<PAGE> 1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(Mark One)
  / X /      Quarterly report pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934

             For the quarterly period ended March 1, 1997

                                                        or

 /     /     Transition report pursuant to Section 13 or 15(d) of the Securities
             Exchange Act of 1934

             For the transition period from             to

             Commission file number 1-8210


                             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)

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

Common Stock, $.01 par value, outstanding as of March 31, 1997:

               Voting                  --     37,710,528    shares
               Non-Voting Class A      --      2,250,000    shares


<PAGE> 2

PAYLESS CASHWAYS, INC.


                         PART I -- FINANCIAL INFORMATION

Item 1.  Financial Statements

 STATEMENTS OF OPERATIONS (Unaudited) (1)
(In thousands, except per share amounts)


<TABLE>
<CAPTION>

                                                                                       Thirteen Weeks Ended
                                                                       ----------------------------------------------------
                                                                            March 1,                          February 24,
                                                                              1997                               1996
                                                                       ----------------------------------------------------

<S>                                                                    <C>                                <C>
Income
     Net sales                                                         $        487,550                   $        526,767
     Other income                                                                 1,205                              1,597
                                                                       ----------------------------------------------------
                                                                                488,755                            528,364

Costs and Expenses
     Cost of merchandise sold                                                   348,247                            372,916
     Selling, general and administrative                                        138,407                            141,405
     Provision for depreciation and amortization                                 12,804                             13,184
     Interest expense                                                            16,055                             15,352
                                                                       ----------------------------------------------------
                                                                                515,513                            542,857
                                                                       ----------------------------------------------------

                             LOSS BEFORE INCOME TAXES                           (26,758)                           (14,493)

Federal and state income taxes                                                  (18,623)                            (6,870)

                                             NET LOSS                  $         (8,135)                  $         (7,623)
                                                                       ====================================================


Net loss per common share (2)                                          $           (.24)                  $           (.23)
                                                                       ====================================================


Weighted average common shares outstanding                                       39,959                             39,916
                                                                       ====================================================


<FN>
See notes to condensed financial statements
</TABLE>




<PAGE> 3

 CONDENSED BALANCE SHEETS (Unaudited) (1)

<TABLE>
<CAPTION>

                                                                   March 1,            November 30,           February 24,
(In thousands)                                                       1997                   1996                  1996
                                                                ---------------------------------------------------------

<S>                                                             <C>                    <C>                   <C>
ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                                $      8,509           $         425         $    23,165
       Merchandise inventories (3)                                   386,812                 399,010             388,584
       Prepaid expenses and other current assets                      18,889                  22,281              19,896
       Income taxes receivable                                        34,464                  15,200                 --
       Deferred income taxes                                          13,104                  13,681              19,083
                                                                ---------------------------------------------------------
                                        TOTAL CURRENT ASSETS         461,778                 450,597             450,728

     OTHER ASSETS
       Real estate held for sale                                      16,639                  18,529               9,224
       Cost in excess of net assets acquired, less
         accumulated amortization of $107,568
         $105,198 and $97,856, respectively                          290,910                 292,946             322,686
       Deferred financing costs                                       12,867                  12,837              11,014
       Other                                                          13,626                  12,917              15,054

     LAND, BUILDINGS AND EQUIPMENT                                   787,318                 782,935             797,795
       Allowance for depreciation and amortization                  (285,808)               (277,643)           (261,665)
                                                                ---------------------------------------------------------
                         TOTAL LAND, BUILDINGS AND EQUIPMENT         501,510                 505,292             536,130
                                                                ---------------------------------------------------------

                                                                $  1,297,330           $   1,293,118         $ 1,344,836
                                                                =========================================================

<FN>

See notes to condensed financial statements
</TABLE>



<PAGE> 4

CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)

<TABLE>
<CAPTION>


                                                                   March 1,            November 30,          February 24,
(In thousands)                                                       1997                  1996                  1996
                                                                ---------------------------------------------------------


<S>                                                             <C>                   <C>                   <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

     CURRENT LIABILITIES
       Current portion of long-term debt                        $     18,765          $     18,340          $     14,798
       Trade accounts payable                                        107,516               121,891               179,622
       Other current liabilities                                     152,659               172,918               147,090
       Income taxes payable                                            6,249                 6,444                 5,304
                                                                ---------------------------------------------------------
                                   TOTAL CURRENT LIABILITIES         285,189               319,593               346,814

     LONG-TERM DEBT, less portion
       classified as current liability (4)                           664,572               618,667               614,222

     NON-CURRENT LIABILITIES
       Deferred income taxes                                          41,729                41,665                59,631
       Other                                                          24,177                23,462                23,507

     SHAREHOLDERS' EQUITY
       Preferred Stock, $1.00 par value, 25,000,000
         shares authorized; issued:
           Cumulative Preferred Stock, 406,000 shares,
             $80,134, $78,563 and $74,032 aggregate
             liquidation preference, respectively                     40,600                40,600                40,600
       Common Stock, $.01 par value:
           Voting, 150,000,000 shares authorized,
             37,711,528, 37,709,028, and 37,668,206
             shares issued, respectively                                 377                   377                   376
           Non-Voting Class A, 5,000,000 shares
             authorized, 2,250,000 shares issued                          23                    23                    23
       Additional paid-in capital                                    487,795               487,728               487,206
       Accumulated deficit                                          (247,132)             (238,997)             (227,543)
                                                                ---------------------------------------------------------
                                  TOTAL SHAREHOLDERS' EQUITY         281,663               289,731               300,662
                                                                ---------------------------------------------------------

                                                                $  1,297,330          $  1,293,118          $  1,344,836
                                                                =========================================================

<FN>

See notes to condensed financial statements
</TABLE>



<PAGE> 5

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>


                                                                                          Thirteen Weeks Ended
                                                                             ----------------------------------------------
                                                                                  March 1,                   February 24,
(In thousands)                                                                      1997                         1996
                                                                             ----------------------------------------------

<S>                                                                          <C>                             <C>
Cash Flows from Operating Activities

     Net loss                                                                $          (8,135)              $      (7,623)
     Adjustments  to  reconcile  net  loss to net  cash
       provided  by  operating activities:
         Depreciation and amortization                                                  12,804                      13,184
         Deferred income taxes                                                             641                         294
         Non-cash interest                                                                 700                         600
         Other                                                                             851                         394
     Changes in assets and liabilities                                                 (38,376)                     20,975
                                                                             ----------------------------------------------

     NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                               (31,515)                     27,824

Cash Flows from Investing Activities

     Additions to land, buildings and equipment                                         (6,875)                     (4,375)
     Proceeds from sale of land, buildings and equipment                                 1,985                      11,893
     Acquisition of business, excluding working capital:
       Land, buildings and equipment                                                       --                         (193)
       Purchase price in excess of net assets acquired                                    (334)                     (1,351)
     Increase in other assets                                                             (708)                       (129)
                                                                             ----------------------------------------------

     NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                (5,932)                      5,845

Cash Flows from Financing Activities

     Retirements of long-term debt                                                      (3,670)                    (20,079)
     Proceeds from long-term debt                                                       50,000                       9,000
     Sale of Common Stock under stock option plan                                          --                           10
     Other                                                                                (799)                       (395)
                                                                             ----------------------------------------------

     NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                45,531                     (11,464)
                                                                             ----------------------------------------------

     Net increase in cash and cash equivalents                                           8,084                      22,205
     Cash and cash equivalents, beginning of period                                        425                         960
                                                                             ----------------------------------------------
     Cash and cash equivalents, end of period                                $           8,509               $      23,165
                                                                             ==============================================

<FN>

See notes to condensed financial statements
</TABLE>



<PAGE> 6

NOTES TO CONDENSED FINANCIAL STATEMENTS

Thirteen weeks ended March 1, 1997, and February 24, 1996.


(1)    The  accompanying  condensed  financial  statements have been prepared in
       accordance  with  the  instructions  to Form  10-Q.  To the  extent  that
       information  and  footnotes  required by  generally  accepted  accounting
       principles  for  complete  financial   statements  are  contained  in  or
       consistent  with  the  audited  financial   statements   incorporated  by
       reference  in the  Company's  Form 10-K for the year ended  November  30,
       1996, such information and footnotes have not been duplicated  herein. In
       the  opinion  of  management,  all  adjustments,   consisting  of  normal
       recurring  accruals,  considered  necessary  for a fair  presentation  of
       financial  statements have been reflected herein.  The November 30, 1996,
       condensed  balance  sheet has been  derived  from the  audited  financial
       statements as of that date.

(2)    Net loss per common share has been computed based on the weighted average
       number of common shares  outstanding  during the period plus common stock
       equivalents,  when  dilutive,  consisting  of certain  stock  options and
       shares  issuable  under the Director  Deferred  Compensation  Plan,  when
       applicable.  For purposes of this computation,  net loss was adjusted for
       dividend requirements on preferred stock.

(3)    Approximately 82% of the Company's  inventories are valued using the LIFO
       (last-in,  first-out) method.  Because inventory  determination under the
       LIFO  method is only  made at the end of each  fiscal  year  based on the
       inventory levels and costs at that time, interim LIFO determinations must
       necessarily  be based on  management's  estimates  of  expected  year-end
       inventory  levels and costs.  Since future  estimates of inventory levels
       and costs are subject to change,  interim  financial  results reflect the
       Company's most recent estimate of the effect of inflation and are subject
       to  final  year-end  LIFO  inventory  amounts.  If  the  FIFO  (first-in,
       first-out)  method of inventory  accounting had been used by the Company,
       inventories  would  have been  $25.5  million,  $24.3  million  and $29.0
       million  higher than  reported at March 1, 1997,  November 30, 1996,  and
       February 24, 1996, respectively.

(4)    Long-term debt consisted of the following:

<TABLE>
<CAPTION>

                                                                   March 1,             November 30,          February 24,
       (In thousands)                                                1997                   1996                  1996
                                                                ----------------------------------------------------------

       <S>                                                      <C>                    <C>                    <C>
       Amended Credit Agreement                                 $    404,000           $    354,000           $   335,000
       Mortgage loan payable to insurance company                    104,358                108,000               118,934
       Senior subordinated notes                                     173,655                173,655               173,655
       Other senior debt                                               1,324                  1,352                 1,431
                                                                ----------------------------------------------------------
                                                                     683,337                637,007               629,020
       Less portion classified as current liability                  (18,765)               (18,340)              (14,798)
                                                                ----------------------------------------------------------
                                                                $    664,572           $    618,667           $   614,222
                                                                ==========================================================
</TABLE>



<PAGE> 7

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

RESULTS OF OPERATIONS
---------------------

INCOME

Net sales for the  quarter  ended  March 1, 1997,  decreased  7.4% from the same
period of 1996 in total and 4.5% on a same-store  sales basis.  (Same stores are
those open one full year.) The sales  decline for the first quarter is primarily
due to the impact of a large  number of  competitive  warehouse  openings in the
Company's  markets during the past year. Sales were also negatively  impacted by
the two  midweek  holidays in December  and winter  weather in certain  markets.
Same-store sales to do-it-yourself customers declined 13.0% and same-store sales
to  professional  customers  increased  6.1%.  Six stores were closed during the
first quarter of 1996 and eight additional  stores were closed during the fourth
quarter of 1996.  Those fourteen stores  accounted for $17.0 million of sales in
the first quarter of 1996.


COSTS AND EXPENSES

Cost of merchandise sold as a percent of sales was 71.4% and 70.8% for the first
quarter of 1997 and 1996,  respectively.  The increase for the first  quarter of
1997 was primarily due to the growth in sales to the professional customer whose
merchandise  purchases  include a higher percentage of commodity goods at margin
rates somewhat lower than the Company's average.

Selling,  general and administrative  expenses were 28.4% and 26.8% of sales for
the first quarter of 1997 and 1996,  respectively.  The increase as a percent of
sales  for the  1997  period  was  due to  lower  sales.  Selling,  general  and
administrative  expenses for the first quarter of 1997  decreased  approximately
$3.0  million  compared  to the same  period of the prior  year.  The  Company's
advertising  costs  increased  approximately  $2.8 million  compared to the same
quarter of 1996,  with the  introduction  of a new television and radio campaign
undertaken in the first quarter of 1997.

The provision for depreciation and amortization decreased from the first quarter
of 1996 due primarily to goodwill  written-off,  assets  written-down and assets
removed from service in connection  with a third  quarter 1996 asset  impairment
charge and the closing of eight underperforming stores during the fourth quarter
of 1996.

Interest  expense for the first quarter of 1997  increased  compared to the same
period of 1996 primarily due to higher borrowing levels in 1997. Higher interest
rates in 1997 also contributed to the increase in interest expense for the first
quarter.

The income tax benefit for the first quarter of 1997 was $18.6 million  compared
to $6.9 million for the first quarter of 1996.  The effective tax rates for both
periods were  different  from the 35% statutory rate primarily due to the effect
of goodwill amortization,  which is non-deductible for income tax purposes. Such
tax benefits reflect management's estimates of the annual effective tax rates at
the end of each quarter.

NET LOSS

Net loss for the quarter ended March 1, 1997, was $8.1 million  compared to $7.6
million for the same period of 1996.  The increase in net loss was primarily the
result of decreased same-store sales.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash used in operating  activities  was $31.5  million for the first  quarter of
1997 compared to cash provided by operating  activities of $27.8 million for the
same  period  of 1996.  The  decrease  in cash  from  operating  activities  was
primarily  caused by a decrease in other current  liabilities and an increase in
income taxes receivable.  Other current  liabilities  decreased primarily due to
the timing of payroll and insurance  payments and a decrease in sales taxes as a
result of decreased  sales.  Income taxes  receivable  increased due to an $18.6
million  income tax  benefit  for the first  quarter  of 1997.  During the first
quarters of 1997 and 1996, the Company used cash of  approximately  $1.8 million
and $3.7 million, respectively, in operating activities related to the execution
of the 1996 and 1995  restructuring  plans. Due to seasonally lower sales in the
winter  months,  cash flow in the first  quarter  represents  a small  amount of
annual operating cash flow.



<PAGE> 8

MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued


Borrowings are available  under the Amended Credit  Agreement to supplement cash
generated by  operations.  At March 1, 1997,  $49.3  million was  available  for
borrowing under the Amended Credit Agreement.  At March 1, 1997, working capital
was $176.6 million compared to $131.0 million and $103.9 million at November 30,
1996 and February 24, 1996,  respectively.  The current ratios at March 1, 1997,
November 30, 1996, and February 24, 1996, were 1.62 to 1, 1.41 to 1, and 1.30 to
1, respectively.

The Company's  primary  investing  activities are capital  expenditures  for the
implementation  of the  Company's  Dual Path  strategy,  renovation  of existing
stores,  and  additional  equipment.  The Amended Credit  Agreement  governs the
amount of  capital  expenditures  which can be made ($72  million  in 1997,  $81
million in 1998,  $100  million in 1999 and $59  million in 2000).  The  Company
spent  approximately  $7.2 million and $5.9 million  during the first quarter of
1997 and 1996,  respectively,  for the implementation of the Company's Dual Path
strategy,  including  the  acquisition  of a door and trim  manufacturer  during
January 1996,  renovation of existing  stores,  and  additional  equipment.  The
Company  intends to finance the remaining  fiscal 1997 capital  expenditures  of
approximately  $65 million,  consisting  primarily of the  implementation of the
Company's  Dual Path  strategy,  renovation  of existing  stores and  additional
equipment, with funds generated from operations and borrowings under the Amended
Credit  Agreement.  During  the  first  quarter  of  1996,  the  Company  sold a
distribution  center in connection with the 1995 restructuring  plan,  providing
approximately $11.9 million of cash proceeds.

The Company's most significant financing activity is and will continue to be the
retirement  of  indebtedness.  In connection  with the sale of the  distribution
center,  discussed  above, and in anticipation of selling real estate related to
certain closed stores, the Company repaid approximately $16.5 million of related
indebtedness   during  the  first  quarter  of  1996.   Although  the  Company's
indebtedness is and will continue to be substantial,  management  believes that,
based upon its  analysis of the  Company's  financial  condition,  the cash flow
generated from operations  during the past 12 months and the expected results of
operations in the future,  cash flow from operations and borrowing  availability
under the Amended Credit Agreement should provide  sufficient  liquidity to meet
all cash requirements for the next 12 months without additional borrowings.  The
Amended Credit Agreement contains a number of financial covenants with which the
Company  must comply.  Several of these  require  that the  Company's  operating
performance  improves over the remaining term of the Amended  Credit  Agreement.
Certain of these  covenants are detailed in Note B to the  Financial  Statements
contained in the Company's Annual Report for fiscal 1996.  Management  currently
expects that it will achieve  compliance with these covenants  throughout fiscal
1997.

Forward-looking  statements  included  in  the  subsection  entitled  "Cost  and
Expenses" and in this  subsection of this Quarterly  Report 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;  competitor
activities;  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 Securities and Exchange Commission filings, including
but not limited to the Form 10-K, copies of which are available from the Company
without charge or on the Company's web site, payless.cashways.com.


<PAGE> 9

REVIEW BY INDEPENDENT AUDITORS

The condensed  consolidated  financial statements of Payless Cashways,  Inc. for
the thirteen week periods  ended March 1, 1997 and February 24, 1996,  have been
reviewed  by KPMG  Peat  Marwick  LLP,  independent  auditors.  Their  report is
included in this filing.


                          PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.

         A group of terminated employees and others have filed a lawsuit against
the Company and other named  defendants in the United States  District Court for
the Southern  District of Iowa. (See the full description of the lawsuit in Item
3-Legal  Proceedings  contained  in the  Company's  Form 10-K for the year ended
November 30,  1996.) The lawsuit was brought in  connection  with a reduction in
force pursuant to a January 1994 restructuring.  The suit has asserted a variety
of  claims  including  federal  and  state  securities  fraud  claims,   alleged
violations of the Racketeer  Influenced  and Corrupt  Organizations  (RICO) Act,
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
Company filed a motion to dismiss the majority of the claims; and Rulings and an
Order have been issued with respect thereto, substantially narrowing plaintiff's
legal  claims  by  dismissing  some  age  discrimination   counts,  all  federal
securities  fraud and RICO  counts  except  one each,  and all state law  counts
related  to an  alleged  partnership.  The  Former  Employee's  motion for class
certification  has been  denied  on all  claims  except  the age  discrimination
claims.  No ruling has been  entered on the Former  Employee's  motion for class
certification of certain age  discrimination  claims.  Each of the  parties  has
conducted 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 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.


Item 6.  Exhibits and Reports on Form 8-K.

         a.     Exhibits.

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

                11.1     Computation of per share loss.

                15.1     Letter re unaudited  financial  information - KPMG Peat
                         Marwick LLP.

                27.1     Financial data schedule.

         b.     Reports on Form 8-K.

                No reports on Form 8-K were filed by Payless  during the quarter
                ended March 1, 1997.



<PAGE> 10

PAYLESS CASHWAYS, INC


                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                      PAYLESS CASHWAYS, INC.
                                      (Registrant)


Date:  April 8, 1997             By:  s/Stephen A. Lightstone
                                      ------------------------------------------

                                      A. Lightstone, Senior Vice President,
                                      Finance and Chief Financial Officer
                                      (Principal Financial Officer and Principal
                                      Accounting Officer)