<PAGE>1

                                      UNITED STATES
                            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 August 28, 1999

                                                        or

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

                  For the transition period from        to

                  Commission file number 0-4437


                                  PAYLESS CASHWAYS, INC.
                 (Exact Name of Registrant as Specified in Its Charter)

       Delaware                                                  42-0945849
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)


       Two Pershing Square
       2300 Main, P.O. Box 419466
       Kansas City, Missouri                                     64141-0466
(Address of Principal Executive Offices)                         (Zip Code)

       (816) 234-6000
(Registrant's Telephone Number, Including Area Code)

       None
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)

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 /  /

                   APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                     PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

                        APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate  the number of shares  outstanding of each of the  issuer's  classes of
common stock, as of the latest practicable date.
There were 19,997,092 shares of Common Stock, $.01 par value,  outstanding as of
September 30, 1999.


<PAGE>2
PAYLESS CASHWAYS, INC.


                       PART I -- FINANCIAL INFORMATION

Item 1.  Financial Statements.

<TABLE>
STATEMENTS OF OPERATIONS (Unaudited) (1)
<CAPTION>



                                                           Thirteen Weeks Ended                Thirty-Nine Weeks Ended
                                                    --------------------------------      --------------------------------
                                                       August 28,        August 29,          August 28,        August 29,
(In thousands, except per share amounts)                  1999              1998                1999              1998
                                                    --------------------------------      --------------------------------
<S>                                                 <C>                <C>                <C>                <C>
Income
     Net sales                                      $    492,160       $    523,508       $   1,376,761      $  1,423,698
     Other income                                            523                908               1,587             2,688
                                                    --------------------------------      --------------------------------
                                                         492,683            524,416           1,378,348         1,426,386

Costs and expenses
     Cost of merchandise sold (3)                        362,217            393,021           1,014,869         1,059,901
     Selling, general and administrative                 109,030            112,382             325,653           336,748
     Special charges (credits), net (2) and (3)               --                837              (5,400)            6,421
     Provision for depreciation and amortization           9,585              7,835              26,321            25,002
     Interest expense                                      8,636              8,994              26,158            29,144
                                                    --------------------------------      --------------------------------
                                                         489,468            523,069           1,387,601         1,457,216
                                                    --------------------------------      --------------------------------

INCOME (LOSS) BEFORE INCOME TAXES                          3,215              1,347              (9,253)          (30,830)

Federal and state income taxes                             1,502                332              (3,821)           (7,615)
                                                    --------------------------------      --------------------------------

                               NET INCOME (LOSS)    $      1,713       $      1,015       $      (5,432)     $    (23,215)
                                                    ================================      ================================



Weighted average common shares outstanding                20,000             20,000              20,000            20,000
                                                    --------------------------------      --------------------------------

Net income (loss) per common share-basic (4)        $       0.09       $       0.05       $       (0.27)     $      (1.16)
                                                    ================================      ================================


Weighted average common and dilutive
     common equivalent shares outstanding                 20,170             20,004              20,000            20,000
                                                    --------------------------------      --------------------------------

Net income (loss) per common share-diluted (4)      $       0.09       $       0.05       $       (0.27)     $      (1.16)
                                                    ================================      ================================

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


<PAGE>3
PAYLESS CASHWAYS, INC.


<TABLE>
CONDENSED BALANCE SHEETS (Unaudited) (1)
<CAPTION>


                                                                  August 28,            November 28,           August 29,
(In thousands)                                                       1999                    1998                 1998
                                                                ---------------------------------------------------------
<S>                                                             <C>                    <C>                   <C>
ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                                $      2,241           $       1,950         $     8,984
       Merchandise inventories (5)                                   361,687                 349,452             376,739
       Prepaid expenses and other current assets                      22,716                  17,506              11,635
       Income taxes receivable                                           773                   1,338               9,649
       Deferred income taxes                                              69                   8,026               3,296
                                                                ---------------------------------------------------------
                                        TOTAL CURRENT ASSETS         387,486                 378,272             410,303

     OTHER ASSETS
       Real estate held for sale                                       4,730                  14,144              18,815
       Deferred financing costs                                        2,202                   3,319               3,570
       Other                                                          14,597                   6,897               8,010

     LAND, BUILDINGS AND EQUIPMENT                                   396,273                 377,868             364,832
       Allowance for depreciation and amortization                   (56,949)                (32,146)            (24,194)
                                                                ---------------------------------------------------------

         TOTAL LAND, BUILDINGS AND EQUIPMENT                         339,324                 345,722             340,638
                                                                ---------------------------------------------------------

                                                                $    748,339          $      748,354         $   781,336
                                                                =========================================================


LIABILITIES AND SHAREHOLDERS' EQUITY

     CURRENT LIABILITIES
       Current portion of long-term debt (6)                    $     10,160          $     11,068           $    10,143
       Trade accounts payable                                         68,000                52,325                44,446
       Other current liabilities                                      96,407               116,345               112,749
       Income taxes payable                                            1,924                 2,350                 7,436
                                                                ---------------------------------------------------------
                                   TOTAL CURRENT LIABILITIES         176,491               182,088               174,774

     LONG-TERM DEBT, less portion
       classified as current liability (6)                           362,185               336,557               381,000

     NON-CURRENT LIABILITIES
       Deferred income taxes                                          35,364                47,142                43,935
       Other                                                          18,298                21,134                21,042

     SHAREHOLDERS' EQUITY
       Common stock, $.01 par value, 50,000,000 shares
         authorized, 20,000,000 shares issued                            200                   200                   200
       Additional paid-in capital                                    183,600               183,600               183,600
       Accumulated deficit                                           (27,799)              (22,367)              (23,215)
                                                                ---------------------------------------------------------

                                  TOTAL SHAREHOLDERS' EQUITY         156,001               161,433               160,585
                                                                ---------------------------------------------------------

                                                                $    748,339          $    748,354           $   781,336
                                                                =========================================================

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


<PAGE>4
PAYLESS CASHWAYS, INC.


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


                                                                                         Thirty-Nine Weeks Ended
                                                                             ----------------------------------------------
                                                                                     August 28,                  August 29,
(In thousands)                                                                          1999                        1998
                                                                             ----------------------------------------------
<S>                                                                          <C>                          <C>
Cash Flows from Operating Activities

     Net loss                                                                $          (5,432)           $        (23,215)
     Adjustments to reconcile net loss to net cash
      (used in) provided by operating activities:
         Non-cash special credits (2)                                                  (10,600)                         --
         Depreciation and amortization                                                  26,321                      25,002
         Deferred income taxes                                                          (3,821)                     (9,484)
         Non-cash interest                                                               1,217                         530
         Other                                                                             481                         385
     Changes in assets and liabilities                                                 (12,046)                     11,524
                                                                             ----------------------------------------------
     NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                (3,880)                      4,742

Cash Flows from Investing Activities

     Additions to land, buildings and equipment                                        (28,669)                     (9,929)
     Proceeds from sale of land, buildings and equipment                                15,920                      39,646
     (Increase) decrease in other assets                                                (7,700)                      6,306
                                                                             ----------------------------------------------

     NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                               (20,449)                     36,023

Cash Flows from Financing Activities

     Principal payments on long-term debt                                              (21,280)                    (64,242)
     Net proceeds from revolving credit facility                                        46,000                      22,000
     Financing fees                                                                       (100)                     (1,500)
                                                                             ----------------------------------------------

     NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                24,620                     (43,742)
                                                                             ----------------------------------------------

     Net increase (decrease) in cash and cash equivalents                                  291                      (2,977)
     Cash and cash equivalents, beginning of period                                      1,950                      11,961
                                                                             ----------------------------------------------
     Cash and cash equivalents, end of period                                $           2,241            $          8,984
                                                                             ==============================================

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


<PAGE>5
PAYLESS CASHWAYS, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

Thirty-nine weeks ended August 28, 1999, and August 29, 1998.

(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  28,
       1998, 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 28, 1998,
       condensed  balance  sheet has been  derived  from the  audited  financial
       statements as of that date.

(2)    In the  second  quarter  of fiscal  1999,  the  Company  recorded a $10.6
       million ($5.6 million after tax) non-cash  curtailment gain in connection
       with its  non-contributory  defined benefit pension plan.  Benefits under
       the pension plan were frozen  effective  June 17, 1999.  The  curtailment
       gain is included in special charges  (credits),  net, in the accompanying
       statements of operations for the thirty-nine weeks ended August 28, 1999.

(3)    A special charge of $5.2 million ($2.8 million after tax) was recorded in
       the second quarter of fiscal 1999 in connection  with the closing of five
       stores. In addition, the Company recorded an inventory write-down of $3.4
       million ($1.8 million after tax),  included in cost of merchandise  sold,
       in connection with the store closings. The 1999 special charge includes:
<TABLE>
<CAPTION>
                                                                          Amount              Amount              Reserve
                                                                          Charged            Utilized               at
       (In millions)                                                       1999           Through 8/28/99         8/28/99
       -------------------------------------------------------------------------------------------------------------------
       <S>                                                             <C>                    <C>            <C>
       Real estate disposal costs                                      $    3.7               $  --          $      3.7
       Other costs                                                          1.5                  --                 1.5
       -------------------------------------------------------------------------------------------------------------------
                                                                       $    5.2               $  --          $      5.2
       ===================================================================================================================
</TABLE>

(4)    Basic  earnings  per  common  share  have  been  computed  based  on  the
       weighted-average  number of common shares  outstanding during the period.
       Dilutive   earnings  per  common   share  are   computed   based  on  the
       weighted-average  number of common  shares plus  potential  common shares
       outstanding during the period, when dilutive, consisting of certain stock
       options.  Given the net loss  reported  for the  thirty-nine  weeks ended
       August 28, 1999,  and August 29,  1998,  the impact of  considering  such
       stock options would be antidilutive.

(5)    Approximately 80% 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 $1.7 million  lower and $1.0 million  higher
       than reported at August 28, 1999, and August 29, 1998, respectively.

 (6) Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                        August 28,         November 28,         August 29,
       (In thousands)                                                      1999                1998                1998
                                                                       ----------------------------------------------------
       <S>                                                             <C>                 <C>                <C>
       1997 Credit Agreement, variable interest rate                   $    286,088        $    251,458       $    294,283
       Mortgage loan, variable interest rate                                 85,279              95,078             95,736
       Other senior debt                                                        978               1,089              1,124
                                                                       ----------------------------------------------------
                                                                            372,345             347,625            391,143
       Less portion classified as current liability                         (10,160)            (11,068)           (10,143)
                                                                       ----------------------------------------------------
                                                                       $    362,185        $    336,557       $    381,000
                                                                       ====================================================
</TABLE>


<PAGE>6
PAYLESS CASHWAYS, INC.


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

RESULTS OF OPERATIONS

Income

Net sales for the third quarter of 1999,  decreased 6.0% from the same period of
1998 in total and 2.5% on a same-store  sales basis.  Same stores are those open
one full year.  Net sales for the first three  quarters of 1999  decreased  3.3%
from the same period of 1998 in total and increased  0.8% on a same-store  sales
basis.  Sales  decreases in total for both periods are a result of closing seven
stores in the first  three  quarters  of 1999 and two stores in the first  three
quarters of 1998 whose sales were $37.7  million and $95.2 million for the first
three quarters of 1999 and 1998, respectively.  Same-store sales to professional
customers  during the third quarter of 1999 increased 4.1% and same-store  sales
to do-it-yourself customers declined 9.4%. To address the decrease in same-store
sales  to  do-it-yourself   customers,   the  Company  intends  to  improve  its
assortments and in-stock position.

Costs and Expenses

Cost of merchandise sold as a percent of sales was 73.6% and 75.1% for the third
quarter of 1999 and 1998, respectively. For the first three quarters of 1999 and
1998,  cost of  merchandise  sold as a percent  of sales  was  73.7% and  74.4%,
respectively.  Inventory  write-downs  of $3.4 million ($1.8 million after tax),
related to the closing of five  stores,  recorded in the second  quarter of 1999
and $1.3  million  ($0.8  million  after  tax),  related to the closing of three
stores,  recorded in the third quarter of 1998,  were 0.2% and 0.1% of sales for
the first three quarters of 1999 and 1998,  respectively.  Excluding the effects
of inventory write-downs,  the decrease of cost of merchandise sold as a percent
of sales for the third quarter of 1999 and the first three  quarters of 1999 was
primarily  due to improved  product  acquisition  costs and reduced  promotional
activities.

Selling,  general and administrative  expenses were 22.2% and 21.5% of sales for
the third quarter of 1999 and 1998,  respectively.  For the first three quarters
of 1999 and 1998,  selling,  general and  administrative  expenses were 23.7% of
sales.  The increase as a percent of sales for the third quarter of 1999 was due
primarily to increased  credit costs.  The Company has entered into an agreement
to replace the current commercial and consumer credit program provider, expected
to go into effect on October 27,  1999,  and  believes  that these costs will be
reduced  significantly  in  the  future.  Selling,  general  and  administrative
expenses  for the third  quarter  and first  three  quarters  of 1999  decreased
approximately $3.4 million and $11.1 million, respectively, compared to the same
periods of the prior year. The reductions in selling, general and administrative
expenses were primarily the result of closed stores.

During the second  quarter of 1999,  the Company  recorded a $10.6 million ($5.6
million after tax)  non-cash  curtailment  gain in connection  with freezing its
non-contributory  defined benefit pension plan. In addition, a special charge of
$5.2  million  ($2.8  million  after tax) was  recorded in  connection  with the
closing of five stores. During the third quarter of 1998, the Company recorded a
special  charge of $0.8 million ($0.5 million after tax) in connection  with the
closing of three stores.  Additionally,  a special  charge of $5.6 million ($4.2
million after tax),  primarily a cash charge,  was recorded in the first quarter
of 1998 to reflect  severance  costs related to the  elimination of staff at the
Company's headquarters and regional administrative centers.

The provision for  depreciation  and amortization was 1.9% and 1.5% of sales for
the third quarter of 1999 and 1998,  respectively.  For the first three quarters
of 1999 and  1998,  the  provision  was 1.9%  and 1.8% of  sales,  respectively.
Excluding  a $1.1  million  ($0.6  million  after tax)  depreciation  charge for
accelerated depreciation on certain leasehold improvements recorded in the third
quarter of 1999,  the provision was 1.7% and 1.8% of sales for the third quarter
of 1999 and the first three quarters of 1999, respectively.

Interest  expense  for the third  quarter  and first  three  quarters  decreased
compared to the same periods of 1998 primarily due to lower borrowing  levels in
1999 and, to some extent, lower interest rates in 1999.

The income tax  benefit for the first  three  quarters of 1999 was $3.8  million
compared to $7.6 million for the first three quarters of 1998. The effective tax
rates for both periods were  different from the 35% statutory rate primarily due
to various expenses that are permanently 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 and are subject to change throughout the year.


<PAGE>7
PAYLESS CASHWAYS, INC.


Net Income (Loss)

Net income for the third  quarter of 1999,  was $1.7  million  compared  to $1.0
million for the same period of 1998.  Excluding the effect of non-routine  items
and restating the 1998  effective tax rate to the actual annual rate, net income
was $2.3 million and $2.2 million for third quarter 1999 and 1998, respectively.
For the first three  quarters  of 1999,  net loss was $5.4  million  compared to
$23.2 million for the same period of 1998.  Excluding the effect of  non-routine
items and restating the 1998  effective tax rate to the actual annual rate,  net
loss for the first three  quarters  of 1999 and 1998 was $6.0  million and $14.5
million, respectively.  Basic and diluted net income per common share were $0.09
and $0.05 for the third quarter of 1999 and 1998, respectively,  while basic and
diluted  net loss per  common  share  were  $0.27 and $1.16 for the first  three
quarters of 1999 and 1998,  respectively.  The  improvement in 1999 earnings per
common  share was  primarily  due to improved  gross margin  management  and the
closing of under-performing stores.


THE YEAR 2000 ISSUE

The Year 2000 issue is the result of computer  programs  being written using two
digits rather than four digits to define the applicable  year. Any programs that
have  time-sensitive  software may  recognize a date using "00" as the year 1900
rather than the year 2000. If not remedied,  this could result in system failure
or miscalculations.

The Company has  completed an  assessment  of the impact of the Year 2000 on its
computer systems, both hardware and software, and has developed a plan to timely
address the Year 2000 issue. Systems that interact with customers and that focus
on the core business  functions of buying,  selling,  and  accounting  have been
given the highest  priority.  Some of the  Company's  current  systems are being
renovated and others are being replaced with Year  2000-compliant  systems.  All
renovation  code and  system  replacements  are  being  unit-tested  as they are
completed.  Code  renovation  was  completed as of March 1, 1999 and  integrated
full-system  testing was completed  during the third  quarter of 1999.  All core
business systems  requiring  replacement are approximately 98% complete and this
activity is expected to continue  through the remainder of 1999. The Company has
spent  approximately  $4.5 million,  to-date,  in the execution of the Year 2000
plan and estimates that expenditures to complete execution of the Year 2000 plan
will range from $0.2  million to $0.3  million.  Most of such  expenditures  are
being  charged to expense as incurred.  The Company  currently  believes that it
will complete all phases of the plan without any material  adverse  consequences
to its business, operations, or financial condition.

All  non-information  technology,  which  contains  or  might  contain  imbedded
software chips that utilize a date  function,  such as  distribution  conveyance
systems,  security systems,  climate controls, and other electronic devices used
in  daily  business  operations,   have  been  inventoried  and  assessed.   All
non-compliant systems are being upgraded and tested as compliant versions become
available. This work is expected to continue throughout 1999.

The Company continues to assess the extent to which the Company is vulnerable to
the failure of significant  suppliers and other third parties to remediate their
own Year 2000 issues.  The Company  expects  testing of interfaces with business
partners and vendors to continue  through 1999.  The Company does not anticipate
the cost of Year 2000  compliance  by  suppliers to be passed on to the Company.
However,  there can be no assurances that failure to address the Year 2000 issue
by a third party on whom the  Company's  systems  rely would not have a material
adverse effect on the Company.

The Company has developed  contingency plans for possible Year 2000 problems and
expects to implement  these plans by the end of the fourth  quarter of 1999. The
costs  of the  Company's  Year  2000  project  and the  date on which it will be
completed are based on  management's  best estimates.  However,  there can be no
assurance that these  estimates will be achieved and actual results could differ
materially from those anticipated.


NEW ACCOUNTING PRONOUNCEMENTS

In June of 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes  accounting and
reporting standards for derivative  instruments and all hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  at their fair  market  values.  Accounting  for changes in the fair
value  of a  derivative  depends  on  its  designation  and  effectiveness.  For
derivatives that qualify as effective hedges, the change in fair value will have
no impact on earnings until the hedged item affects  earnings.  For  derivatives
that are not designated as hedging  instruments,  or for the ineffective portion
of a hedging  instrument,  the change in fair value will affect  current  period
earnings.  The


<PAGE>8
PAYLESS CASHWAYS, INC.


Company will adopt SFAS 133 during the first quarter of fiscal 2001 and does not
presently  believe  that  it  will  have a significant  effect on its  financial
statements.


LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating  activities was $3.9 million for the first three quarters
of 1999  compared to cash  provided by operating  activities of $4.7 million for
the same period of 1998.  The  decrease in cash from  operating  activities  was
primarily  caused by  increased  merchandise  inventories  and  decreased  other
current  liabilities due to store  closings.  During the first three quarters of
1999 and 1998,  the Company  used cash of  approximately  $3.4  million and $2.4
million,  respectively,  in  operating  activities  related to  special  charges
accrued in fiscal  years  1999,  1998,  and 1997 and $10.2  million in the first
three quarters of 1998 for costs related to the Chapter 11 filing.  In addition,
the  Company  used $5.4  million  in the  first  three  quarters  of 1998 to pay
severance   costs  related  to  the   elimination  of  staff  at  the  Company's
headquarters and regional administrative centers.

Borrowings  have been  available  under the 1997 Credit  Agreement to supplement
cash  generated by operations.  At August 28, 1999,  $48.3 million was available
for  borrowing  under the 1997 Credit  Agreement.  At August 28,  1999,  working
capital  was $211.0  million  compared to $196.2  million and $235.5  million at
November 28,  1998,  and August 29, 1998,  respectively.  The current  ratios at
August 28, 1999, November 28, 1998, and August 29, 1998, were 2.20 to 1, 2.08 to
1, and 2.35 to 1, respectively.

The Company's  primary  investing  activities are capital  expenditures  for the
renovation of existing stores,  improved technology,  and additional  equipment.
The 1997 Credit Agreement governs the amount of capital expenditures that can be
made and permitted  levels are as follows:  $52.1 million (plus a  carry-forward
amount  from 1998) in 1999,  $41.2  million in 2000,  $51.3  million in 2001 and
$52.3 million in 2002.  The Company spent  approximately  $28.7 million and $9.9
million  during the first  three  quarters of 1999 and 1998,  respectively,  for
renovation of existing stores and additional  equipment;  1999 expenditures also
include those for improved  technology as well as the second quarter purchase of
ten  previously  leased  stores for  approximately  $14.4  million.  The Company
intends to fund the remaining fiscal 1999 capital  expenditures of approximately
$11 million,  consisting  primarily of improved  technology  and  investments to
improve the Company's  capabilities to service the Pro customer (including store
remodels and new stores), with funds generated from operations, borrowings under
the 1997 Credit  Agreement,  and certain  lease  arrangements.  During the first
three  quarters  of 1999  and  1998,  the  Company  sold  13 and 22 real  estate
properties,  respectively, related to stores previously closed for approximately
$14.4  million  and $37.7  million of cash  proceeds,  respectively,  which were
applied to outstanding debt. Additionally,  in the first three quarters of 1998,
the Company  received $5.8 million from the surrender of certain life  insurance
policies related to a terminated benefit plan.

The Company's most significant financing activity is and will continue to be the
retirement of indebtedness.  The Company's consolidated indebtedness is and will
continue to be  substantial.  Management  believes that cash flow generated from
operations,  borrowings  available  under the 1997 Credit  Agreement,  and other
lease  financing  sources should provide  sufficient  liquidity to meet all cash
requirements for the next 12 months. As a result of the Chapter 11 filing, trade
creditors  significantly  shortened  credit  terms.  The Company  believes  that
progress  with regard to  improving  terms and  reestablishing  trade  credit is
continuing,  but availability of trade credit cannot be assured. The 1997 Credit
Agreement  contains a number of financial  covenants with which the Company must
comply.  Management currently expects that it will achieve compliance with these
covenants throughout fiscal 1999; however,  factors beyond management's control,
including competitive conditions,  economic conditions, supplier support, lumber
prices,  and  weather,  could  cause  noncompliance.  If  compliance  with these
covenants  is not  achieved,  the Company may be  required  to  renegotiate  its
existing covenants with lenders or to refinance borrowings. Success in achieving
any such renegotiations or refinancing, or the specific terms thereof, including
interest rates,  capital  expenditure  limits or borrowing  capacity,  cannot be
assured.  If the Company fails to achieve compliance with these covenants or, in
the absence of such  compliance,  if the Company  fails to amend such  financial
covenants,  the Company may be in default.  If such default  occurred,  it would
permit  acceleration of its debt under the 1997 Credit Agreement which, in turn,
would permit  acceleration of substantially all of the Company's other long-term
debt.

The Company  has been  involved in  discussions  with new, as well as  existing,
lenders  regarding  partial  refinancing  and  restructuring  of its 1997 Credit
Agreement. The new commercial and consumer credit provider agreement,  discussed
below,  positions the Company to complete the refinancing and  restructuring  of
the 1997 Credit Agreement and is expected


<PAGE>9
PAYLESS CASHWAYS, INC.


to occur in the fourth quarter.  This new agreement is expected to improve the
Company's  operating  flexibility  through  elimination of  certain restrictive
covenants.

The Company has entered into an  agreement  with a new  commercial  and consumer
credit provider to service the Company's credit programs. The agreement replaces
a previous  agreement with another provider and is expected to go into effect on
October 27, 1999. The Company expects to process  approximately  $800 million in
annual sales under this agreement and save in excess of $8 million in fees on an
annualized basis. In addition to the traditional commercial program, the Company
will be  offering a business  revolving  charge  account as an  alternative  for
commercial  customers.  Commercial credit is a key component of the services the
Company offers to the  professional  customer and the Company believes that this
transition  creates  an  opportunity  to  enhance  customer  satisfaction  while
reducing costs.


FORWARD-LOOKING STATEMENTS

Statements made above in Item 2, Management Discussion and Analysis of Financial
Condition and Results of Operations,  such as "estimate",  "believe",  "expect",
"anticipate",  "intend" and similar expressions,  which are not historical,  are
forward-looking statements that involve risks and uncertainties. Such statements
include, without limitation, the Company's expectation as to future performance.

Such forward-looking  statements are made pursuant to the safe harbor provisions
of the  Private  Securities  Litigation  Reform Act of 1995.  There are  certain
important  factors  that could  cause  results to differ  materially  from those
anticipated by the  forward-looking  statements made above. These statements are
based on the current  plans and  expectations  of the Company and  investors are
cautioned that all  forward-looking  statements  involve risks and  uncertainty.
Among the factors that could cause actual  results to differ  materially are the
following: competitor activities; stability of customer demand; stability of the
work force; supplier support; consumer spending and debt levels; interest rates;
housing activity; lumber prices; product mix; growth of certain market segments;
weather;  an excess of retail space  devoted to the sale of building  materials;
the success of the  Company's  strategy;  successful  implementation  of the new
credit service agreement;  and the success of the Company's  remediation for the
year 2000 issue.  Additional  information  concerning these 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, www.payless.cashways.com.


REVIEW BY INDEPENDENT AUDITORS

The condensed  consolidated  financial statements of Payless Cashways,  Inc. for
the thirteen week and thirty-nine week periods ended August 28, 1999, and August
29, 1998, have been reviewed by KPMG LLP, independent auditors.  Their report is
included in this filing.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

No  material  changes in the  Company's  exposure to certain  market  risks have
occurred from the discussion  contained in Item 7A, Quantitative and Qualitative
Disclosures  About Market Risk,  filed as part of the Company's Annual Report on
Form 10-K for the fiscal year ended November 28, 1998.


<PAGE>10
PAYLESS CASHWAYS, INC.


                         PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.

A group of terminated  employees and others 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 28,
1998.) Although the Company denies any liability, the Company settled the matter
by issuing  522,716 shares of New Common Stock reserved for such claims pursuant
to the Chapter 11 reorganization along with insurance proceeds.



Item 4.  Submission of Matters to a Vote of  Security Holders.

         None.



Item 5.  Other Information.

         Raymond  P.  Springer  assumed  the  responsibilities  of  Senior  Vice
         President-Finance  and Chief Financial  Officer,  replacing  Richard G.
         Luse who left the Company to pursue other interests.



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

         a.     Exhibits.

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

                 10.1*   Form of  Employment  Agreement  between the Company and
                         certain executive officers.

                 15.1    Letter re unaudited financial information - KPMG LLP.

                 27.1    Financial data schedule.

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

         b.     Reports on Form 8-K.

                No  reports  on Form 8-K were  filed by the  Company  during the
                quarter ended August 28, 1999.


<PAGE>11
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:  October 11, 1999              By:      /s/Raymond P. Springer
                                              ----------------------------------


                                     Raymond P. Springer, Senior Vice President-
                                     Finance and Chief Financial Officer
                                     (Principal Financial Officer and Principal
                                     Accounting Officer)