FORM 10-Q

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

(Mark One)

[ X ]     QUARTERLY  REPORT  PURSUANT  TO  SECTION 13 OR  15(d) OF THE 
          SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended May 31, 1997

                                     OR

[   ]     TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(d)  OF THE
          SECURITIES EXCHANGE ACT OF 1934.

For the transition period from [          ] to [           ]


Commission File Number 1-7832

                            PIER 1 IMPORTS, INC.
           (Exact name of registrant as specified in its charter)

          Delaware                                          75-1729843       
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                  Identification Number)

           301 Commerce Street, Suite 600, Fort Worth, Texas 76102
        (Address of principal executive offices, including zip code)

                               (817) 878-8000
            (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

          Class                         Shares outstanding as of July 3, 1997
- -----------------------------           -------------------------------------
Common Stock, $1.00 par value                     45,074,660

                                   PART I
                                   ------
Item 1. Financial Statements.
        --------------------
                            PIER 1 IMPORTS, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands except per share amounts)
                                 (Unaudited)


                                                      Three Months Ended  
                                                    May 31,        June 1,
                                                     1997           1996  
                                                  ---------       --------
Net sales                                          $229,243       $205,292

Operating costs and expenses:
  Cost of sales (including buying and
   store occupancy)                                 130,087        123,595
  Selling, general and administrative expenses       70,938         60,546
  Depreciation and amortization                       5,415          4,775
                                                   --------       --------
                                                    206,440        188,916
                                                   --------       --------
     Operating income                                22,803         16,376

Nonoperating (income) and expense:
  Interest and investment income                       (294)        (1,661)
  Interest expense                                    2,027          4,253
                                                   --------       --------
                                                      1,733          2,592
                                                   --------       --------
     Income before income taxes                      21,070         13,784

Provision for income taxes                            8,431          5,511
                                                   --------       --------
Net income                                         $ 12,639       $  8,273
                                                   ========       ========
Net income per share:*
   Primary                                             $.18           $.14
                                                       ====           ====
   Fully diluted                                       $.18           $.13
                                                       ====           ====
Average shares outstanding during period,
  including common stock equivalents:*
   Primary                                           68,430         60,229
                                                     ======         ======
   Fully diluted                                     75,494         68,518
                                                     ======         ======

* Adjusted to reflect a three for two stock split effected in the form of a
  stock dividend.

The accompanying notes are an integral part of these financial statements.

                            PIER 1 IMPORTS, INC.
                         CONSOLIDATED BALANCE SHEETS
                      (In thousands except share data)
                                 (Unaudited)

                                                    May 31,       March 1,
                                                     1997           1997  
                                                   --------      ---------
ASSETS

Current assets:
  Cash, including temporary investments of
   $18,743 and $22,188, respectively               $ 30,867       $ 32,280
  Accounts receivable, net                            4,498          4,128
  Inventories                                       220,796        220,013
  Prepaid expenses and other current assets          71,211         66,097
                                                   --------       --------
     Total current assets                           327,372        322,518

Properties, net                                     221,115        216,836
Other assets                                         31,678         30,914
                                                   --------       --------
                                                   $580,165       $570,268
                                                   ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable and current portion of long-term
   debt                                            $  1,651       $  1,641
  Accounts payable and accrued liabilities          104,318        105,541
                                                   --------       --------
     Total current liabilities                      105,969        107,182

Long-term debt                                      114,494        114,454
Other non-current liabilities                        25,593         25,584

Stockholders' equity:
  Common stock, $1.00 par, 200,000,000 shares
   authorized, 45,361,000 issued                     45,361         45,361
  Paid-in capital                                   166,372        166,475
  Retained earnings                                 129,558        118,721
  Cumulative currency translation adjustments        (1,400)        (1,385)
  Less - 345,000 and 373,000 common shares in
   treasury, at cost, respectively                   (5,182)        (5,437)
  Less - unearned compensation                         (600)          (687)
                                                   --------       --------
                                                    334,109        323,048
                                                   --------       --------
                                                   $580,165       $570,268
                                                   ========       ========

The accompanying notes are an integral part of these financial statements.

                            PIER 1 IMPORTS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                 (Unaudited)

                                                        Three Months Ended
                                                    May 31,        June 1,
                                                     1997           1996  
                                                    -------       --------
Cash flow from operating activities:
Net income                                          $12,639        $ 8,273
  Adjustments to reconcile to net cash provided by
   operating activities:
   Depreciation and amortization                      5,415          4,775
   Deferred taxes and other                             734            757
   Investment gain                                       --         (1,607)
   Change in cash from: 
     Inventories                                       (783)         5,328
     Accounts receivable and other current assets    (2,600)        (8,499)
     Accounts payable and accrued expenses           (1,205)           383
     Other assets, liabilities, and other, net         (941)         2,270
                                                    -------        -------
       Net cash provided by operating activities     13,259         11,680
                                                    -------        -------
Cash flow from investing activities:
  Capital expenditures                               (9,550)        (9,147)
  Proceeds from disposition of properties               509            106
  Cost of Sunbelt Nursery Group, Inc. properties        (13)        (1,010)
  Beneficial interest in securitized receivables     (2,935)            --
  Proceeds from investments                              --          4,665
  Acquisition of national bank charter                 (943)            --
                                                    -------        -------
     Net cash used in investing activities          (12,932)        (5,386)
                                                    -------        -------
Cash flow from financing activities:
  Cash dividends                                     (1,802)        (1,587)
  Net payments under line of credit agreements           --         (1,802)
  Proceeds (payments) from sales (purchases) of
   capital stock, treasury stock, and other, net         62          1,082
                                                    -------        -------
     Net cash used in financing activities           (1,740)        (2,307)
                                                    -------        -------
Change in cash and cash equivalents                  (1,413)         3,987
Cash and cash equivalents at beginning of period     32,280         13,534
                                                    -------        -------
Cash and cash equivalents at end of period          $30,867        $17,521
                                                    =======        =======

The accompanying notes are an integral part of these financial statements.


                                                    PIER 1 IMPORTS, INC.
                                       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                           FOR THE THREE MONTHS ENDED MAY 31, 1997
                                                       (In thousands)
                                                         (Unaudited)
Cumulative Currency Total Common Paid-in Retained Translation Treasury Unearned Stockholders' Stock Capital Earnings Adjustments Stock Compensation Equity ------- -------- -------- ----------- ---------------------- ------------- Balance, March 1, 1997 $45,361 $166,475 $118,721 ($1,385) ($5,437) ($687) $323,048 Purchases of treasury stock (1,662) (1,662) Restricted stock grant and amortization 87 87 Stock purchase plan, exercise of stock options and other (103) 1,917 1,814 Currency translation adjustments (15) (15) Cash dividends, declared or paid ($.04 per share) (1,802) (1,802) Net income 12,639 12,639 ------- -------- -------- ------- ------- ----- -------- Balance, May 31, 1997 $45,361 $166,372 $129,558 ($1,400) ($5,182) ($600) $334,109 ======= ======== ======== ======= ======= ===== ======== The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31, 1997 AND JUNE 1, 1996 (Unaudited) The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended March 1, 1997. All adjustments that are, in the opinion of management, necessary for a fair statement of the financial position as of May 31, 1997, and the results of operations and cash flows for the three months ended May 31, 1997 and June 1, 1996 have been made and consist only of normal recurring adjustments. The results of operations for the three months ended May 31, 1997 and June 1, 1996 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. The classification of certain amounts previously reported in the statement of financial position as of March 1, 1997 have been modified to conform with the May 31, 1997 method of presentation. Note 1 - Net income per share Primary net income per share was determined by dividing net income by applicable average shares outstanding. Fully diluted net income per share amounts are similarly computed, but include the effect, when dilutive, of the Company's potentially dilutive securities. To determine fully dilutive net income, interest and debt issue costs, net of any applicable taxes, have been added back to net income to reflect assumed conversions. Primary average shares include common shares outstanding and common stock equivalents attributable to outstanding stock options. In addition to common and common equivalent shares, fully diluted average shares include common shares that would be issuable upon conversion of the Company's convertible securities. Net income per share for the three months ended May 31, 1997 and June 1, 1996 (adjusted for the stock split effected in the form of a stock dividend) are calculated as follows: Three Months Ended May 31, June 1, 1997 1996 ------- ------- (in thousands except per share amounts) Net income $12,639 $ 8,273 Assumed conversion of 6 7/8% subordinated notes: Plus interest and debt issue costs, net of tax -- 681 Assumed conversion of 5 3/4% subordinated notes: Plus interest and debt issue costs, net of tax 811 -- ------- ------- Fully diluted net income $13,450 $ 8,954 ======= ======= Average shares outstanding during period, including common stock equivalents: Primary 68,430 60,229 Plus assumed exercise of stock options 70 53 Plus assumed conversion of 6 7/8% subordinated notes to common stock -- 8,236 Plus assumed conversion of 5 3/4% subordinated notes to common stock 6,994 -- ------ ------ Fully diluted 75,494 68,518 ====== ====== Net income per share: Primary $.18 $.14 ==== ==== Fully diluted $.18 $.13 ==== ==== Note 2 - Impact of new accounting standard In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of net income per share on the face of all income statements issued after December 31, 1997 for all entities with complex capital structures. At that time the Company will be required to change the method currently used to compute net income per share and to restate net income per share for all prior periods. The impact of SFAS No. 128 on primary and fully diluted net income per share amounts for the first quarter ended May 31, 1997 and June 1, 1996 is not expected to be material. Note 3 - Subsequent event - three for two stock split In June 1997, the Company announced a three for two stock split of its common shares distributable to stockholders of record on July 16, 1997. The stock split will be effected in the form of a 50% stock dividend. The new shares will be distributed on July 30, 1997. All per share amounts have been adjusted to reflect the impact of the stock split. The effect of this stock split has not been reflected in the May 31, 1997 consolidated balance sheet. Additionally, the Company announced a 30% effective increase in the Company's quarterly cash dividend on the post split shares. The cash dividend of $.035 will be paid August 27, 1997 to shareholders of record on August 13, 1997. PART I ------ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Pier 1 Imports, Inc. ("the Company") recorded net sales of $229.2 million for the first quarter of fiscal 1998, an 11.7% increase over the $205.3 million recorded for the same period in fiscal 1997. Same-store sales for the first quarter of fiscal 1998 increased 15.2% compared to the first quarter of fiscal 1997, excluding apparel sales for both periods. The growth in same-store sales is principally a result of increased customer traffic due to the national television advertising campaign and the Company's store remodel and remerchandising programs which have improved the layout and design of approximately 50 stores since the first quarter of last fiscal year. Hard goods sales, such as furniture and decorative accessories, increased 18.3% during the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. The Company completely discontinued soft goods in all Pier 1 Imports stores at the end of fiscal 1997, which represented 6.7% of merchandise sales during the first quarter of fiscal 1997. Sales on the Company's proprietary credit card were $60.8 million for the first quarter of fiscal 1998, an increase of $5.2 million, or 9.4%, over the same period of fiscal 1997. The Company encourages growth of its proprietary credit card sales through targeted marketing promotions. The Company opened eight new North American stores and closed six stores during the first quarter of fiscal 1998, bringing the North American store count to 689 at the end of the fiscal 1998 first quarter compared to 668 stores a year ago. Stores worldwide, including North America, Puerto Rico and international operations in the United Kingdom, Mexico and Japan, aggregated 724 at the fiscal 1998 first quarter-end. Gross profit, after related buying and store occupancy costs, expressed as a percentage of sales, increased 350 basis points to 43.3% for the first quarter of fiscal 1998 compared to 39.8% for the first quarter of fiscal 1997. Merchandise margins increased to 56.5% for the first three months of fiscal 1998 from 53.9% for the same period a year ago due to the Company's reduced reliance on promotional pricing as a result of the success of its national television advertising campaign. Store occupancy costs, as a percentage of sales, improved 90 basis points to 13.3% during the first three months of fiscal 1998 over the comparable period of fiscal 1997 primarily due to the Company's purchase (in the fourth quarter of fiscal 1997) of two corporations that had previously leased store locations to the Company, thereby eliminating base rent expense associated with those store properties. Selling, general and administrative expenses, including marketing, as a percentage of sales, increased 140 basis points to 30.9% in the first quarter of fiscal 1998 compared to the same period last year. In total dollars, selling, general and administrative expenses for the first quarter of fiscal 1998 increased $10.4 million over the first quarter of fiscal 1997, with $6.0 million of the increase attributable to store expenses that normally grow proportionately with sales and net new stores, such as salaries and supplies. In addition, other selling, general and administrative expenses increased during the first quarter of fiscal 1998 due to a $2.1 million increase in marketing expenses, a $1.0 million increase in funding costs of securitized receivables and a $1.3 million increase in other expenses. Operating income increased $6.4 million, or 39.2%, to $22.8 million for the first quarter of fiscal 1998 compared to $16.4 million in the first quarter of fiscal 1997. Interest and investment income declined in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 primarily as a result of the recording of $1.6 million of investment income earned on the investment in Whiffletree Partners, L.P. ("Whiffletree") in the first quarter of fiscal 1997. This investment in Whiffletree was terminated in the first quarter of fiscal 1997. Interest expense decreased $2.2 million during the first quarter of fiscal 1998 compared to the same period of fiscal 1997. This decrease is primarily a result of decreased interest expense related to the conversion of the 6 7/8% convertible subordinated notes in the second quarter of fiscal 1997, the exchange of the 8 1/2% exchangeable debentures, the retirement of the 11 1/2% subordinated debentures due 2003 and the 11% senior notes due 2001 in the third quarter of fiscal 1997 and the repayment of $20 million outstanding under the Company's bank revolving credit facility in the third quarter of fiscal 1997. The decrease was partially offset by interest expense related to the issuance in the third quarter of fiscal 1997 of the 5 3/4% convertible subordinated notes due 2003. The Company's effective income tax rate for fiscal 1998 is estimated at 40%, unchanged from the first quarter of fiscal 1997. Net income for the first quarter of fiscal 1998 aggregated $12.6 million or $.18 per share on a fully diluted basis compared to net income of $8.3 million or $.13 per share on a fully diluted basis for the first quarter of fiscal 1997. The aforementioned per share amounts have been adjusted to reflect the impact of the impending stock split. See: Note 3 of the Notes to Consolidated Financial Statements. Liquidity and Capital Resources Cash, including temporary investments, decreased $1.4 million to $30.9 million at the end of the first quarter of fiscal 1998 from $32.3 million at fiscal 1997 year-end. This decrease was primarily due to capital expenditures of $9.6 million, beneficial interest in securitized receivables of $2.9 million, cash dividend payments of $1.8 million and the acquisition of a bank charter and other assets for $0.9 million. These cash expenditures were partially offset by cash flow from operations of $13.3 million. Other investing and financing activities provided cash of $0.5 million. Cash flow from operations improved $1.6 million during the first three months of fiscal 1998 over the same period of fiscal 1997 primarily due to higher net income in fiscal 1998 compared to fiscal 1997. Working capital requirements will continue to be provided by cash on hand, operations, sales of proprietary credit card receivables, a committed three-year $65 million competitive advance and revolving credit facility, all of which was available at the fiscal 1998 first quarter-end, and other short- term (12-month) bank facilities aggregating $159.7 million, of which $49.3 million was available at the fiscal 1998 first quarter-end. The short-term bank facilities consist of $29.7 million of committed lines of credit and $130 million of uncommitted lines. The Company's current ratio at the end of the first quarter of fiscal 1998 was 3.1 to 1 compared to 3.0 to 1 at fiscal 1997 year-end. The Company's minimum operating lease commitments remaining for fiscal 1998 are $72 million, and the present value of total existing minimum operating lease commitments is $366 million. These commitments will be funded from operating cash flow. At the end of the first quarter of fiscal 1998, approximately $10.4 million remained in the Company's previously established reserve to disengage from financial support of Sunbelt Nursery Group, Inc. ("Sunbelt"). Cash requirements to fund this reserve will continue to be funded through working capital and operations. As of June 1997, seven of the 13 store properties had been sold at costs consistent with the Company's previously recorded reserve. The Company guarantees other Sunbelt store lease commitments aggregating $2.8 million with a present value of approximately $2.4 million at the end of the fiscal 1998 first quarter. The Company is not aware of any defaults on these leases. On January 31, 1997, Sunbelt and the Company entered into an agreement to modify the terms of the July 31, 1995 Settlement Agreement to allow Sunbelt the opportunity to replace an existing $8.0 million obligation with an $0.8 million promissory note and certain cash payments. Sunbelt and its chairman did not exercise their rights under the agreement to replace the existing $8.0 million obligation, and the agreement was subsequently terminated with no modification to the terms of the Settlement Agreement. The $8.0 million obligation is not reflected on the Company's financial statements. In May 1997, the Company acquired a national bank in Omaha, Nebraska. The Company plans to use the newly named Pier 1 National Bank to standardize the interest rates and fees charged on its proprietary credit card and export the Nebraska interest rate to all other states where the Company makes credit card sales. The Company paid cash of $0.9 million for the bank charter and other assets. As of May 31, 1997, the Company had 2.3 million cardholders of which 400,155 maintain active accounts with average purchases of $137 per month. The Company has reviewed its systems for compliance with the year 2000 requirements. The Company has incurred immaterial expenses to comply with the year 2000 requirements. Any further work needed to modify existing systems is not expected to have a material impact on the Company's results of operations. In June 1997, the Company announced a three for two stock split of its common shares distributable to stockholders of record on July 16, 1997. The stock split will be effected in the form of a 50% stock dividend. All per share amounts have been adjusted to reflect the impact of the stock split. The effect of this stock split has not been reflected in the May 31, 1997 consolidated balance sheet. During the first quarter of fiscal 1998, the Company paid a $.04 per share cash dividend and has subsequently declared a cash dividend of $.035 per share, a 30% effective increase in the Company's quarterly cash dividend on the post split shares, payable on August 27, 1997 to shareholders of record on August 13, 1997. The Company currently expects to continue to pay cash dividends in fiscal 1998 but to retain most of its future earnings for expansion of the Company's business. In June 1997, Standard & Poor's ("S&P") raised the Company's corporate credit rating to BB+ from BB and its subordinated debt rating to BB- from B+. In addition, S&P assigned the Company's $65 million competitive advance and revolving credit facility a rating of BB+, the same as the corporate credit rating. The Company's S&P ratings were upgraded due to improved cash flows from fiscal 1996 year-end to fiscal 1997 year-end. PART II ------- Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- The Annual Meeting of Shareholders of the Company was held June 26, 1997 for the purpose of electing seven (7) Directors to hold office until the next Annual Meeting of Shareholders and to vote upon the proposed senior management annual bonus plan. The result of this vote follows: Director Election ----------------- Director FOR WITHHELD -------- --- -------- Clark A. Johnson 38,127,901 63,167 Marvin J. Girouard 38,132,451 58,617 Martin L. Berman 38,095,793 95,275 Craig C. Gordon 38,128,808 62,260 James M. Hoak, Jr. 38,132,776 58,292 Sally F. McKenzie 38,118,645 72,423 Charles R. Scott 37,981,804 209,264 Proposed Senior Management Annual Bonus Plan -------------------------------------------- For Against Abstained Broker Non-voters --- ------- --------- ----------------- 36,436,686 565,928 367,684 820,770 Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits See Exhibit Index. (b) Reports on Form 8-K None. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIER 1 IMPORTS, INC. (Registrant) Date: July 14, 1997 By: /s/ Clark A. Johnson ------------- ------------------------------------------- Clark A. Johnson, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: July 14, 1997 By: /s/ Stephen F. Mangum ------------- ------------------------------------------- Stephen F. Mangum, Senior Vice President and Chief Financial Officer (Principal Accounting Officer) EXHIBIT INDEX Exhibit No. Description - ------- ----------- 10.1 Senior Management Annual Bonus Plan 27 Financial Data Schedule for Three-Month Period ended May 31, 1997.

                                EXHIBIT 10.1

                     SENIOR MANAGEMENT ANNUAL BONUS PLAN

                1.  Purpose.  The purposes of the Pier 1 Imports, Inc. Senior
Management Annual Bonus Plan (the "Plan") are to encourage superior
performance and reward senior management of the Company for effective service
and to strengthen the ability of the Company to retain and attract the senior
management upon which continued growth and profitability of the Company
depends.

                2.  Definitions.  For purposes of the Plan, the following
terms shall have the meanings set forth below unless otherwise expressly
provided or unless the context otherwise requires: 

                "Board of Directors" means the Board of Directors of the
Company. 

                "Bonus" means any annual incentive bonus award granted
pursuant to the Plan, the payment of which shall be contingent upon the
attainment of Performance Goals with respect to a Plan Year. 

                "Code" means the Internal Revenue Code of 1986, as amended.

                "Committee" means a committee appointed by the Board of
Directors, which committee shall be composed of not less than two directors
of the Company who each qualify as an "outside director" under Treasury
Regulations Section 1.162-27 promulgated under Section 162(m) of the Code or
any successor provisions.  The Compensation Committee of the Board of
Directors shall be the Committee unless its membership does not qualify
hereunder.

                "Company" means Pier 1 Imports, Inc., a Delaware corporation,
or any successor corporation.

                "Participant" means an executive officer of the Company
specified by the Committee for participation in the Plan.

                "Performance Goals" means the criteria and objectives which
must be met during the Plan Year as a condition of the Participant's receipt
of payment with respect to a Bonus, as described in Section 4 hereof.

                "Plan Year" means a fiscal year of the Company for which
awards are determined under the Plan.

                3.  Administration.  The Plan shall be administered by the
Committee.  Subject to the provisions of the Plan, the Committee shall have
full and final authority to administer and interpret the Plan, to exercise
all powers either specifically granted to it under the Plan or as are
necessary or advisable in the administration of the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan, all
of which shall be binding on all persons, including the Company, the
Participants (or any person claiming any rights under the Plan from or
through any Participant) and any stockholder of the Company.  A majority of
the Committee shall constitute a quorum, and the Committee shall act pursuant
to a majority vote or by unanimous written consent.  No member of the Board
of Directors or the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Bonus
granted hereunder. 

                4.  Performance Goals.  Performance Goals for each Plan Year
shall be established by the Committee not later than the latest date
permissible under Code Section 162(m). Such Performance Goals may be
expressed in terms of one or more financial or other objective goals which
may be Company-wide, on an individual basis or otherwise. Financial goals may
be expressed, for example, in terms of sales, operating earnings, net income,
earnings per share, cash flow, return on equity or other return ratios, or
stock price. Other objective goals may include the attainment of various
productivity and long-term growth objectives, including for example,
reductions in the Company's overhead ratio and expense to sales ratios. Any
criteria may be measured in absolute terms, as a change from a prior year or
years, or as compared to another company or companies.  To the extent
applicable, any such Performance Goal shall be determined in accordance with
the Company's audited financial statements and generally accepted accounting
principles.  Performance Goals shall include a threshold level of performance
below which no Bonus payment shall be made, levels of performance at which
specified percentages of the target Bonus shall be paid and a maximum level
of performance above which no additional Bonus shall be paid. The Performance
Goals established by the Committee may be, but need not be, different for
each Plan Year and different Performance Goals may be applicable to different
Participants.

                5.  Bonuses.  (a)  General.  Payment of the amount of a Bonus
for a particular Plan Year shall be made only if and to the extent the
specified Performance Goals with respect to such Plan Year are attained and
only if the Participant is employed by the Company or any of its subsidiaries
on the last day of such Plan Year.  The Committee may, in its discretion,
reduce or eliminate the amount of any Bonus payable to any Participant, based
upon such factors as the Committee may deem relevant, but the Committee may
not increase the amount of any Bonus payable to any Participant above the
amount established in accordance with the relevant Performance Goals.

                (b)  Certification and Payment.  Payments of any Bonus shall
be made only after the Committee has certified the achievement of the
required Performance Goals.  After such certification the Company shall pay
in cash or as otherwise determined by the Committee the applicable amount of
the Bonus to the appropriate Participant.

                (c)  Maximum Payment. No Bonus shall be paid to any
Participant in excess of $1,500,000 for any Plan Year. 

                6.  General Provisions.  (a) Compliance With Legal
Requirements. The Plan and the granting of Bonuses, as well as the other
obligations of the Company under the Plan shall be subject to all federal and
state laws, rules and regulations, and to such approvals by any regulatory or
governmental agency as may be required.

                (b)  No Right To Continued Employment.  Nothing in the Plan
or in any Bonus shall confer upon any Participant the right to continue in
the employ of the Company or any of its subsidiaries or to be entitled to any
remuneration or benefits not set forth in the Plan or to interfere with or
limit in any way the right of the Company or any of its subsidiaries to
terminate such Participant's employment.
 
                (c)  Withholding Taxes.  The Company or any subsidiary
employing any Participant shall deduct from all payments and distributions
under the Plan any taxes required to be withheld by federal, state or local
governments.

                 (d)  Amendment and Termination of the Plan.  The Board of
Directors may at any time and from time to time alter, amend, suspend. or
terminate the Plan in whole or in part; provided, however, that no amendment
which requires stockholder approval in order for the Plan to continue to
comply with Code Section 162(m) shall be effective unless the same shall be
approved by the requisite vote of the shareholders of the Company.  The
Committee may make such amendments as it deems necessary to comply with other
applicable laws, rules and regulations. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any Participant,
without such Participant's consent, under any Bonus previously paid under the
Plan.

                (e)  Participant Rights.  No Participant shall have any claim
to be granted any Bonus  under the Plan, nor is there any obligation for
uniformity of treatment among Participants.

                (f)  Unfunded Status of Bonus.  The Plan is intended to
constitute an "unfunded" plan for incentive compensation.  Nothing contained
in the Plan or any Bonus shall give any Participant any rights with respect
to any Bonus payments which at any time have been certified by the Committee
but not yet paid to a Participant that are greater than those of a general
creditor of the Company and/or its subsidiaries.
 
                (g)  Governing Law.  The Plan and the rights of all persons
claiming hereunder shall be construed and determined in accordance with the
laws of the State of Texas, without giving effect to the choice of law
principles thereof.

                (h)  Effective Date.  The Plan shall become effective with
respect to the 1998 Plan Year, provided that the Plan shall have been
approved at the 1997 Annual Meeting of Shareholders by the requisite approval
of the shareholders of the Company required under Section 162(m) of the Code.
 
                (i)  Interpretation.  The Plan is designed and intended to
comply with Section 162(m) of the Code, and all provisions hereof shall be
construed in a manner so to comply. 
 

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS FEB-28-1998 MAY-31-1997 30,867 0 4,764 266 220,796 327,372 363,387 142,272 580,165 105,969 114,494 45,361 0 0 288,748 580,165 229,243 229,243 130,087 130,087 5,415 0 2,027 21,070 8,431 12,639 0 0 0 12,639 .18 .18 Shares Outstanding have been adjusted to reflect a 3-for-2 stock split effected in the form of a stock dividend, distributable July 30, 1997, to stockholders of record July 16, 1997. Prior financial data schedules have not been restated to reflect such stock split.