<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 27, 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)

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

Indicate  by check mark  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 / /

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

There were 19,995,731 shares of Common Stock, $.01 par value,  outstanding as of
March 30, 1999.


<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                
                                                                       ----------------------------------------------------
                                                                          February 27,                       February 28,
                                                                              1999                               1998      
                                                                       ----------------------------------------------------
<S>                                                                    <C>                                     <C>
Income
     Net sales                                                         $        391,873                        $   394,271
     Other income                                                                   345                                789 
                                                                       ----------------------------------------------------
                                                                                392,218                            395,060

Costs and Expenses
     Cost of merchandise sold                                                   285,939                            291,909
     Selling, general and administrative                                        107,174                            112,170
     Special charges                                                                 --                              5,584
     Provision for depreciation and amortization                                  8,279                              8,312
     Interest expense                                                             8,612                             10,235 
                                                                       ----------------------------------------------------
                                                                                410,004                            428,210 
                                                                       ----------------------------------------------------

                             LOSS BEFORE INCOME TAXES                           (17,786)                           (33,150)

Federal and state income taxes                                                   (7,826)                            (8,188)  
                                                                       ----------------------------------------------------

                                             NET LOSS                  $         (9,960)                       $   (24,962)
                                                                       ====================================================

Net loss per common share-basic and diluted (2)                        $           (.50)                             (1.25)
                                                                       ====================================================

Weighted average common shares outstanding (2)                                   20,000                             20,000 
                                                                       ====================================================

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

<PAGE>3
PAYLESS CASHWAYS, INC.


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

                                                                 February 27,           November 28,          February 28,
(In thousands)                                                       1999                   1998                  1998   
                                                                ---------------------------------------------------------
<S>                                                             <C>                    <C>                   <C>  
ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                                $      3,967           $       1,950         $     5,604
       Merchandise inventories (3)                                   374,908                 349,452             411,358
       Prepaid expenses and other current assets                      20,395                  17,506              12,073
       Income taxes receivable                                         1,164                   1,338               9,706
       Deferred income taxes                                           5,376                   8,026               6,171 
                                                                ---------------------------------------------------------
                                        TOTAL CURRENT ASSETS         405,810                 378,272             444,912

     OTHER ASSETS
       Real estate held for sale                                      11,286                  14,144              24,996
       Deferred financing costs                                        2,992                   3,319               2,398
       Other                                                          10,536                   6,897               9,848

     LAND, BUILDINGS AND EQUIPMENT                                   379,341                 377,868             367,064
       Allowance for depreciation and amortization                   (39,591)                (32,146)             (8,301) 
                                                                ---------------------------------------------------------
         TOTAL LAND, BUILDINGS AND EQUIPMENT                         339,750                 345,722             358,763 
                                                                ---------------------------------------------------------

                                                                $    770,374           $     748,354         $   840,917 
                                                                =========================================================


LIABILITIES AND STOCKHOLDERS' EQUITY

     CURRENT LIABILITIES
       Current portion of long-term debt (4)                    $     10,150           $    11,068           $     3,135
       Trade accounts payable                                         55,323                52,325                52,308
       Other current liabilities                                     105,876               116,345               113,899
       Income taxes payable                                            2,171                 2,350                 2,990 
                                                                ---------------------------------------------------------
                                   TOTAL CURRENT LIABILITIES         173,520               182,088               172,332

     LONG-TERM DEBT, less portion
       classified as current liability (4)                           390,707               336,557               438,513

     NON-CURRENT LIABILITIES
       Deferred income taxes                                          36,666                47,142                50,476
       Other                                                          18,008                21,134                20,758

     STOCKHOLDERS' 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                                           (32,327)              (22,367)              (24,962)
                                                                ---------------------------------------------------------
                                  TOTAL STOCKHOLDERS' EQUITY         151,473               161,433               158,838 
                                                                ---------------------------------------------------------

                                                                $    770,374           $   748,354           $   840,917 
                                                                =========================================================

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

<PAGE>4
PAYLESS CASHWAYS, INC.


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


                                                                                         Thirteen Weeks Ended              
                                                                             ----------------------------------------------
                                                                                February 27,                 February 28,
(In thousands)                                                                      1999                         1998      
                                                                             ----------------------------------------------
<S>                                                                          <C>                                 <C>  
Cash Flows from Operating Activities

     Net loss                                                                $          (9,960)                  $ (24,962)
     Adjustments to reconcile net loss to net cash
       provided by operating activities:
         Depreciation and amortization                                                   8,279                       8,312
         Deferred income taxes                                                          (7,826)                     (5,818)
Non-cash interest                                                                          377                         170
         Other                                                                             191                          76
     Changes in assets and liabilities                                                 (39,138)                    (16,807)
                                                                             ----------------------------------------------

     NET CASH USED IN OPERATING ACTIVITIES                                             (48,077)                    (39,029)

Cash Flows from Investing Activities

     Additions to land, buildings and equipment                                         (4,550)                     (3,788)
     Proceeds from sale of land, buildings and equipment                                 5,101                      23,697
     (Increase) decrease  in other assets                                               (3,639)                      4,468
                                                                             ----------------------------------------------

     NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                (3,088)                     24,377

Cash Flows from Financing Activities

     Principal payments on long-term debt                                               (4,768)                    (54,737)
     Net proceeds from revolving credit facility                                        58,000                      63,000
     Other                                                                                 (50)                         32
                                                                             ----------------------------------------------

     NET CASH PROVIDED BY FINANCING ACTIVITIES                                          53,182                       8,295
                                                                             ----------------------------------------------

     Net  increase (decrease) in cash and cash equivalents                               2,017                      (6,357)
     Cash and cash equivalents, beginning of period                                      1,950                      11,961 
                                                                             ----------------------------------------------
     Cash and cash equivalents, end of period                                $           3,967                   $   5,604 
                                                                             ==============================================

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

<PAGE>5
PAYLESS CASHWAYS, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS

Thirteen weeks ended February 27, 1999, and February 28, 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)    Basic   earnings  per  common  share  has  been  computed  based  on  the
       weighted-average  number of common shares  outstanding during the period.
       Dilutive   earnings   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. Given the net loss reported in the first quarters of fiscal 1999
       and  1998,  the  impact  of  considering  such  stock  options  would  be
       antidilutive.

(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 $1.9  million  and $2.4  million  lower than
       reported at February 27, 1999, and November 28, 1998,  respectively,  and
       $1.0 million higher than reported at February 28, 1998.

(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>


                                                                 February 27,           November 28,         February 28,
       (In thousands)                                                1999                   1998                  1998   
                                                                ---------------------------------------------------------
       <S>                                                      <C>                    <C>                    <C>   
       1997 Credit Agreement, variable interest rate            $    308,138           $    251,458           $   339,794
       Mortgage loan, variable interest rate                          91,653                 95,078               100,665
       Other senior debt                                               1,066                  1,089                 1,189 
                                                                ---------------------------------------------------------
                                                                     400,857                347,625               441,648
       Less portion classified as current liability                  (10,150)               (11,068)               (3,135)  
                                                                ----------------------------------------------------------
                                                                $    390,707           $    336,557           $   438,513 
                                                                ==========================================================
</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  quarter  ended  February  27,  1999,  increased  2.4% on a
same-store sales basis and decreased 0.6% from the same period of 1998 in total.
(Same stores are those open one full year.) The  same-store  sales  increase for
the first quarter is primarily due to the continued  improving sales trend begun
in 1998,  as the  Company  continues  to recover  from its July 1997  Chapter 11
filing.  Same-store  sales  to  professional  customers  increased  13.1%  while
same-store sales to  do-it-yourself  customers  declined 7.9%.  During 1998, the
Company  closed six  stores  and is  currently  in the  process of closing  five
additional  stores.  Sales from these eleven  stores were $7.7 million and $19.1
million in the first quarter of 1999 and 1998, respectively.

Costs and Expenses

Cost of  merchandise  sold,  as a percent of sales,  was 73.0% and 74.0% for the
first  quarter of 1999 and 1998,  respectively.  The  improvement  for the first
quarter  of 1999 was due to  increased  supplier  support as the  Company  moves
farther from the Chapter 11 filing.  In addition,  the first  quarter 1998 gross
margin reflects  promotional pricing in that quarter designed to regain customer
traffic after emergence from court protection.

Selling,  general and administrative  expenses were 27.3% and 28.4% of sales for
the  first  quarter  of  1999  and  1998,  respectively.  Selling,  general  and
administrative  expenses for the first quarter of 1999  decreased  approximately
$5.0  million  compared  to the same  period of the prior  year.  This  decrease
reflects the corporate expense reductions  implemented late in the first quarter
of 1998 and the impact of closed stores.

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 2.1% of sales for the first
quarter of 1999 and 1998.

Interest  expense for the first quarter of 1999  decreased  compared to the same
period of 1998 primarily due to lower borrowing  levels and, to a lesser extent,
lower interest rates in 1999.

The income tax benefit for the first  quarter of 1999 was $7.8 million  compared
to $8.2 million for the first quarter of 1998.  The effective tax rates for 1999
and 1998 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.

Net Loss

Net loss for the quarter ended February 27, 1999, was $10.0 million  compared to
$25.0  million for the same period of 1998 which  includes an after-tax  special
charge of $4.2  million.  The decrease in net loss was  primarily  the result of
improved gross margin  management and continued  expense control.  Excluding the
special charge for severance costs, net loss for the first quarter of 1998 would
have been $20.8  million and loss per common  share would have been $1.04.  Loss
per common share was $0.50 for the first quarter of fiscal 1999, a decrease from
a loss of $1.25 per common share for the same period of fiscal 1998.

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.

<PAGE>7
PAYLESS CASHWAYS, INC.


MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued


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.
Integrated full-system testing has begun and is expected to continue through the
third quarter of 1999. Code renovation is 100% complete as of March 1, 1999. All
core business systems  requiring  replacement will be complete by mid-1999.  The
Company has spent  approximately $3.5 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  $1.5  million  to  $2.5  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 is in the process of  assessing  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 that this assessment
will be completed by May 1999 and believes  testing of interfaces  with business
partners and vendors will 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.

As testing and assessment of third parties is completed,  the Company intends to
develop  contingency  plans for possible  Year 2000  problems.  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  Company  will adopt SFAS 133 during the first  quarter of fiscal
2000 and does not presently  believe that it will have a  significant  effect on
the results of its operations or cash flows.


LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating  activities  was $48.0  million for the first  quarter of
1999 compared to $39.0 million for the same period of 1998. The increase in cash
used in operating  activities  was primarily  due to an increase in  merchandise
inventories.  During the first  quarters of 1999 and 1998, the Company used cash
of  approximately  $3.8  million and $5.0  million,  respectively,  in operating
activities  related to the execution of the 1998,  1997, and 1996  restructuring
plans. In the first quarter of 1998 the Company  utilized $8.8 million for costs
related to the Chapter 11 filing.  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
PAYLESS CASHWAYS, INC.


MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued


Borrowings  are available  under the 1997 Credit  Agreement to  supplement  cash
generated by operations.  At February 27, 1999,  $34.4 million was available for
borrowing under the 1997 Credit Agreement. At February 27, 1999, working capital
was $232.3 million compared to $196.2 million and $272.6 million at November 28,
1998,  and February 28, 1998,  respectively.  The current ratios at February 27,
1999,  November 28, 1998, and February 28, 1998,  were 2.34 to 1, 2.08 to 1, and
2.58 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  $4.5 million and $3.8
million during the first quarter of 1999 and 1998, respectively,  for renovation
of existing stores, and additional equipment;  expenditures in 1999 also include
those for  improved  technology.  The Company  intends to finance the  remaining
fiscal 1999  capital  expenditures  of  approximately  $55  million,  consisting
primarily of the purchase of ten previously leased stores,  improved technology,
and  investments  to improve  the  Company's  capabilities  to  service  the Pro
customer   (including   acquisitions  of  retail  operations  and  manufacturing
facilities,  store  remodels  and  expansions,  and/or  new  stores)  with funds
generated from operations,  sales of real estate,  and borrowings under the 1997
Credit  Agreement.  During the first quarter of 1999, the Company sold four real
estate properties  related to stores  previously  closed for approximately  $4.3
million of cash proceeds.

The Company's most significant financing activity is and will continue to be the
retirement of indebtedness.  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 1997
Credit  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 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  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 1997
Credit Agreement which, in turn, would permit  acceleration of substantially all
of the Company's other long-term debt.

In the first  quarter of fiscal  1999,  the  Company  entered  into  preliminary
discussions  with new, as well as existing,  lenders  regarding  restructuring a
major portion of its 1997 Credit  Agreement.  This action is intended to improve
the  Company's  operating  flexibility  through  elimination  of  certain of its
current restrictive covenants.  In addition, the current commercial and consumer
credit provider contracts will not be renewed after November 1999. Approximately
40% of the Company's fiscal 1998 sales were made pursuant to these programs. The
Company is negotiating with a replacement  provider of commercial and consumer  
credit, although the Company's ability to complete such an agreement and the    
terms thereof cannot be assured. If the Company were unable to complete this    
agreement or to secure a replacement  provider for these services by  November  
1999, it would be in default of the 1997 Credit Agreement.  The Company believes
that it will obtain satisfactory terms and complete  the conversion  in a timely
manner.  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.
<PAGE>9
PAYLESS CASHWAYS, INC.


FORWARD-LOOKING STATEMENTS

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. These statements are
based on the  current  plans and  expectations  of Payless  Cashways,  Inc.  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;  and
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, payless.cashways.com.


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 to
Stockholders on Form 10-K for the fiscal year ended November 28, 1998.


REVIEW BY INDEPENDENT AUDITORS

The condensed  consolidated  financial statements of Payless Cashways,  Inc. for
the thirteen week periods ended February 27, 1999,  and February 28, 1998,  have
been  reviewed by KPMG 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 28,  1998.) 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  plaintiffs'  motion for class  certification  has been denied on all claims
except the age  discrimination  claims. The court granted the plaintiffs' motion
for class  certification of certain age  discrimination  claims.  As a result of
this ruling, eight additional individuals chose 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 in Employment Act
opt-in  class,  for an  aggregate  of $37  million,  which  was  limited  by the
Bankruptcy Court to a maximum of $22 million.  The case has been returned to the
United States  District  Court for the
<PAGE>10
PAYLESS CASHWAYS, INC.


Southern District of Iowa for resolution with mediation scheduled for April 1999
and a trial date currently scheduled for July 1999. Any recovery for the 
plaintiffs  against the Company 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 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.


               15.1 Letter re unaudited financial information - KPMG LLP.

               27.1  Financial data schedule.

         b. Reports on Form 8-K.

                None



<PAGE>11




                                    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, 1999        By:   /s/Richard G. Luse
                                  -------------------------------------
                                  Richard G. Luse, Senior Vice President-
                                  Finance and Chief Financial Officer
                                  (Principal Financial Officer and Principal
                                  Accounting Officer)