PEP BOYS MANNY MOE & JACK - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

- --------------------------------------------------------------------------------

(Mark One)

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

For the fiscal year ended January 31, 1998

or

( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)

For the transition period from to .

Commission file number 1-3381

The Pep Boys - Manny, Moe & Jack
------------------------------------------

(Exact name of registrant as specified in its charter)

Pennsylvania 23-0962915
------------------------------ ------------------------------------

(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

3111 West Allegheny Avenue, Philadelphia, PA 19132
- -------------------------------------------- ---------
(Address of principal executive office) (Zip code)

Registrant's telephone number, including area code 215-229-9000
------------

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

Name of each exchange
Title of each class on which registered
------------------- -----------------------

Common Stock, $1.00 par value New York Stock Exchange

4% Convertible Subordinated
Notes due September 1, 1999 New York Stock Exchange

Liquid Yield Option Notes
due September 20, 2011 New York Stock Exchange

Common Stock Purchase Rights New York Stock Exchange

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

None

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

Yes X No
----- -----

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

Yes No X
----- -----

As of the close of business on April 10, 1998, the aggregate market value of the
voting stock held by nonaffiliates of the registrant was approximately
$1,199,527,000.

As of April 10, 1998, there were 63,753,581 shares of the registrant's common
stock outstanding.

2

This Annual Report on Form 10-K contains "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned that such forward looking statements involve risks and
uncertainties which could cause actual results to materially differ from those
expressed in any such forward looking statements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Forward Looking
Statements."

3

DOCUMENTS INCORPORATED BY REFERENCE

PART III Portions of the registrant's definitive proxy statement, which will be
filed with the commission pursuant to Regulation 14A not later than 120
days after the end of the Company's fiscal year, for the Company's
Annual Meeting of Shareholders presently scheduled to be held on June
3, 1998.

4

This Annual Report on Form 10-K for the year ended January 31, 1998, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities on or after the date of such filing, pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933 which
incorporates by reference this Annual Report.

5

PART I

ITEM 1 BUSINESS

GENERAL

The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is a
leading automotive retail and service chain. The Company is engaged principally
in the retail sale of automotive parts and accessories, automotive maintenance
and service and the installation of parts. As of January 31, 1998, the Company
operated 711 stores which consists of 591 SUPERCENTERS and one SERVICE & TIRE
CENTER, having an aggregate of 6,208 service bays, and 119 PEP BOYS EXPRESS
(formerly called PARTS USA) stores. The Company operates approximately
13,405,000 gross square feet of retail space, including service bays. The
SUPERCENTERS average approximately 20,800 square feet and the PEP BOYS EXPRESS
stores average approximately 9,400 square feet. The Company believes it is well
positioned to gain market share and to increase profitability by serving the
"do-it-yourself," "do-it-for-me" and "buy-for-resale" customer segments with the
highest quality merchandise and service at a good value.

6

As of January 31, 1998, the Company operated its stores in 33 states,
the District of Columbia and Puerto Rico. The following table indicates by state
the number of stores of the Company in operation at the end of fiscal 1994,
1995, 1996 and 1997 and the number of stores opened and closed by the Company
during each of the last three fiscal years:

NUMBER OF STORES AT END OF FISCAL YEARS 1994 THROUGH 1997

1994 1995 1996 1997
Year Year Year Year
State End Opened Closed End Opened Closed End Opened Closed End
- ----- --- ------ ------ --- ------ ------ --- ------ ------ ---

Alabama 1 - - 1 - - 1 - - 1
Arizona 24 - - 24 - 1 23 1 - 24
Arkansas 1 - - 1 - - 1 - - 1
California 102 17 1 118 29 1 146 10 - 156
Colorado 5 1 - 6 2 - 8 - - 8
Connecticut - 2 - 2 5 - 7 2 - 9
Delaware 5 - - 5 - - 5 1 - 6
District of Columbia - 2 - 2 1 - 3 2 - 5
Florida 34 4 - 38 4 - 42 9 - 51
Georgia 20 2 - 22 3 - 25 1 - 26
Illinois 13 4 - 17 4 - 21 11 - 32
Indiana 1 2 - 3 3 - 6 6 - 12
Kansas 2 - - 2 - - 2 - - 2
Kentucky 3 1 - 4 - - 4 - - 4
Louisiana 12 - - 12 - - 12 - - 12
Maryland 16 3 1 18 2 - 20 5 2 23
Massachusetts 3 2 - 5 4 - 9 2 - 11
Michigan 1 5 - 6 5 - 11 6 - 17
Missouri 1 - - 1 - - 1 - - 1
Nevada 8 - - 8 - - 8 2 - 10
New Hampshire 1 - - 1 1 - 2 2 - 4
New Jersey 15 3 - 18 8 - 26 8 - 34
New Mexico 8 - - 8 - - 8 - - 8
New York 11 3 - 14 13 - 27 19 - 46
North Carolina 11 - - 11 - - 11 - - 11
Ohio 9 1 - 10 3 - 13 1 - 14
Oklahoma 6 - - 6 - - 6 - - 6
Pennsylvania 34 8 2 40 3 - 43 8 1 50
Puerto Rico - 7 - 7 4 - 11 10 - 21
Rhode Island 1 - - 1 2 - 3 1 - 4
South Carolina 6 - - 6 - - 6 - - 6
Tennessee 7 - - 7 - - 7 - - 7
Texas 55 8 - 63 2 - 65 - - 65
Utah 6 - - 6 - - 6 - - 6
Virginia 13 - - 13 2 - 15 3 - 18
--- --- -- ---- --- -- --- ---- -- ----

Total 435 75 4 506 100 2 604 110 3 711
=== == == === === == === === == ===

7

NEW STORES AND EXPANSION STRATEGY
During fiscal 1997, the Company opened 70 SUPERCENTERS, all of which
include service bays, 39 PEP BOYS EXPRESS stores and one SERVICE & TIRE CENTER.
Two outmoded units were closed and replaced by SUPERCENTERS and one PARTS USA
store was closed.

The Company's typical SUPERCENTER is a free standing, "one-stop"
shopping automotive warehouse that features state-of-the-art service bays. Each
SUPERCENTER carries an average of approximately 28,000 stock-keeping units and
serves the automotive aftermarket needs of the "do-it-yourself," the
"do-it-for-me" and the "buy-for-resale" customer segments. Late in 1996, a new
SUPERCENTER prototype was introduced reducing overall size to approximately
18,200 square feet while offering the same number of stock-keeping units and
increasing the number of service bays to 12. The Company intends to continue to
utilize this new prototype in fiscal 1998.

PEP BOYS EXPRESS stores generally operate in certain urban locations
that the Company believes will be better served by stores with an extensive
selection of parts and accessories (an average of approximately 27,000
stock-keeping units per store) but without tires or service bays. PEP BOYS
EXPRESS stores primarily serve the automotive aftermarket needs of the
"do-it-yourself" and the "buy-for-resale" customer segments. PEP BOYS EXPRESS
stores average approximately 9,400 square feet.

The Company has established a commercial parts delivery business to
increase its market share with the professional installer. This will strengthen
the Company's position in the "buy-for-resale" customer segment by taking
greater advantage of the breadth and quality of its parts inventory as well as
its experience supplying its own service bays and mechanics. As of January 31,
1998, 262 of the Company's stores provide parts delivery, and by the end of the
second quarter of fiscal 1998, the Company expects to provide parts delivery
from all of its suitable stores, representing approximately 80 % of its chain.

8

In fiscal 1998, the Company plans to slow down its store expansion by
opening approximately 40 new stores. If all 40 stores are opened, the Company
anticipates spending approximately $66,200,000 in addition to the $13,198,000 it
has already spent as of January 31, 1998 in connection with certain of these
locations. Additionally in fiscal 1998, the Company anticipates spending
approximately $19,200,000 on certain stores it expects to open in fiscal 1999.
The Company expects to fund this expansion from net cash generated by operating
activities, and if necessary from unused lines of credit or from accessing
traditional lending sources which may include the public capital markets.

The most important factors considered by the Company when deciding to
open new stores are vehicle and population demographics, competitive positioning
and site development costs. The most important factors considered by the Company
when deciding whether to close a store are profitability and whether the store
is outmoded by virtue of store size, location and surroundings, number of
service bays, number of other stores within the same market area and the
cost/benefit of establishing a replacement store rather than expanding or
otherwise upgrading an older store.

The Company's ability to meet its expansion goals will depend, in large
measure, upon the availability of suitable sites, prevailing economic
conditions, its success in completing negotiations to purchase or lease
properties, and its ability to obtain governmental approvals and meet
construction deadlines.

MERCHANDISING

Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries the same
basic product line, with variations based on the number and type of cars
registered in the different markets. A full complement of inventory at a
SUPERCENTER and a PEP BOYS EXPRESS store currently includes an average of
approximately 28,000 and 27,000 items, respectively. The Company's automotive
product line includes: tires (not stocked at PEP BOYS EXPRESS locations);
batteries; new and rebuilt parts for domestic and imported cars, including
suspension parts, ignition parts, mufflers, engines and engine parts, oil and
air filters, belts, hoses, air conditioning parts, and brake parts; chemicals,
including oil, antifreeze, polishes, additives, cleansers and paints; mobile
electronics, including sound systems, alarms, remote vehicle starters and global
positioning systems; car accessories, including seat covers, floor mats, gauges,
mirrors and booster cables; a full line of hand tools including sockets,
wrenches, ratchets, paint and body tools, jacks and lift equipment, automotive
specialty tools and test gauges; as well as a large selection of truck, van and
sport utility vehicle accessories.

In addition to offering a wide variety of high quality, branded
products, the Company sells an array of high quality products under the Pep Boys
and various other private label names. The Company sells cleaners and chemicals
under the Pep Boys name. The Company also sells oil, oil treatments, hand
cleaner, air filters, oil filters, transmission fluids and lubricants under the
name PROLINE (R) and paints under the name VARSITY (R). The Company sells
starters and alternators under the name PROSTART (R), water pumps under the name
PROCOOL (R) and batteries under the names PRO-START (R), MASTER START (tm) and
RIGHT START (tm). Brakes are sold under the names SHUR GRIP (R), PROSTOP (R) and
ELITE (tm) and tires under the names CORNELL (R) and FUTURA (R).

9

The Company also sells shock absorbers under the name PRO RYDER (R), and trunk
and hatchback lift supports under the name PROLIFT (R). All products sold by the
Company under the Pep Boys and various other private label names accounted for
approximately 25% of the Company's merchandise sales in fiscal 1997. The
remaining merchandise is sold under the brand names of others. Except for
revenues from maintaining or repairing automobiles and installing products,
which accounted for approximately 16.3%, 15.0% and 15.0% of the Company's total
revenues in fiscal years 1997, 1996 and 1995, respectively, no class of products
or services accounted for as much as 10% of the Company's total revenues.

The Company has a point-of-sale system in all of its stores which
gathers sales and gross profit data by stock-keeping unit from each store on a
daily basis. This information is then used by the Company to help formulate its
pricing, marketing and merchandising strategies.

The Company has an electronic parts catalog in all of its stores and an
electronic commercial invoicing system in all of its stores that offer
commercial parts delivery.

The Company has an electronic work order system in all of its service
centers. This system creates a service history for each vehicle, provides
customers with a comprehensive, professional sales document and has enabled the
Company to establish a service customer database.

The Company uses an "Everyday Low Price" (EDLP) strategy in
establishing its selling prices. Management believes that EDLP provides better
value to its customers on a day-to-day basis, helps level customer demand and
allows more efficient management of inventories.

The Company uses various forms of advertising to promote its category
dominant product offering, its state-of-the-art automotive service and repair
capabilities and its commitment to customer service and satisfaction. The
Company's advertising vehicles include, but are not limited to, multi-page
catalogs, television and radio commercials, newspaper advertisements and various
in-store promotions. All or most of the gross cost of the advertising directed
by the Company is customarily borne by the suppliers of the products advertised.

In fiscal 1997, approximately 64% of the Company's total revenues were
cash transactions (including personal checks), and the remainder were credit and
debit card transactions, and commercial credit accounts.

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

STORE OPERATIONS AND MANAGEMENT

All Pep Boys stores are open seven days a week. Each SUPERCENTER has a
manager, a service manager, a parts manager and two or more assistant managers.
Each PEP BOYS EXPRESS store has a manager, a parts manager and two or more
assistant managers. A store manager's average length of service with the Company
is approximately six years.

The Company has service bays in 592 of its 711 locations. Each service
department can perform a variety of services which include: engine diagnosis and
tune-ups, wheel and front end alignments, state inspection and emission
services, air conditioning service, heating and cooling system service, fuel
injection and throttle body service, battery and electrical service; the repair
and

10

installation of parts and accessories including brake parts, suspension parts,
exhaust systems, front end parts, ignition parts, belts, hoses, clutches,
filters, stereos and speakers, alarms, sunroofs, cruise controls, global
positioning systems, remote starters and various other merchandise sold in Pep
Boys' stores; installation and balancing of tires, and oil and lubrication
services.

The Company coordinates the operation and merchandising of each store
through a network of district and regional managers. The regional managers
report to one of three divisional Vice Presidents - Store Operations and one
Vice President Service Operations, who report to the Company's Senior Vice
President - Store Operations, who reports to the Company's Chairman of the
Board, President & Chief Executive Officer. Supervision and control over the
individual stores are facilitated by means of the Company's computer system,
operational handbooks and regular visits to the individual stores by the
district operations managers and loss prevention personnel.

All of the Company's advertising, accounting, purchasing and most of
its management information systems and administrative functions are conducted at
its corporate headquarters in Philadelphia, Pennsylvania. Certain of the
Company's management information system functions are conducted at a regional
office located near its corporate headquarters. Certain administrative functions
for the Company's western, southwestern, southeastern, midwest and Puerto Rico
operations are performed at various regional offices of the Company. See
"Properties."

INVENTORY CONTROL AND DISTRIBUTION

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

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

SUPPLIERS

During fiscal 1997, the Company's ten largest suppliers accounted for
approximately 40% of the merchandise purchased by the Company. No single
supplier accounted for more than 12% of the Company's purchases. The Company has
no long-term contracts for the purchase of merchandise. Management believes that
the relationships the Company has established with its suppliers are generally
good.

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

11

COMPETITION

The business of the Company is generally highly competitive. The
Company encounters competition from nationwide and regional chains and from
local independent merchants. Some of the Company's competitors are general, full
range, discount or traditional department stores which carry automotive parts
and accessories and/or have automotive service centers, and others, similar to
the Company, are specialized automotive service retailers. Certain of its
competitors are larger in terms of sales volume, store size, and/or number of
stores, have access to greater capital and management resources and have been
operating longer in particular geographic areas than the Company.

Although the Company's competition varies by geographic area, the
Company believes that it generally has a favorable competitive position in terms
of depth and breadth of product line, price, quality of personnel and customer
service.

In addition, the Company believes that its operation of service bays in
its SUPERCENTERS positively differentiates it from most of its competitors by
providing its customers with the ability to purchase parts and have them
installed at the same location. The Company believes that the warranty policies
in connection with the higher priced items it sells, such as tires, batteries,
brake linings and other major automotive parts and accessories, are comparable
or superior to those of its competitors.

EMPLOYEES

At January 31, 1998, the Company employed 24,203 persons as follows:

Full-time Part-time Total
Description Numbers % Numbers % Numbers %
------- ---- ------- ---- ------- ----

Store Sales 8,023 44.2 4,274 70.7 12,297 50.8
Store Service 7,703 42.4 1,498 24.8 9,201 38.0
------- ----- ----- ----- ------- -----

STORE TOTAL 15,726 86.6 5,772 95.5 21,498 88.8

Warehouses 1,103 6.1 239 4.0 1,342 5.6
Offices 1,331 7.3 32 .5 1,363 5.6
------- ------ ------- ------- ------- ------

TOTAL EMPLOYEES 18,160 100.0 6,043 100.0 24,203 100.0
====== ===== ===== ===== ====== =====

Of the 1,342 full-time and part-time warehouse employees referred to
above, 325 employees at the Company's New Jersey warehouse facilities are
members of a union. The Company believes employee relations are generally good.
At the end of fiscal 1996, the Company employed approximately 15,502 full-time
and 4,987 part-time employees and at the end of fiscal 1995, the Company
employed approximately 13,186 full-time and 4,405 part-time employees.

12

ITEM A EXECUTIVE OFFICERS OF THE COMPANY
The following table indicates the names, ages, years with the Company
and positions (together with the year of election to such positions) of the
executive officers of the Company:

- ----------------------------------------------------------------------------------------------------------------------------------
Years with Position with the Company and
Name Age Company Date of Election to Position
- ---- --- ------- ----------------------------

Mitchell G. Leibovitz 52 19 Chairman of the Board since
March 1994; Chief Executive
Officer since March 1990;
President since 1986

Michael J. Holden 46 18 Executive Vice President
since March 1996; Senior Vice
President & Chief Financial
Officer since March 1987

J. Michael Riggan 48 - Senior Vice President -
Merchandising and Marketing
since November 1997

Mark L. Page 41 22 Senior Vice President - Store
Operations since March 1993

Ronald J. McEvoy 50 1 Senior Vice President & Chief
Information Officer since February
1997

Frederick A. Stampone 42 15 Senior Vice President
since March 1987; Chief
Administrative Officer since
March 1993; Secretary since
December 1988

Messrs. Leibovitz, Holden and Stampone have been executive officers of the
Company for more than the past five years. Mr. Page was a regional manager for
the Company from February 1987 until February 1991 when he was elected Vice
President - Western Store Operations. On March 14, 1993, Mr. Page became Senior
Vice President - Store Operations. Mr. McEvoy was Senior Vice President and
Chief Information Officer for Fred Meyer, Inc. from May 1990 until February 1997
when he joined Pep Boys as Senior Vice President and Chief Information Officer.
Mr. Riggan served as Executive Vice President of PetCare Plus, Inc. from
November 1991 until November 1997 when he became Senior Vice President -
Merchandising and Marketing for Pep Boys. Each of the officers serves at the
pleasure of the Board of Directors of the Company.

13

ITEM 2 PROPERTIES

The Company owns its five-story, approximately 300,000 square foot
corporate headquarters in Philadelphia, Pennsylvania. The Company also owns the
following administrative regional offices -- a three-story, approximately 60,000
square foot structure in Los Angeles, California of which it occupies
approximately 35,000 square feet and approximately 4,000 square feet of space in
each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition, the
Company leases approximately 4,000 square feet of space for administrative
regional offices in each of Decatur, Georgia and Richardson, Texas.

Of the 711 store locations operated by the Company at January 31, 1998,
374 are owned and 337 are leased. Of the 337 leased store locations, 189 are
ground leases.

14

The following table sets forth certain information regarding the owned
and leased warehouse space utilized by the Company for its 711 store locations
at January 31, 1998.

Warehouse Products Square Owned or Stores States
Location Warehoused Footage Leased Serviced Serviced
- -------- ---------- ------- ------ -------- --------

Los Angeles, CA All except 216,000 Owned 121 AZ, CA
tires

Los Angeles, CA Tires 73,000 Leased 91 AZ, CA

Los Angeles, CA All except 137,000 Leased 121 AZ, CA
tires

Phoenix, AZ All except 108,000 Owned 60 AZ, CO, NM,
tires and NV, TX, UT
chemicals

Phoenix, AZ Tires and 56,000 Leased 60 AZ, CO, NM,
chemicals NV, TX, UT

Bridgeport, NJ All except 195,000 Owned 188 CT, DC, DE,
tires MA, MD, NH,
NJ, NY, PA,
PR, RI, VA

Bridgeport, NJ Tires and 273,000 Leased 188 CT, DC, DE,
chemicals MA, MD, NH,
NJ, NY, PA,
PR, RI, VA

Atlanta, GA All 392,000 Owned 123 AL, FL, GA,
NC, PR, SC,
TN, VA

Mesquite, TX All 244,000 Owned 80 AR, KS, LA,
MO, OK, TX

Plainfield, IN All 403,000 Leased 101 IL, IN, KY,
MI, NY, OH,
PA

Tracy, CA All 246,250 Leased 38 CA, NV
----------

Total 2,343,250
==========

To meet its current expansion requirements the Company plans to open a
400,000 square foot, leased warehouse facility in Chester, New York in late 1998
or early 1999.

15

The Company anticipates that its existing and planned warehouse space
will accommodate inventory necessary to support store expansion and any increase
in stock-keeping units through the end of fiscal 1999.

The Company is subject to federal, state and local provisions relating
to the protection of the environment, including provisions with respect to the
disposal of oil at its store locations. Estimated capital expenditures relating
to compliance with such environmental provisions are not deemed material.

ITEM 3 LEGAL PROCEEDINGS

The Company is a defendant in a purported class action entitled "Brian
Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," in
the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss
the case for failure to state a claim. The Company's motion to dismiss is
pending before the Circuit Court of Mobile County, Alabama. In their complaint,
the plaintiffs allege that the Company sold old or used automotive batteries to
consumers as if those batteries were new. The complaint purports to state causes
of action for fraud and deceit, negligent misrepresentation, breach of contract
and violation of state consumer protection statutes. The plaintiffs are seeking
compensatory and punitive damages, as well as injunctive and equitable relief.
The Company believes the claims are without merit and intends to vigorously
defend this action.

The Company is also party to various other lawsuits and claims arising
in the normal course of business. In the opinion of management, these lawsuits
and claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended January 31, 1998.

16

PART II

ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The common stock of The Pep Boys - Manny, Moe & Jack is listed on the
New York Stock Exchange under the symbol "PBY". There were 4,368 registered
shareholders as of January 31, 1998. The following table sets forth for the
periods listed, the high and low sale prices and the cash dividends paid on the
Company's common stock.

- ---------------------------------------------------------------------------------------------------------------

MARKET PRICE PER SHARE

Market Price Per Share Cash Dividends
Fiscal year ended January 31, 1998 High Low Per Share
- ---------------------------------- ---- --- ---------

First Quarter 35 29 3/8 $.0600
Second Quarter 35 5/8 30 .0600
Third Quarter 34 7/8 23 5/8 .0600
Fourth Quarter 26 3/16 21 9/16 .0600

Fiscal year ended February 1, 1997
- ---------------------------------

First Quarter 34 7/8 27 7/8 $.0525
Second Quarter 35 1/2 28 .0525
Third Quarter 38 1/4 30 3/4 .0525
Fourth Quarter 38 27 7/8 .0525

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

17

ITEM 6 SELECTED FINANCIAL DATA

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

SELECTED FINANCIAL DATA (UNAUDITED)
(dollar amounts in thousands, except per share amounts)

Year ended Jan. 31, 1998 Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA

Merchandise sales $ 1,720,670 $ 1,554,757 $ 1,355,008 $ 1,211,536 $ 1,076,543
Service revenue 335,850 273,782 239,332 195,449 164,590
Total revenues 2,056,520 1,828,539 1,594,340 1,406,985 1,241,133
Gross profit from merchandise sales 474,239(1) 484,494 411,133 364,378 307,861
Gross profit from service revenue 66,081 53,025 44,390 32,417 27,457
Total gross profit 540,320(1) 537,519 455,523 396,795 335,318
Selling, general and
administrative expenses 430,517(1) 350,419 296,089 247,872 214,710
Operating profit 109,803(1) 187,100 159,434 148,923 120,608
Nonoperating income 5,309 2,435 2,090 3,490 3,601
Interest expense 39,656 30,306 32,072 25,931 19,701
Earnings before income taxes
and accounting change 75,456(1) 159,229 129,452 126,482 104,508
Earnings before accounting change 49,611(1) 100,824 81,494 80,008 65,512
Accounting change - - - (4,300) -
Net earnings 49,611(1) 100,824 81,494 75,708 65,512

BALANCE SHEET DATA

Working capital $ 151,340 $ 70,691 $ 39,868 $ 121,858 $ 92,518
Current ratio 1.24 to 1 1.13 to 1 1.09 to 1 1.42 to 1 1.37 to 1
Merchandise inventories $ 655,363 $ 520,082 $ 417,852 $ 366,843 $ 305,872
Property and equipment-net 1,377,749 1,189,734 1,014,052 861,910 723,452
Total assets 2,161,360 1,818,365 1,500,008 1,291,019 1,078,518
Long-term debt (includes
all convertible debt) 646,641 455,665 367,043 380,787 253,000
Stockholders' equity 822,635 778,091 665,460 586,253 547,759

DATA PER COMMON SHARE

Basic earnings before accounting
change(2) $ .81(1) $ 1.67 $ 1.37 $ 1.35 $ 1.08
Basic earnings(2) .81(1) 1.67 1.37 1.28 1.08
Diluted earnings before accounting
change(2) .80(1) 1.62 1.34 1.32 1.06
Diluted earnings(2) .80(1) 1.62 1.34 1.25 1.06
Cash dividends .24 .21 .19 .17 .15
Stockholders' equity 12.92 12.33 10.72 9.53 8.97
Common share price range:
high-low 35 5/8 - 21 9/16 38 1/4 - 27 7/8 34 3/4 - 21 7/8 36 7/8 - 26 27 1/2 - 20 1/2

OTHER STATISTICS

Return on average
stockholders' equity 6.2% 14.0% 13.0% 13.4% 12.4%
Common shares outstanding 63,657,728 63,119,491 62,084,021 61,501,679 61,060,055
Capital expenditures $ 284,084 $ 245,246 $ 205,913 $ 185,072 $ 135,165
Number of retail outlets 711 604 506 435 386
- -----------------------------------------------------------------------------------------------------------------------------------

(1) Includes pretax charges of $28,012 ($18,418 net of tax or $.30 per
share-basic and diluted), $16,330 of which reduced gross profit from
merchandise sales with the remaining $11,682 included in selling, general
and administrative expenses. These charges were associated with closing nine
stores, reducing the store expansion program, converting all Parts USA
stores to The Pep Boys Express format, certain equipment write-offs,
severance and other non-recurring expenses.

(2) All data per common share for the years ended February 1, 1997 and prior
have been restated to reflect the adoption of Statement of Financial
Accounting Standards No. 128 "Earnings per Share."

18

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

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, certain items in the
consolidated statements of earnings 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
- ------------------------------------------------------------------------------------------------------------------------------------

Jan. 31, 1998 Feb. 1, 1997 Feb. 3, 1996 Fiscal 1997 vs. Fiscal 1996 vs.
Year ended (Fiscal 1997) (Fiscal 1996) (Fiscal 1995) Fiscal 1996 Fiscal 1995
- ------------------------------------------------------------------------------------------------------------------------------------

Merchandise Sales 83.7% 85.0% 85.0% 10.7% 14.7%
Service Revenue(1) 16.3 15.0 15.0 22.7 14.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 100.0 100.0 100.0 12.5 14.7
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales(2) 72.4(3) 68.8(3) 69.7(3) 16.5 13.4
Costs of Service Revenue(2) 80.3(3) 80.6(3) 81.5(3) 22.2 13.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 73.7 70.6 71.4 17.4 13.4
- ------------------------------------------------------------------------------------------------------------------------------------

Gross Profit from Merchandise Sales 27.6(3) 31.2(3) 30.3(3) (2.1) 17.8
Gross Profit from Service Revenue 19.7(3) 19.4(3) 18.5(3) 24.6 19.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 26.3 29.4 28.6 .5 18.0
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses 21.0 19.2 18.6 22.9 18.3
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 5.3 10.2 10.0 (41.3) 17.4
Nonoperating Income .3 .1 .1 118.0 16.5
Interest Expense 1.9 1.6 2.0 30.9 (5.5)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 3.7 8.7 8.1 (52.6) 23.0
- ------------------------------------------------------------------------------------------------------------------------------------
Income Taxes 34.3(4) 36.7(4) 37.0(4) (55.7) 21.8
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings 2.4 5.5 5.1 (50.8) 23.7
- ------------------------------------------------------------------------------------------------------------------------------------

(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.

19

FISCAL 1997 vs. FISCAL 1996

Total revenues for fiscal 1997 increased 12.5% over fiscal 1996 due to
a higher store count (711 at January 31, 1998 compared with 604 at February 1,
1997) offset, in part, by a 0.4% decrease in comparable store revenues (revenues
generated by stores in operation during the same months of each period).
Comparable store merchandise sales decreased 2.3% while comparable service
revenue increased 10.3%.

During fiscal 1997 the Company recorded pretax charges of $28,012,000
($18,418,000 net of tax), $16,330,000 of which was recorded as Costs of
Merchandise Sales and includes the costs associated with closing nine stores,
converting all Parts USA stores to the Pep Boys Express format, certain
equipment write-offs and other non-recurring expenses. The remaining $11,682,000
of these expenses, which include costs associated with reducing the store
expansion program, certain equipment write-offs and other non-recurring
expenses, have been included in Selling, General and Administrative Expenses.

The substantial decrease in gross profit from merchandise sales, as a
percentage of merchandise sales, was due primarily to significantly lower
merchandise margins, significantly higher store occupancy costs and the
$16,330,000 pretax charge.

The dramatic increase in selling, general and administrative expenses,
as a percentage of total revenues, was due primarily to a substantial increase
in store expenses, an increase in general office costs and the $11,682,000
pretax charge.

Interest expense increased, as a percentage of total revenues, due
primarily to higher debt levels necessary to fund the Company's store expansion
program and related working capital requirements offset, in part, by slightly
lower interest rates.

Net earnings in fiscal 1997, which were negatively impacted by the
after tax charges of $18,418,000, decreased substantially as compared with
fiscal 1996, as a percentage of total revenues, due primarily to a substantial
decrease in gross profit from merchandise sales, as a percentage of merchandise
sales, a dramatic increase in selling, general and administrative expenses, as a
percentage of total revenues, and an increase in interest expense, as a
percentage of total revenues.

FISCAL 1996 vs. FISCAL 1995

Total revenues for fiscal 1996, which included 52 weeks, increased
14.7% over fiscal 1995, which included 53 weeks, due to a higher store count
(604 at February 1, 1997 compared with 506 at February 3, 1996) coupled with a
4.3% increase in comparable store revenues (revenues generated by stores in
operation during the same months of each period). Comparable store merchandise
sales increased 3.9% while comparable store service revenue increased 6.4%.

The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to significantly higher merchandise margins
and a decrease in warehousing costs offset, in part, by an increase in store
occupancy costs.

20

The increase in gross profit from service revenue, as a percentage of
service revenue, was due primarily to a decrease in service center employee
benefits expense.

The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to increases in store expenses
and general office costs.

Interest expense decreased, as a percentage of total revenues, due
primarily to lower interest rates, partially offset by higher debt levels
incurred to fund the Company's store expansion program.

The 23.7% increase in net earnings in fiscal 1996, as compared with
fiscal 1995, was due primarily to increases in total and comparable store
revenues, a substantial increase in gross profit from merchandise sales, as a
percentage of merchandise sales, an increase in gross profit from service
revenue, as a percentage of service revenue, and lower interest expense, as a
percentage of total revenues offset, in part, by higher selling, general and
administrative expenses, as a percentage of total revenues.

EFFECTS OF INFLATION

The Company uses the LIFO method of inventory valuation. Thus, the cost
of merchandise sold approximates current cost. Although the Company cannot
accurately determine the precise effect of inflation on its operations, it does
not believe inflation has had a material effect on revenues or results of
operations during fiscal 1997, fiscal 1996 or fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash requirements arise principally from the need to
finance the acquisition, construction and equipping of new stores and to
purchase inventory. The Company opened 110 stores in fiscal 1997, 100 stores in
fiscal 1996 and 75 stores in fiscal 1995. In fiscal 1997, with increased levels
of capital expenditures and net inventory, the Company increased its debt by
$174,999,000. In fiscal 1996, with increased levels of capital expenditures, the
Company increased its debt by $43,550,000. In fiscal 1995, with an increase in
cash from operating activities, the Company decreased its debt by $22,507,000.

21

The following table indicates the Company's principal cash requirements for the past three years.
(dollar amounts Fiscal Fiscal Fiscal
in thousands) 1997 1996 1995 Total
- --------------------------------------------------------------------------------------------------------------

Cash Requirements:
Capital expenditures $284,084 $245,246 $205,913 $735,243
Net inventory
increase (decrease)(1) 63,764 (12,782) (71,351) (20,369)
- --------------------------------------------------------------------------------------------------------------
Total $347,848 $232,464 $134,562 $714,874
- --------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities
(excluding the change
in net inventory) $180,721 $169,811 $159,968 $510,500
- --------------------------------------------------------------------------------------------------------------

(1) Net inventory increase (decrease) is the change in inventory less the
change in accounts payable.

Inventories have increased in the past three years as the Company added
a net of 276 stores while the average number of stock-keeping units per store
rose during the period from approximately 25,000 to approximately 28,000, many
of which are higher cost hard parts.

The Company currently plans to open approximately 40 new stores in
fiscal 1998. Management estimates that the cost to open all 40 stores, coupled
with capital expenditures relating to existing stores, warehouses and offices
during fiscal 1998, will be approximately $184,000,000. This slower store
expansion program coupled with the Company's plans to reduce inventory levels is
expected to generate net cash from operating activities in excess of its cash
requirements in fiscal 1998. The Company expects to fund anticipated fiscal 1998
capital expenditures from net cash generated from operating activities, and if
necessary from unused lines of credit (which totaled $247,000,000 at January 31,
1998), or from accessing traditional lending sources which may include the
public capital markets.

On April 21, 1995, the Company amended and restated a revolving credit
agreement it had with several major banks to increase the amount of borrowings
provided from up to $100,000,000 to up to $200,000,000. At the Company's option,
the interest rate on any loan may be based on (i) the higher of the Federal
funds rate plus 1/4% or the prime rate, (ii) LIBOR plus up to .63% or (iii) a
negotiated rate based upon market conditions.

In June 1995, the Company sold $100,000,000 of 7% Notes due June 1,
2005. Proceeds were used to repay portions of the Company's long-term
variable-rate bank debt and for general corporate purposes.

In September 1996, the Company received net proceeds of $146,250,000
from the sale of zero coupon subordinated Liquid Yield Option Notes due 2011
which have an aggregate principal amount at maturity of $271,704,000. The notes
were issued at a discount representing a yield to maturity of 4%. Proceeds from
the notes were used to repay the Company's short-term variable-rate bank debt,
portions of the Company's long-term variable-rate bank debt and for general
corporate purposes.

22

In July 1997, the Company established a Medium-Term Note program which
permitted the Company to issue up to $150,000,000 of Medium-Term Notes. Under
this program the Company has sold $150,000,000 principal amount of senior notes,
ranging in annual interest rates from 6.4% to 6.7% and due November 2004
through September 2007. The net proceeds of $149,225,000 were used for working
capital, the repayment of debt and for general corporate purposes.

In February 1998, the Company established a Medium-Term Note program
which permits the Company to issue up to $200,000,000 of Medium-Term Notes.
Under this program the Company has sold $100,000,000 principal amount of senior
notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and
March 2006. The net proceeds of $99,429,000 were used for working capital, the
repayment of debt and for general corporate purposes.

The Company's working capital was $151,340,000 at January 31, 1998,
$70,691,000 at February 1, 1997 and $39,868,000 at February 3, 1996. The
Company's long-term debt, as a percentage of its total capitalization, was 44%
at January 31, 1998, 37% at February 1, 1997 and 36% at February 3, 1996.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement, which establishes standards for reporting
and disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997, although earlier adoption is
permitted. As this statement only requires additional disclosures in the
Company's consolidated financial statements, its adoption will not have any
impact on the Company's consolidated financial position or results of
operations. The Company will adopt SFAS No. 130 in fiscal 1998.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after December 15,
1997, although earlier application is permitted. If applicable, this statement
would only require additional disclosures in the Company's consolidated
financial statements and as such, its adoption will not have any impact on the
Company's consolidated financial position or results of operations. The Company
expects to adopt SFAS No. 131 in fiscal 1998.

In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits." This statement, which
establishes standards for the reporting of information about pensions and other
postretirement benefits, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. The Company does not expect
adoption of this statement to result in significant changes to its presentation
of pension and other postretirement benefit information. The Company will adopt
SFAS No. 132 in fiscal 1998.

23

INFORMATION SYSTEMS AND THE YEAR 2000

The Company recognizes that the arrival of the Year 2000 poses a
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed and
is modifying its computer applications and business processes to provide for
their continued functionality. An assessment of the readiness of external
entities which it interfaces with, such as vendors, suppliers, customers and
others, is ongoing.

The Company expects that the principal costs involved will be those
associated with the remediation and testing of its computer applications. This
effort is currently underway across the Company. A large portion of these costs
will be met from existing resources through a reprioritization of technology
development initiatives, with the remainder representing incremental costs.
Management estimates that these costs, which will be expensed as incurred, for
the remediation and testing of computer applications will range from
approximately $12,000,000 to $16,000,000 over the two year period from 1998
through the end of 1999.

While the Company does not currently foresee any material problems,
there can be no guarantee that the Company and the external entities with which
it interfaces will be Year 2000 compliant by January 1, 2000 and that any such
non-compliance will not have a material adverse effect on the Company.

FORWARD LOOKING STATEMENTS

Certain statements made herein are forward looking and as a result
involve risks and uncertainties. Actual results could differ materially from
expected results due to factors beyond the control of the Company, including the
strength of the national and regional economies and consumers' ability to spend,
the health of various segments of the market that the Company serves --
particularly the do-it-yourself segment, the weather in geographical regions
with a high concentration of the Company's stores, competitive pricing, location
and number of competitors' stores, product costs, the ability to attract and
retain qualified personnel, the ability to acquire real estate, facilities and
equipment and the ability to complete the rollout of the commercial delivery
program and reduce inventory levels during 1998. Further risk factors are
discussed in the Company's filings with the Securities and Exchange Commission.

24

ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Pep Boys - Manny, Moe & Jack

We have audited the accompanying consolidated balance sheets of The Pep Boys -
Manny, Moe & Jack and subsidiaries as of January 31, 1998 and February 1, 1997,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1998. Our
audits also included the financial statement schedule listed in the index at
Item 14. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Pep Boys - Manny, Moe & Jack
and subsidiaries at January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 19, 1998

25

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

January 31, February 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets:
Cash $ 10,811 $ 2,589
Accounts receivable, less allowance for
uncollectible accounts of $265 and $252 13,070 7,653
Merchandise inventories 655,363 520,082
Prepaid expenses 27,449 33,042
Deferred income taxes 23,215 16,982
Other 40,308 24,570
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 770,216 604,918
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 296,721 278,345
Building and improvements 920,522 794,244
Furniture, fixtures and equipment 542,256 448,425
Construction in progress 21,432 22,528
- -----------------------------------------------------------------------------------------------------------------------------------
1,780,931 1,543,542
Less accumulated depreciation and amortization 403,182 353,808
- -----------------------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,377,749 1,189,734
- -----------------------------------------------------------------------------------------------------------------------------------
Other 13,395 23,713
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 409,053 $ 337,536
Accrued expenses 162,666 133,557
Short-term borrowings 47,000 63,000
Current maturities of long-term debt 157 134
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 618,876 534,227
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 402,021 217,178
Deferred Income Taxes 73,208 50,382
Convertible Subordinated Notes 86,250 86,250
Zero Coupon Convertible Subordinated Notes 158,370 152,237
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1 per share: Authorized 500,000,000 shares;
Issued and outstanding 63,657,728 and 63,119,491 63,658 63,119
Additional paid-in capital 171,741 162,660
Retained earnings 647,505 612,581
- -----------------------------------------------------------------------------------------------------------------------------------
882,904 838,360
Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 822,635 778,091
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.

26

CONSOLIDATED STATEMENTS OF EARNINGS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)

January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Merchandise Sales $1,720,670 $ 1,554,757 $ 1,355,008
Service Revenue 335,850 273,782 239,332
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 2,056,520 1,828,539 1,594,340
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 1,246,431 1,070,263 943,875
Costs of Service Revenue 269,769 220,757 194,942
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 1,516,200 1,291,020 1,138,817
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 474,239 484,494 411,133
Gross Profit from Service Revenue 66,081 53,025 44,390
- ------------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 540,320 537,519 455,523
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 430,517 350,419 296,089
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 109,803 187,100 159,434

Nonoperating Income 5,309 2,435 2,090

Interest Expense 39,656 30,306 32,072
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 75,456 159,229 129,452

Income Taxes 25,845 58,405 47,958
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 49,611 $ 100,824 $ 81,494
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share $ .81 $ 1.67 $ 1.37

Diluted Earnings per Share $ .80 $ 1.62 $ 1.34
- ------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.

27

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)

Additional Total
Common Stock Paid-in Retained Benefits Stockholders'
Shares Amount Capital Earnings Trust Equity
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, January 28, 1995 61,501,679 $61,502 $130,732 $454,288 $(60,269) $586,253

Net earnings 81,494 81,494
Cash dividends ($.19 per share) (11,339) (11,339)
Exercise of stock options
and related tax benefits 555,471 555 7,829 8,384
Dividend reinvestment plan 26,871 27 662 689
Acquisitions and transfers of 140,000
shares to employees' savings plan (21) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 1996 62,084,021 62,084 139,202 524,443 (60,269) 665,460

Net earnings 100,824 100,824
Cash dividends ($.21 per share) (12,686) (12,686)
Exercise of stock options
and related tax benefits 1,002,333 1,002 22,977 23,979
Dividend reinvestment plan 33,137 33 1,025 1,058
Acquisitions and transfers of 150,500
shares to employees' savings plan (544) (544)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 63,119,491 63,119 162,660 612,581 (60,269) 778,091

Net earnings 49,611 49,611
Cash dividends ($.24 per share) (14,687) (14,687)
Exercise of stock options
and related tax benefits 491,039 492 6,850 7,342
Minimum pension liability adjustment,
net of tax 1,366 1,366
Dividend reinvestment plan 47,198 47 1,221 1,268
Acquisitions and transfers of 190,000
shares to employees' savings plan (356) (356)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 63,657,728 $63,658 $171,741 $647,505 $(60,269) $822,635
- ------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.

28

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

January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities:
Net earnings $ 49,611 $ 100,824 $ 81,494
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization 82,862 65,757 53,456
Accretion of bond discount 6,133 2,238 -
Increase in deferred income taxes 16,593 8,838 2,034
Loss (gain) from sales of assets 12,278 (34) 201
Changes in operating assets and liabilities:
Increase in accounts receivable, prepaid expenses
and other (16,875) (44,950) (2,445)
Increase in merchandise inventories (135,281) (102,230) (51,009)
Increase in accounts payable 71,517 115,012 122,360
Increase in accrued expenses 30,119 37,138 25,228
- ------------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 67,346 81,769 149,825
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 116,957 182,593 231,319
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (284,084) (245,246) (205,913)
Proceeds from sales of assets 929 3,841 114
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (283,155) (241,405) (205,799)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit
agreements 19,000 (1,500) (102,700)
Borrowings from life insurance policies 12,406 - -
Reduction of long-term debt (134) (107,187) (19,807)
Dividends paid (14,687) (12,686) (11,339)
Net proceeds from issuance of notes 149,225 146,250 98,992
Proceeds from exercise of stock options 7,342 23,979 8,384
Proceeds from dividend reinvestment plan 1,268 1,058 689
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 174,420 49,914 (25,781)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 8,222 (8,898) (261)
Cash at Beginning of Year 2,589 11,487 11,748
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 10,811 $ 2,589 $ 11,487
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 29,009 $ 56,336 $ 40,251
Interest paid, net of amounts capitalized 38,622 34,081 30,155
- ------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.

29

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 31, 1998, February 1, 1997 and February 3, 1996 (dollar
amounts in thousands, except per share amounts)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is
engaged principally in the retail sale of automotive parts and accessories,
automotive maintenance and service and the installation of parts through a chain
of 711 stores at January 31, 1998. The Company currently operates stores in 33
states, Washington, D.C. and Puerto Rico.

FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to
January 31. Fiscal years 1997, 1996 and 1995 were comprised of 52 weeks, 52
weeks and 53 weeks, respectively.

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

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

MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost
(last-in, first-out method) or market. If the first-in, first-out method of
valuing inventories had been used, inventories would have been approximately
$870 and $3,300 higher at January 31, 1998 and February 1, 1997, respectively.

PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation
and amortization are computed using the straight-line method over the following
estimated useful lives: building and improvements, 5 1/2 to 40 years; furniture,
fixtures and equipment, 3 to 10 years.

CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection
with the construction of certain long-term assets. Capitalized interest amounted
to $1,861, $1,575 and $1,407 in fiscal years 1997, 1996 and 1995, respectively.

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

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

PENSION EXPENSE Annual pension expense is actuarially computed using the
"projected unit credit method" which attributes an equal portion of total
projected benefits to each year of employee service.

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

ADVERTISING The Company expenses the production costs of advertising the first
time the advertising takes place. The Company nets cooperative advertising
reimbursements against costs incurred. Net advertising expense for fiscal years
1997, 1996 and 1995 was $0, $324 and $973, respectively. No advertising costs
were recorded as an asset as of January 31, 1998.

IMPAIRMENT OF LONG-LIVED ASSETS Effective February 4, 1996, the Company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This standard prescribes the method for
asset impairment evaluation for long-lived assets and certain identifiable
intangibles that are either held and used or to be disposed of. The
implementation of this standard did not have an effect on the Company's
financial position or results of operations.

30

ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on
February 4, 1996. As permitted by SFAS No. 123, the Company is accounting for
employee stock-based compensation plans in accordance with Accounting Principles
Board (APB) opinion No. 25, "Accounting for Stock Issued to Employees," and has
provided disclosures required by SFAS No. 123.

REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This
statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted. As this
statement only requires additional disclosures in the Company's consolidated
financial statements, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company will adopt
SFAS No. 130 in fiscal 1998.

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement, which establishes standards for the
reporting of information about operating segments and requires the reporting of
selected information about operating segments in interim financial statements,
is effective for fiscal years beginning after December 15, 1997, although
earlier application is permitted. If applicable, this statement would only
require additional disclosures in the Company's consolidated financial
statements and as such, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company expects to
adopt SFAS No. 131 in fiscal 1998.

EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which established
standards for the reporting of information about pensions and other
postretirement benefits, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. The Company does not expect
adoption of this statement to result in significant changes to its presentation
of pension and other postretirement benefit information. The Company will adopt
SFAS No. 132 in fiscal 1998.

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

31

NOTE B - DEBT

SHORT-TERM BORROWINGS The Company had short-term borrowings of $47,000 at
January 31, 1998 and $63,000 at February 1, 1997. The Company had short-term
lines of credit with several banks totaling $159,000 at January 31, 1998 and
February 1, 1997. The interest rates on these lines were negotiated based upon
market conditions. The weighted average interest rate on borrowings from these
lines was 5.9% at January 31, 1998 and 5.8% at February 1, 1997. The average and
maximum month end balances on these borrowings were $111,014 and $143,150 during
fiscal 1997 and $98,696 and $154,200 during fiscal 1996.

LONG-TERM DEBT
- -----------------------------------------------------------------------------------------------------------
Jan. 31, Feb. 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------

Medium-term notes, 6.4% to 6.7%, due
November 2004 through September 2007 $150,000 $ -
7% notes due June 2005 100,000 100,000
Revolving credit agreement (a) 75,000 40,000
6 5/8% notes due May 2003 75,000 75,000
Mortgage notes payable, 5.8% to 8% (b) 2,178 2,312
- -----------------------------------------------------------------------------------------------------------
402,178 217,312
Less current maturities 157 134
- -----------------------------------------------------------------------------------------------------------

Total long-term debt $402,021 $217,178
- -----------------------------------------------------------------------------------------------------------

(a) The Company has a revolving credit agreement with ten major banks providing
for borrowings of up to $200,000. Funds may be drawn and repaid anytime
prior to March 30, 2002. Sixty days prior to each anniversary date, the
Company may request, and upon agreement of each bank, extend the maturity
of this facility an additional year. If one of the banks fails to agree to
this extension, the Company has the right to replace that bank. At the
Company's option, the interest rate on any loan may be based on (i) the
higher of the federal funds rate plus 1/4% or the prime rate, (ii) LIBOR
plus up to .63% or (iii) a negotiated rate based upon market conditions.
The weighted average interest rate was 5.9% at January 31, 1998 and 5.7% at
February 1, 1997.

(b) The weighted average interest rate on the mortgage notes payable was 6.9%
at January 31, 1998 and February 1, 1997. These notes, which mature at
various times through August 2016, are collateralized by land and building
with an aggregate carrying value of approximately $7,695 at January 31,
1998.

32

CONVERTIBLE SUBORDINATED NOTES On August 24, 1994 the Company sold $86,250 of 4%
convertible subordinated notes. These notes are convertible by the holders into
the common stock of the Company at any time on or before September 1, 1999 (the
maturity date) at a conversion price of $41 per share subject to adjustment in
certain events. The notes are redeemable, in whole or in part, at the option of
the Company at any time on or after September 15, 1997, at a redemption price of
101% of the principal amount and at par on or after September 1, 1998. The notes
are subordinated to all existing and future senior indebtedness of the Company.

ZERO COUPON CONVERTIBLE SUBORDINATED NOTES On September 20, 1996, the Company
issued $271,704 principal amount (at maturity) of Liquid Yield Option Notes
(LYONs) with a price to the public of $150,000. The net proceeds to the Company
were $146,250. The issue price of each such LYON was $552.07 and there will be
no periodic payments of interest. The LYONs will mature on September 20, 2011,
at $1,000 per LYON, representing a yield to maturity of 4.0% per annum (computed
on a semiannual bond equivalent basis).

Each LYON is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased, into
common stock of the Company at a conversion rate of 12.929 shares per LYON. The
LYONs are redeemable at the option of the holder on September 20, 2001 and
September 20, 2006 at the issue price plus accrued original issue discount. The
Company, at its option, may elect to pay the purchase price on any such purchase
date in cash or common stock, or any combination thereof. No LYONs were
converted in 1997 and 1996. In addition, on or prior to September 20, 2001, the
Company will purchase for cash any LYON, at the option of the holder, in the
event of change in control of the Company. The LYONs are subordinated to all
existing and future senior indebtedness of the Company.

Several of the Company's debt agreements require the maintenance of
certain financial ratios and covenants. Approximately $57,649 of the Company's
net worth was not restricted by these covenants at fiscal year end. The Company
is in compliance with all debt covenants at January 31, 1998.

The annual maturities of all long-term debt for the next five years are
$157 in 1998, $86,420 in 1999, $183 in 2000, $197 in 2001 and $75,111 in 2002.
Any compensating balance requirements related to all revolving credit agreements
and debt were satisfied by balances available from normal business operations.

The Company was contingently liable for outstanding letters of credit
in the amount of approximately $23,443 at January 31, 1998.

In February 1998, the Company established a Medium-Term Note program
which permits the Company to issue up to $200,000 of Medium-Term Notes. Under
this program the Company has sold $100,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429 were used for working capital, the repayment
of debt and for general corporate purposes.

NOTE C - LEASE COMMITMENTS

The Company leases certain property and equipment under operating
leases which contain renewal and escalation clauses. Aggregate minimum rental
commitments for leases having noncancelable lease terms of more than one year
are approximately: 1998 - $43,015; 1999 - $41,967; 2000 - $41,642; 2001 -
$41,831; 2002 - $42,081; thereafter - $422,636. Rental expenses incurred for
operating leases in 1997, 1996 and 1995 were $49,105, $33,616 and $22,302,
respectively.

NOTE D - STOCKHOLDERS' EQUITY

RIGHTS AGREEMENT On December 31, 1997, the Company distributed as a dividend one
common share purchase right on each of its common shares. The rights will not be
exercisable or transferable apart from the Company's common stock until a person
or group, as defined in the rights agreement (dated December 5,1997), without
the proper consent of the Company's Board of Directors, acquires 15% or more, or
makes an offer to acquire 15% or more of the Company's outstanding stock. When
exercisable, the rights entitle the holder to purchase one share of the
Company's common stock for $125. Under certain circumstances, including the
acquisition of 15% of the Company's stock by a person or group, the rights
entitle the holder to purchase common stock of the Company or common stock of an
acquiring company having a market value of twice the exercise price of the
right. The rights do not have voting power and are subject to redemption by the
Company's Board of Directors for $.01 per right anytime before a 15% position
has been acquired and for 10 days thereafter, at which time the rights become
nonredeemable. The rights expire on December 31, 2007.

BENEFITS TRUST On April 29, 1994, the Company established a flexible employee
benefits trust with the intention of purchasing up to $75,000 worth of the
Company's common shares. The repurchased shares will be held in the trust and
will be used to fund the Company's existing benefit plan obligations including
healthcare programs, savings and retirement plans and other benefit obligations.
The trust will allocate or sell the repurchased shares over the next 15 years to
fund these benefit programs. As shares are released from the trust, the Company
will charge or credit

33

additional paid-in capital for the difference between the fair value of shares
released and the original cost of the shares to the trust. For financial
reporting purposes, the trust is consolidated with the accounts of the Company.
All dividend and interest transactions between the trust and the Company are
eliminated. As of January 31, 1998, the Company has repurchased 2,232,500 shares
of its common stock at a cost of $60,269 which is shown as "Cost of shares in
benefits trust" on the Company's consolidated balance sheets.

NOTE E - FOURTH QUARTER CHARGES

During the fourth quarter of fiscal 1997 the Company recorded pretax
charges of $28,012 ($18,418 net of tax), $16,330 of which was recorded as Costs
of Merchandise Sales on the Company's Consolidated Statements of Earnings and
includes the costs associated with closing nine stores, converting all PARTS USA
stores to the PEP BOYS EXPRESS format, certain equipment write-offs and other
non-recurring expenses. The remaining $11,682 of these expenses, which include
costs associated with reducing the store expansion program, certain equipment
write-offs and other non-recurring expenses, have been included in Selling,
General and Administrative Expenses on the Company's Consolidated Statements of
Earnings.

NOTE F - PENSION AND SAVINGS PLANS

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

The actuarial computations using the "projected unit credit method"
assumed a discount rate on benefit obligations of 7.5% in 1997, 7.5% in 1996 and
8.5% in 1995, and an expected long-term rate of return on plan assets of 8.5%.
The assumption for annual salary increases over the average remaining service
lives of employees under the plan was 4% in 1996 and 1995. Variances between
actual experience and assumptions for costs and returns on assets are amortized
over the remaining service lives of employees under the plan.

As of December 31, 1996, the Company froze the accrued benefits under
the plan and active participants became fully vested. The plan's trustee will
continue to maintain and invest plan assets and will administer benefit
payments. In accordance with SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
a curtailment gain of $1,554 was recognized in 1996.

Pension (income) expense includes the following:

Jan. 31, Feb. 1, Feb. 3,
Year Ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------

Normal service costs $ - $1,213 $ 968
Interest cost on projected
benefit obligation 1,667 1,561 1,382
Actual return on plan assets (614) (752) (720)
Net amortization of transition
asset and unrecognized net gain (214) (214) (759)
Prior service cost - 19 19
Asset gain deferred (1,115) (974) (1,013)
- -----------------------------------------------------------------------------------------------------------------------------------

Total pension (income) expense $ (276) $ 853 $ (123)
- -----------------------------------------------------------------------------------------------------------------------------------

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

34

The following table sets forth the reconciliation of the plan's funded status as
of December 31 of each year. The actuarial present value of benefit obligation
assumed a weighted average discount rate of 7.25% at December 31, 1997 and 7.5%
at December 31, 1996.

Dec. 31, Dec. 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------

Actuarial present value of benefit obligation:
Vested benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(24,567) $(22,076)
Plan assets at fair value 20,324 20,815
- -------------------------------------------------------------------------------------------------------------
Assets less than projected benefit obligation (4,243) (1,261)
Unrecognized net asset (at date of transition) (857) (1,071)
Unrecognized net loss from past
experience different from previous
assumption 3,043 -
Adjustment to recognize minimum liability (2,186) -
- -------------------------------------------------------------------------------------------------------------
Accrued pension cost
as of January 31, 1998 and
February 1, 1997, respectively $ (4,243) $ (2,332)
- -------------------------------------------------------------------------------------------------------------

The Company has a 401(k) savings plan which covers all full-time employees who
are at least 21 years of age with one or more years of service. The Company
contributes the lesser of 50% of the first 6% of a participant's contributions
or 3% of the participant's compensation. The Company's savings plan contribution
expense was $4,543 in 1997, $3,685 in 1996 and $3,150 in 1995.

35

NOTE G - INCOME TAXES

The provision for income taxes includes the following:

Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Current:

Federal $ 8,651 $45,831 $42,276
State 601 3,761 3,648
Deferred:
Federal 15,487 8,225 1,905
State 1,106 588 129
- -----------------------------------------------------------------------------------------------------------------------------------
$25,845 $58,405 $47,958
- -----------------------------------------------------------------------------------------------------------------------------------

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

Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits 1.5 1.8 1.9
Other, net (2.2) (.1) .1
- -----------------------------------------------------------------------------------------------------------------------------------
34.3% 36.7% 37.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes relate to the following temporary differences:

Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation $ 22,173 $ 9,330 $ 6,420
Inventories 575 (1,593) (2,551)
Vacation accrual (725) (593) (522)
Pension accrual (2,118) 263 47
Store closing reserves (3,866) - -
Insurance (288) 1,096 (1,143)
Other, net 842 310 (217)
- -----------------------------------------------------------------------------------------------------------------------------------
$16,593 $ 8,813 $ 2,034
- -----------------------------------------------------------------------------------------------------------------------------------

36

The following are components of the net deferred tax accounts as of
January 31, 1998:

Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------

Deferred tax assets:
Current $33,817 $2,415 $36,232
Long-term 18,981 1,356 20,337

Deferred tax liabilities:
Current 12,149 868 13,017
Long-term 87,308 6,237 93,545
- -----------------------------------------------------------------------------------------------------------------------------------
The following are components of the net deferred tax accounts as of
February 1, 1997:

Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Current $26,426 $1,883 $28,309
Long-term 18,720 1,337 20,057

Deferred tax liabilities:
Current 10,572 755 11,327
Long-term 65,748 4,691 70,439
- -----------------------------------------------------------------------------------------------------------------------------------
Items that gave rise to significant portions of the deferred tax
accounts are as follows:

Jan. 31, Feb. 1,
Year ended 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 9,500 $10,075
Vacation accrual 4,325 3,600
Minimum pension liability adjustment 820 -
Store closing reserves 3,866 -
Other, net 4,704 3,307
- -----------------------------------------------------------------------------------------------------------------------------------
$23,215 $16,982
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $70,681 $48,507
Other, net 2,527 1,875
- -----------------------------------------------------------------------------------------------------------------------------------
$73,208 $50,382
- -----------------------------------------------------------------------------------------------------------------------------------

37

NOTE H - NET EARNINGS PER SHARE

The FASB issued SFAS No. 128, "Earnings per Share," to be effective for
all periods ending after December 15, 1997. SFAS 128 requires all prior period
earnings per share data presented to be restated to conform with the provisions
of this pronouncement. SFAS 128 replaces primary earnings per share with the
presentation of basic earnings per share and fully diluted earnings per share
with diluted earnings per share.

For fiscal years 1997, 1996 and 1995, basic earnings per share are
based on net earnings divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share assumes conversion of
convertible subordinated notes, zero coupon convertible subordinated notes and
the dilutive effects of stock options. Adjustments for convertible securities
were antidilutive in 1997 and therefore excluded from the computation of diluted
EPS, however, these securities could potentially be dilutive in the future.
Options to purchase 2,281,572 shares of common stock at various prices ranging
from $23.78 to $37.38 were outstanding at January 31, 1998 but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares.

- --------------------------------------------------------------------------------
(in thousands, except per share amounts)

Fiscal 1997 Fiscal 1996
---------------------------------- ------------------------------------------
Earnings Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ------ ----------- ------------- ------

Basic EPS
Earnings available to
common stockholders $49,611 61,133 $0.81 $100,824 60,305 $1.67
===== =====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax - - 2,168 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - - 1,409 1,303
Common Shares assumed
issued upon exercise of
dilutive stock options - 524 - 893
Diluted EPS ------- ------ -------- ------
Earnings available to common
stockholders assuming
conversion $49,611 61,657 $0.80 $104,401 64,605 $1.62
======= ====== ===== ======== ====== =====

[RESTUBBED TABLE]

(in thousands, except per share amounts)

Fiscal 1995
---------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------

Basic EPS
Earnings available to
common stockholders $81,494 59,581 $1.37
=====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax 2,200 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - -
Common Shares assumed
issued upon exercise of
dilutive stock options - 903
Diluted EPS ------- ------
Earnings available to common
stockholders assuming
conversion $83,694 62,588 $1.34
======= ====== =====

38

NOTE I - STOCK OPTIONS PLANS

Options to purchase the Company's common stock have been granted to key
employees and certain members of the Board of Directors. The option prices are
at least 100% of the fair market value of the common stock on the grant date.

Under the terms of the Company's Incentive Stock Option Plan adopted in
1982, options to purchase up to 3,600,000 shares of the Company's common stock
were authorized. Options granted prior to 1988 are exercisable from the date of
grant. Options granted in 1988 and thereafter are exercisable on the second
anniversary of the grant date. All options under this plan cannot be exercised
more than ten years from the grant date. No additional options will be granted
under this plan.

Under the terms of the Company's Nonqualified Stock Option Plans,
adopted in 1984 and 1985, options to purchase up to 3,300,000 shares of the
Company's common stock were authorized. The options became exercisable over a
five-year period with one-fifth exercisable on the grant date and one-fifth on
each anniversary date for the four years following the grant date. Options
granted cannot be exercised more than ten and one-half years after the grant
date. No additional options will be granted under these plans.

On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan
which authorized the issuance of restricted stock and/or options to purchase up
to 1,000,000 shares of the Company's common stock. Additional shares in the
amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by stockholders on
June 4, 1997, May 31, 1995 and June 1, 1993, respectively. Under this plan, both
incentive and nonqualified stock options may be granted to eligible
participants. Incentive stock options are exercisable on the second or third
anniversary of the grant date and nonqualified options become exercisable over a
five-year period with one-fifth exercisable on the grant date and one-fifth on
each anniversary date for the four years following the grant date. Options
cannot be exercised more than ten years after the grant date. As of January 31,
1998, 2,277,285 shares remain available for grant.

Stock option transactions for the Company's stock option plans are
summarized as follows:

Fiscal 1997 Fiscal 1996 Fiscal 1995
------------------------ ----------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------

Outstanding - beginning of year 3,500,036 $23.34 4,031,329 $20.91 3,662,779 $16.24
Granted 837,000 30.15 613,702 33.64 1,042,970 30.90
Exercised (487,914) 15.00 (988,605) 18.43 (582,470) 8.16
Canceled (383,928) 30.24 (156,390) 31.10 (91,950) 28.76
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 3,465,194 25.40 3,500,036 23.34 4,031,329 20.91
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable - at year end 1,988,209 21.08 2,227,917 18.53 2,724,607 16.77

Weighted average estimated fair value
of options granted 11.00 11.28 11.04
- ---------------------------------------------------------------------------------------------------------------------------

39

The following table summarizes information about stock options
outstanding at January 31, 1998:

Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/98 Life Price at 1/31/98 Price
- ----------------------------------------------------------------------------------------------------------------------------------

$11.13 to $20.00 894,855 2 years $12.36 894,855 $12.36
$20.01 to $25.00 404,900 6 years 22.85 336,850 22.67
$25.01 to $30.00 297,889 7 years 27.38 192,311 27.79
$30.01 to $37.38 1,867,550 8 years 31.88 564,193 31.67
- ----------------------------------------------------------------------------------------------------------------------------------
$11.13 to $37.38 3,465,194 1,988,209
- ----------------------------------------------------------------------------------------------------------------------------------

The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for its stock
option plans. Had compensation cost for the Company's stock option plans for
options granted in fiscal 1995 and thereafter been determined based on the fair
value at the grant dates and recognized as compensation expense on a
straight-line basis over the vesting period of the grant consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:

- ---------------------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996
- ---------------------------------------------------------------------------------------------------

Net earnings:
As reported $49,611 $ 100,824
Pro forma $46,120 $ 98,185

Net earnings per share:
As reported
Basic $ 0.81 $ 1.67
Diluted $ 0.80 $ 1.62
Pro forma
Basic $ 0.75 $ 1.63
Diluted $ 0.75 $ 1.58
- ---------------------------------------------------------------------------------------------------

The pro forma effect on net earnings for fiscal 1997 and fiscal 1996
are not representative of the pro forma effect on net earnings in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.

The fair value of each option granted during fiscal 1997 and fiscal
1996 is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: (i) 0.7% dividend yield
for all years, (ii) expected volatility of 33% and 32%, respectively, (iii)
risk-free interest rate ranges of 5.5% to 6.9% and 5.5% to 6.7%, respectively,
and (iv) ranges of expected lives 3.5 years to 6.5 years and 3.5 years to 6
years, respectively.

NOTE J - CONTINGENCIES

The Company is a defendant in a purported class action entitled "Brian
Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," in
the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss
the case for failure to state a claim. The Company's motion to dismiss is
pending before the Circuit Court of Mobile County, Alabama. In their complaint,
the plaintiffs allege that the Company sold old or used automotive batteries to
consumers as if those batteries were new. The complaint purports to state causes
of action for fraud and deceit, negligent misrepresentation, breach of contract
and violation of state consumer protection statutes. The plaintiffs are seeking
compensatory and punitive damages, as well as injunctive and equitable relief.
The Company believes the claims are without merit and intends to vigorously
defend this action.

40

The Company is also party to various other lawsuits and claims arising
in the normal course of business. In the opinion of management, these lawsuits
and claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.

NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

January 31, 1998 February 1, 1997
------------------------ ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------

Assets:
Cash $ 10,811 $ 10,811 $ 2,589 $ 2,589
Accounts receivable 13,070 13,070 7,653 7,653
Liabilities:
Accounts payable 409,053 409,053 337,536 337,536
Short-term borrowings 47,000 47,000 63,000 63,000
Long-term debt including
current maturities 402,178 406,086 217,312 215,029
Convertible subordinated
notes 86,250 84,637 86,250 88,838
Zero coupon convertible
subordinated notes 158,370 147,236 152,237 146,041
- -------------------------------------------------------------------------------------------------------------------------

CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS
The carrying amounts approximate fair value because of the short
maturity of these items.

LONG-TERM DEBT INCLUDING CURRENT MATURITIES, CONVERTIBLE SUBORDINATED NOTES AND
ZERO COUPON CONVERTIBLE SUBORDINATED NOTES
Interest rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.

The fair value estimates presented herein are based on pertinent
information available to management as of January 31, 1998 and February 1, 1997.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from amounts presented herein.

41

QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)

- --------------------------------------------------------------------------------------------------------------------
Net Earnings Cash Market Price
Year Ended Total Gross Operating Net Per Share Dividends Per Share
Jan. 31, 1998 Revenues Profit Profit Earnings Basic Diluted Per Share High Low
- --------------------------------------------------------------------------------------------------------------------

1st Quarter $489,278 $141,942 $44,105 $23,146 $.38 $.37 $.0600 35 29 3/8
2nd Quarter 539,298 160,465 55,508 30,088 .49 .47 .0600 35 5/8 30
3rd Quarter 525,564 152,866 46,318 24,120 .39 .38 .0600 34 7/8 23 5/8
4th Quarter 502,380 85,047 (36,128) (27,743) (.45) (.45) .0600 26 3/16 21 9/16
- --------------------------------------------------------------------------------------------------------------------

Year Ended
Feb. 1, 1997
- --------------------------------------------------------------------------------------------------------------------
1st Quarter $428,614 $121,301 $39,594 $20,116 $.34 $.33 $.0525 34 7/8 27 7/8
2nd Quarter 476,673 141,421 55,333 30,235 .50 .49 .0525 35 1/2 28
3rd Quarter 478,819 138,287 50,109 27,777 .46 .44 .0525 38 1/4 30 3/4
4th Quarter 444,433 136,510 42,064 22,696 .37 .36 .0525 38 27 7/8
- --------------------------------------------------------------------------------------------------------------------

Under the Company's present accounting system, actual gross profit from
merchandise sales can be determined only at the time of physical inventory,
which is taken at the end of the fiscal year. Gross profit from merchandise
sales for the first, second and third quarters is estimated by the Company based
upon recent historical gross profit experience and other appropriate factors.
Any variation between estimated and actual gross profit from merchandise sales
for the first three quarters is reflected in the fourth quarter's results. See
discussion of fourth quarter charges in Note E to the Consolidated Financial
Statements.

42

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

None.

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The material contained in the registrant's definitive proxy statement,
which will be filed pursuant to Regulation 14A not later than 120 days after the
end of the Company's fiscal year (the "Proxy Statement"), under the caption
"Election of Directors" is hereby incorporated herein by reference. The
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I, in accordance with General Instruction G(3) to Form
10-K.

ITEM 11 EXECUTIVE COMPENSATION

The material in the Proxy Statement under the caption "Executive
Compensation" other than the material under the caption "Executive Compensation
Report of Compensation Committee of the Board of Directors on Executive
Compensation" and "Executive Compensation - Performance Graph" is hereby
incorporated herein by reference.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The material in the Proxy Statement under the caption "Share Ownership
of Certain Beneficial Owners and Management" is hereby incorporated herein by
reference.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The material in the Proxy Statement under the caption "Executive
Compensation - Certain Relationships and Related Transactions" is hereby
incorporated herein by reference.

43

PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a). Page
----

1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.

Independent Auditors' Report 25

Consolidated Balance Sheets -January 31, 1998
and February 1, 1997 26

Consolidated Statements of Earnings - Years ended January 31, 1998,
February 1, 1997 and February 3, 1996 27

Consolidated Statements of Stockholders' Equity Years ended January
31, 1998, February 1, 1997 and February 3, 1996 28

Consolidated Statements of Cash Flows - Years ended January 31, 1998,
February 1, 1997, and February 3, 1996 29

Notes to Consolidated Financial Statements 30

2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack
is included.

Schedule II Valuation and Qualifying Accounts and Reserves 52

All other schedules have been omitted because they are not applicable
or not required or the required information is included in the
consolidated financial statements or notes thereto.

3. Exhibits

(3.1) Articles of Incorporation, Incorporated by reference from
as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.

(3.2) By-Laws, as amended Incorporated by reference from
the Registration Statement on
Form S-3 (File No. 33-39225).

(4.1) Indenture dated as of March 22, Incorporated by reference from
1991 between the Company and the Registration Statement on
Bank America Trust Company of Form S-3 (File No. 33-39225).
New York as Trustee, including
Form of Debt Security

44

(4.2) Indenture, dated as of August Incorporated by reference from
31, 1994, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-55115).
National Association as Trustee,
including Form of Debenture

(4.3) Indenture, dated as of June Incorporated by reference from
12, 1995, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-59859).
National Association as Trustee,
including Form of Debenture

(4.4) Indenture, dated as of September Incorporated by reference from
20, 1996, between the Company and the Registration Statement on
the Trustee, providing for the Form S-3 (File No. 333-00985).
Issuance of the LYONs

(4.5) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295).
Trustee, providing for the issuance
of Senior Debt Securities, and form
of security

(4.6) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295)
Trustee, providing for the issuance
of Subordinated Debt Securities, and
form of security

(10.1) Medical Reimbursement Plan of Incorporated by reference from
the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.

(10.2)* 1982 Incentive Stock Option Plan Incorporated by reference from
of the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.

(10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.

(10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.

(10.5) Rights Agreement dated as of Incorporated by reference from
December 5, 1997 between the the Company's Form 8-K dated
Company and the First Union December 8, 1997.
National Bank

45

(10.6)* Directors' Deferred Compensation Incorporated by reference from
Plan, as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.

(10.7)* Form of Employment Agreement, as Incorporated by reference from
amended, dated as of December 12, the Company's Form 10-K for the
1989 fiscal year ended February 3, 1990.

(10.8)* Amendment No. 1 to the 1985 Incorporated by reference from
Non-Qualified Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28, 1989.

(10.9)* Amendment No. 1 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28,
1989.

(10.10) Dividend Reinvestment and Stock Purchase Incorporated by reference from
Plan dated January 4, 1990 the Registration Statement on
Form S-3 (File No. 33-32857).

(10.11)* 1990 Stock Incentive Plan Incorporated by reference from
the Company's Form 10-Q for the
quarter ended November 3, 1990.

(10.12)* Amendment No. 1 to 1990 Stock Incorporated by reference from
Incentive Plan the Company's Form 10-K for the
fiscal year ended February 1, 1992.

(10.13)* The Pep Boys - Manny, Moe & Incorporated by reference from
Jack Trust Agreement for the the Company's Form 10-K for the
Executive Supplemental Pension fiscal year ended February 1,
Plan and Certain Contingent 1992.
Compensation Arrangements,
dated as of February 13, 1992

(10.14)* Amendment to the Executive Incorporated by reference from
Supplemental Pension Plan the Company's Form 10-K for the
(amended and restated effective fiscal year ended February 1,
January 1, 1988), dated as of 1992.
February 13, 1992

(10.15)* Consulting and Retirement Incorporated by reference from
Agreement by and between the the Company's Form 10-K for the
Company and Benjamin Strauss, fiscal year ended February 1,
dated as of February 2, 1992 1992.

(10.16)* Amendment No. 2 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.

(10.17)* Amendment No. 3 to the Non- Incorporated by reference from
Qualified Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.

46

(10.18)* Amendment No. 2 to the 1990 Incorporated by reference from
Stock Incentive Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.

(10.19)* President's Merit Award Program Incorporated by reference from
of the Company, as amended, the Company's Form 10-K for the
dated as of April 1, 1992 year ended January 30, 1993.

(10.20) Flexible Employee Benefits Trust Incorporated by reference from
the Company's Form 8-K dated May
6, 1994.

(10.21)* Executive Incentive Bonus Plan Incorporated by reference from
of the Company, as amended and the Company's Form 10-K for the
restated as of March 30, 1994 year ended January 28, 1995.

(10.22) Credit Agreement dated as of Incorporated by reference from
April 21, 1995 between the the Company's Form 10-Q for the
Company and the Chase Manhattan quarter ended April 29, 1995.
Bank (Agent)

(10.23) Transaction Agreement including Incorporated by reference from
amendments, among The Pep Boys - the Company's Form 10-K for the
Manny, Moe & Jack, State Street year ended February 1, 1997.
Bank and Trust Company and
Citicorp Leasing, Inc., dated as of
November 13, 1995

(10.24) Master Lease, including amendments, Incorporated by reference from
between State Street Bank and Trust the Company's Form 10-K for the
Company and The Pep Boys - Manny, year ended February 1, 1997.
Moe & Jack, dated as of November 13,
1995

(10.25) Master Lease, including amendments,
between State Street Bank and Trust
Company and The Pep Boys - Manny,
Moe & Jack dated as of February 28,
1997

(10.26) Transaction Agreement including
amendments, between State Street
Bank and Trust Company and The
Pep Boys - Manny, Moe & Jack dated as
of February 28, 1997

(10.27) Amendment No. 1 to the Credit
Agreement dated as of April 21, 1995
between the Company and the Chase
Manhatten Bank (Agent)

(10.28)* The Pep Boys - Manny, Moe & Jack
Pension Plan

47

(10.29)* The Pep Boys Savings Plan

(10.30)* The Pep Boys Savings Plan - Puerto Rico

(11) Computation of Earnings per Share

(12) Computation of Ratio of Earnings
to Fixed Charges

(21) Subsidiaries of the Company

(23) Independent Auditors' Consent

(27) Financial Data Schedule

(b) A Form 8-K was filed on December 8, 1997 relating to the
adoption of a shareholder rights plan.

*Management contract or compensatory plan or arrangement.

48

SIGNATURES

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

THE PEP BOYS - MANNY, MOE & JACK
(Registrant)

Dated: April 27, 1998 by: /s/ Michael J. Holden
-------------- ---------------------
Michael J. Holden
Executive Vice President and
Chief Financial Officer

49

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

SIGNATURE CAPACITY DATE
- --------- -------- ----

/s/ Mitchell G. Leibovitz Chairman of the Board, President April 27, 1998
Mitchell G. Leibovitz and Chief Executive Officer
(Principal Executive Officer)

/s/ Michael J. Holden Executive Vice President and April 27, 1998
Michael J. Holden Chief Financial Officer
(Principal Financial and
Accounting Officer)

/s/ Lennox K. Black Director April 27, 1998
Lennox K. Black

/s/ Bernard J. Korman Director April 27, 1998
Bernard J. Korman

/s/ J. Richard Leaman, Jr. Director April 27, 1998
J. Richard Leaman, Jr.

/s/ Malcolmn D. Pryor Director April 27, 1998
Malcolmn D. Pryor

/s/ Lester Rosenfeld Director April 27, 1998
Lester Rosenfeld

/s/ Benjamin Strauss Director April 27, 1998
Benjamin Strauss

/s/ Myles H. Tanenbaum Director April 27, 1998
Myles H. Tanenbaum

/s/ David V. Wachs Director April 27, 1998
David V. Wachs

50

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

51

THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES

(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions* Period
- ---------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Year Ended January 31, 1998 $252 $541 $ - $528 $265
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended February 1, 1997 $251 $317 $ - $316 $252
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended February 3, 1996 $126 $140 $ - $ 15 $251
- ---------------------------------------------------------------------------------------------------------------------------

*Uncollectible accounts written off.

52

INDEX TO EXHIBITS
Index of Financial Statements, Financial Statement Schedule and Exhibits

Page
----

1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.

Independent Auditors' Report 25

Consolidated Balance Sheets - January 31, 1998
and February 1, 1997 26

Consolidated Statements of Earnings - Years ended January 31,
1998, February 1, 1997 and February 3, 1996 27

Consolidated Statements of Stockholders' Equity Years ended
January 31, 1998, February 1, 1997and February 3, 1996 28

Consolidated Statements of Cash Flows - Years ended January 31,
1998, February 1, 1997 and February 3, 1998 29

Notes to Consolidated Financial Statements 30

2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack
is included.

Schedule II Valuation and Qualifying Accounts and Reserves

All other schedules have been omitted because they are not
applicable or not required or the required information is included
in the consolidated financial statements or notes thereto.

3. Exhibits

(10.25) Master Lease, including amendments,
between State Street Bank and Trust
Company and The Pep Boys - Manny,
Moe & Jack dated as of February 28,
1997

(10.26) Transaction Agreement including
amendments, between State Street
Bank and Trust Company and The
Pep Boys - Manny, Moe & Jack dated as
of February 28, 1997

(10.27) Amendment No. 1 to the Credit
Agreement dated as of April 21, 1995
between the Company and the Chase
Manhatten Bank (Agent)
53

(10.28)* The Pep Boys - Manny, Moe & Jack
Pension Plan

(10.29)* The Pep Boys Savings Plan

(10.30)* The Pep Boys Savings Plan - Puerto Rico

(11) Computation of Earnings per Share

(12) Computation of Ratio of Earnings to Fixed Charges

(21) Subsidiaries of the Company

(23) Independent Auditors' Consent

(27) Financial Data Schedules

54