<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 February 28, 1998

                                       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)

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.

There were 19,992,397 shares of Common Stock, $.01 par value,  outstanding as of
March 30, 1998.



<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>

                                                                          Reorganized            |            Predecessor
                                                                             Company             |              Company
                                                                       -----------------         |        ----------------
                                                                            Thirteen             |             Thirteen
                                                                           Weeks Ended           |            Weeks Ended
                                                                          February 28,           |             March 1,
                                                                              1998               |               1997
                                                                       --------------------------|------------------------
<S>                                                                    <C>                       |        <C>
                                                                                                 |
Income                                                                                           |
     Net sales                                                         $        394,271          |        $        487,550
     Other income                                                                   789          |                   1,205
                                                                       --------------------------|------------------------
                                                                                395,060          |                 488,755
                                                                                                 |
Costs and Expenses                                                                               |
     Cost of merchandise sold                                                   291,909          |                 348,247
     Selling, general and administrative                                        112,170          |                 138,407
     Special charges                                                              5,584          |                      --
     Provision for depreciation and amortization                                  8,312          |                  12,804
     Interest expense                                                            10,235          |                  16,055
                                                                       --------------------------|------------------------
                                                                                428,210          |                 515,513
                                                                       --------------------------|------------------------
                                                                                                 |
                             LOSS BEFORE INCOME TAXES                           (33,150)         |                 (26,758)
                                                                                                 |
Federal and state income taxes                                                   (8,188)         |                 (18,623)
                                                                       --------------------------|------------------------
                                             NET LOSS                  $        (24,962)         |        $         (8,135)
                                                                       ==========================|========================
                                                                                                 |
Net loss per common share-basic (2)                                    $          (1.25)         |
                                                                       ==========================|
                                                                                                 |
Weighted average common shares outstanding (2)                                   20,000          |
                                                                       ==========================|

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



<PAGE>3
PAYLESS CASHWAYS, INC.

CONDENSED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
                                                                               Reorganized               |    Predecessor
                                                                                 Company                 |      Company
                                                                -----------------------------------------|---------------
                                                                 February 28,           November 29,     |      March 1,
(In thousands)                                                       1998                   1997         |        1997
                                                                -----------------------------------------|---------------
<S>                                                             <C>                    <C>               |   <C>
ASSETS                                                                                                   |
                                                                                                         |
     CURRENT ASSETS                                                                                      |
       Cash and cash equivalents                                $      5,604           $      11,961     |   $     8,509
       Merchandise inventories (3)                                   411,358                 414,882     |       386,812
       Prepaid expenses and other current assets                      12,073                  14,705     |        18,889
       Income taxes receivable                                         9,706                  32,232     |        34,464
       Deferred income taxes                                           6,171                   8,665     |        13,104
                                                                -----------------------------------------|--------------
                                        TOTAL CURRENT ASSETS         444,912                 482,445     |       461,778
                                                                                                         |
     OTHER ASSETS                                                                                        |
       Real estate held for sale                                      24,996                  48,562     |        16,639
       Cost in excess of net assets acquired, less                                                       |
         accumulated amortization of $107,568                                                            |
         at March 1, 1997                                                 --                      --     |       290,910
       Deferred financing costs                                        2,398                   2,600     |        12,867
       Other                                                           9,848                  14,316     |        13,626
                                                                                                         |
     LAND, BUILDINGS AND EQUIPMENT                                   367,064                 363,418     |       787,318
       Allowance for depreciation and amortization                    (8,301)                     --     |      (285,808)
                                                                -----------------------------------------|--------------
                          TOTAL LAND, BUILDINGS AND EQUIPMENT        358,763                 363,418     |       501,510
                                                                -----------------------------------------|--------------
                                                                $    840,917           $     911,341     |   $ 1,297,330
                                                                ========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>



<PAGE>4
PAYLESS CASHWAYS, INC.

CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)
<TABLE>
<CAPTION>
                                                                               Reorganized               |    Predecessor
                                                                                 Company                 |      Company
                                                                --------------------------------------   |  -------------
                                                                 February 28,        November 29,        |     March 1,
(In thousands)                                                       1998                1997            |       1997
                                                                -----------------------------------------|---------------
<S>                                                             <C>                   <C>                |  <C>  
                                                                                                         |
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                     |
                                                                                                         |
     CURRENT LIABILITIES                                                                                 |
       Current portion of long-term debt (4)                    $      3,135          $      9,354       |  $     18,765
       Trade accounts payable                                         52,308                75,583       |       107,516
       Other current liabilities                                     113,899               136,741       |       152,659
       Income taxes payable                                            2,990                 2,362       |         6,249
                                                                -----------------------------------------|--------------
                                   TOTAL CURRENT LIABILITIES         172,332               224,040       |       285,189
                                                                                                         |
     LONG-TERM DEBT, less portion                                                                        |
       classified as current liability (4)                           438,513               424,031       |       664,572
                                                                                                         |
     NON-CURRENT LIABILITIES                                                                             |
       Deferred income taxes                                          50,476                58,788       |        41,729
       Other                                                          20,758                20,682       |        24,177
                                                                                                         |
     SHAREHOLDERS' EQUITY (5)                                                                            |
       Common Stock, $.01 par value, 50,000,000 shares                                                   |
         authorized, 20,000,000 shares issued at                                                         |
         February 28, 1998, and November 29, 1997                        200                   200       |            --
       Preferred Stock, $1.00 par value, 25,000,000                                                      |
         shares authorized; issued:                                                                      |
           Cumulative Preferred Stock, 406,000 shares                                                    |
             issued and $80,134 aggregate                                                                |
             liquidation preference at March 1, 1997                      --                    --       |        40,600
       Common Stock, $.01 par value:                                                                     |
           Voting, 150,000,000 shares authorized,                                                        |
             37,711,528 shares issued at March 1, 1997                    --                    --       |           377
           Non-Voting Class A, 5,000,000 shares authorized                                               |
             2,250,000 shares issued at March 1, 1997                     --                    --       |            23
       Additional paid-in capital                                    183,600               183,600       |       487,795
       Accumulated deficit                                           (24,962)                   --       |      (247,132)
                                                                -----------------------------------------|--------------
                                  TOTAL SHAREHOLDERS' EQUITY         158,838               183,800       |       281,663
                                                                -----------------------------------------|--------------
                                                                $    840,917          $    911,341       |  $  1,297,330
                                                                ========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>


<PAGE>5
PAYLESS CASHWAYS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>
                                                                                 Reorganized        |         Predecessor
                                                                                   Company          |           Company
                                                                             ------------------     |     ----------------
                                                                                  Thirteen          |          Thirteen
                                                                                 Weeks Ended        |         Weeks Ended
                                                                                February 28,        |          March 1,
(In thousands)                                                                      1998            |            1997
<S>                                                                          <C>                    |     <C>
                                                                             ------------------     |     -----------------
                                                                                                    |
Cash Flows from Operating Activities                                                                |
                                                                                                    |
     Net loss                                                                $         (24,962)     |     $         (8,135)
     Adjustments to reconcile net loss to net cash                                                  |
       provided by operating activities:                                                            |
         Depreciation and amortization                                                   8,312      |               12,804
         Deferred income taxes                                                          (5,818)     |                  641
         Non-cash interest                                                                 170      |                  700
         Other                                                                              76      |                  851
     Changes in assets and liabilities                                                 (16,807)     |              (38,376)
                                                                             -----------------------|----------------------
     NET CASH USED IN OPERATING ACTIVITIES                                             (39,029)     |              (31,515)
                                                                                                    |
Cash Flows from Investing Activities                                                                |
                                                                                                    |
     Additions to land, buildings and equipment                                         (3,788)     |               (6,875)
     Proceeds from sale of land, buildings and equipment                                23,697      |                1,985
     Acquisition of business, excluding working capital:                                            |
       Purchase price in excess of net assets acquired                                      --      |                 (334)
     Decrease (increase) in other assets                                                 4,468      |                 (708)
                                                                             -----------------------|----------------------
                                                                                                    |
     NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                24,377      |               (5,932)
                                                                                                    |
Cash Flows from Financing Activities                                                                |
                                                                                                    |
     Retirements of long-term debt                                                     (54,737)     |               (3,670)
     Net proceeds from revolving credit facility                                        63,000      |               50,000
     Other                                                                                  32      |                 (799)
                                                                             -----------------------|----------------------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                                           8,295      |               45,531
                                                                             -----------------------|---------------------
                                                                                                    |
     Net (decrease) increase in cash and cash equivalents                               (6,357)     |                8,084
     Cash and cash equivalents, beginning of period                                     11,961      |                  425
                                                                             -----------------------|---------------------
     Cash and cash equivalents, end of period                                $           5,604      |     $          8,509
                                                                             =======================|=====================

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



<PAGE>6
PAYLESS CASHWAYS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Thirteen weeks ended February 28, 1998, and March 1, 1997.


(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  29,
       1997, 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 29, 1997,
       condensed  balance  sheet has been  derived  from the  audited  financial
       statements as of that date.

(2)    Basic  net  loss  per  common  share  has  been  computed  based  on  the
       weighted-average  number of common shares  outstanding during the period.
       Dilutive   net  loss  per  common   share  is   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.  However,  given the net loss  reported in the first  quarter of
       fiscal  1998,  the  impact of  considering  such  stock  option  would be
       antidilutive.  Accordingly,  diluted  loss per common  share has not been
       presented.  Net loss per  common  share  has not been  presented  for the
       Predecessor Company because Old Preferred Stock and Old Common Stock were
       canceled  on  December  2,  1997,  under  the  Plan  of   Reorganization.
       Presentation  of net loss per common share based on  Predecessor  Company
       average shares outstanding would therefore not be meaningful.

(3)    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 $1.0 million and $25.5  million  higher than
       reported at February 28, 1998, and March 1, 1997, respectively.

(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                               Reorganized               |     Predecessor
                                                                                 Company                 |       Company
                                                                --------------------------------------   |  --------------
                                                                 February 28,            November 29,    |      March 1,
       (In thousands)                                                1998                   1997         |        1997
                                                                -----------------------------------------|----------------
<S>                                                             <C>                    <C>               |    <C>       
       Exit Financing Agreement, variable interest rate         $    339,794           $    317,133      |    $        --
       Mortgage loan, variable interest rate                         100,665                102,010      |             --
       Note payable, variable interest rate                               --                 13,000      |             --
       Amended Credit Agreement, variable interest rate                   --                     --      |        404,000
       Mortgage loan, 11.04% to 11.21%                                    --                     --      |        104,358
       Senior subordinated notes, 9-1/8%                                  --                     --      |        173,655
       Other senior debt                                               1,189                  1,242      |          1,324
                                                                -----------------------------------------|----------------
                                                                     441,648                433,385      |        683,337
       Less portion classified as current liability                   (3,135)                (9,354)     |        (18,765)
                                                                -----------------------------------------|----------------
                                                                $    438,513           $    424,031      |    $   664,572
                                                                ==========================================================
</TABLE>

       On February  26, 1998,  the Company  borrowed an  additional  $13 million
       under the variable rate mortgage loan and prepaid the note payable.

(5)    During the first quarter of 1998,  the Company  granted  1,350,000  stock
       options under the Payless Cashways, Inc. 1998 Omnibus Incentive Plan. The
       exercise  price for these  incentive  stock  options  was the fair market
       value of the Common  Stock on the grant date.  The Company has  accounted
       for these stock options according to APB Opinion No. 25,  "Accounting for
       Stock Issued to Employees."


<PAGE>7
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 quarter ended February 28, 1998, decreased 19.1% from the same
period of 1997 in total and 7.5% 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  lingering  impact of the  Company's  July 1997 Chapter 11 filing and
competitive pressure.  Same-store sales to professional  customers declined 4.5%
and same-store  sales to  do-it-yourself  customers  declined 10.3%.  During the
second half of fiscal 1997,  the Company closed 30 stores whose sales were $64.5
million in the first quarter of 1997.

Costs and Expenses

Cost of  merchandise  sold,  as a percent of sales,  was 74.0% and 71.4% for the
first quarter of 1998 and 1997, respectively. The increase for the first quarter
of 1998  was  primarily  due to more  competitive  pricing  designed  to  regain
customer traffic lost during the Chapter 11 period during fiscal 1997.

Selling,  general and  administrative  expenses were 28.4% of sales for both the
first quarter of 1998 and 1997. Selling, general and administrative expenses for
the first quarter of 1998 decreased  approximately $26.2 million compared to the
same period of the prior year primarily because of closed stores.

A special  charge of $5.6 million  ($3.4  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 decreased from the first quarter
of 1997 due  primarily  to  goodwill  written  off and  assets  written  down in
fresh-start  reporting  related to the Company's  emergence from bankruptcy.  In
addition, assets were removed from service in connection with the store closings
mentioned above.

Interest  expense for the first quarter of 1998  decreased  compared to the same
period of 1997 primarily due to lower  borrowing  levels in 1998 somewhat offset
by higher interest rates in 1998. Certain debt was discharged in accordance with
a Plan of Reorganization effective December 2, 1997.

The income tax benefit for the first  quarter of 1998 was $8.2 million  compared
to $18.6 million for the first quarter of 1997. The effective tax rates for 1998
and 1997 were  different  from the 35% statutory  rate  primarily due to various
expenses that are permanently  non-deductible for income tax purposes.  The most
significant of these expenses was goodwill amortization in fiscal 1997. 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.

Net Loss

Net loss for the quarter ended February  28,1998,  was $25.0 million compared to
$8.1 million for the same period of 1997. The increase in net loss was primarily
the result of decreased  same-store sales and increased cost of goods sold. Loss
per common share was $1.25. Excluding the special charge, net loss for the first
quarter of 1998 would have been $20.8  million  and loss per common  share would
have been $1.04.


LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating  activities  was $39.0  million for the first  quarter of
1998 compared to $31.5 million for the same period of 1997. The increase in cash
used in operating  activities was primarily  caused by the increased net loss in
1998. The Company benefited from income tax refunds of $24.6 million received in
the first  quarter of 1998.  During  the first  quarters  of 1998 and 1997,  the
Company used cash of approximately  $.4 million and $1.8 million,  respectively,
in operating  activities  related to the  execution  of the 1997,  1996 and 1995
restructuring  plans and $8.8  million  in the first  quarter  of 1998 for costs
related to the Chapter 11 filing. In addition,  the Company used $4.6 million in
the first quarter of 1998 to


<PAGE>8
PAYLESS CASHWAYS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued


pay  severance  costs  related  to the  elimination  of staff  at the  Company's
headquarters and regional  administrative centers. Due to seasonally lower sales
in the winter months,  cash flow in the first quarter  represents a small amount
of annual operating cash flow.

Borrowings are available  under the Exit Financing  Agreement to supplement cash
generated by operations.  At February 28, 1998,  $33.0 million was available for
borrowing  under the Exit  Financing  Agreement.  At February 28, 1998,  working
capital  was $272.6  million  compared to $258.4  million and $176.6  million at
November  29,  1997 and  March 1,  1997,  respectively.  The  current  ratios at
February 28,1998,  November 29, 1997, and March 1, 1997, were 2.58 to 1, 2.15 to
1, and 1.62 to 1, respectively.

The Company's  primary  investing  activities are capital  expenditures  for the
renovation  of existing  stores and  additional  equipment.  The Exit  Financing
Agreement  governs  the amount of capital  expenditures  that can be made ($59.6
million in 1998,  $52.1 million in 1999, $41.2 million in 2000, $51.3 million in
2001 and $52.3 million in 2002).  The Company spent  approximately  $3.8 million
and $7.2 million  during the first quarter of 1998 and 1997,  respectively,  for
renovation of existing  stores and additional  equipment.  In 1997 the Company's
capital expenditures also included expenditures for strategic  initiatives.  The
Company's  Board of Directors is currently  analyzing the Company's  competitive
positioning  in the  market and the  related  capital  expenditures.  Until such
evaluation is complete,  budgeted capital  expenditures for 1998 will be limited
to normal renovation of existing stores and routine equipment  purchases,  which
will be financed with funds generated from  operations and borrowings  under the
Exit  Financing  Agreement.  During the first quarter of 1998,  the Company sold
twelve  real  estate   properties   related  to  stores  previously  closed  for
approximately $23.6 million of cash proceeds. Additionally, in the first quarter
of 1998,  the Company  received  $5.1 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.  As a result of the Company's  reorganization  under
Chapter 11, the indebtedness of the Company was reduced  significantly in fiscal
1997. Although the Company's  consolidated  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 Exit  Financing
Agreement should provide sufficient  liquidity to meet all cash requirements for
the next 12 months without additional  financing.  As a result of the Chapter 11
filing,  trade creditors have significantly  shortened credit terms. The Company
believes that progress with regard to lengthening terms and reestablishing trade
credit is continuing,  but  availability of trade credit cannot be assured.  The
Exit Financing 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 1998; 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 on terms  favorable to the Company,  the Company
may be in default  under such  covenants.  If such  default  occurred,  it would
permit  acceleration  of its debt under the Exit Financing  Agreement  which, in
turn,  would permit  acceleration  of  substantially  all of the Company's other
long-term debt.

Statements  above in the subsections  entitled "Costs and Expenses," and in this
subsection of this report such as "estimated",  "believe",  "expect" 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.  Investors  are
cautioned that all  forward-looking  statements  involve risks and  uncertainty.
Among the factors that could cause actual  results to differ  materially are the
following: competitor activities; stability of customer demand; stability of the
sales force;  supplier  support;  consumer  spending  and debt levels;  interest
rates;  housing activity;  lumber prices;  product mix; growth of certain market
segments;  an excess of retail space devoted to the sale of building  materials;
and the success of the Company's  strategy.  Additional  information  concerning
these and other 


<PAGE>9
PAYLESS CASHWAYS, INC.

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>10
PAYLESS CASHWAYS, INC.

REVIEW BY INDEPENDENT AUDITORS

The condensed  consolidated  financial statements of Payless Cashways,  Inc. for
the thirteen week periods ended February 28, 1998, and March 1, 1997,  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 29,  1997.) 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  plaintiff's  motion for class  certification  has been denied on all
claims except the age discrimination  claims. The court has recently granted the
plaintiff's motion for class certification of certain age discrimination claims.
As a result of this ruling,  approximately 20 additional  individuals may choose
to participate in the age claims  asserted in this suit. Each of the parties has
conducted discovery pursuant to the court's scheduling order and discovery plan.
The lawsuit was formally  stayed  pursuant to the  automatic  stay issued by the
Bankruptcy  Court following the voluntary  Chapter 11  reorganization  filing on
July 21, 1997.  During the Chapter 11  reorganization,  plaintiffs  timely filed
proofs of claim,  including a  purported  claim on behalf of the  potential  Age
Discrimination  Employment  Act opt-in  class,  for an aggregate of $37 million,
which was reduced by the Bankruptcy Court to a reserve of $22 million.  The case
has been returned to the United States District Court for the Southern  District
of Iowa for  resolution.  Any recovery for the plaintiffs  would be treated as a
general  unsecured  claim  entitling  the  plaintiffs to their pro rata share of
8,269,329 shares of New Common Stock reserved for such claims.

       The  Company  denies  any and all  claimed  liability  and is  vigorously
defending  this  litigation,  but is unable to  estimate  a  potential  range of
monetary  exposure,  if any, to the Company or to predict the likely  outcome of
this matter.


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

         None.


Item 5.  Other.

         Unsecured claims against the Company by vendors and suppliers for goods
         delivered  and  services  rendered  prior to July 21,  1997,  claims in
         respect   of  the  9-1/8%   senior   subordinated   notes,   contingent
         unliquidated claims and claims for damage arising from the rejection by
         the Company pursuant to Section 365 of the Bankruptcy Code of executory
         contracts  and  unexpired  leases  (collectively,   "General  Unsecured
         Claims") will receive  their pro rata share of 8,269,329  shares of New
         Common  Stock  or  approximately   41%  of  the  shares  of  the  newly
         reorganized   Company.   Holders  of  General  Unsecured  Claims  began
         receiving their first  distribution  of shares in partial  satisfaction
         and discharge of their allowed claims on or about December 15, 1997. To
         date  5,866,312  shares of New Common Stock have been issued to holders
         of General  Unsecured  Claims  whose  claims  have been  allowed by the
         Bankruptcy Court. The remaining shares of New Common Stock are held for
         future  distributions to holders of General Unsecured  Claims,  pending
         the final resolution of disputed claims.



<PAGE>11
PAYLESS CASHWAYS, INC.


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.

               10.1  Payless  Cashways,  Inc.   1998   Omnibus   Incentive  Plan
                     effective January 15, 1998.

               10.2  Settlement Agreement, Resignation, and Full General Release
                     dated  January 5, 1998,   by and between  Payless and David
                     Stanley.

               10.3  Settlement Agreement, Resignation, and Full General Release
                     dated January 6, 1998,  by and between Payless and Susan M.
                     Stanton.

               10.4  Settlement Agreement, Resignation, and Full General Release
                     dated January 21, 1998, by and between  Payless and Stephen
                     A. Lightstone.

               10.5  Settlement Agreement, Resignation, and Full General Release
                     dated  January 17, 1998,   by   and between  Payless and G.
                     Michael Buchen.

               10.6  Settlement Agreement, Resignation, and Full General Release
                     dated  January 23, 1998,  by and between  Payless and E. J.
                     Holland, Jr.

               10.7  Form  of  Indemnification  Agreement  between  Payless  and
                     various officers and directors.

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

               27.1  Financial data schedule.

         b. Reports on Form 8-K.

                The  Registrant  has filed one  report  on Form 8-K  during  the
                quarter ended  February 28, 1998.  The report was dated December
                2,  1997,  and  contained  Item 5,  Other  Events,  and  Item 7,
                Financial Statements and Exhibits.  No financial statements were
                filed with this report.



<PAGE>12




                                    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 7, 1998             By:     s/Richard G. Luse
                                         ---------------------------------------
                                         Richard G. Luse, Senior Vice President-
                                         Finance and Chief Financial Officer
                                         (Principal Financial Officer and
                                         Principal Accounting Officer)