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 August 28, 1999

                                     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) 252-8000
            (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 October 5, 1999
- -----------------------------      ----------------------------------------
Common Stock, $1.00 par value                     96,680,916

PART I ------ Item 1. Financial Statements. -------------------- PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) (Unaudited) Three Months Ended Six Months Ended Aug. 28, Aug. 29, Aug. 28, Aug. 29, 1999 1998 1999 1998 -------- -------- -------- -------- Net sales $291,787 $281,489 $552,789 $531,997 Operating costs and expenses: Cost of sales (including buying and store occupancy) 178,575 163,421 329,494 304,242 Selling, general and administrative expenses 83,474 82,199 162,827 158,489 Depreciation and amortization 9,856 6,553 19,133 13,549 -------- -------- -------- -------- 271,905 252,173 511,454 476,280 -------- -------- -------- -------- Operating income 19,882 29,316 41,335 55,717 Nonoperating (income) and expenses: Interest and investment income (703) (909) (1,026) (1,639) Interest expense 1,718 2,064 3,423 4,192 -------- -------- -------- -------- 1,015 1,155 2,397 2,553 -------- -------- -------- -------- Income before income taxes 18,867 28,161 38,938 53,164 Provision for income taxes 6,981 10,700 14,407 20,202 -------- -------- -------- -------- Net income $ 11,886 $ 17,461 $ 24,531 $ 32,962 ======== ======== ======== ======== Net income per share: Basic $.12 $.18 $.25 $.33 ==== ==== ==== ==== Diluted $.12 $.17 $.25 $.31 ==== ==== ==== ==== Average shares outstanding during period: Basic 96,333 98,314 96,300 99,164 ======= ======= ======= ======= Diluted 104,912 110,414 105,037 111,110 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except share data) August 28, February 27, 1999 1999 ---------- ------------ (Unaudited) ASSETS Current assets: Cash, including temporary investments of $14,953 and $32,434, respectively $ 27,315 $ 41,945 Accounts receivable, net 7,586 9,060 Inventories 257,599 258,773 Prepaid expenses and other current assets 79,488 72,165 -------- -------- Total current assets 371,988 381,943 Properties, net 233,420 226,262 Other assets 43,527 45,786 -------- -------- $648,935 $653,991 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ -- $ 350 Accounts payable and accrued liabilities 123,974 129,482 -------- -------- Total current liabilities 123,974 129,832 Long-term debt 85,104 96,008 Other non-current liabilities 25,015 24,257 Shareholders' equity: Common stock, $1.00 par, 500,000,000 shares authorized, 100,779,000 issued 100,779 100,779 Paid-in capital 158,013 159,631 Retained earnings 220,193 201,457 Cumulative other comprehensive income (1,801) (1,850) Less - 4,150,000 and 3,107,000 common shares in treasury, at cost, respectively (61,785) (54,654) Less - unearned compensation (557) (1,469) -------- -------- 414,842 403,894 -------- -------- $648,935 $653,991 ======== ======== The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended August 28, August 29, 1999 1998 ---------- ---------- Cash flow from operating activities: Net income $24,531 $32,962 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 19,133 13,549 Deferred taxes and other 5,136 (1,581) Change in cash from: Inventories 1,174 (29,849) Accounts receivable and other current assets (5,073) 380 Accounts payable and accrued expenses (4,049) 4,302 Other assets, liabilities, and other, net (1,243) 1,634 ------- ------- Net cash provided by operating activities 39,609 21,397 ------- ------- Cash flow from investing activities: Capital expenditures (28,190) (48,369) Proceeds from disposition of properties 483 33,455 Net cost from disposition of Sunbelt Nursery Group, Inc. properties (244) (344) Beneficial interest in securitized receivables (887) 1,968 ------- ------- Net cash used in investing activities (28,838) (13,290) ------- ------- Cash flow from financing activities: Cash dividends (5,795) (5,680) Purchases of treasury stock (10,763) (51,909) Proceeds from stock options exercised, stock purchase plan and other, net 2,349 2,983 Repayments of long-term debt (14,400) (350) Net proceeds from issuance of long-term debt 3,208 -- ------- ------- Net cash used in financing activities (25,401) (54,956) ------- ------- Change in cash and cash equivalents (14,630) (46,849) Cash and cash equivalents at beginning of period 41,945 80,729 ------- ------- Cash and cash equivalents at end of period $27,315 $33,880 ======= ======= The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED AUGUST 28, 1999 (In thousands except per share data) (Unaudited) Cumulative Other Total Common Paid-in Retained Comprehensive Treasury Unearned Shareholders' Stock Capital Earnings Income Stock Compensation Equity -------- -------- -------- ------------- --------- ------------- ------------- Balance, February 27, 1999 $100,779 $159,631 $201,457 ($1,850) ($54,654) ($1,469) $403,894 -------- Comprehensive income: Net income 24,531 24,531 Other comprehensive income, net of tax: Foreign currency translation adjustments 49 49 -------- Comprehensive income 24,580 -------- Purchases of treasury stock (10,763) (10,763) Restricted stock grant and amortization 709 (1,392) 912 229 Stock purchase plan, exercise of stock options and other (2,327) 5,024 2,697 Cash dividends, declared or paid ($.06 per share) (5,795) (5,795) -------- -------- -------- ------- -------- ------- -------- Balance, August 28, 1999 $100,779 $158,013 $220,193 ($1,801) ($61,785) ($ 557) $414,842 ======== ======== ======== ======= ======== ======= ======== The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998 (Unaudited) The accompanying unaudited financial statements should be read in conjunction with the Form 10-K for the year ended February 27, 1999. All adjustments that are, in the opinion of management, necessary for a fair statement of the financial position as of August 28, 1999, and the results of operations and cash flows for the three and six months ended August 28, 1999 and August 29, 1998 have been made and consist only of normal recurring adjustments. The results of operations for the three and six months ended August 28, 1999 and August 29, 1998 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. The classifications of certain amounts previously reported in the statement of cash flows for the six months ended August 29, 1998 have been modified to conform with the August 28, 1999 method of presentation. Note 1 - Net income per share Basic net income per share was determined by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share amounts are similarly computed, but include the effect, when dilutive, of the Company's weighted average number of stock options outstanding and the average number of common shares that would be issuable upon conversion of the Company's convertible securities. To determine dilutive net income, interest and debt issue costs, net of any applicable taxes, have been added back to net income to reflect assumed conversions. Net income per share for the three and six months ended August 28, 1999 and August 29, 1998 are calculated as follows (in thousands except per share amounts): Three Months Ended Six Months Ended Aug. 28, Aug. 29, Aug. 28, Aug. 29, 1999 1998 1999 1998 -------- -------- -------- -------- Net income $11,886 $17,461 $24,531 $32,962 Assumed conversion of 5 3/4% subordinated notes: Plus interest and debt issue costs, net of tax 638 838 1,307 1,676 ------- ------- ------- ------- Diluted net income $12,524 $18,299 $25,838 $34,638 ======= ======= ======= ======= Average shares outstanding during period: Basic 96,333 98,314 96,300 99,164 Plus assumed exercise of stock options 724 1,621 686 1,467 Plus assumed conversion of 5 3/4% subordinated notes to common stock 7,855 10,479 8,051 10,479 ------- ------- ------- ------- Diluted 104,912 110,414 105,037 111,110 ======= ======= ======= ======= Net income per share: Basic $.12 $.18 $.25 $.33 ==== ==== ==== ==== Diluted $.12 $.17 $.25 $.31 ==== ==== ==== ==== Note 2 - Comprehensive income The components of comprehensive income, net of related tax, for the three and six months ended August 28, 1999 and August 29, 1998 are as follows (in thousands): Three Months Ended Six Months Ended Aug. 28, Aug. 29, Aug. 28, Aug. 29, 1999 1998 1999 1998 -------- -------- -------- -------- Net income $11,886 $17,461 $24,531 $32,962 Foreign currency translation adjustments (58) (208) 49 (415) ------- ------- ------- ------- Comprehensive income $11,828 $17,253 $24,580 $32,547 ======= ======= ======= ======= Note 3 - Repurchase of long-term debt In August 1999, the Company repurchased and retired $14.1 million principal amount of its 5 3/4% convertible subordinated notes due 2003 for $13.8 million in cash. These repurchases were made by the Company in open market transactions at an average price of 98.3% of par. The Company utilized its excess operating funds to repurchase the outstanding debt. Note 4 - Impact of new accounting standard In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting guidelines for derivatives and requires the Company to record all derivatives as assets or liabilities on the balance sheet at fair value. This statement is effective for years beginning after June 15, 1999 and is not to be applied retroactively to financial statements for prior periods. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133." This new statement defers the effective date of SFAS No. 133 until years beginning after June 15, 2000. The Company is analyzing the implementation requirements and does not anticipate that the adoption of SFAS No. 133 will have a material impact on the Company's consolidated balance sheets or statements of operations, shareholders' equity and cash flows.

PART I ------ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------------------------- General Pier 1 Imports, Inc. ("the Company") is North America's largest specialty retailer of imported decorative home furnishings, including furniture, dining and kitchen goods, bath and bedding accessories and other related items for the home. While the broad categories of merchandise remain relatively constant, individual products within these categories change frequently in order to meet customer demands. The Company has over 800 retail locations in 48 states, Puerto Rico, Canada, the United Kingdom, Mexico and Japan with merchandise directly imported from over 60 countries around the world. Results of Operations The Company recorded net sales of $291.8 million for the second quarter of fiscal 2000, a 3.7% increase over the second quarter of fiscal 1999. Net sales were $552.8 million for the first six months of fiscal 2000, an increase of 3.9% over the first six months of fiscal 1999. Same-store sales decreased 1.8% for the second quarter of fiscal 2000 and decreased 1.2% for the first six months of fiscal 2000, compared to the year earlier periods. The growth in net sales was largely the result of a net increase of 39 new North American stores as of the end of the second quarter of fiscal 2000 compared to the end of the second quarter of fiscal 1999. Late shipments of basic merchandise items contributed to the decline in same-store sales in the second quarter. Additionally, reduced customer traffic compared to the year earlier period weakened same-store sales for the first six months of the fiscal year. Store openings continued as planned for the first six months of fiscal 2000. The Company opened 13 new stores and closed five stores in North America during the second quarter of fiscal 2000, bringing the North American store count to 763 at the end of the second quarter of fiscal 2000 compared to 724 stores a year earlier. Stores worldwide, including North America, Puerto Rico, the United Kingdom, Mexico and Japan, totaled 809 at the fiscal 2000 second quarter-end. Net sales on the Company's proprietary credit card totaled $147.4 million during the first six months of fiscal 2000, an increase of 4.6%, over proprietary credit card sales of $140.8 million for the same period of fiscal 1999. For the first six months of fiscal 2000, proprietary credit card sales accounted for 28.6% of total U.S. store sales, an increase from the 28.4% for the year earlier period. Proprietary credit card customers spent an average of $150 per transaction for the first six months of fiscal 2000, compared to $141 for the same period last year. The Company continues to encourage sales on its proprietary credit card through marketing promotions targeted to cardholders. Gross profit, after related buying and store occupancy costs, expressed as a percentage of sales, decreased 3.1% for the quarter, from 41.9% in fiscal 1999 to 38.8% in fiscal 2000. For the first six months of fiscal 2000, gross profit was 40.4% of sales, down from 42.8% of sales for the year earlier period. These decreases in gross profit were the result of lower merchandise margins along with increasing store occupancy costs, as a percentage of sales. Merchandise margins, as a percentage of sales, decreased 1.0% to 52.5% in the second quarter of fiscal 2000 compared to the second quarter of fiscal 1999. The decrease in margins for the second quarter was largely due to more clearance and promotional markdowns coupled with fewer sales of full-priced merchandise items. Merchandise margins for the first six months of fiscal 2000 were 54.4% of sales, down from 55.1% of sales for the first six months of fiscal 1999. The heavier clearance and promotional markdowns in the second quarter of fiscal 2000 as well as the Company's new value pricing strategy introduced at the beginning fiscal 2000 resulted in the downward pressure on margins for the first half of this fiscal year. In April 1999, the Company began implementation of a new value pricing strategy geared toward reducing merchandise prices to a more competitive level, especially in the categories of decorative accessories and housewares. In response to consumer demand, prices were reduced on certain items already in stock. Additionally, the Company began to focus its buying strategy to include more merchandise at lower price points to meet the expectations of its customers, without sacrificing quality or style. Initial implementation of the value pricing strategy could take 12 to 18 months. The value pricing strategy along with an expected increase in overseas shipping freight rates may result in a slight decline of merchandise margins over the balance of the fiscal year and into the first quarter of fiscal 2001. Store occupancy costs, as a percentage of sales, increased 2.1% to 13.7% for the second quarter of fiscal 2000 and increased 1.7% to 14.0% for the first six months of fiscal 2000 compared to the same periods of fiscal 1999. These increases were partially due to a non-recurring gain of $2.7 million that was realized in the second quarter of fiscal 1999 as a result of the relinquishment of a real estate option. Excluding the non-recurring gain, store occupancy costs, as a percentage of sales, were 12.6% for the second quarter of fiscal 1999 and 12.8% for the first six months of fiscal 1999. The remaining increases in store occupancy costs were primarily the result of a sale-leaseback transaction in the second quarter of fiscal 1999 of certain store properties previously owned by the Company. The sale leaseback transaction resulted in an increase in rent expense and a reduction in depreciation expense related to those store properties. Selling, general and administrative expenses, including marketing, as a percentage of sales, decreased 0.6% to 28.6% in the second quarter of fiscal 2000 and decreased 0.3% to 29.5% for the first six months of fiscal 2000 compared to the same periods a year earlier. In total dollars, selling, general and administrative expenses increased $1.3 million for the second quarter of fiscal 2000 and increased $4.3 million for the first six months of fiscal 2000 versus the comparable periods of fiscal 1999. Expenses that normally grow proportionately with sales and net new stores, such as store salaries, equipment rental, supplies and marketing increased by $1.9 million for the second quarter of fiscal 2000 and $6.4 million for the first six months of fiscal 2000. The most significant increase in these variable costs was the additional marketing expenses associated with the Company's introduction of a new advertising campaign. Partially offsetting the increased marketing expenses was a reduction in equipment rental expense. In fiscal 1999, the Company replaced leased point of sale equipment with purchased equipment, resulting in a decrease in equipment rental expense and an increase in depreciation expense. The offsetting improvements in fixed expenses of $0.6 million for the second quarter and $2.1 million for the first six months of fiscal 2000 were primarily a result of controls over expenses as well as a reduction in net credit card costs due to a favorable trend in bad debt losses. Depreciation and amortization expense for the second quarter of fiscal 2000 was $9.9 million, or 3.4% of sales, compared to $6.6 million, or 2.3% of sales, for the same period a year earlier. For the first six months of fiscal 2000, depreciation and amortization expense was $19.1 million, or 3.5% of sales, and for the same period last year was $13.5 million, or 2.5% of sales. These increases were primarily attributable to the large investment in capital expenditures during fiscal 1999, including the previously discussed purchase of point of sale equipment. Partially offsetting the increased expense was a reduction of depreciation expense on the store properties that the Company sold and leased back during the second quarter of fiscal 1999. Operating income decreased $9.4 million to $19.9 million during the second quarter of fiscal 2000 from $29.3 million in the second quarter of fiscal 1999. For the first six months of fiscal 2000, operating income decreased $14.4 million to $41.3 million compared to $55.7 million for the same period a year ago. Interest expense net of interest income remained relatively flat for the second quarter and first six months of fiscal 2000. Interest and investment income declined over comparable periods last year as a result of lower average cash and short-term investment balances. Offsetting the decline in interest income was a decline in interest expense due to the repurchase of $18.3 million of the Company's outstanding 5 3/4% convertible subordinated notes in the third quarter of fiscal 1999. The Company's effective income tax rate for fiscal 2000 is estimated at 37% compared to 38% recorded in the first half of fiscal 1999. The reduction in the tax rate was attributable to a reduction in state income tax expense. Net income for the second quarter of fiscal 2000 was $11.9 million, or $.12 per diluted share, compared to net income of $17.5 million, or $.17 per diluted share, for the second quarter of fiscal 1999. Net income for the first six months of fiscal 2000 was $24.5 million, or $.25 per diluted share, compared to net income of $33.0 million, or $.31 per diluted share, for the first six months of fiscal 1999. Liquidity & Capital Resources As of August 28, 1999, net cash provided by operating activities was $39.6 million, an increase of $18.2 million from a year earlier. Net cash provided by operating activities was primarily the result of net income (adjusted for non-cash and non-operating related items) of $48.8 million. Operating cash flow during the first six months of fiscal 2000 increased by $1.2 million as a result of a reduction in inventory levels, which declined primarily due to late shipments of certain merchandise items in the second quarter of fiscal 2000. Partially offsetting these increases in operating cash flow were a $5.1 million increase in accounts receivable and other current assets, as well as a $4.1 million reduction in accounts payable and accrued expenses. Other operating activities reduced cash by $1.2 million. During the first six months of fiscal year 2000, net cash used in investing activities totaled $28.8 million. New store openings and the Company's remodeling and remerchandising programs were the primary reasons for capital expenditures totaling $28.2 million for the first six months of fiscal 2000. Additionally, changes to the beneficial interest in securitized receivables required $0.8 million. Partially offsetting these expenditures were net proceeds from the disposition of properties of $0.2 million. Net cash used in financing activities totaled $25.4 million for the first six months of the fiscal 2000. Fiscal year to date, the Company paid cash dividends totaling $5.8 million, or $.06 per share, and purchased 1,285,900 shares of the Company's outstanding common stock in open market transactions, for a total of $10.8 million. During the second quarter, the Company repurchased $14.1 million of its 5 3/4% convertible subordinated notes and repaid $0.3 million of other long-term debt. Cash flow increased as a result of the Company's subsidiary in the United Kingdom borrowing $3.2 million under a long-term credit facility to finance its operations. Other financing activities, primarily the exercise of stock options, provided cash of $2.4 million. The Company expects working capital requirements to continue to be funded through cash flow from operations, sales of proprietary credit card receivables and bank lines of credit. The bank facilities consist of: a five-year $125 million credit facility, all of which was available at the end of the second quarter; other short-term (12 month) bank facilities used principally for the issuance of letters of credit totaling $146.2 million, of which $101.3 was available at the end of the second quarter; and other long- term bank facilities of $32.7 million, of which $0.8 million was available at the end of the second quarter. At the end of the second quarter of fiscal 2000, the Company's current ratio was 3.0 to 1 compared to 2.9 to 1 at the end of fiscal 1999. The Company's minimum operating lease commitments remaining for fiscal 2000 are $63.0 million. The present value of total existing minimum operating lease commitments is $517.7 million. The Company expects to fund these commitments from operating cash flow. In September 1999, the Company declared a cash dividend of $.03 per share payable on November 17, 1999 to shareholders of record on November 3, 1999. The Company currently expects to continue to pay cash dividends in fiscal 2000 but to retain most of its future earnings for expansion of the Company's business. Management believes the funds provided from operations, coupled with the Company's cash position, available lines of credit and sales of its proprietary credit card receivables, will sustain current growth plans. Impact of Year 2000 Issue The Company has a comprehensive plan to address the risks associated with the Year 2000 issue, which arises when computers or embedded computer chips are unable to distinguish the proper century associated with a two- digit year in a date. The Company's Year 2000 project has been divided into five phases: 1) awareness, 2) assessment, 3) renovation, 4) validation and 5) implementation. The awareness phase is complete and all remaining phases are underway, as discussed below. Assessment. The Company has completed its assessment of all internal technology, which includes hardware and software components. The Company has thus far identified no significant risks associated with embedded chips in non-computer equipment for which it is responsible. Assessment of the compliance status of the Company's high and medium risk vendors and service providers is in progress and will continue throughout the project. Satisfactory responses have been received from over 90% of such vendors and providers. Renovation. Remediation or replacement of the Company's mission critical software applications is complete, and the remediated applications are running in production. Remediation of hardware, operating systems, databases and other programs is complete. Validation and Implementation. The Company's usual validation procedure puts remediated or certified-compliant versions of its software applications into production, and then conducts future-date testing in a special technology environment set up for that purpose. For mission critical applications, the Company is conducting testing for all future dates deemed to be at risk, even if the application is certified by the vendor to be Year 2000 compliant. Testing of all mission critical applications is complete; the Company expects to complete testing of other applications in the third quarter of fiscal 2000. The Company will continue to test certain processes involving technology owned by third parties during the third quarter of fiscal 2000. Contingency Plans. The Company is developing contingency plans to address possible failures that would impede the normal flow of its business processes. These plans address the Company's internal technology, vendors and service providers. The Company has had difficulty obtaining information concerning compliance in some foreign countries. The Company's risk from vendors and service providers is mitigated somewhat by the broad geographic dispersion of its physical facilities and vendors and by the large number of alternative sources of supply for its merchandise categories. Material adverse consequences, however, could occur from Year 2000 failures beyond the Company's control. These include: * widespread or long-term failures of telecommunications, electric or water services, * failure of the Company's credit card processors to provide services, * inability of ports and customs authorities to process imports and exports, or * failure of domestic and ocean transportation services. The Company does not believe any of these events to be reasonably likely to occur, but occurrences in varying degrees could result in interruption of store and distribution operations, delays in delivery of goods and reductions in cash inflows and revenues. The Company continues to develop risk mitigation strategies and contingency plans to address sporadic or short-term interruptions in services, particularly in locations of greatest exposure, such as headquarters, centralized data processing facilities and distribution centers. As part of its contingency plans, the Company is addressing mission critical systems of its business. It is designing contingency plans to mitigate serious disruptions to the business beyond December 31, 1999 and will focus on the operation of the Company's business independent of third- party service providers' Year 2000 compliance. Contingency plans currently provide for maintaining increased inventory to meet customer demands, identifying and securing alternate sources of critical services, materials and utilities when possible and establishing crisis teams to address unexpected problems. The Company expects to finalize the contingency plans by the end of the third quarter of fiscal 2000. Costs. The Company intends to continue to rely primarily on internal resources for renovation and validation of its computer systems, with support from consultants and contractors. In the first six months of fiscal 2000, the Company incurred costs totaling $1.1 million related to Year 2000 assessment, remediation, and testing. Costs incurred prior to fiscal 2000 totaled approximately $3.0 million. The Company also accelerated approximately $10.1 million in planned capital purchases as a result of Year 2000 issues. Remaining remediation costs are not expected to exceed $3.1 million over the next six months, approximately 30% to 40% of which represents ongoing budgeted salaries to be paid to existing employees. Significant utilization of outside resources beyond what is included in the Company's project plan, although not expected, could cause remediation costs to increase above these estimates. The Company's plan provides for internal compliance and completed testing of all significant systems by the third quarter of fiscal 2000. The Company expects to fund all expenditures related to its Year 2000 readiness initiatives through cash flow from operations. These expenditures are not expected to have an adverse effect on other operating or investment plans. Forward-looking Statements Except for historical information contained herein, certain matters discussed in this quarterly report may constitute "forward-looking statements" that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission and in material delivered to the Company's shareholders. Forward-looking statements provide current expectations of future events based on certain assumptions. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects" and other similar expressions. Management's expectations and assumptions regarding planned store openings, financing of Company obligations from operations and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Risks and uncertainties that may affect Company operations and performance include, among others, the general strength of the economy and levels of consumer disposable income, the strength of new home construction and sales of existing homes, the ability of the Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas and the ability of the Company to ship items from foreign countries at reasonable rates in timely fashion. The foregoing risks and uncertainties are in addition to others discussed elsewhere in this quarterly report. Additional information concerning these risks and uncertainties is contained in the Company's Annual Report on Form 10-K for the year ended February 27, 1999, as filed with the Securities and Exchange Commission. Impact of Inflation Inflation has not had a significant impact on the operations of the Company.

PART II ------- 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: October 12, 1999 By: /s/ Marvin J. Girouard ---------------- ----------------------------------------- Marvin J. Girouard, Chairman of the Board and Chief Executive Officer Date: October 12, 1999 By: /s/ Charles H. Turner ---------------- ----------------------------------------- Charles H. Turner, Senior Vice President and Chief Financial Officer and Treasurer Date: October 12, 1999 By: /s/ Susan E. Barley ---------------- ----------------------------------------- Susan E. Barley, Vice President Finance and Principal Accounting Officer

EXHIBIT INDEX Exhibit No. Description - ------- ----------- 10.1 1999 Stock Option Plan. 10.2 Forms of Director and Employee Stock Option Agreements. 27 Financial Data Schedule for Six-Month Period ended August 28, 1999.

                            PIER 1 IMPORTS, INC.

                               1999 STOCK PLAN


      1.        Purpose.  The purpose of the Plan is to advance the Company's
interests by encouraging certain employees of the Company and its
subsidiaries and non-employee directors of the Company to acquire a
proprietary interest in the Company through ownership of Common Stock.  Such
ownership is intended to encourage employees to remain with the Company and
to help attract other qualified persons to become employees and directors.

      2.        Administration.  The Plan shall be administered by the
Committee.  Subject to the provisions of the Plan, the Committee is
authorized to grant Options under the Plan, and the Committee is authorized
to interpret the Plan and the Options, to prescribe, amend and rescind rules
and regulations relating to the Plan and the Options, and to make other
determinations necessary or advisable for the administration of the Plan.
All of such determinations shall be conclusive and binding on all persons.
The Committee shall act pursuant to a majority vote or by unanimous written
consent.  No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any grant thereunder.

      3.        Eligibility.  Options may be granted under the Plan to
Non-Employee Directors and to key employees of the Company or any of its
Subsidiaries as the Committee shall determine from time to time.

      4.        Types of Options.  Options granted pursuant to the Plan may
be either Incentive Stock Options or non-qualified Options not so qualifying
under the Code.  It is the intent of the Company that non-qualified stock
Options granted under the Plan not be classified as Incentive Stock Options,
that Incentive Stock Options granted under the Plan be consistent with and
contain or be deemed to contain all provisions required under Section 422 and
the other appropriate provisions of the Code and any implementing regulations
(and any successor provisions thereof), and that any ambiguities in
construction be interpreted in order to effectuate such intent.

      5.        Stock Subject to the Plan.  The aggregate number of Shares
that may be issued or sold under Options or delivered in exchange for
Deferred Stock Units pursuant to the Plan shall not exceed 7,000,000 Shares,
of which not more than 250,000 Shares may be issued in exchange for Deferred
Stock Units; provided, that additional Shares above such maximum amount may
be issued in exchange for Deferred Stock Units that shall have been credited
to any Deferred Stock Account solely as a result of dividends or adjustments
pursuant to Section 8(d) or 8(e) hereof; and provided, further, that no
person shall be granted Options under the Plan covering an aggregate of more
than 1,750,000 Shares.  Shares may be either authorized but unissued shares
of Common Stock or issued shares of Common Stock that shall have been
reacquired by the Company.  The aggregate number of Shares issuable under the
Plan and to one person shall be subject to adjustment as provided in Section
9 hereof.  For purposes of calculating the maximum number of Shares of Common
Stock which may be issued under the Plan, Shares shall include only net
Shares issued upon exercise of Options and, accordingly, shall exclude Shares
delivered or withheld for payment of Option exercises or for tax withholding
and shall exclude Shares remaining subject to Options which expire or are
terminated for any reason.

      6.        Non-transferability of Options.  Except as otherwise
authorized by the Committee, in its discretion, and expressly provided in the
Option agreement pursuant to which an Option is granted, no Option shall be
transferable except by will or the laws of descent and distribution.

      7.        Options.  The Committee shall have the power, subject to the
limitations contained in the Plan, to prescribe the terms and conditions of
any Option granted hereunder.  Each Option shall be evidenced by an agreement
in such form as the Committee shall from time to time determine, which
agreement shall contain such terms and conditions not inconsistent with the
Plan as the Committee, in its sole discretion, may prescribe.  Options shall
be subject to the following provisions:

      (a)       Allotment of Shares; Option Price.  The Committee
shall determine the total number of Shares subject to each Option
under the Plan.  The Option exercise price for the Shares subject
to each Option shall be determined by the Committee, but shall
not be less than the Fair Market Value of the Common Stock on the
date of grant.

      (b)       Duration of Options.  Except as otherwise set
forth herein, Options shall expire after such term as the
Committee shall determine.  No option shall be exercisable after
the expiration of ten years from the date of grant.

      (c)       Exercise of Options.  Each option granted under
the Plan shall be exercisable from time to time as the Committee
shall determine.  No option shall be exercised for fewer than 100
Shares unless the remaining Shares that have become so
purchasable are fewer than 100 Shares.  In the event of the
retirement, death or disability of an Optionee, or in the event
of a Change in Control (as hereinafter defined), all Options
granted to such Optionee shall immediately become fully
exercisable to the extent of all Shares then covered by such
Options, except that in the case of a Change in Control only if
the Board of Directors shall not have determined otherwise prior
to such Change in Control.  A "Change in Control" shall mean any
of the following events:

     (i)   a merger or consolidation to which the
Company is a party if the individuals and entities who
were stockholders of the Company immediately prior to
the effective date of such merger or consolidation have
beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act) of less than 50 percent of the total
combined voting power for election of directors of the
surviving corporation or other entity following the
effective date of such merger or consolidation;

     (ii)  the acquisition or holding of direct or
indirect beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of securities of the Company
representing in the aggregate 30% or more of the total
combined voting power of the Company's then issued and
outstanding voting securities by any person, entity or
group of associated persons or entities acting in
concert, other than any employee benefit plan of the
Company or of any Subsidiary or any entity holding such
securities for or pursuant to the terms of any such
plan;

     (iii) the election of members of the Board of
Directors at a meeting of stockholders or by written
consent involving a contest for the election of
directors who, immediately prior to such meeting or
written consent, did not constitute a majority of the
Board of Directors;

     (iv)  the sale of all or substantially all of the
assets of the Company to any person or entity that is
not a wholly owned Subsidiary; or

     (v)   the approval by the stockholders of the
Company of any plan or proposal for the liquidation of
the Company or its Subsidiaries, other than into the
Company.

     (d) Payment for Shares.  The purchase price of each Share
purchased upon the exercise of any Option shall be paid in full
at the time of such purchase, and a stock certificate
representing Shares so purchased shall be delivered to the person
entitled thereto.  Until the stock certificate for such Shares is
issued in the Optionee's name, the Optionee shall have no rights
of a stockholder.  Payment may be made in whole or in part in
cash or, if the Committee so permits, in Common Stock owned by
the Optionee without restriction for the preceding six months
valued at Fair Market Value on the date preceding the date the
Option is exercised.  The Committee may permit an Optionee to pay
the purchase price by irrevocably authorizing a third party to
sell Shares acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sale proceeds to pay the
purchase price and any tax withholding resulting from the
exercise of the Option.  It shall be a condition to the
performance of the Company's obligation to issue or transfer
Shares upon exercise of an Option that the Optionee pay, or make
provision satisfactory to the Company for the payment of, any
taxes (other than stock transfer taxes) which the Company is
obligated to collect with respect to the issue or transfer upon
such exercise.  The Committee may provide the Optionee with the
right to satisfy minimum required federal or state tax
withholding obligations by delivery of previously owned shares of
Common Stock or electing the withholding of Shares otherwise
issuable upon exercise of a non-qualified Option, the Fair Market
Value of which does not exceed the amount to cover any federal
and state tax obligations (including FICA) incurred in connection
with the exercise of the Option.

     (e) Termination of Options.  Unless otherwise provided in
an Option agreement or otherwise agreed to by the Committee:

     (i)   upon the death or Permanent Disability of
an Optionee, any Option granted to the Optionee shall
become fully exercisable to the extent of all
unexercised Shares pertaining to such Option, and may
be exercised by the Optionee, or in the case of death,
by the Optionee's estate or a person who acquires the
right to exercise such Option by bequest, inheritance
or transfer (if transferability were specifically
provided for in the Option agreement) until the earlier
of (I) the remaining Option Term and (II) the first
anniversary of such death or disability;

     (ii)  upon the Retirement of an Optionee, any
Option granted to the  Optionee may be exercised by the
Optionee to the extent exercisable on the date of such
retirement until the earlier of (I) the remaining
Option Term and (II) the third anniversary of such
retirement;

     (iii) upon the resignation or expiration of the
term of office of a director who does not stand for
reelection, or upon the resignation of an employee with
the consent of the Company, any Option granted to the
Optionee may be exercised by the Optionee to the extent
exercisable on the date of such resignation or
expiration of term of office until the earlier of (I)
the remaining Option Term and (II) the 91st day
following such resignation or expiration; provided,
that in the event of the death of the Optionee after
such resignation or expiration but prior to the end of
such period of exercisability, the period during which
the Option may be exercise shall be extended until the
earlier of (I) the remaining Option Term and (II) the
first anniversary of such resignation or expiration;
and

     (iv)  upon termination of an Optionee's
employment, other than as provided in subsections
7(e)(i)-(iii), all Options granted to the Optionee
shall terminate immediately at such termination of
employment.

Options granted under the Plan shall not be affected by any
change of employment so long as the Optionee continues to be an
employee of the Company or any of its subsidiaries.  The Option
agreement may contain such provisions as the Committee shall
approve with respect to the effect of approved leaves of absence.
Cessation of any corporation's relationship with the Company as a
subsidiary shall constitute a "termination of employment"
hereunder as to individuals employed by that corporation.

     8.  Director Deferred Stock Program.  Each Non-Employee Director shall
be eligible to participate in the Director Deferred Stock Program through
deferral of part or all of such director's cash compensation into Deferred
Stock Units, as participation in such program shall be provided for by the
Board of Directors from time to time.

     (a) Deferred Stock Account.  Subject to the availability of
Shares under the Plan, the Board of Directors may in its
discretion provide that part or all of the compensation of Non-
Employee Directors otherwise payable in cash to each Non-Employee
Director be payable, either mandatorily and/or at the election of
each Non-Employee Director, in Deferred Stock Units.  Deferred
Stock Units shall be held in a Deferred Stock Account for each
Non-Employee Director in accordance with the provisions of the
Director Deferred Stock Program.

     (b) Mandatory Deferral.  To the extent any cash
compensation to a Non-Employee Director shall be mandatorily
payable in Deferred Stock Units, in lieu of paying such
compensation in cash the Company shall credit the Deferred Stock
Account for each Non-Employee Director the number of Deferred
Stock Units equal to the quotient of the amount of cash to be
deferred divided by the Fair Market Value per share of Common
Stock on the date of credit.

     (c) Elective Deferral.  To the extent provided in the
Director Deferred Stock Program, each Non-Employee Director may
elect to defer all or part of his eligible cash compensation
relating to the forthcoming year by filing, not later than the
date of the Company's annual meeting of stockholders, an
irrevocable election with the Company on a form provided for that
purpose.  The election shall be effective for compensation
payable for services rendered during the year commencing the day
after the Company's annual meeting of stockholders.  The election
form shall specify an amount to be deferred in increments of
$1,000.  In lieu of paying such elected amount of compensation,
the Company shall credit the Deferred Stock Account of each Non-
Employee Director electing a deferral the number of Deferred
Stock Units equal to the product of 1.5 multiplied by the amount
of compensation elected for deferral, divided by the Fair Market
Value per share of Common Stock on the date of credit.

     (d) Dividends.  Each time a dividend shall be paid on
Common Stock, other than a dividend of capital stock of the
Company, each Deferred Stock Account shall be credited with
additional Deferred Stock Units equal to the product of the
dividend payment amount (or, if other than in cash, the fair
market value thereof) per share multiplied by the number of
Deferred Stock Units credited to the Deferred Stock Account as of
the record date for the dividend, divided by the Fair Market
Value of the Common Stock on the dividend payment date.

     (e) Adjustments.  In the event of a stock dividend, stock
split or combination of shares of Common Stock, recapitalization,
reclassification, merger or other similar capital or corporate
structure change of the Company, then the number and the rights
and privileges of Deferred Stock Units in each Deferred Stock
Account shall be adjusted in a like manner as if the Deferred
Stock Units had been issued and outstanding shares of Common
Stock at the time of such occurrence.

     (f) Payment.  The balance of each Non-Employee Director's
Deferred Stock Account shall be paid to such director on the
first of the month following the 90th day after such director
terminates his position as a Non-Employee Director.  Each
Deferred Stock Unit shall be exchanged for a whole share of
Common Stock.  Any fractional Deferred Stock Unit shall be paid
in cash based on the Fair Market Value of the Common Stock on the
date of such termination.

     (g) Non-Assignability.  The right of a Non-Employee
Director or any person claiming under such director to receive
payments from any Deferred Stock Account may not be assigned,
transferred, pledged, anticipated, commuted or encumbered except
by will or the laws of descent and distribution, nor shall a
Deferred Stock Account be subject to seizure for payment of any
debts or judgment of any Non-Employee Director or any person
claiming through or under such director.

     9.  Adjustments.  In the event of a stock dividend or stock split,
unless the Committee shall determine otherwise, (i) the number of Shares at
the time of such stock dividend or stock split issuable under the Plan
pursuant to Options or in exchange for Deferred Stock Units, (ii) the
limitation on the maximum number of Shares underlying Options that may be
granted to one person and (iii) the number of Shares subject to any
outstanding Option shall each be increased in direct proportion to the
increase in the number of shares of Common Stock by reason of such stock
dividend or stock split, and the exercise price per Share of any outstanding
Option shall be proportionately decreased; provided that the adjusted number
of Shares shall always be a whole number with any fractional Shares being
deleted therefrom.  In the event of a combination of shares,
recapitalization, reclassification, merger or other similar capital or
corporate structure change of the Company, the Committee may, in its
discretion, adjust (i) the number of Shares at the time of such change
issuable under the Plan pursuant to Options or in exchange for Deferred Stock
Units, (ii) the limitation on the maximum number of Shares underlying Options
that may be granted to one person, (iii) the number of Shares subject to any
outstanding Option and/or the exercise price thereof and (iv) such other
provisions of the Plan or outstanding Options that the Committee determines
to be appropriate or advisable, including without limitation, changing the
security into which the Option is exercisable, terminating the Option with
prior notice to the Optionee, and exchanging the Option for cash, another
option or other security.

     10. Effective Date; Stockholder Approval; Term.  The Plan shall become
effective on the date of the last to occur of the (i) adoption of the Plan by
the Board of Directors and (ii) approval of the Plan, within 12 months of
such adoption, by the holders of a majority of the Common Stock present and
voting on the Plan at a duly held meeting of stockholders if holders of a
majority of the outstanding Common Stock vote on the proposal.  No Option
shall be granted after the 10th anniversary of the Plan's effective date (or,
if earlier, the 10th anniversary of the adoption of the Plan in the case of
an Incentive Stock Option) or the earlier suspension or termination of the
Plan in accordance with its terms.  The Plan shall terminate on the 10th
anniversary of the Plan's effective date or on such earlier date as it may be
terminated under the provisions of Section 11 hereof; provided that each
Option granted prior to such date shall remain in effect in accordance with
its terms and each Deferred Stock Account shall be credited with dividends
and subject to adjustment until full payment of such Deferred Stock Account.

     11. Amendment or Discontinuance of the Plan.  The Board of Directors
may, insofar as permitted by law and subject to the limitations contained in
the Plan, at any time or from time to time, suspend or terminate the Plan or
revise or amend it in any respect whatsoever, except that, without
appropriate approval of the stockholders of the Common Stock, no such
revision or amendment shall increase the maximum number of Shares subject to
the Plan, increase the maximum number of Shares covered by Options that may
be granted to one person, change the designation of the class of employees
eligible to receive options or decrease the minimum exercise price at which
Options may be granted.

     12. Applicable Laws or Regulations and Notification of Disposition.
The Company's obligation to sell and deliver Shares under an Option is
subject to such compliance as the Company deems necessary or advisable with
federal and state laws, rules and regulations applying to the authorization,
issuance, listing or sale of securities.  The Company may also require in
connection with any exercise of an Incentive Stock Option that the Optionee
agree to notify the Company when making any disposition of the Shares,
whether by sale, gift, or otherwise, within two years of the date of grant or
within one year of the date of exercise.

     13. No Employment Right, No Obligation to Exercise Option.  Nothing
contained in the Plan, or in any Option, shall confer upon any Optionee any
right to continued employment by the Company or any of its Subsidiaries or to
continued membership on the Board of Directors of the Company or limit in any
way the right of the Company or any of its Subsidiaries to terminate the
Optionee's employment at any time.

     14. No Implied Rights.  No person shall, by reason of participation in
the Plan, acquire any right in or title to any assets, funds or property of
the Company or any Subsidiary.  Rights conferred under the Plan are solely
contractual rights to Shares, if any, payable under the Plan, unsecured by
any assets of the Company or any Subsidiary.

     15. Definitions.    As used in this Plan, the following definitions
shall apply:

     (a) "Board of Directors" shall mean the Board of Directors
of the Company.

     (b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.

     (c) "Committee" shall mean the Compensation Committee of
the Board of Directors or, in the case of granting an Option and
determining its terms and conditions, the Board of Directors, if
the Board of Directors so determines.

     (d) "Common Stock" shall mean the Company's common stock,
par value $1.00 per share.

     (e) "Company" shall mean Pier 1 Imports, Inc. or any
successor.

     (f) "Deferred Stock Account" shall mean an appropriate
bookkeeping account or record maintained by the Company
denominated in Deferred Stock Units for the sole purpose of
measuring and determining the number of shares of Common Stock to
be delivered to the Non-Employee Director in exchange for
Deferred Stock Units.  The Deferred Stock Account shall not
constitute or be treated as an escrow or trust fund of any kind,
but shall constitute an unfunded, unsecured liability of the
Company to make payments in accordance with the provisions of the
Director Deferred Stock Program.  The Non-Employee Director shall
not be entitled to redeem, exchange or otherwise receive any
amount from the Deferred Stock Account except as provided in the
Director Deferred Stock Program.

     (g) "Deferred Stock Unit" shall mean a unit of credit of
the Deferred Stock Account representing one share of Common
Stock.  If the Company shall declare and pay a dividend on the
Common Stock in capital stock other than Common Stock or the
Company shall engage in a recapitalization, reclassification,
merger or other transaction to change the capital or corporate
structure of the Company, then in accordance with Section 8(e)
hereof, Deferred Stock Units shall represent such other capital
stock in place of or in addition to Common Stock, and references
to Common Stock with respect to Section 8 hereof shall in
addition mean, as appropriate, such other capital stock.  In such
an event, a Deferred Stock Account may be denominated in separate
classes of Deferred Stock Units representing different classes of
capital stock.  In any calculation of Deferred Stock Units to be
credited to a Deferred Stock Account, the number of Deferred
Stock Units shall be rounded to the nearest one-hundredth of a
unit.

     (h) "Director Deferred Stock Program" shall mean the
program of the Company authorized in Section 8 hereof and as
specifically instituted, amended or suspended from time to time
by the Board of Directors.

     (i) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.

     (j) "Fair Market Value" shall be the applicable day's
closing sales price of the security as reported for consolidated
transactions on the principal exchange on which such security is
listed or admitted to trading, or, if no sales occur on that
date, the price on the most recent trading day prior thereto, or,
if the security is not listed or admitted to trading on a
national securities exchange, the average of the highest bid and
lowest ask prices on such day as reported the National
Association of Securities Dealers or a comparable service.

     (k) "Incentive Stock Option" shall mean a stock option
qualifying under Section 422 of the Code.

     (l) "Non-Employee Director" shall mean a member of the
Board of Directors of the Company who is not an officer or
employee of the Company or any Subsidiary.

     (m) "Option" shall mean a non-qualified stock option or an
Incentive Stock Option granted pursuant to the Plan.

     (n) "Optionee" shall mean a holder of an Option.

     (o) "Option Term" shall mean the period during which an
Option may be exercised, which shall be 10 years from the date of
grant thereof unless a shorter period is provided by the
Committee or by a provision of the Plan.

     (p) "Permanent Disability" shall mean long-term disability
as defined in the Company's employee long-term disability plan.

     (q) "Plan" shall mean the Pier 1 Imports, Inc. 1999 Stock
Option Plan.

     (r) "Retirement" shall mean (i) as to an employee, the
separation from employment, other than by the Company for cause,
after the earlier of (I) completing 15 years of service with the
Company or any Subsidiary and attaining age 55 or (II) attaining
age 65, and (ii) as to a director, ceasing to be a member of the
Board of Directors, other than by reason of death, disability or
removal from office, after attaining age 70.

     (s) "Shares" shall mean shares of Common Stock subject to
Options or deliverable in exchange for Director Deferred Stock
Units pursuant to the Plan.

     (t) "Subsidiary" shall mean any corporation or other entity
of which at least 50% of the voting securities are owned directly
or through one or more Subsidiaries.
                            PIER 1 IMPORTS, INC.
                    NON-QUALIFIED STOCK OPTION AGREEMENT

                         For a Non-Employee Director

     STOCK OPTION AGREEMENT, entered into as of the Option Grant Date set
forth at Paragraph 14(a) on the Execution Page hereof, between PIER 1
IMPORTS, INC., a Delaware corporation (the "Company"), and ________________
(the "Optionee").

     WHEREAS, the Company adopted its 1999 Stock Plan (the "Plan") in order,
among other things, to grant stock options to non-employee directors of the
Company to purchase common stock of the Company in order to provide them
incentives in the success of the Company and to attract qualified directors;
and

     WHEREAS, the Optionee is a non-employee director of the Company, and the
Company desires to grant a stock option to the Optionee;

     NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:

     1.  Grant of Option.  The Company hereby grants to the Optionee an
option (the "Option"), subject to the execution of this Agreement, on the
date set forth at Paragraph 14(a) on the Execution Page hereof (the "Option
Grant Date") to purchase from the Company upon the terms and conditions
hereinafter set forth the number of shares (the "Option Shares") of common
stock, par value $1.00 per share, of the Company (the "Common Stock")
indicated at Paragraph 14(b) on the Execution Page at the Exercise Price set
forth at Paragraph 14(c) on the Execution Page.

     2.  Term of Option; Exercisability.  The Option is immediately fully
vested and exercisable.  The Option shall be exercisable in full or in part
and shall remain exercisable until the Expiration Date set forth at Paragraph
14(d) on the Execution Page, at which time the Option shall expire unless the
Option is sooner terminated as hereinafter provided.

     3.  Exercise of Option.  Notice of the exercise of the Option or any
portion thereof shall be given to the Company's Treasurer (or any other
officer of the Company who is designated by the Company to accept such
notices on its behalf), specifying the number of shares for which it is
exercised; provided, that no partial exercise of the Option may be for fewer
than 100 shares unless the remaining shares purchasable are fewer than 100
shares.

     Payment of the Exercise Price shall be made in full at the time the
Option is exercised.  Payment shall be made (i) by certified or cashier's
check, (ii) by delivery and assignment to the Company of Common Stock owned
by the Optionee without restriction for the preceding six months that has a
Fair Market Value on the business day next preceding the date the Option is
exercised equal to the aggregate purchase price of the Option Shares, (iii)
by irrevocably authorizing a third party to sell Option Shares and remit to
the Company a sufficient portion of the sale proceeds to pay the purchase
price or (iv) by a combination of (i), (ii) or (iii).

     Certificates for any shares of Common Stock delivered in satisfaction of
all or a portion of the Exercise Price shall be appropriately endorsed for
transfer and assignment to the Company.  For purposes of determining the
amount, if any, of the Exercise Price satisfied by delivery of shares of
Common Stock, such shares shall be valued at Fair Market Value on the
business day next preceding the date of exercise.

     "Fair Market Value" of Common Stock as of any date shall be the closing
sales price of the Common Stock on such date, as reported for consolidated
transactions on the New York Stock Exchange or such other principal exchange
on which the Common Stock shall then be listed or admitted to trading, or, if
no sales occur on that date, the price on the most recent trading day prior
thereto, or, if the Common Stock is not listed or admitted to trading on a
national securities exchange, the average of the highest bid and lowest ask
prices on such day as reported by the National Association of Securities
Dealers or a comparable service.

     4.  Termination of Option.  In the event of the termination of the
Optionee's term of office as a director of the Company, this Option shall
terminate in accordance with the following provisions:

     (i)   upon the death or Permanent Disability of the
Optionee, the Option may be exercised by the Optionee, or in the
case of death, by the Optionee's estate or a person who acquires
the right to exercise such Option by bequest or inheritance,
until the earlier of (I) the Expiration Date and (II) the first
anniversary of such death or Permanent Disability;

     (ii)  upon the Retirement of the Optionee, the Option may
be exercised by the Optionee until the earlier of (I) the
Expiration Date and (II) the third anniversary of such
Retirement; and

     (iii) upon the Optionee's resignation or the expiration of
the term of office as a director without the Optionee's standing
for reelection, the Option may be exercised by the Optionee until
the earlier of (I) the Expiration Date and (II) the 91st day
following such resignation or expiration; provided, that in the
event of the death of the Optionee after such resignation or
expiration but prior to the end of such period of exercisability,
the period during which the Option may be exercised shall be
extended until the earlier of (I) the Expiration Date and (II)
the first anniversary of such resignation or expiration.

In no event shall this Option be exercisable to any extent by any person on
or after the Expiration Date.

     5.  Non-Assignability of Option.  This Option shall not be transferable
by the Optionee otherwise than by will or the laws of descent and
distribution, and this Option shall be exercisable during the Optionee's
lifetime only by the Optionee or by his guardian or legal representative.
This Option shall not be subject to execution, attachment or similar process.

     6.  Adjustments.  In the event of a stock dividend or stock split on the
Common Stock, unless the Committee shall determine otherwise, the number of
Option Shares remaining subject to this Option shall be increased in direct
proportion to the increase in the number of shares of Common Stock by reason
of such stock dividend or stock split, and the corresponding Exercise Price
per Option Share shall be proportionately decreased; provided that the
adjusted number of Option Shares shall always be a whole number with any
fractional Option Share being deleted therefrom.  In the event of a
combination of shares, recapitalization, reclassification, merger or other
similar capital or corporate structure change of the Company, the Committee
may, in its discretion, adjust the number of Option Shares remaining subject
to this Option and/or the Exercise Price thereof and such other provisions of
this Option that the Committee determines to be appropriate or advisable,
including without limitation, changing the security into which this Option is
exercisable, terminating this Option with prior notice to the Optionee, and
exchanging this Option for cash, another option or other security.

     7.  Compliance with Laws.  The obligation of the Company to sell and
issue Option Shares pursuant to this Option is subject to such compliance as
the Company deems necessary or advisable with federal and state laws, rules
and regulations applying to the authorization, issuance, sale or listing of
securities.

     8.  Relationship to Plan.  This Option has been granted pursuant to the
Plan and is in all respects subject to the terms, conditions and definitions
of the Plan, a copy of which may be obtained by the Optionee from the
Secretary of the Company.  In the event that any provisions of this Agreement
shall conflict with the Plan, the provisions of the Plan shall control.  The
Optionee hereby accepts this Option subject to all the terms and provisions
of the Plan and agrees that all decisions under and interpretations of the
Plan by the Committee shall be final, binding and conclusive upon the
Optionee and any permitted transferee.  Unless otherwise defined herein or
unless the context requires a different definition, capitalized terms used
herein shall have the meanings assigned to them in the Plan.

     9.  No Rights as Shareholder; No Rights to Employment.  The Optionee
shall have no rights as a stockholder of the Company or any claim to
dividends with respect to any Option Shares until such Option Shares are
issued to the Optionee by the Company.  Nothing contained in this Option
shall confer upon the Optionee any right to employment by the Company or any
Subsidiary.

     10.  Notices.  Any notice to be provided hereunder or the Plan shall be
in writing and addressed either to the Company at the Company's principal
executive offices or to the Optionee at the address thereof shown on the
Company's records or such other address provided to the Company by the
Optionee in accordance herewith.  Notice shall be given by either hand
delivery, overnight courier service, facsimile transmission (promptly
confirmed in writing) or registered or certified mail (postage prepaid,
return receipt requested).  Notices given by hand delivery, overnight courier
or facsimile transmission shall be deemed given upon receipt and notices
given by mail shall be deemed given five days after deposit in the U.S. mail.

     11.  Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect to
the principles of conflict of laws.

     12.  Successors and Assigns.  This Option shall be binding upon and
shall inure to the benefit of the Company and its successors and assigns.

     13.  Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


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EXECUTION PAGE OF NON-QUALIFIED STOCK OPTION AGREEMENT 14. Certain Additional Information. This Paragraph sets forth certain information referred to in Paragraphs 1 and 2 of this Agreement. (a) The Option Grant Date is ____________. (b) The number of Option Shares is ________. (c) The Exercise Price for each Option Share is $________ per share. (d) The Expiration Date is ______________. IN WITNESS WHEREOF, this Non-Qualified Stock Option Agreement has been executed by the Company and the Optionee as of the Option Grant Date. OPTIONEE: ____________________________ [Name] [Address] PIER 1 IMPORTS, INC. By _________________________ [Name] [Title]

PIER 1 IMPORTS, INC. NON-QUALIFIED STOCK OPTION AGREEMENT For an Employee STOCK OPTION AGREEMENT, entered into as of the Option Grant Date set forth at Paragraph 15(a) on the Execution Page hereof, between PIER 1 IMPORTS, INC., a Delaware corporation (the "Company"), and ________________ (the "Optionee"). WHEREAS, the Company adopted its 1999 Stock Plan (the "Plan") in order, among other things, to grant stock options to certain employees of the Company and its affiliates to purchase common stock of the Company in order to provide them incentives in the success of the Company and to attract and retain qualified employees; and WHEREAS, the Optionee renders important services to the Company or an affiliate, and the Company desires to grant a stock option to the Optionee; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements herein contained, the parties hereto agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee an option (the "Option"), subject to the execution of this Agreement, on the date set forth at Paragraph 15(a) on the Execution Page hereof (the "Option Grant Date") to purchase from the Company upon the terms and conditions hereinafter set forth the number of shares (the "Option Shares") of common stock, par value $1.00 per share, of the Company (the "Common Stock") indicated at Paragraph 15(b) on the Execution Page at the Exercise Price set forth at Paragraph 15(c) on the Execution Page. 2. Term of Option; Exercisability. The Option shall become vested and exercisable in accordance with the vesting schedule set forth at Paragraph 15(d) on the Execution Page. To the extent vested, the Option shall be exercisable in full or in part and shall remain exercisable until the Expiration Date set forth at Paragraph 15(e) on the Execution Page, at which time the Option shall expire unless the Option is sooner terminated as hereinafter provided. Notwithstanding the limitations on exercise of the Option set forth in Paragraph 15(d), in the event, prior to the termination of employment of the Optionee, of the death, Retirement or Permanent Disability of the Optionee or a Change in Control of the Company, any unexercised portion of the Option shall immediately become fully vested and exercisable, except that in the case of a Change in Control only if the Board of Directors of the Company shall not have determined otherwise prior to such Change in Control. 3. Exercise of Option. Notice of the exercise of the Option or any portion thereof shall be given to the Company's Treasurer (or any other officer of the Company who is designated by the Company to accept such notices on its behalf), specifying the number of shares for which it is exercised; provided, that no partial exercise of the Option may be for fewer than 100 shares unless the remaining shares purchasable are fewer than 100 shares. Payment of the Exercise Price shall be made in full at the time the Option is exercised. Payment shall be made (i) by certified or cashier's check, (ii) if the Committee permits, by delivery and assignment to the Company of Common Stock owned by the Optionee without restriction for the preceding six months that has a Fair Market Value on the business day next preceding the date the Option is exercised equal to the aggregate purchase price of the Option Shares, (iii) by irrevocably authorizing a third party to sell Option Shares and remit to the Company a sufficient portion of the sale proceeds to pay the purchase price or (iv) by a combination of (i), (ii) or (iii). The Company will, as soon as reasonably practicable, notify the Optionee of the amount of withholding tax, if any, that must be paid under federal, state and local law due to the exercise of the Option. The Optionee shall, prior to receiving the Option Shares purchased under this Option, satisfy the amount of withholding tax specified in the Company's notice by (i) certified or cashier's check, (ii) delivery and assignment to the Company of shares of Common Stock previously owned by the Optionee (without regard to the length of time held by the Optionee) having a Fair Market Value of such amount, (iii) notice to the Company of the Optionee's election to require the Company to withhold whole Option Shares otherwise deliverable to the Optionee from the exercise of the Option, which Option Shares have a Fair Market Value of such amount or (iv) a combination of (i), (ii) or (iii). Certificates for any shares of Common Stock delivered in satisfaction of all or a portion of the Exercise Price and any withholding tax shall be appropriately endorsed for transfer and assignment to the Company. For purposes of determining the amount, if any, of the Exercise Price satisfied by delivery of shares of Common Stock or the amount of tax withholding satisfied by delivery of shares of Common Stock or withholding of Option Shares from the exercise of the Option, such shares shall be valued at Fair Market Value on the business day next preceding the date of exercise. "Fair Market Value" of Common Stock as of any date shall be the closing sales price of the Common Stock on such date, as reported for consolidated transactions on the New York Stock Exchange or such other principal exchange on which the Common Stock shall then be listed or admitted to trading, or, if no sales occur on that date, the price on the most recent trading day prior thereto, or, if the Common Stock is not listed or admitted to trading on a national securities exchange, the average of the highest bid and lowest ask prices on such day as reported by the National Association of Securities Dealers or a comparable service. 4. Termination of Option. In the event of the termination of the Optionee's employment by the Company or an affiliate, this Option shall terminate in accordance with the following provisions: (i) upon the death or Permanent Disability of the Optionee, the Option shall become fully exercisable to the extent of all unexercised Option Shares and may be exercised by the Optionee, or in the case of death, by the Optionee's estate or a person who acquires the right to exercise such Option by bequest or inheritance, until the earlier of (I) the Expiration Date and (II) the first anniversary of such death or Permanent Disability; (ii) upon the Retirement of the Optionee, the Option shall become fully exercisable to the extent of all unexercised Option Shares and may be exercised by the Optionee until the earlier of (I) the Expiration Date and (II) the third anniversary of such Retirement; (iii) upon the resignation of the Optionee with the consent of the Company, the Option may be exercised by the Optionee to the extent exercisable on the date of such resignation until the earlier of (I) the Expiration Date and (II) the 91st day following such resignation; provided, that in the event of the death of the Optionee after such resignation but prior to the end of such period of exercisability, the period during which the Option may be exercised shall be extended until the earlier of (I) the Expiration Date and (II) the first anniversary of such resignation; and (iv) upon termination of the Optionee's employment, other than as provided in this Paragraph 4(i), (ii) or (iii), all Options granted to the Optionee shall terminate immediately at such termination of employment. In no event shall this Option be exercisable to any extent by any person on or after the Expiration Date. No termination of employment shall occur as a result of the transfer of the Optionee between the Company and any Subsidiary or between two Subsidiaries. The cessation of a relationship with the Company as a Subsidiary of any company with which the Optionee is employed shall constitute a termination of employment of the Optionee. 5. Forfeiture. The Optionee acknowledges that the granting of this Option is intended to provide incentive for the Optionee to remain in the employ of the Company and to enhance the value of the Company over the long- term. Accordingly, the Optionee agrees that if at any time during the Optionee's term of employment by the Company or any Subsidiary, and for the period of three years thereafter if the Optionee's termination of employment results from Retirement prior to attaining age 65, the Optionee (i) engages, directly or indirectly, in any manner or capacity, whether as owner (other than ownership of less that 5% of the outstanding equity interest of any public company), shareholder, partner, member, officer, director, employee, consultant, principal, agent or otherwise, either for the Optionee's own benefit or the benefit of any other individual or entity, in any business or activity in those cities in North America where the Optionee's services and duties for the Company were applied, which business or activity is substantially the same as or competitive with any business or activity engaged in by the Optionee on behalf of the Company or any Subsidiary at the time of the Optionee's termination of employment, (ii) induces or attempts to induce any employee of the Company or any Subsidiary to leave the employ of the Company or any Subsidiary or in any way interferes with the employment relationship between the Company or any Subsidiary and any of their employees, (iii) interferes with the relationship between the Company and any Subsidiary and any of their suppliers or other business relations, (iv) discloses or misuses any confidential or proprietary information of the Company or any Subsidiary or (v) engages in any conduct related to the Optionee's employment for which either criminal or civil penalties are obtained; then, in any such event, this Option shall immediately terminate unless sooner terminated in accordance with another provision of this Agreement. 6. Non-Assignability of Option. This Option shall not be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and this Option shall be exercisable during the Optionee's lifetime only by the Optionee or by his guardian or legal representative. This Option shall not be subject to execution, attachment or similar process. 7. Adjustments. In the event of a stock dividend or stock split on the Common Stock, unless the Committee shall determine otherwise, the number of Option Shares remaining subject to this Option shall be increased in direct proportion to the increase in the number of shares of Common Stock by reason of such stock dividend or stock split, and the corresponding Exercise Price per Option Share shall be proportionately decreased; provided that the adjusted number of Option Shares shall always be a whole number with any fractional Option Share being deleted therefrom. In the event of a combination of shares, recapitalization, reclassification, merger or other similar capital or corporate structure change of the Company, the Committee may, in its discretion, adjust the number of Option Shares remaining subject to this Option and/or the Exercise Price thereof and such other provisions of this Option that the Committee determines to be appropriate or advisable, including without limitation, changing the security into which this Option is exercisable, terminating this Option with prior notice to the Optionee, and exchanging this Option for cash, another option or other security. 8. Compliance with Laws. The obligation of the Company to sell and issue Option Shares pursuant to this Option is subject to such compliance as the Company deems necessary or advisable with federal and state laws, rules and regulations applying to the authorization, issuance, sale or listing of securities. 9. Relationship to Plan. This Option has been granted pursuant to the Plan and is in all respects subject to the terms, conditions and definitions of the Plan, a copy of which may be obtained by the Optionee from the Secretary of the Company. In the event that any provisions of this Agreement shall conflict with the Plan, the provisions of the Plan shall control. The Optionee hereby accepts this Option subject to all the terms and provisions of the Plan and agrees that all decisions under and interpretations of the Plan by the Committee shall be final, binding and conclusive upon the Optionee and any permitted transferee. Unless otherwise defined herein or unless the context requires a different definition, capitalized terms used herein shall have the meanings assigned to them in the Plan. 10. No Rights as Shareholder; No Rights to Employment. The Optionee shall have no rights as a stockholder of the Company or any claim to dividends with respect to any Option Shares until such Option Shares are issued to the Optionee by the Company. Nothing contained in this Option shall confer upon the Optionee any right to continued employment by the Company or any Subsidiary, or limit in any way the right of the Company or any Subsidiary to terminate or modify the terms of the Optionee's employment at any time. 11. Notices. Any notice to be provided hereunder or the Plan shall be in writing and addressed either to the Company at the Company's principal executive offices or to the Optionee at the address thereof shown on the Company's records or such other address provided to the Company by the Optionee in accordance herewith. Notice shall be given by either hand delivery, overnight courier service, facsimile transmission (promptly confirmed in writing) or registered or certified mail (postage prepaid, return receipt requested). Notices given by hand delivery, overnight courier or facsimile transmission shall be deemed given upon receipt and notices given by mail shall be deemed given five days after deposit in the U.S. mail. 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without giving effect to the principles of conflict of laws. 13. Successors and Assigns. This Option shall be binding upon and shall inure to the benefit of the Company and its successors and assigns. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [Remainder of this Page Intentionally Left Blank]

EXECUTION PAGE OF NON-QUALIFIED STOCK OPTION AGREEMENT 15. Certain Additional Information. This Paragraph sets forth certain information referred to in Paragraphs 1 and 2 of this Agreement. (a) The Option Grant Date is ____________. (b) The number of Option Shares is ________. (c) The Exercise Price for each Option Share is $________ per share. (d) The Option shall become exercisable in the amount of 25% of the Option Shares on each of the four anniversaries of the Option Grant Date. (e) The Expiration Date is ______________. IN WITNESS WHEREOF, this Non-Qualified Stock Option Agreement has been executed by the Company and the Optionee as of the Option Grant Date. OPTIONEE: ____________________________ [Name] [Address] PIER 1 IMPORTS, INC. By ________________________ [Name] [Title]

  

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 6-MOS FEB-26-2000 AUG-28-1999 27,315 0 7,831 245 257,599 371,988 426,510 193,090 648,935 123,974 85,104 100,779 0 0 314,063 648,935 552,789 552,789 329,494 329,494 19,133 0 3,423 38,938 14,407 24,531 0 0 0 24,531 .25 .25