the Company did not have a material change to itsuncertain tax position liabilities.

 

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NOTE 9. Accumulated Other Comprehensive Loss

 

The following are the components of othercomprehensive income:

 
| ** **                                       | ** ** | **Thirteen weeks ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **May 1, 2010**               | ** ** | **May 2, 2009** | ** ** |
|                                             |       |                               |       |   |   |
| Net  earnings                                    |       | $                                  | 11,950     |   | $ | 10,909 |   |
| Other  comprehensive income, net of tax:         |       |                               |       |   |   |
| Defined  benefit plan adjustment                 |       | 265                                |       | 204 |   |
| Derivative  financial instrument adjustments     |       | 203                                |       | 48 |   |
| Comprehensive  income                            |       | $                                  | 12,418     |   | $ | 11,161 |   |

 

The components of accumulated othercomprehensive loss are:

 
| **(dollar amounts in thousands)**        | ** ** | **May 1, 2010** | ** ** | **January 30, 2010** | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|---------------------------|------------|
|                                                    |       |                 |       |                      |       |
| Defined  benefit plan adjustment, net of tax            |       | $                    | (6,893     | )                         | $          | (7,158 | ) |
| Derivative  financial instrument adjustment, net of tax |       | (10,330              | )          | (10,533                   | )          |
| Accumulated  other comprehensive loss                   |       | $                    | (17,223    | )                         | $          | (17,691 | ) |

 

NOTE 10: StoreClosures and Asset Impairments

 

During thethirteen week period ended May 1, 2010, the Company sold three storesclassified as held for disposal for net proceeds of $2.1 million and recognizeda net gain of $0.1 million. During the thirteen week period ended May 2,2009, the Company sold two stores that were classified as held for disposal fornet proceeds of $1.8 million and recognized a net gain of $0.1 million. Assetsheld for disposal follows:

 
| **(dollar amounts in thousands)** | ** ** | **May 1, 2010** | ** ** | **January 30, 2010** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|---------------------------|------------|
|                                             |       |                 |       |                      |       |
| Land                                             |       | $                    | 1,630      |                      | $          | 2,980 |   |
| Buildings and improvements                       |       | 2,837                |       | 5,453                     |       |
| Accumulated depreciation and  amortization       |       | (1,977               | )          | (3,995                    | )          |
| Property and equipment - net                     |       | $                    | 2,490      |                      | $          | 4,438 |   |
| Number of properties                             |       | 5                    |       | 8                         |       |

 

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NOTE 11. Earnings Per Share

 

The following tablepresents the calculation of basic and diluted earnings per share for earningsfrom continuing operations:

 
| ** **                                                   | ** **                                                                                                                     | **Thirteen Weeks Ended** | ** **   |
|--------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|------------------------------------|--------------|
| **(dollar amounts in thousands,  except per share amounts)** | ** **                                                                                                                     | **May 1,********2010**        | ** **   | **May 2,********2009** | ** ** |
| *** ***                                                 | *** ***                                                                                                                   | *** ***                       | *** *** | *** *** | *** *** | *** *** |
| (a)                                                          | Earnings from continuing  operations                                                                                           |                               | $            | 12,160 |   | $ | 11,063 |   |
|                                                         |                                                                                                                           |                               |         |   |   |   |
|                                                         | Loss from discontinued  operations, net of tax                                                                                 |                               | (210         | ) | (154 | ) |
|                                                         |                                                                                                                           |                               |         |   |   |   |
|                                                         | Net earnings                                                                                                                   |                               | $            | 11,950 |   | $ | 10,909 |   |
|                                                         |                                                                                                                           |                               |         |   |   |   |
| (b)                                                          | Basic average number of  common shares outstanding during period                                                               |                               | 52,526       |   | 52,333 |   |
|                                                         |                                                                                                                           |                               |         |   |   |   |
|                                                         | Common shares assumed  issued upon exercise of dilutive stock options, net of assumed repurchase, at  the average market price |                               | 407          |   | 43 |   |
|                                                         |                                                                                                                           |                               |         |   |   |   |
| (c)                                                          | Diluted average number  of common shares assumed outstanding during period                                                     |                               | 52,933       |   | 52,376 |   |
|                                                         |                                                                                                                           |                               |         |   |   |   |
| ** **                                                   | **Basic earnings per share:**                                                                                                  | ** **                         | ** **   | ** ** | ** ** | ** ** |
|                                                         | Earnings from  continuing operations (a/b)                                                                                     |                               | $            | 0.23 |   | $ | 0.21 |   |
|                                                         | Discontinued  operations, net of tax                                                                                           |                               | —       |   | — |   |
|                                                         | Basic earnings per  share                                                                                                      |                               | $            | 0.23 |   | $ | 0.21 |   |
| ** **                                                   | ** **                                                                                                                     | ** **                         | ** **   | ** ** | ** ** | ** ** |
| ** **                                                   | **Diluted earnings per share:**                                                                                                | ** **                         | ** **   | ** ** | ** ** | ** ** |
|                                                         | Earnings from  continuing operations (a/c)                                                                                     |                               | $            | 0.23 |   | $ | 0.21 |   |
|                                                         | Discontinued  operations, net of tax                                                                                           |                               | —       |   | — |   |
|                                                         | Diluted earnings per  share                                                                                                    |                               | $            | 0.23 |   | $ | 0.21 |   |

 

At May 1, 2010 and May 2, 2009 therewere 2,419,000 and 1,885,000 stock options and restricted stock unitsoutstanding, respectively. 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 was 1,104,000 and1,691,000 for the thirteen weeks ended May 1, 2010 and May 2, 2009,respectively.

 

NOTE 12. Benefit Plans

 

The Company has a qualified 401(K) savingsplan and a separate plan for employees residing in Puerto Rico, which cover allfull-time employees who are at least 21 years of age with one or more years ofservice. The Company’s contribution expense related to the savings plans wasapproximately $0.9 million and $1.1 million for the thirteen weeks ended May 1,2010 and May 2, 2009, respectively. The Company’s expense for its AccountPlan (Defined Contribution SERP) was approximately $0.3 million for boththirteen week periods ended May 1, 2010, and May 2, 2009. The Company’scontribution to these plans for fiscal year 2010 is contingent upon meetingcertain performance metrics. The Company currently estimates that theseperformance metrics will be achieved and has recorded expense accordingly.

 

The Company also has a frozen defined benefitpension plan covering the Company’s full-time employees hired on or before February 1,1992. The Company’s expense for its pension plan follows:

 

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| ** **                                       | ** ** | **Thirteen weeks ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **May 1, 2010**               | ** ** | **May 2, 2009** | ** ** |
|                                             |       |                               |       |   |   |
| Interest  cost                                   |       | $                                  | 640        |   | $ | 621 |   |
| Expected  return on plan assets                  |       | (538                               | )          | (537 | ) |
| Amortization  of net loss                        |       | 421                                |       | 325 |   |
| Net  periodic benefit cost                       |       | $                                  | 523        |   | $ | 409 |   |

 

NOTE 13. Equity Compensation Plans

 

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. The Company generally recognizescompensation expense on a straight-line basis over the vesting period.

 

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

 
| ** **                                | ** ** | **Number of Shares** | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|
| Outstanding  — January 30, 2010 |       | 1,682,325                      |       |
| Granted                                   |       | 303,056                        |       |
| Exercised                                 |       | (30,145                        | )          |
| Forfeited                                 |       | (6,066                         | )          |
| Expired                                   |       | (12,750                        | )          |
| Outstanding  — May 1, 2010      |       | 1,936,420                      |       |

 

In the first quarter of fiscal year 2010, theCompany granted approximately 303,000 stock options with a weighted averagegrant date fair value of $4.26. These options have a seven year term and vestover a three year period with a third vesting on each of the three grant dateanniversaries. The compensation expense recorded during the first quarter offiscal 2010 for the options granted was minimal.

 

In the first quarter of fiscal year 2009, theCompany granted 736,000 stock options with a weighted average grant date fairvalue of $1.69. These options have a seven year term and include both a serviceand a market appreciation vesting requirement. These options vest over a threeyear period with a third vesting on each of the three grant date anniversaries,provided the market price of the Company’s stock has appreciated by a certainamount. From the date of grant, the market price of the Company’s stock musthave appreciated, for at least 15 consecutive trading days, by $2.00 abovegrant price or more for 536,000 options and by $6.88 above grant price or morefor 200,000 options in order to vest. The Company used a Monte Carlo simulationmodel to estimate the expected term and is recording the compensation expenseover the service period for each separately vesting portion of the optionsgranted. As of May 1, 2010, the market appreciation requirements of bothgrants have been satisfied.

 

Expected volatility isbased on historical volatilities for a time period similar to that of theexpected term. The risk-free rate is based on the U.S. treasury yield curve forissues with a remaining term equal to the expected term. The fair value of eachoption granted is estimated on the date of grant using the Black-Scholesoption-pricing model, and in certain situations where the grant includes both amarket and service condition as described more fully above, the Monte Carlosimulation is used.

 

The following are theweighted-average assumptions:

 
| ** **                         | ** ** | **May 1,  2010** | ** ** | **May 2, 2009** | ** ** |
|------------------------------------|------------|-----------------------|------------|----------------------|------------|
| Dividend  yield                    |       | 1.35                  | %          | 1.76                 | %          |
| Expected  volatility               |       | 55.71                 | %          | 65.10                | %          |
| Risk-free  interest rate range:    |       |                  |       |                 |       |
| High                               |       | 2.01                  | %          | 2.30                 | %          |
| Low                                |       | 1.71                  | %          | 2.30                 | %          |
| Ranges  of expected lives in years |       | 4 - 5                 |       | 4 - 5                |       |

 

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Restricted Stock Units

 

Inthe first quarter of fiscal 2010, the Company granted approximately 105,000restricted stock units that will vest if the employees remain continuouslyemployed through the third anniversary date of the grant and the Companyachieves certain financial targets for fiscal year 2012. The number ofunderlying shares that may be issued upon vesting will range from 0% to 150%,depending upon the Company achieving the financial targets for fiscal year2012. The fair value for these awards was $10.34 at the date of the grant. Thecompensation recorded during the first quarter of fiscal 2010 for these restrictedstock units granted was minimal.

 

Inthe first quarter of fiscal 2010, the Company also granted approximately 52,000restricted stock units that will vest if the employees remain continuouslyemployed through the third anniversary date of the grant and will becomeexercisable if the Company satisfies a market condition in fiscal 2012. Thenumber of underlying shares that may become exercisable will range from 0% to175% depending upon whether the market condition is achieved. The Company useda Monte Carlo simulation to estimate a $12.99 grant date fair value. Thecompensation recorded during the first quarter of fiscal 2010 for theserestricted stock units granted was minimal

 

Therewere no RSUs granted in the prior year. The following table summarizes theunits under the Company’s plan:

 
| ** **                              | ** ** | **Number of RSUs** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| Nonvested  — January 30, 2010 |       | 232,593                      |       |
| Granted                                 |       | 310,128                      |       |
| Forfeited                               |       | (3,700                       | )          |
| Vested                                  |       | (56,606                      | )          |
| Nonvested  — May 1, 2010      |       | 482,415                      |       |

 

NOTE 14. Fair Value Measurements

 

The Company’s fair valuemeasurements consist of (a) non-financial assets and liabilities that arerecognized or disclosed at fair value in the Company’s financial statements ona recurring basis (at least annually) and (b) all financial assets andliabilities.

 

Fair value is defined asthe exit price, or the amount that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsas of the measurement date. There is a hierarchy for inputs used in measuringfair value that maximizes the use of observable inputs and minimizes the use ofunobservable inputs by requiring that the most observable inputs be used whenavailable. Observable inputs are inputs market participants would use invaluing the asset or liability developed based on market data obtained fromsources independent of the Company. Unobservable inputs are inputs that reflectthe Company’s assumptions about the factors market participants would use invaluing the asset or liability developed based upon the best informationavailable in the circumstances. The hierarchy is broken down into three levels.Level 1 inputs are quoted prices (unadjusted) in active markets for identicalassets or liabilities. Level 2 inputs include quoted prices for similar assetsor liabilities in active markets. Level 3 inputs are unobservable inputs forthe asset or liability. Categorization within the valuation hierarchy is basedupon the lowest level of input that is significant to the fair valuemeasurement.

 

The following table providesinformation by level for assets and liabilities that are measured at fairvalue, on a recurring basis:

 
| **(dollar amounts in thousands)** | ** ** | **Fair Value  at**   | ** ** | **Fair Value Measurements  Using Inputs Considered as** | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Description**                                  | ** ** | **May 1, 2010** | ** ** | **Level 1**                                                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                      |       |                      |       |                                                                             |       |   |   |   |   |
| Cash  and Cash Equivalents                       |       | $                         | 87,806     |                                                                             | $          | 87,806 |   |   |   |   |   |
|                                             |       |                      |       |                                                                             |       |   |   |   |   |
| **Liabilities:**                                 |       |                      |       |                                                                             |       |   |   |   |   |
| Other  long-term liabilities                     |       |                      |       |                                                                             |       |   |   |   |   |
| Derivative  liability (a)                        |       | $                         | 16,114     |                                                                             |       |   | $ | 16,114 |   |   |   |
| Contingent  Consideration                        |       | $                         | 1,571      |                                                                             |       |   |   |   | $ | 1,571 |   |
|                                                  |            |                           |            |                                                                                  |            |  |  |  |  |  |  |  |  |

 

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(a)          included in other long-term liabilities

 

The Company has one interest rate swapdesignated as a cash flow hedge on $145.0 million of the Company’s $149.5million Senior Secured Term Loan facility that expires in October 2013.The swap is used to minimize interest rate exposure and overall interest

 

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costs by converting the variable interest rateto a fixed rate of 5.036%. Since February 1, 2008, this swap was deemed tobe fully effective and all adjustments in the interest rate swap’s fair valuehave been recorded to accumulated 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 May 1, 2010           |       | $                                                                                      | 180        |                                    | Interest expense |                                                                 | $          | (1,695 | ) |
|                                                  |            |                                                                                        |            |                                         |                  |                                                                      |            |  |  |

 

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

 

Non-financial assets measured at fair value on a non-recurringbasis:

 

Certain assets aremeasured at fair value on a non-recurring basis, that is, the assets aresubject to fair value adjustments in certain circumstances such as when thereis evidence of impairment. These measures of fair value, and related inputs,are considered level 2 measures under the fair value hierarchy. There were no remeasurementsof non-financial assets in the first quarter of 2010 or 2009.

 

NOTE 15. Legal Matters

 

In September 2006,the United States Environmental Protection Agency (“EPA”) requested certaininformation from the Company as part of an investigation to determine whetherthe Company had violated, and is in violation of, the Clean Air Act and itsnon-road engine regulations. The information requested concerned certaingenerator and personal transportation merchandise offered for sale by theCompany. In the fourth quarter of fiscal 2008, the EPA informed the Companythat it believed that the Company had violated the Clean Air Act by virtue ofthe fact that certain of this merchandise did not conform to theircorresponding EPA Certificates of Conformity. During the third quarter offiscal 2009, the Company and the EPA reached a settlement in principle of thismatter requiring that the Company (i) pay a monetary penalty of$5.0 million, (ii) take certain corrective action with respect tocertain inventory that had been restricted from sale during the course of theinvestigation, (iii) implement a formal compliance program and (iv) participatein certain non-monetary emission offset activities. The Company had previouslyaccrued an amount equal to the agreed upon civil penalty and a$3.0 million contingency accrual with respect to the restricted inventory.During fiscal 2009, the Company reversed $2.0 million of the inventoryaccrual as a portion of the subject inventory was released for sale. On May 10,2010, the Company and the EPA signed the formal settlement Agreement, which wasfiled with the U.S. District Court for the District of Columbia. The settlementagreement is subject to a 30-day public comment period and final approval bythe court.

 

TheCompany is also party to various other actions and claims arising in the normalcourse of business.

 

TheCompany believes that amounts accrued for awards or assessments in connectionwith all such matters are adequate and that the ultimate resolution of thesematters will not have a material adverse effect on the Company’s financialposition. However, there exists a reasonable possibility of loss in excess ofthe amounts accrued, the amount of which cannot currently be estimated. Whilethe Company does not believe that the amount of such excess loss could bematerial to the Company’s financial position, any such loss could have amaterial adverse effect on the Company’s results of operations in the period(s) duringwhich the underlying matters are resolved.

 

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NOTE 16. Supplemental Guarantor Information

 

The Company’s Notes are fully andunconditionally and joint and severally guaranteed by certain of the Company’sdirect and indirectly wholly-owned subsidiaries - namely, The Pep Boys MannyMoe & Jack of California, Pep Boys — Manny Moe & Jack ofDelaware, Inc., Pep Boys — Manny Moe & Jack of Puerto Rico, Inc.and PBY Corporation, (collectively, the “Subsidiary Guarantors”). The Notes arenot guaranteed by the Company’s wholly owned subsidiary, Colchester InsuranceCompany.

 

The following condensed consolidatinginformation presents, in separate columns, the condensed consolidating balancesheets as of May 1, 2010 and January 30, 2010 and the relatedcondensed consolidating statements of operations for the thirteen weeks ended May 1,2010 and May 2, 2009 and condensed consolidating statements of cash flowsfor the thirteen weeks ended May 1, 2010 and May 2, 2009 for (i) theCompany (“Pep Boys”) on a parent only basis, with its investment insubsidiaries recorded under the equity method, (ii) the SubsidiaryGuarantors on a combined basis including the consolidation by PBY Corporationof its wholly owned subsidiary, The Pep Boys Manny Moe & Jack ofCalifornia, (iii) the subsidiary of the Company that does not guaranteethe Notes, and (iv) the Company on a consolidated basis.

 

CONDENSED CONSOLIDATING BALANCE SHEETS

(dollar amounts in thousands)

(unaudited)

 
| **As of May 1, 2010**        | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|----------------------------|------------|---------------------------------|------------|---------------------------------------|------------|------------------|------------|
| **ASSETS**                                       |       |              |       |                       |       |                            |       |                                  |       |             |       |
| Current assets:                                  |       |              |       |                       |       |                            |       |                                  |       |             |       |
| Cash and cash equivalents                        |       | $                 | 67,023     |                       | $          | 13,493                          |       | $                                     | 7,290      |             | $          | — |   | $ | 87,806 |   |
| Accounts receivable, net                         |       | 8,059             |       | 12,218                     |       | —                          |       | —                                |       | 20,277           |       |
| Merchandise inventories                          |       | 195,009           |       | 366,342                    |       | —                          |       | —                                |       | 561,351          |       |
| Prepaid expenses                                 |       | 12,325            |       | 11,897                     |       | 11,790                          |       | (11,502                               | )          | 24,510           |       |
| Other current assets                             |       | 218               |       | 1,818                      |       | 63,959                          |       | (7,208                                | )          | 58,787           |       |
| Assets held for disposal                         |       | 1,045             |       | 1,445                      |       | —                          |       | —                                |       | 2,490            |       |
| Total current assets                             |       | 283,679           |       | 407,213                    |       | 83,039                          |       | (18,710                               | )          | 755,221          |       |
| Property and equipment—net                  |       | 231,355           |       | 455,955                    |       | 31,373                          |       | (19,244                               | )          | 699,439          |       |
| Investment in subsidiaries                       |       | 1,773,804         |       | —                     |       | —                          |       | (1,773,804                            | )          | —           |       |
| Intercompany receivables                         |       | —            |       | 1,079,817                  |       | 76,894                          |       | (1,156,711                            | )          | —           |       |
| Deferred income taxes                            |       | 10,344            |       | 47,096                     |       | —                          |       | —                                |       | 57,440           |       |
| Other long-term assets                           |       | 16,751            |       | 790                        |       | —                          |       | —                                |       | 17,541           |       |
| Total assets                                     |       | $                 | 2,315,933  |                       | $          | 1,990,871                       |       | $                                     | 191,306    |             | $          | (2,968,469 | ) | $ | 1,529,641 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**   | ** ** | ** **        | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **                            | ** ** | ** **       | ** ** |
| Current liabilities:                             |       |              |       |                       |       |                            |       |                                  |       |             |       |
| Accounts payable                                 |       | $                 | 218,472    |                       | $          | —                          |       | $                                     | —     |             | $          | — |   | $ | 218,472 |   |
| Trade payable program liability                  |       | 34,273            |       | —                     |       | —                          |       | —                                |       | 34,273           |       |
| Accrued expenses                                 |       | 30,897            |       | 62,503                     |       | 165,162                         |       | (13,320                               | )          | 245,242          |       |
| Deferred income taxes                            |       | 9,512             |       | 28,960                     |       | —                          |       | (5,390                                | )          | 33,082           |       |
| Current maturities of long-term  debt            |       | 1,079             |       | —                     |       | —                          |       | —                                |       | 1,079            |       |
| Total current liabilities                        |       | 294,233           |       | 91,463                     |       | 165,162                         |       | (18,710                               | )          | 532,148          |       |
| Long-term debt less current  maturities          |       | 305,931           |       | —                     |       | —                          |       | —                                |       | 305,931          |       |
| Other long-term liabilities                      |       | 35,399            |       | 38,851                     |       | —                          |       | —                                |       | 74,250           |       |
| Deferred gain from asset sales                   |       | 68,675            |       | 112,897                    |       | —                          |       | (19,244                               | )          | 162,328          |       |
| Intercompany liabilities                         |       | 1,156,711         |       | —                     |       | —                          |       | (1,156,711                            | )          | —           |       |
| Total stockholders’ equity                  |       | 454,984           |       | 1,747,660                  |       | 26,144                          |       | (1,773,804                            | )          | 454,984          |       |
| Total liabilities and  stockholders’ equity |       | $                 | 2,315,933  |                       | $          | 1,990,871                       |       | $                                     | 191,306    |             | $          | (2,968,469 | ) | $ | 1,529,641 |   |

 

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| **As of  January 30, 2010**                 | ** ** | **Pep  Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantors** | ** ** | **Consolidation/  Elimination** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|---------------|------------|----------------------------|------------|----------------------------------|------------|---------------------------------|------------|------------------|------------|
| **ASSETS**                                       |       |          |       |                       |       |                             |       |                            |       |             |       |
| Current  assets:                                 |       |          |       |                       |       |                             |       |                            |       |             |       |
| Cash  and cash equivalents                       |       | $             | 25,844     |                       | $          | 10,279                           |       | $                               | 3,203      |             | $          | — |   | $ | 39,326 |   |
| Accounts  receivable, net                        |       | 13,032        |       | 9,951                      |       | —                           |       | —                          |       | 22,983           |       |
| Merchandise  inventories                         |       | 195,314       |       | 363,804                    |       | —                           |       | —                          |       | 559,118          |       |
| Prepaid  expenses                                |       | 12,607        |       | 15,070                     |       | 14,255                           |       | (17,148                         | )          | 24,784           |       |
| Other  current assets                            |       | 1,101         |       | 2,667                      |       | 67,038                           |       | (5,378                          | )          | 65,428           |       |
| Assets  held for disposal                        |       | 1,045         |       | 3,393                      |       | —                           |       | —                          |       | 4,438            |       |
| Total  current assets                            |       | 248,943       |       | 405,164                    |       | 84,496                           |       | (22,526                         | )          | 716,077          |       |
| Property  and equipment—net                 |       | 232,115       |       | 462,128                    |       | 31,544                           |       | (19,337                         | )          | 706,450          |       |
| Investment  in subsidiaries                      |       | 1,755,426     |       | —                     |       | —                           |       | (1,755,426                      | )          | —           |       |
| Intercompany  receivables                        |       | —        |       | 1,058,132                  |       | 83,953                           |       | (1,142,085                      | )          | —           |       |
| Deferred  income taxes                           |       | 11,200        |       | 46,971                     |       | —                           |       | —                          |       | 58,171           |       |
| Other  long-term assets                          |       | 17,566        |       | 822                        |       | —                           |       | —                          |       | 18,388           |       |
| Total  assets                                    |       | $             | 2,265,250  |                       | $          | 1,973,217                        |       | $                               | 199,993    |             | $          | (2,939,374 | ) | $ | 1,499,086 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       |          |       |                       |       |                             |       |                            |       |             |       |
| Current  liabilities:                            |       |          |       |                       |       |                             |       |                            |       |             |       |
| Accounts  payable                                |       | $             | 202,974    |                       | $          | —                           |       | $                               | —     |             | $          | — |   | $ | 202,974 |   |
| Trade  payable program liability                 |       | 34,099        |       | —                     |       | —                           |       | —                          |       | 34,099           |       |
| Accrued  expenses                                |       | 24,042        |       | 62,106                     |       | 173,429                          |       | (17,161                         | )          | 242,416          |       |
| Deferred  income taxes                           |       | 6,626         |       | 28,723                     |       | —                           |       | (5,365                          | )          | 29,984           |       |
| Current  maturities of long-term debt            |       | 1,079         |       | —                     |       | —                           |       | —                          |       | 1,079            |       |
| Total  current liabilities                       |       | 268,820       |       | 90,829                     |       | 173,429                          |       | (22,526                         | )          | 510,552          |       |
| Long-term  debt less current maturities          |       | 306,201       |       | —                     |       | —                           |       | —                          |       | 306,201          |       |
| Other  long-term liabilities                     |       | 35,125        |       | 38,808                     |       | —                           |       | —                          |       | 73,933           |       |
| Deferred  gain from asset sales                  |       | 69,724        |       | 114,718                    |       | —                           |       | (19,337                         | )          | 165,105          |       |
| Intercompany  liabilities                        |       | 1,142,085     |       | —                     |       | —                           |       | (1,142,085                      | )          | —           |       |
| Total  stockholders’ equity                 |       | 443,295       |       | 1,728,862                  |       | 26,564                           |       | (1,755,426                      | )          | 443,295          |       |
| Total  liabilities and stockholders’ equity |       | $             | 2,265,250  |                       | $          | 1,973,217                        |       | $                               | 199,993    |             | $          | (2,939,374 | ) | $ | 1,499,086 |   |

 

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Table of Contents

 

CONDENSED CONSOLIDATINGSTATEMENTS OF OPERATIONS

(dollar amounts inthousands)

(unaudited)

 
| ** **                                                      | ** ** | ** **        | ** ** | **Subsidiary** | ** ** | **Subsidiary Non-** | ** ** | **Consolidation /** | ** ** | ** **       | ** ** |
|-----------------------------------------------------------------|------------|-------------------|------------|----------------|------------|--------------------------|------------|--------------------------|------------|------------------|------------|
| **Thirteen Weeks Ended May 1, 2010**   | ** ** | **Pep Boys** | ** ** | **Guarantors** | ** ** | **Guarantors**           | ** ** | **Elimination**          | ** ** | **Consolidated** | ** ** |
|                                                            |       |              |       |           |       |                     |       |                     |       |             |       |
| Merchandise sales                                               |       | $                 | 144,425    |           | $          | 264,764                  |       | $                        | —     |             | $          | — |   | $ | 409,189 |   |
| Service revenue                                                 |       | 36,641            |       | 64,203         |       | —                   |       | —                   |       | 100,844          |       |
| Other revenue                                                   |       | —            |       | —         |       | 5,736                    |       | (5,736                   | )          | —           |       |
| Total revenues                                                  |       | 181,066           |       | 328,967        |       | 5,736                    |       | (5,736                   | )          | 510,033          |       |
| Costs of merchandise sales                                      |       | 100,996           |       | 183,207        |       | —                   |       | (407                     | )          | 283,796          |       |
| Costs of service revenue                                        |       | 31,170            |       | 57,510         |       | —                   |       | (38                      | )          | 88,642           |       |
| Costs of other revenue                                          |       | —            |       | —         |       | 6,470                    |       | (6,470                   | )          | —           |       |
| Total costs of revenues                                         |       | 132,166           |       | 240,717        |       | 6,470                    |       | (6,915                   | )          | 372,438          |       |
| Gross profit from merchandise sales                             |       | 43,429            |       | 81,557         |       | —                   |       | 407                      |       | 125,393          |       |
| Gross profit from service revenue                               |       | 5,471             |       | 6,693          |       | —                   |       | 38                       |       | 12,202           |       |
| Gross profit from other revenue                                 |       | —            |       | —         |       | (734                     | )          | 734                      |       | —           |       |
| Total gross profit                                              |       | 48,900            |       | 88,250         |       | (734                     | )          | 1,179                    |       | 137,595          |       |
| Selling, general and administrative expenses                    |       | 40,053            |       | 70,935         |       | 81                       |       | 563                      |       | 111,632          |       |
| Net gain from dispositions of assets                            |       | (138              | )          | 183            |       | —                   |       | —                   |       | 45               |       |
| Operating profit                                                |       | 8,709             |       | 17,498         |       | (815                     | )          | 616                      |       | 26,008           |       |
| Non-operating (expense) income                                  |       | (4,250            | )          | 20,208         |       | 616                      |       | (15,990                  | )          | 584              |       |
| Interest expense (income)                                       |       | 16,046            |       | 6,458          |       | (522                     | )          | (15,374                  | )          | 6,608            |       |
| (Loss) earnings from continuing operations before  income taxes |       | (11,587           | )          | 31,248         |       | 323                      |       | —                   |       | 19,984           |       |
| Income tax (benefit) expense                                    |       | (4,545            | )          | 12,242         |       | 127                      |       | —                   |       | 7,824            |       |
| Equity in earnings of subsidiaries                              |       | 18,994            |       | —         |       | —                   |       | (18,994                  | )          | —           |       |
| Net earnings from continuing operations                         |       | 11,952            |       | 19,006         |       | 196                      |       | (18,994                  | )          | 12,160           |       |
| Discontinued operations, net of tax                             |       | (2                | )          | (208           | )          | —                   |       | —                   |       | (210             | )          |
| Net earnings                                                    |       | $                 | 11,950     |           | $          | 18,798                   |       | $                        | 196        |             | $          | (18,994 | ) | $ | 11,950 |   |

* *
| **Thirteen Weeks Ended May 2, 2009**   | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|------------------|------------|
|                                                            |       |              |       |                       |       |                                 |       |                                  |       |             |       |
| Merchandise sales                                               |       | $                 | 136,328    |                       | $          | 261,849                              |       | $                                     | —     |             | $          | — |   | $ | 398,177 |   |
| Service revenue                                                 |       | 34,813            |       | 63,498                     |       | —                               |       | —                                |       | 98,311           |       |
| Other revenue                                                   |       | —            |       | —                     |       | 5,723                                |       | (5,723                                | )          | —           |       |
| Total revenues                                                  |       | 171,141           |       | 325,347                    |       | 5,723                                |       | (5,723                                | )          | 496,488          |       |
| Costs of merchandise sales                                      |       | 96,018            |       | 185,424                    |       | —                               |       | (407                                  | )          | 281,035          |       |
| Costs of service revenue                                        |       | 28,813            |       | 57,077                     |       | —                               |       | (38                                   | )          | 85,852           |       |
| Costs of other revenue                                          |       | —            |       | —                     |       | 6,805                                |       | (6,805                                | )          | —           |       |
| Total costs of revenues                                         |       | 124,831           |       | 242,501                    |       | 6,805                                |       | (7,250                                | )          | 366,887          |       |
| Gross profit from merchandise sales                             |       | 40,310            |       | 76,425                     |       | —                               |       | 407                                   |       | 117,142          |       |
| Gross profit from service revenue                               |       | 6,000             |       | 6,421                      |       | —                               |       | 38                                    |       | 12,459           |       |
| Gross profit from other revenue                                 |       | —            |       | —                     |       | (1,082                               | )          | 1,082                                 |       | —           |       |
| Total gross profit                                              |       | 46,310            |       | 82,846                     |       | (1,082                               | )          | 1,527                                 |       | 129,601          |       |
| Selling, general and administrative expenses                    |       | 37,982            |       | 69,082                     |       | 78                                   |       | 911                                   |       | 108,053          |       |
| Net gain from dispositions of assets                            |       | 1                 |       | 2                          |       | —                               |       | —                                |       | 3                |       |
| Operating profit (loss)                                         |       | 8,329             |       | 13,766                     |       | (1,160                               | )          | 616                                   |       | 21,551           |       |
| Non-operating (expense) income                                  |       | (4,011            | )          | 21,271                     |       | 619                                  |       | (17,476                               | )          | 403              |       |
| Interest expense (income)                                       |       | 11,384            |       | 7,934                      |       | (522                                 | )          | (16,860                               | )          | 1,936            |       |
| (Loss) earnings from continuing operations before  income taxes |       | (7,066            | )          | 27,103                     |       | (19                                  | )          | —                                |       | 20,018           |       |
| Income tax (benefit) expense                                    |       | (3,165            | )          | 12,129                     |       | (9                                   | )          | —                                |       | 8,955            |       |
| Equity in earnings of subsidiaries                              |       | 14,800            |       | —                     |       | —                               |       | (14,800                               | )          | —           |       |
| Net earnings from continuing operations                         |       | 10,899            |       | 14,974                     |       | (10                                  | )          | (14,800                               | )          | 11,063           |       |
| Discontinued operations, net of tax                             |       | 10                |       | (164                       | )          | —                               |       | —                                |       | (154             | )          |
| Net (loss) earnings                                             |       | $                 | 10,909     |                       | $          | 14,810                               |       | $                                     | (10        | )                | $          | (14,800 | ) | $ | 10,909 |   |

 

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CONDENSED CONSOLIDATINGSTATEMENTS OF CASH FLOWS

(dollar amounts inthousands)

(unaudited)

 
| **Thirteen Weeks Ended May 1, 2010**                                   | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|----------------------------------|------------|---------------------------------------|------------|------------------|------------|
| **Cash flows from operating activities:**                                                       |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  earnings                                                                                   |       | $                 | 11,950     |                       | $          | 18,798                           |       | $                                     | 196        |             | $          | (18,994 | ) | $ | 11,950 |   |
| Adjustments  to reconcile net earnings to net cash provided by (used in) continuing  operations |       | (8,850            | )          | 9,774                      |       | 146                              |       | 18,378                                |       | 19,448           |       |
| Changes  in operating assets and liabilities                                                    |       | 29,952            |       | 426                        |       | (2,698                           | )          | —                                |       | 27,680           |       |
| Net  cash provided by (used in) continuing operations                                           |       | 33,052            |       | 28,998                     |       | (2,356                           | )          | (616                                  | )          | 59,078           |       |
| Net  cash used in discontinued operations                                                       |       | —            |       | (324                       | )          | —                           |       | —                                |       | (324             | )          |
| Net  cash provided by (used in) operating activities                                            |       | 33,052            |       | 28,674                     |       | (2,356                           | )          | (616                                  | )          | 58,754           |       |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  cash used in continuing operations                                                         |       | (5,168            | )          | (4,344                     | )          | —                           |       | —                                |       | (9,512           | )          |
| Net  cash provided by discontinued operations                                                   |       | —            |       | 569                        |       | —                           |       | —                                |       | 569              |       |
| Net  cash used in investing activities                                                          |       | (5,168            | )          | (3,775                     | )          | —                           |       | —                                |       | (8,943           | )          |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  cash provided by (used in) financing activities                                            |       | 13,295            |       | (21,685                    | )          | 6,443                            |       | 616                                   |       | (1,331           | )          |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  increase in cash and cash equivalents                                                      |       | 41,179            |       | 3,214                      |       | 4,087                            |       | —                                |       | 48,480           |       |
| Cash  and cash equivalents at beginning of period                                               |       | 25,844            |       | 10,279                     |       | 3,203                            |       | —                                |       | 39,326           |       |
| Cash  and cash equivalents at end of period                                                     |       | $                 | 67,023     |                       | $          | 13,493                           |       | $                                     | 7,290      |             | $          | — |   | $ | 87,806 |   |

 
| **Thirteen Weeks Ended May 2, 2009**                                   | ** ** | **Pep Boys** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-  Guarantors** | ** ** | **Consolidation /  Elimination** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------|------------|----------------------------------|------------|---------------------------------------|------------|------------------|------------|
| **Cash flows from operating activities:**                                                       |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  earnings                                                                                   |       | $                 | 10,909     |                       | $          | 14,810                           |       | $                                     | (10        | )                | $          | (14,800 | ) | $ | 10,909 |   |
| Adjustments  to reconcile net earnings to net cash (used in) provided by continuing  operations |       | (15,396           | )          | 12,550                     |       | 285                              |       | 14,183                                |       | 11,622           |       |
| Changes  in operating assets and liabilities                                                    |       | 10,498            |       | (8,955                     | )          | (5,779                           | )          | —                                |       | (4,236           | )          |
| Net  cash (used in) provided by continuing operations                                           |       | 6,011             |       | 18,405                     |       | (5,504                           | )          | (617                                  | )          | 18,295           |       |
| Net  cash used in discontinued operations                                                       |       | 10                |       | (328                       | )          | —                           |       | —                                |       | (318             | )          |
| Net  cash (used in) provided by operating activities                                            |       | 6,021             |       | 18,077                     |       | (5,504                           | )          | (617                                  | )          | 17,977           |       |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  cash used in continuing operations                                                         |       | (2,706            | )          | (3,002                     | )          | —                           |       | —                                |       | (5,708           | )          |
| Net  cash provided by discontinued operations                                                   |       | —            |       | 1,758                      |       | —                           |       | —                                |       | 1,758            |       |
| Net  cash provided by investing activities                                                      |       | (2,706            | )          | (1,244                     | )          | —                           |       | —                                |       | (3,950           | )          |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  cash provided by (used in) financing activities                                            |       | (5,139            | )          | (15,776                    | )          | 6,252                            |       | 617                                   |       | (14,046          | )          |
|                                                                                            |       |              |       |                       |       |                             |       |                                  |       |             |       |
| Net  increase in cash and cash equivalents                                                      |       | (1,824            | )          | 1,057                      |       | 748                              |       | —                                |       | (19              | )          |
| Cash  and cash equivalents at beginning of period                                               |       | 12,753            |       | 6,393                      |       | 2,186                            |       | —                                |       | 21,332           |       |
| Cash  and cash equivalents at end of period                                                     |       | $                 | 10,929     |                       | $          | 7,450                            |       | $                                     | 2,934      |             | $          | — |   | $ | 21,313 |   |

 

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Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

OVERVIEW

 

The following discussion and analysis explainsthe results of operations for the first fiscal quarter of 2010 and 2009 andsignificant developments affecting our financial condition for the thirteenweeks ended May 1, 2010. This discussion and analysis should be read inconjunction with the condensed consolidated interim financial statements andthe notes to such condensed consolidated financial statements includedelsewhere in this Quarterly Report on Form 10-Q, and the consolidatedfinancial statements and the notes to such financial statements included in Item8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-Kfor the fiscal year ended January 30, 2010.

 

Introduction

 

The Pep Boys-Manny, Moe & Jack is theonly national chain offering automotive service, tires, parts and accessories.This positioning allows us to streamline the distribution channel and pass thesavings on to our customers facilitating our vision of becoming the automotivesolutions provider of choice for the value oriented customer. The majority ofour stores are in a Supercenter format, which serves both “do-it-for-me” (“DIFM”,which includes service labor, installed merchandise and tires) and “do-it-yourself”(“DIY”, or retail) customers with the highest quality service offerings andmerchandise. Most of our Supercenters also have a commercial sales program thatprovides delivery of tires, parts and other products to automotive repair shopsand dealers. In 2009, as part of our long-term strategy to lead with automotiveservice, we began complementing our existing Supercenter store base withService & Tire Centers. These Service & Tire Centers aredesigned to capture market share and leverage our existing Supercenter andsupport infrastructure. We opened 24 Service & Tire Centers in fiscal2009 and year-to-date in fiscal 2010 we have opened an additional 5 locations.We are targeting a total of 40 new Service & Tire Centers in fiscal2010 and 80 in fiscal 2011. In addition, we recently opened two new smaller(14,000 sq. ft.) proto-type Supercenters, including one in the first quarter of2010. As of May 1, 2010, we operated 554 Supercenters and 27 Service &Tire Centers, as well as 9 legacy Pep Boys Express (retail only) storesthroughout 35 states and Puerto Rico.

 

EXECUTIVE SUMMARY

 

Net earnings for the thirteen weeks ended May 1,2010 were $12.0 million, a $1.1 million improvement over the net earnings of$10.9 million reported for the thirteen weeks ended May 2, 2009. The prioryear first quarter included, on a pre-tax basis, a $6.2 million gain from bondrepurchases. Our diluted earnings per share for the first quarter of 2010 were$0.23, a $0.02 improvement over the $0.21 recorded in the first quarter of2009. The increase in profitability was the result of increased sales acrossall lines of business and improved total gross profit margins, partially offsetby higher media spend.

 

For the thirteen weeks ended May 1, 2010,our comparable sales (sales generated by locations in operation during the sameperiod) increased by 1.4% compared to a decrease of 0.3% for the thirteen weeksended May 2, 2009. This increase in comparable sales was comprised of a1.7% increase in comparable merchandise sales and a 0.1% increase in comparableservice revenue.

 

There are various factors within the currenteconomy which affect both our consumer and our industry. Sales ofnon-discretionary product categories are primarily impacted by miles driven,which after having declined in 2008, stabilized in 2009 primarily due to lowergasoline prices. High unemployment and the credit crisis have also benefitedour non-discretionary product categories modestly as customers have focused onmaintaining their existing vehicles rather than purchasing new vehicles. Thesetrends, however, negatively impacted sales in our discretionary product categorieslike accessories and complementary merchandise, although the rate of declinehas moderated.

 

We continue to focus on refining and expandingour parts assortment to improve our in stock position, improving execution andthe customer experience and utilizing television and radio advertising tocommunicate our value offerings. We believe these efforts are responsible forincreased customer traffic in our stores for the thirteen weeks ended May 1,2010. This marks the first quarter in many years that we have experiencedincreases in comparable store sales and customer counts across all lines ofbusiness.

 

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RESULTS OF OPERATIONS

 

The following discussion explains the materialchanges in our results of operation for the thirteen weeks ended May 1,2010 and the thirteen weeks ended May 2, 2009.

 

***Analysis of Statement ofOperations***

 

The following table presents for the periodsindicated certain items in the condensed consolidated statements of operationsas a percentage of total revenues (except as otherwise provided) and thepercentage change in dollar amounts of such items compared to the indicatedprior period.

 
| ** **                                               | ** ** | **Percentage of Total Revenues** | ** ** | **Percentage Change**                          | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| **Thirteen Weeks Ended**                       | ** ** | **May 1, 2010  (Fiscal 2010)**   | ** ** | **May 2, 2009   (Fiscal 2009)** | ** ** | **Favorable  (Unfavorable)** | ** ** |
|                                                     |       |                                            |       |                                                |       |   |   |
| Merchandise  sales                                       |       | 80.2                                            | %          | 80.2                                                | %          | 2.8 | % |
| Service  revenue (1)                                     |       | 19.8                                            |       | 19.8                                                |       | 2.6 |   |
| Total  revenues                                          |       | 100.0                                           |       | 100.0                                               |       | 2.7 |   |
| Costs  of merchandise sales (2)                          |       | 69.4                                            | (3)        | 70.6                                                | (3)        | (1.0 | ) |
| Costs  of service revenue (2)                            |       | 87.9                                            | (3)        | 87.3                                                | (3)        | (3.2 | ) |
| Total  costs of revenues                                 |       | 73.0                                            |       | 73.9                                                |       | (1.5 | ) |
| Gross  profit from merchandise sales                     |       | 30.6                                            | (3)        | 29.4                                                | (3)        | 7.0 |   |
| Gross  profit from service revenue                       |       | 12.1                                            | (3)        | 12.7                                                | (3)        | (2.1 | ) |
| Total  gross profit                                      |       | 27.0                                            |       | 26.1                                                |       | 6.2 |   |
| Selling,  general and administrative expenses            |       | 21.9                                            |       | 21.8                                                |       | (3.3 | ) |
| Net  gain (loss) from dispositions of assets             |       | —                                          |       | —                                              |       | — |   |
| Operating  profit                                        |       | 5.1                                             |       | 4.3                                                 |       | 20.7 |   |
| Non-operating  income                                    |       | 0.1                                             |       | 0.1                                                 |       | 44.9 |   |
| Interest  expense                                        |       | 1.3                                             |       | 0.4                                                 |       | (241.3 | ) |
| Earnings  from continuing operations before income taxes |       | 3.9                                             |       | 4.0                                                 |       | (0.2 | ) |
| Income  tax expense                                      |       | 39.2                                            | (4)        | 44.7                                                |  (4)  | 12.6 |   |
| Earnings  from continuing operations                     |       | 2.4                                             |       | 2.2                                                 |       | 9.9 |   |
| Discontinued  operations, net of tax                     |       | —                                          |       | —                                              |       | (36.4 | ) |
| Net  Earnings                                            |       | 2.3                                             |       | 2.2                                                 |       | 9.5 |   |

 

----

| (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, purchasing,  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.                                                                                                                                                                                                                                                                                                                  |

 

Thirteen weeks ended May 1, 2010 vs.Thirteen weeks ended May 2, 2009

 

Totalrevenue and comparable sales for the first quarter of 2010 increased 2.7% and1.4%, respectively, as compared to the first quarter of 2009. Total revenue forthe first quarter of 2010 increased by $13.5 million, or 2.7%, to $510.0million from $496.5 million in the first quarter of 2009. The 1.4% increase incomparable store sales consisted of a 0.1% comparable service revenue increaseand a 1.7% comparable merchandise sales increase. While our total revenuefigures were favorably impacted by the opening of the new stores, a new storeis not added to our comparable store sales until it reaches its 13th month of operation.Non-comparable stores contributed an additional $6.7 million of total revenuein the first quarter of 2010 as compared to the first quarter of 2009.

 

Total merchandise sales increased 2.8% to $409.2million compared to $398.2 million in the first quarter of 2009. Total servicerevenue increased 2.6% to $100.8 million from $98.3 million in the prior year.The increase in both merchandise sales and service revenues was driven by anincrease in comparable store customer counts partially offset by a slightdecrease in the average transaction amount per customer. The balance of theincrease in sales was due to the contribution from our new stores.

 

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In the first quarter of 2010, customer trafficgenerated by our promotional events, improved in stock position and betterstore execution resulted in an increase in comparable store customer counts andsales across all lines of business. We experienced a 2.8% increase in sales ofour core automotive parts categories which make up approximately 80% of ourmerchandise sales, partially offset by a 2.0% decrease in sales of ourdiscretionary product categories as compared to the first quarter of 2009. Wecontinue to believe, and our first quarter performance supports, that providinga differentiated merchandise assortment, better customer experience, valueproposition and innovative marketing will increase sales and customer countsconsistently over the long term across all lines of business.

 

Gross profit from merchandise sales increased by$8.3 million, or 7.0%, to $125.4 million for the first quarter of 2010 from$117.1 million in the first quarter of 2009. Gross profit from merchandisesales increased to 30.6% for the first quarter of 2010 from 29.4% for the firstquarter of 2009. The increase in gross profit margins was primarily due to animprovement in inventory shrinkage, lower in—bound freight costs and highervendor support funds.

 

Gross profit from service revenue decreased by$0.3 million, or 2.1%, to $12.2 million for the first quarter of 2010 from$12.5 million in the first quarter of 2009. Gross profit from service revenuedecreased to 12.1% for the first quarter of 2010 from 12.7% for the firstquarter of 2009. The decrease in gross profit was primarily due to higher fixedexpenses such as occupancy costs (includes such items as rent, utilities andbuilding maintenance) which increased by 100 basis points in the current yearfirst quarter as compared to the prior year, primarily due to adding the newService & Tire Centers. Excluding the impact of the new Service &Tire Centers (which are still in their ramp up stage for sales but incurringthe full fixed expense load), the gross profit from service revenue wasrelatively flat year over year.

 

Selling,general and administrative expenses increased $3.6 million, or 3.3%. Theincrease was primarily due to increased media expense of $3.8 million, andincreased payroll and related expenses of $1.4 million, partially offset bylower general liability insurance claims expense of $1.1 million.

 

Interest expense for the first quarter of 2010was $6.6 million, an increase of $4.7 million compared to the prior year. Theprior year included a $6.2 million gain resulting from the retirement of debt.Excluding this gain, interest expense declined by $1.6 million due to reduceddebt levels.

 

Our income tax expense for the first quarter of2010 was $7.8 million, or an effective rate of 39.2%, as compared to an expenseof $9.0 million, or an effective rate of 44.7%, for the first quarter of 2009.The annual rate depends on a number of factors, including the jurisdiction inwhich operating profit is earned and the timing and nature of discrete items.

 

As a result of the foregoing, we reported netearnings of $12.0 million for the first quarter of 2010 as compared to netearnings of $10.9 million in the prior year. Our basic and diluted earnings pershare were $0.23 as compared to $0.21 in the prior year.

 

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, which includes thereclassification of revenue from installed products from retail sales toservice center revenue, shows an accurate comparison against competitors withinthe two sales arenas. We compete in the Retail area of the business through ourretail sales floor and commercial sales business. Our Service Center businesscompetes in the Service area of the industry.

 

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

 
| ** **                                       | ** ** | **Thirteen weeks ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|
| **(dollar amounts in thousands)** | ** ** | **May 1,  2010**              | ** ** | **May 2,  2009** | ** ** |
|                                             |       |                               |       |   |   |
| Retail  Sales (1)                                |       | $                                  | 269,707    |   | $ | 264,411 |   |
| Service  Center Revenue (2)                      |       | 240,326                            |       | 232,077 |   |
| Total  Revenues                                  |       | $                                  | 510,033    |   | $ | 496,488 |   |
|                                             |       |                               |       |   |   |
| Gross  Profit from Retail Sales (3)              |       | $                                  | 79,754     |   | $ | 73,555 |   |
| Gross  Profit from Service Center Revenue (3)    |       | 57,841                             |       | 56,046 |   |
| Total  Gross Profit                              |       | $                                  | 137,595    |   | $ | 129,601 |   |

 

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| (1) | Excludes  revenues from installed products.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes  revenues from installed products.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (3) | Gross Profit from  Retail Sales includes the cost of products sold, purchasing, warehousing and  store occupancy costs. Gross Profit from Service Center Revenue includes the  cost of installed products sold, purchasing, warehousing, service center  payroll and related employee benefits and service center occupancy costs.  Occupancy costs include utilities, rents, real estate and property taxes,  repairs and maintenance and depreciation and amortization expenses. |

 

CAPITAL AND LIQUIDITY

 

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 $58.8 million in the first quarter of2010, as compared to $18.0 million in the prior year first quarter. The $40.8 millionimprovement from the prior year was due to an $8.9 million increase in netearnings (net of non-cash adjustments) and a $31.9 million favorable change inoperating assets and liabilities. The change in operating assets andliabilities was primarily due to favorable changes in accounts payable of $33.9million and in all other operating assets and liabilities of $8.6 million,partially offset by an unfavorable change in inventory of $10.6 million. Theimprovement in accounts payable was primarily due to an increase in the amountof inventory purchases in the current year. Our accounts payable to inventoryratio was 45% at May 1, 2010, and 40% at May 2, 2009. The favorablechange in all other assets and liabilities was primarily due to an increase inaccrued expenses primarily related to the timing of payments. The unfavorablechange in cash flows from inventory resulted from an increased investment inour new stores which added $4.1 million of inventory. Excluding thisinvestment, inventory remained relatively flat compared to the first quarter of2009 despite increased purchases in the current year. We were able to achievethis result through our continued disciplined inventory management, includingreduced seasonal inventory purchases, inventory lead times and safety stocks.

 

Cash used in investing activities was $8.9million for the first quarter of 2010 as compared to $4.0 million in the prioryear first quarter. During the current year first quarter, we sold threeproperties that were classified as held for sale for net proceeds of $2.1million, of which $0.6 million is included in discontinued operations, andcompleted one sale leaseback transaction for net proceeds of $1.6 million. Inthe prior year first quarter, we sold two properties classified as assets heldfor sale for net proceeds of $1.8 million which is reported in discontinuedoperations. Capital expenditures in the first quarter of 2010 increased by $6.8million, to $12.5 million, from $5.7 million for the first quarter of 2009.Capital expenditures for the current year were for improvements of our existingstores, offices, distribution centers and for the opening of the newfacilities.

 

Our targeted capital expenditures for fiscal2010 increased to $80.0 million from the $68.0 million previously reported dueto accelerating certain high return capital projects in the current year as aresult of our strong liquidity position. Our fiscal year 2010 capitalexpenditures includes the addition of approximately 40 Service & TireCenters and required expenditures for our existing stores, offices anddistribution centers. These expenditures are expected to be funded by cash onhand, net cash generated from operating activities and opportunistic singlestore sale leaseback transactions. Additional capacity, if needed, exists underour existing line of credit.

 

In the first quarter of 2010 and 2009, we usedcash in financing activities of $1.3 million and $14.0 million, respectively.The cash used in financing activities in the first quarter of 2010 is primarilyrelated to the payment of cash dividends. In the first quarter of 2009, werepurchased $17.0 million of our outstanding 7.5% Senior Subordinated Notes for$10.7 million.

 

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We anticipate that cash on hand, cash generatedby operating activities and cash generated by opportunistic single store saleleaseback transactions will exceed our expected cash requirements in fiscalyear 2010. In addition, we expect to have excess availability under ourexisting line of credit during the entirety of fiscal year 2010. As of May 1,2010, we had zero drawn on our line of credit and maintained undrawnavailability under our revolving credit facility of $142.8 million.

 

Our working capital was $223.1 million and$205.5 million at May 1, 2010 and January 30, 2010, respectively. Ourlong-term debt, as a percentage of our total capitalization, was 40% and 41% atMay 1, 2010 and January 30, 2010, respectively.

 

As of May 1, 2010 and January 30, 2010,we had an outstanding balance of $34.3 million and $34.1 million, respectively,(classified as trade payable program liability on the condensed consolidatedbalance sheet) under our vendor financing program which is funded by variousbank participants who have the ability, but not the obligation, to purchaseaccount receivables owed by us directly from our vendors.

 

NEW ACCOUNTING STANDARDS

 

In October 2009, theFASB issued Accounting Standards Update (ASU) 2009-13 “Revenue Recognition(Topic 605) — Multiple-Deliverable Revenue Arrangements a consensus of the FASBEmerging Issues Task Force,” (ASU 2009-13). This update eliminates the residualmethod of allocation and requires that consideration be allocated to alldeliverables using the relative selling price method. ASU 2009-13 is effectivefor material revenue arrangements entered into or materially modified in fiscalyears beginning on or after June 15, 2010. The Company does not believethe adoption of ASU 2009-13 will have a material impact on its consolidatedfinancial 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.

 

On an on-going basis, we evaluate our estimatesand judgments, including those related to customer incentives, product returnsand warranty obligations, bad debts, merchandise inventories, income taxes,financing operations, restructuring costs, retirement benefits, riskparticipation agreements and contingencies and litigation. We base ourestimates and judgments on historical experience and on various other factorsthat we believe to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. Fora detailed discussion of significant accounting policies that may involve ahigher degree of judgment or complexity, refer to “Critical Accounting Policiesand Estimates” as reported in our Annual Report on Form 10-K for thefiscal year ended January 30, 2010, which disclosures are hereby incorporatedby 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 expectationsregarding implementation of its long-term strategic plan, future financialperformance, automotive aftermarket trends, levels of competition, businessdevelopment activities, future capital expenditures, financing sources andavailability and the effects of regulation and litigation. Although we believethat the expectations 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 theautomotive aftermarket, the weather in geographical regions with a highconcentration of our stores, competitive pricing, the location and number ofcompetitors’ stores, product and labor costs and the additional factorsdescribed in our filings with the Securities and Exchange Commission (SEC). Weassume no obligation to update or supplement forward-looking statements thatbecome untrue because of subsequent events.

 

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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 May 1, 2010 we hadno borrowings under this facility. Additionally, we have a $149.5 millionSenior Secured Term Loan facility that bears interest at three month LIBOR plus2.0%.

 

We have an interest rate swap for a notionalamount of $145.0 million, which is designated as a cash flow hedge on ourSenior Secured Term Loan. We record the effective portion of the change in fairvalue through accumulated other comprehensive loss.

 

The fair value of the interest rate swap was$16.1 million and $16.4 million payable at May 1, 2010 and January 30,2010, respectively. Of the $0.3 million decrease in fair value during thethirteen weeks ended May 1, 2010, $0.2 million net of tax was recorded toaccumulated 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, as amended(the “Exchange Act”)) are designed to ensure that information required to bedisclosed is accumulated and communicated to our management, including ourprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure. The term disclosure controlsand procedures means controls and other procedures of an issuer that aredesigned to ensure that information required to be disclosed by the issuer inthe reports that it files or submits under the Exchange Act (15 U.S.C. 78a etseq.) is recorded, processed, summarized and reported, within the time periodsspecified in the SEC’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 Exchange 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 thisQuarterly Report on Form 10-Q that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

Item 5.  Other Information

 

None.

 

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PART II - OTHERINFORMATION

 

Item 1.  LegalProceedings

 

In September 2006,the United States Environmental Protection Agency (“EPA”) requested certaininformation from the Company as part of an investigation to determine whetherthe Company had violated, and is in violation of, the Clean Air Act and itsnon-road engine regulations. The information requested concerned certaingenerator and personal transportation merchandise offered for sale by theCompany. In the fourth quarter of fiscal 2008, the EPA informed the Companythat it believed that the Company had violated the Clean Air Act by virtue ofthe fact that certain of this merchandise did not conform to theircorresponding EPA Certificates of Conformity. During the third quarter offiscal 2009, the Company and the EPA reached a settlement in principle of thismatter requiring that the Company (i) pay a monetary penalty of $5.0million, (ii) take certain corrective action with respect to certaininventory that had been restricted from sale during the course of theinvestigation, (iii) implement a formal compliance program and (iv) participatein certain non-monetary emission offset activities. The Company had previouslyaccrued an amount equal to the agreed upon civil penalty and a$3.0 million contingency accrual with respect to the restricted inventory.During fiscal 2009, the Company reversed $2.0 million of the inventoryaccrual as a portion of the subject inventory was released for sale. On May 10,2010, the Company and the EPA signed the formal settlement Agreement, which wasfiled with the U.S. District Court for the District of Columbia. The settlementagreement is subject to a 30-day public comment period and final approval bythe court.

 

TheCompany is also party to various other actions and claims arising in the normalcourse of business.

 

TheCompany believes that amounts accrued for awards or assessments in connectionwith all such matters are adequate and that the ultimate resolution of thesematters will not have a material adverse effect on the Company’s financialposition. However, there exists a reasonable possibility of loss in excess ofthe amounts accrued, the amount of which cannot currently be estimated. Whilethe Company does not believe that the amount of such excess loss could bematerial to the Company’s financial position, any such loss could have amaterial adverse effect on the Company’s results of operations in the period(s) duringwhich the underlying matters are resolved.

 

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 30,2010.

 

Item 2.  Unregistered Sales of EquitySecurities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  (Removed and Reserved)

 

Item 5.  Other Information

 

None.

 

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Item 6.  Exhibits

 
| (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:    June 8,  2010 | 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

 
| (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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