<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 30, 1996
                                                             OR
    /    /   Transition   report   pursuant  to   Section  13 or  15(d)  of  the
             Securities  Exchange  Act of 1934 [No fee required]

                  For the transition period from     ____________to_____________

                         Commission file number 1-8210

                             PAYLESS CASHWAYS, INC.
             (Exact Name of Registrant as Specified in Its Charter)
            Iowa                                            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                           New York Stock Exchange

9-1/8% Senior Subordinated Notes due April 15, 2003    New York Stock Exchange

       Securities registered pursuant to Section 12 (g) of the Act: None

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / 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 7, 1997, was
$84,401,479.

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

Common Stock, $.01 par value, outstanding as of February 7, 1997:

         Voting                     --     37,709,028  shares
         Class A Non-Voting         --      2,250,000  shares

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the  Annual  Report  to  Shareholders  for the year  ended
November 30, 1996, are  incorporated  by reference into Part II. Portions of the
Annual Proxy  Statement for the Annual Meeting of  Shareholders to be held April
17, 1997, 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 fourth
largest  retailer of building  materials  and home  improvement  products in the
United States as measured by sales. The Company operates 192 building  materials
stores in 22 states  located in the Midwest,  Southwest,  Pacific  Coast,  Rocky
Mountain  and New  England  areas under the names of Payless  Cashways  Building
Materials,  Furrow Building Materials,  Lumberjack  Building Materials,  Hugh M.
Woods Building Materials,  Knox Lumber, Somerville 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.  Due to its product mix (especially the advantage provided
by its full-line lumberyard) and customer service approach, the Company believes
that it is well positioned to increase business to the professional customer and
serve and defend the do-it-yourself  customer.  Payless also serves the needs of
the moderate and light DIY-er.  The Company has adopted a new strategy  known as
the Dual  Path  which  is  discussed  at  "Strategic  Initiatives".  As the name
suggests,  the  objective of this strategy is to gain market share with both the
Pro and DIY  customers  in  metropolitan  markets.  This  strategy  concentrates
service to the  large-volume  professional  in a limited  number of locations in
each market,  called Contractor Supply, and includes  value-added  manufacturing
specific to the market.  The other  stores in each Dual Path market are targeted
to the  consumer  and the  neighborhood  professional  and  carry  substantially
increased merchandise assortments.


INDUSTRY OVERVIEW

         Building  materials and home improvement  products are sold through two
distribution  channels -- wholesale supply outlets and retail units. The Company
estimates  the  wholesale  supply  channel  for  products  sold  by the  Company
represented  approximately  $142.4  billion in 1996,  based on the most recently
available unpublished data from the U.S. Department of Commerce for 1996. In the
latest study prepared by DRI/McGraw-Hill in November 1996, the retail channel of
the  industry was  estimated to be $135.4  billion in 1996 and is forecast to be
$167.6 billion by 2001.

         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.  Warehouse,   home  center  and  building
materials chains have grown while the number of local independent  merchants has
declined. The top 10 chains accounted for approximately 29% of industry sales in
1995.

         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  1996
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.

         The Company  believes that  demographic and lifestyle  factors (such as
the aging baby boomers,  the increase in home-centered  activities and the aging
housing  stock) will result in a growing  demand for its products.  Based on the
Company's consumer research,  there is a segment of DIY-ers,  which includes the
project-oriented  DIY-er,  which has a stronger  preference  for  shopping  at a
Payless-oriented  outlet than at a home improvement warehouse store. The Company
estimates that this segment  represents about a third of the DIY population.  To
this  segment,  it  is  very  important  for  their  preferred  outlet  to  have
knowledgeable  employees,  high quality  products  with name brands,  consistent
in-stock  position,  and all the  products  needed to  complete a  project.  The
Company believes it is well positioned to meet the needs of this DIY segment and
is rated equal to or better than the  competition  on most of these  attributes,
according to the Company's consumer research.


         STRATEGIC INITIATIVES

         The Company  undertook an extensive  strategic  review in 1995.  It was
comprehensive  and  included  not only  extensive  consumer  research,  but also
competitive   benchmarking  and  industry  analysis.  The  review  affirmed  the
Company's business strategy, but highlighted areas of opportunity.  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 indicates that,  while the Company
has  established  significant  business  with  this  group,  substantial  growth
opportunity remains.

         As a result of the  review,  the  Company  intends 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 is placed on  categories  with higher  margin rates in order to
invest the incremental gross margin in even more competitive pricing.  While the
Company  expects to grow  slightly  from DIY  customer  sales,  the Company also
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 plans to attract and retain more large-volume accounts whose business is
not  store-based.  Some  existing  and some  new  facilities  will be  dedicated
primarily to these high-volume professional and commercial accounts. The Company
intends to improve the product assortment,  key service  capabilities,  and cost
effectiveness at facilities dedicated to Pro customers.

         This approach is called the "Dual Path" strategy and was implemented in
Phoenix in 1996.  Of the five  facilities  the  Company  operates in the Phoenix
market,  four were remerchandised to better serve DIY customers with the product
offering increased from about 26,000 items to approximately  37,000 items. These
stores  continue to serve the walk-in,  neighborhood  professional  as well. The
fifth facility in Phoenix -- renamed  Contractor Supply -- has been dedicated to
serve the  large-volume  professional  and commercial  customers  throughout the
Phoenix   market.   Most  of  the  Phoenix   contractor  and  commercial   sales
representatives  work from this unit  which has a  business-to-business  selling
focus.

         A  significant  aspect  of  the  Dual  Path  strategy  involves  adding
manufacturing capabilities 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 has been  expanded  to serve the
builder,  remodeler and carpenter needs that the acquired door company serves in
Phoenix. The Company believes that these capabilities help position it to be the
supplier of choice for the large-volume professional.




<PAGE> 4


         The  second  market to be  converted  is  Cincinnati.  All seven of the
Company's  stores in that market were  remodeled to  accommodate  an  additional
8,000  items.  The  Contractor  Supply  component  of the Dual  Path,  including
appropriate  value-added  manufacturing,  is  anticipated  to be  operational by
mid-1997, completing the Cincinnati Dual Path conversion. Three more markets are
slated to be  converted  in 1997:  Louisville,  KY;  Dallas-Ft.  Worth,  TX; and
Minneapolis-St.  Paul,  MN. Six markets are planned for  conversion  in 1998. In
total, the Company plans to convert 21 markets to the Dual Path strategy.

         Some components of the Dual Path strategy have been  implemented in the
Company's  retail  facilities in other markets.  During 1996,  approximately  69
stores had  significant  DIY  assortment  additions to product  offerings.  Four
stores -- generally not in  metropolitan  markets -- have been reoriented to the
new Contractor Supply format and market position. Given their location, facility
size and current customer base, the Company believes that their optimal and most
profitable  use is as a dedicated  professional  and  commercial  supplier.  The
Company  intends to open one new store in 1997 with a format  which  refines the
Company's new store design and  represents the Company's  continuing  efforts to
optimize the consumer's shopping experience.


         PROFESSIONAL STRATEGY

         The Company believes it is particularly well-suited to serve  the needs
of professional customers and offers services not provided by most others in the
industry.

         A sales and  service  staff of  approximately  1,600 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  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 allow private  discussions  between customers and
their sales  representatives,  speed the purchase  process for the Pro and offer
small  amenities to these customers such as coffee,  ice, and phone access.  The
Company has 91 drive-through  lumberyards  which  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 which ensure a consistent source of high
quality lumber.

         The Company  offers a number of special  services which 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 30-day  revolving  account (Pro Project  Card) and a
full-service  commercial  credit  program which 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 which 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 data base.

         The Company has a national  accounts  program which 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.

         The Company's  Dual Path  strategy  includes an emphasis on growing the
professional business by concentrating the large-volume professional business in
one or two facilities in a market.  Contractor Supply facilities are expected to
have  rail  access,  large  lumberyards,  a focus on  delivery  capacity,  and a
merchandise  assortment  that is tailored to the  professional  customer.  These
facilities  will also serve as the base of operations for most of the contractor
and  commercial  sales  representatives  in the market.  The




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Company currently operates one Contractor Supply facility,  in Phoenix,  as part
of the Dual Path strategy.  Market-specific  value-added  manufacturing (such as
custom doors and trim, window mulling, trusses, panelized walls) is an important
component  of the  Dual  Path  strategy  and is in place in  Phoenix  and  under
development in Cincinnati.  Four other stores in small markets were converted to
the Contractor  Supply format,  without the  manufacturing  component,  in early
1996.


         DIY STRATEGY

         The  Company's  strategy to serve and defend  market share with the DIY
customer  focuses  primarily on the segment of DIY-ers with a strong  preference
for Payless-oriented  outlets.  Knowledgeable  employees,  high quality products
with brand names,  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  support the DIY  strategy to serve and
defend market share in this customer group. These include the following:

         o  ASSORTMENT   ADDITIONS.   The  Company  undertook  major  assortment
additions in 1996.  In the Dual Path markets,  8,000-12,000  items were added in
each of the eleven  consumer-oriented stores converted to date. As the remaining
Dual Path markets are  converted,  a similar  number of items are expected to be
added to the  consumer-oriented  stores in these markets. In 69 of the Company's
other stores with  showrooms  over 30,000  square feet,  5,000-7,000  items were
added and, in smaller stores,  an average of 3,000 items were added. The Company
continues to upgrade its  assortment  and displays in product  categories  which
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  ADVERTISING/MARKETING  SUPPORT.  In the  second  half of  1996,  the
Company  reinforced  its  advertising  and  marketing  efforts  to the DIY-er in
selected  underperforming  markets.  This included  additional tabloid newspaper
inserts,  newspaper  runs-of-press  (ROPs), and targeted mailings,  by zip code,
offering discounts and other incentives.  The Company significantly enhanced the
media mix by adding broadcast, both radio and television, in some markets.

         o  DELIVERY  ENHANCEMENTS.  An  initiative  undertaken  in 1996 was the
improvement  of the  Company's  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.

         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 1996,  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,  panelling,   wallcoverings  and
       ceiling tiles.



<PAGE> 6


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

                                1996              1995            1994
                                ----              ----            ----
           Lumberyard             50  %             49   %          49  %
           Hardware               35                35              34
           Showroom               15                16              17
                                ----              ----            ----  
                                 100  %            100   %         100  %

       As part of the Dual Path strategy,  the  Contractor  Supply centers carry
large  volumes of lumber,  building  materials  products,  related  pro-oriented
products and market-based value-added manufacturing such as trusses, doors, trim
and windows. In Dual Path markets,  the majority of stores are remerchandised to
increase the product offering to  approximately  34,000 to 38,000 items focusing
on tools, hardware, paint, electrical and plumbing products.

       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  1996,   the  Company's
expenditures  (net of vendor  allowances)  on all forms of  advertising  totaled
approximately $26 million or 1.0% of sales.

       The Company  utilizes  data base  marketing  techniques  to increase  the
effectiveness of its Pro marketing programs. The data base allows the Company to
track and analyze purchases of Pro customers. This purchase history data is used
in targeted  marketing  campaigns and to develop distinct  customer profiles for
various product  categories.  In addition,  the Company  conducts its own market
research,  including  customer  intercepts,  phone  surveys and  customer  focus
groups.


STORE LOCATIONS

       The Company's 192 building  materials stores are located in the following
states:

                                 Number of Stores
                                 ----------------

         Arizona...................  8      Minnesota.................  8
         Arkansas..................  1      Missouri.................. 11
         California................ 16      Montana...................  1
         Colorado.................. 18      Nebraska..................  5
         Illinois..................  3      Nevada....................  5
         Indiana................... 16      New Mexico................  3
         Iowa...................... 10      Ohio...................... 12
         Kansas.................... 11      Oklahoma..................  8
         Kentucky..................  5      Oregon....................  2
         Louisiana.................  1      Tennessee.................  3
         Massachusetts.............  5      Texas..................... 40

       Payless  owns 164 of its  store  facilities  and 153 of the 192  sites on
which such stores are located.  The remaining 28 stores and 39 sites are leased.
Mortgages or deeds of trust on 167 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  which are  convenient  to the DIY and Pro  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'  192  existing  stores  has  an  average  total  selling  space  of
approximately  186,000  square feet  consisting  of 32,000 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 eight acres of land. The stores built since 1993 average
approximately  237,000 square feet of total retail  selling space  consisting of
57,000 square feet of indoor display space and a 180,000 square foot  lumberyard
with an attached 17,000 square foot warehouse on ten acres of land.

       As the Company  continues its  implementation  of the Dual Path strategy,
some locations will be converted to the Contractor Supply format, as in Phoenix.
In other markets, a different site or facility may be acquired for this purpose,
as in  Cincinnati.




<PAGE> 7

Because these facilities will focus on the large-volume  professional  customer,
the locations are expected to be on rail spurs with several acres  available for
a large-scale lumberyard.

        An average Payless store currently carries approximately $1.9 million of
inventory, and during fiscal 1996 sales at Payless stores averaged approximately
$13.1 million per store.

       During fiscal 1996, 14 stores were closed. During fiscal 1995, six stores
were opened and two stores were sold.  During  fiscal  1994,  seven  stores were
opened and one store was closed.


STORE MANAGEMENT AND PERSONNEL

       Payless  coordinates the operation of its 192 building  materials  stores
through  95 Group  Store  Directors  and Store  Managers,  each of whom  reports
directly  or  through  a  Group  Store  Director  to one of  six  Regional  Vice
Presidents.  Supervision and control over the individual  stores are facilitated
by means of detailed operating  reports.  All of Payless' Group Store Directors,
Store  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  recruits  both  recent  college  graduates  and persons  with  business
experience. These employees are placed in a formal training program administered
by Payless.  In  addition,  Payless  maintains an ongoing  training  program for
existing store  personnel.  Group Store  Directors 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.
Department sales managers typically have more than five years of experience with
the Company.

       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
1996,  the  Company  paid  $2.9  million  in  incentive   compensation   to  its
nonmanagement store personnel. Group Store Directors and Store Managers can earn
in excess of 35% of base salary in  incentive  compensation.  The  Company  paid
approximately  $11.4 million in incentive  compensation to its store  management
personnel for fiscal 1996. 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 integral to  management  of the stores and support  customer  services  with
programs  designed  to  enhance  the  shopping  experience.   A  satellite-based
wide-area-network  (WAN) linking each of the various Company facilities provides
for daily  transmission of 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   sophisticated   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. Value-added manufacturing capacity will either be acquired or developed
as a part of the Dual Path strategy.



<PAGE> 8


       In fiscal 1996, 47% 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 161 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 154,000  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
4,000  suppliers,  no one of which  accounted  for more than 5% of the Company's
purchases during fiscal 1996.

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 28.0% in fiscal 1996, 27.5% in fiscal 1995,
and 26.2% in  fiscal  1994.  Purchases  under the  Company's  commercial  credit
program as a percentage  of sales  represented  29.9% in fiscal  1996,  26.5% in
fiscal 1995, and 25.1% in fiscal 1994. The Company's  private-label  credit card
program and commercial  credit program are  administered  by a large finance and
asset management  company.  Accounts  written off (net of recoveries)  under the
commercial credit program in fiscal 1996 were approximately $4.9 million or 0.6%
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 which 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.  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 DIY
customers who have a preference  for shopping the  Payless-format  stores and by
targeting the  professional  customer as the primary  source of growth.  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. 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.

EMPLOYEES

       At November 30, 1996,  Payless  employed  approximately  16,700  persons,
approximately  32% 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 2% 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 some of the
statements  made  above.   Investors  are  cautioned  that  all  forward-looking
statements  involve risks and uncertainty.  In addition to the factors discussed
above,  among the other  factors  that  could  cause  actual  results  to differ
materially are the following: consumer spending and debt levels; interest rates;
housing activity,  including  existing home turnover and new home  construction;
lumber  prices;  product  mix;  sales of real  estate  held for sale;  growth of
certain  market  segments;  competitive  pressure on sales and  pricing;  and an
excess of retail  space  devoted to the sale of building  materials.  Additional
information  concerning  those and other  factors is contained in the  Company's
Annual Report, copies of which are available from the Company without charge.



<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
Name                      Age                                     Five-Year Employment History
----                      ---                                     ----------------------------

<S>                       <C>             <C>

David Stanley.............61              Chairman of the Board and Chief Executive Officer of Payless since August 1986;
First elected a director:                 and currently a director of Piper Jaffray Companies, Inc., Digi International, Inc. and
1969                                      Best Buy Co., Inc. Mr.  Stanley is a member of the  Corporate  Governance  and  Nominating
                                          Committee  and Finance  Committee  of Payless'  Board of  Directors.  Mr.  Stanley  joined
                                          Payless in April 1980.

Susan M. Stanton..........48              President and Chief Operating Officer of Payless since November 1993; Senior
First elected a director:                 Vice President - Merchandising of Payless from October 1989 to November 1993;
1993                                      and  currently  a  director  of Western  Resources,  Inc.  Ms.  Stanton is a member of the
                                          Corporate  Governance  and  Nominating  Committee  of  Payless'  Board of  Directors.  Ms.
                                          Stanton joined Payless in March 1983.

Gerald M. Buchen..........41              Senior  Vice  President  - Store  Operations  of Payless  since  November  1993;  and Vice
                                          President -  Merchandising/Lumberyard  of Payless from August 1988 to November  1993.  Mr.
                                          Buchen joined Payless in August 1974.

E. J. Holland, Jr.........53              Senior Vice President - Human  Resources/Secretary  of Payless since November 1996; Senior
                                          Vice  President - Human  Resources of Payless from June 1992 to November 1996; and Partner
                                          of the law firm Spencer Fane Britt & Browne from January 1974 to June 1992.

Robert S. Islinger........41              Senior  Vice  President  -  Marketing  of Payless  since  August  1996;  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.

Stephen A. Lightstone.....51              Senior Vice President -  Finance/Treasurer  and Chief  Financial  Officer of Payless since
                                          February 1988.  Mr. Lightstone joined Payless in November 1983.

Richard E. Nawrot.........49              Senior Vice President - Information Systems of Payless since September 1991.

William H. Parker.........49              Senior  Vice   President-Merchandising  of  Payless  since  August  1996;  Corporate  Vice
                                          President and General  Merchandise  Manager - Home Decor of Kmart Corporation from January
                                          1994 to February 1996;  Vice President - Housewares,  Pets and Books of Kmart  Corporation
                                          from April 1993 to December 1993; and President of Reader's  Market - Books and Magazines,
                                          a division of Kmart Corporation, from July 1991 to March 1993.

Richard G. Luse...........49              Vice President - Controller of Payless since February 1988.


</TABLE>

Item 2.  PROPERTIES.
-------  -----------

       Payless  owns 164 of its  store  facilities  and 153 of the 192  sites on
which such stores are  located.  The  remaining 28  facilities  and 39 sites are
leased. The leases provide for various terms. Mortgages or deeds of trust on 167
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.

       One  of  the  Company's  manufacturing  locations  is  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 one  manufacturing  parcel secure
existing indebtedness.

       Payless  leases its corporate  office in Kansas City,  Missouri,  under a
lease expiring on November 30, 2002. The  administrative  offices occupy several
floors (approximately 204,000 square feet) of a multi-story building.



<PAGE> 10

       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
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.  No ruling has been  entered on the  Former  Employee's  motion for
class  certification.  Each  of the  parties  has  conducted  written  discovery
pursuant to the court's scheduling order and discovery plan.

       The  Company  denies  any and all  claimed  liability  and is  vigorously
defending this  litigation,  but, given the early state of this  litigation,  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.




<PAGE> 11


                                    PART II
                                    -------

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

         Market  and  dividend  information,  included  on page 36 of the Annual
Report to  Shareholders  for the  fiscal  year  ended  November  30,  1996,  are
incorporated herein by reference.


Item 6.  SELECTED FINANCIAL DATA.
-------  ------------------------

       The  Five-Year  Financial  Summary,  included  on  pages 30 and 31 of the
Annual Report to  Shareholders  for the fiscal year ended  November 30, 1996, 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 6 through 10 of the Annual  Report to
Shareholders for the fiscal year ended November 30, 1996, is incorporated herein
by reference.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------  --------------------------------------------

       The financial  statements and independent  auditors' report,  included on
pages 11 through 29 of the Annual  Report to  Shareholders  for the fiscal  year
ended November 30, 1996, are incorporated herein by reference.

       The Quarterly Consolidated Statements of Operations,  included on pages 4
and 5 of the Annual Report to  Shareholders  for the fiscal year ended  November
30, 1996, 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
1997 Annual  Meeting of  Shareholders,  dated  February  28,  1997,  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 1997 Annual Meeting of Shareholders,
dated February 28, 1997, 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 1997 Annual  Meeting of
Shareholders, dated February 28, 1997, 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 1997 Annual  Meeting of
Shareholders, dated February 28, 1997, to be filed pursuant to Regulation 14A.




<PAGE> 12


                                    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.

     3.1       Restated  Articles of Incorporation of the Company  (incorporated
               by reference  to Exhibit 3.1 filed as part of Amendment  No. 1 to
               Registration  Statement  No.  33-58008  on Form  S-2 on  March 8,
               1993).

     3.2       By-laws of the Company  (incorporated by reference to Exhibit 3.1
               filed as part of Payless'  Quarterly  Report on Form 10-Q for the
               quarter ended August 27, 1994).

     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  October 3, 1996,
               among  Payless,  the Banks listed on the signature  pages thereof
               and  Canadian  Imperial  Bank of Commerce,  New York  Agency,  as
               Administrative   Agent  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 24, 1996).

     4.1(b)    Amended and Restated Borrower Security  Agreement,  dated October
               3, 1996,  made by Payless for the  benefit of  Canadian  Imperial
               Bank of Commerce,  New York Agency, as  Administrative  Agent and
               Collateral Agent, and the banks and other financial  institutions
               party to the Amended and Restated Credit Agreement  (incorporated
               by reference  to Exhibit 4.2 filed as part of Payless'  Quarterly
               Report on Form 10-Q for the quarter ended August 24, 1996).

     4.1(c)    Form of Deed of Trust,  dated October 3, 1996,  given to Canadian
               Imperial  Bank of Commerce,  New York Agency,  as  Administrative
               Agent and  Collateral  Agent,  and the banks and other  financial
               institutions  party to the Amended and Restated Credit  Agreement
               (incorporated  by  reference  to  Exhibit  4.3  filed  as part of
               Payless'  Quarterly  Report  on Form 10-Q for the  quarter  ended
               August 24, 1996).

     4.1(d)    Form of  Mortgage,  dated  October  3,  1996,  given to  Canadian
               Imperial  Bank of Commerce,  New York Agency,  as  Administrative
               Agent and  Collateral  Agent,  and the banks and other  financial
               institutions  party to the Amended and Restated Credit  Agreement
               (incorporated  by  reference  to  Exhibit  4.4  filed  as part of
               Payless'  Quarterly  Report  on Form 10-Q for the  quarter  ended
               August 24, 1996).

     4.1(e)    Inter-Facility Agreement, dated November 18, 1994, among Canadian
               Imperial  Bank of  Commerce,  New York  Agency,  The Bank of Nova
               Scotia,  Nationsbank  of Texas,  N.A.,  Bank of America  National
               Trust and Savings  Association,  Commerce Bank, N.A., Payless and
               Somerville  (incorporated  by  reference  to Exhibit 4.9 filed as
               part of Payless'  Annual  Report on Form 10-K for the fiscal year
               ended November 26, 1994).

     4.2       Indenture  dated as of April 20, 1993, by and between Payless and
               United States Trust Company of New York,  pursuant to which the 9
               1/8% Senior  Subordinated  Notes of Payless  due April 15,  2003,
               were issued  (incorporated  by  reference to Exhibit 4.2 filed as
               part of  Payless'  Quarterly  Report on Form 10-Q for the quarter
               ended May 29, 1993).

     4.3(a)    Loan  Agreement  dated  June  20,  1989,  by  and  among  Payless
               Cashways,  Inc.,  Knox Home Centers,  Inc.  ("Knox"),  Somerville
               Lumber and Supply Co., Inc.  ("Somerville"),  and The  Prudential
               Insurance  Company  of  America  (incorporated  by  reference  to
               Exhibit  4.2 filed as part of Payless'  Quarterly  Report on Form
               10-Q for the quarter ended May 27, 1989).

     4.3(b)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential   Insurance   Company  of  America,   Tranche  B  (MN)
               (incorporated  by  reference  to  Exhibit  4.12  filed as part of
               Payless'  Quarterly Report on Form 10-Q for the quarter ended May
               27, 1989).

     4.3(c)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential   Insurance   Company  of  America,   Tranche  B  (MT)
               (incorporated  by  reference  to  Exhibit  4.13  filed as part of
               Payless'  Quarterly Report on Form 10-Q for the quarter ended May
               27, 1989).



<PAGE> 13

     4.3(d)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  the
               Prudential   Insurance   Company  of  America,   Tranche  B  (ND)
               (incorporated  by  reference  to  Exhibit  4.14  filed as part of
               Payless'  Quarterly Report on Form 10-Q for the quarter ended May
               27, 1989).

     4.3(e)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential   Insurance   Company  of  America,   Tranche  B  (NV)
               (incorporated  by  reference  to  Exhibit  4.15  filed  a part of
               Payless'  Quarterly Report on Form 10-Q for the quarter ended May
               27, 1989).

     4.3(f)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential  Insurance  Company  of  America,  Tranche B (AZ,  CA)
               (incorporated  by  reference  to  Exhibit  4.16  filed as part of
               Payless'  Quarterly Report on Form 10-Q for the quarter ended May
               27, 1989).

     4.3(g)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential  Insurance Company of America,  Tranche C (IN, KY, NM,
               OH,  TN)(incorporated  by reference to Exhibit 4.17 filed as part
               of Payless'  Quarterly  Report on Form 10-Q for the quarter ended
               May 27, 1989).

     4.3(h)    Promissory  Note  dated  June  20,  1989,  from  Payless  to  The
               Prudential  Insurance Company of America,  Tranche D (CO, IA, IL,
               KS, NE, MO, TX, OR, OK)  (incorporated  by  reference  to Exhibit
               4.18 filed as part of Payless'  Quarterly Report on Form 10-Q for
               the quarter ended May 27, 1989).

     4.3(i)    Form of Deed of Trust,  Mortgage and Security Agreement effective
               June 20,  1989,  given to The  Prudential  Insurance  Company  of
               America  (incorporated by reference to Exhibit 4.19 filed as part
               of Payless'  Quarterly  Report on Form 10-Q for the quarter ended
               May 27, 1989).

     4.3(j)    Form of Deed of  Trust,  Security  Agreement  and  Assignment  of
               Leases dated June 20, 1989, given to Morgan Bank  (Delaware),  as
               Collateral Agent (incorporated by reference to Exhibit 4.20 filed
               as part of Payless' Quarterly Report on Form 10-Q for the quarter
               ended May 27, 1989).

     4.3(k)    First Modification Agreement dated as of October 18, 1991, by and
               among Payless,  Knox,  Somerville  and The  Prudential  Insurance
               Company of America  (incorporated  by reference to Exhibit 4.9(r)
               filed as part of Payless'  Annual  Report on Form 10-K for fiscal
               year ended November 30, 1991).

     4.3(l)    Second  Modification  Agreement dated as of December 17, 1991, by
               and among Payless,  Knox, Somerville and The Prudential Insurance
               Company of America  (incorporated  by reference to Exhibit 4.9(s)
               filed as part of Payless'  Annual  Report on Form 10-K for fiscal
               year ended November 30, 1991).

     4.3(m)    Third  Modification  Agreement  dated as of December 31, 1991, by
               and among Payless,  Knox, Somerville and the Prudential Insurance
               Company of America  (incorporated  by reference to Exhibit 4.9(t)
               filed as part of Payless'  Annual  Report on Form 10-K for fiscal
               year ended November 30, 1991).

     4.3(n)    Fourth  Modification  Agreement dated as of March 8, 1993, by and
               among Payless, Somerville and The Prudential Insurance Company of
               America  (incorporated  by reference  to exhibit  4.6(v) filed as
               part of Amendment No. 1 to Registration Statement No. 33-58008 on
               Form S-2 on March 8, 1993).

     4.3(o)    Letter  dated  March  12,  1993  modifying  Fourth   Modification
               Agreement  dated as of  March  8,  1993,  by and  among  Payless,
               Somerville  and  The  Prudential  Insurance  Company  of  America
               (incorporated  by  reference  to Exhibit  4.5(w) filed as part of
               Registration  Statement  No.  33-59854  on Form S-2 on March  19,
               1993).

     4.3(p)    Fifth  Modification  Agreement,  dated as of May 25, 1995, by and
               among Payless, Somerville and The Prudential Insurance Company of
               America  (incorporated  by reference to Exhibit 4.1 filed as part
               of Payless'  Quarterly  Report on Form 10-Q for the quarter ended
               August 27, 1995).

     4.3(q)    Sixth  Modification  Agreement  dated as of November 21, 1995, by
               and among Payless and The Prudential Insurance Company of America
               (incorporated  by  reference  to Exhibit  4.4(q) filed as part of
               Payless'  Annual Report on Form 10-K for the year ended  November
               25, 1995).

     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).




<PAGE> 14

     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*     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).

     10.4(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.

     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.

     10.6*     Employment  Agreement  dated  as of  October  17,  1996,  between
               Payless and G. Michael Buchen.

     10.7*     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).

     10.8*     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).

     10.9(a)*  Payless  Cashways,  Inc.  Wealth-Op  Deferred  Compensation  Plan
               (incorporated  by  reference  to  Exhibit  10.8  filed as part of
               Post-Effective  Amendment  No. 7 to  Registration  Statement  No.
               33-23893 on Form S-2 filed May 26, 1992).

     10.9(b)*  Amendment  to  Payless'  Wealth-Op  Deferred   Compensation  Plan
               (incorporated  by reference to Exhibit  10.10(b) filed as part of
               Payless'  Annual  Report on Form 10-K for the  fiscal  year ended
               November 27, 1993).

     10.10(a)* Payless   Cashways,   Inc.   1988  Deferred   Compensation   Plan
               (incorporated  by reference to Exhibit  10.11(a) filed as part of
               Payless'  Annual  Report on Form 10-K for the  fiscal  year ended
               November 27, 1993).

     10.10(b)* Amendment   to   Payless'   1988   Deferred   Compensation   Plan
               (incorporated  by reference to Exhibit  10.11(b) filed as part of
               Payless'  Annual  Report on Form 10-K for the  fiscal  year ended
               November 27, 1993).

     10.11(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).

     10.11(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).

     10.12*    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).

     10.13(a)* Payless Cashways,  Inc. Supplemental  Retirement Plan dated as of
               January 1, 1988  (incorporated  by reference to Exhibit  10.14(a)
               filed as part of  Payless'  Annual  Report  on Form  10-K for the
               fiscal year ended November 27, 1993).

     10.13(b)* First  Amendment,   effective  June  22,  1989,  to  the  Payless
               Cashways,  Inc. Supplemental  Retirement Plan dated as of January
               1, 1988  (incorporated  by reference to Exhibit 10.14(b) filed as
               part of Payless'  Annual  Report on Form 10-K for the fiscal year
               ended November 27, 1993).

     10.13(c)* Second  Amendment  dated as of September 7, 1993,  to the Payless
               Cashways,  Inc. Supplemental  Retirement Plan dated as of January
               1, 1988  (incorporated  by reference to Exhibit 10.14(c) filed as
               part of Payless'  Annual  Report on Form 10-K for the fiscal year
               ended November 26, 1994).






<PAGE> 15

     10.13(d)* Third  Amendment  dated as of August  31,  1994,  to the  Payless
               Cashways,  Inc. Supplemental  Retirement Plan dated as of January
               1, 1988  (incorporated  by reference to Exhibit  10.1(a) filed as
               part of  Payless'  Quarterly  Report on Form 10-Q for the quarter
               ended August 27, 1994).

     10.13(e)* Agreement for  Supplemental  Retirement  Benefits between Payless
               and  David  Stanley  as  of  August  31,  1994  (incorporated  by
               reference to Exhibit 10.1(b) filed as part of Payless'  Quarterly
               Report on Form 10-Q for the quarter ended August 27, 1994).

     10.13(f)* Fourth  Amendment,  effective  June  16,  1995,  to  the  Payless
               Cashways,  Inc. Supplemental  Retirement Plan dated as of January
               1, 1988  (incorporated by reference to Exhibit 10.2 filed as part
               of the  Payless'  Quarterly  Report on Form 10-Q for the  quarter
               ended August 27, 1995).

     10.14(a)  Registration  Rights  Agreement dated as of August 4, 1988, among
               PCI   Acquisition   Corp.   and   certain  of  its   shareholders
               (incorporated  by reference to Exhibit  10.15(a) filed as part of
               Payless'  Annual  Report on Form 10-K for the  fiscal  year ended
               November 27, 1993).

     10.14(b)  Agreement  and  Amendment  dated  as of  November  11,  1988,  to
               Registration  Rights  Agreement dated as of August 4, 1988, among
               Payless  and  certain  of  its   shareholders   (incorporated  by
               reference to Exhibit  10.15(b)  filed as part of Payless'  Annual
               Report on Form 10-K for the fiscal year ended November 27, 1993).

     10.14(c)  Addendum  to  Shareholders'  Agreement  and  Registration  Rights
               Agreement  dated  February  22,  1989,  by and among  Payless and
               certain of its shareholders (incorporated by reference to Exhibit
               10.15(c) filed as part of Payless' Annual Report on Form 10-K for
               the fiscal year ended November 27, 1993).

     10.15(a)* 1988 Payless Cashways,  Inc. Employee Stock Plan (incorporated by
               reference to Annex 1 filed as part of Registration  Statement No.
               33-24368 on Form S-8 filed September 9, 1988).

     10.15(b)* First Amendment to the 1988 Payless Cashways, Inc. Employee Stock
               Plan,  dated  November  11, 1988  (incorporated  by  reference to
               Exhibit  10.1(b)  filed as part of Payless'  Quarterly  Report on
               Form 10-Q for the quarter ended February 25, 1989).

     10.15(c)* Second  Amendment to the 1988  Payless  Cashways,  Inc.  Employee
               Stock Plan, dated February 22, 1989 (incorporated by reference to
               Exhibit  10.1(c)  filed as part of Payless'  Quarterly  Report on
               Form 10-Q for the quarter ended February 25, 1989).

     10.15(d)* Third Amendment to the 1988 Payless Cashways, Inc. Employee Stock
               Plan,  dated March 6, 1990  (incorporated by reference to Exhibit
               10.2 of  Payless'  Quarterly  Report on Form 10-Q for the quarter
               ended February 24, 1990).

     10.15(e)* Form of Performance  Stock Option Agreement  pursuant to the 1988
               Payless Cashways, Inc. Employee Stock Option Plan amended on June
               20, 1991  (incorporated by reference to Exhibit 10.21(e) filed as
               part of Payless' Annual Report on Form 10-K for fiscal year ended
               November 30, 1991).

     10.15(f)* Amendment to the 1988 Payless Cashways, Inc. Employee Stock Plan,
               dated as of May 1, 1992  (incorporated  by  reference  to Exhibit
               10.26 filed as part of Post-Effective Amendment No. 7 to Form S-2
               Registration Statement No. 33-23893 filed May 26, 1992).

     10.16(a)* Payless  Cashways 1992 Incentive Stock Program  (incorporated  by
               reference to Exhibit  10.24 filed as part of  Amendment  No. 2 to
               Registration  Statement No. 33-49772 on Form S-2 filed August 26,
               1992).

     10.16(b)* Amendment  No. 1 to the Payless  Cashways  1992  Incentive  Stock
               Program, dated as of December 12, 1996.

     10.17(a)* Payless Cashways Director Option Plan  (incorporated by reference
               to Exhibit  10.23  filed as part of  Registration  Statement  No.
               33-59854 on Form S-2 on March 19, 1993).

     10.17(b)* Amendment  No. 1 to the Payless  Cashways  Director  Option Plan,
               dated as of December 12, 1996.

     10.18(a)* Payless Cashways,  Inc. Deferred Compensation Plan for Directors,
               dated as of  October  20,  1995  (incorporated  by  reference  to
               Exhibit  10.17  filed as part of Payless'  Annual  Report on Form
               10-K for the year ended November 25, 1995).

     10.18(b)* Amendment  No.  1  to  the  Payless   Cashways,   Inc.   Deferred
               Compensation Plan for Directors, dated as of December 12, 1996.



<PAGE> 16

     11.1      Computation of per share earnings.

     13.1      Annual Report to Shareholders.

     23.1      Consent of KPMG Peat Marwick 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.

(b)  Reports on Form 8-K.

     No reports on Form 8-K have been filed by the Registrant during the quarter
     ended November 30, 1996.

(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> 17


                                   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/David Stanley
                                      ------------------------------------------
                                      David Stanley, Principal Executive Officer

Dated:  February 20, 1997

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/David Stanley
     ------------------------------
        David Stanley                        Chief Executive Officer and                       February 20, 1997
                                             Chairman of the Board
                                             (Principal Executive Officer)

        s/Susan M. Stanton
     ------------------------------
        Susan M. Stanton                     President and Chief Operating                     February 20, 1997
                                             Officer and Direct
        s/Ralph Strangis
     ------------------------------
        Ralph Strangis                       Lead Director                                     February 20, 1997

        s/Harold Cohen
     ------------------------------
        Harold Cohen                         Director                                          February 20, 1997

        s/Scott G. Fossel
     ------------------------------
        Scott G. Fossel                      Director                                          February 20, 1997

        s/William A. Hall
     ------------------------------
        William A. Hall                      Director                                          February 20, 1997

        s/George Latimer
     ------------------------------
        George Latimer                       Director                                          February 20, 1997

        s/Wayne B. Lyon
     ------------------------------
        Wayne B. Lyon                        Director                                          February 20, 1997

        s/Gary D. Rose
     ------------------------------
        Gary D. Rose                         Director                                          February 20, 1997

        s/Louis W. Smith
     ------------------------------
        Louis W. Smith                       Director                                          February 20, 1997

        s/John H. Weitnauer, Jr.
     ------------------------------
        John H. Weitnauer, Jr.               Director                                          February 20, 1997

        s/Stephen A. Lightstone
     ------------------------------
        Stephen A. Lightstone                Senior Vice President-Finance/                    February 20, 1997
                                             Treasurer and Chief Financial
                                             Officer (Principal Financial
                                             Officer and Principal
                                             Accounting Officer
</TABLE>


<PAGE> 18






                           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

     
                          YEAR ENDED NOVEMBER 30, 1996


                             PAYLESS CASHWAYS, INC.


                              KANSAS CITY, MISSOURI



<PAGE> 19


                             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 30, 1996, are incorporated by reference in Item 8:

         Statements  of  Operations--fiscal   years  ended  November  30,  1996,
November 25, 1995, and November 26, 1994.

         Balance Sheets--November 30, 1996, and November 25, 1995.

         Statements  of  Cash  Flows--fiscal  years  ended  November  30,  1996,
November 25, 1995, and November 26, 1994.

         Statements of  Shareholders'  Equity--fiscal  years ended  November 30,
1996, November 25, 1995, and November 26, 1994.

         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> 20


                       [KPMG Peat Marwick LLP Letterhead]








                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



     The Board of Directors
     Payless Cashways, Inc.:


     Under date of January  13,  1997,  we  reported  on the  balance  sheets of
     Payless  Cashways,  Inc. as of November 30, 1996 and November 25, 1995, and
     the related statements of operations,  shareholders'  equity and cash flows
     for each of the fiscal years in the  three-year  period ended  November 30,
     1996,  as  contained  in the 1996  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 1996.  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 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 13, 1997



<PAGE> 21



                       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 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


YEAR ENDED NOVEMBER 26, 1994:
              Reserve for Inventory Shrink
              and Obsolescence.................      $  18,252             $  21,920             $  23,511               $  16,661



</TABLE>