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

         For the fiscal year ended November 29, 1997
                                        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                                  64141-0466
(Address of Principal Executive Offices)                         (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: None

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

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

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 6, 1998, was
$52,745,083.

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 19,990,509 shares of Common Stock, $.01 par value,  outstanding as of
February 6, 1998.

                    DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the  Annual  Report  to  Stockholders  for the year  ended
November 29, 1997, are  incorporated  by reference into Part II. Portions of the
Annual Proxy  Statement for the Annual Meeting of  Shareholders to be held April
15, 1998, are incorporated by reference into Part III.



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                                  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 164 building  materials
stores in 20 states located in the Midwest, Southwest,  Pacific Coast, and Rocky
Mountain areas under the names of 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  customers  with a complete  selection of quality
products  and  services  needed to build,  improve,  and  maintain  their  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, 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 competitive  prices  distinguishes  Payless from many
competitors.

         The   Company's   primary    customers   include    professionals   and
project-oriented  do-it-yourselfers.  Professionals ("Pros") include remodelers,
residential and commercial  contractors,  and specialty  tradespeople as well as
enterprises  which purchase large quantities of building  materials for facility
maintenance,  such as  property  management  firms,  commercial  and  industrial
accounts,  and  government  institutions.   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.


Petition For Relief Under Chapter 11

         While  the  Company  had  sufficient  liquidity  to  fund  its  current
operations,  the operating  performance of the Company during the second quarter
of fiscal 1997, which was well below the Company's expectations,  led management
to conclude  that it was unlikely  that the Company would be able to comply with
the  covenants  contained in its principal  credit  agreements at the end of the
1997 fiscal year. In the course of the Company's  subsequent  negotiations  with
its  senior  lenders to  restructure  its debt and after  considering  all other
alternatives  with  its  financial  adviser,  Houlihan  Lokey  Howard  &  Zukin,
including the sale of the Company and liquidation,  the Company concluded that a
Chapter 11 proceeding  provided the best approach for a comprehensive  financial
restructuring of the Company.  After a decade of dealing with a highly leveraged
balance sheet and with limited capital expenditures, this action was intended to
improve the Company's  competitive  position by establishing a more  appropriate
capital  structure  to operate  the  business  in this  period of  unprecedented
competitive pressure.

         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 (the  "Plan" or "Plan of  Reorganization")  as well as a  Disclosure
Statement. The Company operated its business as a debtor-in-possession,  subject
to the  jurisdiction  of the Court,  while pursuing its  reorganization  plan to
restructure the Company's  capitalization.  The Chapter 11 filing resulted in an
automatic stay of the  commencement or prosecution of claims against the Company
that arose before the Petition Date.

         The  Disclosure   Statement  and  Plan  were  subsequently  amended  on
September  5, 1997,  and modified on October 9, 1997.  On October 10, 1997,  the
Court determined that the Disclosure Statement contained adequate information to
permit a creditor to make an informed  decision  about the Plan.  The  Company's
impaired  creditors and equity  security  holders  approved the Plan,  the Court
confirmed the Plan on November 19, 1997, and, after the satisfaction of a number
of  conditions,  the Plan  became  effective  December  2, 1997 (the  "Effective
Date").

         Under the Plan, the Company  reincorporated  as a Delaware  corporation
and  canceled  outstanding  shares  of common  and  preferred  stock and  issued
approximately  20,000,000  shares of newly reorganized  Payless  Cashways,  Inc.
common stock (the "New Common Stock"), as described below.

         The Plan  generally  provided for the  following:  (I) The secured bank
group under the existing credit agreement (the "Amended Credit  Agreement"),  on
or prior to the Effective Date,  received (a) payment of accrued interest,  fees
and  expenses,  (b) Net Cash  Proceeds (as defined in the Plan) from the sale of
certain  collateral  securing the Amended Credit Agreement and the collection of


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certain  promissory notes pledged to the secured bank group, (c) their allocable
portion of $283.1  million of new term  loans and (d)  10,730,671  shares of New
Common Stock (approximately 54% of the shares of the newly reorganized Company),
of which 460,000 shares was distributed to the lenders  providing a $150 million
revolving credit facility to supply post-emergence  working capital financing in
consideration  for their commitment to provide such facility.  See Note D to the
1997 financial statements,  incorporated herein by reference,  for a description
of the term  loans  and the  revolving  credit  facility  (together,  the  "Exit
Financing  Agreement").  (II) On the Effective Date, UBS Mortgage Finance,  Inc.
("UBS"), the holders of notes under an existing mortgage loan received new notes
pursuant to a new mortgage loan.  (III) Unsecured  claims against the Company by
vendors and suppliers for goods  delivered  and services  rendered  prior to the
Petition  Date,  claims in  respect  of the 9-1/8%  senior  subordinated  notes,
contingent  unliquidated claims and claims for damage arising from the rejection
by the  Company  pursuant  to Section 365 of the  Bankruptcy  Code of  executory
contracts and unexpired leases  (collectively,  "General Unsecured Claims") will
receive  their pro rata share of 8,269,329  shares or  approximately  41% of the
shares of the newly  reorganized  Company.  Holders of General  Unsecured Claims
began receiving their first  distribution of shares in partial  satisfaction and
discharge of their allowed  claims on or about  December 15, 1997. The remaining
shares of New Common  Stock are held by a trustee  for future  distributions  to
holders of General  Unsecured  Claims,  pending the final resolution of disputed
claims.  (IV) On the Effective Date, holders of issued and outstanding shares of
existing  preferred stock ("Old Preferred  Stock") received their pro rata share
of 600,000  shares of New Common  Stock  (approximately  3% of the shares of the
newly  reorganized  Company).  (V) Holders of issued and  outstanding  shares of
existing  common stock ("Old Common Stock") will receive their pro rata share of
400,000 shares of New Common Stock  (approximately 2% of the shares of the newly
reorganized Company) upon surrender of their Old Common Stock. In addition,  any
stock options  relating to outstanding  Old Preferred Stock and Old Common Stock
were canceled on the Effective Date.

         Fractional  shares of New Common  Stock will not be issued to creditors
or  stockholders  in connection  with the Plan. In addition,  no distribution of
less than  $5.00 will be made for  fractional  share  interests.  As a result of
these provisions,  many holders of Old Common Stock will receive no distribution
of stock or cash under the Plan.

         On July 21,  1997,  the  Company  also  announced  its plan to close 29
stores  and  to  eliminate  approximately  15%  of the  staff  at the  Company's
headquarters  and  regional   administrative  centers.  The  Court  subsequently
approved  such plan on August 6, 1997.  Because  the  negative  sales  trends of
fiscal 1997  continued  into the first months of fiscal  1998,  the new board of
directors and senior management of the Company  implemented  changes designed to
have an immediate  impact on the  Company's  financial  results.  These  changes
included the  additional  elimination of  approximately  25% of the staff at the
Company's  headquarters and regional  administrative  centers,  including senior
management. The CEO and President positions will be consolidated and the Company
is  conducting  a national  search for a  candidate  to fill this  position.  In
addition, new merchandising and sales initiatives are being implemented, and the
Company has focused on the customer's  experience by assigning a dedicated store
manager to each retail  location.  In the past, a Group Store  Director  oversaw
approximately three stores.


Industry Overview

         Building  materials and home improvement  products are sold 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,  competitive  market 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.



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Business Strategy

         Objectives

         The Company's principal  objectives are to increase its market share in
the Pro and project-oriented DIY segments primarily through its existing stores,
to maintain its  leadership  role in the industry and to continue to improve its
balance  sheet by  reducing  its debt.  Payless  Cashways  intends  to remain an
industry  leader by targeting  the Pro business as the primary  source of growth
and  by  positioning  the  Company  as the  preferred  alternative  to the  home
improvement  warehouse  shopping  experience.  About half of the Company's  1997
revenues were from sales to the Pro customer and the  remainder  were from sales
to the DIY customer.

         As a national chain, the Company believes it enjoys economies of scale,
buying power and professional  management that the traditional outlets supplying
the professional  commonly do not have. These  advantages,  along with the broad
product  assortment and full service  package,  make the Company  well-suited to
supply the Pro's needs.

         Strategic Initiatives

         The  Company's  new  Board of  Directors  and  senior  management  have
assembled  a team to review the  Company's  competitive  strategy.  The  capital
expenditure  plan has been greatly  reduced for 1998 and is targeted to maximize
returns.  The Company is currently  concentrating  on building  sales  momentum,
lowering  operating  costs,  reducing  unproductive   inventory  and  satisfying
customers by focusing on operational excellence.

         The  team  will   continue  to  review  other   appropriate   strategic
initiatives,  including  the impact and need for further  implementation  of the
items  discussed  below in this section and in the  "Professional  Strategy" and
"DIY Strategy" sections.  The following reflects strategic initiatives that were
underway during fiscal 1997 prior to the recent competitive strategy review.

         The Company had  undertaken  a strategic  review in 1995.  Key findings
from the review  showed  that,  although  many  consumers  prefer the  warehouse
format,  a significant  number prefer the distinctly  different type of shopping
experience offered by Payless Cashways (smaller scale than the warehouse format;
finished,   well-lighted  showrooms;   full-line,  drive-in  lumberyards).   The
Company's  market research  regarding the Pro indicated that,  while the Company
has  established  significant  business  with  this  group,  substantial  growth
opportunity remained.

         As a result of the review,  the Company  determined to better serve DIY
customers  by  increasing  convenience,  service,  and product  assortment  with
particular  emphasis on basic repair and maintenance  products.  The priority in
adding  products is to add those items most likely to produce repeat visits.  In
addition,  focus has been placed on categories with higher margin rates in order
to invest the incremental gross margin in even more competitive pricing.

         The  Company  expects  the  professional  and  commercial  customer  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 not store-based.

         This  approach  was  implemented  in  Phoenix,   AZ,  in  1996  and  in
Cincinnati, OH; Louisville, KY; Dallas-Ft. Worth, TX; and Minneapolis-St.  Paul,
MN, in 1997.

         Manufacturing  capabilities  were  added in  certain  markets to better
serve the needs of  high-volume  professional  customers.  In January 1996,  the
Company  purchased 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. Also, the Company's existing door plant
in Dallas was expanded to serve the same builder,  remodeler and carpenter needs
that the acquired  door company  serves in Phoenix.  In March 1997,  the Company
acquired a plant in Cincinnati that  specializes in manufactured  house packages
and  building   components  for  the  professional   builder   customer.   These
manufactured items include roof and floor trusses,  open wall panel systems, and
stair systems.  The Company believes that these capabilities help position it to
be the supplier of choice for the large-volume professional.

         Professional Strategy

         The Company believes it is particularly  well suited to serve the needs
of professional  customers. A sales and service staff of approximately 1,200 are
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


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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  is  effective  in  increasing  purchases  and
improving  profitability from current professional customers as well as building
customer loyalty.

         Each store has a separate  commercial  sales area for the  professional
customer to use.  These  offices speed the purchase  process for the Pro,  allow
private discussions between customers and their sales representatives, and offer
small  amenities to these customers such as coffee,  ice, and phone access.  The
Company has 82  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 particularly  appealing 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.

         The Company has a national  accounts  program that  targets  businesses
with new construction commercial job sites, often geographically  dispersed, and
major  facilities or multiple  locations which utilize large amounts of building
materials  and  improvement  products  for  facility  maintenance.  The  Company
continues  to  develop  these  accounts  which  represent  multiple   individual
properties  for  which  it  provides  repair  and  maintenance  as  well  as new
construction products.

         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.

         DIY Strategy

         The  Company's  strategy  with the DIY  customer  focuses  primarily on
project-oriented  DIY-ers.  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 and have been the foundation upon which the
Company has built its business with these customers.

         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.

         Several additional  components  supporting the DIY strategy include the
following:

         o        Assortment  Additions.  The Company  continues  to upgrade its
assortment  and  displays in product  categories  that  represent a  significant
portion of the purchases by project-oriented  DIY-ers. These upgraded categories
include paint, hardware, tools, plumbing, electrical, millwork, and home decor.

         o        Knowledgeable  Employees.  The Company  launched an initiative
aimed   at  raising  the   level  of  knowledge  of  its   employees.   Training
materials,  certifications  and examinations  were  developed in various product
categories. Employees can become certified and wear a symbol of that achievement
on their name badges.


         o        Delivery  Enhancements.  The   Company  emphasizes  continuous
improvement of its delivery capacity.  This is an element of the service  bundle
that is  key  for  both  project-oriented  DIY-ers and  professionals.  Delivery
tracking systems and tow-behind forklifts contributed to the enhancement of this
service offering.


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         o        Recognition of Customer Service.   The Company has an employee
recognition  and reward program and incentive  compensation  plans for all store
employees to promote outstanding customer service.  Improved customer service is
intended to  increase  the  average  sales  ticket size and the number of repeat
purchasers.


Merchandising and Marketing

         During 1997,  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.  Payless  categorizes its product
offerings into the classes described below:

         Lumberyard - Dimensional lumber, plywood,  sidings,  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:

                                      1997              1996            1995
                                      ----              ----            ----
           Lumberyard                   51  %            50   %           49  %
           Hardware                     35               35               35
           Showroom                     14               15               16
                                      -----           ------           ------
                                       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  1997,   the  Company's
expenditures  (net of vendor  allowances)  on all forms of  advertising  totaled
approximately $28 million or 1.2% of sales.


Store Locations

       The Company's 164 building  materials stores are located in the following
states:

                           Number of Stores

     Arizona...................  8      Missouri..................  8
     California................ 13      Montana...................  1
     Colorado.................. 18      Nebraska..................  5
     Illinois..................  3      Nevada....................  6
     Indiana................... 11      New Mexico................  2
     Iowa...................... 10      Ohio...................... 13
     Kansas.................... 11      Oklahoma..................  6
     Kentucky..................  5      Oregon....................  2
     Louisiana.................  1      Tennessee.................  3
     Minnesota.................  8      Texas..................... 30


       Payless  owns 137 of its  store  facilities  and 128 of the 164  sites on
which such stores are located.  The remaining 27 stores and 36 sites are leased.
Mortgages or deeds of trust on 143 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


<PAGE>7

permits more effective  supervision of stores and provides certain  economies in
distribution  expenses  and  advertising  costs.  Each of Payless'  164 existing
stores has an average total selling space of  approximately  192,000 square feet
consisting of 32,000 square feet of indoor display space and 160,000 square feet
of lumberyard.  In addition,  each store has an average of 52,000 square feet of
warehouse space. The average Payless store occupies approximately eight acres of
land. The stores built since 1993 average  approximately  235,000 square feet of
total retail  selling space  consisting of 58,000 square feet of indoor  display
space and a 177,000 square foot  lumberyard  with an attached 17,000 square foot
warehouse on ten acres of land.

       An average Payless store currently carries  approximately $2.0 million of
inventory,   and  during  fiscal  1997,   sales  at  Payless   stores   averaged
approximately $12.6 million per store.

       During  fiscal  1997,  two stores were opened and 30 stores were  closed.
During fiscal 1996, 14 stores were closed.  During fiscal 1995,  six stores were
opened and two stores were sold.


Store Management and Personnel

       Payless  coordinates the operation of its 164 building  materials  stores
through 12 Area Managers and 164 Store Managers,  each of whom reports  directly
or through an Area Manager to one of four Regional Vice Presidents.  Supervision
and control  over the  individual  stores are  facilitated  by means of detailed
operating reports. All of Payless' Store Managers,  Area 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  existing  store
personnel.  Area Managers and Store Managers  typically have 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
1997,  the  Company  paid  $1.7  million  in  incentive   compensation   to  its
non-management store personnel.  Area Managers can earn in excess of 25% 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  $9.1
million in incentive  compensation to its store management  personnel for fiscal
1997. The Company  believes that its incentive  compensation  systems are key to
employee performance and motivation.


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.


Distribution and Suppliers

       The  Company  operates a total of seven  distribution  centers  and three
manufacturing  locations. The distribution centers maintain inventories and ship
product to stores on a weekly basis. 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 and customized
windows.


<PAGE>8

       In fiscal 1997, 49% 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 now serves 135 stores. The 592,000 square
foot facility utilizes computerized receiving, storage and selection technology.
Excluding the Sedalia  operation,  the Company's regional  distribution  centers
average 18 acres with 148,000  square feet of warehouse  space,  operating  with
manual storage and selection systems. In addition,  the Company uses third-party
operations for specialized needs.

       Payless purchases substantially all of its merchandise from approximately
3,800  suppliers,  no one of which  accounted  for more than 5% of the Company's
purchases during fiscal 1997.

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 28.3% in fiscal 1997, 28.0% in fiscal 1996,
and 27.5% in  fiscal  1995.  Purchases  under the  Company's  commercial  credit
program as a percentage  of sales  represented  32.7% in fiscal  1997,  29.9% in
fiscal  1996,  and 26.5% in fiscal 1995.  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 1997 were approximately $9.8 million or 1.3%
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.

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 29, 1997,  Payless  employed  approximately  12,800  persons,
approximately  29% who 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 are  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:  sales levels; competitor
activities;  stability of the sales force;  supplier support;  consumer spending
and debt levels;  interest  rates;  housing  activity,  including  existing home
turnover  and new home  construction;  lumber  prices;  product  mix;  growth of
certain  market  segments;  and an excess of retail space devoted to the sale of
building materials. 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.


<PAGE>9


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.  There is
no family relationship among Payless' current directors and executive officers.
<TABLE>
<CAPTION>

                                                                    Principal Occupation and
                                                                 Five-Year Employment History
                                                                 ----------------------------
Name                      Age
----------------------    ---
<S>                       <C>             <C>
Donald E. Roller..........60              Acting Chief Executive Officer of Payless since January 1998; Executive Vice President -
First elected a director:                 North  American  Gypsum  USG  Corporation  from January 1996 to November 1996; and
1997                                      President and Chief Executive Officer of United States Gypsum Company from January 1993 to
                                          November 1996.  Mr. Roller is Chairman  of the  Finance Committee of  the Payless Board of
                                          Directors.

Stanley K. Boyd...........46              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.

Robert S. Islinger........42              Senior Vice  President - Marketing  and  Merchandising  of Payless  since  February  1998;
                                          Senior Vice  President  - Marketing  of Payless  from August 1996 to February  1998;  Vice
                                          President - Marketing  of Payless  from August 1994 to August  1996;  and  Operating  Vice
                                          President - Marketing of Service Merchandise Co., Inc. from December 1986 to August 1994.

Richard G. Luse...........50              Senior Vice President -  Finance/Chief  Financial  Officer of Payless since February 1998;
                                          and Vice President - Controller of Payless from February 1988 to February 1998.

Louise R. Iennaccaro......53              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.
</TABLE>


Item 2.  PROPERTIES.

       Payless  owns 137 of its  store  facilities  and 128 of the 164  sites on
which such stores are  located.  The  remaining 27  facilities  and 36 sites are
leased. The leases provide for various terms. Mortgages or deeds of trust on 143
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 181,000 square feet) of a multi-story building.

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


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


<PAGE>10

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 plaintiff's motion for class  certification has been denied on
all claims except the age discrimination  claims. The court has recently granted
the plaintiff's  motion for class  certification  of certain age  discrimination
claims. As a result of this ruling,  approximately 20 additional individuals may
choose 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 Employment Act opt-in class, for an aggregate of $37 million.
The case has been returned to the United States  District Court for the Southern
District  of Iowa for  resolution.  Any  recovery  for the  plaintiffs  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  a  potential  range of
monetary  exposure,  if any, to the Company or to predict 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 39 of the Annual
Report to  Shareholders  for the  fiscal  year  ended  November  29,  1997,  are
incorporated herein by reference.


Item 6.  SELECTED FINANCIAL DATA.

       The Five-Year Financial Summary, included on page 35 of the Annual Report
to  Shareholders  for the fiscal year ended  November 29, 1997, 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 7 through 13 of the Annual  Report to
Shareholders for the fiscal year ended November 29, 1997, is incorporated herein
by reference.


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

       Not applicable.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

       The financial  statements and independent  auditors' report,  included on
pages 14 through 34 of the Annual  Report to  Shareholders  for the fiscal  year
ended November 29, 1997, are incorporated herein by reference.


<PAGE>11

       The Quarterly Consolidated Statements of Operations,  included on pages 5
and 6 of the Annual Report to  Shareholders  for the fiscal year ended  November
29, 1997, 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
1998 Annual  Meeting of  Shareholders,  dated  February  27,  1998,  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 1998 Annual Meeting of Shareholders,
dated February 27, 1998, 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 1998 Annual  Meeting of
Shareholders, dated February 27, 1998, 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 1998 Annual  Meeting of
Shareholders, dated February 27, 1998, 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).

 2.2          Agreement and Plan of Merger in connection with theReincorporation
              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          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).

 3.2          By-laws of the Company  (incorporated by  reference to Exhibit 4.2
              filed  as  part  of  Payless'  Current  Report  on Form  8-K dated
              December 2, 1997).


<PAGE>12

 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.

 4.1(b)       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.

 4.1(c)       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.

 4.1(d)       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.

 4.1(e)       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.

 4.1(f)       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.

 4.2(a)       Amended and Restated Loan Agreement dated December 2, 1997, by and
              among Payless and UBS Mortgage Finance, Inc.

 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.

 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.

10.1          Indemnification  Agreement   (incorporated by reference to Exhibit
              10.2 filed as part of Amendment No.2 to Registration Statement No.
              33-49772 filed August 26, 1992).

10.2(a)*      Payless Cashways, Inc. Corporate Management Incentive Compensation
              Program,  dated as of December 1991  (incorporated by reference to
              Exhibit  10.2 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter ended May 30, 1992).

10.2(b)*      First Amendment to Payless  Cashways,  Inc.  Corporate  Management
              Incentive  Compensation  Program,  dated as of  February  2,  1995
              (incorporated  by  reference to Exhibit  10.3(b)  filed as part of
              Payless'  Annual  Report on Form 10-K for the  fiscal  year  ended
              November 26, 1994).

10.3(a)*      Employment  Agreement  dated as of June 16, 1995,  between Payless
              and David Stanley (incorporated by reference to Exhibit 10.1 filed
              as part of Payless'  Quarterly Report on Form 10-Q for the quarter
              ended May 27, 1995).

10.3(b)*      Amendment  No. 1 to Employment  Agreement  dated  as of August 20,
              1997, between Payless and David Stanley.

10.4(a)*      Employment Agreement dated as of February 8, 1993, between Payless
              and Susan M. Stanton  (incorporated  by reference to Exhibit 10.26
              filed as part of  Registration  Statement No. 33-58008 on Form S-2
              on February 8, 1993).

10.4(b)*      Amendment  No. 1 to Employment  Agreement  dated as of October 17,
              1996,  between  Payless  and  Susan M.  Stanton  (incorporated  by
              reference  to Exhibit  10.4(b)  filed as part of  Payless'  Annual
              Report on Form 10-K for the year ended November 30, 1996).


<PAGE>13


10.4(c)*      Amendment No. 2 to Employment Agreement dated as of June 30, 1997,
              between Payless and Susan M. Stanton (incorporated by reference to
              Exhibit  10.1 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter ended August 30, 1997).

10.4(d)*      Amendment  No. 3 to  Employment Agreement  dated  as of August 20,
              1997, between Payless and Susan M. Stanton.

10.5(a)*      Employment Agreement dated as of February 8, 1993, between Payless
              and Stephen A.  Lightstone  (incorporated  by reference to Exhibit
              10.25 filed as part of Registration Statement No. 33-58008 on Form
              S-2 on February 8, 1993).

10.5(b)*      Amendment  No. 1 to Employment  Agreement  dated as of October 17,
              1996,  between Payless and Stephen A. Lightstone  (incorporated by
              reference  to Exhibit  10.5(b)  filed as part of  Payless'  Annual
              Report on Form 10-K for the year ended November 30, 1996).

10.5(c)*      Amendment No. 2 to Employment Agreement dated as of June 30, 1997,
              between  Payless  and  Stephen  A.  Lightstone   (incorporated  by
              reference  to  Exhibit  10.2 filed as part of  Payless'  Quarterly
              Report on Form 10-Q for the quarter ended August 30, 1997).

10.5(d)*      Amendment No. 3  to Employment Agreement  dated  as of  August 20,
              1997, between Payless and Stephen A. Lightstone.

10.6(a)*      Employment Agreement dated as of October 17, 1996, between Payless
              and G. Michael Buchen  (incorporated  by reference to Exhibit 10.6
              filed as part of Payless'  Annual Report on Form 10-K for the year
              ended November 30, 1996).

10.6(b)*      Amendment  No.  1. to  Employment  Agreement  dated as of June 30,
              1997,  between  Payless and G.  Michael  Buchen  (incorporated  by
              reference  to  Exhibit  10.3 filed as part of  Payless'  Quarterly
              Report on Form 10-Q for the quarter ended August 30, 1997).

10.6(c)*      Amendment No. 2 to  Employment Agreement  dated  as of  August 20,
              1997, between Payless and G. Michael Buchen.

10.7(a)*      Employment  Agreement dated as of May 8, 1997, between Payless and
              Stanley K. Boyd  (incorporated  by reference to Exhibit 10.1 filed
              as part of Payless'  Quarterly Report on Form 10-Q for the quarter
              ended May 31, 1997).

10.7(b)*      Amendment  No. 1 to  Employment Agreement dated  as of  August 20,
              1997, between Payless and Stanley K. Boyd.

10.8(a)*      Change in Control  Agreement  dated as of June 26,  1997,  between
              Payless and E. J.  Holland,  Jr.  (incorporated  by  reference  to
              Exhibit  10.5 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter  ended August 30, 1997).

10.8(b)*      Amendment  No. 1 to Executive  Change-In-Control  Agreement  dated
              as of August 20,  1997,  between  Payless and E. J. Holland, Jr.

10.9(a)*      Change in Control  Agreement  dated as of June 26,  1997,  between
              Payless  and Robert S.  Islinger  (incorporated  by  reference  to
              Exhibit  10.6 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter ended August 30, 1997).

10.9(b)*      Amendment No. 1  to Executive  Change-In-Control  Agreement  dated
              as of August 20, 1997,  between Payless and Robert S. Islinger.

10.10(a)*     Change in Control  Agreement  dated as of June 26,  1997,  between
              Payless  and  Richard E.  Nawrot  (incorporated  by  reference  to
              Exhibit  10.4 filed as part of Payless'  Quarterly  Report on Form
              10-Q for the quarter ended August 30, 1997).

10.10(b)*     Amendment No. 1 to Executive  Change-In-Control Agreement dated as
              of August 20, 1997,  between Payless and Richard E. Nawrot.

10.11*        Employment  Agreement dated as of August 2, 1996,  between Payless
              and William H. Parker  (incorporated  by reference to Exhibit 10.1
              filed as part of  Payless'  Quarterly  Report on Form 10-Q for the
              quarter ended August 24, 1996).


<PAGE>14


10.12*        Retirement  Agreement  dated  as of  November  14,  1993,  between
              Payless and Harold  Cohen  (incorporated  by  reference to Exhibit
              10.6(c)  filed as part of Payless'  Annual Report on Form 10-K for
              the fiscal year ended November 27, 1993).

10.13(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).

10.13(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).

10.14*        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 Shareholders.

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.

(b) Reports on Form 8-K.

     The  Registrant  has filed one report on Form 8-K during the quarter  ended
     November 29, 1997.  The report was dated  November 19, 1997,  and contained
     Item 3, Bankruptcy or  Receivership,  and Item 7, Financial  Statements and
     Exhibits. No financial statements were filed with this report.

(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/Donald E. Roller
                                  ---------------------------------------------
                                  Donald E. Roller, Principal Executive Officer
Dated:  February 9, 1998

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/Donald E. Roller
              -------------------------
              Donald E. Roller                     Acting Chief Executive Officer and                February 9, 1998
                                                   Director
                                                   (Principal Executive Officer)

              s/Peter G. Danis
              -------------------------
              Peter G. Danis                       Non-Executive Chairman of the                     February 9, 1998
                                                   Board

              s/David M. Chamberlain
              -------------------------
              David M. Chamberlain                 Director                                          February 9, 1998

              s/H. D. Cleberg
              -------------------------
              H. D. Cleberg                        Director                                          February 9, 1998

              s/David G. Gundling
              -------------------------
              David G. Gundling                    Director                                          February 9, 1998


              -------------------------
              Max D. Hopper                        Director

              s/Peter M. Wood
              -------------------------
              Peter M. Wood                        Director                                          February 9, 1998

              s/Richard G. Luse
              -------------------------
              Richard G. Luse                      Senior Vice President-Finance                     February 9, 1998
                                                   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 29, 1997


                             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  Shareholders  for the year ended November 29,
1997, are incorporated by reference in Item 8:

         Statements  of  Operations--fiscal   years  ended  November  29,  1997,
November 30, 1996, and November 25, 1995.

         Balance Sheets--November 29, 1997, and November 30, 1996.

         Statements  of  Cash  Flows--fiscal  years  ended  November  29,  1997,
November 30, 1996, and November 25, 1995.

         Statements of  Shareholders'  Equity--fiscal  years ended  November 29,
1997, November 30, 1996, and November 25, 1995.

         Notes to Financial Statements.


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

         VIII - 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 Peat Marwick LLP Letterhead]








                        INDEPENDENT AUDITORS' REPORT



     The Board of Directors
     Payless Cashways, Inc.:


     Under date of January  19,  1998,  we  reported  on the  balance  sheets of
     Payless  Cashways,  Inc. as of November 29, 1997 and November 30, 1996, and
     the related statements of operations,  shareholders'  equity and cash flows
     for each of the fiscal years in the  three-year  period ended  November 29,
     1997,  as  contained  in the 1997  annual  report  to  shareholders.  These
     financial  statements and our report thereon are  incorporated by reference
     in the annual  report on Form 10-K for the fiscal year 1997.  In connection
     with our audits of the aforementioned financial statements, we also audited
     the related  financial  statement  schedule  as listed in the  accompanying
     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 A to the financial  statements,  the November 29, 1997
     balance sheet reflects the application of fresh-start  reporting as of that
     date and,  therefore,  is not  comparable  in all  respects  to the balance
     sheets of the Company prior to November 29, 1997. As discussed in Note H 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 Peat Marwick LLP



     Kansas City, Missouri
     January 19, 1998



<PAGE>19



                SCHEDULE VIII - 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 29, 1997:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  13,604             $  21,960             $  20,533               $  15,031

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

YEAR ENDED NOVEMBER 25, 1995:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  16,661             $  33,108             $  29,415               $  20,354
</TABLE>