10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10K

(Mark One)

xAnnual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended February 3, 2007

OR

oTransition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                   

Commission file number 1-3381

The Pep Boys—Manny, Moe & Jack

(Exact name of registrant as specified in its charter)

Pennsylvania	23-0962915
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
3111 West Allegheny Avenue, Philadelphia, PA	19132
(Address of principal executive office)	(Zip code)

215-430-9000

(Registrant’s telephone number, including area code)

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

Title of each class	Name of each exchange on which registered
Common Stock, $1.00 par value	New York Stock Exchange
Common Stock Purchase Rights	New York Stock Exchange

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

None

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No  o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  o

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  oAccelerated filer  x        Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)

Yes  o    No  x

As of the close of business on July 28, 2006, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $553,205,934.

As of April 13, 2007, there were 52,154,202 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		7
Item 1B.	Unresolved Staff Comments		10
Item 2.	Properties		10
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		11
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		12
Item 6.	Selected Financial Data		14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 8.	Financial Statements and Supplementary Data		31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		74
Item 9A.	Controls and Procedures		74
Item 9B.	Other Information		78
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		78
Item 11.	Executive Compensation		78
Item 12.	Security Ownership of Certain Beneficial Owners		78
Item 13.	Certain Relationships and Related Transactions and Director Independence		78
Item 14.	Principal Accounting Fees and Services		78
PART IV
Item 15.	Exhibits and Financial Statement Schedules		79
	Signatures		84

PART I

ITEM 1BUSINESS

GENERAL

The Pep Boys—Manny, Moe & Jack and subsidiaries (the “Company”) is a leading automotive retail and service chain. The Company operates in one industry, the automotive aftermarket. The Company is engaged principally in the retail sale of automotive parts, tires and accessories, automotive repairs and maintenance and the installation of parts. The Company’s primary operating unit is its SUPERCENTER format. As of February 3, 2007, the Company operated 593 stores consisting of 582 SUPERCENTERS and one SERVICE & TIRE CENTER, having an aggregate of 6,162 service bays, as well as 10 non-service/non-tire format PEP BOYS EXPRESS stores. The Company operates approximately 12,167,000 gross square feet of retail space, including service bays. The SUPERCENTERS average approximately 20,700 square feet and the 10 PEP BOYS EXPRESS stores average approximately 9,700 square feet. The Company believes that its unique SUPERCENTER format offers the broadest capabilities in the industry and positions the Company to gain market share and increase its profitability by serving “do-it-yourself” (retail) and “do-it-for-me” (service labor, installed merchandise and tires) customers with the highest quality merchandise and service offerings.

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

	Year ended
	February 3, 2007			January 28, 2006			January 29, 2005
Parts and Accessories		68.5	%		69.3	%		67.8	%
Tires		14.1			13.6			14.2
Total Merchandise Sales		82.6			82.9			82.0
Service Labor		17.4			17.1			18.0
Total Revenues		100.0	%		100.0	%		100.0	%

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As of February 3, 2007 the Company operated its stores in 36 states and Puerto Rico. The following table indicates, by state, the number of stores the Company had in operation at the end of fiscal 2002, 2003, 2004, 2005and 2006, and the number of stores opened and closed by the Company during each of the last four fiscal years:

NUMBER OF STORES AT END OF FISCAL YEARS 2002 THROUGH 2006

State	2006 Year End		Closed	Opened	2005 Year End		Closed	Opened	2004 Year End	Closed	Opened	2003 Year End	Closed	Opened	2002 Year End
Alabama	1		—	—	1		—	—	1	—	—	1	—	—	1
Arizona	22		—	—	22		—	—	22	—	—	22	1	—	23
Arkansas	1		—	—	1		—	—	1	—	—	1	—	—	1
California	121		—	—	121		1	—	122	—	—	122	12	—	134
Colorado	8		—	—	8		—	—	8	—	—	8	—	—	8
Connecticut	8		—	—	8		—	—	8	—	—	8	—	—	8
Delaware	6		—	—	6		—	—	6	—	—	6	—	—	6
Florida	43		—	—	43		—	—	43	—	—	43	4	—	47
Georgia	25		—	—	25		—	—	25	—	—	25	1	—	26
Illinois	23		—	—	23		—	—	23	—	—	23	1	—	24
Indiana	9		—	—	9		—	—	9	—	—	9	—	—	9
Kansas	2		—	—	2		—	—	2	—	—	2	—	—	2
Kentucky	4		—	—	4		—	—	4	—	—	4	—	—	4
Louisiana	10	**	—	—	10	**	—	—	10	—	—	10	—	—	10
Maine	1		—	—	1		—	—	1	—	—	1	—	—	1
Maryland	19		—	—	19		—	—	19	—	—	19	—	—	19
Massachusetts	7		—	—	7		—	—	7	—	—	7	1	—	8
Michigan	7		—	—	7		—	—	7	—	—	7	—	—	7
Minnesota	3		—	—	3		—	—	3	—	—	3	—	—	3
Missouri	1		—	—	1		—	—	1	—	—	1	—	—	1
Nevada	12		—	—	12		—	—	12	—	—	12	—	—	12
New Hampshire	4		—	—	4		—	—	4	—	—	4	—	—	4
New Jersey	28		—	—	28		—	—	28	—	—	28	1	—	29
New Mexico	8		—	—	8		—	—	8	—	—	8	—	—	8
New York	29		—	—	29		—	—	29	—	—	29	2	—	31
North Carolina	10		—	—	10		—	—	10	—	—	10	1	—	11
Ohio	12		—	—	12		—	—	12	—	—	12	1	—	13
Oklahoma	6		—	—	6		—	—	6	—	—	6	—	—	6
Pennsylvania	42		—	—	42		—	—	42	—	—	42	3	—	45
Puerto Rico	27		—	—	27		—	—	27	—	—	27	—	—	27
Rhode Island	3		—	—	3		—	—	3	—	—	3	—	—	3
South Carolina	6		—	—	6		—	—	6	—	—	6	—	—	6
Tennessee	7		—	—	7		—	—	7	—	—	7	—	—	7
Texas	54		—	—	54		1	—	55	—	—	55	5	—	60
Utah	6		—	—	6		—	—	6	—	—	6	—	—	6
Virginia	16		—	—	16		—	—	16	—	—	16	1	—	17
Washington	2		—	—	2		—	—	2	—	—	2	—	—	2
Total	593		—	—	593		2	—	595	—	—	595	34	—	629

**Due to damage sustained as a result of Hurricane Katrina in August 2005, two stores were temporarily closed at fiscal 2005 year end and one store remained closed at fiscal 2006 year end.

STORE IMPROVEMENTS

In fiscal 2006, the Company incurred approximately $37,924,000 of its total capital expenditures of $53,903,000 to maintain and improve its stores. Approximately one third of these expenditures resulted from the Company’s store redesign plan which results in better merchandising within its retail business, promotes cross-selling and improves the overall customer experience. In fiscal 2006, the Company grand reopened 104 remodeled stores. We expect to grand reopen approximately 125 remodeled stores in each of 2007 and 2008 with the remaining approximately 50 stores to be completed in 2009. The funding of our remodelings is expected to come from net cash generated from operating activities and the Company’s existing line of credit.

2

PRODUCTS AND SERVICES

Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries a similar product line, with variations based on the number and type of cars registered in the markets where the store is located. A full complement of inventory at a typical SUPERCENTER includes an average of approximately 22,000 items (approximately 21,000 items at a PEP BOYS EXPRESS store). The Company’s product lines include: tires (not stocked at PEP BOYS EXPRESS stores); batteries; new and remanufactured parts for domestic and import vehicles; chemicals and maintenance items; fashion, electronic, and performance accessories; personal transportation merchandise; and select non-automotive merchandise that appeals to automotive “Do-It-Yourself” customers, such as generators, power tools and canopies.

In addition to offering a wide variety of high quality name brand products, the Company sells an array of high quality products under various private label names. The Company sells tires under the names CORNELL®, FUTURA® and DEFINITYTM; and batteries under the name PROSTART®. The Company also sells wheel covers under the name FUTURA®; water pumps and cooling system parts under the name PROCOOL®; air filters, anti-freeze, chemicals, cv axles, lubricants, oil, oil filters, oil treatments, transmission fluids and wiper blades under the name PROLINE®; alternators, battery booster packs and starters under the name PROSTART®; power steering hoses and power steering pumps under the name PROSTEER®; brakes under the name PROSTOP®; brakes, starters and ignition under the name VALUEGRADE; and paints under the name VARSITY®. All products sold by the Company under various private label names accounted for approximately 24% of the Company’s merchandise sales in fiscal 2006, and approximately 22% and 33% in fiscal 2005 and 2004.

The Company has service bays in 583 of its 593 locations. While each service department has the ability to perform virtually all types of automotive service (except body work), the Company continuously evaluates the types of services it offers, focusing on the most profitable maintenance and repair services.

The Company’s commercial automotive parts delivery program, branded PEP EXPRESS PARTS®, is designed to increase the Company’s market share with the professional installer and to leverage its inventory investment. The program satisfies the installed merchandise customer by taking advantage of the breadth and quality of its parts inventory as well as its experience supplying its own service bays and mechanics. As of February 3, 2007, 459, or approximately 77%, of the Company’s stores provide commercial parts delivery.

The Company has a point-of-sale system in all of its stores, which gathers sales and gross profit data by stock-keeping unit from each store on a daily basis. This information is then used by the Company to help formulate its pricing, marketing and merchandising strategies. The Company has an electronic parts catalog and an electronic commercial invoicing system in all of its stores. The Company has an electronic work order system in all of its service centers. This system creates a service history for each vehicle, provides customers with a comprehensive sales document and enables the Company to maintain a service customer database.

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

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

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In fiscal 2006, approximately 37% of the Company’s total revenues were cash transactions (including personal checks) with the remainder being credit and debit card transactions and commercial credit accounts.

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

STORE OPERATIONS AND MANAGEMENT

All Pep Boys stores are open seven days a week. Each SUPERCENTER has a Retail Manager and Service Manager (PEP BOYS EXPRESS STORES only have a Retail Manager) who report up through a distinct organization of Area Directors and Divisional Vice Presidents specializing in operating their respective businesses. The Divisional Vice Presidents—Service report to the Senior Vice President—Service. The Senior Vice President—Service and Divisional Vice Presidents—Retail report to the Executive Vice President—Operations, who in turn, reports directly to the President & Chief Executive Officer. The President & Chief Executive Officer serves as the Company’s principal operations officer. A Retail Manager’s and a Service Manager’s average length of service with the Company is approximately 7.7 and 5.3 years, respectively.

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

INVENTORY CONTROL AND DISTRIBUTION

Most of the Company’s merchandise is distributed to its stores from its warehouses primarily by dedicated and contract carriers. Target levels of inventory for each product have been established for each of the Company’s warehouses and stores and are based upon prior shipment history, sales trends and seasonal demand. Inventory on hand is compared to the target levels on a weekly basis at each warehouse. If the inventory on hand at a warehouse is below the target levels, the Company’s buyers order merchandise from its suppliers.

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

SUPPLIERS

During fiscal 2006, the Company’s ten largest suppliers accounted for approximately 40% of the merchandise purchased by the Company. No single supplier accounted for more than 17% of the Company’s purchases. The Company has no long-term contracts under which the Company is required to purchase merchandise. Management believes that the relationships the Company has established with its suppliers are generally good.

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

4

COMPETITION

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

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

REGULATION

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

EMPLOYEES

At February 3, 2007, the Company employed 18,794 persons as follows:

Description	Full-time		%	Part-time		%	Total	%
Retail		5,023	37.7		3,831	70.2	8,854	47.1
Service Center		6,764	50.7		1,549	28.5	8,313	44.2
STORE TOTAL		11,787	88.4		5,380	98.7	17,167	91.3
Warehouses		696	5.2		66	1.2	762	4.1
Offices		857	6.4		8	0.1	865	4.6
TOTAL EMPLOYEES		13,340	100.0		5,454	100.0	18,794	100.0

The Company had no union employees as of February 3, 2007. At the end of fiscal 2005, the Company employed approximately 14,358 full-time and 5,622 part-time employees.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

5

economies, retail and commercial consumers’ ability to spend, the health of the various sectors of the automotive aftermarket, the weather in geographical regions with a high concentration of our stores, competitive pricing, the location and number of competitors’ stores, product and labor costs and the additional factors described in our filings with the Securities and Exchange Commission (“SEC”). See, “Item 1A. Risk Factors.” We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

SEC REPORTING

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

We provide free electronic access to our annual, quarterly and current reports (and all amendments to these reports) on our Internet website, www.pepboys.com. These reports are available on our website as soon as reasonably practicable after we electronically file or furnish such materials with or to the SEC. Information on our website does not constitute part of this Annual Report, and any references to our website herein are intended as inactive textual references only.

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

EXECUTIVE OFFICERS OF THE COMPANY

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

Name	Age	Tenure with Company	Position with the Company and Date of Election to Position
Jeffrey C. Rachor	45	—	President & Chief Executive Officer since March 26, 2007
Harold L. Smith	56	4 years	Executive Vice President—Merchandising, Marketing, Supply Chain and Commercial since August 2003
Mark S. Bacon	43	2 years	Executive Vice President—Operations since August 2006
Joseph A. Cirelli	47	30 years	Senior Vice President—Service since October 2005
Mark L. Page	50	31 years	Senior Vice President—Parts and Tires since October 2005
Harry F. Yanowitz	40	4 years	Senior Vice President—Chief Financial Officer since August 2004

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Jeffrey C. Rachor, President & Chief Executive Officer, joined the Company on March 26, 2007, after having most recently served as President, Chief Operating Officer, and a Director of Sonic Automotive Inc, a Fortune 300 company and the third largest automotive retailer in the United States. Prior to joining Sonic in 1997, he served as Chief Operating Officer and General Manager of Nelson Bowers Dealerships and held positions with American Suzuki Motor and General Motors corporations.

Harold L. Smith, Executive Vice President—Merchandising, Marketing, Supply Chain and Commercial, joined the Company in August 2003 after most recently serving in such capacity for CSK Auto. Prior to CSK Auto, Mr. Smith served as the President of Bass Pro Companies, a leading outdoor recreation retailer. Before Bass Pro, he served as CEO of several retail companies, including Builders Emporium, Ernst Home Centers, and Homeowners Do-It-Yourself Centers.

Mark S. Bacon, Executive Vice President, Operations—Mark S. Bacon was named Executive Vice President—Operations in August 2006. Mr. Bacon joined the Company in February 2005 as Senior Vice President—Retail Operations and assumed overall responsibility for both retail and service operations in October 2005. Prior to joining the Company, he was Senior Vice President, Sales and Operations for Staples and has also held various operations positions with companies such as Wal-Mart and Hills Stores.

Joseph A. Cirelli was named Senior Vice President—Service in October 2005. Since March 1977, Mr. Cirelli has served the Company in positions of increasing seniority, including Vice President—Real Estate and Development, Vice President—Operations Administration, and Vice President—Customer Satisfaction.

Mark L. Page was named Senior Vice President—Parts & Tires in October 2005 and has been a Senior Vice President of the Company since March 1993. Since June 1975, Mr. Page has served the Company in various store operations positions of increasing seniority.

Harry F. Yanowitz was named Senior Vice President—Chief Financial Officer in August 2004. Mr. Yanowitz joined the Company in June 2003 as Senior Vice President—Strategy & Business Development after having most recently served as Managing Director of Sherpa Investments, a private investment firm. Previously, he was President of Chapters, Canada’s largest book retailer. Prior to joining Chapters, Mr. Yanowitz was a consultant with Bain & Company.

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

ITEM 1A     RISK FACTORS

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

Risks Related to Pep Boys

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

We require significant capital to fund our business. While we believe we have the ability to sufficiently fund our planned operations and capital expenditures for the balance of fiscal year 2007, circumstances could arise that would materially affect our liquidity. For example, cash flows from our operations could be affected by changes in consumer spending habits or the failure to maintain favorable vendor payment terms or our inability to successfully implement sales growth initiatives. We may be unsuccessful in securing alternative financing when needed, on terms that we consider acceptable, or at all.

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

·our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired in the future;

·a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our debt, thereby reducing the funds available for other purposes;

·our failure to comply with financial and operating restrictions placed on us and our subsidiaries by our credit facilities could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or our prospects; and

·if we are substantially more leveraged than some of our competitors, we might be at a competitive disadvantage to those competitors that have lower debt service obligations and significantly greater operating and financial flexibility than we do.

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

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

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

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

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

We are subject to various federal, state and local laws and governmental regulations relating to the operation of our business, including those governing the handling, storage and disposal of hazardous substances contained in the products we sell and use in our service bays, the recycling of batteries, tires and used lubricants, and the ownership and operation of real property. As a result of investigations undertaken in connection with a number of our store acquisitions and financings, we are aware that soil or groundwater may be contaminated at some of our properties. Any failure by us to comply with environmental laws and regulations could have a material adverse effect on us.

Risks Related to Our Industry

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

8

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

Do-It-Yourself

Retail

·automotive parts and accessories stores;

·automobile dealers that supply manufacturer replacement parts and accessories; and

·mass merchandisers and wholesale clubs that sell automotive products and select non-automotive merchandise that appeals to automotive “Do-It-Yourself” customers, such as generators, power tools and canopies.

Do-It-For-Me

Service Labor

·regional and local full service automotive repair shops;

·automobile dealers that provide repair and maintenance services;

·national and regional (including franchised) tire retailers that provide additional automotive repair and maintenance services; and

·national and regional (including franchised) specialized automotive (such as exhaust, brake and transmission) repair facilities that provide additional automotive repair and maintenance services.

Installed Merchandise/Commercial

·mass merchandisers, wholesalers and jobbers (some of which are associated with national parts distributors or associations).

Tire Sales

·national and regional (including franchised) tire retailers; and

·mass merchandisers and wholesale clubs that sell tires.

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

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

9

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

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

·the weather—as vehicle maintenance may be deferred during periods of inclement weather;

·the economy—as during periods of poor economic conditions, customers may defer vehicle maintenance or repair, and during periods of good economic conditions, consumers may opt to purchase new vehicles rather than service the vehicles they currently own and replace worn or damaged parts;

·gas prices—as increases in gas prices may deter consumers from using their vehicles; and

·travel patterns—as changes in travel patterns may cause consumers to rely more heavily on train and airplane transportation.

ITEM 1B   UNRESOLVED STAFF COMMENTS

None.

ITEM 2      PROPERTIES

The Company owns its five-story, approximately 300,000 square foot corporate headquarters in Philadelphia, Pennsylvania. The Company also owns the following administrative regional offices—approximately 4,000 square feet of space in each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition, the Company leases approximately 4,000 square feet of space for administrative regional offices in each of Decatur, Georgia and Richardson, Texas. The Company owns a three-story, approximately 60,000 square foot structure in Los Angeles, California in which it occupies 7,200 square feet and sublets the remaining square footage to tenants.

Of the 593 store locations operated by the Company at February 3, 2007, 324 are owned and 269 are leased.

The following table sets forth certain information regarding the owned and leased warehouse space utilized by the Company for its 593 store locations at February 3, 2007:

Warehouse Locations	Products Warehoused	Square Footage	Owned or Leased	Stores Serviced	States Serviced
San Bernardino, CA	All	600,000	Leased	164	AZ, CA, NM, NV, UT, WA
McDonough, GA	All	392,000	Owned	132	AL, FL, GA, LA, NC, PR, SC, TN, VA
Mesquite, TX	All	244,000	Owned	81	AR, CO, KS, LA, MO, NM, OK, TX
Plainfield, IN	All	403,000	Leased	79	IL, IN, KY, MI, MN, NY, OH, PA, TN, VA
Chester, NY	All	400,400	Leased	137	CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VA
Middletown, NY	All except tires	90,000	Leased	—	This facility does not ship directly to stores
McDonough, GA	All except tires	150,000	Leased	—	This facility does not ship directly to stores
Total		2,279,400		593

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In addition to the above distribution centers, the Company is testing the operation of six satellite warehouses. These satellite warehouses stock approximately 32,000 SKUs and serve an average of 12-15 stores, in addition to having retail capabilities. Four of these locations were leased and comprised 78,700 square feet, while two were located in existing owned locations. Concurrently, during 2006, the Company reduced its outside storage space to provide temporary storage of merchandise items from approximately 1,000,000 to 100,000 aggregate cubic feet. The Company anticipates that its existing and future warehouse space and its access to outside storage will accommodate inventory necessary to support future store expansion and any increase in stock-keeping units through the end of fiscal 2007.

ITEM 3     LEGAL PROCEEDINGS

The Company is party to various actions and claims, including purported class actions, arising in the normal course of business. The Company believes that amounts accrued for awards or assessments in connection with such matters are adequate and that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

ITEM 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended February 3, 2007.

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PART II

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

The common stock of The Pep Boys—Manny, Moe & Jack is listed on the New York Stock Exchange under the symbol “PBY”. There were 6,088 registered shareholders as of April 13, 2007. The following table sets forth for the periods listed, the high and low sale prices and the cash dividends paid on the Company’s common stock.

MARKET PRICE PER SHARE

	Market Price Per Share						Cash Dividends
	High			Low			Per Share
Fiscal year ended February 3, 2007
Fourth Quarter		$	16.05		$	12.48		$	0.0675
Third Quarter		14.58			9.33			0.0675
Second Quarter		14.96			10.66			0.0675
First Quarter		16.55			14.05			0.0675
Fiscal year ended January 28, 2006
Fourth Quarter		$	15.99		$	12.54		$	0.0675
Third Quarter		14.84			11.75			0.0675
Second Quarter		15.24			12.54			0.0675
First Quarter		18.80			14.06			0.0675

It is the present intention of the Company’s Board of Directors to continue to pay regular quarterly cash dividends; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition and capital needs of the Company and other factors which the Board of Directors deems relevant.

EQUITY COMPENSATION PLANS

The following table sets forth the Company’s shares authorized for issuance under its equity compensation plans at February 3, 2007:

	Number of securities  to be issued upon  exercise of  outstanding options, warrants and rights (a)		Weighted-average price of outstanding options (excluding securities reflected in column (a)) (b)			Number of securities remaining available for  future issuance under  equity compensation  plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		2,493,028		$	13.64		3,243,817

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STOCK PRICE PERFORMANCE

The following graph compares the cumulative total return on shares of Pep Boys Stock over the past five years with the cumulative total return on shares of companies in (1) the Standard & Poor’s SmallCap 600 Index, (2) the S&P 600 Speciality Stores Index and (3) the S&P 600 Automotive Retail Index. Pep Boys moved from the S&P 600 Speciality Stores Index to the S&P 600 Automotive Retail Index upon its formation in May 2005. Until such time as the S&P 600 Automotive Retail index has five years of history, Pep Boys will show a comparison to both peer group indexes. The comparison assumes that $100 was invested in January 2002 in Pep Boys Stock and in each of the indices and assumes reinvestment of dividends.

Company / Index	Jan. 2002			Jan. 2003			Jan. 2004			Jan. 2005			Jan. 2006			Jan. 2007
Pep Boys		$	100		$	66		$	143		$	109		$	105		$	110
S&P SmallCap 600 Index		$	100		$	83		$	122		$	139		$	170		$	187
S&P 600 Specialty Stores Index		$	100		$	84		$	137		$	125		$	122		$	125
S&P 600 Automotive Retail Index*											$	100		$	130		$	170

*The S&P 600 Automotive Retail Index was created in May 2005. Therefore, the total return for January 2006 is for the period from May 2005 through January 2006.

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ITEM 6SELECTED FINANCIAL DATA

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

Year ended	Feb. 3,  2007			Jan. 28,  2006			Jan. 29,  2005			Jan. 31,  2004			Feb. 1,  2003
	(dollar amounts are in thousands, except share data)
STATEMENT OF OPERATIONS DATA(5)
Merchandise sales	$	1,876,290		$	1,854,408		$	1,863,015		$	1,728,386		$	1,697,628
Service revenue	395,871			383,621			409,881			405,884			400,149
Total revenues	2,272,161			2,238,029			2,272,896			2,134,270			2,097,777
Gross profit from merchandise sales	539,954			476,856			517,871			486,087		(3)	507,702		(4)
Gross profit from service revenue	31,802			30,411			92,739			94,762		(3)	100,355		(4)
Total gross profit	571,756			507,267			610,610			580,849		(3)	608,057		(4)
Selling, general and administrative expenses	551,031			523,318		(1)	547,336		(2)	569,834		(3)	504,163		(4)
Net Gain (Loss) from Sales of Assets(6)	15,297			4,826			11,848			(61		)	1,909
Operating (loss) profit	36,022			(11,225		)(1)	75,122		(2)	10,954		(3)	105,803		(4)
Non-operating income	7,023			3,897			1,824			3,340			3,097
Interest expense	49,342			49,040			35,965			38,255			47,237
(Loss) earnings from continuing operations before income taxes and cumulative effect of change in accounting principle	(6,297		)	(56,368		)(1)	40,981		(2)	(23,961		)(3)	61,267		(4)
Net (loss) earnings from continuing operations before cumulative effect of change in accounting principle	(2,000		)	(35,799		)(1)	25,666		(2)	(15,145		)(3)	38,881		(4)
Discontinued operations, net of tax(6)	(738		)	292			(2,087		)	(16,265		)	587
Cumulative effect of change in accounting principle, net of tax	189			(2,021		)	—			(2,484		)	—
Net (loss) earnings	(2,549		)	(37,528		)(1)	23,579		(2)	(33,894		)(3)	39,468		(4)
BALANCE SHEET DATA
Working capital	$	163,960		$	247,526		$	180,651		$	76,227		$	130,680
Current ratio	1.27 to 1			1.43 to 1			1.27 to 1			1.10 to 1			1.24 to 1
Merchandise inventories	$	607,042		$	616,292		$	602,760		$	553,562		$	488,882
Property and equipment-net	906,247			947,389			945,031			923,209			974,673
Total assets	1,767,199			1,821,753			1,867,023			1,778,046			1,741,650
Long-term debt (includes all convertible debt)	535,031			586,239			471,682			408,016			525,577
Total stockholders’ equity	567,755			594,565			653,456			569,734			605,880
DATA PER COMMON SHARE
Basic (loss) earnings from continuing operations before cumulative effect of change in accounting principle	$	(0.04	)	$	(0.65	)(1)	$	0.46	(2)	$	(0.29	)(3)	$	0.75	(4)
Basic (loss) earnings	(0.05		)	(0.69		)(1)	0.42		(2)	(0.65		)(3)	0.77		(4)
Diluted (loss) earnings from continuing operations before cumulative effect of change in accounting principle	(0.04		)	(0.65		)(1)	0.45		(2)	(0.29		)(3)	0.73		(4)
Diluted net (loss) earnings	(0.05		)	(0.69		)(1)	0.41		(2)	(0.65		)(3)	0.74		(4)
Cash dividends declared	0.27			0.27			0.27			0.27			0.27
Stockholders’ equity	10.53			10.97			11.87			10.79			11.73
Common share price range:
High	16.55			18.80			29.37			23.99			19.38
Low	9.33			11.75			11.83			6.00			8.75
OTHER STATISTICS
Return on average stockholders’ equity	(0.4		)%	(6.0		)%	3.9		%	(5.8		)%	6.7		%
Common shares issued and outstanding	53,934,084			54,208,803			55,056,641			52,787,148			51,644,578
Capital expenditures	53,903			92,083			103,766			43,262			43,911
Number of retail outlets	593			593			595			595			629
Number of service bays	6,162			6,162			6,181			6,181			6,527

(1)Includes a pretax charge of $4,200 related to an asset impairment charge reflecting the remaining value of a commercial sales software asset, which was included in selling, general and administrative expenses.

(2)Includes a pretax charge of $6,911 related to certain executive severance obligations.

(3)Includes pretax charges of $88,980 related to corporate restructuring and other one-time events of which $29,308 reduced gross profit from merchandise sales, $3,278 reduced gross profit from service revenue and $56,394 was included in selling, general and administrative expenses.

(4)Includes pretax charges of $2,529 related to the Profit Enhancement Plan of which $2,014 reduced the gross profit from merchandise sales, $491 reduced gross profit from service revenue and $24 was included in selling, general and administrative expenses.

(5)Statement of operations data reflects 53 weeks for year ended February 3, 2007 while the prior years reflect 52 weeks.

(6)Prior fiscal year amounts reflect reclassifications to separately disclose Net Gain (Loss) from Sales of Assets from Costs of Merchandise Sales and the change in classification of a store from discontinued operations to continuing operations.

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

OVERVIEW

Introduction

Pep Boys is a leader in the automotive aftermarket, with 593 stores and more than 6,000 service bays located throughout 36 states and Puerto Rico. All of our stores feature the nationally recognized Pep Boys brand name, established through more than 80 years of providing high-quality automotive merchandise and services, and are company-owned, ensuring chain-wide consistency for our customers. We are the only national chain offering automotive service, accessories, tires and parts under one roof, positioning us to achieve our goal of becoming the category dominant one-stop shop for automotive maintenance and accessories.

Of our 593 stores, 582 are what we refer to as SUPERCENTERS, which feature an average of 11 state-of-the-art service bays, with an average of more than 20,000 square feet per SUPERCENTER. Our store size allows us to display and sell a more complete offering of merchandise in a wider array of categories than our competitors, with a focus on the high-growth accessories segment and a comprehensive tire offering. We leverage this investment in inventory through our ability to install what we sell in our service bays and by offering this merchandise to both commercial and retail customers.

Our fiscal year ends on the Saturday nearest January 31, which results in an extra week every six years. Our fiscal year ended February 3, 2007 was a 53-week year with the fourth quarter including 14 weeks versus 13 weeks in fiscal 2005. All other years included in this report are 52 weeks.

Total revenues for the fiscal year ended February 3, 2007 were $2,272,161,000 as compared to the $2,238,029,000 recorded in the prior year. On a 52 week basis, comparable merchandise sales decreased 0.5% and comparable service revenue increased 1.3%. While we believe the macro economic environment negatively impacted our business throughout 2006, we were pleased with the increase in our service revenue which showed steady improvement in the second half of fiscal 2006. Continued focus on our service center productivity and service manager retention has helped recapture this market share.

Our net loss per share in the fifty-three weeks ended February 3, 2007 was $.05 per share or $.64 per share improvement over the $.69 loss per share recorded in 2005. Continual focus on our business strategy during the year permitted us to improve margins through better product acquisition costs and cost control incentives, which resulted in a reduction of our loss per share.

In addition to the improved operating performance during 2006, the Company focused significantly on improving its cash flow and strengthening its balance sheet. In the third quarter of 2006, we increased our Senior Secured Term Loan facility to $320,000,000, in order to refinance our Convertible Senior Notes due June 1, 2007, and extended the facility’s maturity to 2013, currently, the date of our first significant funded debt maturity. Our cash flow from operating activities improved by $130,817,000 and capital expenditures were $35,733,000 less then last year.

During 2006 we reinvested in our existing stores to redesign their interiors and enhance their exterior appeal. Our new interior design features four distinct merchandising worlds: accessories (fashion, electronic and performance merchandise), maintenance (hard parts and chemicals), garage (repair shop and travel) and service (including tire, wheel and accessory installation). We believe that this layout provides customers with a clear and concise way of finding what they need and promotes cross-selling. Modifications to the exterior of our stores are designed to increase customer traffic.

During 2006 we grand reopened 104 Stores in the following markets: New York—32 (first quarter); Denver, CO, Colorado Springs, CO, Orlando, FL, Miami, FL, and West Palm Beach, FL—34 (second quarter); Northern Florida and Mobile-Pensacola, FL—13 (third quarter); Dallas, TX, Waco, TX,

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Abilene, TX and Tyler, TX—25 (fourth quarter). We expect to grand reopen approximately 125 remodeled stores in each of 2007 and 2008 with the remaining approximately 50 stores to be completed in 2009.

Business Strategy

Keeping Our Merchandising Fresh and Exciting.   We continually merchandise our stores with a new and flexible product mix designed to increase customer purchases. We take advantage of our industry-leading average retail square footage to increase the appeal of our merchandise displays. We utilize product-specific advertising to highlight promotional items and pricing, primarily through weekly print advertising.

·  Enhancing Our Stores.   We are investing in our existing stores to redesign our interiors and enhance their exterior appeal. We believe that this layout will provide customers with a clear and concise way of finding what they need and will promote cross-selling.

·  Improving Service Center Performance.   We are working to improve the financial performance of our service center operations by improving tire sales and related attachment sales, and improving labor productivity. To improve tire sales, we have reduced our advertised opening price points, while offering attractive opportunities for customers to upgrade to tires with better warranties, features, or brands. In addition, we have emphasized training our staff to offer beneficial services related to each tire sale such as wheel balancing, alignments and warranties, as well as to provide a thorough safety check that highlights any further car maintenance or repair needs. We continually tailor our labor costs to labor sales volumes providing an opportunity to improve labor productivity going forward.

·  Improve Store Productivity.   We continually focus on improving the returns of our investment in store assets through managing our store portfolio, and taking advantage of opportunities for store relocations, disposals or new store additions. Any net store growth will focus primarily upon increasing penetration in our existing markets to further leverage our investments.

The following discussion explains the material changes in our results of operations for the fifty-three weeks ended February 3, 2007, and fifty-two weeks ended January 28, 2006, and January 28, 2005.

CAPITAL & LIQUIDITY

Capital Resources and Needs

Our cash requirements arise principally from the purchase of inventory, capital expenditures related to existing stores, offices and distribution centers and our stock repurchase program.

In fiscal 2006, improved operating results and working capital management, real estate sales and reduced capital expenditures allowed us to reduce our total debt by $48,975,000 and to repay in full $24,669,000 of borrowings against our company-owned life insurance policy assets.

While the primary capital expenditures for the fiscal year 2006 continue to be attributed to store redesigning, the rate of our store refurbishment program was decreased significantly both as a result of our decision in the second quarter to extend it through fiscal 2009 as well as its increased cost effectiveness. We remodeled 120 stores in 2006 and grand reopened 104 stores. In 2007, we expect to remodel 137 stores with the remaining being completed in late 2008 or early 2009.

On September 7, 2006 our Board of Directors renewed our stock repurchase program, resetting the authorized amount of shares that we can repurchase under the program to $100,000,000. We will purchase our common stock on the open market or in privately negotiated transactions from time to time in

16

accordance with the requirements of the SEC. In the fourth quarter of fiscal 2006, we had repurchased $7,311,000 at an average of $14.77 per share. This program expires on September 30, 2007.

Our capital expenditure program in 2007 is expected to be similar to the fiscal 2006 program, with inventory levels in 2007 comparable to 2006.

We anticipate that cash provided by operating activities, our existing line of credit, cash on hand and future access to the capital markets will exceed our expected cash requirement in fiscal 2007.

The Company’s working capital was $163,960,000 at February 3, 2007, $247,526,000 at January 28, 2006, and $180,651,000 at January 29, 2005. The Company’s long-term debt, as a percentage of its total capitalization, was 49% at February 3, 2007, 50% at January 28, 2006 and 42% at January 29, 2005 respectively. As of February 3, 2007, the Company had a $357,500,000 line of credit, with an availability of approximately $190,000,000. Our current portion of long term debt is $3,490,000 at February 3, 2007.

Contractual Obligations

The following chart represents the Company’s total contractual obligations and commercial commitments as of February 3, 2007:

			Due in less			Due in		Due in		Due after
Obligation	Total		than 1 year			1 - 3 years		3 - 5 years		5 years
	(dollar amounts in thousands)
Long-term debt(1)	$	537,836		$	3,201	$	24,028	$	6,456	$	504,151
Operating leases	482,849			57,670		100,902		84,727		239,550
Expected scheduled interest payments on all long-term debt	289,487			39,932		118,285		116,270		15,000
Capital leases	685			289		239		157		—
Total cash obligations	$	1,310,857		$	101,092	$	243,454	$	207,610	$	758,701

(1)Long-term debt includes current maturities.

The table excludes our pension obligation. We made voluntary contributions of $504,000, $1,867,000 and $1,819,000, to our pension plans in fiscal 2006, 2005 and 2004, respectively. Future plan contributions are dependent upon actual plan asset returns and interest rates. We expect contributions to approximate $1,258,000 in fiscal 2007. See Note 9 of Notes to Consolidated Financial Statements in “Item 8 Financial Statements and Supplementary Data” for further discussion of our pension plans.

			Due in less			Due in			Due in			Due after
Commercial Commitments	Total		than 1 year			1 - 3 years			3 - 5 years			5 years
	(dollar amounts in thousands)
Import letters of credit	$	487		$	487		$	—		$	—		$	—
Standby letters of credit	55,708			42,708			13,000			—			—
Surety bonds	11,224			11,016			208			—			—
Purchase obligations(1)	14,448			14,448			—			—			—
Total commercial commitments	$	81,867		$	68,659		$	13,208		$	—		$	—

(1)Our open purchase orders are based on current inventory or operational needs and are fulfilled by our vendors within short periods of time. We currently do not have minimum purchase commitments under our vendor supply agreements and generally our open purchase orders (orders that have not been shipped) are not binding agreements. Those purchase obligations that are in transit from our vendors at February 3, 2007 are considered to be a contractual obligation.

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Long-term Debt

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

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

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

Upon maturity on June 1, 2005, the Company retired the remaining $40,444,000 aggregate principal amount of its 7.0% Senior Notes with cash from operations and its existing line of credit.

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

On December 2, 2004, the Company further amended its amended and restated line of credit agreement. The amendment increased the amount available for borrowings to $357,500,000, with an ability, upon satisfaction of certain conditions, to increase such amount to $400,000,000. The amendment also reduced the interest rate under the agreement to LIBOR plus 1.75% (after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25% incremental increases as excess availability falls below $50,000,000). The amendment also provided the flexibility, upon satisfaction of certain conditions, to release up to $99,000,000 of reserves required as of December 2, 2004 under the line of credit agreement to support certain operating leases. This reserve was $73,912,000 on February 3, 2007. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate on borrowings under the line of credit agreement was 7.67 % and 6.2% at February 3, 2007 and January 28, 2006, respectively.

The other notes payable have a principal balance of $268,000 and $1,315,000 and a weighted average interest rate of 8.0% and 5.1% at February 3, 2007 and January 28, 2006, respectively, and mature at various times through August 2016. Certain of these notes are collateralized by land and buildings with an aggregate carrying value of approximately $1,774,000 and $6,744,000 at February 3, 2007 and January 28, 2006, respectively.

Other Contractual Obligations

In the third quarter of fiscal 2004, the Company entered into a vendor financing program with an availability of $20,000,000. Under this program, the Company’s factor makes accelerated and discounted payments to its vendors and the Company, in turn, makes its regularly-scheduled full vendor payments to the factor. As of February 3, 2007 and January 28, 2006, there was an outstanding balance of $13,990,000 and $11,156,000, respectively, under this program, classified as trade payable program liability in the consolidated balance sheet.

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In October 2001, the Company entered into a contractual commitment to purchase media advertising services with equal annual purchase requirements totaling $39,773,000 over four years. During the second quarter of fiscal 2004, it was determined that the Company would be unable to meet this obligation for the 2004 contract year which ended on November 30, 2004. As a result, the Company recorded a $1,579,000 charge to selling, general and administrative expenses in the quarter ended July 31, 2004 related to the anticipated shortfall in this purchase commitment. This agreement expired in October 2005.

The Company has letter of credit arrangements in connection with its risk management, import merchandising and vendor financing programs. The Company was contingently liable for $487,000 and $1,015,000 in outstanding import letters of credit and $55,708,000 and $41,218,000 in outstanding standby letters of credit as of February 3, 2007 and January 28, 2006, respectively.

The Company was also contingently liable for surety bonds in the amount of approximately $11,224,000 and $13,021,000 as of February 3, 2007 and January 28, 2006, respectively. The surety bonds guarantee certain of the Company’s payments (for example utilities, easement repairs, licensing requirements and customs fees).

Off-balance Sheet Arrangements

In the third quarter of fiscal 2004, the Company entered into a $35,000,000 operating lease for certain operating equipment at an interest rate of LIBOR plus 2.25%. The Company has evaluated this transaction in accordance with the original guidance of Financial Accounting Standards Board Interpretation Number (FIN) 46 and has determined that it is not required to consolidate the leasing entity. As of February 3, 2007, there was an outstanding commitment of $14,938,000 under the lease. The lease includes a residual value guarantee with a maximum value of approximately $172,000. The Company expects the fair market value of the leased equipment to substantially reduce or eliminate the Company’s payment under the residual guarantee at the end of the lease term. In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee related to this operating lease. As of February 3, 2007 and January 28, 2006, the current value of this liability was $71,000 and $105,000, respectively, which is recorded in other long-term liabilities on the consolidated balance sheets.

On August 1, 2003, the Company renegotiated $132,000,000 in operating leases. These leases, which expire on August 1, 2008, have lease payments with an effective rate of LIBOR plus 2.06%. The Company has evaluated this transaction in accordance with the original guidance of FIN 46 and has determined that it is not required to consolidate the leasing entity. The leases include a residual value guarantee with a maximum value of approximately $105,000,000. The Company expects the fair market value of the leased real estate to substantially reduce or eliminate the Company’s payment under the residual guarantee at the end of the lease term. In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee related to this operating lease. As of February 3, 2007, the current value of this liability was $1,496,000, which is recorded in other long-term liabilities on the consolidated balance sheets. As of February 3, 2007, there was an outstanding commitment of $117,627,000 under the lease.

The Company leases certain property and equipment under operating leases and capital leases which contain renewal and escalation clauses, step rent provisions, capital improvements funding and other lease concessions. These provisions are considered in the Company’s calculation of its minimum lease payments which are recognized as expense on a straight-line basis over the applicable lease term. In accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 13, as amended by SFAS No. 29, any lease payments that are based upon an existing index or rate are included in the Company’s minimum lease payment calculations. Total operating lease commitments as of February 3, 2007 were $482,849,000.

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Pension Plans

The Company has a defined benefit pension plan covering its full-time employees hired on or before February 1, 1992 and an unfunded Supplemental Executive Retirement Plan (SERP) that includes a defined benefit portion. The pension expense under these plans for fiscal 2006, 2005, and 2004 was $3,999,000, $4,331,000 and $4,076,000, respectively. The fiscal year 2006 expense is calculated based upon a number of actuarial assumptions, including an expected return on plan assets of 6.30% and a discount rate of 5.70%. In developing the expected return on asset assumptions, the Company evaluated input from its actuaries, including their review of asset class return expectations. The discount rate utilized for the pension plans is based on a model bond portfolio with durations that match the expected payment patterns of the plans. The Company will continue to evaluate its actuarial assumptions and adjust as necessary. In fiscal 2006, the Company contributed an aggregate of $504,000 to our pension plans. Based upon the current funded status of the defined benefit pension plan and the unfunded defined benefit portion of the SERP, aggregate cash contributions are expected to be $1,258,000 in fiscal 2007.

On January 31, 2004, the Company amended and restated its SERP. This amendment converted the defined benefit plan to a defined contribution plan for certain unvested participants and all future participants. All vested participants under the defined benefit portion will continue to accrue benefits according to the defined benefit formula. In connection with these amendments, the Company settled several obligations related to the benefits under the defined benefit SERP. These obligations totaled $568,000, and resulted in an expense under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” of approximately $774,000 in fiscal 2004.

RESULTS OF OPERATIONS

Management Overview-Fiscal 2006

Fiscal 2006 was a year of continuous improvement to operating performance for the Company. Our operating profit for fiscal 2006 was $36,022,000 or a $47,247,000 improvement over the operating loss in fiscal 2005 of $11,225,000. On a 52 week basis, our comparable sales were basically flat, but included a 1.3% improvement in service revenues. With revenue flat, improvements in margins and lower operating costs helped drive this operating profit improvement. Net loss for fiscal 2006 decreased to $2,549,000 or $0.05 per share (basic & diluted) from a net loss in 2005 of $37,528,000 or $0.69 per share (basic & diluted).

Discontinued Operations

In accordance with SFAS No. 144, our discontinued operations continues to reflect the costs associated with the stores remaining from the 33 stores closed on July 31, 2003 as part of our corporate restructuring (see Item 8 Financial Statements and Supplementary Data- note 7).

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

During fiscal 2005, the Company sold a closed store for proceeds of $931,000 resulting in a pre-tax gain of $341,000, which was recorded in discontinued operations on the consolidated statement of operations.

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During fiscal 2004, the Company sold assets held for disposal for proceeds of $13,327,000 resulting in a loss of $91,000, which was recorded in discontinued operations on the consolidated statement of operations.

Analysis of Statement of Operations

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

	Percentage of Total Revenues									Percentage Change
Year ended	Feb 3, 2007  (fiscal 2006)			Jan. 28, 2006  (fiscal 2005)			Jan. 29, 2005 (fiscal 2004)			Fiscal 2006 vs. Fiscal 2005			Fiscal 2005 vs. Fiscal 2004
Merchandise Sales		82.6	%		82.9	%		82.0	%		1.2	%		(0.5	)%
Service Revenue(1)		17.4			17.1			18.0			3.2			(6.4	)
Total Revenues		100.0			100.0			100.0			1.5			(1.5	)
Costs of Merchandise Sales(2)		71.2	(3)		74.3	(3)		72.2	(3)		(3.0	)		2.4
Costs of Service Revenue(2)		92.0	(3)		92.1	(3)		77.4	(3)		3.1			11.4
Total Costs of Revenues		74.8			77.3			73.1			(1.8	)		4.1
Gross Profit from Merchandise Sales		28.8	(3)		25.7	(3)		27.8	(3)		13.2			(7.9	)
Gross Profit from Service Revenue		8.0	(3)		7.9	(3)		22.6	(3)		4.6			(67.2	)
Total Gross Profit		25.2			22.7			26.9			12.7			(16.9	)
Selling, General and Administrative Expenses		24.3			23.4			24.1			5.3			(4.4	)
Net Gain from Sales of Assets		0.7			0.2			0.5			217.0			(59.3	)
Operating (Loss) Profit		1.6			(0.5	)		3.3			420.9			(114.9	)
Non-operating Income		0.3			0.2			0.1			80.2			113.7
Interest Expense		2.2			2.2			1.6			0.6			36.4
(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle		(0.3	)		(2.5	)		1.8			88.8			(237.5	)
Income Tax (Benefit) Expense		(68.2	)(4)		(36.5	)(4)		37.4	(4)		(79.1	)		234.3
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle		(0.1	)		(1.6	)		1.1			94.4			(239.5	)
Discontinued Operations, Net of Tax		—			—			(0.1	)		(352.7	)		114.0
Cumulative Effect of Change in Accounting Principle, Net of Tax		—			(0.1	)		—			109.4			—
Net (Loss) Earnings		(0.01	)		(1.7	)		1.0			93.2			(259.2	)

(1)Service revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials.

(2)Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and

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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 (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle

Fiscal 2006 vs. Fiscal 2005

Total revenues for fiscal 2006 increased 1.5%. Fiscal 2006 included 53 weeks versus 52 weeks in fiscal 2005. The 1.5% increase in revenue was the result of an additional week of sales along with increased improvement in our service counter operations. On a 52 week basis, the Company had a decrease in comparable store revenues of 0.2%. Comparable store service revenue increased 1.3% while comparable store merchandise sales decreased 0.5%. All stores that are included in the comparable store sales base as of the end of the period are included in the Company’s comparable store data calculations. Upon reaching its 13th month of operation, a store is added to our comparable store sales base. Stores are removed from the comparable store sales base upon their relocation or closure. Once a relocated store reaches its 13th month of operation at its new location, it is added back into our comparable store sales base. Square footage increases are infrequent and immaterial and, accordingly, are not considered in our calculations of comparable store data.

Gross profit from merchandise sales increased, as a percentage of merchandise sales, to 28.8% in fiscal 2006 from 25.7% in fiscal 2005. The increase in dollars was $63,098,000 or a 13.2% increase from the prior year. This increase, as a percentage of merchandise sales, was due to improved product margins and decreased warehousing costs partially offset by higher occupancy costs. The increase in merchandise margins resulted from the restructuring of our vendor agreements, lower freight costs and lower acquisition costs. Effective January 29, 2006, substantially all of our vendor agreements were restructured to no longer identify specific incremental expenses for cooperative advertising; therefore all vendor support funds are now treated as a reduction of inventories and are recognized as an increase to gross profit from merchandise sales when the inventories are sold, in accordance with EITF 02-16. Gross profit from merchandise sales from fiscal 2006 improved by approximately $37,100,000 compared to fiscal 2005, primarily as a result of these changes. Warehousing costs were reduced due to a more efficient store replenishment schedule and the absence in fiscal 2006 of certain costs associated with the fiscal 2005 relocation of our Southern California distribution center. Increased occupancy costs were the result of higher utility costs and higher depreciation expense associated with our store remodel program. The Company’s gross profit classification may not be comparable to the classification used by certain other entities. Some entities (including the Company) include distribution, store occupancy, buying and other costs in cost of goods sold. Other entities exclude such costs from gross profit, including them instead in general and administrative and / or sales and marketing expenses.

Gross profit from service revenue increased, as a percentage of service revenue, to 8.0% in fiscal 2006 from 7.9% in fiscal 2005. The increase in dollars was $1,391,000 or a 4.6% increase from the prior year. This increase as a percentage of service revenue was primarily due to lower workers compensation expense and repairs and maintenance costs offset by cost associated with providing free or discounted towing services to our customers.

Net gain from sales of assets increased, as percentage of total revenue to 0.7% from 0.2% in fiscal 2005. The $10,471,000 increase resulted from the sale of one owned property and the leasehold interest in another in 2006 versus the sale of one owned property in 2005.

Selling, general and administrative expenses increased, as a percentage of total revenues, to 24.3% in fiscal 2006 from 23.4% in fiscal 2005. This was a $27,713,000 or 5.3% increase over the prior year. This

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increase, as a percentage of total revenues, was due primarily to higher net media expense offset by reduced general office expense. The increase in net media expense was caused by a change in our vendor agreements which resulted in a different application of EITF 02-16, whereby approximately $35,700,000 in vendor support funds were recorded as a reduction to advertising cost in fiscal 2005 (see above explanation of vendor agreement restructuring). General office expense was favorable by $5,007,000 primarily due to the Company incurring a $4,200,000 software impairment charge in fiscal 2005.

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

Non-operating income increased as a percentage of total revenues from 0.2% in 2005 to 0.3% in 2006. This 80% increase of $3,126,000 was a result of interest earned on the investment of funds used for the early satisfaction and discharge of the Senior Convertible notes.

Our income tax benefit as a percentage of loss from continuing operations before income taxes and cumulative effect of change in accounting principle increased to 68.2% or $4,297,000 versus 36.5% or $20,569,000. The increase in the effective rate is due to a non-cash adjustment of $2,451,000 to our state deferred liabilities resulting from a change in the Company’s filing position.

Loss from discontinued operations decreased from a gain of $292,000, net of tax, in fiscal 2005 to a loss of $738,000, net of tax, in fiscal 2006 due to continuing expenses incurred from locations associated with the corporate restructuring which occurred in fiscal 2003.

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

Effects of Inflation

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

Fiscal 2005 vs. Fiscal 2004

Total revenues for fiscal 2005 decreased 1.5%. This decrease was due primarily to a decrease in comparable store revenues of 1.3%. Comparable store service revenue decreased 6.1% while comparable store merchandise sales decreased 0.2%.

Gross profit from merchandise sales decreased, as a percentage of merchandise sales, to 25.7% in fiscal 2005 from 27.8% in fiscal 2004. This was a 7.9% or $41,015,000 decrease from the prior year. This decrease, as a percentage of merchandise sales, was due to increases in warehousing costs and occupancy costs, and decreases in merchandise margins. The increase in warehousing costs was from increases in rent expense and rental equipment for the new warehouse in San Bernardino, CA. The increase in store occupancy costs was due to increased lease expense associated with the new point-of sale system and building and equipment maintenance expenses related to the store refurbishment program. The decrease in merchandise margin resulted from higher tire costs, a less favorable product mix consisting of more sales from lower margin products and higher freight costs.

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Gross profit from service revenue decreased, as a percentage of service revenue, to 7.9% in fiscal 2005 from 22.6% in fiscal 2004. This was a 67.2% or $62,328,000 decrease from the prior year. This decrease, as a percentage of service revenue, was due to decreased service revenue against fixed occupancy costs, in addition to increased payroll and benefits. The decrease in service revenue resulted primarily from decreased customer traffic and reduced tire sales, which results in fewer tire-related services and a negative impact on the overall service results. The increase in payroll and benefits was primarily due to a restructuring of field operations into separate retail and service teams on January 30, 2005. In connection with this restructuring, certain retail personnel, who were previously utilized in merchandising roles supporting the service business, were reassigned to purely service-related responsibilities. The labor and benefit costs related to these associates, approximately $21,132,000, which were previously recognized in selling, general and administrative expenses, are now recognized in costs of service revenue.

Net gain from sales of assets decreased, as percentage of total revenue to 0.2% from 0.5% in fiscal 2004. The $7,022,000 decrease resulted from the sale of one owned property in 2005 versus the sale of a distribution center in 2004.

Selling, general and administrative expenses decreased, as a percentage of total revenues, to 23.4% in fiscal 2005 from 24.1% in fiscal 2004. This was a $24,018,000 or 4.4% decrease from the prior year. This decrease, as a percentage of total revenues, was due primarily to decreases in store expenses, general office costs and employee benefits, offset, in part, by an increase in net media expense. The decrease in store expenses was primarily caused by a decrease of approximately $21,132,000 in payroll and related benefit costs (see above explanation of field operations restructuring), offset by increased hiring expenses, and travel expense associated with the store refurbishment program. The decrease in administrative expenses was primarily due to the recognition of $6,911,000 of executive severance in 2004, offset by a $4,200,000 asset impairment charge reflecting the remaining value of a commercial sales software asset in 2005, higher travel costs, auditing and tax services and meeting costs. The increase in net media expense was due primarily to incremental circular advertising and sales promotion expenses of approximately $11,000,000 related to the grand reopenings.

Interest expense increased 36.4% or $13,075,000 due primarily to $9,738,000 in interest and fees associated with the early satisfaction and discharge of the Company’s $43,000,000 6.88% Medium Term Notes ($342,000 of interest through original maturity) and the $100,000,000 6.92% TERMS ($1,296,000 of interest through original maturity, and $8,100,000 to purchase an associated call option).

Earnings from discontinued operations increased from a loss of $2,087,000, net of tax, in fiscal 2004 to earnings of $292,000, net of tax, in fiscal 2005 due primarily to changes in assumptions for sublet income and expenses related to closed stores.

Net earnings decreased, as a percentage of total revenues, due primarily to a decrease in total gross profit, an increase in interest expense and the impact of a net charge for the cumulative effect of a change in accounting principle for the adoption of FIN 47, “Accounting for Conditional Asset Retirement Obligations” recorded in fiscal 2005, offset by decreases in income tax expense and loss from discontinued operations.

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Industry Comparison

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

	Year ended
(dollar amounts in thousands)	February 3, 2007		January 28, 2006		January 29, 2005
Retail Sales(1)	$	1,352,395	$	1,356,784	$	1,352,695
Service Center Revenue(2)	919,766		881,245		920,201
Total Revenues	$	2,272,161	$	2,238,029	$	2,272,896
Gross Profit from Retail Sales(3)	$	381,247	$	343,860	$	355,270
Gross Profit from Service Center Revenue(3)	190,509		163,407		255,340
Total Gross Profit	$	571,756	$	507,267	$	610,610

(1)Excludes revenues from installed products.

(2)Includes revenues from installed products.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives, product returns and warranty obligations, bad debts, inventories, income taxes, financing operations, restructuring costs, retirement benefits, share based compensation, risk participation agreements and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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The Company believes that the following represent its more critical estimates and assumptions used in the preparation of the consolidated financial statements, although not inclusive:

·The Company evaluates whether inventory is stated at the lower of cost or market based on historical experience with the carrying value and life of inventory. The assumptions used in this evaluation are based on current market conditions and the Company believes inventory is stated at the lower of cost or market in the consolidated financial statements. In addition, historically the Company has been able to return excess items to vendors for credit. Future changes in vendors, in their policies or in their willingness to accept returns of excess inventory could require a revision in the estimates. If our estimates regarding excess or obsolete inventory are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in these estimates at February 3, 2007 would have affected net earnings by approximately $428,000 for the fiscal year ended February 3, 2007.

·The Company has risk participation arrangements with respect to casualty and health care insurance, including the maintaining of stop loss coverage with third party insurers to limit our total exposure. A reserve for the liabilities associated with these agreements is established using actuarial methods followed in the insurance industry and our historical claims experience. The amounts included in the Company’s costs related to these arrangements are estimated and can vary based on changes in assumptions, claims experience or the providers included in the associated insurance programs. A 10% change in our self-insurance liabilities at February 3, 2007 would have affected net earnings by approximately $2,723,000 for the fiscal year ended February 3, 2007.

·The Company records reserves for future product returns, warranty claims and inventory shrinkage. The reserves are based on current sales of products and historical claims and inventory shrinkage experience. If actual experience differs from historical levels, revisions in the Company’s estimates may be required. A 10% change in these reserves at February 3, 2007 would have affected net earnings by approximately $329,000 for the fiscal year ended February 3, 2007.

·The Company has significant pension costs and liabilities that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets, mortality rates and merit and promotion increases. The Company is required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Changes in the related pension costs or liabilities may occur in the future due to changes in the assumptions. The following table highlights the sensitivity of our pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:

Change in Assumption	Impact on Annual Pension Expense	Impact on Projected Benefit Obligation
0.50 percentage point decrease in discount rate	Increase $480,000	Increase $3,795,000
0.50 percentage point increase in discount rate	Decrease $480,000	Decrease $3,795,000
5.0% decrease in expected rate of return on assets	Increase $187,000	—
5.0% increase in expected rate of return on assets	Decrease $187,000	—

·The Company periodically evaluates its long-lived assets for indicators of impairment. Management’s judgments are based on market and operational conditions at the time of evaluation. Future events could cause management’s conclusion on impairment to change, requiring an adjustment of these assets to their then current fair market value.

·We have a share-based compensation plan, which includes stock options and restricted stock units, or RSUs. We account for our share-based compensation plans as prescribed by the fair value provisions of SFAS No. 123R. We determine the fair value of our stock options at the date of the grant using the Black-Scholes option-pricing model. The RSUs are awarded at a price equal to the

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market price of our underlying stock on the date of the grant. The pricing model and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include the expected life of stock options, expected stock price volatility, future employee stock option exercise behaviors and the estimate of award forfeitures. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are different from these assumptions, the share-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the share-based compensation. In addition, significant changes in these assumptions could materially impact our share-based compensation expense on future awards. A 10% change in our share-based compensation expense for the fiscal year ended February 3, 2007 would have affected net income by approximately $97,000 for the fiscal year ended February 3, 2007.

·The Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This requires the Company to estimate its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation of property and equipment and valuation of inventories, for tax and accounting purposes. The Company determines its provision for income taxes based on federal and state tax laws and regulations currently in effect, some of which have been recently revised. Legislation changes currently proposed by certain states in which we operate, if enacted, could increase our transactions or activities subject to tax. Any such legislation that becomes law could result in an increase in our state income tax expense and our state income taxes paid, which could have a material effect on our net income.

The temporary differences between the book and tax treatment of income and expenses result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. To the extent we establish a valuation allowance or change the allowance in a future period, income tax expense will be impacted. Actual results could differ from this assessment if adequate taxable income is not generated in future periods. Net deferred tax liabilities as of February 3, 2007 and January 28, 2006 totaled $28,931,000 and $18,354,000, respectively, representing approximately 2.4% and 1.5% of liabilities, respectively.

RECENT ACCOUNTING STANDARDS

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This statement simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS No. 133, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the guidance in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” which provides such beneficial interests are not subject to SFAS No. 133. SFAS No. 155 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125,” by eliminating the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for financial instruments acquired or issued after the beginning of our fiscal year 2007. We are currently evaluating the impact of SFAS No. 155 and will adopt the standard February 4, 2007.

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In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006. We are currently evaluating the impact of SFAS No. 156 and will adopt the standard February 4, 2007.

In June of 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation). The scope of this consensus includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to sales, use, value added and some excise taxes. Additionally, this consensus seeks to address how a company should address the disclosure of such items in interim and annual financial statements, either gross or net pursuant to APB Opinion No. 22, Disclosure of Accounting Policies. The Company is required to adopt this statement in fiscal 2007. The Company presents sales net of sales taxes in its consolidated statement of operations and does not anticipate changing its policy as a result of EITF 06-3.

In July of 2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (FIN 48). FIN 48 prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. FIN 48 is effective for financial statements issued for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of this statement to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS 157 defines the term fair value, establishes a framework for measuring it within generally accepted accounting principles and expands disclosures about its measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 157.

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

·Recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets and the benefit obligation) of pension and other postretirement benefit plans;

·Recognize, through comprehensive income, certain changes in the funded status of a defined benefit and post retirement plan in the year in which the changes occur;

·Measure plan assets and benefit obligations as of the end of the employer’s fiscal year; and

·Disclose additional information.

28

The requirement to recognize the funded status of a benefit plan and the additional disclosure requirements are effective for fiscal years ended after December 15, 2006. Accordingly, the Company adopted SFAS No.158 for its fiscal year ended February 3, 2007. The incremental effect from applying SFAS No. 158 on individual line items in the Company’s Consolidated Balance Sheets at February 3, 2007 follows:

	Before								After
	Application of								Application of
	SFAS No. 158				Adjustments				SFAS No. 158
Deferred Income Taxes		$	22,996			$	1,832			$	24,828
Other Long Term Assets		69,635				(1,651		)		67,984
Total Assets		1,767,018				181				1,767,199
Accrued Expenses		292,280				—				292,280
Other Long Term Liabilities		56,998				3,235				60,233
Total Liabilities		1,196,209				3,235				1,199,444
Accumulated Other Comprehensive Loss		(6,326		)		(3,054		)		(9,380		)
Total Stockholders’ Equity		570,809				(3,054		)		567,755
Total Liabilities and Stockholders’ Equity		1,767,018				181				1,767,199

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end is effective for fiscal years ending after December 15, 2008. The Company’s current measurement date is December 31. The Company will not elect early adoption of these additional SFAS No.158 requirements and will adopt these requirements for the fiscal year ended January 31, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 159.

ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Variable Rate Debt

Pursuant to terms of its revolving credit agreement, changes in the lender’s LIBOR could affect the rates of which the Company could borrow funds thereunder. At February 3, 2007, the Company had outstanding borrowings of $17,568,000 against the revolving credit agreement. Additionally, the Company has a $320,000,000 Senior Secured Term Loan facility that bears interest at three month LIBOR plus 2.75%, which was negotiated to LIBOR plus 2.00% after February 3, 2007, and $117,627,000 of real estate operating leases and $14,938,000 of equipment operating leases which have lease payments that vary based on changes in LIBOR. A one percent change in the LIBOR rate for the fiscal year ended February 3, 2007 would have affected net income by approximately $1,493,000 for the fiscal year ended February 3, 2007.

29

Fixed Rate Debt

The table below summarizes the fair value and contract terms of fixed rate debt instruments held by the Company at February 3, 2007:

(dollar amounts in thousands)	Amount		Average Interest Rate
Fair value at February 3, 2007	$	189,268
Expected maturities:
2007	$	268		8.00	%
2008	—			—
2009	—			—
2010	—			—
2011	—			—
Thereafter	200,000			7.50	%
	$	200,268

At January 28, 2006, the Company had outstanding $319,215,000 of fixed rate notes with an aggregate fair market value of $315,039,000.

Interest Rate Swap

On June 3, 2003, the Company entered into an interest rate swap for a notional amount of $130,000,000. The Company had designated the swap as a cash flow hedge of the Company’s real estate operating lease payments. The interest rate swap converts the variable LIBOR portion of the lease payment to a fixed rate of 2.90% and terminates on July 1, 2008. If the critical terms of the interest rate swap or hedge item do not change, the interest rate swap is considered to be highly effective with all changes in fair value included in other comprehensive income. As of February 3, 2007 and January 28, 2006, the fair value was $4,150,000 and $5,790,000, respectively. In the fourth quarter of fiscal 2006, the Company determined it was not in compliance with FAS 133 for hedge accounting and, accordingly, recorded a reduction of rent expense, which is included in Costs of Merchandise and Costs of Service Revenues, for the cumulative fair value change of $4,150,000. This change in fair value had previously been recorded in Accumulated Other Comprehensive Income (Loss) on the consolidated balance sheets. The Company evaluated the impact of this error, along with three other errors, on an annual and quarterly basis and concluded there was no material impact on any historical periods, on an individual or aggregate basis. The Company corrected these errors in the fourth quarter of fiscal 2006, resulting in no material impact to the consolidated financial statements. The Company has removed its designation as a cash flow hedge on this transaction and will record the change in fair value through its operating statement until the date of termination.

On November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000,000. The Company has designated the swap a cash flow hedge on the first $200,000,000 of the Company’s $320,000,000 senior secured notes. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in October 2013. The Company did not meet the documentation requirements of SFAS No. 133, at inception or as of February 3, 2007 and, accordingly, recorded the increase in the fair value of the interest rate swap of $1,490 as a reduction to Interest Expense. The Company intends to meet the documentation requirements of SFAS No. 133 for hedge accounting in the first quarter of fiscal 2007 and prospectively then record the effective portion of the change in fair value through Accumulated Other Comprehensive Income (Loss).

30

ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of The Pep Boys—Manny, Moe & Jack and subsidiaries (the “Company”) as of February 3, 2007 and January 28, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended February 3, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Pep Boys—Manny, Moe & Jack and subsidiaries as of February 3, 2007 and January 28, 2006, and the results of their operations and their cash flows for each of the three years in the period ended February 3, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Notes 1 and 12 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, SFAS No. 123 (revised 2004), Share-Based Payment, and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, as of February 3, 2007, January 29, 2006, and January 28, 2006, respectively.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of February 3, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 18, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Deloitte & Touche LLP

Philadelphia, Pennsylvania
April 18, 2007

31

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

	February 3, 2007			January 28, 2006
ASSETS
Current Assets:
Cash and cash equivalents	$	21,884		$	48,281
Accounts receivable, less allowance for uncollectible accounts of $1,505 and $1,188	29,582			36,434
Merchandise inventories	607,042			616,292
Prepaid expenses	39,264			40,952
Other	70,368			85,446
Assets held for disposal	—			652
Total Current Assets	768,140			828,057
Property and Equipment—at cost:
Land	251,705			257,802
Buildings and improvements	929,225			916,580
Furniture, fixtures and equipment	684,042			671,189
Construction in progress	3,464			15,858
	1,868,436			1,861,429
Less accumulated depreciation and amortization	962,189			914,040
Total Property and Equipment—Net	906,247			947,389
Deferred income taxes	24,828			—
Other	67,984			46,307
Total Assets	$	1,767,199		$	1,821,753
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	265,489		$	261,940
Trade payable program liability	13,990			11,156
Accrued expenses	292,280			290,761
Deferred income taxes	28,931			15,417
Current maturities of long-term debt and obligations under capital lease	3,490			1,257
Total Current Liabilities	604,180			580,531
Long-term debt and obligations under capital leases, less current maturities	535,031			467,239
Convertible long-term debt	—			119,000
Other long-term liabilities	60,233			57,481
Deferred income taxes	—			2,937
Commitments and Contingencies
Stockholders’ Equity:
Common stock, par value $1 per share: Authorized 500,000,000 shares; Issued 68,557,041 shares	68,557			68,557
Additional paid-in capital	289,384			288,098
Retained earnings	463,797			481,926
Accumulated other comprehensive loss	(9,380		)	(3,565		)
Less cost of shares in treasury—12,427,687 shares and 12,152,968 shares	185,339			181,187
Less cost of shares in benefits trust—2,195,270 shares	59,264			59,264
Total Stockholders’ Equity	567,755			594,565
Total Liabilities and Stockholders’ Equity	$	1,767,199		$	1,821,753

See notes to the consolidated financial statements

32

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

	February 3,			January 28,			January 29,
Year ended	2007			2006			2005
Merchandise Sales	$	1,876,290		$	1,854,408		$	1,863,015
Service Revenue	395,871			383,621			409,881
Total Revenues	2,272,161			2,238,029			2,272,896
Costs of Merchandise Sales	1,336,336			1,377,552			1,345,144
Costs of Service Revenue	364,069			353,210			317,142
Total Costs of Revenues	1,700,405			1,730,762			1,662,286
Gross Profit from Merchandise Sales	539,954			476,856			517,871
Gross Profit from Service Revenue	31,802			30,411			92,739
Total Gross Profit	571,756			507,267			610,610
Selling, General and Administrative Expenses	551,031			523,318			547,336
Net Gain from Sales of Assets	15,297			4,826			11,848
Operating Profit (Loss)	36,022			(11,225		)	75,122
Non-operating Income	7,023			3,897			1,824
Interest Expense	49,342			49,040			35,965
(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle	(6,297		)	(56,368		)	40,981
Income Tax (Benefit) Expense	(4,297		)	(20,569		)	15,315
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	(2,000		)	(35,799		)	25,666
(Loss) Earnings from Discontinued Operations, Net of Tax of $306, $(168) and $1,245	(738		)	292			(2,087		)
Cumulative Effect of Change in Accounting Principle, Net of Tax of $(78) and $1,161	189			(2,021		)	—
Net (Loss) Earnings	$	(2,549	)	$	(37,528	)	$	23,579
Basic (Loss) Earnings per Share:
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	$	(0.04	)	$	(0.65	)	$	0.46
(Loss) Earnings from Discontinued Operations, Net of Tax	(0.01		)	—			(0.04		)
Cumulative Effect of Change in Accounting Principle, Net of Tax	—			(0.04		)	—
Basic (Loss) Earnings per Share	$	(0.05	)	$	(0.69	)	$	0.42
Diluted (Loss) Earnings per Share:
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	$	(0.04	)	$	(0.65	)	$	0.45
(Loss) Earnings from Discontinued Operations, Net of Tax	(0.01		)	—			(0.04		)
Cumulative Effect of Change in Accounting Principle, Net of Tax	—			(0.04		)	—
Diluted (Loss) Earnings per Share	$	(0.05	)	$	(0.69	)	$	0.41

See notes to the consolidated financial statements

33

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

	Common Stock				Additional Paid-in				Retained				Treasury Stock					Accumulated Other Comprehensive				Benefits			Total Stockholders’
	Shares	Amount			Capital				Earnings				Shares		Amount			Loss				Trust			Equity
Balance, January 31, 2004	63,910,577		$	63,911		$	177,317			$	531,933		(8,928,159	)	$	(144,148	)		$	(15	)	$	(59,264	)		$	569,734
Comprehensive Income:
Net income										23,579
Minimum pension liability adjustment, net of tax																			(5,799		)
Fair market value adjustment on derivatives, net of tax																			962
Total Comprehensive Income																										18,742
Issuance of Common Stock	4,646,464		4,646			104,208																				108,854
Cash dividends ($.27 per share)										(15,676		)														(15,676		)
Effect of stock options and related tax benefits						2,064				(2,984		)	638,210		10,137											9,217
Stock compensation expense						1,184																				1,184
Repurchase of Common Stock													(3,077,000	)	(39,718		)									(39,718		)
Dividend reinvestment plan						193				(72		)	61,819		998											1,119
Balance, January 29, 2005	68,557,041		68,557			284,966				536,780			(11,305,130	)	(172,731		)		(4,852		)	(59,264		)		653,456
Comprehensive Loss:
Net loss										(37,528		)
Minimum pension liability adjustment, net of tax																			(22		)
Fair market value adjustment on derivatives, net of tax																			1,309
Total Comprehensive Loss																										(36,241		)
Cash dividends ($.27 per share)										(14,686		)														(14,686		)
Effect of stock options and related tax benefits						1,719				(2,520		)	338,856		5,592											4,791
Effect of restricted stock unit conversions						(636		)					28,981		433											(203		)
Stock compensation expense						2,049																				2,049
Repurchase of Common Stock													(1,282,600	)	(15,562		)									(15,562		)
Dividend reinvestment plan										(120		)	66,925		1,081											961
Balance, January 28, 2006	68,557,041		68,557			288,098				481,926			(12,152,968	)	(181,187		)		(3,565		)	(59,264		)		594,565
Comprehensive Loss:
Net loss										(2,549		)
Minimum pension liability adjustment, net of tax																			887
Fair market value adjustment on derivatives, net of tax																			(3,648		)
Total Comprehensive Loss																										(5,310		)
Cash dividends ($.27 per share)										(14,757		)														(14,757		)
Incremental effect from adoption of FAS No. 158, net of tax																			(3,054		)					(3,054		)
Effect of stock options and related tax benefits						(669		)		(657		)	80,641		1,387											61
Effect of restricted stock unit conversions						(1,096		)					74,107		712											(384		)
Stock compensation expense						3,051																				3,051
Repurchase of Common Stock													(494,800	)	(7,311		)									(7,311		)
Dividend reinvestment plan										(166		)	65,333		1,060											894
Balance, February 3, 2007	68,557,041		$	68,557		$	289,384			$	463,797		(12,427,687	)	$	(185,339	)		$	(9,380	)	$	(59,264	)		$	567,755

See notes to the consolidated financial statements

34

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

	Year ended
	February 3, 2007				January 28, 2006				January 29, 2005
Cash Flows from Operating Activities:
Net (Loss) Earnings		$	(2,549	)		$	(37,528	)		$	23,579
Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided by Continuing Operations:
Net (earnings) loss from discontinued operations		738				(292		)		2,087
Depreciation and amortization		88,476				79,887				76,620
Cumulative effect of change in accounting principle, net of tax		(189		)		2,021				—
Accretion of asset retirement obligation		269				109				135
Loss on defeasance of convertible debt		755				—				—
Stock compensation expense		3,051				2,049				1,184
Cancellation of vested stock options		(1,056		)		—				—
Deferred income taxes		(8,316		)		(27,792		)		26,853
Deferred gain on sale leaseback		—				—				(130		)
Reduction in asset retirement liability		—				(1,815		)		—
Gain from sales of assets		(15,297		)		(4,826		)		(11,848		)
Loss on impairment of assets		840				4,200				—
Gain from derivative valuation		(5,568		)		—				—
Excess tax benefits from stock based awards		(95		)		—				—
Increase in cash surrender value of life insurance policies		(2,143		)		(3,389		)		(3,540		)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expenses and other		24,045				15,166				(17,753		)
Decrease (increase) in merchandise inventories		9,250				(13,532		)		(49,198		)
Increase (decrease) in accounts payable		3,549				(49,041		)		(24,387		)
(Decrease) increase in accrued expenses		(4,165		)		(18,864		)		25,853
Increase (decrease) in other long-term liabilities		2,093				16,760				(1,272		)
Net Cash Provided (Used in) by Continuing Operations		93,688				(36,887		)		48,183
Net Cash Used in Discontinued Operations		(1,258		)		(1,500		)		(2,732		)
Net Cash Provided by (Used in) Operating Activities		92,430				(38,387		)		45,451
Cash Flows from Investing Activities:
Cash paid for property and equipment		(50,212		)		(85,945		)		(88,068		)
Proceeds from sales of assets		17,542				4,043				18,021
Proceeds from sales of assets held for disposal		—				6,913				—
(Repayment) proceeds from life insurance policies		(24,669		)		24,655				—
Premiums paid on life insurance policies		—				(605		)		(1,778		)
Net cash used in continuing operations		(57,339		)		(50,939		)		(71,825		)
Net cash provided by discontinued operations		—				916				13,327
Net Cash Used in Investing Activities		(57,339		)		(50,023		)		(58,498		)
Cash Flows from Financing Activities:
Net (payments) borrowings under line of credit agreements		(48,569		)		57,985				8,102
Excess tax benefits from stock based awards		95				—				—
Net borrowings (payments) on trade payable program liability		2,834				11,156				(7,216		)
Payments for finance issuance costs		(2,217		)		(5,150		)		(5,500		)
Proceeds from issuance of notes		121,000				200,000				200,000
Reduction of long-term debt		(2,263		)		(183,459		)		(189,991		)
Reduction of convertible debt		(119,000		)		—				(31,000		)
Payments on capital lease obligations		(227		)		(383		)		(1,040		)
Dividends paid		(14,757		)		(14,686		)		(15,676		)
Repurchase of common stock		—				(15,562		)		(39,718		)
Proceeds from issuance of common stock		—				—				108,854
Proceeds from exercise of stock options		722				3,071				6,887
Proceeds from dividend reinvestment plan		894				961				1,119
Net Cash (Used in) Provided by Financing Activities		(61,488		)		53,933				34,821
Net (Decrease) Increase in Cash and Cash Equivalents		(26,397		)		(34,477		)		21,774
Cash and Cash Equivalents at Beginning of Year		48,281				82,758				60,984
Cash and Cash Equivalents at End of Year		$	21,884			$	48,281			$	82,758
Cash paid for interest, net of amounts capitalized		$	46,245			$	50,602			$	30,019
Cash received from income tax refunds		$	1			$	10,097			$	23,290
Cash paid for income taxes		$	632			$	1,770			$	48,732
Supplemental Disclosure of Cash Flow Information:
Non-cash investing activities:
Changes in accrued purchases of property and equipment		$	3,691			$	6,138			$	15,698
Write off of equipment and recognition of insurance receivable		$	—			$	345			$	—
Non-cash financing activities:
Equipment capital leases		$	84			$	789			$	1,413
Repurchase of common stock not settled		$	7,311			$	—			$	—

See notes to the consolidated financial statements

35

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS   The Pep Boys—Manny, Moe & Jack and subsidiaries (the “Company”) is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of stores. The Company currently operates stores in 36 states and Puerto Rico.

FISCAL YEAR END   The Company’s fiscal year ends on the Saturday nearest to January 31. Fiscal year 2006 which ended February 3, 2007, was comprised of 53 weeks and fiscal years 2005, which ended January 28, 2006, and 2004, which ended January 29, 2005, were comprised of 52 weeks.

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

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

MERCHANDISE INVENTORIES   Merchandise inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on inventory and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected fiscal year-end inventory levels and costs. If the first-in, first-out (FIFO) method of costing inventory had been used by the Company, inventory would have been $593,265 and $615,698 as of February 3, 2007 and January 28, 2006, respectively.

During the fourth quarter of fiscal 2006, the Company changed its process for counting its physical inventories. Previously, the Company conducted, using its own employees, a physical inventory count of its inventory during the last weekend of its fiscal year and estimated its inventory levels as of the end of the first three fiscal quarters of each year. The Company now utilizes a third party to conduct physical counts of its inventory throughout the year and then utilizes a systemized roll-forward process to determine its physical inventory levels at the end of each fiscal quarter. As a result of this change, the Company established, and will revise quarterly, a reserve for estimated inventory shrinkage based upon the historical results of its cycle count program.

The Company also records valuation adjustments (reserves) for potentially excess and obsolete inventories based on current inventory levels, the historical analysis of product sales and current market conditions. The nature of the Company’s inventory is such that the risk of obsolescence is minimal and excess inventory has historically been returned to the Company’s vendors for credit. The Company provides reserves when less than full credit is expected from a vendor or when market is lower than recorded costs. The Company’s reserves against inventory for these matters were $13,462 and $12,822 as of February 3, 2007 and January 28, 2006, respectively.

36

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

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

SOFTWARE CAPITALIZATION   The Company, in accordance with AICPA Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”, capitalizes certain direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a period not to exceed five years beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

CAPITALIZED INTEREST   Interest on borrowed funds is capitalized in connection with the construction of certain long-term assets. Capitalized interest was immaterial in fiscal years 2006, 2005 and 2004.

REVENUE RECOGNITION   The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold. Service revenues are recognized upon completion of the service. The Company records revenue net of an allowance for estimated future returns. The Company establishes reserves for sales returns and allowances based on current sales levels and historical return rates. Return activity is immaterial to revenue and results of operations in all periods presented.

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

TRADE PAYABLE PROGRAM LIABILITY   In the third quarter of fiscal 2004, the Company entered into a vendor financing program with an availability of $20,000. Under this program, the Company’s factor makes accelerated and discounted payments to its vendors and the Company, in turn, makes its regularly-scheduled full vendor payments to the factor. There were outstanding balances of $13,990 and $11,156 under the program at February 3, 2007 and January 28, 2006, respectively.

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

37

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

The Company accounts for vendor support funds in accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor” (EITF 02-16). Rebates and other miscellaneous incentives are earned based on purchases or product sales. These incentives are treated as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold. Certain vendor allowances are used exclusively for promotions and to partially or fully offset certain other direct expenses. Such allowances would be offset against the appropriate expenses they offset, once the Company determines the allowances are for specific, identifiable incremental expenses.

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

Components of the reserve for warranty costs for fiscal years ended February 3, 2007 and January 28, 2006, are as follows:

Balance at January 29, 2005	$	1,324
Additions related to fiscal 2005 sales	13,429
Warranty costs incurred in fiscal 2005	(13,276		)
Balance at January 28, 2006	1,477
Additions related to fiscal 2006 sales	11,577
Warranty costs incurred in fiscal 2006	(12,409		)
Balance at February 3, 2007	$	645

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

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

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

PENSION EXPENSE   The Company reports all information on its pension and savings plan benefits in accordance with FASB Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosure about Pensions and Other Postretirement Benefits (revised 2003)” (SFAS 132R), as amended

38

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

by SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans- an Amendment of FASB Statements No. 87, 88, 106 and 132(R)”.

INCOME TAXES   The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under the liability method, deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax bases of assets and liabilities.

ADVERTISING   The Company expenses the production costs of advertising the first time the advertising takes place. Gross advertising expense for 2006, 2005, and 2004 was $84,206, $85,809 and $73,996, respectively. No advertising costs were recorded as assets as of February 3, 2007 or January 28, 2006.

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

Prior to fiscal year 2006, certain cooperative advertising reimbursements were netted against specific, incremental, identifiable costs incurred in connection with the selling of the vendor’s product. Cooperative advertising reimbursements of $35,702 and $36,579 for fiscal years 2005 and 2004, respectively, were recorded as a reduction of advertising expense with the net amount included in selling, general and administrative expenses in the consolidated statement of operations. Any excess reimbursements over these costs are characterized as a reduction of inventory and are recognized as a reduction of cost of sales as the inventories are sold, in accordance with EITF 02-16. The amount of excess reimbursements recognized as a reduction of costs of sales were $53,753 and $48,950 for fiscal years 2005 and 2004, respectively. The balance of excess reimbursements remaining in inventory was immaterial as of January 28, 2006.

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

IMPAIRMENT OF LONG-LIVED ASSETS   The Company accounts for impaired long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This standard prescribes the method for asset impairment evaluation for long-lived assets and certain identifiable intangibles that are both held and used or to be disposed of. The Company evaluates the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds the fair value. In addition, the Company reports assets to be disposed of at the lower of the carrying amount or the fair market value less selling costs.

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

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

EARNINGS PER SHARE   Earnings per share for all periods have been computed in accordance with SFAS No. 128, “Earnings Per Share” as amended by SFAS No. 123 (revised 2004), “Share-Based

39

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Payment.” Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing earnings plus the interest on the convertible senior notes by the weighted average number of common shares outstanding during the year plus the assumed conversion of dilutive convertible debt and incremental shares that would have been outstanding upon the assumed exercise of dilutive stock options.

ACCOUNTING FOR STOCK-BASED COMPENSATION   At February 3, 2007, the Company has three stock-based employee compensation plans, which are described in full in Note 12, “Equity Compensation Plans.”

Effective January 29, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No.123R) requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Prior to January 29, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and related interpretations. The Company also followed the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”. The Company adopted SFAS No. 123R using the modified prospective method and, accordingly, financial statement amounts for periods prior to January 29, 2006 have not been restated to reflect the fair value method of recognizing compensation cost relating to share-based compensation.

The Company recognized approximately $1,340 of compensation expense related to stock options, and approximately $1,711 of compensation expense related to restricted stock units (RSUs), in its operating results (included in selling, general and administrative expenses) for fiscal year 2006. The related tax benefit recognized was approximately $894. Compensation expense for RSUs was $2,049 and $1,183, for fiscal year 2005 and 2004 respectively, and was included in selling, general and administrative expenses. The cumulative effect from adopting the provisions of SFAS No. 123R in fiscal year 2006 was $189 benefit, net of tax.

The application of SFAS 123(R) had the following effect on reported amounts in fiscal year 2006, relative to amounts that would have been reported using the intrinsic value method under previous accounting (dollars in thousands, except per share amounts):

	SFAS 123(R) Adjustments
Operating profit		$	(1,340	)
Loss from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle		$	(1,340	)
Income Tax Benefit		$	393
Net Loss		$	(947	)
Basic Loss per Share		$	(0.02	)
Diluted Loss per Share		$	(0.02	)
Cash flow from operating activities		$	(95	)
Cash flow from financing activities		$	95

40

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

	January 28, 2006				January 29, 2005
Net (loss) earnings:
As reported		$	(37,528	)		$	23,579
Add: Stock-based compensation for RSU’s, net of tax		1,301				741
Less: Total stock-based compensation expense determined under fair value-based method, net of tax		(3,121		)		(2,858		)
Pro forma		$	(39,348	)		$	21,462
Net earnings (loss) per share:
Basic:
As reported		$	(0.69	)		$	0.42
Pro forma		$	(0.72	)		$	0.38
Diluted:
As reported		$	(0.69	)		$	0.41
Pro forma		$	(0.72	)		$	0.38

Expected volatility is based on historical volatilities for a time period similar to that of the expected term. In estimating the expected term of the options, the Company has utilized the “simplified method” allowable under the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 107, Share-Based Payment. The risk-free rate is based on the U.S. treasury yield curve for issues with a remaining term equal to the expected term. The fair value of each option granted during fiscal years 2006, 2005 and 2004 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year ended
	February 3,			January 28,			January 29,
	2007			2006			2005
Dividend yield		2.02	%		1.77	%		1.67	%
Expected volatility		53	%		41	%		41	%
Risk-free interest rate range:
High		4.8	%		4.6	%		4.8	%
Low		4.6	%		3.5	%		2.0	%
Ranges of expected lives in years		5-7			3-8			4-8

SFAS No. 123R also requires the Company to change the classification, in its consolidated statement of cash flows, of any excess tax benefits realized upon the exercise of stock options or issuance of RSUs, in excess of that which is associated with the expense recognized for financial reporting purposes. Approximately $95 is reflected as a financing cash inflow rather than as a reduction of income taxes paid in the consolidated statement of cash flows for fiscal year 2006.

41

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

COMPREHENSIVE LOSS   Comprehensive loss is reported in accordance with SFAS No. 130, “Reporting Comprehensive Income.” Other comprehensive loss includes minimum pension liability and fair market value of cash flow hedges.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES   The Company may enter into interest rate swap agreements to hedge the exposure to increasing rates with respect to its variable rate debt, when the Company deems it prudent to do so. The Company reports derivatives and hedging activities in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.

SEGMENT INFORMATION   The Company reports segment information in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.” The Company operates in one industry, the automotive aftermarket. In accordance with SFAS No. 131, the Company aggregates all of its stores and reports one operating and reporting segment. Sales by major product categories are as follows:

Year ended	Feb. 3,  2007		Jan. 28,  2006		Jan. 29,  2005
Parts and Accessories	$	1,555,406	$	1,550,309	$	1,539,513
Tires	320,884		304,099		323,502
Total Merchandise Sales	1,876,290		1,854,408		1,863,015
Service Labor	395,871		383,621		409,881
Total Revenues	$	2,272,161	$	2,238,029	$	2,272,896

SIGNIFICANT SUPPLIERS   During fiscal 2006, the Company’s ten largest suppliers accounted for approximately 40% of the merchandise purchased by the Company. No single supplier accounted for more than 17% of the Company’s purchases. The Company has no long-term contracts under which the Company is required to purchase merchandise. Management believes that the relationships the Company has established with its suppliers are generally good.

RECENT ACCOUNTING STANDARDS

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This statement simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS No. 133, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the guidance in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” which provides such beneficial interests are not subject to SFAS No. 133. SFAS No. 155 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB

42

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Statement No. 125,” by eliminating the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for financial instruments acquired or issued after the beginning of our fiscal year 2007. We are currently evaluating the impact of SFAS No 155 and will adopt the standard February 4, 2007.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006. We are currently evaluating the impact of SFAS No. 156 and will adopt the standard February 4, 2007.

In June 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The scope of this consensus includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to sales, use, value added and some excise taxes. Additionally, this consensus seeks to address how a company should address the disclosure of such items in interim and annual financial statements, either gross or net pursuant to APB Opinion No. 22, Disclosure of Accounting Policies. The Company is required to adopt this statement in fiscal 2007. The Company presents sales net of sales taxes in its consolidated statement of operations and does not anticipate changing its policy as a result of EITF 06-3.

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109” (FIN 48). FIN 48 prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition. The Company does not expect the adoption of this statement, beginning in fiscal 2007, will have a material impact on its consolidated financial statements.

In September 2006, the SEC, staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” or SAB 108. SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for financial statements covering the first fiscal year ending after November 15, 2006. We adopted SAB 108 for the year ended February 3, 2007 with no impact on our consolidated financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines the term fair value, establishes a framework for measuring it within generally accepted accounting principles and expands disclosures about its measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact SFAS No. 157 will have on our financial statements beginning in fiscal 2008.

43

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

·Recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets and the benefit obligation) of pension and other postretirement benefit plans;

·Recognize, through comprehensive income, certain changes in the funded status of a defined benefit and post retirement plan in the year in which the changes occur;

·Measure plan assets and benefit obligations as of the end of the employer’s fiscal year; and

·Disclose additional information.

The requirement to recognize the funded status of a benefit plan and the additional disclosure requirements are effective for fiscal years ended after December 15, 2006. Accordingly, the Company adopted these requirements of SFAS No.158 at February 3, 2007. The incremental effect from adopting SFAS No. 158, as of February 3, 2007, on individual line items in the Company’s Consolidated Balance Sheets at February 3, 2007 follows:

	Before								After
	Application of								Application of
	SFAS No. 158				Adjustments				SFAS No. 158
Deferred Income Taxes		$	22,996			$	1,832			$	24,828
Other Long Term Assets		69,635				(1,651		)		67,984
Total Assets		1,767,018				181				1,767,199
Accrued Expenses		292,280				—				292,280
Other Long Term Liabilities		56,998				3,235				60,233
Total Liabilities		1,196,209				3,235				1,199,444
Accumulated Other Comprehensive Loss		(6,326		)		(3,054		)		(9,380		)
Total Stockholders’ Equity		570,809				(3,054		)		567,755
Total Liabilities and Stockholders’ Equity		1,767,018				181				1,767,199

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end is effective for fiscal years ending after December 15, 2008. The Company will not elect early adoption of these additional SFAS No.158 requirements and will adopt these requirements for the fiscal year ended January 31, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 159.

RECLASSIFICATIONS   Certain reclassifications have been made to the prior years’ consolidated financial statements to provide comparability with the current year’s presentation of Net Gain from Sales of Assets from Cost of Merchandise Sales and the change in classification of a store from discontinued operations to continuing operations, see Note 7.

44

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

NOTE 2—DEBT AND FINANCING ARRANGEMENTS

LONG-TERM DEBT

	February 3, 2007			January 28, 2006
7.50% Senior Subordinated Notes, due December 2014		$	200,000		$	200,000
Senior Secured Term Loan, due October 2013		320,000			200,000
Medium-Term Notes, 6.4% to 6.52%, due July 2007 through September 2007		—			215
Other notes payable, 8.0%		268			1,315
Capital lease obligations, payable through October 2009		685			829
Line of credit agreement, through December 2009		17,568			66,137
		538,521			468,496
Less current maturities		3,490			1,257
Total Long-Term Debt		$	535,031		$	467,239

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

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

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

The TERMS were retired on January 27, 2006 with proceeds from the Company’s Senior Secured Term Loan facility. In retiring the TERMS, the Company was obligated to purchase a call option, which, if exercised, would have allowed the securities to be remarketed through a maturity date of July 7, 2016. The $8,100 redemption price of the call option was based upon the then present value of the remaining payments on the TERMS through July 17, 2016, at 5.45%, discounted at the 10-year Treasury rate.

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

On December 2, 2004, the Company further amended its amended and restated line of credit agreement. The amendment increased the amount available for borrowings to $357,500, with an ability, upon satisfaction of certain conditions, to increase such amount to $400,000. The amendment also reduced

45

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

the interest rate under the agreement to LIBOR plus 1.75% (after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25% incremental increases as excess availability falls below $50,000). The amendment also provided the flexibility, upon satisfaction of certain conditions, to release up to $99,000 of reserved credit line availability required as of December 2, 2004 under the line of credit agreement to support certain operating leases. This reserve was $73,912 on February 3, 2007. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate on borrowings under the line of credit agreement was 7.67 % and 6.2% at February 3, 2007 and January 28, 2006, respectively.

In the third quarter of fiscal 2004, the Company entered into a vendor financing program with an availability of $20,000. Under this program, the Company’s factor makes accelerated and discounted payments to its vendors and the Company, in turn, makes its regularly scheduled full vendor payments to the factor. As of February 3, 2007 and January 28, 2006, the Company had an outstanding balance of $13,990 and $11,156, respectively, under these arrangements, classified as trade payable program liability in the consolidated balance sheets.

The other notes payable have a principal balance of $268 and $1,315 and a weighted average interest rate of 8.0% and 5.1% at February 3, 2007 and January 28, 2006, respectively, and mature at various times through August 2016. Certain of these notes are collateralized by land and buildings with an aggregate carrying value of approximately $1,774 and $6,744 at February 3, 2007 and January 28, 2006, respectively.

CONVERTIBLE DEBT

	February 3, 2007			January 28, 2006
4.25% Senior convertible notes, due June 2007		$	—		$	119,000
Less current maturities		—			—
Total Long-Term Convertible Debt		$	—		$	119,000

On October 27, 2006, the Company amended and restated its Senior Secured Term Loan Facility to increase its size from $200,000 to $320,000. Proceeds from the facility were used to satisfy and discharge the Company’s outstanding $119,000 4.25% Convertible Senior Notes due June 1, 2007 by deposit into an escrow fund with an independent trustee. The right of the holders of the convertible notes to convert them into shares of the Company’s common stock, at any time until the June 1, 2007 maturity date, survives such satisfaction and discharge. The conversion price is approximately $22.40 per share. The Company recorded non-cash charges for the value of such conversion right, approximately $755 as determined by the Black-Scholes method, and $430 for deferred financing cost.

OTHER

Several of the Company’s debt agreements require the maintenance of certain financial ratios and compliance with covenants. The most restrictive of these covenants, an EBITDA requirement, is triggered if the Company’s availability under its line of credit agreement drops below $50,000. As of February 3, 2007 the Company had an availability of approximately $190,000 under its line of credit, and was in compliance with all covenants contained in its debt agreements.

46

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

	Long-Term			Capital
Year	Debt			Leases			Total
2007		$	3,201		$	289	$	3,490
2008		3,241			239		3,480
2009		20,787			157		20,944
2010		3,229			—		3,229
2011		3,227			—		3,227
Thereafter		504,151			—		504,151
Total		$	537,836		$	685	$	538,521

The Company has letter of credit arrangements in connection with its risk management, import merchandising and vendor financing programs. The Company was contingently liable for $487 and $1,015 in outstanding import letters of credit and $55,708 and $41,218 in outstanding standby letters of credit as of February 3, 2007 and January 28, 2006 respectively. The Company was also contingently liable for surety bonds in the amount of approximately $11,224 and $13,021 at February 3, 2007 and January 28, 2006, respectively.

NOTE 3—ACCRUED EXPENSES

The Company’s accrued expenses as of February 3, 2007 and January 28, 2006, were as follows:

	February 3, 2007			January 28, 2006
Casualty and medical risk insurance		$	173,826		$	178,498
Accrued compensation and related taxes		44,317			44,565
Sales tax payable		11,286			11,597
Other		62,851			56,101
Total		$	292,280		$	290,761

NOTE 4—OTHER CURRENT ASSETS

The Company’s other current assets as of February 3, 2007 and January 28, 2006, were as follows:

	February 3, 2007			January 28, 2006
Reinsurance premiums and receivable		$	69,239		$	82,629
Income taxes receivable		—			2,694
Other		1,129			123
Total		$	70,368		$	85,446

NOTE 5—LEASE AND OTHER COMMITMENTS

On October 18, 2004, the Company entered into a Master Lease agreement providing for the lease of up to $35,000 of new point-of-sale hardware for the Company’s stores at an interest rate of LIBOR plus

47

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

2.25%. This Master Lease is reflected in the Company’s consolidated financial statements as an operating lease. The Company has evaluated this transaction in accordance with the guidance of FIN 46R and has determined that it is not required to consolidate the leasing entity. The Company has an outstanding commitment of approximately $14,938 and $20,507 on this operating lease facility as of February 3, 2007 and January 28, 2006. The lease includes a residual value guarantee with a maximum value of approximately $172. The Company expects the fair market value of the leased equipment to substantially reduce or eliminate the Company’s payment under the residual guarantee at the end of the lease term.

In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee related to this operating lease. As of February 3, 2007 and January 28, 2006, the current value of this liability was $71 and $105, respectively, which is recorded in other long-term liabilities on the consolidated balance sheets.

On August 1, 2003, the Company renegotiated $132,000 of store and distribution center operating leases. These leases, which expire on August 1, 2008, have lease payments with an effective rate of LIBOR plus 2.06%. The Company has evaluated this transaction in accordance with the original guidance of FIN 46 and has determined that it is not required to consolidate the leasing entity. As of February 3, 2007 and January 28, 2006 there was an outstanding commitment of $117,627 and $123,970 under the leases. The leases include a residual value guarantee with a maximum value of approximately $105,000. The Company expects the fair market value of the leased real estate to substantially reduce or eliminate the Company’s payment under the residual guarantee at the end of the lease term.

In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee related to this operating lease. As of February 3, 2007 and January 28, 2006, the current value of this liability was $1,496 and $2,493, respectively, which is recorded in other long-term liabilities on the consolidated balance sheets.

The Company leases certain property and equipment under operating leases and capital leases, which contain renewal and escalation clauses, step rent provisions, capital improvements funding and other lease concessions. These provisions are considered in the Company’s calculation of the Company’s minimum lease payments, which are recognized as expense on a straight-line basis over the applicable lease term. In accordance with SFAS No. 13, as amended by SFAS No. 29, any lease payments that are based upon an existing index or rate are included in the Company’s minimum lease payment calculations. Future minimum rental payments for noncancelable operating leases and capital leases in effect as of February 3, 2007 are shown in the table below. All amounts are exclusive of lease obligations and sublease rentals applicable to stores for which reserves, in conjunction with the restructuring, have previously been established.

48

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

Year	Operating Leases		Capital Leases
2007	$	57,670		$	290
2008	53,788			260
2009	47,114			183
2010	43,548			—
2011	41,179			—
Thereafter	239,550			—
Aggregate minimum lease payments	$	482,849		$	733
Less: interest on capital leases				(48		)
Present Value of Net Minimum Lease Payments				$	685

Rental expenses incurred for operating leases in fiscal years 2006, 2005, and 2004 were $59,953, $67,601 and $60,941, respectively.

In October 2001, the Company entered into a contractual commitment to purchase media advertising services with equal annual purchase requirements totaling $39,773 over four years. During the second quarter of fiscal 2004, it was determined that the Company would be unable to meet its obligation for the 2004 contract year, which ended on November 30, 2004. As a result, the Company recorded a $1,579 charge to selling, general and administrative expenses in the quarter ended July 31, 2004 related to the anticipated shortfall in this purchase commitment. This agreement expired in October 2005.

Our open purchase orders are based on current inventory or operational needs and are fulfilled by our vendors within short periods of time. We currently do not have minimum purchase commitments under our vendor supply agreements and generally our open purchase orders (orders that have not been shipped) are not binding agreements. Those purchase obligations that are in transit from our vendors at February 3, 2007 are considered to be a contractual obligation.

NOTE 6—STOCKHOLDERS’ EQUITY

SHARE REPURCHASE—TREASURY STOCK   On September 7, 2006, the Company renewed its share repurchase program, which had approximately $45,000 of its original $100,000 authorization remaining and was set to expire on September 30, 2006. Under the renewed program, the Board reset the authority back to $100,000 for repurchases to be made from time to time in the open market or in privately negotiated transactions through September 30, 2007. The Company repurchased approximately 494,800 shares during fiscal 2006 for approximately $7,311.

All of these repurchased shares were placed into the Company’s treasury. A portion of the treasury shares will be used by the Company to provide benefits to employees under its compensation plans and in conjunction with the Company’s dividend reinvestment program. As of February 3, 2007, the Company reflected 12,427,687 shares of its common stock at a cost of $185,339 as “cost of shares in treasury” on the Company’s consolidated balance sheet.

49

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

SALE OF COMMON STOCK   On March 24, 2004, the Company sold 4,646,464 shares of common stock (par value $1 per share) at a price of $24.75 per share for net proceeds of $108,854.

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

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

BENEFITS TRUST   On April 29, 1994, the Company established a flexible employee benefits trust with the intention of purchasing up to $75,000 worth of the Company’s common shares. The repurchased shares will be held in the trust and will be used to fund the Company’s existing benefit plan obligations including healthcare programs, savings and retirement plans and other benefit obligations. The trust will allocate or sell the repurchased shares through 2023 to fund these benefit programs. As shares are released from the trust, the Company will charge or credit additional paid-in capital for the difference between the fair value of shares released and the original cost of the shares to the trust. For financial reporting purposes, the trust is consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are eliminated. In connection with the Dutch Auction self-tender offer, 37,230 shares were tendered at a price of $16.00 per share in fiscal 1999. At February 3, 2007, the Company has reflected 2,195,270 shares of its common stock at a cost of $59,264 as “cost of shares in benefits trust” on the Company’s consolidated balance sheet.

NOTE 7—Discontinued Operations

In accordance with SFAS No. 144, our discontinued operations continues to reflect the costs associated with the stores remaining from the 33 stores closed on July 31, 2003 as part of our corporate restructuring. The remaining reserve balance is not material.

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

50

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

During fiscal 2005, the Company sold a closed store for proceeds of $931 resulting in a pre-tax gain of $341,000, which was recorded in discontinued operations on the consolidated statement of operations.

During fiscal 2004, the Company sold assets held for disposal for proceeds of $13,327 resulting in a loss of $91,000, which was recorded in discontinued operations on the consolidated statement of operations.

NOTE 8—SUPPLEMENTAL GUARANTOR INFORMATION

On December 14, 2004, the Company issued $200,000 aggregate principal amount of 7.50% Senior Subordinated Notes due December 15, 2014 which are unsecured and fully and unconditionally guaranteed by the Company’s wholly-owned direct and indirect operating subsidiaries, The Pep Boys Manny, Moe & Jack of California, Pep Boys—Manny, Moe & Jack of Delaware, Inc., Pep Boys—Manny, Moe & Jack of Puerto Rico, Inc. and PBY Corporation.

51

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

The following are consolidating balance sheets of the Company as of February 3, 2007 and January 28, 2006 and the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for the fiscal years ended February 3, 2007, January 28, 2006 and January 29, 2005.

CONDENSED CONSOLIDATING BALANCE SHEET

As of February 3, 2007	Pep Boys			Subsidiary Guarantors			Subsidiary Non- Guarantors			Consolidation / Elimination				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	13,581			$	7,946		$	357		$	—			$	21,884
Accounts receivable, net	17,377				12,205			—			—				29,582
Merchandise inventories	211,445				395,597			—			—				607,042
Prepaid expenses	24,511				13,469			20,044			(18,760		)		39,264
Other	—				2,255			75,038			(6,925		)		70,368
Total Current Assets	266,914				431,472			95,439			(25,685		)		768,140
Property and Equipment—at cost:
Land	78,507				166,767			12,893			(6,462		)		251,705
Buildings and improvements	310,952				607,948			20,937			(10,612		)		929,225
Furniture, fixtures and equipment	289,005				395,037			—			—				684,042
Construction in progress	2,654				810			—			—				3,464
	681,118				1,170,562			33,830			(17,074		)		1,868,436
Less accumulated depreciation and	382,363				576,186			239			3,401				962,189
Total Property and Equipment—Net	298,755				594,376			33,591			(20,475		)		906,247
Investment in subsidiaries	1,567,674				1,384,492			—			(2,952,166		)		—
Intercompany receivable	—				726,297			81,160			(807,457		)		—
Deferred income taxes	24,828				—			—			—				24,828
Other	63,843				4,141			—			—				67,984
Total Assets	$	2,222,014			$	3,140,778		$	210,190		$	(3,805,783	)		$	1,767,199
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	265,480			$	9		$	—		$	—			$	265,489
Trade payable program liability	13,990				—			—			—				13,990
Accrued expenses	22,512				136,073			195,321			(61,626		)		292,280
Current deferred taxes	6,344				28,724			—			(6,137		)		28,931
Current maturities of long-term debt and obligations under capital leases	3,490				—			—			—				3,490
Total Current Liabilities	311,816				164,806			195,321			(67,763		)		604,180
Long-term debt and obligations under capital leases, less current maturities	523,735				11,296			—			—				535,031
Other long-term liabilities	32,855				27,378			—			—				60,233
Intercompany liabilities	807,457				—			—			(807,457		)		—
Stockholders’ Equity:
Common stock	68,557				1,502			100			(1,602		)		68,557
Additional paid-in capital	289,384				436,857			3,900			(440,757		)		289,384
Retained earnings	442,193				2,498,939			10,869			(2,488,204		)		463,797
Accumulated other comprehensive loss	(9,380		)		—			—			—				(9,380		)
Less:
Cost of shares in treasury	185,339				—			—			—				185,339
Cost of shares in benefits trust	59,264				—			—			—				59,264
Total Stockholders’ Equity	546,151				2,937,298			14,869			(2,930,563		)		567,755
Total Liabilities and Stockholders’ Equity	$	2,222,014			$	3,140,778		$	210,190		$	(3,805,783	)		$	1,767,199

52

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING BALANCE SHEET

As of January 28, 2006	Pep Boys			Subsidiary Guarantors				Subsidiary Non- Guarantors				Consolidation / Elimination				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	12,019			$	6,953			$	29,309			$	—			$	48,281
Accounts receivable, net	20,030				16,404				—				—				36,434
Merchandise inventories	209,384				406,908				—				—				616,292
Prepaid expenses	33,765				9,678				19,000				(21,491		)		40,952
Other	6,116				8,960				70,370				—				85,446
Assets held for disposal	—				652				—				—				652
Total Current Assets	281,314				449,555				118,679				(21,491		)		828,057
Property and Equipment—at cost:
Land	86,805				170,997				—				—				257,802
Buildings and improvements	316,725				599,855				—				—				916,580
Furniture, fixtures and equipment	278,742				392,447				—				—				671,189
Construction in progress	15,261				597				—				—				15,858
	697,533				1,163,896				—				—				1,861,429
Less accumulated depreciation and	364,793				549,247				—				—				914,040
Total Property and Equipment—Net	332,740				614,649				—				—				947,389
Investment in subsidiaries	1,520,208				1,290,063				—				(2,810,271		)		—
Intercompany receivable	—				631,061				84,563				(715,624		)		—
Other	42,144				3,723				—				440				46,307
Total Assets	$	2,176,406			$	2,989,051			$	203,242			$	(3,546,946	)		$	1,821,753
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	261,931			$	9			$	—			$	—			$	261,940
Trade payable program liability	11,156				—												11,156
Accrued expenses	45,410				90,428				195,472				(40,549		)		290,761
Current deferred taxes	64				21,690				(6,337		)		—				15,417
Current maturities of long-term debt and obligations under capital leases	1,257				—				—				—				1,257
Total Current Liabilities	319,818				112,127				189,135				(40,549		)		580,531
Long-term debt and obligations under capital leases, less current maturities	423,572				43,667				—				—				467,239
Convertible long-term debt, less current maturities	119,000				—				—				—				119,000
Other long-term liabilities	9,625				28,359				—				19,497				57,481
Intercompany liabilities	716,978				(1,353		)		—				(715,625		)		—
Deferred income taxes	(7,152		)		10,089				—				—				2,937
Stockholders’ Equity:
Common stock	68,557				1,502				100				(1,602		)		68,557
Additional paid-in capital	288,098				436,858				3,900				(440,758		)		288,098
Retained earnings	481,926				2,357,802				10,107				(2,367,909		)		481,926
Accumulated other comprehensive loss	(3,565		)		—				—				—				(3,565		)
Less:
Cost of shares in treasury	181,187				—				—				—				181,187
Cost of shares in benefits trust	59,264				—				—				—				59,264
Total Stockholders’ Equity	594,565				2,796,162				14,107				(2,810,269		)		594,565
Total Liabilities and Stockholders’ Equity	$	2,176,406			$	2,989,051			$	203,242			$	(3,546,946	)		$	1,821,753

53

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended February 3, 2007	Pep Boys			Subsidiary Guarantors			Subsidiary Non- Guarantors				Consolidation / Elimination				Consolidated
Merchandise Sales	$	653,284		$	1,223,006			$	—			$	—			$	1,876,290
Service Revenue	138,088			257,783				—				—				395,871
Other Revenue	—			—				27,407				(27,407		)		—
Total Revenues	791,372			1,480,789				27,407				(27,407		)		2,272,161
Costs of Merchandise Sales	467,514			868,822				—				—				1,336,336
Costs of Service Revenue	126,853			237,216				—				—				364,069
Costs of Other Revenue	—			—				32,020				(32,020		)		—
Total Costs of Revenues	594,367			1,106,038				32,020				(32,020		)		1,700,405
Gross Profit from Merchandise Sales	185,770			354,184				—				—				539,954
Gross Profit from Service Revenue	11,235			20,567				—				—				31,802
Gross Loss from Other Revenue	—			—				(4,613		)		4,613				—
Total Gross Profit (Loss)	197,005			374,751				(4,613		)		4,613				571,756
Selling, General and Administrative Expenses	187,672			358,496				355				4,508				551,031
Net Gain from Sale of Assets	35			15,262				—				—				15,297
Operating Profit (Loss)	9,368			31,517				(4,968		)		105				36,022
Non(Operating (Expense) Income	(18,282		)	125,271				1,695				(101,661		)		7,023
Interest Expense (Income)	107,102			49,003				(5,207		)		(101,556		)		49,342
(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle	(116,016		)	107,785				1,934				—				(6,297		)
Income Tax (Benefit) Expense	(41,395		)	36,452				646								(4,297		)
Equity in Earnings of Subsidiaries	71,932			95,270				—				(167,202		)		—
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	(2,689		)	166,603				1,288				(167,202		)		(2,000		)
Earnings (Loss) From Discontinued Operations, Net of Tax	(49		)	(689		)		—				—				(738		)
Cumulative Effect of Change in Accounting Principle, Net of Tax	189			—				—				—				189
Net (Loss) Earnings	$	(2,549	)	$	165,914			$	1,288			$	(167,202	)		$	(2,549	)

54

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended January 28, 2006	Pep Boys			Subsidiary Guarantors			Subsidiary Non- Guarantors				Consolidation / Elimination				Consolidated
Merchandise Sales	$	643,353		$	1,211,055			$	—			$	—			$	1,854,408
Service Revenue	132,281			251,340				—				—				383,621
Other Revenue	—			—				29,500				(29,500		)		—
Total Revenues	775,634			1,462,395				29,500				(29,500		)		2,238,029
Costs of Merchandise Sales	474,965			902,587				—				—				1,377,552
Costs of Service Revenue	120,320			232,890				—				—				353,210
Costs of Other Revenue	—			—				34,188				(34,188		)		—
Total Costs of Revenues	595,285			1,135,477				34,188				(34,188		)		1,730,762
Gross Profit from Merchandise Sales	168,388			308,468				—				—				476,856
Gross Profit from Service Revenue	11,961			18,450				—				—				30,411
Gross Loss from Other Revenue	—			—				(4,688		)		4,688				—
Total Gross Profit (Loss)	180,349			326,918				(4,688		)		4,688				507,267
Selling, General and Administrative Expenses	176,812			341,491				327				4,688				523,318
Net (Loss) Gain from Sale of Assets	(675		)	5,501				—				—				4,826
Operating Profit (Loss)	2,862			(9,072		)		(5,015		)		—				(11,225		)
Non(Operating (Expense) Income	(18,682		)	92,005				575				(70,001		)		3,897
Interest Expense (Income)	88,928			33,987				(3,874		)		(70,001		)		49,040
(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle	(104,748		)	48,946				(566		)		—				(56,368		)
Income Tax (Benefit) Expense	(36,957		)	16,600				(212		)						(20,569		)
Equity in Earnings of Subsidiaries	30,793			64,018				—				(94,811		)		—
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	(36,998		)	96,364				(354		)		(94,811		)		(35,799		)
Earnings (Loss) From Discontinued Operations, Net of Tax	324			(32		)		—				—				292
Cumulative Effect of Change in Accounting Principle, Net of Tax	(854		)	(1,167		)		—				—				(2,021		)
Net (Loss) Earnings	$	(37,528	)	$	95,165			$	(354	)		$	(94,811	)		$	(37,528	)

55

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended January 29, 2005	Pep Boys			Subsidiary Guarantors			Subsidiary Non- Guarantors				Consolidation / Elimination				Consolidated
Merchandise Sales	$	647,135		$	1,215,880			$	—			$	—			$	1,863,015
Service Revenue	141,915			267,966				—				—				409,881
Other Revenue	—			—				28,432				(28,432		)		—
Total Revenues	789,050			1,483,846				28,432				(28,432		)		2,272,896
Costs of Merchandise Sales	469,620			875,524				—				—				1,345,144
Costs of Service Revenue	108,554			208,588				—				—				317,142
Costs of Other Revenue	—			—				35,693				(35,693		)		—
Total Costs of Revenues	578,174			1,084,112				35,693				(35,693		)		1,662,286
Gross Profit from Merchandise Sales	177,515			340,356				—				—				517,871
Gross Profit from Service Revenue	33,361			59,378				—				—				92,739
Gross Loss from Other Revenue	—			—				(7,261		)		7,261				—
Total Gross Profit (Loss)	210,876			399,734				(7,261		)		7,261				610,610
Selling, General and Administrative Expenses	189,161			350,598				316				7,261				547,336
Net Gain from Sale of Assets	199			11,649				—				—				11,848
Operating Profit (Loss)	21,914			60,785				(7,577		)		—				75,122
Non(Operating (Expense) Income	(18,317		)	71,679				3,397				(54,935		)		1,824
Interest Expense (Income)	64,268			26,632				—				(54,935		)		35,965
(Loss) Earnings from Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle	(60,671		)	105,832				(4,180		)		—				40,981
Income Tax (Benefit) Expense	(22,515		)	39,320				(1,490		)						15,315
Equity in Earnings of Subsidiaries	62,122			64,958				—				(127,080		)		—
Net (Loss) Earnings from Continuing Operations Before Cumulative Effect of Change in Accounting Principle	23,966			131,470				(2,690		)		(127,080		)		25,666
Earnings (Loss) From Discontinued Operations, Net of Tax	(387		)	(1,700		)		—				—				(2,087		)
Net (Loss) Earnings	$	23,579		$	129,770			$	(2,690	)		$	(127,080	)		$	23,579

56

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended February 3, 2007	Pep Boys			Subsidiary Guarantors				Subsidiary Non- Guarantors				Consolidation Elimination				Consolidated
Cash Flows from Operating Activities:
Net (Loss) Earnings	$	(2,549	)		$	165,914			$	1,288			$	(167,202	)		$	(2,549	)
Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations:
Net loss (earnings) from discontinued operations	49				689				—				—				738
Depreciation and amortization	31,795				56,681				240				(240		)		88,476
Cumulative effect of change in accounting principle	(189		)		—				—				—				(189		)
Accretion of asset disposal obligation	95				174				—				—				269
Loss on defeasance of convertible debt	755				—				—				—				755
Stock compensation expense	3,051				—				—				—				3,051
Cancellation of vested stock options	(1,056		)		—				—				—				(1,056		)
Equity in earnings of subsidiaries	28,039				(163,669		)		—				135,630				—
Deferred income taxes	(11,598		)		(3,055		)		6,337				—				(8,316		)
Loss (gain) from sale of assets	(35		)		(15,262		)		—				—				(15,297		)
Loss on impairment of assets	550				290				—				—				840
Gain from derivative valuation	(5,568		)		—				—				—				(5,568		)
Excess tax benefits from stock based awards	(95		)		—				—				—				(95		)
Increase in cash surrender value of life insurance policies	(2,143		)		—				—				—				(2,143		)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expenses and other	24,587				7,113				(5,712		)		(1,943		)		24,045
Increase in merchandise inventories	(2,061		)		11,311				—				—				9,250
(Decrease) increase in accounts payable	3,549				—				—				—				3,549
(Decrease) increase in accrued expenses	(49,057		)		45,645				(151		)		(602		)		(4,165		)
(Decrease) increase in other long-term liabilities	3,074				(981		)		—				—				2,093
Net cash (used in) provided by continuing operations	21,193				104,850				2,002				(34,357		)		93,688
Net cash used in discontinued operations	(1,258		)		—				—				—				(1,258		)
Net Cash (Used in) Provided by Operating Activities	19,935				104,850				2,002				(34,357		)		92,430
Cash Flows from Investing Activities:
Capital expenditures	(23,793		)		(26,419		)		(33,830		)		33,830				(50,212		)
Proceeds from sales of assets	1,097				16,445				—				—				17,542
Proceeds from life insurance policies	(24,669		)		—				—				—				(24,669		)
Net cash provided by (used in) continuing operations	(47,365		)		(9,974		)		(33,830		)		33,830				(57,339		)
Net cash provided by discontinued operations	—				—				—				—				—
Net Cash Provided by (Used in) Investing Activities	(47,365		)		(9,974		)		(33,830		)		33,830				(57,339		)
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements	(48,569		)		—				—				—				(48,569		)
Excess tax benefits from stock based awards	95				—				—				—				95
Net borrowings (payments) on trade payable program liability	2,834				—				—				—				2,834
Payments for finance issuance costs	(2,217		)		—				—				—				(2,217		)
Proceeds from issuance of notes	121,000				—				—				—				121,000
Reduction of long-term debt	(2,263		)		—				—				—				(2,263		)
Reduction of convertible debt	(119,000		)		—				—				—				(119,000		)
Payments on capital lease obligations	(227		)		—				—				—				(227		)
Intercompany borrowings (payments)	90,480				(93,883		)		3,403				—				—
Dividends paid	(14,757		)		—				(527		)		527				(14,757		)
Proceeds from exercise of stock options	722				—				—				—				722
Proceeds from dividend reinvestment plan	894				—				—				—				894
Net Cash (used in) Provided by Financing Activities	28,992				(93,883		)		2,876				527				(61,488		)
Net (Decrease) Increase in Cash	1,562				993				(28,952		)		—				(26,397		)
Cash and Cash Equivalents at Beginning of Year	12,019				6,953				29,309				—				48,281
Cash and Cash Equivalents at End of Year	$	13,581			$	7,946			$	357			$	—			$	21,884

57

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended January 28, 2006	Pep Boys			Subsidiary Guarantors				Subsidiary Non- Guarantors				Consolidation Elimination				Consolidated
Cash Flows from Operating Activities:
Net (Loss) Earnings	$	(37,528	)		$	95,165			$	(354	)		$	(94,811	)		$	(37,528	)
Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations:
Net loss (earnings) from discontinued operations	(324		)		32				—				—				(292		)
Depreciation and amortization	29,391				50,496				—				—				79,887
Cumulative effect of change in accounting principle	854				1,167				—				—				2,021
Accretion of asset disposal obligation	25				84				—				—				109
Stock compensation expense	2,049				—				—				—				2,049
Equity in earnings of subsidiaries	65,004				(159,815		)		—				94,811				—
Deferred income taxes	(18,604		)		(8,497		)		(691		)		—				(27,792		)
Net gain from reduction in asset retirement liability	(657		)		(1,158		)		—				—				(1,815		)
Loss (gain) from sale of assets	675				(5,501		)		—				—				(4,826		)
Loss on impairment of assets	4,200				—				—				—				4,200
Increase in cash surrender value of life insurance policies	(3,389		)		—				—				—				(3,389		)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expenses and other	8,161				11,161				(3,073		)		(1,083		)		15,166
Increase in merchandise inventories	(3,476		)		(10,056		)		—				—				(13,532		)
(Decrease) increase in accounts payable	(49,041		)		—				—				—				(49,041		)
(Decrease) increase in accrued expenses	(20,019		)		2,711				16,858				(18,414		)		(18,864		)
(Decrease) increase in other long-term liabilities	(2,913		)		176				—				19,497				16,760
Net cash (used in) provided by continuing operations	(25,592		)		(24,035		)		12,740				—				(36,887		)
Net cash used in discontinued operations	(221		)		(1,279		)		—				—				(1,500		)
Net Cash (Used in) Provided by Operating Activities	(25,813		)		(25,314		)		12,740				—				(38,387		)
Cash Flows from Investing Activities:
Capital expenditures	(16,455		)		(69,490		)		—				—				(85,945		)
Proceeds from sales of assets	978				3,065				—				—				4,043
Proceeds from sales of assets held for disposal	—				6,913				—				—				6,913
Proceeds from life insurance policies	24,655				—				—				—				24,655
Premiums paid on life insurance policies	(605		)		—				—				—				(605		)
Net cash provided by (used in) continuing operations	8,573				(59,512		)		—				—				(50,939		)
Net cash provided by discontinued operations	916				—				—				—				916
Net Cash Provided by (Used in) Investing Activities	9,489				(59,512		)		—				—				(50,023		)
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements	19,685				38,300				—				—				57,985
Net borrowings (payments) on trade payable program liability	11,156				—				—				—				11,156
Payments for finance issuance costs	(5,150		)		—				—				—				(5,150		)
Proceeds from issuance of notes	200,000				—				—				—				200,000
Reduction of long-term debt	(183,459		)		—				—				—				(183,459		)
Payments on capital lease obligations	(383		)		—				—				—				(383		)
Intercompany borrowings (payments)	(46,322		)		45,005				1,317				—				—
Dividends paid	(14,686		)		—				—				—				(14,686		)
Repurchase of common stock	(15,562		)		—				—				—				(15,562		)
Proceeds from exercise of stock options	3,071				—				—				—				3,071
Proceeds from dividend reinvestment plan	961				—				—				—				961
Net Cash (used in) Provided by Financing Activities	(30,689		)		83,305				1,317				—				53,933
Net (Decrease) Increase in Cash	(47,013		)		(1,521		)		14,057				—				(34,477		)
Cash and Cash Equivalents at Beginning of Year	59,032				8,474				15,252				—				82,758
Cash and Cash Equivalents at End of Year	$	12,019			$	6,953			$	29,309			$	—			$	48,281

58

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended January 29, 2005	Pep Boys			Subsidiary Guarantors				Subsidiary Non- Guarantors				Consolidation Elimination				Consolidated
Cash Flows from Operating Activities:
Net (Loss) Earnings	$	23,579			$	129,770			$	(2,690	)		$	(127,080	)		$	23,579
Adjustments to Reconcile Net (Loss) Earnings to Net Cash (Used in) Provided By Continuing Operations:
Net loss (earnings) from discontinued operations	387				1,700				—				—				2,087
Depreciation and amortization	29,261				47,359				—				—				76,620
Accretion of asset disposal obligation	29				106				—				—				135
Stock compensation expense	1,184				—				—				—				1,184
Equity in earnings of subsidiaries	(144,798		)		32,718				—				112,080				—
Deferred income taxes	(19,254		)		46,505				(398		)		—				26,853
Deferred gain on sale leaseback	(34		)		(96		)		—				—				(130		)
Loss (gain) from sale of assets	(199		)		(11,649		)		—				—				(11,848		)
Increase in cash surrender value of life insurance policies	(3,540		)		—				—				—				(3,540		)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expenses and other	(1,057		)		(5,151		)		(12,930		)		1,385				(17,753		)
Increase in merchandise inventories	(14,797		)		(34,401		)		—				—				(49,198		)
(Decrease) increase in accounts payable	(24,387		)		—				—				—				(24,387		)
(Decrease) increase in accrued expenses	16,992				(15,288		)		25,534				(1,385		)		25,853
(Decrease) increase in other long-term liabilities	(887		)		(385		)		—				—				(1,272		)
Net cash (used in) provided by continuing operations	(137,521		)		191,188				9,516				(15,000		)		48,183
Net cash used in discontinued operations	(479		)		(2,253		)		—				—				(2,732		)
Net Cash (Used in) Provided by Operating Activities	(138,000		)		188,935				9,516				(15,000		)		45,451
Cash Flows from Investing Activities:
Capital expenditures	(43,975		)		(44,093		)		—				—				(88,068		)
Proceeds from sales of assets	331				17,690				—				—				18,021
Proceeds from life insurance policies	(1,778		)		—				—				—				(1,778		)
Net cash provided by (used in) continuing operations	(45,422		)		(26,403		)		—				—				(71,825		)
Net cash provided by discontinued operations	7,826				5,501				—				—				13,327
Net Cash Provided by (Used in) Investing Activities	(37,596		)		(20,902		)		—				—				(58,498		)
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements	2,768				5,334				—				—				8,102
Net borrowings (payments) on trade payable program liability	(7,216		)		—				—				—				(7,216		)
Payments for finance issuance costs	(5,500		)		—				—				—				(5,500		)
Proceeds from issuance of notes	200,000				—				—				—				200,000
Reduction of long-term debt	(189,991		)		—				—				—				(189,991		)
Reduction of convertible debt	(31,000		)		—				—				—				(31,000		)
Payments on capital lease obligations	(1,040		)		—				—				—				(1,040		)
Intercompany borrowings (payments)	161,212				(173,965		)		12,753				—				—
Dividends paid	(15,676		)		—				(15,000		)		15,000				(15,676		)
Repurchase of common stock	(39,718		)		—				—				—				(39,718		)
Proceeds from issuance of stock	108,854				—				—				—				108,854
Proceeds from exercise of stock options	6,887				—				—				—				6,887
Proceeds from dividend reinvestment plan	1,119				—				—				—				1,119
Net Cash (used in) Provided by Financing Activities	190,699				(168,631		)		(2,247		)		15,000				34,821
Net (Decrease) Increase in Cash	15,103				(598		)		7,269				—				21,774
Cash and Cash Equivalents at Beginning of Year	43,929				9,072				7,983				—				60,984
Cash and Cash Equivalents at End of Year	$	59,032			$	8,474			$	15,252			$	—			$	82,758

59

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

NOTE 9—BENEFIT PLANS

DEFINED BENEFIT PLANS

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

The actuarial computations are made using the “projected unit credit method.” Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan.

As of December 31, 1996, the Company froze the accrued benefits under the plan and active participants became fully vested. The plan’s trustee will continue to maintain and invest plan assets and will administer benefit payments.

The Company also has a Supplemental Executive Retirement Plan (SERP). This unfunded plan has a defined benefit component that provides key employees designated by the Board of Directors with retirement and death benefits. Retirement benefits are based on salary and bonuses; death benefits are based on salary. Benefits paid to a participant under the defined pension plan are deducted from the benefits otherwise payable under the defined benefit portion of the SERP.

On January 31, 2004, the Company amended and restated its SERP. This amendment converted the defined benefit plan to a defined contribution plan for certain unvested participants and all future participants, and resulted in an expense under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (SFAS No. 88), of approximately $2,191. All vested participants under the defined benefits portion will continue to accrue benefits according to the previous defined benefit formula.

In fiscal 2004, the Company settled several obligations related to the benefits under the defined benefit SERP. These obligations totaled $2,065. These obligations resulted in an expense under SFAS No. 88 of approximately $774 in fiscal 2004.

The Company uses a December 31 measurement date for determining benefit obligations and the fair value of plan assets of its plans.

60

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Pension expense includes the following:

	Year ended
	February 3, 2007				January 28, 2006				January 29, 2005
Service cost		$	246			$	363			$	438
Interest cost		3,071				3,011				2,903
Expected return on plan assets		(2,176		)		(2,339		)		(2,299		)
Amortization of transitional obligation		163				163				163
Amortization of prior service cost		360				360				364
Recognized actuarial loss		2,335				2,205				1,733
Net periodic benefit cost		3,999				3,763				3,302
FAS No. 88 settlement charge		—				568				774
Total Pension Expense		$	3,999			$	4,331			$	4,076

61

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

Year ended	February 3, 2007				January 28, 2006
Change in Benefit Obligation:
Benefit obligation at beginning of year		$	54,349			$	52,384
Service cost		246				363
Interest cost		3,071				3,011
Settlement loss		—				82
Actuarial loss		1,446				2,749
Benefits paid		(1,498		)		(4,240		)
Benefit Obligation at End of Year		$	57,614			$	54,349
Change in Plan Assets:
Fair value of plan assets at beginning of year		$	35,292			$	35,508
Actual return on plan assets (net of expenses)		3,392				1,043
Employer contributions		308				2,981
Benefits paid		(1,498		)		(4,240		)
Fair Value of Plan Assets at End of Year		$	37,494			$	35,292
Funded (Unfunded) status at December 31		$	(20,120	)		$	(19,057	)
Funded (Unfunded) Status at Fiscal Year End
Funded (Unfunded) status at December 31		$	(20,120	)		$	(19,057	)
Amount contributed after measurement date		221				25
Funded (Unfunded) status at fiscal year end		$	(19,899	)		$	(19,032	)
Net Amounts Recognized on Consolidated Balance Sheet at February 3, 2007
Current benefit liability (included in accrued expenses)		$	(2,950	)
Noncurrent benefit liability (included in other long-term liabilities)		(16,949		)
Net amount recognized at fiscal year end		$	(19,899	)
Reconciliation of the Funded Status at January 28, 2006
Funded (Unfunded) status at fiscal year end						$	(19,032	)
Unrecognized transition obligation						817
Unrecognized prior service cost						1,358
Unrecognized actuarial loss						14,828
Net amount recognized at fiscal year end						$	(2,029	)
Net Amounts Recognized on Consolidated Balance Sheet at January 28, 2006
Accrued benefit liability						$	(15,112	)
Intangible asset						2,174
Accumulated other comprehensive loss						10,909
Net amount recognized at fiscal year end						$	(2,029	)
Amounts Recognized in Other Comprehensive Income (pre-tax) at February 3, 2007
Net loss		$	13,276
Prior service cost		1,650
Net amount recognized at fiscal year end		$	14,926
Other Comprehensive Loss Attributable to change in Additional Minimum Liability Recognition		$	3,467			$	35
Accumulated Benefit Obligation at Fiscal Year End		$	54,379			$	50,404
Cash Flows
Employer contributions expected during fiscal 2007		$	1,258			$	1,417

62

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

Year ended	February 3, 2007			January 28, 2006
Projected benefit obligation		$	17,499		$	16,859
Accumulated benefit obligation		14,264			12,914

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

Year ended	February 3, 2007			January 28, 2006			January 29, 2005
Weighted-Average Assumptions as of December 31:
Discount rate		5.90	%		5.70	%
Rate of compensation increase		4.0	%(1)		4.0	%(1)
Weighted-Average Assumptions for Net Periodic Benefit Cost Development:
Discount rate		5.70	%		5.75	%		6.25	%
Expected return on plan assets		6.30	%		6.75	%		6.75	%
Rate of compensation expense		4.0	%(1)		4.0	%(1)		4.0	%(1)

(1)In addition, bonuses are assumed to be 25% of base pay for the SERP.

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

The Company selected the discount rate at December 31, 2006 to reflect a rate commensurate with a model bond portfolio with durations that match the expected payment patterns of the plans.

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

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

Plan Assets	As of December 31, 2006			As of  December 31, 2005
Equity securities		54	%		50	%
Fixed income		46	%		50	%
Total		100	%		100	%

63

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Equity securities include Pep Boys common stock in the amounts of $817 (2.2% of total plan assets) and $819 (2.3% of total plan assets) at December 31, 2006 and December 31, 2005, respectively.

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

2007	$	2,665
2008	2,715
2009	3,395
2010	3,242
2011	4,167
2012 – 2016	25,967

DEFINED CONTRIBUTION PLAN

As discussed above, the SERP includes a non-qualified defined contribution portion for key employees designated by the Board of Directors. The Company’s contribution expense for the defined contribution portion of the plan was $603, $560 and $678 for fiscal years 2006, 2005 and 2004, respectively.

The Company has 401(k) savings plans, which cover all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the lesser of 50% of the first 6% of a participant’s contributions or 3% of the participant’s compensation. The Company’s savings plans’ contribution expense was $2,963, $3,126 and $3,463 in fiscal 2006, 2005 and 2004, respectively.

DEFERRED COMPENSATION PLAN

In the first quarter of 2004, the Company adopted a non-qualified deferred compensation plan that allows its officers and certain other employees to defer up to 20% of their annual salary and 100% of their annual bonus. Additionally, the first 20% of an officer’s bonus deferred into the Company’s stock is matched by the Company on a one-for-one basis with the Company’s stock that vests and is expensed over three years. The shares required to satisfy distributions of voluntary bonus deferrals and the accompanying match in the Company’s stock are issued under the Stock Incentive Plans.

RABBI TRUST

The Company has accounted for the non-qualified deferred compensation plan and the SERP in accordance with EITF 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested.” The Company establishes and maintains a deferred liability for these plans. The Company plans to fund this liability by remitting the officers’ deferrals to a Rabbi Trust where these deferrals are invested in various securities, including life insurance policies. These assets are included in non-current other assets. Accordingly, all gains and losses on these underlying investments, which are held in the Rabbi Trust to fund the deferred liability, are recognized in the Company’s consolidated statement of operations. Under these plans, there were liabilities of $20,761 at February 3, 2007 and $16,137 at January 28, 2006.

64

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

NOTE 10—NET EARNINGS PER SHARE

For fiscal years 2006, 2005 and 2004, basic earnings per share are based on net earnings divided by the weighted average number of shares outstanding during the period. Diluted earnings per share assumes the dilutive effects of the conversion of convertible senior notes and the exercising of stock options. Adjustments for the stock options were anti-dilutive in fiscal 2006 and 2005 and therefore excluded from the calculation due to the Company’s net loss for the year. Additionally, adjustments for the convertible senior notes and purchase rights were anti-dilutive in all periods presented.

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

Year ended	February 3,  2007				January 28,  2006				January 29,  2005
(a) Net (loss) earnings from continuing operations before cumulative effect of change in accounting principle		$	(2,000	)		$	(35,799	)		$	25,666
Adjustment for interest on convertible senior notes, net of income tax effect		—				—				—
(b) Adjusted net (loss) earnings from continuing operations		$	(2,000	)		$	(35,799	)		$	25,666
(c) Average number of common shares outstanding during period		54,318				54,831				56,361
Common shares assumed issued upon conversion of convertible senior notes		—				—				—
Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price		—				—				1,296
(d) Average number of common shares assumed outstanding during period		54,318				54,831				57,657
Basic (Loss) Earnings Per Share:
Net (Loss) Earnings From Continuing Operations Before Cumulative Effect of Change in Accounting Principle (a/c)		$	(0.04	)		$	(0.65	)		$	0.46
Loss from Discontinued Operations, Net of Tax		(0.01		)		—				(0.04		)
Cumulative Effect of Change in Accounting Principle, Net of Tax		—				(0.04		)		—
Basic (Loss) Earnings Per Share		$	(0.05	)		$	(0.69	)		$	0.42
Diluted (Loss) Earnings Per Share:
Net (Loss) Earnings From Continuing Operations Before Cumulative Effect of Change in Accounting Principle (b/d)		$	(0.04	)		$	(0.65	)		$	0.45
Discontinued Operations, Net of Tax		(0.01		)		—				(0.04		)
Cumulative Effect of Change in Accounting Principle, Net of Tax		—				(0.04		)		—
Diluted (Loss) Earnings Per Share		$	(0.05	)		$	(0.69	)		$	0.41

65

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

For the years ended February 3, 2007, January 28, 2006 and January 29, 2005, there were 2,459,618, 4,802,970 and 1,950,980 options and restricted stock units that were not included in the computation of diluted EPS because they were antidilutive for the periods.

NOTE 11—EQUITY COMPENSATION PLANS

The Company has a stock-based compensation plan originally approved by the stockholders on May 21, 1990 under which it has previously granted non-qualified stock options and incentive stock options to key employees and members of its Board of Directors. As of February 3, 2007, there were no awards remaining available for grant under the 1990 Plan. The Company has a stock-based compensation plan originally approved by the stockholders on June 2, 1999 under which it has previously granted and may continue to grant non-qualified stock options, incentive stock options and restricted stock units (RSUs) to key employees and members of its Board of Directors. As of February 3, 2007, there were 3,243,817 awards remaining available for grant under the 1999 Plan.

Incentive stock options and non-qualified stock options previously granted under the plans (i) to non-officers, vest fully on the third anniversary of their grant date and (ii) to officers, vest over a four-year period, with one-fifth vesting on each of the grant date and the next four anniversaries thereof. Generally, options granted prior to March 3, 2004 carry an expiration date of ten years and options granted on or after March 3, 2004 carry an expiration date of seven years.

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

The Company has also granted RSUs under the 1999 plan in conjunction with its non-qualified deferred compensation plan. Under the deferred compensation plan, the first 20% of an officer’s bonus deferred into the Company’s stock fund is matched by the Company on a one-for-one basis with RSUs that vest over a three-year period, with one third vesting on each of the first three anniversaries of the grant date.

The exercise price, term and other conditions applicable to future stock option and RSU grants under the 1999 plan are generally determined by the Board of Directors; provided that the exercise price of stock options must be at least 100% of the quoted market price of the common stock on the grant date. The Company currently satisfies share requirements resulting from RSU conversions and option exercises from its Treasury. The Company believes its Treasury share balance at February 3, 2007 is adequate to satisfy such activity during the next twelve-month period.

66

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

The following table summarizes the options under our plans:

	Fiscal 2006
	Shares		Weighted  Average  Exercise  Price
Outstanding—beginning of year	4,537,155			$	15.87
Granted	61,977			15.01
Exercised	(84,500	)		8.48
Forfeited	(329,898	)		13.36
Expired	(2,083,902	)		16.21
Outstanding—end of year	2,100,832			16.20
Vested and expected to vest	2,095,153			16.20
Options exercisable at year end	1,834,670			16.23

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

	Fiscal 2006			Fiscal 2005			Fiscal 2004
Weighted average fair value at grant date per option		$	10.04		$	7.66		$	13.60
Intrinsic value at exercise date		$	370		$	2,531		$	8,305

The aggregate intrinsic value of outstanding options at February 3, 2007 was $4,455, of which $4,100 were vested. At February 3, 2007, the weighted average remaining contractual term of outstanding options and  exercisable options is 4.2 years and 3.9 years. At February 3, 2007, the weighted average remaining contractual term and aggregate intrinsic value of outstanding and expected to vest options is 4.2 years and $4,448. The cash received and related tax benefit realized from options exercised during fiscal year 2006 was $722 and $252 respectively. At February 3, 2007, there was approximately $1,160 of total unrecognized pre-tax compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 1.4 years.

The following table summarizes information about non-vested stock awards (RSUs) since January 29, 2006:

	Number of RSUs			Weighted Average Fair Value
Nonvested at January 29, 2006		265,815			$	18.41
Granted		226,161			13.58
Forfeited		(62,132	)		16.41
Vested		(71,058	)		19.93
Nonvested at February 3, 2007		358,786			$	15.41

67

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

	Fiscal 2006		Fiscal 2005		Fiscal 2004
Weighted average fair value at grant date per unit		$ 13.58		$ 16.71		$ 22.41
Fair Value at vesting date		$ 1,660		$  881		$       8
Intrinsic value at conversion date		$ 1,075		$  679		$       5
Tax benefits realized from conversions		$  734		$  248		$       3

At February 3, 2007, there was approximately $3,370 of total unrecognized pre-tax compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of 1.7 years.

NOTE 12—ASSET RETIREMENT OBLIGATIONS

At February 3, 2007, the Company has a liability pertaining to the asset retirement obligation in accrued expenses and other long-term liabilities on its consolidated balance sheet. The following is a reconciliation of the beginning balance and ending carrying amounts of the Company’s asset retirement obligation under SFAS 143 from January 29, 2005 through February 3, 2007:

Asset retirement obligation, January 29, 2005	$ 5,057
Asset retirement obligation incurred during the period	43
Asset retirement obligation settled during the period	(141	)
Accretion expense	109
Reduction in asset retirement liability	(1,945	)
Adoption of FIN 47	3,652
Asset retirement obligation, January 28, 2006	6,775
Asset retirement obligation incurred during the period	131
Asset retirement obligation settled during the period	(130	)
Accretion expense	269
Asset retirement obligation, February 3, 2007	$ 7,045

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

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

68

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Had the Company adopted the provisions of FIN 47 prior to January 28, 2006, the amount of the asset retirement obligations on a pro forma basis would have been $3,441 as of January 29, 2005. The following table summarizes the pro forma net earnings and earnings per share for the fiscal year ended January 29, 2005, had the Company adopted the provisions of FIN 47 prior to January 28, 2006:

Year ended	January 29,  2005
Net Earnings (Loss):
As reported		$ 23,579
Pro Forma		$ 23,409
Net Earnings (Loss) per share:
Basic:
As reported		$   0.42
Pro Forma		$   0.42
Diluted:
As reported		$   0.41
Pro Forma		$   0.41

NOTE 13—INCOME TAXES

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

	Year ended
	February 3, 2007			January 28, 2006			January 29, 2005
Current:
Federal		$      —			$         —			$ (21,639	)
State		1,001			1,639			(1,268	)
Deferred:
Federal		(2,496	)		(20,422	)		35,379
State		(2,802	)		(1,786	)		2,843
		$ (4,297	)		$ (20,569	)		$ 15,315

69

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

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

	Year ended
	February 3, 2007			January 28, 2006			January 29, 2005
Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefits		(3.6	)		0.9			2.8
Job credits		5.8			0.8			(1.0	)
State Deferred Adjustment(a)		38.9			—			—
Foreign Taxes, net of federal benefits		(3.8	)		—			—
Other, net		(4.1	)		(0.2	)		0.6
		68.2	%		36.5	%		37.4	%

(a)The tax rate for the year ended February 2007 includes an adjustment to the state deferred liabilities primarily due to change in the Company’s filing position in certain states. Based on the new filing position, the Company has recorded certain tax attributes that were not recognized previously.

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

	February 3, 2007			January 28,  2006
Deferred tax assets:
Employee compensation		$ 8,227			$ 6,693
Store closing reserves		741			1,087
Legal		2,193			500
Benefit Accruals		1,998			538
Net operating loss carryforwards		46,831			27,640
Tax credit carryforwards		13,944			12,775
Accrued leases		12,937			13,522
Interest rate derivatives		1,305			—
Other		3,566			3,049
Gross deferred tax assets		91,742			65,804
Valuation allowance		(4,077	)		(3,545	)
		$ 87,665			$ 62,259
Deferred tax liabilities:
Depreciation		$ 51,017			$ 55,222
Inventories		37,544			17,655
Real estate tax		2,414			2,405
Insurance		793			3,180
Interest rate derivatives		—			2,151
		$ 91,768			$ 80,613
Net deferred tax liability		$ 4,103			$ 18,354

70

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

As of February 3, 2007 and January 28, 2006, the Company had available tax net operating losses that can be carried forward to future years. The $328,826 net operating loss carryforward in 2007 consists of $118,802 of federal losses and $210,024 of state losses. The federal net operating loss begins to expire in 2023 while the state net operating losses will expire in various years beginning in 2008.

The tax credit carryforward in 2007 consists of $4,772 of alternative minimum tax credits, $3,021 of work opportunity credits, $5,829 of state tax credits and $322 of charitable contribution carryforward.

The tax credit carryforward in 2006 consists of $4,412 of alternative minimum tax credits, $2,612 of work opportunity credits, $ 5,506 of state tax credits and $246 of charitable contribution carryforward.

Due to the uncertainty of the Company’s ability to realize certain state tax attributes, valuation allowances of $4,077 and $3,545 were recorded at February 3, 2007 and January 28, 2006, respectively.

NOTE 14—CONTINGENCIES

The Company is party to various actions and claims, including purported class actions, arising in the normal course of business. The Company believes that amounts accrued for awards or assessments in connection with such matters are adequate and that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

NOTE 15—INTEREST RATE SWAP AGREEMENT

On June 3, 2003, the Company entered into an interest rate swap for a notional amount of $130,000. The Company had designated the swap as a cash flow hedge of the Company’s real estate operating lease payments. The interest rate swap converts the variable LIBOR portion of the lease payment to a fixed rate of 2.90% and terminates on July 1, 2008. If the critical terms of the interest rate swap or hedge item do not change, the interest rate swap is considered to be highly effective with all changes in fair value included in other comprehensive income. As of February 3, 2007 and January 28, 2006, the fair value was $4,150 and $5,790, respectively. In the fourth quarter of fiscal 2006, the Company determined it was not in compliance with SFAS No. 133 for hedge accounting and, accordingly, recorded a reduction of rent expense, which is included in Costs of Merchandise and Costs of Service Revenues, for the cumulative fair value change of $4,150. This change in fair value had previously been recorded in Accumulated Other Comprehensive Income (Loss) on the consolidated balance sheets. The Company evaluated the impact of this error, along with three other errors, on an annual and quarterly basis and concluded there was no material impact on any historical periods, on an individual or aggregate basis. The Company corrected these errors in the fourth quarter of fiscal 2006, resulting in no material impact to the consolidated financial statements. The Company has removed its designation as a cash flow hedge on this transaction and will record the change in fair value through its operating statement until the date of termination.

On November 2, 2006, the Company entered into an interest rate swap for a notional amount of $200,000. The Company has designated the swap a cash flow hedge on the first $200,000 of the Company’s $320,000 senior secured notes. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in October 2013. The Company did not meet the documentation requirements of SFAS No. 133, at inception or as of February 3, 2007 and, accordingly, recorded the increase in the fair value of the interest rate swap of $1,490 as a reduction to Interest

71

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

Expense. The Company intends to meet the documentation requirements of SFAS No. 133 for hedge accounting in the first quarter of fiscal 2007 and will prospectively record the effective portion of the change in fair value through Accumulated Other Comprehensive Income (Loss).

NOTE 16—FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	February 3, 2007		January 28, 2006
	Carrying  Amount	Estimated  Fair Value	Carrying  Amount	Estimated  Fair Value
Assets:
Cash and cash equivalents	$ 21,884	$ 21,884	$ 48,281	$ 48,281
Accounts receivable	29,582	29,582	36,434	36,434
Interest rate swap derivatives	5,522	5,522	5,790	5,790
Liabilities:
Accounts payable	265,489	265,489	261,940	261,940
Long-term debt including current maturities	538,521	530,721	468,496	444,585
Senior convertible notes	—	—	119,000	114,835

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

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

INTEREST RATE SWAP DERIVATIVES

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

LONG-TERM DEBT INCLUDING CURRENT MATURITIES AND SENIOR CONVERTIBLE NOTES

Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange.

The fair value estimates presented herein are based on pertinent information available to management as of February 3, 2007 and January 28, 2006. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from amounts presented herein.

72

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)

NOTE 17—QUARTERLY FINANCIAL DATA (UNAUDITED)

	Total		Gross	Operating (Loss)			Net (Loss) Earnings From Continuing Operations Before Cumulative Effect of Change in Accounting			Net (Loss)			Net (Loss) Earnings Per Share From Continuing Operations Before Cumulative Effect of Change in Accounting Principle					Net (Loss) Earnings Per Share					Cash Dividends		Market Price Per Share
	Revenues		Profit	Profit			Principle			Earnings			Basic		Diluted			Basic		Diluted			Per Share		High	Low
Year Ended February 3, 2007
4th Quarter		$ 586,146	$ 150,083		$ 18,140			$   8,110			$   7,716		$ 0.15			$ 0.15		$ 0.14			$ 0.14			$ 0.0675	$ 16.05	$ 12.48
3rd Quarter		550,849	137,693		(1,349	)		(10,713	)		(10,914	)	(0.20	)		(0.20	)	(0.20	)		(0.20	)		0.0675	14.58	9.33
2nd Quarter		578,565	145,102		11,989			1,470			1,352		0.03			0.03		0.03			0.03			0.0675	14.96	10.66
1st Quarter		556,601	138,878		7,242			(867	)		(703	)	(0.02	)		(0.02	)	(0.01	)		(0.01	)		0.0675	16.55	14.05
Year Ended January 28, 2006
4th Quarter(1)		$ 550,481	$ 110,412		$ (15,690	)		$ (22,869	)		$ (24,601	)	$ (0.42	)		$ (0.42	)	$ (0.46	)		$ (0.46	)		$ 0.0675	$ 15.99	$ 12.54
3rd Quarter		545,904	119,113		(8,553	)		(11,376	)		(11,196	)	(0.21	)		(0.21	)	(0.20	)		(0.20	)		0.0675	14.84	11.75
2nd Quarter		577,418	138,228		9,659			2,264			1,043		0.01			0.01		0.02			0.02			0.0675	15.24	12.54
1st Quarter		564,226	139,514		3,359			(3,818	)		(2,774	)	(0.04	)		(0.04	)	(0.05	)		(0.05	)		0.0675	18.80	14.06

(1)Includes a pretax charge of $4,200 related to an asset impairment charge reflecting the remaining value of a commercial sales software asset, which was included in selling, general and administrative expenses.

Under the Company’s present accounting system, actual gross profit from merchandise sales can be determined only at the time of physical inventory, which is taken at the end of the fiscal year. In fiscal year 2006, these physical inventories were taken at different times during the course of the fourth quarter resulting in the Company recording an estimate for inventory shrinkage from the time of the physical inventory to the end of the fiscal year. Gross profit from merchandise sales for the first, second and third quarters is estimated by the Company based upon recent historical gross profit experience and other appropriate factors. Any variation between estimated and actual gross profit from merchandise sales for the first three quarters is reflected in the fourth quarter’s results.

Certain reclassifications have been made to the prior years’ consolidated financial statements to provide comparability with the current year’s presentation of Net Gain from Sales of Assets from Cost of Merchandise Sales and the change in classification of a store from discontinued operations to continuing operations.

73

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

None.

ITEM 9ACONTROLS AND PROCEDURES

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

The Company made a change to its internal control over financial reporting during the quarter ended February 3, 2007 that have materially affected the Company’s internal control over financial reporting as described below.

Through fiscal 2005, actual gross profit from merchandise sales was determined once a year following a physical inventory count taken the last day of the fiscal year. In the fourth quarter of fiscal 2006, the Company introduced a new process for counting its inventory, whereby physical counts were taken throughout the fourth quarter and an estimate for inventory shrinkage was recorded for the period between the actual physical count date and fiscal year end. Other than this change, the Company made no other changes to its internal controls over financial reporting for the quarter ended February 3, 2007.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

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

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

74

As of February 3, 2007, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of February 3, 2007 is effective. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm who audited the Company’s consolidated financial statements, has issued a report on management’s assessment of the Company’s internal control over financial reporting as of February 3, 2007 and is included on page 76 herein.

75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that The Pep Boys—Manny, Moe & Jack and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of February 3, 2007, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

76

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended February 3, 2007 of the Company and our report, dated April 18, 2007, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule and included an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, SFAS No. 123 (revised 2004), Share-Based Payment, and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, as of February 3, 2007, January 29, 2006, and January 28, 2006, respectively.

Deloitte & Touche LLP

Philadelphia, Pennsylvania
April 18, 2007

77

ITEM 9BOTHER INFORMATION

None.

PART III

ITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

The Company had adopted a Code of Ethics applicable to all of its associates including its executive officers. The Code of Ethics, together with any amendments thereto or waivers thereof, are posted on the Company’s website www.pepboys.com under the “About Pep Boys—Corporate Governance” section.

In addition, the Board of Directors Code of Conduct and the charters of our audit, human resources and nominating and governance committees may also be found under the “About Pep Boys—Corporate Governance” section of our website. As required by the New York Stock Exchange (NYSE), promptly following our 2006 Annual Meeting, our then interim CEO certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards. Copies of our corporate governance materials are available free of charge from our investor relations department. Please call 215-430-9720 or write Pep Boys, Investor Relations, 3111 West Allegheny Avenue, Philadelphia, PA 19132.

ITEM 11EXECUTIVE COMPENSATION

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

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

ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The material in the Proxy Statement under the caption “—Certain Relationships and Related Transactions” and “—Corporate Governance” is hereby incorporated herein by reference.

ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES

The material in the Proxy Statement under the caption “—Registered Public Accounting Firm’s Fees” is hereby incorporated herein by reference.

78

PART IV

ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)The following documents are filed as part of this report:

		Page
1.	The following consolidated financial statements of The Pep Boys—Manny, Moe & Jack are included in Item 8
	Report of Independent Registered Public Accounting Firm		31
	Consolidated Balance Sheets—February 3, 2007 and January 28, 2006		32
	Consolidated Statements of Operations—Years ended February 3, 2007, January 28, 2006 and January 29, 2005		33
	Consolidated Statements of Stockholders’ Equity—Years ended February 3, 2007, January 28, 2006 and January 29, 2005		34
	Consolidated Statements of Cash Flows—Years ended February 3, 2007, January 28, 2006 and January 29, 2005		35
	Notes to Consolidated Financial Statements		36
2.	The following consolidated financial statement schedule of
	The Pep Boys—Manny, Moe & Jack is included
	Schedule II Valuation and Qualifying Accounts and Reserves		86
	All other schedules have been omitted because they are not applicable or not required or the required information is included in the consolidated financial statements or notes thereto.		80
3.	Exhibits

79

(3.1)	Articles of Incorporation, as amended	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 30, 1988.
(3.2)	By-Laws, as amended	Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-39225).
(3.3)	Amendment to By-Laws (Declassification of Board of Directors)	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 29, 2000.
(4.1)	Indenture dated May 21, 2002, between the Company and Wachovia Bank, National Association, as Trustee, including form of security.	Incorporated by reference from the Registration Statement on Form S-3 (File No. 333-98255).
(4.2)	Indenture, dated December 14, 2004, between the Company and Wachovia Bank, National Association, as trustee, including form of security.	Incorporated by reference from the Company’s Form 8-K dated December 15, 2004.
(4.3)	Supplemental Indenture, dated December 14, 2004, between the Company and Wachovia Bank, National Association, as trustee.	Incorporated by reference from the Company’s Form 8-K dated December 15, 2004.
(4.4)	Rights Agreement dated as of December 5, 1997 between the Company and First Union National Bank	Incorporated by reference from the Company’s Form 8-K dated December 8, 1997.
(4.5)	Amendment to Rights Agreement dated as of August 18, 2006 between the Company and the Rights Agent	Incorporated by reference from the Company’s Registration Statement on form 8-A/A (Amendment No. 2) filed on august 21, 2006.
(4.6)	Dividend Reinvestment and Stock Purchase Plan dated January 4, 1990	Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-32857).
(10.1)*	Medical Reimbursement Plan of the Company	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 31, 1982.
(10.2)*	Directors’ Deferred Compensation Plan, as amended	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 30, 1988.
(10.3)*	Form of Employment Agreement (Change of Control) between the Company and certain officers of the Company.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended October 31, 1998.
(10.4)*	Change of Control Agreement dated as of February 10, 2006 between the Company and Harry F. Yanowitz.	Incorporated by reference from the Company’s Form 8-K filed on February 13, 2006.

80

(10.5)*	Form of Non-Competition Agreement between the Company and certain officers of the Company.	Incorporated by reference from the Company’s Form 8-K filed on February 10, 2006.
(10.6)*	Employment Agreement dated March 13, 2007 between the Company and Jeffrey C. Rachor.
(10.7)*	The Pep Boys—Manny, Moe and Jack 1990 Stock Incentive Plan—Amended and Restated as of March 26, 2001.	Incorporated by reference from the Company’s Form 10-K for the year ended February 1, 2003.
(10.8)*	The Pep Boys—Manny, Moe and Jack 1999 Stock Incentive Plan—amended and restated as of September 15, 2005.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended October 29, 2005.
(10.9)*	The Pep Boys—Manny, Moe & Jack Pension Plan—Amended and Restated as of September 10, 2001.	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended February 1, 2003
(10.10)*	The Pep Boys-Manny, Moe & Jack Pension Plan Amendment 2005-1
(10.11)*	Long-Term Disability Salary Continuation Plan amended and restated as of March 26, 2002.	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended February 1, 2003.
(10.12)*	Amendment and restatement as of September 3, 2002 of The Pep Boys Savings Plan.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended November 2, 2002.
(10.13)*	The Pep Boys Savings Plan Amendment 2004-1	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 31, 2004.
(10.14)*	The Pep Boys Savings Plan Amendment 2005-1
(10.15)*	Amendment and restatement as of September 3, 2002 of The Pep Boys Savings Plan—Puerto Rico.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended November 2, 2002.
(10.16)*	The Pep Boys Deferred Compensation Plan	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 31, 2004.
(10.17)*	The Pep Boys Annual Incentive Bonus Plan (amended and restated as of December 9, 2003)	Incorporated by reference from the Company’s Form 10-K for the fiscal year ended January 31, 2004.

81

(10.18)*	Amendment to and Restatement of the Executive Supplemental Pension Plan, effective as of January 31, 2004.	Incorporated by reference from The Company’s Form 10-Q for the quarter ended May 1, 2004.
(10.19)	Flexible Employee Benefits Trust	Incorporated by reference from the Company’s Form 8-K filed May 6, 1994.
(10.20)	The Pep Boys Grantor Trust Agreement
(10.21)	Amended and Restated Loan and Security Agreement, dated August 1, 2003, by and among the Company, Congress Financial Corporation, as Agent, The CIT Group/Business Credit, Inc. and General Electric Capital Corporation, as Co-Documentation Agents, and the Lenders from time to time party thereto.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended August 2, 2003.
(10.22)	Amendment No. 1, dated October 24, 2003, to the Amended and Restated Loan and Security Agreement, by and among the Company, Congress Financial Corporation, as Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended November 1, 2003.
(10.23)	Amendment No. 2, dated October 15, 2004, to the Amended and Restated Loan and Security Agreement, by and among the Company, Congress Financial Corporation, as Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed December 3, 2004.
(10.24)	Amendment No. 3, dated December 2, 2004, to the Amended and Restated Loan and Security Agreement, by and among the Company, Congress Financial Corporation, as Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed December 3, 2004.
(10.25)	Amendment No. 4, dated November 16, 2005, to the Amended and Restated Loan and Security Agreement, by and among the Company, Congress Financial Corporation, as Agent, and the other parties thereto.
(10.26)	Amendment No. 5, dated January 27, 2006, to the Amended and Restated Loan and Security Agreement, by and among the Company, Congress Financial Corporation, as Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed January 30, 2006.
(10.27)	Amendment No. 6, dated September 22, 2006, to the Amended and Restated Loan and Security Agreement, by and among the Company, Wachovia Bank, National Association, successor-in-interest to Congress Financial Corporation, as Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed October 30, 2006.
(10.28)	Participation Agreement, dated as of August 1, 2003, among the Company, Wachovia Development Corporation, as the Borrower and the Lessor, the Lenders and Wachovia Bank, National Association, as Agent for the Lenders and the Secured Parties.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended August 2, 2003.

82

(10.29)	Amended and Restated Lease Agreement, dated as of August 1, 2003, between Wachovia Development Corporation, as Lessor, and the Company.	Incorporated by reference from the Company’s Form 10-Q for the quarter ended August 2, 2003.
(10.30)	Trade Agreement, dated October 18, 2004, between the Company and GMAC Commercial Finance, LLC.	Incorporated by reference from the Company’s Form 8-K dated October 19, 2004.
(10.31)	Master Lease Agreement, dated October 18, 2004, between the Company and with RBS Lombard, Inc.	Incorporated by reference from the Company’s Form 8-K dated October 19, 2004.
(10.32)	Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed October 30, 2006.
(10.33)	First Amendment dated February 15, 2007 to Amended and Restated Credit Agreement, dated October 27, 2006, among the Company, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto.	Incorporated by reference from the Company’s Form 8-K filed February 16, 2007.
(12.00)	Computation of Ratio of Earnings to Fixed Charges
(21.00)	Subsidiaries of the Company
(23.00)	Consent of Independent Registered Public Accounting Firm
(31.1)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	None

*Management contract or compensatory plan or arrangement.

83

SIGNATURES

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

	THE PEP BOYS—MANNY, MOE & JACK
	(Registrant)
	by:	/s/ HARRY F. YANOWITZ
Dated: April 18, 2007		Harry F. Yanowitz
		Senior Vice President and Chief Financial Officer

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

	SIGNATURE	CAPACITY	DATE
/s/ JEFFREY C. RACHOR		President & Chief Executive Officer & Director	April 18, 2007
Jeffrey C. Rachor		(Principal Executive Officer)
/s/ HARRY F. YANOWITZ		Senior Vice President and Chief Financial Officer	April 18, 2007
Harry F. Yanowitz		(Principal Financial Officer)
/s/ BERNARD K. MCELROY		Chief Accounting Officer and Treasurer	April 18, 2007
Bernard K. McElroy		(Principal Accounting Officer)
/s/ WILLIAM LEONARD		Chairman of the Board	April 18, 2007
William Leonard
/s/ M. SHÂN ATKINS		Director	April 18, 2007
M. Shân Atkins
/s/ PETER A. BASSI		Director	April 18, 2007
Peter A. Bassi
/s/ ROBERT H. HOTZ		Director	April 18, 2007
Robert H. Hotz
/s/ THOMAS R. HUDSON Jr.		Director	April 18, 2007
Thomas R. Hudson Jr.
/s/ MAX L. LUKENS		Director	April 18, 2007
Max L. Lukens
/s/ JAMES A. MITAROTONDA		Director	April 18, 2007
James A. Mitarotonda

84

/s/ JANE SCACCETTI	Director	April 18, 2007
Jane Scaccetti
/s/ JOHN T. SWEETWOOD	Director	April 18, 2007
John T. Sweetwood
/s/ NICK WHITE	Director	April 18, 2007
Nick White
/s/ JAMES A. WILLIAMS	Director	April 18, 2007
James A. Williams

85

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

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Column A	Column B			Column C						Column D			Column E
Description	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Additions Charged to Other  Accounts			Deductions(1)			Balance at End of Period
	(in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended February 3, 2007		$	1,188		$	2,317		$	—		$	2,000		$	1,505
Year Ended January 28, 2006		$	1,030		$	1,733		$	—		$	1,575		$	1,188
Year Ended January 29, 2005		$	739		$	1,831		$	—		$	1,540		$	1,030

(1)Uncollectible accounts written off.

Column A	Column B			Column C						Column D			Column E
Description	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Additions Charged to Other  Accounts(2)			Deductions(3)			Balance at End of Period
SALES RETURNS AND ALLOWANCES:
Year Ended February 3, 2007		$	1,726		$	—		$	91,644		$	92,074		$	1,296
Year Ended January 28, 2006		$	1,459		$	—		$	96,010		$	95,743		$	1,726
Year Ended January 29, 2005		$	1,217		$	—		$	104,767		$	104,525		$	1,459

(2)Additions charged to merchandise sales.

(3)Actual returns and allowance

86

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made by and between THE PEP BOYS—MANNY, MOE & JACK, a Pennsylvania corporation (the “Company”), and Jeffrey C. Rachor (the “Executive”), on the date of the last signature below (the “Effective Date”).

W I T N E S S E T H :

WHEREAS, the Company desires to retain the employment services of the Executive and the Executive desires to accept such employment by entering into this Employment Agreement on the terms and conditions as set forth herein (the “Agreement”);

NOW, THEREFORE, in consideration of the representations, warranties and mutual covenants set forth herein, the Company and the Executive agree as follows:

1.     Position and Duties.

(a)   The Executive shall serve as the President & Chief Executive Officer (“CEO”) of the Company and shall perform such duties and services incident to such positions and such other reasonably related duties as may be assigned to him from time to time by the Board of Directors of the Company (“Board”). On the Effective Date, the Board shall appoint the Executive to be a member of the Board and, thereafter, use its best efforts to have the Executive elected to the Board annually during the Executive’s employment with the Company. During Executive’s employment with the Company, the Executive shall report directly to and take direction from the Board or its Chairman.

(b)   Excluding periods of vacation, sick leave and disability to which the Executive is entitled, the Executive agrees to devote his full time, attention and energy to the business of the Company and to use his reasonable best efforts to perform faithfully and efficiently such responsibilities. Executive shall not, without the prior written consent of the Company, actively engage in any other business or business activity during the Employment Period (as defined below). The Executive may, however, (i) serve on civic or charitable boards or committees, (ii) participate in appropriate professional organizations, (iii) deliver lectures, fulfill speaking engagements or teach at educational institutions, (iv) manage personal investments, and (v) serve on corporate boards with the permission of the Board, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities hereunder.

2.     Employment Period; Commencement of Employment.   The term of this Agreement shall commence on the Effective Date and end on the third anniversary of the Effective Date, as defined below (the “Initial Employment Period”). Thereafter, the term of this Agreement shall automatically renew for an indeterminate number of one-year periods unless, at least three months prior to the expiration of the Initial Employment Period or any succeeding one-year term, either party gives written notice to the other of its election not to extend such term of the Agreement (the Initial Employment Period and any succeeding one-year renewal is hereinafter referred to as the “Employment Period”). The Executive shall commence employment services as soon as reasonably practicable following the Effective Date, but no later than March 26, 2007 (the “Start Date”).

3.     Compensation.

(a)   Signing Bonus.   In consideration for the Executive entering into this Agreement and agreeing to serve as the President & CEO, the Company shall pay to the Executive a signing bonus equal to $1,200,000 (the “Signing Bonus”) within ten business days following the Start Date. The Signing Bonus shall be conditioned on the Executive’s continued employment with the Company for one year following the Start Date. To the extent that the Executive’s employment with the Company is terminated by either the Executive or the Company, for any or no reason, prior to the end of that one-year period, the Signing Bonus shall be forfeited and the Executive agrees to repay the Signing Bonus to the Company within five business days following such termination. The Executive agrees that the Company shall have the right to set off such repayment obligation against any amount then owed by the Company to the Executive,

including, without limitation, the cancellation of stock options, restricted stock units and/or other equity instrument in the Company having a fair market value equal to the repayment obligation.

(b)   Inducement Grant.   On the Effective Date, the Company shall grant to the Executive (i) a stock option to purchase 1,000,000 shares of the Company’s common stock (the “Inducement Option”) and (ii) 500,000 restricted stock units (the “Inducement RSUs” and together with the Inducement Option, the “Inducement Grant”). The Inducement Option shall have an exercise price per share equal to the fair market value of one share of the Company’s common stock on the Effective Date ( i.e., the average of the high and low of the price per share on the NY Stock Exchange on the date of grant). The Inducement Grants shall be subject to the following vesting schedule: 25% fully vested on the Start Date and 25% to vest on each of the first, second and third anniversaries of the Effective Date. The Inducement Grants shall have such other terms and conditions as set forth in separate agreements to be entered into by the Company and the Executive and as consistent with the terms of the Company’s 1999 Stock Incentive Plan.

(c)   Base Salary.   During the Employment Period, as consideration for services rendered, the Company shall pay to the Executive a base salary at an annual rate at least equal to $1,200,000 (“Base Salary”) payable over each calendar year at the regular pay periods of the Company. During the Employment Period, Base Salary shall be reviewed by the Board at least annually and may be increased, but not decreased, at any time and from time to time as shall be determined by the Board in its sole discretion.

(d)   Annual Bonus.   During the Employment Period, the Executive shall be eligible to earn a bonus based upon performance objectives established by the Board, with threshold, target, maximum and CAP bonus levels of 75%, 150% 225% and 300% of Base Salary, under the Company’s Executive Annual Incentive Bonus Plan (the “Bonus Plan”). If the target performance goals for Fiscal 2007 are not attained such that the Executive would earn at least $1,800,000, the Company shall pay to Executive a guaranteed bonus, without regard to achievement of goals, for Fiscal 2007 equal to $1,800,000 (the “Guaranteed Bonus”).

(e)   Annual Grants.   During the Employment Period, the Executive shall be eligible for an annual equity grants (the “Annual Grants”), at the discretion of the Board, with target grants of stock options to purchase 150,000 shares of the Company’s Common Stock and such number of restricted stock units with a fair market value equal to the Executive’s then current annual base salary, under the Company’s 1999 Stock Incentive Plan (or its successor plan). The Annual Grants shall be subject to the following vesting schedule: 25% fully vested on their grant date and 25% to vest on each of the first, second and third anniversaries of their grant date.

(f)    Employee Benefit Plans.   In addition to the Base Salary, Bonus and Annual Grants as hereinabove provided, the Executive shall be entitled to participate during the Employment Period in all incentive programs, savings, pension and retirement plans and programs generally available to other senior executives of the Company from time to time other than those embodied in separately negotiated agreements.

(g)   Welfare Benefit Plans.   During the Employment Period, the Executive and the Executive’s family shall be eligible for participation (to the same degree as other senior executives of the Company) in each welfare benefit plan of the Company, including, without limitation, all medical, prescription, dental, disability, salary continuance, life, accidental death and travel accident insurance plan and programs of the Company and its affiliated companies. The Executives annual automobile allowance, payable in bi-monthly installments, shall be $30,000.

(h)   Vacation.   During the Employment Period, the Executive shall be entitled to four weeks per calendar year of paid vacation.

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(i)    Business Expenses, Temporary Living, Travel and Relocation Expenses, etc.   The Company shall promptly reimburse the Executive for all reasonable employment, travel, entertainment and other business related expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company in effect from time to time. The Company shall reimburse the Executive for all reasonable and customary travel, commuting and temporary living expenses during the first year of the Employment Period. Should the Executive, at his sole discretion, relocate to the greater Philadelphia metropolitan area during the Employment Period, the Company shall reimburse the Executive for all reasonable and customary relocation costs and expenses (including costs associated with the sale of his residence (including, without limitation, sales commission and closing costs).

(j)    Executive Supplemental Retirement Plan.   The Executive shall be immediately eligible to participate in the Company’s Executive Supplemental Retirement Plan at a contribution level equal to 16% (of Base Salary and Annual Bonus) fully vesting on (i) the fourth anniversary of the Effective Date or (ii) the Executive’s earlier involuntary termination without “Cause,” as defined below, or termination for “Good Reason,” as defined below.

(k)   Controlling Document.   To the extent there is any inconsistency between the terms of this Agreement and the terms of any plan or program under which compensation or benefits are provided hereunder, this Agreement shall control. Otherwise, the Executive shall be subject to the terms, conditions and provisions of the Company’s plans and programs, as applicable.

4.     Termination.   This Agreement and Executive’s employment shall terminate under the following circumstances:

(a)   Death or Disability.   This Agreement shall terminate automatically upon the Executive’s death. During the Employment Period, if, as a result of physical or mental incapacity or infirmity, Executive shall be unable to perform his duties under this Agreement for (i) a continuous period of 90 days or more, or (ii) periods aggregating 120 days or more during any period of 12 consecutive months (each a “Disability Period”), and at the end of the Disability Period there is no reasonable probability that Executive can promptly resume his duties hereunder, Executive shall be deemed disabled (the “Disability”) and the Company, by notice to Executive, shall have the right to terminate this Agreement and the Executive’s employment for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician selected by the Company in good faith, whose determination shall be final and binding on the parties. Executive shall cooperate in all reasonable respects to enable an examination to be made by such physician. Notwithstanding the foregoing, the Company may conclusively determine Executive to have suffered a Disability and terminate the Employment Period on account of such Disability at any time after Executive has commenced receiving benefits under the Company’s Long Term Disability Salary Continuation Plan.

(b)   With or Without Cause.   The Company may terminate this Agreement and the Executive’s employment with or without “Cause.”  For purposes of this Agreement, “Cause” means (i) the continued failure of Executive to comply with the lawful directives of the Chairman or the Board (other than any such failure resulting from Executive’s incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or delivering a Notice of Termination for Good Reason to the Company) within 30 days after a written demand is delivered to the Executive by the Company specifying the failure; (ii) any act by Executive of illegality, dishonesty or fraud in connection with the Executive’s employment; (iii) the willful engaging by Executive in gross misconduct which is demonstrably and materially injurious to the Company or its affiliates; (iv) Executive’s conviction of or pleading guilty or no contest to a felony; or (v) a violation of Section 6 or 7 herein. For purpose of this paragraph (b), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of the Company or its affiliates. Any act,

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or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Cause shall not exist unless and until the Company has delivered to Executive, along with the Notice of Termination for Cause, a copy of a resolution duly adopted by two-thirds (2¤3) of the entire Board (excluding Executive if Executive is a Board member) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board an event set forth in clauses (i) - (v) above has occurred and specifying the particulars thereof in detail.

(c)   With or Without Good Reason.   This Agreement and the Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” means:

(i)    any change in the duties or responsibilities of Executive that is inconsistent in any material and adverse respect with Executive’s position, duties, responsibilities or status as President & CEO (including any material and adverse diminution of such duties or responsibilities or change in his reporting relationship so that he is to report to someone other than the Board or its Chairman); provided, however, that Good Reason shall not be deemed to occur upon (A) a change in duties or responsibilities (other than reporting responsibilities) that is solely and directly a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph (c).

(ii)   any substantial failure by the Company to comply with any of the provisions of Sections 3 or 8(c) of this Agreement;

provided, however, that a termination by Executive for Good Reason shall be effective only if, within 30 days following the delivery of a Notice of Termination for Good Reason by Executive to the Company, the Company has failed to cure the circumstances giving rise to Good Reason to the reasonable satisfaction of the Executive.

(d)   Notice of Termination.   Any termination by the Company with or without Cause or by the Executive with or without Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 9(d) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, if applicable, and (iii) if the termination date is other than the date of receipt of such notice, specifies the proposed termination date.

(e)   Expiration of the Employment Period.   This Agreement and the Executive’s employment shall terminate upon the delivery of a notice of non-extension of the Employment Period by either the Executive or the Company as set forth in Section 2.

(f)    Certain Modifications.   Notwithstanding anything to the contrary contained in this Section 4 or in any other Section of this Agreement, Good Reason shall not be deemed to occur, and the Company shall not be deemed in violation of any provision of this Agreement, upon any change in duties or responsibilities of the Executive that is a result of a modification of the organizational structure of the Company.

5.     Obligations of the Company Upon Termination.

(a)   Death.   If the Executive’s employment is terminated by reason of the Executive’s death, this Agreement shall terminate and the Company shall pay the Executive’s estate his Base Salary through the date of termination at the rate in effect at the time of death and any other benefits (including death benefits and any bonus due under the terms of the Bonus Plan) to which Executive is entitled to hereunder

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as of the date of the Executive’s death and shall have no further obligations to the Executive under this Agreement.

(b)   Disability.   If the Executive’s employment is terminated by reason of the Executive’s Disability, this Agreement shall terminate and the Company shall pay the Executive his Base Salary through the date of termination at the rate in effect at the time of Disability and any other benefits (including Disability benefits) to which Executive is entitled to hereunder at the date of the termination and shall have no further obligations to the Executive under this Agreement.

(c)   With Cause, Without Good Reason or Non-Extension of Employment Period.   If the Executive’s employment shall be terminated (i) by the Company with Cause, (ii) by Executive without Good Reason or (iii) on account of the delivery by either party of a notice of non-extension of the Employment Period, the Company shall pay the Executive his Base Salary through the date of termination at the rate in effect at the time Notice of Termination is given and shall have no further obligations to the Executive under this Agreement.

(d)   Without Cause or With Good Reason.   If, during the Employment Period, Executive’s employment shall be terminated (i) by the Company without Cause, or (ii) by Executive for Good Reason, the Company shall pay to the Executive or provide the following amounts and benefits, with respect to which Executive shall have no duty of mitigation:

(A)  to the extent not theretofore paid, the Company shall pay the Executive’s Base Salary through the date of termination at the rate in effect on the date of termination plus any Bonus amounts had been earned but had not yet been paid and any vacation pay for accrued but unused vacation through the date of termination in the calendar year which includes the date of termination (such amount to be paid in a lump sum within 10 days of such termination);

(B)   the Company shall pay to the Executive an amount equal to two times his then current Base Salary (such amount to be paid in a lump sum within 10 days of such termination);

(C)   if the date of termination is prior to the payment of the Guaranteed Bonus, the Company shall pay to the Executive an amount equal to the Guaranteed Bonus (such amount to be paid in a lump sum within 10 days of such termination); and

(D)  to the extent at least 333,333 of the Inducement RSUs are not fully vested as of the termination date, the Company shall cause such additional number of the Inducement RSUs to immediately vest as is equal to 333,333 minus such number of the Inducement RSUs that have otherwise fully vested as of the termination date.

All payments and benefits to be provided to the Executive under this Section 5(d) shall be subject to the Executive’s (x) compliance with the restrictions of Sections 6 and 7(a) herein and (y) execution of a general release and waiver of claims against the Company in the form to be determined by the Company at the time of termination. Anything herein to the contrary notwithstanding, if the Executive becomes entitled to payments pursuant to Section 5(d) hereof, Executive agrees to waive payments under any severance plan or program of the Company.

(e)   Change of Control Agreement.   Notwithstanding the foregoing, the Company shall have no obligation to provide, and the Executive shall not be entitled to receive, the payments and benefits to be provided under this Section 5, if the Executive’s employment shall be terminated during such Executive’s Employment Period (as defined in that certain Change of Control Employment Agreement, dated as of the date hereof, between the Company and the Officer (the “Change in Control Agreement”)). During the Employment Period (as defined in the Change of Control Agreement), the Change of Control Agreement shall supercede this Agreement in its entirety.

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6.     Confidential Information.   The Executive shall forever hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be public knowledge. The Executive shall not, without the prior written consent of the Company or except as required by law or in a judicial or administrative proceeding with subpoena powers, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it.

7.     Covenant Against Competition.

(a)  The Executive shall not, during his employment with the Company, and for two years thereafter, directly or indirectly, (a) induce or attempt to influence any employee of the Company to terminate his employment with the Company or hire or solicit for hire on behalf of another employer any person then employed or who had been employed by the Company during the immediately preceding six months or (b) engage in (as a principal, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business operating within the United States of America, if (i) such business’ primary business is the retail and/or commercial sale of automotive parts, accessories, tires and/or automotive repair/maintenance services including, without limitation, the entities (including their franchisees and affiliates) listed on Schedule 7 hereto, or (ii) the retail and/or commercial sale of automotive parts, accessories, tires and/or repair/maintenance services is the primary focus of such engagement or financial interest. However, nothing contained in this Section 7 shall prevent the Executive from (i) following his employment with the Company, engaging in (as a principal, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any new or used automotive dealership business (including an automotive repair and maintenance service business that is ancillary thereto) or (ii) holding for investment up to two percent (2%) of any class or equity securities of a company whose securities are traded on a national or foreign securities exchange.

(b) The Executive acknowledges that the restrictions contained in Section 6 hereof and this Section 7, in view of the nature of the business in which the Company is engaged, are reasonable and necessary in order to protect the legitimate interests of the Company, and that any violation thereof would result in irreparable injuries to the Company, and the Executive therefore acknowledges that, in the event of his violation of any of these restrictions, the Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief (without the posting of any bond) as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such a violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled.

(c)  If the Executive violates any of the restrictions contained in this Section 7, the restrictive period shall be extended from the time of the commencement of any such violation until such time as such violation shall be cured by the Executive to the satisfaction of the Company.

(d) The invalidity or unenforceability of any provision or provisions of this Section 7 shall not affect the validity or enforceability of any other provision or provisions of this Section 7, which shall remain in full force and effect. If any provision of this Section 7 is held to be invalid, void or unenforceable in any jurisdiction, any court or arbitrator so holding shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of this Agreement and shall correspondingly modify the Company’s obligations under Section 5(d). If any of the provisions of, or covenants contained in, this Section 7 are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions or the enforceability thereof in any other jurisdiction, which shall be given full effect, without regard to the invalidity or unenforceability in such other jurisdiction. Any such holding shall affect such provision of this Section 2, solely as to that jurisdiction, without rendering that or

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any other provisions of this Section 2 invalid, illegal, or unenforceable in any other jurisdiction. If any covenant contained in this Section 2 should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable and a corresponding reduction in the scope of the Company’s obligations under Section 5(d) shall also be made.

8.    Successors.

(a)   This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

(b)   This Agreement shall inure to the benefit of and be binding upon the Company and its successors.

(c)   The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

9.     Miscellaneous.

(a)   This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. The parties hereto agree that exclusive jurisdiction of any dispute regarding this Agreement shall be the state courts located in Philadelphia, Pennsylvania.

(b)   The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

(c)   This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(d)   All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive, to:

the residence address of the Executive set forth in the Company’s books and records

If to the Company, to:

The Pep Boys—Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention:  Chairman of the Board
cc: General Counsel

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or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(e)   The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(f)    This Agreement, together with the Change of Control Agreement and the agreements evidencing the Inducement Grants, contains the entire understanding of the Company and the Executive with respect to the subject matter hereof.

(g)   If the Executive is precluded from performing this employment by reason of any pre-existing contractual restrictions, the terms and benefits of this Agreement shall be null and void.

IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, on the date(s) shown below.

/s/ JEFFREY C. RACHOR
Dated: April 13, 2007
THE PEP BOYS—MANNY, MOE & JACK
By:	/s/ WILLIAM LEONARD
	William Leonard
	Chairman of the Board
	Dated: April 13, 2007

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EX-10.10

Exhbit 10.10

THE PEP BOYS –
MANNY, MOE & JACK PENSION PLAN

AMENDMENT 2005-1

Pursuant to the authority reserved to it under Section 8.2 of The Pep Boys – Manny, Moe & Jack Pension Plan (the “Pension Plan”), The Pep Boys – Manny, Moe & Jack (the “Company”) hereby amends the Pension Plan as follows:

1.The definition of “Disability” in Section 2.1 of the Plan is amended in its entirety as follows:

“Disability means a disability that results in the Participant’s entitlement to long-term disability benefits under the Social Security Act.”

2.The definition of “Employee” in Section 2.1 of the Plan is amended in its entirety as follows:

“Employee means any individual employed by the Employer as a common law employee.  An Employee does not include an independent contractor or any other person who the Employer determines, in its sole discretion based on the criteria set forth in Treasury Regulation section 31.3401(c)-1, is not is a common law employee.  If a person described in the preceding sentence is subsequently reclassified as, or determined to be, an employee by the Internal Revenue Service, any other governmental agency or authority, or a court, or if the Employer is required to reclassify such an individual as an employee as a result of such reclassification or determination (including any reclassification by the Employer in settlement of any claim or action relating to such individual’s employment status), such individual will not become eligible to become a Participant in this Plan by reason of such reclassification or determination.”

3.The definition of “Spouse” in Section 2.1 of the Plan is amended in its entirety to read as follows:

“Spouse  (Surviving Spouse) means the spouse or surviving spouse of the Participant or Former Participant, as the context requires, who is a person of the opposite gender who is the lawful husband or lawful wife of a Participant under the laws of the state or country of the Participant’s domicile; provided, however, that a former spouse shall be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.”

4.Section 4.6(c) of the Pension Plan is amended in its entirety, effective as of January 1, 2006, to read as follows:

“(c)  Notice and Information to Participants. The Administrative Committee shall furnish each Participant or Former Participant, not more than 90 days and not less than 30 days prior to his Annuity Starting Date, with the following information regarding benefits payable under the Plan in written nontechnical language:

(1)   A general description or explanation of the automatic post-retirement Spouse’s benefit described in Section 4.6(b) and single life annuity benefit with payments guaranteed for 120 months described in Section 4.6(a) and notification of the Participant’s or Former Participant’s right to waive the right to receive his benefits in a qualified joint and survivor annuity or single life annuity with payments guaranteed for 120 months and the right to make or revoke a previous election to waive the qualified joint and survivor annuity or single life annuity with payments guaranteed for 120 months.

(2)   A general explanation of the relative values of each form of benefit available under the Plan and the relative financial effect on a Participant’s or Former Participant’s benefits of any of the foregoing elections.

(3)   Notification of the availability, upon written request of a Participant or Former Participant of an explanation of the financial effect of any of the foregoing elections upon the requesting Participant’s or Former Participant’s benefits under the Plan and notification that each Participant or Former Participant may make only one such request.

(4)   A general explanation of the rights of a Participant’s or Former Participant’s Spouse.

(5)   If the Participant or Former Participant requests an Annuity Starting Date prior to his Normal Retirement Date, notification of the Participant’s or Former Participant’s right to defer commencement of his benefit until his Normal Retirement Date.

Notwithstanding the foregoing, the Participant’s or Former Participant’s Annuity Starting Date may precede or be fewer than 30 days after the explanation described in this Section is provided if:

(A)  the Participant or Former Participant is given notice of his right to a 30-day period in which to consider whether to (1) waive the normal form of benefit and elect an optional form and (2) to the extent applicable, consent to the distribution;

(B)   the Participant or Former Participant affirmatively elects a distribution and a form of benefit and the Spouse, if necessary, consents to the form of benefit elected;

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(C)   the Participant or Former Participant is permitted to revoke his affirmative election at any time prior to his Annuity Starting Date or, if later, the expiration of a 7-day period beginning on the day after the explanation described in this Section is provided to the Participant or Former Participant;

(D)  the Annuity Starting Date is after the earlier of (1) the date the Administrative Committee receives written notice of the Participant’s or Former Participant’s intent to begin receiving benefits or (2) the date the explanation described in this Section is provided to the Participant or Former Participant;

(E)   the distribution to the Participant or Former Participant does not commence before the expiration of the 7-day period described in paragraph (C) above; and

(F)   for Annuity Starting Dates on or after January 1, 2006, if the Annuity Starting Date precedes the date on which the explanation described in this Section is provided (i) monthly payments to the Participant or Former Participant shall equal the monthly payments the Participant or Former Participant would have received had the Participant or Former Participant actually begun to receive payments on the Annuity Starting Date; (ii) the Participant or Former Participant shall receive a make-up payment to reflect the payments that should have been made during the period beginning on the Participant’s Annuity Starting Date and ending on the date the Participant begins to receive payments (with an adjustment for interest); (iii) for purposes of Section 4.6(e), the identity of the Participant’s Spouse shall be determined as of the date benefits commence, except as otherwise provided in a qualified domestic relations order under Section 414(p) of the Code; (iv) either (I) the Participant’s or Former Participant’s Spouse, determined as of the date benefits commence, consents to the distribution, or (II) death benefits payable to the spouse under the form of distribution elected by the Participant or Former Participant shall not be less than the death benefits that would be paid to the Spouse under the fifty percent (50%) joint and survivor annuity described in Section 4.6(b) that commences after the date on which the Participant or Former Participant receives the explanation described in this Section; (v) the distribution satisfies the requirements of section 415 of the Code as of (I) the Annuity Starting Date and (II) unless the distribution commences less than 12 months after the Annuity Starting Date and the form of pension is subject to the valuation rules of section 417(e)(3) of the Code, the date the distribution commences; and (vi) the distribution satisfies the requirements of section 417(e)(3) of the Code as of the Annuity Starting Date; provided, however, that if the form of pension, determined as of the Annuity Starting Date, is subject to section 417(e)(3) of the Code, the distribution shall not be less than the Actuarial Equivalent of the benefit determined as of the date the distribution commences using the interest rate and mortality table used to calculate lump sum payments under the Plan.”

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5.Section 4.6(d) of the Pension Plan is amended, effective as of January 1, 2006, to delete the final paragraph thereof that begins, “The election period shall begin no earlier than….”

6.Section 4.11 of the Pension Plan is amended in its entirety, effective as of March 28, 2005, to read as follows:

“4.11Cash-Out of Small Benefits.

(a)    Notwithstanding any other provision of the Plan, for distributions made on or after March 28, 2005, if the Actuarial Equivalent value of the vested Accrued Annual Pension or Normal Annual Pension payable as a single life annuity with payments guaranteed for 120 months payable to a Participant or Former Participant does not exceed $1,000, such benefit shall be paid in a single sum as soon as practicable after the Participant’s Termination.  A distribution pursuant to this subsection (a) shall not require the consent of the Participant or the consent of his Spouse.

(b)   For distributions made on or after March 28, 2005, a Participant who Terminates for any reason other than on account of death shall be eligible for a voluntary single sum payment of the Actuarial Equivalent of his vested Accrued Annual Pension or Normal Annual Pension under the Plan as set forth in this subsection (b).  If the Actuarial Equivalent value of the vested Accrued Annual Pension or Normal Annual Pension payable as a single life annuity with payments guaranteed for 120 months payable to a Participant or Former Participant is more than $1,000, but equal to or less than $5,000, determined as of the Participant’s date of Termination, the Participant shall be eligible to elect to receive payment of his vested Accrued Annual Pension or Normal Annual Pension in a single sum as settlement of all liabilities of the Plan in connection with the Participant in accordance with this Section 4.11(b), provided that such payment is made no later than the last day of the Plan Year following the Plan Year in which the Participant’s Termination occurred.  A distribution pursuant to this subsection (b) shall not require the consent of the Participant or the consent of his Spouse.

(c)    For distributions made on or after March 28, 2005, notwithstanding any other provision of this Article IV, the Actuarial Equivalent value of the Spouse’s death benefit payable to the Spouse of a Participant or Former Participant pursuant to Section 4.7 shall be distributed to such Spouse as soon as practicable following the Participant’s or Former Participant’s death if such Actuarial Equivalent value is $5,000 or less.

(d)   Notwithstanding any other provision of the Plan, if a Participant has attained his Normal Retirement Age and the Actuarial Equivalent value of the vested Accrued Annual Pension or Normal Annual Pension payable as a single life annuity with payments guaranteed for 120 months payable to a Participant or Former Participant does not exceed $5,000, such vested benefit

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shall be paid in a single sum as soon as administratively practicable following the later of the Participant’s Termination or attainment of Normal Retirement Age.  A distribution pursuant to this subsection (d) shall not require the consent of the Participant or the consent of his Spouse.

(e)    A Participant who has a zero vested interest in his Accrued Annual Pension shall be deemed to have received a distribution of his Accrued Annual Pension immediately upon his Termination of employment.”

7.Section 4.13 of the Pension Plan is amended in its entirety, effective as of March 28, 2005, to read as follows:

“4.13Payments to an Alternate Payee.

(a)    Payments to an Alternate Payee pursuant to a qualified domestic relations order under Section 414(p) of the Code shall not be made prior to the date that the Participant or Former Participant has reached or would have reached his earliest retirement date under the Plan, except for any small payments provided under subsection (b).

(b)   In the event that the Actuarial Equivalent single sum value of the benefit payable to an Alternate Payee pursuant to a qualified domestic relations order under Section 414(p) of the Code does not exceed $5,000, such amount shall be paid to such Alternate Payee in a single sum as soon as practicable following the Administrative Committee’s receipt of the order and verification of its status as a qualified domestic relations order under Section 414(p) of the Code.”

IN WITNESS WHEREOF, and as evidence of the adoption of the amendment set forth herein, the Company has caused this instrument to be executed this 20th day of December, 2005.

/s/THE PEP BOYS – MANNY, MOE & JACK

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EX-10.14

Exhibit 10.14

THE PEP BOYS SAVINGS PLAN

AMENDMENT 2005-1

Pursuant to the authority reserved to it under Section 10.01 of The Pep Boys Savings Plan (the “Plan”), The Pep Boys—Manny, Moe & Jack (the “Company”) hereby amends the Plan as follows:

1.The definition of “Disability” in Section 2.1 of the Plan is amended in its entirety as follows:

“Disability means a disability that results in the Participant’s entitlement to long-term disability benefits under the Social Security Act.”

2.The definition of “Employee” in Section 2.1 of the Plan is amended in its entirety as follows:

“Employee means any individual employed by the Employer as a common law employee. An Employee does not include an independent contractor or any other person who the Employer determines, in its sole discretion based on the criteria set forth in Treasury Regulation section 31.3401(c)-1, is not is a common law employee. If a person described in the preceding sentence is subsequently reclassified as, or determined to be, an employee by the Internal Revenue Service, any other governmental agency or authority, or a court, or if the Employer is required to reclassify such an individual as an employee as a result of such reclassification or determination (including any reclassification by the Employer in settlement of any claim or action relating to such individual’s employment status), such individual will not become eligible to become a Participant in this Plan by reason of such reclassification or determination.”

3.Effective January 1, 2006, the definition of “Excess Aggregate Contributions” in Section 2.1 of the Plan is amended in its entirety to read as follows:

“Excess Aggregate Contributions means with respect to each Plan Year, the amount determined for Highly Compensated Eligible Participants under the procedure set forth in Treas. Reg. §1.401(m)-2(b)(2) or any successor thereto.”

4.The definition of “Spouse” in Section 2.1 of the Plan is amended in its entirety to read as follows:

“Spouse (surviving spouse) means the spouse or surviving spouse of the Participant or Former Participant, as the context requires, who is a person of the opposite gender who is the lawful husband or lawful wife of a Participant under the laws of the state or country of the Participant’s domicile; provided, however, that a former spouse shall be treated as the Spouse or surviving Spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.”

5.Section 6.1 is amended in its entirety to read as follows:

“Normal Retirement, Termination or Disability.  If a Participant’s employment is terminated by reason of his Normal Retirement or Termination, or the Participant incurs a Disability, then such Participant shall be entitled to receive the entire amount credited to his Accounts in the manner and at the time provided in Sections 6.4 and 6.5.”

6.Effective January 1, 2006, Section 4.1(d) of the Plan is amended so that the final sentence of the first paragraph thereof reads as follows:

“It is intended that this contribution shall constitute a qualified nonelective contribution within the meaning of Treas. Reg. §1.401(k)-6 or any successor thereto.”

7.Effective January 1, 2006, Section 4.7(b) of the Plan is amended so that the second paragraph thereof reads as follows:

“Compliance with (a) and (b) above, shall be determined in accordance with the rules set forth in Section 401(m)(2) of the Code and Treas. Reg. §1.401(m)-2, or any successors thereto.”

8.Effective January 1, 2006, Section 4.6 of the Plan is amended in its entirety to read as follows:

“4.6Distribution or Forfeiture of Income Attributable to Excess Contributions.Any distribution or forfeiture of Pre-Tax Contributions necessary pursuant to Section 4.5 shall include a distribution or forfeiture of the income, if any, allocable to such contributions. Such income shall be determined in accordance with Treas. Reg. §1.401(k)-2(b)(2)(iv)(D).”

9.Effective January 1, 2006, Section 4.8 of the Plan is amended in its entirety to read as follows:

“4.8Distribution or Forfeiture of Income Attributable to Excess Aggregate Contributions.Any distribution or forfeiture of Excess Aggregate Contributions necessary pursuant to Section 4.7 shall include a distribution or forfeiture of the income, if any, allocable to such contributions. Such income shall be determined in accordance with Treas. Reg. §1.401(m)-2(b)(2)(iv)(D).”

10.Effective January 1, 2006, Section 4.9 of the Plan is amended in its entirety to read as follows:

“4.9Requirements for Qualified Non-Elective Contributions and Qualified Matching Contributions.Any contributions that are designated as qualified non-elective contributions or as qualified matching contributions shall meet the requirements of Treas. Reg. Sections 1.401(k)-2(a)(6) and 1.401(m)-1(a)(6). In addition, qualified non-elective contributions and qualified matching contributions shall be fully vested at all times. Such contributions shall be distributed from the Plan only in accordance with the events enumerated in the Plan provided however, that in no event shall such amounts be available for hardship withdrawal.”

11.Effective March 28, 2005, Section 6.4(c) of the Plan is deleted, subsections (d) through (h) are redesignated as (c) through (g), respectively, and all references to such subsections in the Plan are redesignated accordingly, and newly redesignated Section 6.4(c) (formerly Section 6.4(d)) of the Plan is amended to add the following sentences to the end thereof:

“Notwithstanding any provision of the Plan to the contrary, effective March 28, 2005, in the event of an involuntary distribution under the Plan that is greater than $1,000 but less than or equal to $5,000, if the Participant does not elect to have such distribution paid directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover or to receive the distribution directly, then the Committee shall pay the distribution in a Direct Rollover to an individual retirement account designated by the Committee. If the value of the Participant’s nonforfeitable Account balance is $1,000 or less (determined by taking into account that portion of the Account balance that is attributable to rollover contributions (and allocable earnings thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code), the Plan shall distribute the Participant’s entire nonforfeitable Account balance as soon as administratively feasible without the consent of the Participant following termination of employment. Furthermore, any distribution to a Participant’s Beneficiary on account of a Participant’s death that is less than or equal to $5,000 shall be automatically distributed to such Beneficiary as soon as practicable following the Participant’s death.”

12.Effective March 28, 2005, Section 6.4(g) of the Plan is amended in its entirety to read as follows:

“(g)Distribution to an alternate payee of a Participant or Former Participant, pursuant to a qualified domestic relations order (“QDRO”), as defined in Section 414(p) of the Code, shall be made as soon as practicable following the finalization of the QDRO, or such later date as the QDRO may authorize; provided, however, effective March 28, 2005, any distribution to an alternate payee hereunder that is less than or equal to $5,000 shall be automatically distributed to such alternate payee as soon as practicable following the finalization of the QDRO.”

13.Effective January 1, 2006, Section 6.8(c)(2) of the Plan is amended in its entirety to read as follows:

“(2)The existence of a financial hardship, and the amount necessary to meet such hardship, shall be determined by the Committee in accordance with the rules set forth below. Notwithstanding the foregoing, a hardship withdrawal by a Participant hereunder may not include any amounts attributable to “qualified non-elective” and “qualified matching” contributions as defined under Section 401(k) of the Code.

An immediate and heavy financial need shall be limited to a need for funds for any of the following purposes:

(A)  medical expenses described in Section 213(d) of the Code and incurred by the Participant, his Spouse, or any of the Participant’s dependents (as defined in Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B)(3) (or the distribution is necessary for such persons to obtain such medical care));

(B)   costs directly related to the purchase (excluding mortgage payments) of a principal residence of the Participant;

(C)   the payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, or the Participant’s Spouse, children, or dependents (as defined in Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B)(3));

(D)  payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

(E)   expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income);

(F)   payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B)(3));

(G)  federal, state or local income taxes or penalties reasonably anticipated to result from the distribution; or

(H)  such other circumstances as may be prescribed by the Secretary of the Treasury or his delegate.”

14.Effective January 1, 2006, Section 6.8(c)(5) of the Plan is deleted and Section 6.8(c)(4) of the Plan is amended so that the first sentence thereof reads as follows:

“Following payment of any hardship distribution to a Participant hereunder, such Participant may not make Pre-Tax Contributions (and the Participant shall be precluded from making any employee contributions to all other plans maintained by the Employer as defined in Treas. Reg. Section 1.401(k)-1(d)(3)(iv)(E)(2)), during the six calendar months immediately following the effective date of such hardship withdrawal.”

15.Effective January 1, 2006, Section 12.1 of the Plan is amended so that the second sentence thereof reads as follows:

“A distribution may not be made from the Plan due to the termination of the Plan if the Employer established or maintains an alternative plan, as such terms are defined in Treas. Reg. Section 1.401(k)-1(d)(4).”

IN WITNESS WHEREOF, and as evidence of the adoption of the amendment set forth herein, the Company has caused this instrument to be executed this 20th day of December, 2005.

/s/ THE PEP BOYS—MANNY, MOE & JACK

EX-10.20

Exhibit 10.20

THE PEP BOYS
GRANTOR TRUST AGREEMENT

This Grantor Trust Agreement (the “Trust Agreement”) is dated as of January 31, 2004, by and between THE PEP BOYS—MANNY, MOE & JACK (“the Company”) and WACHOVIA BANK, NATIONAL ASSOCIATION, (“the Trustee”).

Recitals

(a)WHEREAS, the Company has adopted, and may in the future adopt, the nonqualified deferred compensation Plans and Agreements (the “Arrangements”) listed in Attachment A, and as Attachment A may be supplemented from time to time by the Company’s Chief Executive Officer (the “CEO”);

(b)WHEREAS, the Company maintained The Pep Boys—Manny, Moe & Jack Trust Agreement for the Executive Supplemental Pension Plan and certain Contingent Compensation Plans, dated as of February 13, 1992 (“the Former Trust”), but terminated the Former Trust as of January 31, 2004 and wishes to add the funding under the Former Trust to the funding that will be used for the Arrangements under this Trust Agreement (hereinafter, part of the “Arrangements” as otherwise described above;

(c)WHEREAS, the Company has incurred or expects to incur liability under the terms of such Arrangements with respect to the individuals participating in such Arrangements (the “Participants and Beneficiaries”);

(d)WHEREAS, the Arrangements, copies of which are attached hereto as Attachment B, as in effect from time to time, and incorporated herein by this reference, are intended to provide benefits for certain Participants and Beneficiaries; and

(e)WHEREAS, the Company hereby establishes a Trust (the “Trust”) and shall contribute to the Trust assets that shall be held therein, subject to the claims of the Company’s creditors in the event of the Company’s Insolvency, as herein defined, until paid to Participants and their Beneficiaries in such manner and at such times as specified in the Arrangements and in this Trust Agreement;

(f)WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Arrangements as unfunded plans, each maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and

(g)WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds (the “Fund”) to assist it in satisfying its liabilities under the Arrangements.

NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

Section 1.   Establishment of The Trust

(a)The Trust is intended to be a Grantor Trust, of which the Company is the Grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

(b)The Company shall be considered the Grantor for the purposes of the Trust.

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(c)The Trust hereby established is irrevocable.

(d)The Company hereby deposits with the Trustee in the Trust one hundred dollars and zero cents ($100.00) which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement.

(e)The principal of the Trust, and any additions thereto and earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Participants, Beneficiaries and general creditors as herein set forth. Participants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Arrangements and this Trust Agreement shall be unsecured contractual rights of Participants and their Beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the general creditors of the Company under federal and state law in the event the Company is Insolvent, as defined in Section 3(a) herein.

(f)The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property acceptable to the Trustee in the Trust to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Prior to a Change in Control, neither the Trustee nor any Participant or Beneficiary shall have any right to compel additional deposits.

(g)Upon a Potential Change in Control, as defined herein, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Potential Change of Control, make a contribution to the Trust in an amount that is sufficient (taking into account the Trust assets, if any, resulting from prior contributions) to fund the Trust in an amount equal to no less than 100% but no more than 120% of the amount necessary to pay each Participant or Beneficiary the benefits to which Participants or their Beneficiaries would be entitled pursuant to the terms of the Arrangements as of the date on which the Potential Change in Control occurred.

(h)In the event a Change in Control, as defined herein, does not occur within one year of a Potential Change in Control, the Company shall have the right to recover any amounts contributed to and remaining on hand in the Trust pursuant to Section 1(g).

(i)Upon a Change in Control, the Company shall, as soon as possible, but in no event longer than thirty (30) days following the occurrence of a Change in Control, make an irrevocable contribution to the Trust in an amount that is sufficient (taking into account the Trust assets, if any, resulting from prior contributions) to fund the Trust in an amount equal to no less than 100 percent but no more than 120 percent of the amount necessary to pay each Participant or Beneficiary the benefits to which Participants or their Beneficiaries would be entitled pursuant to the terms of the Arrangements as of the date on which the Change in Control occurred. The Company shall also fund an Expense Reserve for the Trustee, and other service providers, which shall be equal to the amount estimated to be sufficient to pay all fees and expenses that may thereafter become due.

Section 2.   Payments to Participants and Their Beneficiaries

(a)Prior to a Change in Control, distributions from the Trust shall be made by the Trustee to Participants and Beneficiaries at the direction of the Company except as may otherwise be provided herein. Prior to a Change in Control, the entitlement of a Participant or his or her Beneficiaries to benefits under the Arrangements shall be determined by the Committee or Committees appointed by the Company under the Arrangements, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Arrangements unless the Trustee determines, in its sole and absolute discretion, that there has been a Failure to Pay.

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(b)The Company may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Arrangements. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their Beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Arrangements, the Company shall make the balance of each such payment as it falls due in accordance with the Arrangements. The Trustee shall notify the Company when principal and earnings are not sufficient. Nothing in this Agreement shall relieve the Company of its liabilities to pay benefits due under the Arrangements except to the extent such liabilities are actually satisfied by application of assets of the Trust.

(c)The Company shall deliver to the Trustee a schedule of benefits due under the Arrangements on an annual basis. After a Potential Change in Control and before a Change in Control, the Company shall deliver an updated schedule of benefits due under the Arrangements that is signed by the CEO and authorized by the Company’s Board of Directors (the “Board”). After a Change in Control, the Trustee shall pay benefits due in accordance with such schedule. After a Change in Control, the Committee or Committees appointed by the Company shall continue to make the determination of benefits due to Participants or their Beneficiaries and shall provide the Trustee with an updated schedule of benefits due; provided however, that a Participant or the Beneficiaries of a deceased Participant may make application to the Trustee for an independent decision as to the amount or form of their benefits due under the Arrangements. In making any determination required or permitted to be made by the Trustee under this Section, the Trustee shall, in each such case, reach its own independent determination, in its absolute and sole discretion, as to the Participant’s or Beneficiary’s entitlement to a payment hereunder.

(d)Notwithstanding anything herein to the contrary, upon the occurrence of a Failure to Pay, each Participant covered by the situation described in clause (i) of the definition of Failure to Pay, or each of the Participants in the event of a situation described in clause (ii) of that definition, as the case may be, shall be entitled to receive from the Trust the payments described by the underlying Arrangement, as determined by the Trustee, in its sole and absolute discretion.

(e)In making its determination under part (c) or part (d) of this Section 2, the Trustee may consult with and make such inquiries of such persons, including the Participant or Beneficiary, the Company, legal counsel, actuaries or other persons, as the Trustee may reasonably deem necessary. Any reasonable costs incurred by the Trustee in arriving at its determination shall be reimbursed by the Company and, to the extent not paid by the Company within a reasonable time, shall be charged to the Trust, first to be satisfied from the Expense Reserve. The Company waives any right to contest any amount paid over by the Trustee hereunder pursuant to a good faith determination made by the Trustee made in accordance with the claims procedure set forth in the applicable arrangement or, if none, in accordance with the claims procedures set forth in the Company’s Deferred Compensation Plan, notwithstanding any claim by or on behalf of the Company (absent a manifest abuse of discretion by the Trustee) that such payments should not be made.

(f)The Trustee agrees that it will not itself institute any action at law or at equity, whether in the nature of an accounting, interpleading action, request for a declaratory judgment or otherwise, requesting a court or administrative or quasi-judicial body to make the determination required to be made by the Trustee under this Section 2 in the place and stead of the Trustee. The Trustee may (and, if necessary or appropriate, shall) institute an action to collect a contribution due the Trust following a Change in Control or in the event that the Trust should ever experience a shortfall in the amount of assets necessary to make payments pursuant to the terms of the Arrangements.

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(g)In the event any Participant or his or her Beneficiary is determined to be subject to federal income tax on any amount to the credit of his or her account under any Arrangement prior to the time of payment hereunder, whether or not due to the establishment of or contributions to this Trust, a portion of such taxable amount equal to the federal, state and local taxes (excluding any interest or penalties) owed on such taxable amount, shall be distributed by the Trustee as soon thereafter as practicable to such Participant or Beneficiary. The Company shall promptly reimburse the Trust for any such distribution in an amount certified by the Trustee to be needed for the Participant’s benefits. For these purposes, a Participant or Beneficiary shall be deemed to pay state and local taxes at the highest marginal rate of taxation in the state in which the Participant resides or is employed (or both) where a tax is imposed and federal income taxes at the highest marginal rate of taxation, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Such distributions shall be at the direction of the Company or the Trustee, or upon proper application of the Participant or Beneficiary; provided that the actual amount of the distribution shall be determined by the Company prior to a Change in Control and the Trustee following a Change in Control. An amount to the credit of a Participant’s Account shall be determined to be subject to federal income tax upon the earliest of: (a) a final determination by the United States Internal Revenue Service addressed to the Participant or his Beneficiary which is not appealed to the courts; (b) a final determination by the United States Tax Court or any other federal court affirming any such determination by the Internal Revenue Service; or (c) an opinion by the Company’s tax counsel, addressed to the Company and the Trustee, to the effect that by reason of Treasury Regulations, amendments to the Internal Revenue Code, published Internal Revenue Service rulings, court decisions or other substantial precedent, amounts to the credit of Participants hereunder are subject to federal income tax prior to payment. The Company shall undertake at its sole expense to defend any tax claims described herein which are asserted by the Internal Revenue Service against any Participant or Beneficiary, including attorney fees and cost of appeal, and shall have the sole authority to determine whether or not to appeal any determination made by the Service or by a lower court. The Company also agrees to reimburse any Participant or Beneficiary for any interest or penalties in respect of tax claims hereunder upon receipt of documentation of same. Any distributions from the Fund to a Participant or Beneficiary under this Section 2(g) shall be applied in accordance with the provisions of the Arrangement to reduce the Company liabilities to such Participant and/or Beneficiary under the Arrangement with such reductions to be made on a pro-rata basis over the term of benefit payments under the Arrangement; provided, however, that in no event shall any Participant, Beneficiary or estate of any Participant or Beneficiary have any obligation to return all or any part of such distribution to the Company if such distribution exceeds benefits payable under an Arrangement. Any reduction in accordance with the foregoing sentence and the Arrangements shall be determined by the Company prior to a Change in Control. Following a Change in Control, the Company shall continue to make such determination subject to the right of a Participant to petition the Trustee under Section 2(c).

Section 3.Trustee Responsibility Regarding Payments To The Trust Beneficiary When The Company Is Insolvent

(a)The Trustee shall cease payment of benefits to Participants and their Beneficiaries if the Company is Insolvent. The Company shall be considered “Insolvent” for purposes of this Trust Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(b)At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below.

(1)The Board and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing that the Company is Insolvent. If a person claiming to be a creditor of the

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Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Participants or their Beneficiaries.

(2)Unless the Trustee has actual knowledge that the Company is Insolvent, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company’s solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company’s solvency.

(3)If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Participants or their Beneficiaries and shall hold the assets of the Trust for the benefit of the Company’s general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under the Arrangements or otherwise.

(4)The Trustee shall resume the payment of benefits to Participants or their Beneficiaries in accordance with Section 2 of this Trust Agreement only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent).

(c)Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Arrangements for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance.

Section 4.   Payments When a Shortfall of The Trust Assets Occurs

(a)If there are not sufficient assets for the payment of current and expected future benefits pursuant to Section 2 or Section 3(c) hereof and the Company does not otherwise make such payments within a reasonable time after demand from the Trustee, the Trustee shall allocate the Trust assets among the Participants or their Beneficiaries in the following order of priority:

(1)first, among all Participants and their Beneficiaries in proportion to benefits under the Company’s Deferred Compensation Plan determined as of the date of a Change in Control;

(2)second, among vested Participants (including partially vested Participants, and regardless of whether they are actively employed) and their Beneficiaries in proportion to their vested benefits under the Company’s Executive Supplemental Retirement Plan determined as of the date of a Change in Control;

(3)third, among Participants (regardless of whether they are actively employed) and their Beneficiaries in proportion to their benefits under any severance agreement between the Participant and the Company determined as of the date of a Change in Control

(4)fourth, among non-vested and partially vested Participants (regardless of whether they are actively employed) and their Beneficiaries in proportion to their unvested benefits under any other Arrangement.

(b)Within each category, assets shall be allocated pro-rata with respect to the total present value of benefits expected for each Participant or Beneficiary within the category, and payments to each Participant or Beneficiary shall be made to the extent of the assets allocated to each Participant or Beneficiary.

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(c)Upon receipt of a contribution from the Company necessary to make up for a shortfall in the payments due, the Trustee shall resume payments to all the Participants and Beneficiaries under the Arrangements. Following a Change in Control, the Trustee shall have the right and duty to compel a contribution to the Trust from the Company to make-up for any shortfall.

Section 5.Payments to the Company

(a)Except as provided in Section 3 and Sections 5(b) and (c) hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Participants and their Beneficiaries pursuant to the terms of the Arrangements.

(b)In the event that the Committee, prior to a Change in Control, or the Trustee in its sole and absolute discretion, after a Change in Control, determines that the Trust assets exceed 110 percent (125 percent following a Change in Control) of the anticipated benefit obligations and administrative expenses that are to be paid under the Arrangements, the Trustee, at the written direction of the Committee, prior to a Change in Control, or the Trustee in its sole and absolute discretion, after a Change in Control, shall distribute to the Company such excess portion of Trust assets.

(c)In the event that the Company makes a payment of benefits directly to Participants or their Beneficiaries after notifying the Trustee of its decision to make payment of benefits directly pursuant to Section 2(b) hereof, upon submission of proof of payment to the Trustee, the Company shall be reimbursed from the Trust assets in the amount of such payment.

Section 6.Investment Authority

(a)The Trustee shall not be liable in discharging its duties hereunder, including without limitation its duty to invest and reinvest the Fund, if it acts for the exclusive benefit of the Participants and their Beneficiaries, in good faith and as a prudent person would act in accomplishing a similar task and in accordance with the terms of this Trust Agreement and any applicable federal or state laws, rules or regulations.

(b)Subject to investment guidelines agreed to in writing from time to time by the Company and the Trustee prior to a Change in Control, the Trustee shall have the power in investing and reinvesting the Fund in its sole discretion:

(1)To invest and reinvest in any readily marketable common and preferred stocks, bonds, notes, debentures (including convertible stocks and securities but not including any stock or security of the Trustee or the Company other than a de minimis amount held in a mutual fund), any United States Treasury security, investment grade corporate and United States government agency debt instrument, money market-fund eligible commercial paper debt instrument or money market fund of the Trustee, or an affiliate of the Trustee, and life insurance policies (including underlying mutual funds) without being limited to the classes or property in which the trustees are authorized to invest by any law or any rule of court of any state and without regard to the proportion any such property may bear to the entire amount of the Fund;

(2)To commingle for investment purposes all or any portion of the Fund with assets of any other similar trust or trusts established by the Company with the Trustee for the purpose of safeguarding deferred compensation or retirement income benefits of its employees and/or directors;

(3)To retain any property at any time received by the Trustee;

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(4)To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to property held by it and to consent to or oppose any such plan or any action thereunder or any contract, lease, mortgage, purchase, sale or other action by any person;

(5)To deposit any property held by it with any protective, reorganization or similar committee, to delegate discretionary power thereto, and to pay part of the expenses and compensation thereof any assessments levied with respect to any such property to deposited;

(6)To extend the time of payment of any obligation held by it;

(7)To hold uninvested any moneys received by it, without liability for interest thereon, but only in anticipation of payments due for investments, reinvestments, expenses or disbursements;

(8)To exercise all voting or other rights with respect to any property held by it and to grant proxies, discretionary or otherwise;

(9)To employ suitable contractors and counsel, who may be counsel to the Company or to the Trustee, and to pay their reasonable expenses and compensation from the Fund, first from the Expense Reserve, to the extent not paid by the Company;

(10)To register investments in its own name or in the name of a nominee; to hold any investment in bearer form; and to combine certificates representing securities with certificates of the same issue held by it in other fiduciary capacities or to deposit or to arrange for the deposit of such securities with any depository, even though, when so deposited, such securities may be held in the name of the nominee of such depository with other securities deposited therewith by other persons, or to deposit or to arrange for the deposit of any securities issued or guaranteed by the United States government, or any agency or instrumentality thereof, including securities evidenced by book entries rather than by certificates, with the United States Department of the Treasury or a Federal Reserve Bank, even though, when so deposited, such securities may not be held separate from securities deposited therein by other persons; provided, however, that no securities held in the Fund shall be deposited with the United States Department of the Treasury or a Federal Reserve Bank or other depository in the same account as any individual property of the Trustee, and provided, further, that the books and records of the Trustee shall at all times show that all such securities are part of the Trust Fund;

(11)To settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust, respectively, to commence or defend suits or legal proceedings to protect any interest of the Trust, and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal; provided, however, that the Trustee shall not be required to take any such action unless it shall have been indemnified by the Company to its reasonable satisfaction against liability or expenses it might incur therefrom;

(12)To hold and retain policies of life insurance, annuity contracts, and other property of any kind which policies are contributed to the Trust by the Company or any subsidiary of the Company or are purchased by the Trustee;

(13)To hold any other class of assets which may be contributed by the Company and that is deemed reasonable by the Trustee, unless expressly prohibited herein; and

(14)Generally, to do all acts, whether or not expressly authorized, that the Trustee may deem necessary or desirable for the protection of the Fund.

(c)Notwithstanding any other provision of this Section 6, prior to a Change in Control:

(1)Grantor shall have the right, subject to this Section, to direct the Trustee with respect to the investment of all or any portion of the assets of the Trust. Grantor may also at any time prior to a

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Change in Control direct the Trustee to segregate all or a portion of the Trust in a separate investment account or accounts and appoint one or more investment managers to direct the investment and reinvestment of each such investment account or accounts. In such event, the Company shall notify the Trustee of the appointment of each such investment manager and/or investment committee. No such investment manager shall be related, directly or indirectly, to the Company, but members of the investment committee may be employees of the Company.

(2)It shall be the duty of the Trustee to act strictly in accordance with each direction issued to Trustee by Grantor or an investment manager appointed by Grantor. The Trustee shall be under no duty to question any such direction, to review any securities or other property acquired by it pursuant to such directions or to make any recommendations with respect to such securities or other property.

(3)Notwithstanding the foregoing, the Trustee, without obtaining prior approval or direction, shall invest cash balances held by it from time to time in short term cash equivalents including, but not limited to, through the medium of any short term common, collective or commingled trust established and maintained by the Trustee subject to the instrument establishing such trust fund, or mutual fund, U.S. Treasury Bills, commercial paper (including such forms of commercial paper as may be available through the Trustee’s Trust Department), certificates of deposit (including certificates issued by the Trustee in its separate corporate capacity), and similar type securities, with a maturity not to exceed one year; and, furthermore, sell such short term investments as may be necessary to carry out the instructions of Grantor or an investment manager regarding more permanent type investment and directed distributions.

(4)The Trustee shall neither be liable nor responsible for any loss resulting to the Trust by reason of any sale or purchase of an investment directed by Grantor or Grantor’s investment manager nor by reason of the failure to take any action with respect to any investment which was acquired pursuant to any such direction in the absence of further directions of Grantor or its investment manager so long as the Trustee acts in good faith.

(5)Notwithstanding anything in this Agreement to the contrary, the Trustee shall be indemnified as permitted by applicable law and saved harmless by Grantor, in accordance with the provisions of Section 10(b), from and against any and all personal liability to which the Trustee may be subjected by carrying out any directions of Grantor or its investment manager issued pursuant hereto or for failure to act in the absence of directions of Grantor or its investment manager including all expenses reasonably incurred in its defense in the event Grantor fails to provide such defense, so long as the Trustee acts in good faith; provided, however, the Trustee shall not be so indemnified if it participates knowingly in, or knowingly undertakes to conceal, an act or omission of Grantor or its investment manager, having actual knowledge that such act or omission is a breach of a fiduciary duty; provided further, however, that the Trustee shall not be deemed to have knowingly participated in or knowingly undertaken to conceal an act or omission of Grantor or its investment manager with knowledge that such act or omission was a breach of fiduciary duty by merely complying in good faith with directions of Grantor or its investment manager or for failure to act in the absence of directions of Grantor or its investment manager. The Trustee may rely in good faith upon any order, certificate, notice, direction or other documentary confirmation purporting to have been issued by Grantor or its investment manager which the Trustee believes to be genuine and to have been issued by Grantor or its investment manager. The Trustee shall not be charged with knowledge of the termination of the appointment of its investment manager until it receives written notice thereof from Grantor.

(d)Following a Change in Control, and subject to the specific provisions of this subsection that provide otherwise, the Trustee shall have the sole and absolute discretion in the management of the Trust

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assets and shall have all the powers set forth under Section 6(b). In investing the Trust assets, the Trustee shall consider:

(1)the needs of the Arrangements;

(2)the need for matching of the Trust assets with the liabilities of the Arrangements; and

(3)the duty of the Trustee to act solely in the best interests of the Participants and their Beneficiaries.

The Trustee shall invest the assets of the Trust related to the Company’s Supplemental Executive Retirement Plan (“SERP”) and the Deferred Compensation Plan primarily in universal variable life insurance policies. To the extent the Trust holds cash that may not be invested in universal variable life insurance policies, the Trustee shall invest such cash in its proprietary money market mutual funds. The Trustee shall invest the sub-accounts of the universal variable life insurance policies as follows:

It is the intent of the Company that the cash value of the universal variable life insurance policies be invested in sub-accounts designated from time to time by the administrator of the universal variable life insurance policies. The Trustee shall follow the directions of the administrator of the universal variable life insurance policies with respect to the investment of the cash surrender value.

Following a Change in Control, the Trustee shall continue to follow the investment policy set forth above with respect to the SERP and the Deferred Compensation Plan. Should the Trustee need to raise cash from the universal variable life insurance policies, the Trustee shall follow the directions of the administrator. However, the Trustee shall invest any cash it receives from the SERP or the Deferred Compensation Plan assets in money market instruments.

Any assets contributed to the Trust following a Change in Control for any additional Arrangements covered by the Trust shall be invested in the Trustee’s proprietary money market funds unless, prior to the Change in Control, the Company specified a different investment policy.

The Company may designate the administrator of the universal variable life insurance policies by separate letter. The Trustee shall be indemnified and held harmless, in accordance with the provisions of Section 10(b), for acting in good faith upon direction of the administrator.

(e)The Trustee shall have the right, in its sole discretion, to delegate its investment responsibility to an investment manager who may be an affiliate of the Trustee. In the event the Trustee shall exercise this right, the Trustee shall remain, at all times responsible for the acts of an investment manager.

(f)The Company shall have the right at any time, and from time to time in its sole discretion, to substitute assets (other than securities issued by the Trustee or the Company) of equal fair market value for any asset held by the Trust provided such assets are not illiquid. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity; provided, however, that, following a Change in Control, no such substitution shall be permitted unless the Trustee determines that the fair market values of the substituted assets are equal.

Section 7.   Insurance Contracts

(a)To the extent that the Trustee is directed by the Company prior to a Change in Control to invest part or all of the Trust Fund in insurance contracts, the Trustee shall follow such direction, and the type and amount thereof shall be specified by the Company. The Trustee shall be under no duty to make inquiry as to the propriety of the type or amount so specified.

(b)Each insurance contract issued shall provide that the Trustee shall be the owner thereof with the power to exercise all rights, privileges, options and elections granted by or permitted under such

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contract or under the rules of the insurer. The exercise by the Trustee of any incidents of ownership under any contract shall, prior to a Change in Control, be subject to the direction of the Company. After a Change in Control, the Trustee shall have all such rights.

(c)The Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against an insurance policy held in the Trust Fund.

(d)No insurer shall be deemed to be a party to the Trust and an insurer’s obligations shall be measured and determined solely by the terms of contracts and other agreements executed by the insurer.

Section 8.Disposition of Income

All income received by the Trust shall be accumulated and reinvested within the Trust.

Section 9.Accounting by The Trustee

The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty (60) days following the close of each calendar year and within sixty (60) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. The Company may approve such account by an instrument in writing delivered to the Trustee. In the absence of the Company’s filing with the Trustee objections to any such account within one hundred eighty (180) days after its receipt, the Company shall be deemed to have so approved such account. In such case, or upon the written approval by the Company of any such account, the Trustee shall, to the extent permitted by law, be discharged from all liability to the Company for its acts or failures to act described by such account. The foregoing, however, shall not preclude the Trustee from having its accounting settled by a court of competent jurisdiction. The Trustee shall be entitled to hold and to commingle the assets of the Trust in one Fund for investment purposes but at the direction of the Company prior to a Change in Control, the Trustee shall create one or more sub-accounts.

Section 10.   Responsibility of The Trustee

(a)The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken in good faith pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Arrangements or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute, subject, however to Section 2(f) hereof.

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(b)The Company hereby indemnifies the Trustee against losses, liabilities, claims, costs and expenses in connection with the administration of the Trust, unless resulting from the negligence or misconduct of Trustee. To the extent the Company fails to make any payment on account of an indemnity provided in this paragraph 10(b), in a reasonably timely manner, the Trustee may obtain payment from the Trust, first from the Expense Reserve. If the Trustee undertakes or defends any litigation arising in connection with this Trust or to protect a Participant’s or Beneficiary’s rights under the Arrangements, the Company agrees to indemnify the Trustee against the Trustee’s costs, reasonable expenses and liabilities (including, without limitation, attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust, first from the Expense Reserve. No such indemnification shall be required unless the Trustee (i) provides the Company with prompt written notice, unless the Company is not prejudiced by late notice, of the possibility that indemnification might be required and (ii) offers the Company the right of defense provided there is no conflict of interest between the Company’s position and that of the Trustee.

(c)Prior to a Change in Control, the Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. Following a Change in Control the Trustee shall select independent legal counsel and may consult with counsel or other persons with respect to its duties and with respect to the rights of Participants or their Beneficiaries under the Arrangements.

(d)The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder and may rely on any determinations made by such agents and information provided to it by the Company.

(e)The Trustee shall have, without exclusion, all powers conferred on the Trustee by applicable law, unless expressly provided otherwise herein.

(f)Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

Section 11.   Compensation and Expenses of The Trustee

The Trustee’s compensation shall be as agreed in writing from time to time by the Company and the Trustee. The Company shall pay all administrative expenses and the Trustee’s fees and shall promptly reimburse the Trustee for any fees and expenses of its agents. If not so paid, the fees and expenses shall be paid from the Trust, first from the Expense Reserve, but to the extent the Expense Reserve has been exhausted, from the remainder of the Trust.

Section 12.   Resignation and Removal of The Trustee

(a)Prior to a Change in Control, the Trustee may resign at any time by written notice to the Company, which shall be effective sixty (60) days after receipt of such notice unless the Company and the Trustee agree otherwise. Following a Change in Control, the Trustee may resign only after the appointment of a successor Trustee.

(b)The Trustee may be removed by the Company on sixty days (60) days notice or upon shorter notice accepted by the Trustee prior to a Change in Control. Subsequent to a Potential Change in Control, the Trustee may only be removed by the Company with the consent of a Majority of the Participants.

(c)If the Trustee resigns within two years after a Change in Control, as defined herein, the Company, or if the Company fails to act within a reasonable period of time following such resignation, the Trustee,

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shall apply to a court of competent jurisdiction for the appointment of a successor Trustee which satisfies the requirements of Section 13 or for instructions.

(d)Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit.

(e)If the Trustee resigns or is removed, a successor shall be appointed by the Company with the consent of a Majority of Participants if a Change in Control has occurred, in accordance with Section 13 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust, first from the Expense Reserve.

Section 13.Appointment of Successor

(a)If the Trustee resigns or is removed in accordance with Section 12 hereof, the Company may appoint, subject to Section 12, any third party legally permitted to act as Trustee pursuant to the terms of this Agreement with assets exceeding $1,000,000,000, and wholly independent of the Company, to replace the Trustee upon resignation or removal. The successor Trustee shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer.

(b)The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Section 8 and 9 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee, all pursuant to the provisions of Section 10(b) hereof.

Section 14.   Amendment or Termination

(a)This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company, except as otherwise provided in this Section 14. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Arrangements or shall make the Trust revocable.

(b)Following a Change in Control, the Trust shall not terminate until the date on which Participants and their Beneficiaries have received all of the benefits due to them under the terms and conditions of the Arrangements.

(c)Prior to a Change in Control, upon written approval of two third of the Participants or Beneficiaries entitled to payment of benefits pursuant to the terms of the Arrangements, the Company may terminate this Trust prior to the time all benefit payments under the Arrangements have been made. All assets in the Trust at termination shall be returned to the Company.

(d)This Trust Agreement may not be amended by the Company following a Change in Control without the written consent of a Majority of Participants except as may be required, in the opinion of the Trustee, to maintain the tax status or ERISA status of this Trust.

Section 15.   Definitions

(a)For purposes of this Trust, the following terms shall be defined as set forth below:

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(1)Failure to Pay shall mean that the circumstances described in either (i) or (ii) have occurred:

i.Any Participant or Beneficiary shall have notified the Trustee and the Company in writing that the Company shall have failed to pay to the Participant, when due, either directly or by direction to the Trustee in accordance with the terms of this Trust, at least 75% of any and all amounts which the Participant was entitled to receive at any time in accordance with the terms of any Plan, the payment schedule or this Trust Agreement and that such amount remains unpaid. Such notice must set forth the amount, if any, which was paid to the Participant (or Beneficiary), and the amount which the Participant (or Beneficiary) believes he or she was entitled to receive under the Plans, the payment and this Trust Agreement. The failure to make such payment shall have continued for a period of 30 days after receipt of such notice by the Trustee and by the Company, and during such 30-day period the Company shall have failed to prove, by clear and convincing evidence as determined by the Trustee in its sole and absolute discretion, that such amount was in fact paid or was not due and payable; or

ii.More than two Plan Participants (or the Beneficiaries thereof) shall have notified the Trustee and the Company in writing, either individually or jointly, that they have not been paid, when due, amounts to which they are entitled under the Plans payment, and that such amount remains unpaid. Each such notice must set forth the amount, if any, which was paid to the Participant (or Beneficiary), and the amount which the Participant (or Beneficiary) believes he or she was entitled to receive under the Plans, the payment and this Trust Agreement. Within 15 days after receipt of each such notice, the Trustee shall determine, on a preliminary basis, whether any failure to pay such Participants (or their Beneficiaries) has resulted in a failure to pay when due, directly or by direction, at least 75% of the aggregate amount due to all Participants (or their Beneficiaries) under all the Plans, the schedule and this Trust Agreement in any two-year period, and that such amount remains unpaid. If the Trustee determines that such a failure has occurred, then it shall so notify the Company and the Participants (or their Beneficiaries) in writing within the same 15 day period. Within a period of 20 days after receipt of such notice from the Trustee, the Company shall have failed to prove by clear and convincing evidence, in the sole and absolute discretion of the Trustee, that such amount was paid or was not due and payable.

(2)Change in Control. For purposes of this Plan, a “Change in Control” shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied:

(i)individuals who, on the Effective Date, constitute the Board of Directors (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board of Directors, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board of Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director;

(ii)any “Person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the

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combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board of Directors (the “Voting Securities”); provided, however, that the event described in this paragraph (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any subsidiary of the Company in which the Company owns more than 50% of the combined voting power of such entity (a “Subsidiary”), (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (iii) by any underwriter temporarily holding the Company’s Voting Securities pursuant to an offering of such Voting Securities, or (iv) pursuant to a Non-Qualifying Transaction (as defined in paragraph (c));

(iii)a merger, consolidation, statutory share exchange or similar form of corporate transaction is consummated involving the Company or any of its Subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (i) more than 50% of the total voting power of (A) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by the Company’s Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Company’s Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Company’s Voting Securities among the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board of Directors’ approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (i), (ii) and (iii) above shall be deemed to be a “Non-Qualifying Transaction”);

(iv)a sale of all or substantially all of the Company’s assets is consummated;

(v)the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or

(vi)there occur such other events as the Board of Directors may designate.

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Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company’s Voting Securities as a result of the acquisition of the Company’s Voting Securities by the Company which reduces the number of the Company’s Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

(3)Majority of Participants shall mean participants the present value of whose vested rights under the Arrangements exceed 50% of the present value of the vested rights of all Participants. The Trustee shall determine the present value of vested rights following a Change in Control.

(4)Potential Change in Control shall mean:

(i)the announcement by any person of an intention to take actions which might reasonably result in a business combination between the Company and an entity which has a market capitalization equal to or greater than 50% of the Company;

(ii)the issuance of a proxy statement by the Company with respect to an election of directors for which there is proposed one or more directors who are not recommended by the Board or its nominating committee, where the election of such proposed director or directors would result in a Change in Control as defined in Section 15(a)(2)(a); or

(iii)submission to the Incumbent Board of nominations which, if approved, would change the Executive Officer configuration of the Company (at the Executive Vice President level and above) by 50% or more.

(5)The General Counsel of the Company shall have the specific authority to determine whether a Potential Change in Control or Change in Control has transpired under the guidance of this Section 15 and shall be required to give the Trustee notice of a Change in Control or a Potential Change in Control. The Trustee shall be entitled to rely upon such notice, but if the Trustee receives notice of a Change in Control from another source, the Trustee shall make its own independent determination.

Section 16.   Miscellaneous

(a)Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b)The Company hereby represents and warrants that all of the Arrangements have been established, maintained and administered in accordance with all applicable laws, including without limitation, ERISA. The Company hereby indemnifies and agrees to hold the Trustee harmless from all liabilities, including attorney’s fees, relating to or arising out of the establishment, maintenance and administration of the Arrangements. To the extent the Company does not pay any of such liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.

(c)Benefits payable to Participants and their Beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

(d)This Trust Agreement shall be governed by and construed in accordance with the laws of Delaware.

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IN WITNESS WHEREOF, this Grantor Trust Agreement has been executed on behalf of the parties hereto on the day and year first above written.

/s/ THE PEP BOYS—MANNY, MOE & JACK /s/ WACHOVIA BANK, NATIONAL ASSOCIATION

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Attachment A

The following Arrangements are covered by this Trust:

Deferred Compensation Plan

Executive Supplemental Retirement Plan

Employment Agreements (Change of Control)

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EX-10.25

Exhibit 10.25

EXECUTION

AMENDMENT NO. 4 TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

November 16, 2005

WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent
1133 Avenue of the Americas
New York, New York 10036

Ladies and Gentlemen:

Wachovia Bank, National Association, successor by merger to Congress Financial Corporation a Delaware corporation, in its capacity as agent pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf of the parties thereto as lenders (in such capacity, “Agent”) and the parties to the Loan Agreement as lenders (individually, each a “Lender” and, collectively, “Lenders”) and The Pep Boys—Manny, Moe & Jack, a Pennsylvania corporation (“Pep Boys”), The Pep Boys Manny Moe & Jack of California, a California corporation (“PBY-California”), Pep Boys—Manny, Moe & Jack of Delaware, Inc., a Delaware corporation (“PBY-Delaware”), and Pep Boys—Manny, Moe & Jack of Puerto Rico, Inc., a Delaware corporation (“PBY-Puerto Rico”; and together with Pep Boys, PBY-California  and PBY-Delaware, each individually, a “Borrower” and collectively, “Borrowers” as hereinafter further defined), PBY Corporation, a Delaware corporation (“PBY”) and Carrus Supply Corporation, a Delaware corporation (“Carrus” and, together with PBY, each individually, a “Guarantor” and collectively, “Guarantors” as hereinafter further defined) have entered into certain financing arrangements pursuant to which Agent and Lenders may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Amended and Restated Loan and Security Agreement, dated August 1, 2003 by and among Agent, The CIT Group/Business Credit, Inc. and General Electric Capital Corporation as Co-Documentation Agents, Lenders, Borrowers and Guarantors, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement dated as of October 24, 2003, Amendment No. 2 to Amended and Restated Loan and Security Agreement dated as of October 15, 2004, and Amendment No. 3 to Amended and Restated Loan and Security Agreement dated as of December 2, 2004 (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the “Loan Agreement”) and the agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Amendment No. 4 to Amended and Restated Loan and Security Agreement (“Amendment No. 4”), but excluding the Synthetic Lease Facility Agreements and Hedge Agreements (all of the foregoing together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the “Financing Agreements”).

Borrowers and Guarantors have requested that Agent and Lenders consent to certain transactions and enter into certain amendments to the Financing Agreements in connection therewith. Agent and Lenders are willing to agree to the foregoing, subject to the terms and conditions contained herein.

In consideration of the foregoing, the mutual agreements and covenants contained herein, and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, Agent, each Lender, each Borrower and each Guarantor agree as follows:

1.     Definitions.

(a)    Additional Definitions.   As used herein, the following terms shall have the respective meanings given to them below, and the Loan Agreement and the other Financing Agreements are hereby amended to include, in addition and not in limitation, the following definitions:

(i)    “Amendment No. 4” shall mean Amendment No. 4 to Amended and Restated Loan and Security Agreement by and among Borrowers, Guarantors, Agent and Lenders, as the same

now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

(b)   Interpretation.   All capitalized terms used herein shall have the meanings assigned thereto in the Loan Agreement and the other Financing Agreements, unless otherwise defined herein.

2.     Amendments to Loan Agreement.

(a)    Section 9.9(s) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor:

“(s)  Indebtedness of Pep Boys evidenced by or arising under the PNC Credit Card Documents (as in effect on December 13, 2001, except as modified by the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association), provided, that:

(i)    the principal amount of such Indebtedness shall not exceed $7,500,000 at any time, plus interest thereon and fees with respect thereto at the rates provided in PNC Credit Card Documents (as in effect on December 13, 2001, except as modified by the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association),

(ii)   Pep Boys shall not, directly or indirectly, make, or be required to make, any payments in respect of such Indebtedness, except, that, Pep Boys may make regularly scheduled payments of principal and interest, in respect of such Indebtedness in accordance with the terms of the PNC Credit Card Documents (as in effect on December 13, 2001, except as modified by the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association) and payments otherwise permitted pursuant to Section 9.9(s)(iii)(B) hereof;

(iii)  Borrowers shall not, directly or indirectly, (A) amend, modify, alter or change any of the material terms of such Indebtedness or any of the PNC Credit Card Documents (as in effect on December 13, 2001, except as modified by the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association), except, that, Borrowers may, after prior written notice to Agent, amend, modify, alter or change the terms thereof as permitted in accordance with Section 3.1(b) of the Intercreditor Agreement, dated December 31, 2001, by and between Agent and PNC Bank, National Association, as such agreement is in effect on August 1, 2003, as amended by Amendment No. 1 to Intercreditor Agreement dated November 16, 2005, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness other than pursuant to payments thereof, or to reduce the interest rate or any fees in connection therewith, or to make the provisions thereof less restrictive or burdensome than the terms or conditions of the PNC Credit Card Documents (as in effect on December 13, 2001, except as modified by the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association), or (B) make optional prepayments of principal or redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, except, that, Borrowers may make optional prepayments of principal or redeem, retire, defease, purchase or otherwise acquire such Indebtedness, provided, that, as to any such payment each of the following conditions is satisfied as determined by Agent: (1) as of the date of such payment and after giving

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effect thereto, Excess Availability for each of the immediately preceding thirty (30) consecutive days shall have been not less than $25,000,000, and (2) as of the date of such payment and after giving effect thereto, the Excess Availability shall be not less than $25,000,000 and as of the date of such payment and after giving effect thereto, no Default or Event of Default shall exist or be continuing, and, except that Pep Boys may redeem or retire such Indebtedness with proceeds of Refinancing Indebtedness with respect thereto as permitted in Section 9.9(l) hereof.”

3.     Additional Representations, Warranties and Covenants.   In addition to the continuing representations, warranties and covenants heretofore or hereafter made by each Borrower and Guarantor to Agent and Lenders pursuant to the other Financing Agreements, each Borrower and Guarantor hereby jointly and severally represents, warrants and covenants with and to Agent and Lenders as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements:

(a)    No Event of Default or condition or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred as of the date of this Amendment No. 4 (after giving effect to the amendments made and consents granted by Agent and Lenders pursuant to this Amendment No. 4). As of the date of any Borrower or Guarantor entering into this Amendment No. 4 and after giving effect to each such transaction hereunder, the aggregate amount of outstanding Exempted Debt represented by such transaction, when aggregated with all other outstanding Exempted Debt, shall not exceed the Exempted Debt Limit, and such transaction is and shall be in compliance with the terms and conditions set forth in the Pep Boys Indentures.

(b)   This Amendment No. 4 and each other agreement or instrument to be executed and delivered by Borrowers and Guarantors hereunder has been duly executed and delivered by each Borrower and Guarantor and is in full force and effect as of the date hereof, and the agreements and obligations of each Borrower contained herein and therein constitute legal, valid and binding obligations of each Borrower and Guarantor enforceable against each Borrower and Guarantor in accordance with their terms.

(c)    Neither the execution and delivery of this Amendment No. 4, nor the consummation of the transactions contemplated by this Amendment No. 4, nor compliance with the provisions of this Amendment No. 4 or instruments thereunder shall result in (i) the creation or imposition of any lien, claim, charge or encumbrance upon any of the Collateral, except in favor of Agent and Lenders or (ii) the incurrence, creation, assumption of any Indebtedness of any Borrower or Guarantor, except as expressly permitted under Section 9.9 of the Loan Agreement (after giving effect to this Amendment No. 4) and by the other Financing Agreements.

(d)   No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions contemplated in respect of this Amendment No. 4, and no governmental or other action or proceeding has been threatened or commenced in the United States of America, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in this Amendment No. 4. Neither the execution and delivery of this Amendment No. 4, nor the consummation of the transactions contemplated by this Amendment No. 4, nor compliance with the provisions thereof, shall violate any Federal or state securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in respect or shall conflict with or result in the breach of, or constitute a default in any respect under, any indenture, or other material mortgage, agreement, instrument or undertaking to which any Borrower or Guarantor is a party or may be bound, or violate any provision of the organizational documents of any Borrower or Guarantor.

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(e)    Each Borrower and Guarantor shall take such steps and execute and deliver, and cause to be executed and delivered, to Agent, such additional UCC financing statements and termination statements, and other and further agreements, documents and instruments as Agent may require in order to more fully evidence, perfect and protect Agent and Lenders’ security interest in Collateral.

4.     Conditions to Effectiveness of Amendment No. 4.   The effectiveness of the amendments in this Amendment No. 4 shall be subject to the satisfaction of each of the following conditions precedent:

(a)    Agent shall have received an executed original or executed original counterparts of this Amendment No. 4 (as the case may be), duly authorized, executed and delivered by the required parties hereto;

(b)   Agent shall have received a copy of the Amendment to VISA Purchasing Card Agreement dated November 16, 2005 by and among Borrowers, Guarantors and PNC Bank, National Association, duly authorized, executed and delivered by the parties thereto;

(c)    Agent shall have received a fully executed original or executed original counterparts of the consent required under the Synthetic Lease Facility Agreements to the amendments set forth herein; and

(d)   no Event of Default shall exist or have occurred and no event or condition shall have occurred or exist which notice or passage of time or both would constitute an Event of Default (after giving effect to the amendments made and consents granted by Agent and Lenders pursuant to this Amendment No. 4).

5.     Additional Events of Default.   The parties hereto acknowledge, confirm and agree that the failure of any Borrower or Guarantor to comply with the covenants and agreements contained herein shall constitute an Event of Default under the Financing Agreements (subject to the applicable cure period, if any, with respect thereto provided for in the Loan Agreement).

6.     Effect of this Amendment No. 4.   Except as modified pursuant hereto, no other waivers, changes or modifications to the Financing Agreements are intended or implied, and in all other respects, the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment No. 4 and the other Financing Agreements, the terms of this Amendment No. 4 shall control.

7.     Further Assurances.   The parties hereto shall execute and deliver such additional documents and take such additional actions as may be necessary to effectuate the provisions and purposes of this Amendment No. 4.

8.     Governing Law.   The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York (without giving effect to principles of conflicts of laws).

9.     Binding Effect.   This Amendment No. 4 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. Any acknowledgment or consent contained herein shall not be construed to constitute a consent to any other or further action by any Borrower or Guarantor or to entitle any Borrower or Guarantor to any other consent. The Loan Agreement and this Amendment No. 4 shall be read and construed as one agreement.

10.   Counterparts.   This Amendment No. 4 may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 4, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties thereto.

[Remainder of page left intentionally blank]

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AGENT	BORROWERS
/s/ WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent	/s/ THE PEP BOYS—MANNY, MOE & JACK
	/s/ THE PEP BOYS MANNY MOE & JACK OF CALIFORNIA
	/s/ PEP BOYS—MANNY, MOE & JACK OF DELAWARE, INC.
	/s/ PEP BOYS—MANNY, MOE & JACK OF PUERTO RICO, INC.
	GUARANTORS
	/s/ PBY CORPORATION
	/s/ CARRUS SUPPLY CORPORATION
LENDERS
/s/ WACHOVIA BANK, NATIONAL ASSOCIATION
/s/ WELLS FARGO FOOTHILL, LLC
/s/ WHITEHALL BUSINESS CREDIT CORP.
/s/ THE CIT GROUP/BUSINESS CREDIT, INC.
/s/ GENERAL ELECTRIC CAPITAL CORPORATION
/s/ RZB FINANCE, LLC
/s/ SIEMENS FINANCIAL SERVICES, INC.
/s/ LASALLE BUSINESS CREDIT LLC
/s/ PNC BANK, NATIONAL ASSOCIATION
/s/ UPS CAPITAL CORPORATION

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EX-12

Exhibit 12

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES

Exhibit 12—Statement Regarding Computation of Ratios of Earnings to Fixed Charges

	February 3, 2007				January 28, 2006				January 29, 2005				January 31, 2004				February 1, 2003
	(in thousands, except ratios)
Fiscal year
Interest		$	49,342			$	49,040			$	35,965			$	38,255			$	47,237
Interest factor in rental expense		19,984				22,534				20,314				21,269				20,424
Capitalized interest		799				867				659				—				44
(a)  Fixed charges, as defined		$	70,125			$	72,441			$	56,938			$	59,524			$	67,705
(Loss) Earnings from continuing operations before income taxes and cumulative effect of change in accounting principle		$	(6,297	)		$	(56,368	)		$	40,981			$	(23,961	)		$	61,267
Fixed charges		70,125				72,441				56,938				59,524				67,705
Capitalized interest		(799		)		(867		)		(659		)		—				(44		)
(b)  Earnings, as defined		$	63,029			$	15,206			$	97,260			$	35,563			$	128,928
(c)  Ratio of earnings to fixed charges (b÷a)		—				—				1.7		x		—				1.9		x

The ratio of earnings to fixed charges is completed by dividing earnings by fixed charges. “Earnings” consist of earnings before income taxes plus fixed charges (exclusive of capitalized interest costs) plus one-third of rental expense (which amount is considered representative of the interest factor in rental expense). Earnings, as defined, were not sufficient to cover fixed charges by approximately $7.1, $57.2 and $24.0 million for fiscal years ended February 3, 2007, January 28, 2006 and January 31, 2004, respectively.

EX-21

Exhibit 21

SUBSIDIARIES OF THE COMPANY

	WHERE		% OF SHARES
NAME	INCORPORATED		OWNED
The Pep Boys Manny Moe & Jack
of California
3111 W. Allegheny Avenue
Philadelphia, PA 19132		California		100	%
Pep Boys—Manny, Moe & Jack
of Delaware, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132		Delaware		100	%
Pep Boys—Manny, Moe & Jack
of Puerto Rico, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132		Delaware		100	%
Colchester Insurance Company
7 Burlington Square
Burlington, VT 05401		Vermont		100	%
PBY Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899		Delaware		100	%
Carrus Supply Corporation
1013 Centre Road
Wilmington, DE 19805		Delaware		100	%

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-40363, 333-51585, 333-81351, 333-89280, 333-100224, 333-113723, 333-117258, 333-140746 and 333-141330 on Form S-8 and Registration Statement No. 333-124383 on Form S-3 of our report dated April 18, 2007, relating to the consolidated financial statements and financial statement schedule of The Pep Boys—Manny, Moe & Jack and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, SFAS No. 123(revised 2004), Share-Based Payment, and Financial Accounting Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, as of February 3, 2007, January 29, 2006, and January 28, 2006, respectively) and our report dated April 18, 2007, relating to management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of The Pep Boys—Manny, Moe & Jack for the fiscal year ended February 3, 2007.

Deloitte & Touche LLP

Philadelphia, Pennsylvania
April 18, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey C. Rachor, certify that:

1.I have reviewed this annual report on Form 10-K of The Pep Boys—Manny, Moe and Jack;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this annual report based on such evaluation; and

(d)   Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  April 18, 2007

/s/ JEFFREY C. RACHOR

Jeffrey C. Rachor

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Harry F. Yanowitz, certify that:

1.I have reviewed this annual report on Form 10-K of The Pep Boys—Manny, Moe and Jack

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this annual report based on such evaluation; and

(d)   Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 18, 2007

/s/ HARRY F. YANOWITZ

Harry F. Yanowitz

Senior Vice President and
Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of The Pep Boys—Manny, Moe & Jack (the “Company”) for the year ended February 3, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),

I, Jeffrey C. Rachor, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(i)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date:  April 18, 2007	/s/ JEFFREY C. RACHOR
	Jeffrey C. Rachor
	Chief Executive Officer

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of The Pep Boys—Manny, Moe & Jack (the “Company”) for the year ended February 3, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),

I, Harry F. Yanowitz, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(i)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date:  April 18, 2007	/s/ HARRY F. YANOWITZ
	Harry F. Yanowitz
	Senior Vice President and Chief Financial Officer