PEP BOYS MANNY MOE & JACK - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 1, 2003

OR

( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period

from to
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Commission File No. 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 (I.R.S. Employer ID number)
incorporation or organization)

3111 W. Allegheny Ave. Philadelphia, PA 19132
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(Address of principal executive offices) (Zip code)

215-430-9000
----------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 ( )

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ( x ) No ( )

As of November 30, 2003 there were 52,729,000 shares of the registrant's Common
Stock outstanding.

1

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Index Page
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PART I - FINANCIAL INFORMATION
- ------------------------------

Item 1. Condensed Consolidated
Financial Statements (Unaudited)

Consolidated Balance Sheets -
November 1, 2003 and February 1, 2003 3

Consolidated Statements of Operations -
Thirteen and Thirty-nine weeks ended
November 1, 2003 and November 2, 2002 4

Consolidated Statements of
Cash Flows - Thirty-nine weeks ended
November 1, 2003 and November 2, 2002 5

Notes to Condensed Consolidated
Financial Statements 6-23

Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 24-34

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 34

Item 4. Controls and Procedures 34

PART II - OTHER INFORMATION
- ---------------------------

Item 1. Legal Proceedings 35

Item 2. Changes in Securities and Use of Proceeds 36

Item 3. Defaults Upon Senior Securities 36

Item 4. Submission of Matters to a Vote of
Security Holders 36

Item 5. Other Information 36

Item 6. Exhibits and Reports on Form 8-K 36-37

SIGNATURES 38

INDEX TO EXHIBITS 39

2

PART I - FINANCIAL INFORMATION
- ------------------------------

Item 1. Condensed Consolidated Financial Statements (Unaudited)

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
UNAUDITED

Nov. 1, 2003 Feb. 1, 2003*
- ------------------------------------------------------------------------------------------------------

ASSETS
Current Assets:
Cash and cash equivalents $ 33,837 $ 42,770
Accounts receivable, net 28,734 17,916
Merchandise inventories 532,876 488,882
Prepaid expenses 21,474 43,746
Deferred income taxes 31,659 13,723
Other 48,985 56,687
Assets held for disposal 26,949 1,146
- ------------------------------------------------------------------------------------------------------
Total Current Assets 724,514 664,870
- ------------------------------------------------------------------------------------------------------
Property and Equipment-at cost:
Land 264,121 264,101
Buildings and improvements 896,337 890,898
Furniture, fixtures and equipment 593,199 580,746
Construction in progress 24,858 19,450
- ------------------------------------------------------------------------------------------------------
1,778,515 1,755,195
Less accumulated depreciation and amortization 772,123 724,709
- ------------------------------------------------------------------------------------------------------
Property and Equipment - Net 1,006,392 1,030,486
- ------------------------------------------------------------------------------------------------------
Other 52,310 47,003
Assets from Discontinued Operations - 57,551
- ------------------------------------------------------------------------------------------------------
Total Assets $1,783,216 $1,799,910
- ------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 298,438 $ 200,053
Accrued expenses 254,910 232,255
Current maturities of long-term debt and obligations
under capital leases 72,185 101,882
- ------------------------------------------------------------------------------------------------------
Total Current Liabilities 625,533 534,190
- ------------------------------------------------------------------------------------------------------
Long-term debt and obligations under capital leases,
less current maturities 311,906 375,577
Convertible long-term debt 150,000 150,000
Other long-term liabilities 28,902 25,156
Deferred income taxes 43,801 60,663
Deferred gain on sale leaseback 4,300 4,332
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares; Issued 63,910,577 shares 63,911 63,911
Additional paid-in capital 177,244 177,244
Retained earnings 580,518 630,847
Accumulated other comprehensive income (loss) 2,139 (151)
- ------------------------------------------------------------------------------------------------------
823,812 871,851

Less cost of shares in treasury - 9,028,897 shares
and 10,070,729 shares 145,774 162,595
Less cost of shares in benefits trust - 2,195,270 shares 59,264 59,264
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 618,774 649,992
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,783,216 $1,799,910
- ------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.

* Taken from the audited financial statements at February 1, 2003.

3

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
UNAUDITED

Thirteen weeks ended Thirty-nine weeks ended
--------------------------- -----------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
------------ ------------ ------------- -------------

Amount Amount Amount Amount
- ------------------------------------------------------------------------------------------------------
Merchandise Sales $ 435,055 $ 425,015 $ 1,297,472 $ 1,325,358
Service Revenue 102,636 101,283 307,159 306,226
- ------------------------------------------------------------------------------------------------------
Total Revenues 537,691 526,298 1,604,631 1,631,584
- ------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 301,871 293,097 937,114 921,220
Costs of Service Revenue 76,333 74,444 231,986 227,936
- ------------------------------------------------------------------------------------------------------
Total Costs of Revenues 378,204 367,541 1,169,100 1,149,156
- ------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 133,184 131,918 360,358 404,138
Gross Profit from Service Revenue 26,303 26,839 75,173 78,290
- ------------------------------------------------------------------------------------------------------
Total Gross Profit 159,487 158,757 435,531 482,428
- ------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 130,034 123,690 420,860 378,428
- ------------------------------------------------------------------------------------------------------
Operating Profit 29,453 35,067 14,671 104,000
Non-operating Income 786 878 2,687 2,698
Interest Expense 8,959 11,471 29,263 35,876
- ------------------------------------------------------------------------------------------------------
Net Earnings (Loss) From Continuing
Operations Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle 21,280 24,474 (11,905) 70,822

Income Tax Expense (Benefit) 7,874 9,055 (4,405) 26,204
- ------------------------------------------------------------------------------------------------------
Net Earnings (Loss) From Continuing
Operations Before Cumulative Effect of
Change in Accounting Principle 13,406 15,419 (7,500) 44,618

Net Earnings (Loss) From Discontinued
Operations, Net of Tax 1,294 96 (20,914) 1,016

Cumulative Effect of Change in
Accounting Principle, Net of Tax - - (2,484) -
- ------------------------------------------------------------------------------------------------------
Net Earnings (Loss) 14,700 15,515 (30,898) 45,634

Retained Earnings, beginning of period 571,403 624,894 630,847 601,944
Cash Dividends 3,550 3,479 10,528 10,427
Effect of Stock Options 2,035 204 8,583 353
Dividend Reinvestment Plan - 117 320 189
- ------------------------------------------------------------------------------------------------------
Retained Earnings, end of period $ 580,518 $ 636,609 $ 580,518 $ 636,609
- ------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share:
Net Earnings (Loss) From Continuing
Operations Before Cumulative Effect
of Change in Accounting Principle $ 0.26 $ 0.30 $ (0.14) $ 0.87

Net Earnings (Loss) From Discontinued
Operations, Net of Tax 0.02 - (0.40) 0.02

Cumulative Effect of Change in
Accounting Principle, Net of Tax - - (0.05) -
- ------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share $ 0.28 $ 0.30 $ (0.59) $ 0.89
- ------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share:
Net Earnings (Loss) From Continuing
Operations Before Cumulative Effect
of Change in Accounting Principle $ 0.24 $ 0.28 $ (0.14) $ 0.82

Net Earnings (Loss) From Discontinued
Operations, Net of Tax 0.02 - (0.40) 0.02

Cumulative Effect of Change in
Accounting Principle, Net of Tax - - (0.05) -
- ------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share $ 0.26 $ 0.28 $ (0.59) $ 0.84
- ------------------------------------------------------------------------------------------------------
Cash Dividends Per Share $ .0675 $ .0675 $ 0.2025 $ 0.2025
- ------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.

4

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED

Thirty-nine Weeks Ended Nov. 1, 2003 Nov. 2, 2002
- ----------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
Net (loss) earnings $ (30,898) $ 45,634
Net (loss) earnings from discontinued operations (20,914) 1,016
- ----------------------------------------------------------------------------------------------------------------
Net (loss) earnings from continuing operations (9,984) 44,618
Adjustments to Reconcile Net (Loss) Earnings From Continuing
Operations to Net Cash Provided by Continuing Operations:
Depreciation and amortization 52,558 57,549
Cumulative effect of change in accounting principle, net of tax 2,484 -
Accretion of asset disposal obligation 140 -
Deferred income taxes (36,144) (1,652)
Deferred gain on sale lease back (32) -
Loss on assets held for disposal - 1,590
Loss on asset impairments 2,121 -
Loss from sale of assets 633 109
Changes in Operating Assets and Liabilities:
Decrease in accounts receivable, prepaid expenses and other 17,485 38,299
Increase in merchandise inventories (43,994) (8,972)
Increase (decrease) in accounts payable 98,385 (22,512)
Increase (decrease) in accrued expenses 28,965 (14,465)
Increase in other long-term liabilities 3,746 1,535
- ----------------------------------------------------------------------------------------------------------------
Net Cash provided by continuing operations 116,363 96,099
Net Cash (used in) provided by discontinued operations (1) 4,346
- ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 116,362 100,445
- ----------------------------------------------------------------------------------------------------------------

Cash Flows from Investing Activities:
Capital expenditures from continuing operations (32,679) (22,869)
Capital expenditures from discontinued operations - (1,829)
Proceeds from sales of assets 3,362 6,317
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (29,317) (18,381)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit agreements 140 (70,836)
Repayment of life insurance policy loan - (20,686)
Payments on capital lease obligations (578) (477)
Reduction of long-term debt (92,930) (116,523)
Net proceeds from issuance of notes - 146,250
Dividends paid (10,528) (10,427)
Proceeds from exercise of stock options 7,011 578
Proceeds from dividend reinvestment plan 907 1,004
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (95,978) (71,117)
- ----------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash (8,933) 10,947
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 42,770 15,981
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 33,837 $ 26,928
- ----------------------------------------------------------------------------------------------------------------

Non-cash financing activities:
Equipment Capital Leases $ - $ 1,301
- ----------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.

5

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Condensed Consolidated Financial Statements

The consolidated balance sheets as of November 1, 2003, the consolidated
statements of operations for the thirteen and thirty-nine week periods ended
November 1, 2003 and November 2, 2002 and the consolidated statements of cash
flows for the thirty-nine week periods ended November 1, 2003 and
November 2, 2002 have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at November 1, 2003
and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto for the fiscal year ended
February 1, 2003 included in the Company's Current Report on Form 8-K dated
October 10, 2003, which updated the Company's Annual Report on Form 10-K. The
results of operations for the thirteen and thirty-nine week periods ended
November 1, 2003 are not necessarily indicative of the operating results for
the full year.

Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the current year's presentation.

NOTE 2. Accounting for Stock-Based Compensation

The Company accounts for its stock-based employee compensation plans in
accordance with the recognition and measurement principles of Accounting
Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. No stock-based employee compensation cost is
reflected in net earnings, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net earnings
and earnings per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation:

(dollar amounts in thousands,
except per share data)
Thirteen weeks ended Thirty-nine weeks ended
----------------------------------- -------------------------------------
November 1, 2003 November 2, 2002 November 1, 2003 November 2, 2002
- --------------------------------------------------------------------------------------------------------------------------

Net earnings (loss):

As reported $ 14,700 $ 15,515 $ (30,898) $ 45,634

Less: Total stock-based compensation
expense determined under fair
value-based method, net of tax (675) (913) (2,122) (2,827)
- --------------------------------------------------------------------------------------------------------------------------
Pro forma $ 14,025 $ 14,602 $ (33,020) $ 42,807
- --------------------------------------------------------------------------------------------------------------------------

Net (loss) earnings per share:

Basic:

As reported $ 0.28 $ 0.30 $ (.59) $ .89
Pro forma $ 0.27 $ 0.28 $ (.64) $ .83
- --------------------------------------------------------------------------------------------------------------------------

Diluted:

As reported $ 0.26 $ 0.28 $ (.59) $ .84
Pro forma $ 0.25 $ 0.26 $ (.64) $ .79
- --------------------------------------------------------------------------------------------------------------------------

6

The fair value of each option granted during the periods ending November 1, 2003
and November 2, 2002 is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

November 1, 2003 November 2, 2002
- ----------------------------------------------------------------------

Dividend yield 1.57% 1.44%
Expected volatility 42% 41%
Risk-free interest rate range:
high 4.6% 5.4%
low 2.2% 2.3%

Ranges of expected lives in years 4-8 4-8
- ----------------------------------------------------------------------

NOTE 3. New Accounting Standards

In November 2003, the Emerging Issues Task Force (EITF) reached a consensus on
EITF 03-10, "Application of Issue No. 02-16 by Resellers to Sales Incentives
Offered to Consumers by Manufacturers". This consensus addresses the
application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". EITF 02-16 addresses accounting
issues pertaining to cash consideration received by a reseller from a vendor
entered into after December 31, 2002. The provisions of EITF No. 03-10 would be
applied to the accounting for sales incentives tendered by consumers in fiscal
years beginning after December 15, 2003. Early adoption is not permitted. The
Company is in the process of analyzing the impact of the adoption of this
consensus on its consolidated financial statements.

In May 2003, The Financial Accounting Standards Board (FASB) issued
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity". SFAS No. 150 affects how an
entity measures and reports financial instruments that have characteristics of
both liabilities and equity, and is effective for financial instruments entered
into or modified after May 31, 2003 and for all other instruments for interim
periods beginning after June 15, 2003. The FASB continues to address certain
implementation issues associated with the application of SFAS No. 150,
including those related to mandatory redeemable financial instruments
representing non-controlling interests in subsidiaries' consolidated financial
statements. The Company will continue to monitor the actions of the FASB and
assess the impact, if any, on its consolidated financial statements. The
Company has adopted the provisions of SFAS No. 150 in the third quarter of
fiscal 2003 with no material effect on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions made by the FASB's
Derivatives Implementation Group following the issuance of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003 and is
effective for hedging relationships designated after June 30, 2003. The Company
adopted this statement in the second quarter of fiscal 2003 with no material
effect on its consolidated financial statements.

In January 2003, the FASB issued Financial Interpretation Number (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46, an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
changes the criteria by which one company includes another entity in its
consolidated financial statements. FIN 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of any
expected losses from the variable interest entity's activities, is entitled to
receive any expected residual returns of the variable interest entity, or both.
FIN 46 applies immediately to variable interest entities created after
January 31, 2003, and applies to the first fiscal year or interim period ending
after December 15, 2003 for variable interest entities created prior to
February 1, 2003. The Company adopted this statement for variable interest
entities created after January 31, 2003 in the fourth quarter of 2002 with no
material effect on its consolidated financial statements. On August 1, 2003 the
Company refinanced its real estate operating lease facility, which qualified as
a variable interest entity into a new entity. The Company has evaluated this
leasing transaction in accordance with FIN 46 and has determined it does not
have to consolidate this leasing entity. The Company has adopted this statement
for variable interest entities created prior to January 31, 2003 in the third
quarter of 2003 with no material effect on its consolidated financial
statements.

7

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
As a result of rescinding FASB Statement No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," gains and losses from extinguishment of debt
should be classified as extraordinary items only if they meet the criteria of
APB Opinion No. 30, "Reporting the Results of Operations." This statement also
amends FASB Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Additional amendments
include changes to other existing authoritative pronouncements to make various
technical corrections, clarify meanings or describe their applicability under
changed conditions. The Company has adopted the provisions of SFAS No. 145
in the first quarter of fiscal 2003 with no material effect on its consolidated
statements of operations. Reclassifications of extraordinary items pertaining
to the extinguishment of debt, if any, will be made throughout fiscal 2003 to
maintain comparability for the reported periods.

NOTE 4. Merchandise Inventories

Merchandise inventories are valued at the lower of cost (last-in, first-out)
or market. If the first-in, first-out method of valuing inventories had been
used by the Company, the inventory valuation difference would have been
immaterial on both November 1, 2003 and February 1, 2003.

NOTE 5. Accrued Expenses

The Company's accrued expenses for the periods ending November 1, 2003 and
February 1, 2003 were as follows:

(dollar amounts in thousands) Nov. 1, 2003 Feb. 1, 2003
- ---------------------------------------------------------------------

Medical and casualty risk
participation reserve $ 100,696 $ 124,571
Accrued compensation and
related taxes 47,741 49,923
Legal Reserves 29,901 6,054
Other 76,572 51,707
- ---------------------------------------------------------------------
Total $ 254,910 $ 232,255
- ---------------------------------------------------------------------

8

NOTE 6. Restructuring

Building upon the Profit Enhancement Plan launched in October 2000, the
Company, during fiscal 2003, conducted a comprehensive review of its operations
including individual store performance, the entire management infrastructure
and its merchandise and service offerings. On July 31, 2003, the Company
announced several initiatives aimed at realigning its business and continuing
to improve upon the Company's profitability. The Company expects these actions,
including the disposal and sublease of the Company's real properties, to be
substantially completed by the end of the second quarter 2004 and estimates the
costs, including future costs that were not accrued, to be approximately
$70,100,000. The Company is accounting for these initiatives in accordance with
the provisions of SFAS No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" and SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". These initiatives included:

Closure of 33 under-performing stores on July 31, 2003

The charges related to these closures included a $33,887,000 write-down of
fixed assets, $1,122,000 in long-term lease and other related obligations,
net of subleases, and $980,000 in workforce reduction costs. These charges are
included in discontinued operations of the consolidated statement of
operations. The write-down of fixed assets includes the adjustment to the
market value of those owned stores that are now classified as assets held for
disposal in accordance with SFAS 144 and the write-down of leasehold
improvements. The assets held for disposal have been valued at the lower of
their carrying amount or their estimated fair value, net of disposal costs.
The long-term lease and other related obligations represent the fair value of
such obligations less the estimated net sublease income. The workforce
reduction costs represent the involuntary termination benefits payable to
approximately 900 store employees, all of whom were notified on or prior to
July 31, 2003. Severance for these employees was accrued in accordance with
SFAS 146. Approximately 61% of these employees were terminated as of
November 1, 2003. The remaining employees accepted other positions within the
Company subsequent to the July 31, 2003 notification date. The accrued
severance of $557,000 related to employees that accepted other positions
was reversed in the third quarter of fiscal 2003. This reversal was
recorded in discontinued operations on the consolidated statement of
operations.

Discontinuation of certain merchandise offerings

In the second quarter, the Company recorded a $24,580,000 write-down of
inventory as a result of a decision to discontinue certain merchandising
offerings. This write-down was recorded in cost of merchandise sales on the
consolidated statement of operations.

Corporate realignment

The charges related to this realignment included $3,070,000 in workforce
reduction costs, $2,543,000 of expenses incurred in the development of the
restructuring plan, a $536,000 write-down of certain assets and $467,000 in
costs related to two warehouse lease terminations. The workforce reduction
costs represent the involuntary termination benefits payable to 150 Store
Support Center employees and field managers. All of these employees were
terminated as of November 1, 2003. The realignment charges were primarily
recorded in cost of merchandise sales and selling, general & administrative
expenses on the consolidated statement of operations.

9

The following chart details the reserve balances through November 1, 2003. The
reserve includes remaining rent on leases net of sublease income, other
contractual obligations associated with leased properties and employee
severance.

(dollar amounts Lease Contractual
in thousands) Severance Expenses Obligations Total
- ---------------------------------------------------------------------------------

Reserve balance
at Feb. 1, 2003 $ - $ - $ - $ -

Original Reserve 4,050 2,332 887 7,269

Provision for Present
value of liabilities - 49 16 65

Changes in assumptions
about future sublease
income, lease termination
and severance (557) 1,289 (207) 525

Cash payments (2,054) (1,552) (62) (3,668)

- ---------------------------------------------------------------------------------
Reserve Balance at
November 1, 2003 $ 1,439 $ 2,118 $ 634 $ 4,191
- ---------------------------------------------------------------------------------

Note 7. Discontinued Operations

In accordance with SFAS 144, the Company's discontinued operations reflect the
operating results for the 33 stores closed on July 31, 2003 as part of the
Company's corporate restructuring. The results for the thirteen and thirty-nine
weeks ended November 1, 2003 and November 2, 2002 have been reclassified to show
the results of operations for the 33 closed stores as discontinued operations.
Below is a summary of these results:

Thirteen weeks ended Thirty-nine weeks Ended
--------------------------- -----------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
------------ ------------ -------------- ------------

(Dollar amounts in thousands) Amount Amount Amount Amount
- ------------------------------------------------------------------------------------------------------
Total Revenues $ 32 $ 18,646 $ 37,745 $ 58,118

Total Gross Profit 2,764 4,284 (23,351) 14,125

Selling, General and Administrative
Expenses 710 4,132 9,845 12,512

Earnings (Loss) from Discontinued
Operations Before Income Taxes 2,054 153 (33,196) 1,613

Net Earnings (Loss) from Discontinued
Operations, Net of Tax $ 1,294 $ 96 $ (20,914) $ 1,016
- ------------------------------------------------------------------------------------------------------

Additionally, the Company has made certain reclassifications to its
consolidated balance sheets to reflect the assets held for disposal and assets
from discontinued operations associated with the 33 stores closed on
July 31, 2003. As of November 1, 2003 and February 1, 2003, these
reclassifications were as follows:

(Dollar amounts in thousands) Nov. 1, 2003 Feb. 1, 2003
- --------------------------------------------------------------------------------
Land $(14,176) $(15,008)

Building and improvements (12,773) (45,872)

Furniture, fixtures and equipment - (23,785)
- --------------------------------------------------------------------------------
$(26,949) (84,665)

Less: accumulated depreciation and amortization - (27,114)
- --------------------------------------------------------------------------------
Property and equipment - net $(26,949) $(57,551)
- --------------------------------------------------------------------------------
Assets held for disposal $ 26,949 $ -

Assets from discontinued operations $ - $ 57,551
- --------------------------------------------------------------------------------

During the third quarter of 2003, the Company increased assets held for
disposal by $5,049,000 to reflect changes in the current values. This change
in values was recorded in discontinued operations on the consolidated statement
of operations.

10

NOTE 8. Net Earnings Per Share

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(in thousands, except per share amounts)
UNAUDITED

Thirteen weeks ended Thirty-nine weeks ended
----------------------------------- ----------------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
-------------- --------------- -------------- ------------

(a) Net Earnings (Loss) from continuing operations
before cumulative effect of change in
accounting principle $ 13,406 $ 15,419 $ (7,500) $ 44,618

Adjustment for interest on convertible senior
notes, net of income tax effect 1,001 977 - 1,803
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings (loss) from continuing
operations before cumulative effect
of change in accounting principle $ 14,407 $ 16,396 $ (7,500) $ 46,421
- ---------------------------------------------------------------------------------------------------------------------------------

(c) Average number of common shares outstanding
during period 52,537 51,534 52,002 51,490

Common shares assumed issued upon conversion of
convertible senior notes 6,697 6,697 - 4,072

Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price 1,176 853 - 1,025
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during period 60,410 59,084 52,002 56,587
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share:

Net Earnings (Loss) From Continuing Operations
Before Cumulative Effect of Change in
Accounting Principle (a/c) $ 0.26 $ 0.30 $ (0.14) $ 0.87

Net Earnings (Loss) From Discontinued
Operations, Net of Tax 0.02 - (0.40) 0.02

Cumulative Effect of Change in
Accounting Principle, Net of Tax - - (0.05) -
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share $ 0.28 $ 0.30 $ (0.59) $ 0.89
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) per share:

Net Earnings (Loss) from Continuing Operations
Before Cumulative Effect of Change in
Accounting Principle (b/d) $ 0.24 $ 0.28 $ (0.14) $ 0.82

Net Earnings (Loss) From Discontinued
Operations, Net of Tax 0.02 - (0.40) 0.02

Cumulative Effect of Change in
Accounting Principle, Net of Tax - - (0.05) -
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings (Loss) per Share $ 0.26 $ 0.28 $ (0.59) $ 0.84
- ---------------------------------------------------------------------------------------------------------------------------------

Adjustments for the convertible senior notes and dilutive stock options were
anti-dilutive during the thirty-nine week periods ended November 1, 2003 and
therefore were excluded from the computation of diluted EPS due to the
anti-dilutive effect related to the net loss. Options to purchase shares of
common stock which were not included in the computation of diluted EPS because
the options exercise prices were greater than the average market price of the
shares of common stock during the thirteen and thirty-nine week periods ended
November 1, 2003 and November 2, 2002 were as follows:

Thirteen weeks ended Thirty-nine weeks ended
(in thousands) ---------------------------------- ----------------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
--------------- -------------- --------------- --------------

Common shares associated with anti-dilutive stock
options excluded from computation of diluted EPS ..... 2,191 4,749 4,599 4,567
--------------- -------------- --------------- --------------

11

NOTE 9. Pension and Savings Plan

In April 2003, the Company made a settlement of approximately $12,600,000
related to the Supplemental Executive Retirement Plan obligation for the former
Chairman and CEO. This obligation resulted in an expense for settlement
accounting under SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits" of
approximately $4,900,000, during the quarter ended May 3, 2003.

NOTE 10. Other Commitments

In April 2003, the Company satisfied, for approximately $4,900,000, the
commitment related to the non-renewal of the former Chairman and CEO's
employment agreement.

NOTE 11. 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.

Components of the reserve for warranty costs for the thirty-nine week period
ending November 1, 2003 are as follows:

(dollar amounts in thousands)
- ------------------------------------------------------------------------

Beginning balance at February 1, 2003 $ 911

Additions related to current period sales 5,518

Warranty costs incurred in current period (5,559)

Adjustments to accruals related to
prior year sales -
- ------------------------------------------------------------------------
Ending Balance at November 1, 2003 $ 870
- ------------------------------------------------------------------------

NOTE 12. Asset Retirement Obligation

The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations", in the first quarter of fiscal 2003. SFAS No. 143
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. SFAS No. 143 also requires the capitalization of any
retirement obligation costs as part of the carrying amount of the long-lived
asset and the subsequent allocation of the total expense to future periods
using a systematic and rational method. Upon adoption, the Company recorded a
non-cash charge to earnings of $3,943,000 ($2,484,000, net of tax) for the
cumulative effect of this accounting change. This charge was related to
retirement obligations associated with certain equipment used in the Company's
service operation. In addition, the Company initially recognized an asset of
$2,844,000, accumulated depreciation of $2,247,000 and a liability of
$4,540,000 on its consolidated balance sheet.

12

At November 1, 2003, the Company has a liability pertaining to the asset
retirement obligation in accrued expenses on its consolidated balance sheet.
The following is a reconciliation of the beginning and ending carrying amount
of the Company's asset retirement obligation as of November 1, 2003:

(dollar amounts in thousands)
- ------------------------------------------------------------------------

Asset retirement obligation, February 1, 2003 $ -

Asset retirement obligation recognized upon adoption 4,540

Asset retirement obligation incurred during the period 219

Asset retirement obligation settled during period (92)

Accretion expense 147
- ------------------------------------------------------------------------
Asset retirement obligation, November 1, 2003 $ 4,814
- ------------------------------------------------------------------------

Had the Company adopted the provisions of SFAS No. 143 prior to
February 2, 2003, the amount of the asset retirement obligations on a
pro forma basis would have been as follows:

(dollar amounts in thousands)
- -----------------------------------------------------------------

Asset retirement obligation, February 2, 2002 $4,156

Asset retirement obligation, February 1, 2003 $4,540
- -----------------------------------------------------------------

The following table summarizes the pro forma net earnings and earning per share
for the thirteen and thirty-nine weeks periods ending November 2, 2002 had the
Company adopted the provisions of SFAS No. 143 prior to February 2, 2003:

Thirteen Thirty-nine
(dollar amounts in thousands, weeks ended weeks ended
except per share amounts) November 2, 2002 November 2, 2002
- -------------------------------------------------------------------------------

Net Earnings:

As reported $ 15,515 $ 45,634
Pro forma $ 15,441 $ 45,417
- -------------------------------------------------------------------------------

Net earnings per share:

Basic:

As reported $ .30 $ .89
Pro forma $ .30 $ .88

Diluted:

As reported $ .28 $ .84
Pro forma $ .28 $ .83
- -------------------------------------------------------------------------------

13

NOTE 13. Debt and Financing Arrangements

On August 1, 2003, the Company extended its revolving line of credit, which
was set to expire September 22, 2004, to August 1, 2008. Thereafter, it
automatically renews for annual periods, unless terminated by either party on
60 days notice prior to the applicable termination date. The line of credit
provides up to $226,000,000 of borrowing availability, subject to certain
required reserves, and is collateralized by inventory and accounts receivable.
Funds may be drawn and repaid anytime prior to August 1, 2008. The loans
bear interest at a rate equal to the LIBOR plus 2.00%, subject to 0.25%
incremental increases as excess availability under the line of credit falls
below $50,000,000. The line of credit is subject to financial covenants.

On August 1, 2003, the Company refinanced $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 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 November 1,
2003, the current value of this liability was $4,737,000, which is recorded in
other long-term liabilities on the consolidated balance sheets.

On May 15, 2003, upon maturity, the Company retired $75,000,000 aggregate
principal amount of 6.625% notes.

In the first quarter of fiscal 2003, the Company reclassified $32,000,000
aggregate principal amount of 6.75% Medium-Term Notes with a stated maturity
date of March 10, 2004 and $25,000,000 aggregate principal amount of 6.65%
Medium-Term Notes with a stated maturity date of March 3, 2004 to current
liabilities on the consolidated balance sheet.

NOTE 14. Interest Rate Swap Agreement

On June 3, 2003, the Company entered into an interest rate swap for a notional
amount of $130,000,000. The Company has 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 these lease payments to a fixed
rate of 2.90% and terminates on July 1, 2008. If the critical terms of the
interest rate swap or the hedge item do not change, the interest rate swap will
be considered to be highly effective with all changes in fair value included in
other comprehensive income. As of November 1, 2003, the fair value of the
interest rate swap was $3,636,000 ($2,290,000, net of tax) and this change in
value was included in accumulated other comprehensive income.

14

NOTE 15. Supplemental Guarantor Information - Convertible Senior Notes

On May 21, 2002, the Company issued $150,000,000 aggregate principal amount of
4.25% Convertible Senior Notes. The notes are jointly and severally and fully
and unconditionally guaranteed by the Company's wholly-owned direct and
indirect operating subsidiaries ("subsidiary guarantors"), The Pep Boys Manny
Moe & Jack of California, Pep Boys - Manny, Moe & Jack of Delaware, Inc. and
Pep Boys - Manny, Moe & Jack of Puerto Rico, Inc.

The following are consolidating balance sheets of the Company as of
November 1, 2003 and February 1, 2003 and the related consolidating statements
of operations for the thirteen and thirty-nine weeks ended November 1, 2003 and
November 2, 2002 and condensed consolidating statements of cash flows for the
thirty-nine weeks ended November 1, 2003 and November 2, 2002:

CONSOLIDATING BALANCE SHEET
(dollar amounts in thousands)
(unaudited)

Non-
Subsidiary guarantor
November 1, 2003 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets:
Cash and cash equivalents $ 18,272 $ 8,984 $ 6,581 $ - $ 33,837
Accounts receivable, net 12,145 16,589 - - 28,734
Merchandise inventories 180,916 351,960 - - 532,876
Prepaid expenses 12,690 15,094 3,240 (9,550) 21,474
Deferred income taxes 9,182 17,913 4,564 - 31,659
Other 2,948 4,658 41,379 - 48,985
Assets held for disposal 8,131 18,818 - - 26,949
- -----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 244,284 434,016 55,764 (9,550) 724,514
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 88,779 175,342 - - 264,121
Buildings and improvements 306,857 589,480 - - 896,337
Furniture, fixtures and equipment 289,348 303,851 - - 593,199
Construction in progress 24,290 568 - - 24,858
- -----------------------------------------------------------------------------------------------------------------------------
709,274 1,069,241 - - 1,778,515
Less accumulated depreciation and
amortization 342,086 430,037 - - 772,123
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment - Net 367,188 639,204 - - 1,006,392
- -----------------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 1,454,997 - 1,137,950 (2,592,947) -

Intercompany receivable - 687,369 339,907 (1,027,276) -

Other 49,128 3,182 - - 52,310
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,115,597 $ 1,763,771 $ 1,533,621 $ (3,629,773) $ 1,783,216
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 298,429 $ 9 $ - $ - $ 298,438
Accrued expenses 23,045 126,622 114,793 (9,550) 254,910
Current maturities of long-term debt and
obligations under capital leases 72,185 - - - 72,185
- -----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 393,659 126,631 114,793 (9,550) 625,533
- -----------------------------------------------------------------------------------------------------------------------------
Long-term debt and obligations under capital
leases, less current maturities 311,453 453 - - 311,906
Convertible long-term debt 150,000 - - - 150,000
Other long-term liabilities 10,246 18,656 - - 28,902
Intercompany liabilities 601,288 425,988 - (1,027,276) -
Deferred income taxes 28,865 14,936 - - 43,801
Deferred gain on sale leaseback 1,312 2,988 - - 4,300
Commitments and Contingencies
Stockholders' Equity:
Common stock 63,911 1,501 101 (1,602) 63,911
Additional paid-in capital 177,244 240,359 200,398 (440,757) 177,244
Retained earnings 580,518 932,259 1,218,329 (2,150,588) 580,518
Accumulated other comprehensive income 2,139 - - - 2,139
- -----------------------------------------------------------------------------------------------------------------------------
823,812 1,174,119 1,418,828 (2,592,947) 823,812

Less: Cost of shares in treasury 145,774 - - - 145,774
Less: Cost of shares in benefits trust 59,264 - - - 59,264
- -----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 618,774 1,174,119 1,418,828 (2,592,947) 618,774
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,115,597 $ 1,763,771 $ 1,533,621 $ (3,629,773) $ 1,783,216
- -----------------------------------------------------------------------------------------------------------------------------

15

CONSOLIDATING BALANCE SHEET
(dollar amounts in thousands)

Non-
Subsidiary guarantor
February 1, 2003 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets:
Cash and cash equivalents $ 32,654 $ 9,714 $ 402 $ - $ 42,770
Accounts receivable, net 8,122 9,794 - - 17,916
Merchandise inventories 166,166 322,716 - - 488,882
Prepaid expenses 29,176 16,308 17,637 (19,375) 43,746
Deferred income taxes 6,812 (819) 7,730 - 13,723
Other 107 - 56,580 - 56,687
Assets held for disposal - 1,146 - - 1,146
- -----------------------------------------------------------------------------------------------------------------------------
Total Current Assets 243,037 358,859 82,349 (19,375) 664,870
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 88,271 175,830 - - 264,101
Buildings and improvements 303,200 587,698 - - 890,898
Furniture, fixtures and equipment 279,884 300,862 - - 580,746
Construction in progress 14,764 4,686 - - 19,450
- -----------------------------------------------------------------------------------------------------------------------------
686,119 1,069,076 - - 1,755,195
Less accumulated depreciation and
amortization 319,005 405,704 - - 724,709
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment - Net 367,114 663,372 - - 1,030,486
- -----------------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 1,455,877 - 1,121,299 (2,577,176) -

Intercompany receivable - 631,438 335,640 (967,078) -

Other 41,972 5,031 - - 47,003

Assets from discontinued operations 14,219 43,332 - - 57,551
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,122,219 $ 1,702,032 $ 1,539,288 $ (3,563,629) $ 1,799,910
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 200,044 $ 9 $ - $ - $ 200,053
Accrued expenses 59,625 48,567 143,438 (19,375) 232,255
Current maturities of long-term debt and
obligations under capital leases 101,882 - - - 101,882
- -----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 361,551 48,576 143,438 (19,375) 534,190
- -----------------------------------------------------------------------------------------------------------------------------
Long-term debt and obligations under capital
leases, less current maturities 375,216 361 - - 375,577
Convertible long-term debt 150,000 - - - 150,000
Other long-term liabilities 5,955 19,201 - - 25,156
Intercompany liabilities 544,877 422,201 - (967,078) -
Deferred income taxes 33,322 27,341 - - 60,663
Deferred gain on sale leaseback 1,306 3,026 - - 4,332
Commitments and Contingencies
Stockholders' Equity:
Common stock 63,911 1,501 101 (1,602) 63,911
Additional paid-in capital 177,244 240,359 200,398 (440,757) 177,244
Retained earnings 630,847 939,466 1,195,351 (2,134,817) 630,847
Accumulated other comprehensive loss (151) - - - (151)
- -----------------------------------------------------------------------------------------------------------------------------
871,851 1,181,326 1,395,850 (2,577,176) 871,851

Less: Cost of shares in treasury 162,595 - - - 162,595
Less: Cost of shares in benefits trust 59,264 - - - 59,264
- -----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 649,992 1,181,326 1,395,850 (2,577,176) 649,992
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,122,219 $ 1,702,032 $ 1,539,288 $ (3,563,629) $ 1,799,910
- -----------------------------------------------------------------------------------------------------------------------------

16

CONSOLIDATING STATEMENT OF OPERATIONS
(dollar amounts in thousands)
(unaudited)
Non-
Subsidiary guarantor
Thirteen weeks ended November 1, 2003 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

Merchandise Sales $ 149,460 $ 285,595 $ - $ - $ 435,055
Service Revenue 35,560 67,076 - - 102,636
Other Revenue - - 6,674 (6,674) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues 185,020 352,671 6,674 (6,674) 537,691
- -----------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 104,253 197,618 - - 301,871
Costs of Service Revenue 24,594 51,739 - - 76,333
Costs of Other Revenue - - 6,608 (6,608) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 128,847 249,357 6,608 (6,608) 378,204
- -----------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 45,207 87,977 - - 133,184
Gross Profit from Service Revenue 10,966 15,337 - - 26,303
Gross Loss from Other Revenue - - 66 (66) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 56,173 103,314 66 (66) 159,487
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses 44,374 85,640 86 (66) 130,034
- -----------------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss) 11,799 17,674 (20) - 29,453
Equity in Earnings of Subsidiaries 19,718 - 18,129 (37,847) -
Non-operating (Expense) Income (4,248) 12,107 5,019 (12,092) 786
Interest Expense 14,829 6,222 - (12,092) 8,959
- -----------------------------------------------------------------------------------------------------------------------------
Earnings From Continuing Operations
Before Income Taxes 12,440 23,559 23,128 (37,847) 21,280

Income Tax (Benefit) Expense (2,693) 8,717 1,850 - 7,874
- -----------------------------------------------------------------------------------------------------------------------------
Earnings From Continuing
Operations 15,133 14,842 21,278 (37,847) 13,406

Net (Loss) Earnings from
Discontinued Operations, Net of Tax (433) 1,727 - - 1,294
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 14,700 $ 16,569 $ 21,278 $ (37,847) $ 14,700
- -----------------------------------------------------------------------------------------------------------------------------

17

CONSOLIDATING STATEMENT OF OPERATIONS
(dollar amounts in thousands)
(unaudited)
Non-
Subsidiary guarantor
Thirteen weeks ended November 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

Merchandise Sales $ 146,639 $ 278,376 $ - $ - $ 425,015
Service Revenue 35,341 65,942 - - 101,283
Other Revenue - - 6,730 (6,730) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues 181,980 344,318 6,730 (6,730) 526,298
- -----------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 102,862 190,235 - - 293,097
Costs of Service Revenue 24,951 49,493 - - 74,444
Costs of Other Revenue - - 6,825 (6,825) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 127,813 239,728 6,825 (6,825) 367,541
- -----------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 43,777 88,141 - - 131,918
Gross Profit from Service Revenue 10,390 16,449 - - 26,839
Gross Loss from Other Revenue - - (95) 95 -
- -----------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 54,167 104,590 (95) 95 158,757
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses 43,772 79,743 80 95 123,690
- -----------------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss) 10,395 24,847 (175) - 35,067
Equity in Earnings of Subsidiaries 22,693 - 19,526 (42,219) -
Non-operating (Expense) Income (4,242) 12,398 5,174 (12,452) 878
Interest Expense 17,696 6,227 - (12,452) 11,471
- -----------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings From Continuing Operations
Before Income Taxes 11,150 31,018 24,525 (42,219) 24,474

Income Tax (Benefit) Expense (4,272) 11,477 1,850 - 9,055
- -----------------------------------------------------------------------------------------------------------------------------
Net Income From Continuing Operations 15,422 19,541 22,675 (42,219) 15,419

Net Earnings from Discontinued Operations,
Net of Tax 93 3 - - 96
- -----------------------------------------------------------------------------------------------------------------------------
Net $ 15,515 $ 19,544 $ 22,675 $ (42,219) $ 15,515
- -----------------------------------------------------------------------------------------------------------------------------

18

CONSOLIDATING STATEMENT OF OPERATIONS
(dollar amounts in thousands)
(unaudited)

Non-
Subsidiary guarantor
Thirty-nine weeks ended November 1, 2003 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

Merchandise Sales $ 446,226 $ 851,246 $ - $ - $ 1,297,472
Service Revenue 107,137 200,022 - - 307,159
Other Revenue - - 20,025 (20,025) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues 553,363 1,051,268 20,025 (20,025) 1,604,631
- -----------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 324,597 612,517 - - 937,114
Costs of Service Revenue 79,238 152,748 - - 231,986
Costs of Other Revenue - - 24,575 (24,575) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 403,835 765,265 24,575 (24,575) 1,169,100
- -----------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 121,629 238,729 - - 360,358
Gross Profit from Service Revenue 27,899 47,274 - - 75,173
Gross Loss from Other Revenue - - (4,550) 4,550 -
- -----------------------------------------------------------------------------------------------------------------------------
Total Gross Profit (Loss) 149,528 286,003 (4,550) 4,550 435,531
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses 128,384 287,685 241 4,550 420,860
- -----------------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss) 21,144 (1,682) (4,791) - 14,671
Equity in Earnings of Subsidiaries (880) - 16,651 (15,771) -
Non-operating (Expense) Income (12,837) 36,444 14,834 (35,754) 2,687
Interest Expense 47,703 17,314 - (35,754) 29,263
- -----------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings From Continuing Operations
Before Income Taxes and Cumulative Effect
of Change in Accounting Principle (40,276) 17,448 26,694 (15,771) (11,905)

Income Tax (Benefit) Expense (14,577) 6,456 3,716 - (4,405)
- -----------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings From Continuing
Operations Before Cumulative Effect of
Change in Accounting Principle (25,699) 10,992 22,978 (15,771) (7,500)

Net Loss from Discontinued Operations,
Net of Tax (4,300) (16,614) - - (20,914)

Cumulative Effect of Change in
Accounting Principle, Net of Tax (899) (1,585) - - (2,484)
- -----------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings $ (30,898) $ (7,207) $ 22,978 $ (15,771) $ (30,898)
- -----------------------------------------------------------------------------------------------------------------------------

19

CONSOLIDATING STATEMENT OF OPERATIONS
(dollar amounts in thousands)
(unaudited)

Non-
Subsidiary guarantor
Thirty-nine weeks ended November 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

Merchandise Sales $ 460,530 $ 864,828 $ - $ - $ 1,325,358
Service Revenue 107,571 198,655 - - 306,226
Other Revenue - - 19,398 (19,398) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues 568,101 1,063,483 19,398 (19,398) 1,631,584
- -----------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 322,727 598,493 - - 921,220
Costs of Service Revenue 78,116 149,820 - - 227,936
Costs of Other Revenue - - 19,012 (19,012) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 400,843 748,313 19,012 (19,012) 1,149,156
- -----------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 137,803 266,335 - - 404,138
Gross Profit from Service Revenue 29,455 48,835 - - 78,290
Gross Loss from Other Revenue - - 386 (386) -
- -----------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 167,258 315,170 386 (386) 482,428
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses 133,985 244,598 231 (386) 378,428
- -----------------------------------------------------------------------------------------------------------------------------
Operating Profit 33,273 70,572 155 - 104,000
Equity in Earnings of Subsidiaries 65,552 - 57,449 (123,001) -
Non-operating (Expense) Income (13,295) 36,499 15,728 (36,234) 2,698
Interest Expense 52,589 19,521 - (36,234) 35,876
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings From Continuing Operations
Before Income Taxes 32,941 87,550 73,332 (123,001) 70,822

Income Tax (Benefit) Expense (12,067) 32,394 5,877 - 26,204
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings From Continuing Operations 45,008 55,156 67,455 (123,001) 44,618

Discontinued Operations, Net of Tax 626 390 - - 1,016
- -----------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 45,634 $ 55,546 $ 67,455 $ (123,001) $ 45,634
- -----------------------------------------------------------------------------------------------------------------------------

20

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(dollar amounts in thousands)
(unaudited)

Non-
Subsidiary guarantor
Thirty-nine weeks ended November 1, 2003 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- ------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
Net (Loss) Earnings $ (30,898) $ (7,207) $ 22,978 $ (15,771) $ (30,898)
Net Loss from discontinued operations (4,300) (16,614) - - (20,914)
- ------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings from continuing operations (26,598) 9,407 22,978 (15,771) (9,984)
Adjustments to Reconcile Net (Loss)
Earnings from continuing operations
to Net Cash Provided By Operating
Activities:
Non-cash operating activities 15,839 3,635 (13,485) 15,771 21,760
Change in operating assets and
liabilities 58,243 45,391 953 - 104,587
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by continuing operations 47,484 58,433 10,446 - 116,363
Net Cash (Used in) Provided by discontinued
operations (3) 2 - - (1)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 47,481 58,435 10,446 - 116,362

Cash Flows from Investing Activities:
Net Cash Used in Investing Activities (22,204) (7,113) - - (29,317)

Cash Flows from Financing Activities:
Net Cash Used in Financing Activities (39,659) (52,052) (4,267) - (95,978)
- ------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash (14,382) (730) 6,179 - (8,933)
Cash and Cash Equivalents at Beginning of Period 32,654 9,714 402 - 42,770
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 18,272 $ 8,984 $ 6,581 $ - $ 33,837
- ------------------------------------------------------------------------------------------------------------------------------

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(dollar amounts in thousands)
(unaudited)

Non-
Subsidiary guarantor
Thirty-nine weeks ended November 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated
- -----------------------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
Net Earnings from continuing operations $ 45,634 $ 55,546 $ 67,455 $ (123,001) $ 45,634
Earnings from discontinued operations 626 390 - - 1,016
- -----------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 45,008 55,156 67,455 (123,001) 44,618
Adjustments to Reconcile Net Earnings
to Net Cash Provided By Operating
Activities:
Non-cash operating activities (39,691) 32,744 (58,458) 123,001 57,596
Change in operating assets and
liabilities 8,254 (26,581) 12,212 - (6,115)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by continuing operations 13,571 61,319 21,209 - 96,099
Net Cash Provided by discontinued operations 1,700 2,646 - - 4,346
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 15,271 63,965 21,209 - 100,445

Cash Flows from Investing Activities:
Net Cash Used in Investing Activities (13,417) (4,964) - - (18,381)

Cash Flows from Financing Activities:
Net Cash Provided by (Used In)
Financing Activities 9,721 (59,678) (21,160) - (71,117)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 11,575 (677) 49 - 10,947
Cash and Cash Equivalents at Beginning of Period 4,796 10,874 311 - 15,981
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 16,371 $ 10,197 $ 360 $ - $ 26,928
- -----------------------------------------------------------------------------------------------------------------------------

21

NOTE 16. Contingencies

In the third quarter, the Company reached an agreement to submit the
consolidated action entitled "Dubrow et al vs. The Pep Boys - Manny Moe & Jack"
to binding arbitration. The two consolidated actions, originally filed on
March 29, 2000 and July 25, 2000 and pending in the California Superior Court
in Orange County, involve former and current store management employees who
claim that they were improperly classified as exempt from the overtime
provisions of California law and seek to be compensated for all overtime hours
worked. At the request of the parties, the arbitrator has determined how to
distribute the settlement funds among the class members, attorneys' fees and
litigation costs. Claim forms were mailed to the class members on
December 8, 2003, with a return deadline of January 22, 2004. The number of
claim forms returned by such deadline will determine the Company's settlement
amount, which is expected to be paid in full by the end of the first quarter of
fiscal 2004. The Company has previously accrued an amount sufficient to
satisfy the maximum settlement amount that may be imposed on the Company.

An action entitled "Tomas Diaz Rodriguez; Energy Tech Corporation v. Pep Boys
Corporation; Manny, Moe & Jack Corp. Puerto Rico, Inc. d/b/a Pep Boys" was
previously instituted against the Company in the Court of First Instance of
Puerto Rico, Bayamon Superior Division on March 15, 2002. The action was
subsequently removed to, and is currently pending in, the United States
District Court for the District of Puerto Rico. Plaintiffs are distributors of
a product that claims to improve gas mileage. The plaintiffs allege that the
Company entered into an agreement with them to act as the exclusive retailer of
the product in Puerto Rico that was breached when the Company determined to
stop selling the product. The Company became aware of a Federal Trade
Commission investigation regarding the accuracy of advertising claims
concerning the product's effectiveness. The plaintiffs further allege that they
were negotiating with the manufacturer of the product to obtain the exclusive
distribution rights throughout the United States and that those negotiations
failed. Plaintiffs are seeking damages including payment for the product that
they allege Pep Boys ordered and expenses and loss of sales in Puerto Rico and
the United States resulting from the alleged breach. Except for claims by the
Plaintiffs' lender for payment on a small quantity of product which was ordered
and delivered, and which claims have now been satisfied, the Company believes
that the claims are without merit and continues to vigorously defend this
action.

The Company is also party to various other 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 the foregoing matters are adequate and that the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.

22

NOTE 17. Comprehensive Income

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

Thirteen weeks ended Thirty-nine weeks ended
------------------------------------- -------------------------------------
(Amounts in thousands) November 1, 2003 November 2, 2002 November 1, 2003 November 2, 2002
- ------------------------------------------------------------------------------------------------------------

Net earnings (loss) $ 14,700 $ 15,515 $ (30,898) $ 45,634

Other comprehensive
income, net of tax:

Derivative financial
instrument adjustments (1,610) - 2,290 -
- ------------------------------------------------------------------------------------------------------------

Comprehensive income (loss) $ 13,090 $ 15,515 $ (28,608) $ 45,634
- ------------------------------------------------------------------------------------------------------------

The components of accumulated other comprehensive income (loss) are:

November 1, February 1,
2003 2003
----------- -------------
Derivative financial
instrument adjustment,
net of tax $ 2,290 $ -

Minimum pension liability
adjustment, net of tax (151) (151)
----------- -------------
$ 2,139 $ (151)
----------- -------------

Note 18. Impairment Charges

During the second quarter 2003, the Company, as a result of its ongoing review
of the performance of its stores, identified certain stores whose cash flow
trend indicated that their carrying value may not be fully recoverable. An
impairment charge of $2,121,000 was recorded for these stores in costs of
merchandise sales on the consolidated statement of operations. The charge
reflects the difference between these stores' carrying value and fair value.
Fair value was based on sales of similar assets or other estimates of fair
value developed by Company management. Management's judgment is necessary
to estimate fair value. Accordingly, actual results could vary from such
estimates.

23

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES - November 1, 2003
- ------------------------------------------------
For the thirty-nine weeks ended November 1, 2003, the Company decreased its
cash and cash equivalents by $8,933,000. This decrease was due primarily to
capital expenditures, the increase in merchandise inventories, the decrease in
long-term debt offset, in part, by an increase in accounts payable.

The Company's cash requirements arise principally from the capital expenditures
related to existing stores, offices and warehouses, the need to finance the
acquisition, construction and equipping of new stores and to purchase
inventory. The primary capital expenditures for the thirty-nine weeks ended
November 1, 2003 were attributed to capital maintenance of the Company's
existing stores and offices. During the first nine months of fiscal 2003, the
Company invested $32,679,000 in property and equipment, which is a 32.3%
increase compared to the same period in the previous fiscal year. Management
estimates that capital expenditures relating to existing stores, warehouses and
offices during the remainder of fiscal 2003 will be approximately $18,458,000.

The Company anticipates that its net cash provided by operating activities and
its existing line of credit will exceed its principal cash requirements for
capital expenditures and inventory less accounts payable in fiscal 2003.

The Company's working capital was $98,981,000 at November 1, 2003. The
Company's long-term debt, as a percentage of its total capitalization, was 43%
at November 1, 2003. As of November 1, 2003, the Company had an available line
of credit totaling $157,012,000.

The Company has submitted the matter entitled "Dubrow et al vs. The Pep Boys -
Manny Moe & Jack" to binding arbitration. At the request of the parties, the
arbitrator has determined how to distribute the settlement funds among the
class members, attorneys' fees and litigation costs. Claim forms were mailed
to the class members on December 8, 2003, with a return deadline of
January 22, 2004. The number of claim forms returned by such deadline will
determine the Company's settlement amount, which is expected to be paid in full
by the end of the first quarter of fiscal 2004. The Company expects to have
sufficient available funds from cash on hand and its existing line of credit to
satisfy the maximum settlement amount that may be imposed on the Company.

On August 1, 2003, the Company extended its revolving line of credit, which
was set to expire September 22, 2004, to August 1, 2008. Thereafter, it
automatically renews for annual periods, unless terminated by either party on
60 days notice prior to the applicable termination date. The line of credit
provides up to $226,000,000 of borrowing availability, subject to certain
required reserves, and is collateralized by inventory and accounts receivable.
Funds may be drawn and repaid anytime prior to August 1, 2008. The loans
bear interest at a rate equal to the LIBOR plus 2.00%, subject to 0.25%
incremental increases as excess availability under the line of credit falls
below $50,000,000. The line of credit is subject to financial covenants.

On August 1, 2003, the Company refinanced $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 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 November 1,
2003, the current value of this liability was $4,737,000, which is recorded in
other long-term liabilities on the consolidated balance sheets.

On May 15, 2003, upon maturity, the Company retired $75,000,000 aggregate
principal amount of 6.625% notes, with cash.

24

In the first quarter of fiscal 2003, the Company reclassified $32,000,000
aggregate principal amount of 6.75% Medium-Term Notes with a stated maturity
date of March 10, 2004 and $25,000,000 aggregate principal amount of 6.65%
Medium-Term Notes with a stated maturity date of March 3, 2004 to current
liabilities on the consolidated balance sheet. The Company anticipates
being able to repurchase these notes with cash from operations and its existing
line of credit.

In April 2003, the Company made a cash settlement of approximately $12,600,000
related to the Supplemental Executive Retirement Plan obligation for the former
Chairman and CEO. This obligation resulted in an expense for settlement
accounting under Statement of Financial Accounting Standards (SFAS) No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" , of approximately $4,900,000
during the quarter ended May 3, 2003.

In April 2003, the Company satisfied, for approximately $4,900,000 the
commitment related to the non-renewal of the former Chairman and CEO's
employment agreement. The Company satisfied this commitment with cash.

The Company's principal sources of liquidity include cash flow from operating
activities, borrowings under its credit facilities, sale or financing
activities related to the Company's assets, and the issuance of debt or equity
securities in public or private offerings. In October 2003, the Company filed a
shelf registration statement covering the potential sale of up to $300,000,000
of debt or equity securities in one or more public offerings.

RESTRUCTURING

Building upon the Profit Enhancement Plan launched in October 2000, the
Company, during fiscal 2003, conducted a comprehensive review of its operations
including individual store performance, the entire management infrastructure
and its merchandise and service offerings. On July 31, 2003, the Company
announced several initiatives aimed at realigning its business and continuing
to improve upon the Company's profitability. The Company expects these actions,
including the disposal and sublease of the properties, to be substantially
completed by the end of the second quarter 2004 and estimates the costs,
including future costs that were not accrued, to be approximately $70,100,000.
The Company anticipates this restructuring will result in an annual savings of
approximately $11,000,000. The Company is accounting for these initiatives in
accordance with the provisions of SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" and SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". These initiatives included:

Closure of 33 under-performing stores on July 31, 2003

The charges related to these closures included a $33,887,000 write-down of
fixed assets, $1,122,000 in long-term lease and other related obligations,
net of subleases, and $980,000 in workforce reduction costs. These charges are
included in discontinued operations of the consolidated statement of
operations. The write-down of fixed assets includes the adjustment to the
market value of those owned stores that are now classified as assets held for
disposal in accordance with SFAS 144 and the write-down of leasehold
improvements. The assets held for disposal have been valued at the lower of
their carrying amount or their estimated fair value, net of disposal costs.
The long-term lease and other related obligations represent the fair value of
such obligations less the estimated net sublease income. The workforce
reduction costs represent the involuntary termination benefits payable to
approximately 900 store employees, all of whom were notified on or prior to
July 31, 2003. Severance for these employees was accrued in accordance with
SFAS 146. Approximately 61% of these employees were terminated as of
November 1, 2003. The remaining employees accepted other positions within the
Company subsequent to the July 31, 2003 notification date. The accrued
severance of $557,000 related to employees that accepted other positions was
reversed in the third quarter of fiscal 2003. This reversal was recorded in
discontinued operations on the consolidated statement of operations.

Discontinuation of certain merchandise offerings

In the second quarter, the Company recorded a $24,580,000 write-down of
inventory as a result of a decision to discontinue certain merchandising
offerings. This write-down was recorded in cost of merchandise sales on the
consolidated statement of operations.

25

Corporate realignment

The charges related to this realignment included $3,070,000 in workforce
reduction costs, $2,543,000 of expenses incurred in the development of the
restructuring plan, a $536,000 write-down of certain assets and $467,000 in
costs related to two warehouse lease terminations. The workforce reduction
costs represent the involuntary termination benefits payable to 150 Store
Support Center employees and field managers. All of these employees were
terminated as of November 1, 2003. The realignment charges were primarily
recorded in cost of merchandise sales and selling, general & administrative
expenses on the consolidated statement of operations.

The following chart details the reserve balances through November 1, 2003. The
reserve includes remaining rent on leases net of sublease income, other
contractual obligations associated with leased properties and employee
severance.

Lease Contractual
(dollar amounts in thousands) Severance Expenses Obligations Total
- -------------------------------------------------------------------------------

Reserve balance
at Feb. 1, 2003 $ - $ - $ - $ -

Original Reserve 4,050 2,332 887 7,269

Provision for Present
value of liabilities - 49 16 65

Changes in assumptions
about future sublease
income, lease termination
and severance (557) 1,289 (207) 525

Cash payments (2,054) (1,552) (62) (3,668)

- -------------------------------------------------------------------------------
Reserve Balance at
November 1, 2003 $ 1,439 $ 2,118 $ 634 $ 4,191
- -------------------------------------------------------------------------------

DISCONTINUED OPERATIONS

In accordance with SFAS 144, the Company's discontinued operations reflect the
operating results for the 33 stores closed on July 31, 2003 as part of the
Company's corporate restructuring. The results for the thirteen and thirty-nine
weeks ended November 1, 2003 and November 2, 2002 have been reclassified to show
the results of operations for the 33 closed stores as discontinued operations.
Below is a summary of these results:

Thirteen weeks ended Thirty-nine weeks Ended
--------------------------- -----------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
------------ ------------ -------------- ------------

(dollar amounts in thousands) Amount Amount Amount Amount
- ------------------------------------------------------------------------------------------------------
Total Revenues $ 32 $ 18,646 $ 37,745 $ 58,118

Total Gross Profit 2,764 4,284 (23,351) 14,125

Selling, General and Administrative
Expenses 710 4,132 9,845 12,512

Earnings (Loss) from Discontinued
Operations Before Income Taxes 2,054 153 (33,196) 1,613

Net Earnings (Loss) from Discontinued
Operations, Net of Tax $ 1,294 $ 96 $ (20,914) $ 1,016
- ------------------------------------------------------------------------------------------------------

26

Additionally, the Company has made certain reclassifications to its
consolidated balance sheets to reflect the assets held for disposal and assets
from discontinued operations associated with the 33 stores closed on
July 31, 2003. As of November 1, 2003 and February 1, 2003, these
reclassifications were as follows:

(Dollar amounts in thousands) Nov. 1, 2003 Feb. 1, 2003
- --------------------------------------------------------------------------------
Land $(14,176) $(15,008)

Building and improvements (12,773) (45,872)

Furniture, fixtures and equipment - (23,785)
- --------------------------------------------------------------------------------
(26,949) (84,665)

Less: accumulated depreciation and amortization - (27,114)
- --------------------------------------------------------------------------------
Property and equipment - net $(26,949) $(57,551)
- --------------------------------------------------------------------------------
Assets held for disposal $ 26,949 $ -

Assets from discontinued operations $ - $ 57,551
- --------------------------------------------------------------------------------

During the third quarter of 2003, the Company increased assets held for
disposal by $5,049,000 to reflect changes in the current values. This change
in values was recorded in discontinued operations on the consolidated statement
of operations.

IMPAIRMENT CHARGES

During the second quarter 2003, the Company, as a result of its ongoing review
of the performance of its stores, identified certain stores whose cash flow
trend indicated that their carrying value may not be fully recoverable. An
impairment charge of $2,121,000 was recorded for these stores in costs of
merchandise sales on the consolidated statement of operations. The charge
reflects the difference between these stores' carrying value and fair value.
Fair value was based on sales of similar assets or other estimates of fair
value developed by Company management. Management's judgment is necessary
to estimate fair value. Accordingly, actual results could vary from such
estimates.

27

Results 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
- ----------------------------------------------------------------------------------------------------------------
Thirteen weeks ended Nov. 1, 2003 Nov. 2, 2002 Fiscal 2003 vs.
(Fiscal 2003) (Fiscal 2002) Fiscal 2002
- ----------------------------------------------------------------------------------------------------------------

Merchandise Sales 80.9% 80.8% 2.4%
Service Revenue (1) 19.1 19.2 1.3
- ----------------------------------------------------------------------------------------------------------------
Total Revenues 100.0 100.0 2.2
- ----------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales (2) 69.4 (3) 69.0 (3) 3.0
Costs of Service Revenue (2) 74.4 (3) 73.5 (3) 2.5
- ----------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 70.3 69.8 2.9
- ----------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 30.6 (3) 31.0 (3) 1.0
Gross Profit from Service Revenue 25.6 (3) 26.5 (3) (2.0)
- ----------------------------------------------------------------------------------------------------------------
Total Gross Profit 29.7 30.2 0.5
- ----------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 24.2 23.5 5.1
- ----------------------------------------------------------------------------------------------------------------
Operating Profit 5.5 6.7 (16.0)
Non-operating Income 0.1 0.2 (10.5)
Interest Expense 1.6 2.2 (21.9)
- ----------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) From Continuing Operations
Before Income Taxes and Cumulative Effect
of Change in Accounting Principle 4.0 4.7 (13.0)

Income Tax Expense 37.0 (4) 37.0 (4) (13.0)
- ----------------------------------------------------------------------------------------------------------------
Net Earnings From Continuing Operations Before
Cumulative Effect of Change in Accounting Principle 2.5 2.9 (13.0)

Net Earnings From Discontinued
Operations, Net of Tax 0.2 - 1,247.9

Cumulative Effect of Change in Accounting
Principle, Net of Tax - - -

Net Earnings 2.7 2.9 (5.3)
- ----------------------------------------------------------------------------------------------------------------

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

(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.

(3) As a percentage of related sales or revenue, as applicable.

(4) As a percentage of earnings before income taxes.

28

Thirteen Weeks Ended November 1, 2003 vs. Thirteen Weeks Ended November 2, 2002
- -------------------------------------------------------------------------------

Total revenues for the third quarter increased 2.2%. This increase was
due primarily to an increase in comparable store revenues (revenues generated
by stores in operation during the same period) of 2.2%. Comparable store
merchandise sales increased 2.4%. Comparable store service revenue increased
1.2%.

Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, to 30.6% in fiscal 2003 from 31.0% in fiscal 2002. This decrease was due
primarily to lower merchandise margins and higher warehousing costs, as a
percentage of merchandise sales. The lower merchandise margins were a result
of product mix and selectively lower retail pricing on certain products. The
increase in warehousing costs were due primarily to an increase in rent
expense, incremental costs associated with new merchandise offerings to be
introduced in the fourth quarter of 2003 and expenses related to the store
closures on July 31, 2003.

Selling, general and administrative expenses increased, as a percentage of
total revenues, to 24.2% in fiscal 2003 from 23.5% in fiscal 2002. This was a
5.1% increase over the prior year's quarter and was due primarily to an
increase in store expenses and media, as a percentage of total revenues. The
increase in store expenses was due primarily to an increase in store payroll.
The $2,905,000 or 69% increase in media was due primarily to a decrease in
cooperative advertising.

Interest expense decreased 21.9% or $2,512,000 due primarily to lower debt
levels coupled with lower average interest rates.

Earnings from discontinued operations increased $1,198,000, net of tax. This
increase was due primarily to a $3,181,000, net of tax, increase in the value
of assets held for disposal offset, in part, by expenses incurred related to
the exit and continuing maintenance of the properties closed on July 31, 2003
and a $372,000, net of tax, increase in the restructuring reserve.

Net earnings decreased, as a percentage of total revenues, due primarily to
a decrease in gross profit from merchandise sales, as a percentage of
merchandise sales and an increase in selling, general and administrative
expenses, as a percentage of total revenues. These decreases were offset, in
part, by an increase in earnings from discontinued operations and a decrease in
interest expense.

29

Results 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
- ----------------------------------------------------------------------------------------------------------------
Thirty-nine weeks ended Nov. 1, 2003 Nov. 2, 2002 Fiscal 2003 vs.
(Fiscal 2003) (Fiscal 2002) Fiscal 2002
- ----------------------------------------------------------------------------------------------------------------

Merchandise Sales 80.9% 81.2% (2.1)%
Service Revenue (1) 19.1 18.8 0.3
- ----------------------------------------------------------------------------------------------------------------
Total Revenues 100.0 100.0 (1.7)
- ----------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales (2) 72.2 (3) 69.5 (3) 1.7
Costs of Service Revenue (2) 75.5 (3) 74.4 (3) 1.8
- ----------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 72.9 70.4 1.7
- ----------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 27.8 (3) 30.5 (3) (10.8)
Gross Profit from Service Revenue 24.5 (3) 25.6 (3) (4.0)
- ----------------------------------------------------------------------------------------------------------------
Total Gross Profit 27.1 29.6 (9.7)
- ----------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 26.2 23.2 11.2
- ----------------------------------------------------------------------------------------------------------------
Operating (Loss) Profit 0.9 6.4 (85.9)
Non-operating Income 0.2 0.1 (0.4)
Interest Expense 1.8 2.2 (18.4)
- ----------------------------------------------------------------------------------------------------------------
(Loss) Earnings from Continuing Operations
Before Income Taxes and Cumulative Effect
of Change in Accounting Principle (0.7) 4.3 (116.8)

Income Tax (Benefit) Expense 37.0 (4) 37.0 (4) (116.8)
- ----------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings from Continuing
Operations Before Cumulative Effect of
Change in Accounting Principle (0.5) 2.7 (116.8)

Discontinued Operations, Net of Tax (1.3) 0.1 (2,158.5)

Cumulative Effect of Change in
Accounting Principle, Net of Tax (0.1) - N/A

Net (Loss) Earnings (1.9) 2.8 (167.7)
- ----------------------------------------------------------------------------------------------------------------

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

(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.

(3) As a percentage of related sales or revenue, as applicable.

(4) As a percentage of earnings before income taxes.

30

Thirty-nine Weeks Ended Nov. 1, 2003 vs. Thirty-nine Weeks Ended Nov. 2, 2002
- -------------------------------------------------------------------------------

Total revenues for the first thirty-nine weeks decreased 1.7%. This decrease
was due primarily to a decrease in comparable store revenues (revenues
generated by stores in operation during the same period) of 1.7%. Comparable
store merchandise sales decreased 2.2%. Comparable store service revenue
increased 0.2%.

Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, to 27.8% in fiscal 2003 from 30.5% in fiscal 2002. This decrease, as a
percentage of merchandise sales, was due primarily to a $24,580,000 inventory
write-down associated with the corporate restructuring, increased store
occupancy costs and an impairment charge of $2,121,000. The increase in store
occupancy was due to higher rent and utilities expenses.

Gross profit from service revenue decreased, as a percentage of service
revenue, to 24.5% in fiscal 2003 from 25.6% in fiscal 2002. This decrease, as
a percentage of service revenue, was due primarily to an increase in workers'
compensation expense.

Selling, general and administrative expenses increased, as a percentage of
total revenues, to 26.2% in fiscal 2003 from 23.2% in fiscal 2002. This was a
$42,432,000 or 11.2% increase over the prior year. This increase, as a
percentage of total revenues, was due primarily to an increase in general
office costs and employee benefits, as a percentage of total revenues. The
increase in general office costs was due primarily to an increase in the
Company's legal reserves of approximately $24,600,000 for on-going litigation
and $5,613,000 of costs associated with the corporate restructuring. The
increase in employee benefits was due primarily to the settlement of a
retirement plan obligation and increased health benefits expense.

Interest expense decreased 18.4% or $6,613,000 due primarily to lower debt
levels coupled with lower average interest rates.

Earnings from discontinued operations decreased $21,930,000, net of tax, due
primarily to the charges associated with the corporate restructuring.

Net earnings decreased, as a percentage of total revenues, due primarily to
a decrease in gross profit from merchandise sales, as a percentage of
merchandise sales, a decrease in gross profit from service revenue, as a
percentage of service revenue, an increase in selling, general and
administrative expenses, as a percentage of total revenues, a cumulative effect
of change in accounting principle of $2,484,000, net of tax, and a decrease in
earnings from discontinued operations offset, in part, by a decrease in
interest expense.

31

NEW ACCOUNTING STANDARDS
- ------------------------

In November 2003, the Emerging Issues Task Force (EITF) reached a consensus on
EITF 03-10, "Application of Issue No. 02-16 by Resellers to Sales Incentives
Offered to Consumers by Manufacturers". This consensus addresses the
application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". EITF 02-16 addresses accounting
issues pertaining to cash consideration received by a reseller from a vendor
entered into after December 31, 2002. The provisions of EITF No. 03-10 would be
applied to the accounting for sales incentives tendered by consumers in fiscal
years beginning after December 15, 2003. Early adoption is not permitted. The
Company is in the process of analyzing the impact of the adoption of this
consensus on its consolidated financial statements.

In May 2003, The Financial Accounting Standards Board (FASB) issued
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity". SFAS No. 150 affects how an
entity measures and reports financial instruments that have characteristics of
both liabilities and equity, and is effective for financial instruments entered
into or modified after May 31, 2003 and for all other instruments for interim
periods beginning after June 15, 2003. The FASB continues to address certain
implementation issues associated with the application of SFAS No. 150,
including those related to mandatory redeemable financial instruments
representing non-controlling interests in subsidiaries' consolidated financial
statements. The Company will continue to monitor the actions of the FASB and
assess the impact, if any, on its consolidated financial statements. The
Company has adopted the provisions of SFAS No. 150 in the third quarter of
fiscal 2003 with no material effect on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments and
hedging activities, resulting primarily from decisions made by the FASB's
Derivatives Implementation Group following the issuance of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003 and is
effective for hedging relationships designated after June 30, 2003. The Company
adopted this statement in the second quarter of fiscal 2003 with no material
effect on its consolidated financial statements.

In January 2003, the FASB issued Financial Interpretation Number (FIN) 46,
"Consolidation of Variable Interest Entities." FIN 46, an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
changes the criteria by which one company includes another entity in its
consolidated financial statements. FIN 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of any
expected losses from the variable interest entity's activities, is entitled to
receive any expected residual returns of the variable interest entity, or both.
FIN 46 applies immediately to variable interest entities created after
January 31, 2003, and applies to the first fiscal year or interim period ending
after December 15, 2003 for variable interest entities created prior to
February 1, 2003. The Company adopted this statement for variable interest
entities created after January 31, 2003 in the fourth quarter of 2002 with no
material effect on its consolidated financial statements. On August 1, 2003 the
Company refinanced its real estate operating lease facility, which qualified as
a variable interest entity into a new entity. The Company has evaluated this
leasing transaction in accordance with FIN 46 and has determined it does not
have to consolidate this leasing entity. The Company has adopted this statement
for variable interest entities created prior to January 31, 2003 in the third
quarter of 2003 with no material effect on its consolidated financial
statements.

32

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
As a result of rescinding FASB Statement No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," gains and losses from extinguishment of debt
should be classified as extraordinary items only if they meet the criteria of
APB Opinion No. 30, "Reporting the Results of Operations." This statement also
amends FASB Statement No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Additional amendments
include changes to other existing authoritative pronouncements to make various
technical corrections, clarify meanings or describe their applicability under
changed conditions. The Company has adopted the provisions of SFAS No. 145
in the first quarter of fiscal 2003 with no material effect on its consolidated
statements of operations. Reclassifications of extraordinary items pertaining
to the extinguishment of debt, if any, will be made throughout fiscal 2003 to
maintain comparability for the reported periods.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting standards for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs and is effective for fiscal years beginning after
June 15, 2002. The Company has adopted the provisions of SFAS No. 143 in the
first quarter of fiscal year 2003 and has recognized an initial asset of
$2,844,000, accumulated depreciation of $2,247,000, a liability of $4,540,000
and a cumulative effect of a change in accounting principle before taxes of
$3,943,000 ($2,484,000 net of tax) on its consolidated financial statements.

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. 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, 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. For a detailed
discussion of significant accounting policies that may involve a higher degree
of judgment or complexity, refer to "-Critical Accounting Policies and
Estimates" as reported in the Company's current report on Form 8-K dated
October 10, 2003, which updated the Company's Annual Report on Form 10-K for
the year ended February 1, 2003, which disclosures are hereby incorporated by
reference.

33

FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements contained herein constitute "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
The words "guidance," "expect," "anticipate," "estimates," "forecasts" and
similar expressions are intended to identify such 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 the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, it can give no assurance that
its expectations will be achieved. The Company's actual results may differ
materially from the results discussed in the forward-looking statements due to
factors beyond the control of the Company, including the strength of the
national and regional economies, retail and commercial consumers' ability to
spend, the health of the various sectors of the automotive aftermarket, the
weather in geographical regions with a high concentration of the Company's
stores, competitive pricing, the location and number of competitors' stores,
product and labor costs and the additional factors described in the Company's
filings with the Securities and Exchange Commission (SEC). The Company assumes
no obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with
regard to financial instruments is to changes in interest rates. Pursuant to
the terms of its revolving credit agreement and senior secured credit facility,
changes in the lenders' prime rate or London Interbank Offered Rate (LIBOR)
could affect the rates at which the Company could borrow funds thereunder. At
November 1, 2003, the Company had outstanding borrowings of $25,356,000 under
these credit facilities.

On June 3, 2003, the Company entered into an interest rate swap for a notional
amount of $130,000,000. The Company has 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 these lease payments to a fixed
rate of 2.90% and terminates on July 1, 2008. If the critical terms of the
interest rate swap or the hedge item do not change, the interest rate swap will
be considered to be highly effective with all changes in fair value included in
other comprehensive income. As of November 1, 2003, the fair value of the
interest rate swap was $3,636,000 ($2,290,000, net of tax) and this change in
value was included in accumulated other comprehensive income. Except as noted
above, there have been no material changes to the market risk disclosures as
reported in the Company's current report on Form 8-K dated October 10, 2003,
which updated the Company's Annual Report on Form 10-K for the fiscal year
ended February 1, 2003.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under SEC rules, the Company is required to maintain disclosure controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it 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. The Company has carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report, November 1, 2003. The Company's management, including the chief
executive officer and chief financial officer, supervised and participated in
the evaluation. Based on this evaluation, the chief executive officer and the
chief financial officer concluded that the Company's disclosure controls and
procedures were effective as of November 1, 2003.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

34

PART II - OTHER INFORMATION
- ---------------------------

Item 1. Legal Proceedings

In the third quarter, the Company reached an agreement to submit the
consolidated action entitled "Dubrow et al vs. The Pep Boys - Manny Moe & Jack"
to binding arbitration. The two consolidated actions, originally filed on
March 29, 2000 and July 25, 2000 and pending in the California Superior Court
in Orange County, involve former and current store management employees who
claim that they were improperly classified as exempt from the overtime
provisions of California law and seek to be compensated for all overtime hours
worked. At the request of the parties, the arbitrator has determined how to
distribute the settlement funds among the class members, attorneys' fees and
litigation costs. Claim forms were mailed to the class members on
December 8, 2003, with a return deadline of January 22, 2004. The number of
claim forms returned by such deadline will determine the Company's settlement
amount, which is expected to be paid in full by the end of the first quarter of
fiscal 2004. The Company has previously accrued an amount sufficient to
satisfy the maximum settlement amount that may be imposed on the Company.

An action entitled "Tomas Diaz Rodriguez; Energy Tech Corporation v. Pep Boys
Corporation; Manny, Moe & Jack Corp. Puerto Rico, Inc. d/b/a Pep Boys" was
previously instituted against the Company in the Court of First Instance of
Puerto Rico, Bayamon Superior Division on March 15, 2002. The action was
subsequently removed to, and is currently pending in, the United States
District Court for the District of Puerto Rico. Plaintiffs are distributors of
a product that claims to improve gas mileage. The plaintiffs allege that the
Company entered into an agreement with them to act as the exclusive retailer of
the product in Puerto Rico that was breached when the Company determined to
stop selling the product. The Company became aware of a Federal Trade
Commission investigation regarding the accuracy of advertising claims
concerning the product's effectiveness. The plaintiffs further allege that they
were negotiating with the manufacturer of the product to obtain the exclusive
distribution rights throughout the United States and that those negotiations
failed. Plaintiffs are seeking damages including payment for the product that
they allege Pep Boys ordered and expenses and loss of sales in Puerto Rico and
the United States resulting from the alleged breach. Except for claims by the
Plaintiffs' lender for payment on a small quantity of product which was ordered
and delivered, and which claims have now been satisfied, the Company believes
that the claims are without merit and continues to vigorously defend this
action.

The Company is also party to various other 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 the foregoing matters are adequate and that the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.

35

Item 2. Changes in Securities and Use of Proceeds
None.

Item 3. Defaults upon Senior Securities
None.

Item 4. Submission of Matters to a Vote of Security Holders
None.

Item 5. Other Information
None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
(10.1) 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.

(10.2) Consent, dated October 24, 2003, of Wachovia
Development Corporation to Amendment No. 1 to the
Amended and Restated Loan and Security Agreement, by
and among the Company, Congress Financial Corporation,
as agent, and the other parties thereto.

(10.3)* Employment Agreement, dated June 1, 2003, between the
Company and Harry Yanowitz.

(31.1) Certification of Chief Executive Officer by
Rule 13a-14(a)

(31.2) Certification of Chief Financial Officer by
Rule 13a-14(a)

(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

* Management contract or compensatory plan or arrangement.

36

Item 6. Exhibits and Reports on Form 8-K (continued)

(b) Reports on Form 8-K.

The Company filed a Form 8-K on October 10, 2003 announcing its
shelf registration with the Securities and Exchange Commission
that, once effective, would allow the Company to complete one or
more offerings of up to an aggregate of $300 million of its
securities. An exhibit was attached containing the Company's
press release dated October 10, 2003 announcing the shelf
filing. Exhibits were also attached containing information
identical to the corresponding sections of the Company's Annual
Report on Form 10-K for the fiscal year ending February 1, 2003
except that certain of such information had been reclassified as
attributable to discontinued operations as a result of the
corporate restructuring announced on July 31,2003. Additionally,
the exhibits contained subsequent event disclosures,
Management's Discussion & Analysis of Results of Operating and
Financial Condition, and Notes to the Consolidated Financial
Statements that were updated to reflect the restructuring and
certain other matters occurring subsequent to the filing of the
Company's Annual Report on Form 10-K for the fiscal year ending
February 1, 2003.

The Company filed a Form 8-K on September 23, 2003 outlining
its go-forward strategy and expected results for the balance
of fiscal 2003. An exhibit containing the press release dated
September 23, 2003 announcing the go-forward strategy and
expected results for the balance of fiscal 2003 was attached.

The Company filed a Form 8-K on August 5, 2003, announcing its
extension of its revolving line of credit and the refinancing
of certain operating leases. An exhibit containing the
Company's press release announcing the extension and refinancing
was attached.

37

SIGNATURES
- ----------

Pursuant to the requirements 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)

Date: December 16, 2003 By: /s/ George Babich, Jr.
----------------------- --------------------------

George Babich, Jr.
President &
Chief Financial Officer

38

INDEX TO EXHIBITS
- -----------------
(10.1) 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.

(10.2) Consent, dated October 24, 2003, of Wachovia
Development Corporation to Amendment No. 1 to the
Amended and Restated Loan and Security Agreement, by
and among the Company, Congress Financial Corporation,
as agent, and the other parties thereto.

(10.3)* Employment Agreement, dated June 1, 2003, between the
Company and Harry Yanowitz.

(31.1) Certification of Chief Executive Officer by
Rule 13a-14(a)

(31.2) Certification of Chief Financial Officer by
Rule 13a-14(a)

(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

* Management contract or compensatory plan or arrangement.

39