<PAGE>1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
                                   (Mark One)
/ X / Annual report pursuant to Section 13 or 15(d) of the Securities Exchange  
      Act of 1934 [No fee required]

      For the fiscal year ended November 28, 1998

                                       OR

 / / Transition report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934 [No fee required]

           For the transition period from ____________to_____________

                          Commission file number 0-4437

                             PAYLESS CASHWAYS, INC.
             (Exact Name of Registrant as Specified in Its Charter)
    Delaware                                                     42-0945849
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

    Two Pershing Square
  2300 Main, P.O. Box 419466
    Kansas City, Missouri
(Address of Principal Executive Offices)                          64141-0466
                                                                   (Zip Code)
                                 (816) 234-6000
              (Registrant's Telephone Number, Including Area Code)

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


                                                      Name of Each Exchange on
  Title of Each Class                                    Which Registered

Common Stock, $.01 par value                                 None


                 Securities registered pursuant to Section 12 (g) of the Act: 
                 Common Stock, $.01 par value

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /

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

The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by  nonaffiliates of the registrant as of February 17, 1999, was
$ 43,520,761.

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distributions of securities under a plan
confirmed by a court. YES / X / NO / /


Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

There were 19,995,027 shares of Common Stock, $.01 par value,  outstanding as of
February 17, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the  Annual  Report  to  Stockholders  for the year  ended
November 28, 1998, are  incorporated  by reference into Part II. Portions of the
Annual Proxy  Statement for the Annual Meeting of  Stockholders to be held April
21, 1999, are incorporated by reference into Part III.

<PAGE>2


                                     PART I
                                     ------
Item 1.  BUSINESS.

General

         Payless  Cashways,  Inc.  ("Payless"  or the  "Company")  is the  fifth
largest  retailer of building  materials  and home  improvement  products in the
United States as measured by sales. The Company operates 154 building  materials
stores,  excluding five stores that are currently in the process of closing,  in
18 states located in the Midwest,  Southwest,  Pacific Coast, and Rocky Mountain
areas under the names  Payless  Cashways  Building  Materials,  Furrow  Building
Materials, Lumberjack Building Materials, Hugh M. Woods Building Materials, Knox
Lumber, and Contractor Supply.  Each store is designed as a one-stop source that
provides  the   professional   homebuilder,   remodel  and  repair   contractor,
institutional  buyer,  and  project-oriented   do-it-yourself  customer  with  a
complete  selection of quality  products and services needed to build,  improve,
and maintain home, business, farm or ranch properties. The Company's merchandise
assortment in each store currently  averages  approximately  31,000 items in the
following categories: lumber and building materials,  millwork, tools, hardware,
electrical  and  plumbing  products,  paint,  lighting,  home  decor,  kitchens,
decorative  plumbing,  heating,  ventilating  and cooling  (HVAC),  and seasonal
items.  The Company believes that the combination of a full-line  lumberyard,  a
broad product mix tailored to serve the professional  customer,  a high level of
in-store customer assistance concerning product usage and installation, an array
of services including credit,  delivery,  estimating and design services as well
as targeted marketing distinguishes Payless from many competitors.

         The Company's primary customers are professionals and  project-oriented
do-it-yourselfers.  Professionals  ("Pros") include  professional  homebuilders,
remodel  and repair  contractors,  and  institutional  buyers.  Project-oriented
do-it-yourselfers  ("DIY-ers") are those who engage in more frequent and complex
repair or home  improvement  projects  and  typically  spend in excess of $1,000
annually  on home  improvement  products.  Payless  also serves the needs of the
moderate and light  DIY-er.  Due to its product mix  (especially  the  advantage
provided by its full-line lumberyard) and customer service approach, the Company
believes that it is positioned to increase business to the professional customer
and serve the project-oriented do-it-yourself customer.


Emergence from Chapter 11 Reorganization

         On July 21, 1997, the Company filed a voluntary  petition to reorganize
under  Chapter  11 and filed a plan of  reorganization  for its  emergence  from
Chapter 11.  From that date until  December 2, 1997,  the Company  operated  its
business as a debtor-in-possession, subject to the jurisdiction of the Court.

         On November 19, 1997, the Bankruptcy  Court entered an order confirming
the Company's  First Amended Plan of  Reorganization,  as modified (the "Plan of
Reorganization").  In connection with the Plan of Reorganization, a new Board of
Directors of the Company was appointed  effective December 2, 1997. In addition,
the Company's previously  outstanding shares of common stock, par value $0.01per
share (the "Old Common Stock"),  and series A cumulative  preferred  stock,  par
value $1.00 per share (the "Old Preferred Stock" and, collectively, with the Old
Common Stock, the "Old Stock"),  were canceled,  and up to 20,000,000  shares of
Common Stock of the  reorganized  Company was, or will be, issued to the holders
of the Old Stock and to certain of the Company's  creditors.  In connection with
the Plan of  Reorganization,  Payless Cashways,  Inc., an Iowa corporation,  was
merged into a wholly-owned subsidiary to effect a reincorporation of the Company
in Delaware,  with the  surviving  entity  continuing  under the name,  "Payless
Cashways, Inc."


Industry Overview

         Building  materials and home  improvement  products are sold  primarily
through two distribution  channels -- wholesale supply outlets and retail units.
Retail distribution channels include neighborhood hardware stores, home centers,
warehouse  stores,  specialty  stores  (such  as  paint  and  tile  stores)  and
lumberyards.  Although  the  industry  remains  highly  fragmented,  the  retail
distribution   channel  has  consolidated   somewhat  in  the  last  ten  years,
particularly in metropolitan areas.

         In  general   terms,   customers   can  be   characterized   as  either
wholesale-oriented  (professional) or retail-oriented  (consumer).  Purchases by
professionals  tend to be larger in volume and require  specialized  merchandise
assortments, personal service representatives, competitive bid pricing, superior
lumber  quality,  telephone  order  placement,  commercial  credit and  job-site
delivery.  The  consumer  segments,  as defined by the  Company,  include  light
DIY-ers  who spend  less than  $200  annually  on  building  materials  and home
improvement  products;  moderate  DIY-ers who make annual  purchases  of $200 to
$1,000;  and  project-oriented  DIY-ers who make annual  purchases  in excess of
$1,000.

<PAGE>3

Mission

         It is  our  mission  at  Payless  Cashways,  Inc.  to be  the  building
materials  and home  improvement  supplier of first choice for the  professional
builder,    remodel   and   repair   contractor,    institutional   buyer,   and
project-oriented  consumers.  Our team will leverage our merchandising expertise
and vendor partnerships to provide professional quality assortments and superior
customer service while growing revenue, earnings, and stockholder value.


Business Strategy

         Objectives

         The Company's principal objectives are:

1)    to increase its market share in the professional and project-oriented DIY 
      segments primarily through its existing stores,
2)    to continue to improve its balance sheet by reducing its debt, and
3)    to grow revenue, earnings and stockholder value.

The professional segment (Pro) includes builders, remodel and repair contractors
and institutional buyers. Payless Cashways intends to target the Pro business as
the primary source of growth and to position itself as the preferred alternative
to the home improvement  warehouse shopping experience for the  project-oriented
do-it-yourselfer.  The Company's 1998 revenues were approximately 51% from sales
to the Pro customer and 49% from sales to the DIY customer.


         Strategy

         The Company  believes it is particularly  well-positioned  to serve the
needs of professional  customers. It enjoys economies of scale, buying power and
professional  management that the traditional outlets supplying the professional
customer  commonly do not have. These  advantages,  along with the broad product
assortment,  full service package and outside sales force,  position the Company
well to supply local Pros as well as national professional businesses seeking to
centralize their purchasing needs.

         A sales and service  staff is  dedicated  to serving  the  professional
customer.  Professional sales  representatives  have assigned customers for whom
they  provide  service  tailored  to  the  customers'   business  needs.   Sales
representatives  call on professional  customers at their places of business and
job sites. The sales representatives have detailed information regarding account
purchases and the  profitability  of their accounts.  The Company  believes that
this level of customer service and type of sales management system are effective
in increasing  purchases and improving  profitability from current  professional
customers as well as building customer loyalty. The Company added a new position
of inside sales  representative  in 1998.  These sales people are located in the
contractor  sales  offices and serve  customers  by phone who do not require job
site presence. Plans are in the works to centralize this activity.

         Each store has a separate  commercial  sales area for the  professional
customer to use. These offices speed the purchase  process for the Pro,  provide
professional  estimating services including blueprint  take-offs,  allow private
discussions between customers and their sales  representatives,  and offer small
amenities to these  customers  such as coffee and phone access.  The Company has
drive-through  lumberyards  that  significantly  reduce  the  time  required  to
complete  a  purchase  and meet the  Pros'  requirement  for fast and  efficient
service.

         The Company's  merchandise  assortment is specifically  tailored to the
Pro.  Preferred brands,  commercial grade items,  contractor packs and extensive
special  order  capabilities  ensure  that the Company  meets the broad  product
requirements  of this  customer  segment.  The Company has  negotiated  purchase
arrangements  with key lumber suppliers that ensure a consistent  source of high
quality lumber.

         The Company  offers a number of special  services  that are tailored to
meet  the  needs of  various  professional  and  commercial  customer  segments.
Delivery  services  include  on-time  job-site  delivery and roof top  delivery.
Credit programs include a full-service  commercial  credit program that provides
job-based billing and other more  sophisticated  credit features.  Additionally,
all  stores  offer  automated  blueprint  estimating  services  featuring  rapid
turnaround. This estimating system utilizes a digitizer that ensures accuracy in
the measurement  process,  and it is fully  integrated into the store's point of
sale  ("POS")  system.  The Company also  supports the Pro with joint  marketing
programs such as its contractor referral database.

<PAGE>4


         The Company has national  account  managers who target  businesses that
utilize  large  amounts of  building  materials  and  improvement  products  for
facility  construction  or maintenance.  This often includes  companies with new
construction of commercial job sites,  often  geographically  dispersed.  It may
also  include  major  facilities  or  multiple  locations  for which the Company
provides  repair  and  maintenance  materials,  new  construction  products  and
insurance rehabilitation work.

         The  Company  is  pursuing  a number of  opportunities  in an effort to
become the building materials and home improvement  supplier of first choice for
the professional builder, remodel and repair contractor, institutional buyer and
project-oriented  consumers.  Two  examples of these  opportunities  are a pilot
program  with a large  insurance  company in two of Payless'  markets to provide
materials for the repair of damaged  property and  arrangements  with large home
builders  in three  other  markets to supply  building  products  and  services,
including installed panels and trusses.

         Property  management firms are an important  component of the Company's
Pro portfolio.  They provide  non-seasonal repair and maintenance business which
balances business from builders, remodelers and commercial accounts.


         Strategic Initiatives

         The Company has developed  business  plans in support of the budget for
fiscal 1999. Key initiatives include:

         1.  Building sales momentum through  redesigned  assortments and better
             in-stock  position  including job-lot  quantities
         2.  Strengthening the merchandising  function through access to better 
             management information including technology and regular customer   
             contact
         3.  Designing a fresh store layout that is shopper-friendly  and highly
             productive
         4.  Improving targeted marketing communications with customers
         5.  Satisfying  customers by  achieving  excellence  in store standards
         6.  Adding manufacturing capability to improve our capacity to serve 
             the Pro in additional markets
         7.  Lowering operating costs through introduction of new technologies  
             in the stores and distribution centers
         8.  Improving  inventory  productivity  through  better  utilization of
             distribution  centers,  more  frequent  delivery  to  stores  from
             distribution centers and elimination of non-performing inventory
         9.  Improving communications with all constituents

         The Company's ongoing market research regarding the Pro indicates that,
while  the  Company  has  established  significant  business  with  this  group,
substantial  growth  opportunity  remains.  Industry  research  indicates that a
significant  number of customers prefer a distinctly  different type of shopping
experience   (human  scale;   finished,   well-lighted   showrooms;   full-line,
drive-through  lumberyards)  as compared to a  warehouse-store  format.  Payless
Cashways offers such a shopping experience. The Company expects the professional
builder,  the remodel and repair contractor and institutional  buyer to continue
to be the primary source of growth. In order to increase market share with those
customers,  the Company  has  planned to attract  and retain  more  large-volume
accounts whose business is often job-site direct.

         Manufacturing capabilities have been added in certain markets to better
serve the needs of high-volume  professional  customers.  The Company recognizes
significant  opportunity in this area and now owns and operates four  facilities
that add this capability. They include a door and trim company in Phoenix, which
specializes  in  manufacturing  a wide range of custom  doors,  molding and trim
products used by carpenters,  homebuilders and remodelers; door plants in Dallas
and  Indianapolis;  and a plant in Cincinnati  that  specializes in manufactured
house packages and building  components for the professional  builder  customer.
These  manufactured  items include  engineered roof and floor trusses,  wall and
floor panels,  and stair systems.  The Company believes that these  capabilities
help position it to be the supplier of choice for the large-volume  professional
and has plans to continue  developing and acquiring  these types of capabilities
in additional markets.

         The  Company's  strategy of focusing on the Pro customer has the effect
of  drawing  project-oriented  consumers  as  well.  Sales  to  project-oriented
consumers makes up about 49% of the Company's  current  revenues,  and while the
Company  will focus on the Pro, it intends to continue to serve this  profitable
segment of customers.  Knowledgeable employees, high quality products with brand
names,  full-line drive-in  lumberyards,  consistent in-stock position,  all the
products needed to complete a project and  competitive  pricing are important to
the project-oriented DIY customer, as well as the Pro.  Project-oriented DIY-ers
are  similar to the Pro  customer  with regard to the brands  preferred  and the
importance of stocking high quality  lumber.  The Company  believes that many of
the steps it has taken to serve the Pro customer have also had a positive impact
on sales to the project-oriented DIY customer.  The Company also recognizes that
the  lifestyle  of the target Pro customer  includes  products for the Pro's own
home and  family.  Most of these Pro  customers  are  already  in 

<PAGE>5


the Company's locations on a regular basis, and the Company  intends to identify
and stock items that may be otherwise purchased by this customer in other retail
outlets as a convenience to that customer. These products are also  appealing to
the project-oriented do-it-yourselfer.

         Payless  Cashways  is  known  for  its  well-trained  work  force.  The
Company's  knowledgeable  employees  study,  take tests, and become certified in
various product categories.  Employees who successfully master product areas can
become  certified  and wear a symbol of that  achievement  on their name badges.
Customer service is a priority for the Company.  The outside sales force, inside
sales  representatives  and employees who staff the service  counter and product
departments  in each  store  location  are among the most  knowledgeable  in the
industry.  They are trained to build  customer  relationships  by supporting the
customer  through  delivery,   credit,  special  orders,  and  attentiveness  to
customers'  needs.  A  recognition  program  is in  place to  promote  excellent
customer service, which drives a higher average ticket and repeat business.


Merchandising and Marketing

         During 1998,  Payless'  full-line stores sold a broad range of building
material products currently averaging  approximately 31,000 items, many of which
are nationally advertised brand-name items. The Company continues to improve its
attractiveness to customers  through  reviewing its assortment,  bringing in new
products,  determining the best supplier, and updating displays. The focus is on
categories  where the Company can be dominant such as lumber,  hardware,  tools,
plumbing, electrical, and paint.
Payless categorizes its product offerings into the classes described below:

            Lumberyard - Dimensional lumber, plywood, siding, roofing materials,
       fencing materials,  windows, doors and moldings, insulation materials and
       drywall.

            Hardware - Electrical wire and wiring materials, plumbing materials,
       power  and hand  tools,  paint and  painting  supplies,  lawn and  garden
       products, door locks, fasteners, and heating and cooling products.

            Showroom - Interior and exterior  lighting,  bathroom  fixtures  and
       vanities, kitchen cabinets, flooring, paneling, wallcoverings and ceiling
       tiles.

         During the last three fiscal years,  the three product  classifications
accounted for the following percentages of Payless' sales:


                                    1998              1997            1996
                                    ----              ----            ----
         Lumberyard                  51  %            51   %           50  %
         Hardware                    38               35               35
         Showroom                    11               14               15
                                   ------           ------           ------
                                    100  %           100   %          100  %
                                   =====            =====            =====

       Payless   addresses  its  primary  target  customers  through  a  mix  of
newspaper,  targeted  mailings,  and broadcast media  advertising  methods.  The
primary media vehicle is newspaper advertisements, both freestanding inserts and
run-of-press ads.  Additionally,  the Company participates in or hosts a variety
of customer  hospitality  events,  contractor  product shows and national  trade
association   shows  and   conferences.   During  fiscal  1998,   the  Company's
expenditures on all forms of advertising totaled  approximately $38.3 million or
2.0% of sales.


<PAGE>6


Store Locations

       The Company's 154 building  materials stores,  excluding five stores that
are currently in the process of closing, are located in the following states:

                                Number of Stores

           Arizona................... 7     Missouri.................. 8
           California................ 13    Nebraska.................. 4
           Colorado.................. 18    Nevada.................... 6
           Illinois.................. 3     New Mexico................ 2
           Indiana................... 10    Ohio...................... 12
           Iowa...................... 10    Oklahoma.................. 5
           Kansas.................... 11    Oregon.................... 2
           Kentucky.................. 5     Tennessee................. 3
           Minnesota................. 8     Texas..................... 27

       Payless  owns 130 of these store  facilities  and 122 of the 154 sites on
which such stores are located.  The remaining 24 stores and 32 sites are leased.
Mortgages or deeds of trust on 137 store parcels secure existing indebtedness.

       Payless has generally located retail stores adjacent to residential areas
of  major  metropolitan   cities  or  adjacent  to  major  arteries  in  smaller
communities  that  are  convenient  to the Pro and DIY  customer.  Operation  of
multiple stores in a trade area permits more effective supervision of stores and
provides certain economies in distribution  expenses and advertising costs. Each
of  Payless'  154 stores has an average  total  selling  space of  approximately
187,000 square feet consisting of 33,000 square feet of indoor display space and
154,000  square feet of  lumberyard.  In addition,  each store has an average of
51,000  square feet of  warehouse  space.  The average  Payless  store  occupies
approximately nine acres of land.

       An average Payless store currently carries  approximately $1.8 million of
inventory,   and  during  fiscal  1998,   sales  at  Payless   stores   averaged
approximately $11.7 million per store.

       During fiscal 1998, one store was opened and four stores were closed. The
Company  also has closed  two  stores in  December  1998 and has  announced  the
closing of an additional  five stores in early fiscal 1999.  During fiscal 1997,
two stores were opened and 30 stores were closed.  During fiscal 1996, 14 stores
were closed.


Store Management and Personnel

       Payless  coordinates the operation of its 154 building  materials  stores
through 154 Store Managers,  each of whom reports directly to one of 17 District
Managers  who in  turn  reports  to  one  of  three  Regional  Vice  Presidents.
Supervision  and control over the individual  stores are facilitated by means of
detailed operating reports. Most of Payless' Store Managers, and all of Payless'
District  Managers and Regional Vice  Presidents  have been promoted from within
Payless or from within the stores Payless has acquired.

       To obtain  candidates for store  supervisory  and  management  positions,
Payless  hires  both  persons  with  business   experience  and  recent  college
graduates. Employees identified as candidates for store management positions are
placed on formal  development  plans in  preparation  for  these  positions.  In
addition,  Payless  maintains an ongoing  training  program for store personnel.
District  Managers and Store Managers  have, on average,  more than ten years of
experience with the Company.

       The  stores  utilize a  departmental  management  structure  designed  to
provide a superior level of service to customers. Sales personnel are trained in
product knowledge,  selling skills and systems and procedures.  Formal classroom
training sessions are supplemented with product clinics and special assignments.

       Incentive  compensation  systems reward  employees for store  performance
above goal. In addition to management personnel, all sales and support personnel
in the retail stores participate in incentive  compensation  programs. In fiscal
1998,  the  Company  paid  $2.2  million  in  incentive   compensation   to  its
non-management  store personnel.  District Managers can earn in excess of 30% of
base salary in incentive  compensation  and Store Managers can earn in excess of
35% of base salary in incentive  compensation.  The Company  paid  approximately
$9.3 million in incentive  compensation  to its store  management  personnel for
fiscal 1998. The Company  believes that its incentive  compensation  systems are
key to employee performance and motivation.

<PAGE>7


Information Systems

       The Company has invested  substantial  time,  effort and dollars ensuring
that technology and  information are used to the maximum benefit  throughout its
entire enterprise.  In-store-processors  based upon current technology standards
are an integral  part of store  management  and support  customer  services with
programs  designed  to enhance  the  shopping  experience.  Each of the  Company
facilities  transmits daily transaction  detail data including  item-level sales
from point-of-sale  terminals  equipped with the latest in scanning  technology.
This network also serves to provide  automatic check  authorization  and on-line
credit card  processing.  In addition to sales support and data  gathering,  the
Company  has  built  merchandising,   inventory  management,   distribution  and
promotional  systems  which are utilized at the  corporate  office to manage the
purchasing, movement and marketing of product lines.

The Company has  completed an  assessment  of the impact of the Year 2000 on its
computer systems, both hardware and software, and has developed a plan to timely
address the Year 2000 issue. Systems that interact with customers and that focus
on the core business functions of buying, selling and accounting have been given
the highest priority.  Some of the Company's current systems are being renovated
and others are being replaced with Year 2000-compliant  systems.  All renovation
code and  system  replacements  are  being  unit-tested  as they are  completed.
Integrated  full-system  testing will begin in the first  quarter of 1999 and is
expected to continue  through the third quarter of 1999.  Code renovation is 99%
complete as of January 1, 1999. All core business systems requiring  replacement
will be  complete  by  mid-1999.  The Company  currently  believes  that it will
complete all phases of the plan without any material adverse consequences to its
business, operations, or financial condition.

Distribution and Suppliers

       The  Company  operates  a total of seven  distribution  centers  and four
manufacturing  locations. The distribution centers maintain inventories and ship
product to stores twice per week.  The Sedalia,  Missouri,  distribution  center
handles small-sized, conveyable, high value items such as hardware, plumbing and
electrical  supplies,  and hand tools. The other six distribution centers handle
commodity  products and bulky manufactured  products such as tubs,  paneling and
ceiling tile. The manufacturing  locations  assemble pre-hung doors,  customized
windows,  engineered  roof and floor trusses,  wall and floor panels,  and stair
systems.

       In fiscal 1998, 52% of merchandise was channeled through the distribution
centers for  redistribution to individual  stores.  This benefits the Company in
the areas of product costs, in-stock positions and inventory turnover.

       The Sedalia distribution center serves all 154 stores with some or all of
their  distribution  center  sourced  replenishment.  The  592,000  square  foot
facility  utilizes  computerized  receiving,  storage and selection  technology.
Excluding the Sedalia  operation,  the Company's regional  distribution  centers
average 17 acres with 143,000  square feet of warehouse  space,  operating  with
manual storage and selection systems.

       Payless purchases substantially all of its merchandise from approximately
3,200  suppliers,  no one of which  accounted  for more than 5% of the Company's
purchases during fiscal 1998.


Credit

       The Company  offers credit to both its DIY and Pro  customers.  Purchases
under national credit cards and the Company's  private-label credit card program
as a percentage of sales represented 27.1% in fiscal 1998, 28.3% in fiscal 1997,
and 28.0% in  fiscal  1996.  Purchases  under the  Company's  commercial  credit
program as a percentage  of sales  represented  34.8% in fiscal  1998,  32.7% in
fiscal  1997,  and 29.9% in fiscal 1996.  A large  finance and asset  management
company  administers  the  Company's   private-label  credit  card  program  and
commercial  credit program.  Accounts written off (net of recoveries)  under the
commercial credit program in fiscal 1998 were approximately $4.0 million or .6 %
of net  commercial  credit  sales.  The cost of the  private  label  credit card
program  represents  a fixed  percentage  fee of charge  sales.  The fees on the
commercial credit program consist of administrative fees that are primarily tied
to  commercial  credit  sales  and fees for  accounts  written  off,  which  are
substantially all absorbed by the Company.

The current  commercial and consumer credit  contracts will not be renewed after
November 1999.  Approximately  40% of the Company's  fiscal 1998 sales were made
pursuant to these programs.  The Company is in discussions  with other providers
and believes that it will secure an alternative provider prior to termination of
the current  programs,  although the Company's  ability to secure an alternative
provider or the terms of any such agreement cannot be assured. Commercial credit
is a key  component  of the  services  the  Company  offers to the  professional
customer,  and the Company believes that this transition  creates an opportunity
to enhance customer satisfaction.

<PAGE>8


Competition

       The business of Payless is highly  competitive.  As a result of its focus
on the  professional  customer,  the  Company  competes  with local  independent
lumberyards,  independent wholesalers, supply houses and distributors who market
primarily to commercial and  professional  users. On the consumer side,  Payless
encounters competition from national and regional chains, including those with a
warehouse  format,  and from local  independent  wholesalers,  supply houses and
distributors.  In recent years, the building  materials  retailing  industry has
experienced  increased  levels of  competition as several  national  chains have
expanded their  operations.  Certain of these competitors are larger in terms of
capital  and sales  volume  and have  been  operating  longer  than  Payless  in
particular areas.  Although Payless'  competition  varies by geographical  area,
Payless continues to differentiate  itself from the large warehouse  competitors
by targeting the professional customer and the project-oriented  DIY-er. Payless
offers a full-line lumberyard, a broad mix of high quality products, high levels
of customer service by knowledgeable employees, consistent in-stock position and
competitive pricing.



Employees

       At November 28, 1998,  Payless  employed  approximately  11,000  persons,
approximately  30% of whom were part-time,  although the number of employees may
fluctuate seasonally.  Payless believes its employee relations are satisfactory.
Payless' employees are primarily nonunion with less than 3% being represented by
a union.

       A substantial portion of the administrative,  purchasing, advertising and
accounting  functions is  centralized at Payless'  headquarters  in Kansas City,
Missouri.

                              ====================

       Forward-looking  statements in the  "Business"  section of this Form 10-K
are made  pursuant  to the safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995. There are certain  important  factors that could
cause results to differ materially from those anticipated by the forward-looking
statements  made  above.   Investors  are  cautioned  that  all  forward-looking
statements  involve  risks and  uncertainty.  Among the factors that could cause
actual results to differ  materially are the following:  competitor  activities;
stability of customer demand;  stability of the sales force;  supplier  support;
consumer  spending and debt levels;  interest rates;  housing  activity;  lumber
prices;  product mix; growth of certain market segments;  weather;  an excess of
retail  space  devoted to the sale of  building  materials;  the  success of the
Company's strategy;  and success of the Company's  remediation for the Year 2000
issue. Additional information concerning these and other factors is contained in
the Company's  Annual  Report,  copies of which are  available  from the Company
without charge or on the Company's web site, payless.cashways.com.


EXECUTIVE OFFICERS OF THE REGISTRANT

       The following table sets forth the name and age of all executive officers
of Payless and their present positions and recent business experience.

<TABLE>
<CAPTION>

                                                                    Principal Occupation and
Name                      Age                                     Five-Year Employment History
----                      ---                                     ----------------------------
<S>                       <C>             <C>

Millard E. Barron.........49              President and Chief  Executive  Officer of Payless since June 1998;  President of Zellers,
First elected a director:                 Inc.and  Executive  Vice  President of   Hudson's  Bay  Company  from  September  1996  to
1998                 
                                          February   1998;   Senior   Vice   President   and   Chief   Operating   Officer   of  the
                                          International Division of Wal-Mart  Stores,  Inc. from August 1994 to September 1996; and 
                                          Vice President - Operations of Wal-Mart Stores, Inc. from November 1992 to August 1994.

Stanley K. Boyd...........47              Senior Vice  President - Store  Operations  of Payless since June 1997;  Vice  President -
                                          Sales and Marketing of A&I Bolt and Nut from  September  1993 to June 1997;  and President
                                          of Outdoor  Kids,  Inc. from June 1992 to September  1993.  Mr. Boyd was  previously  with
                                          Payless  from  June  1974 to  December 1990.

Richard G. Luse...........51              Senior Vice  President - Finance and Chief  Financial  Officer of Payless  since  February
                                          1998; and Vice President - Controller of Payless from February 1988 to February 1998.

<PAGE>9

                                                                    Principal Occupation and
Name                      Age                                     Five-Year Employment History
----                      ---                                     ----------------------------

Kelly R. Abney............44              Vice President - Logistics,  Replenishment and Facilities of Payless since June 1998; Vice
                                          President - Distribution  and  Transportation  of Payless from February 1997 to June 1998;
                                          Vice  President - Logistics of Pamida from  September  1994 to February 1997; and Director
                                          of Distribution of Payless from April 1990 to September 1994.

James L. Deats............50              Vice  President - Information  Systems of Payless since  October  1998;  Vice  President -
                                          Information  Services of One Price  Clothing,  Inc. from July 1997 to April 1998; and Vice
                                          President - Information  Services of Pier 1 Imports,  Inc. from September 1990 to February
                                          1997.

Renae G. Gonner...........36              Vice  President - Marketing and  Advertising  of Payless  since October 1998;  Director of
                                          Advertising  and  Marketing  Communications  of Payless  from July 1996 to  October  1998;
                                          Creative  Services  Manager of Payless from November 1993 to July 1996;  and Print Manager
                                          of  Payless  from  March 1993 to  November  1993.  Mr. H. D.  Cleberg,  a Director  of the
                                          Company, is Ms. Gonner's father.

Shawn J. Hepinstall.......38              Vice President -  Merchandising  of Payless since August 1998;  Merchandising  Director of
                                          Payless from March 1995 to August  1998;  and  Merchandising  Manager of Payless from July
                                          1991 to March 1995.

Louise R. Iennaccaro......54              Vice  President - Human  Resources of Payless since  February  1998; and Director of Field
                                          Human  Resources  of Payless  from April 1989 to  February  1998.  Ms.  Iennaccaro  joined
                                          Payless in January 1987.

David J. Krumbholz........44              Vice  President -  Professional  Business of Payless  since July 1998;  and Regional  Vice
                                          President  of Payless  from  August 1988 to July 1998.  Mr.  Krumbholz  joined  Payless in
                                          January 1976.

Ronald D. Long............42              Vice  President -  Merchandising  Display and  Productivity  of Payless since August 1998;
                                          Vice  President -  Merchandising  Planning  and Control of Payless from May 1998 to August
                                          1998; and Vice President - Merchandising/Building  Materials of Payless from November 1993
                                          to May 1998.  Mr. Long joined Payless in December 1975.

Timothy R. Mertz..........47              Vice  President  - Treasury  of Payless  since  September  1998;  Director of Tax and Risk
                                          Management  from December 1995 to September 1998; and Tax Director of Payless from October
                                          1987 to December 1995.
</TABLE>


Item 2.  PROPERTIES.

       Excluding  five  stores  that are  currently  in the  process of closing,
Payless owns 130 of its store  facilities and 122 of the 154 sites on which such
stores are located.  The  remaining 24 facilities  and 32 sites are leased.  The
leases  provide  for  various  terms.  Mortgages  or deeds of trust on 137 store
parcels secure existing indebtedness.

       Five of the Company's  seven  distribution  centers are owned and, of the
remaining  two, one is leased for land only and the facility and land are leased
for the other.  Mortgages or deeds of trust on five distribution  center parcels
secure existing indebtedness.

       Two of the  Company's  manufacturing  locations  are  owned  and  two are
leased. Mortgages or deeds of trust on two manufacturing parcels secure existing
indebtedness.

       Payless  leases its corporate  office in Kansas City,  Missouri,  under a
lease expiring on December 31, 2002. The  administrative  offices occupy several
floors (approximately 130,000 square feet) of a multi-story building.

       See also "Strategic Initiatives," "Store Locations" and "Distribution and
Suppliers" in Item 1, above.
<PAGE>10


Item 3.  LEGAL PROCEEDINGS.

       On January 6, 1995, a group of terminated  employees and others  ("Former
Employees")  filed a lawsuit against the Company and other named defendants (the
"Company"),  entitled The Payless  Cashways,  Inc.  Partners [et al.] v. Payless
Cashways,  Inc. [et al], in the United  States  District  Court for the Southern
District of Iowa. The Former  Employees  include  management  employees who were
terminated  effective  January 10, 1994, in connection with a reduction in force
pursuant to a restructuring,  in which the Company eliminated certain management
in the field organization.  The complaint asserted a variety of claims including
federal and state securities fraud claims,  alleged  violations of the Racketeer
Influenced and Corrupt  Organizations Act ("RICO"),  federal and state claims of
age  discrimination,  alleged  violations of the  Employment  Retirement  Income
Security Act of 1974,  and various state law claims  including,  but not limited
to, fraudulent  misrepresentation  allegations.  The complaint also asserted the
Former Employees' claims as class representatives and sought to expand the group
of party plaintiffs as to the federal age discrimination  claims.  Various forms
of relief,  including unspecified monetary damages and an injunctive order, were
requested.

       The Company, in response, filed a motion to dismiss as to the majority of
the pending claims except the federal and state age  discrimination  claims, the
state  law  fraudulent  misrepresentation  claim  and  several  other  state law
equitable claims.  The Former Employees  responded,  in part, by filing a second
amended complaint and providing,  in large part,  additional  supportive factual
detail.  The Company filed a reply brief in support of the motion to dismiss.  A
ruling has been  entered on the  Company's  motion to dismiss  the  majority  of
pending claims,  substantially  narrowing the Former  Employee's legal claims by
dismissing some age  discrimination  counts,  all federal  securities counts and
RICO  counts  except one each,  and all state law  counts  related to an alleged
partnership.  The plaintiffs' motion for class  certification has been denied on
all  claims  except  the  age  discrimination  claims.  The  court  granted  the
plaintiffs' motion for class certification of certain age discrimination claims.
As a result of this ruling, eight additional individuals chose to participate in
the  age  claims  asserted  in this  suit.  Each of the  parties  has  conducted
discovery  pursuant to the court's  scheduling  order and  discovery  plan.  The
lawsuit  was  formally  stayed  pursuant  to the  automatic  stay  issued by the
Bankruptcy  Court following the voluntary  Chapter 11  reorganization  filing on
July 21, 1997.  During the Chapter 11  reorganization,  plaintiffs  timely filed
proofs of claim,  including a  purported  claim on behalf of the  potential  Age
Discrimination  in Employment Act opt-in class, for an aggregate of $37 million,
which was limited by the Bankruptcy Court to a maximum of $22 million.  The case
has been returned to the United States District Court for the Southern  District
of Iowa for resolution with mediation  scheduled for April 1999 and a trial date
currently set for July 1999. Any recovery for the plaintiffs against the Company
would be treated as a general  unsecured claim entitling the plaintiffs to their
pro rata share of 8,269,329 shares of New Common Stock reserved for such claims.

       The  Company  denies  any and all  claimed  liability  and is  vigorously
defending this litigation,  but is unable to estimate the likely outcome of this
matter.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

       None.


                                     PART II
                                     -------
Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
         MATTERS.

         Market  and  dividend  information,  included  on page 44 of the Annual
Report to  Stockholders  for the  fiscal  year  ended  November  28,  1998,  are
incorporated herein by reference.


Item 6.  SELECTED FINANCIAL DATA.

       The Five-Year Financial Summary, included on page 40 of the Annual Report
to  Stockholders  for the fiscal year ended  November 28, 1998, is  incorporated
herein by reference.


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

       Management's  Discussion  and  Analysis of the  Financial  Condition  and
Results of  Operations,  included on pages 12 through 19 of the Annual Report to
Stockholders for the fiscal year ended November 28, 1998, is incorporated herein
by reference.

<PAGE>11


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       Market Risk disclosures, included on page 15 of the Annual Report to  
Stockholders for the fiscal year ended November 28, 1998, are incorporated 
herein by reference.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

       The financial  statements and independent  auditors' report,  included on
pages 20 through 39 of the Annual  Report to  Stockholders  for the fiscal  year
ended November 28, 1998, are incorporated herein by reference.

       The Quarterly  Consolidated  Statements of Operations,  included on pages
10 and 11 of the Annual Report to Stockholders for the fiscal year ended 
November 28, 1998, are incorporated herein by reference.


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

       None.


                                    PART III
                                    --------

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       The  information  required  by this item with  respect to  directors  and
compliance  with  Section  16(a)  of the  Securities  Exchange  Act of  1934  is
incorporated  herein by reference to the  Registrant's  Proxy  Statement for the
1999 Annual Meeting of  Stockholders to be filed pursuant to Regulation 14A. The
required information as to executive officers is set forth in Part I hereof.


Item 11.  EXECUTIVE COMPENSATION.

       The information required by this item is incorporated herein by reference
to the Registrant's  Proxy Statement for the 1999 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       The  information  called  for by this  item  is  incorporated  herein  by
reference to the  Registrant's  Proxy  Statement for the 1999 Annual  Meeting of
Stockholders to be filed pursuant to Regulation 14A.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       The  information  called  for by this  item  is  incorporated  herein  by
reference to the  Registrant's  Proxy  Statement for the 1999 Annual  Meeting of
Stockholders to be filed pursuant to Regulation 14A.


                                     PART IV
                                     -------

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

(a)  Document list.

1. and 2.     The response to this portion of Item 14 is submitted as a separate
              section of this report.

 3.           List of exhibits.

 2.1          First Amended Plan of Reorganization,  as modified October 9, 1997
              (incorporated by reference to Exhibit 2.1 filed as
              part of Payless' Quarterly Report on Form 10-Q for the quarter 
              ended August 30, 1997).
<PAGE>12


 2.2          Agreement and Plan of Merger in connection with the 
              Reincorporation  from Iowa to Delaware  (incorporated by reference
              to Exhibit 2.2 filed as part of Payless' Current Report on Form 
              8-K dated December 2, 1997).

 3.1          Amended and Restated Bylaws of the Company.

 3.2          Certificate of Incorporation (incorporated by reference to Exhibit
              4.1 filed  as part of  Payless'  Current Report on Form 8-K dated 
              December 2, 1997).

 4.0          Long-term  debt  instruments  of  the  Registrant  in amounts not 
              exceeding ten percent (10%) of the total assets of the Registrant 
              will be furnished to the Commission upon request.

 4.1(a)       Amended and  Restated  Credit  Agreement  dated  December 2, 1997,
              among Payless, the Banks listed on the signature pages thereof and
              Canadian   Imperial  Bank  of  Commerce,   New  York  Agency,   as
              Coordinating  and Collateral  Agent  (incorporated by reference to
              Exhibit  4.1(a)  filed as part of Payless'  Annual  Report on Form
              10-K for the year ended November 29, 1997).

 4.1(b)       First  amendment to Amended and Restated  Credit  Agreement  dated
              August 13, 1998, among Payless,  the Banks listed on the signature
              pages  thereof and Canadian  Imperial  Bank of Commerce,  New York
              Agency,  as Coordinating  and Collateral  Agent  (incorporated  by
              reference  to  Exhibit  4.1  filed as part of  Payless'  Quarterly
              Report on Form 10-Q for the quarter ended August 29, 1998).

 4.1(c)       Amended and Restated Security and Pledge Agreement, dated December
              2, 1997, made by Payless for the benefit of Canadian Imperial Bank
              of  Commerce,  New York Agency,  as  Coordinating  and  Collateral
              Agent, and the banks and other financial institutions party to the
              Amended and Restated Credit  Agreement  (incorporated by reference
              to Exhibit 4.1(b) filed as part of Payless'  Annual Report on Form
              10-K for the year ended November 29, 1997).

 4.1(d)       Form of Second Mortgage, dated December 2, 1997, given to Canadian
              Imperial Bank of Commerce,  New York Agency,  as Coordinating  and
              Collateral  Agent, and the banks and other financial  institutions
              party to the Amended and Restated Credit  Agreement  (incorporated
              by  reference to Exhibit  4.1(c) filed as part of Payless'  Annual
              Report on Form 10-K for the year ended November 29, 1997).

 4.1(e)       Form of Second Deed of Trust,  dated  December  2, 1997,  given to
              Canadian   Imperial  Bank  of  Commerce,   New  York  Agency,   as
              Coordinating  and  Collateral  Agent,  and  the  banks  and  other
              financial  institutions  party to the Amended and Restated  Credit
              Agreement  (incorporated  by reference to Exhibit  4.1(d) filed as
              part of  Payless'  Annual  Report on Form 10-K for the year  ended
              November 29, 1997).

 4.1(f)       Form of Amended and  Restated  Mortgage,  dated  December 2, 1997,
              given to Canadian  Imperial Bank of Commerce,  New York Agency, as
              Coordinating  and  Collateral  Agent,  and  the  banks  and  other
              financial  institutions  party to the Amended and Restated  Credit
              Agreement  (incorporated  by reference to Exhibit  4.1(e) filed as
              part of  Payless'  Annual  Report on Form 10-K for the year  ended
              November 29, 1997).

 4.1(g)       Form of Amended  and  Restated  Deed of Trust,  dated  December 2,
              1997,  given  to  Canadian  Imperial  Bank of  Commerce,  New York
              Agency,  as Coordinating  and Collateral  Agent, and the banks and
              other  financial  institutions  party to the Amended and  Restated
              Credit  Agreement  (incorporated  by reference  to Exhibit  4.1(f)
              filed as part of Payless'  Annual Report on Form 10-K for the year
              ended November 29, 1997).

 4.2(a)       Amended and Restated Loan Agreement dated December 2, 1997, by and
              among  Payless and UBS  Mortgage  Finance,  Inc  (incorporated  by
              reference  to  Exhibit  4.2(a)  filed as part of  Payless'  Annual
              Report on Form 10-K for the year ended November 29, 1997).

 4.2(b)       Form  of  Deed  of  Trust,   Mortgage   and   Security   Agreement
              Modification Agreement dated December 2, 1997, between Payless and
              Lasalle  National Bank, as trustee for UBS Mortgage  Finance,  Inc
              (incorporated  by  reference  to Exhibit  4.2(b)  filed as part of
              Payless'  Annual  Report on Form 10-K for the year ended  November
              29, 1997).

<PAGE>13


 4.2(c)       Consolidated,  Amended and Restated Promissory Note dated December
              2, 1997,  by and among  Payless  and  Lasalle  National  Bank,  as
              trustee for UBS Mortgage  Finance,  Inc (incorporated by reference
              to Exhibit 4.1(c) filed as part of Payless'  Annual Report on Form
              10-K for the year ended November 29, 1997).

 4.2(d)       First  Amendment to Amended and Restated Loan Agreement dated 
              February 26, 1998, by and among Payless and UBS Mortgage Finance, 
              Inc.

 4.2(e)       Assignment of Amended and Restated Promissory Note dated August 
              12, 1998, by and among Payless and Greenwich  Capital  Financial 
              Products, Inc.

10.1*         Amended and Restated Payless Cashways, Inc. 1998 Omnibus Incentive
              Plan effective February 17, 1999.

10.2*         Settlement Agreement,  Resignation, and Full General Release dated
              January  5,  1998,  by and  between  Payless  and  David  Stanley.
              (incorporated  by  reference  to  Exhibit  10.2  filed  as part of
              Payless'  Quarterly  Report  on Form  10-Q for the  quarter  ended
              February 28, 1998).

10.3*         Settlement Agreement,  Resignation, and Full General Release dated
              January 6, 1998,  by and  between  Payless  and Susan M.  Stanton.
              (incorporated  by  reference  to  Exhibit  10.3  filed  as part of
              Payless'  Quarterly  Report  on Form  10-Q for the  quarter  ended
              February 28, 1998).

10.4*         Settlement Agreement,  Resignation, and Full General Release dated
              January  21,  1998,   by  and  between   Payless  and  Stephen  A.
              Lightstone.  (incorporated  by  reference to Exhibit 10.4 filed as
              part of  Payless'  Quarterly  Report on Form 10-Q for the  quarter
              ended February 28, 1998).

10.5*         Settlement Agreement,  Resignation, and Full General Release dated
              January 17, 1998,  by and between  Payless and G. Michael  Buchen.
              (incorporated  by  reference  to  Exhibit  10.5  filed  as part of
              Payless'  Quarterly  Report  on Form  10-Q for the  quarter  ended
              February 28, 1998).

10.6*         Settlement Agreement, Resignation,  and Full General Release dated
              January 23, 1998, by and between Payless and E. J. Holland,  Jr.  
              (incorporated by reference to Exhibit 10.6 filed as part of 
              Payless' Quarterly Report on Form 10-Q for the quarter ended 
              February 28, 1998).

10.7*         Form of Employment Agreement between Payless and certain executive
              officers.

10.8*         Form of Indemnification Agreement between Payless and various 
              officers and directors.

10.9*         Payless Cashways, Inc. Corporate Management Incentive Plan, dated 
              as of December 1998.

10.10(a)*     Payless Cashways,  Inc.  Supplemental  Death Benefit Plan 
              (incorporated by reference to Exhibit 10.12 filed as part of 
              Payless' Annual Report on Form 10-K for the fiscal year ended 
              November 27, 1993).

10.10(b)*     First Amendment to the Payless Cashways,  Inc.  Supplemental Death
              Benefit Plan,  dated June 16, 1994  (incorporated  by reference to
              Exhibit  10.1 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter ended May 28, 1994).

10.11*        Payless Cashways, Inc. Supplemental Disability Plan  (incorporated
              by reference to Exhibit 10.13 filed as part of Payless' Annual 
              Report on Form 10-K for the fiscal year ended November 27, 1993).

13.1          Annual Report to Stockholders.

23.1          Consent of KPMG LLP.

27.1          Financial data schedule.

* Represents a management contract or a compensatory plan or arrangement.

Copies of any or all Exhibits will be furnished upon written request and payment
of Payless' reasonable expenses in furnishing the Exhibits.

<PAGE>14


(b) Reports on Form 8-K.

     None

(c)  Exhibits.

     The response to this portion of Item 14 is submitted as a separate  section
     of this report.

(d)  Financial Statement Schedules.

     The response to this portion of Item 14 is submitted as a separate  section
     of this report.

<PAGE>15


                                   SIGNATURES

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

                                             By s/Millard E. Barron
                                             ----------------------
                                             Millard E. Barron, 
                                             Principal Executive Officer
Dated:  February 17, 1999

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

<TABLE>
<CAPTION>

              Signature                                   Title                                       Date
===================================              =========================================        ======================
              <S>                                  <C>                                               <C>

              s/Millard E. Barron
              ---------------------
              Millard E. Barron                    President, Chief Executive Officer and            February 17, 1999
                                                   Director
                                                   (Principal Executive Officer)

              s/Peter G. Danis
              ---------------------
              Peter G. Danis                       Non-Executive Chairman of the                     February 17, 1999
                                                   Board

              s/H. D. Cleberg
              ---------------------
              H. D. Cleberg                        Director                                          February 17, 1999

              s/David G. Gundling
              ---------------------
              David G. Gundling                    Director                                          February 17, 1999

              s/Max D. Hopper
              ---------------------
              Max D. Hopper                        Director                                          February 17, 1999

              s/Donald E. Roller
              ---------------------
              Donald E. Roller                     Director                                          February 17, 1999

              s/Peter M. Wood
              ---------------------
              Peter M. Wood                        Director                                          February 17, 1999

              s/Richard G. Luse
              ---------------------
              Richard G. Luse                      Senior Vice President-Finance                     February 17, 1999
                                                   and Chief Financial Officer
                                                   (Principal Financial Officer and
                                                   Principal Accounting Officer)
</TABLE>

<PAGE>16





                           ANNUAL REPORT ON FORM 10-K




                       ITEM 14(a) (1) and (2), (c) and (d)



         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


                          FINANCIAL STATEMENT SCHEDULES


                                    EXHIBITS

     (Exhibits included in Form 10-K filed with the Securities and Exchange
              Commission are not reproduced here. See Item 14(a)3.)


                          YEAR ENDED NOVEMBER 28, 1998


                             PAYLESS CASHWAYS, INC.


                              KANSAS CITY, MISSOURI



<PAGE>17


                             PAYLESS CASHWAYS, INC.

                        FORM 10-K--ITEM 14(a) (1) and (2)

         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


         The following financial  statements of Payless Cashways,  Inc. included
in Payless'  Annual Report to the  Stockholders  for the year ended November 28,
1998, are incorporated by reference in Item 8:

         Statements  of  Operations--fiscal   years  ended  November  28,  1998,
November 29, 1997, and November 30, 1996.

         Balance Sheets--November 28, 1998, and November 29, 1997.

         Statements  of  Cash  Flows--fiscal  years  ended  November  28,  1998,
         November 29, 1997, and November 30, 1996.

         Statements of  Stockholders'  Equity--fiscal  years ended  November 28,
         1998, November 29, 1997, and November 30, 1996.

         Notes to Financial Statements.


         The following financial statement schedule of Payless Cashways, Inc. is
         included in Item 14(d):

         II - Valuation and Qualifying Accounts

         All other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.



<PAGE>18


                              [KPMG LLP Letterhead]






                          INDEPENDENT AUDITORS' REPORT



     The Board of Directors
     Payless Cashways, Inc.:


     Under date of January 15, 1999 we reported on the balance sheets of Payless
     Cashways,  Inc.  as of  November  28,  1998 and  November  29, 1997 and the
     related statements of operations,  stockholders'  equity and cash flows for
     each of the fiscal years in the  three-year  period ended November 28, 1998
     as contained in the 1998 annual  report to  stockholders.  These  financial
     statements  and our report  thereon are  incorporated  by  reference in the
     annual report on Form 10-K for the fiscal year 1998. In connection with our
     audits of the  aforementioned  financial  statements,  we also  audited the
     related financial statement schedule as listed in the index. This financial
     statement schedule is the responsibility of the Company's  management.  Our
     responsibility  is to  express  an  opinion  on  this  financial  statement
     schedule based on our audits.

     In our opinion,  such  financial  statement  schedule,  when  considered in
     relation  to the  basic  financial  statements  taken as a whole,  presents
     fairly, in all material respects, the information set forth therein.

     As  discussed  in  Note  B  to  the  financial  statements,  the  financial
     statements reflect the application of fresh-start  reporting as of November
     29,  1997  and,  therefore,  are  not  comparable  in all  respects  to the
     financial statements for periods prior to such date. As discussed in Note J
     to the financial  statements,  the Company  adopted  Statement of Financial
     Accounting  Standards No. 121,  Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of, in fiscal 1996.




                                  /s/ KPMG LLP



     Kansas City, Missouri
     January 15, 1999



<PAGE>19



                        SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                             PAYLESS CASHWAYS, INC.
                                 (In thousands)

<TABLE>
<CAPTION>
====================================================================================================================================
                        COL. A                         COL. B                COL. C               COL. D                   COL. E
====================================================================================================================================

                                                     Balance at            Charged to                                    Balance at
                                                      beginning             cost and                                       end of
                      Description                     of period             expenses            Deductions                 period
====================================================================================================================================
<S>                                                  <C>                   <C>                   <C>                     <C>

YEAR ENDED NOVEMBER 28, 1998:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  15,031             $  22,667             $  25,806               $  11,892

              Reserves for Special Charges.....      $   6,876             $   7,421             $   9,909               $   4,388

              Reserve for Bad Debt.............      $   5,879             $   5,450             $   5,448               $   5,881

YEAR ENDED NOVEMBER 29, 1997:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  13,604             $  21,960             $  20,533               $  15,031

              Reserves for Special Charges.....      $  10,532             $  13,056             $  16,712               $   6,876

              Reserve for Bad Debt.............      $   5,740             $   6,765             $   6,626               $   5,879

YEAR ENDED NOVEMBER 30, 1996:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  20,354             $  31,840             $  38,590               $  13,604

              Reserves for Special Charges.....      $  20,083             $   8,184             $  17,735               $  10,532

              Reserve for Bad Debt.............      $   5,513             $   4,944             $   4,717               $   5,740
</TABLE>