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 May 30, 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 1-8210
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 19,993,245 shares of Common Stock, $.01 par value, outstanding as of
July 2, 1998
<PAGE>2
PAYLESS CASHWAYS, INC.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
STATEMENTS OF OPERATIONS (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
---------------------------------------------------------------------
Thirteen | Thirteen Twenty-Six | Twenty-Six
Weeks Ended | Weeks Ended Weeks Ended | Weeks Ended
May 30, | May 31, May 30, | May 31,
(In thousands, except per share amounts) 1998 | 1997 1998 | 1997
-------------------------------- -------------------------------
<S> <C> | <C> <C> | <C>
Income | |
Net sales $ 505,919 | $ 661,191 $ 900,190 | $ 1,148,741
Other income 991 | 1,264 1,780 | 2,469
-------------------------------- --------------------------------
506,910 | 662,455 901,970 | 1,151,210
| |
Costs and expenses | |
Cost of merchandise sold 374,971 | 483,093 666,880 | 831,340
Selling, general and administrative 112,196 | 151,147 224,366 | 289,554
Special charges -- | -- 5,584 | --
Provision for depreciation and amortization 8,855 | 13,037 17,167 | 25,841
Interest expense 9,915 | 16,274 20,150 | 32,329
-------------------------------- --------------------------------
505,937 | 663,551 934,147 | 1,179,064
-------------------------------- --------------------------------
| |
INCOME (LOSS) BEFORE INCOME TAXES 973 | (1,096) (32,177) | (27,854)
| |
Federal and state income taxes 241 | 12,133 (7,947) | $ (21,364)
-------------------------------- --------------------------------
| |
NET INCOME (LOSS) $ 732 | $ (13,229) $ (24,230) | $ (21,364)
================================ ================================
| |
Weighted average common shares outstanding 20,000 | 20,000 |
----------------- ----------------
| |
Net income (loss) per common share-basic (2) $ .04 | $ (1.21) |
================= ================
| |
Weighted average common and dilutive | |
common equivalent shares outstanding 20,111 | 20,000 |
----------------- ----------------
| |
Net income (loss) per common share-diluted (2) $ .04 | $ (1.21) |
================= ================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>3
CONDENSED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
--------------------------------------------
May 30, November 29, | May 31,
(In thousands) 1998 1997 | 1997
--------------------------------------------
<S> <C> <C> | <C>
ASSETS |
|
CURRENT ASSETS |
Cash and cash equivalents $ 7,610 $ 11,961 | $ 7,847
Merchandise inventories (3) 371,943 414,882 | 419,275
Prepaid expenses and other current assets 16,379 14,705 | 22,987
Income taxes receivable 9,706 32,232 | 23,861
Deferred income taxes 5,930 8,665 | 12,527
--------------------------------------------
TOTAL CURRENT ASSETS 411,568 482,445 | 486,497
|
OTHER ASSETS |
Real estate held for sale 20,974 48,562 | 13,374
Cost in excess of net assets acquired, less |
accumulated amortization of $109,950 |
at May 31, 1997 -- -- | 289,210
Deferred financing costs 2,217 2,600 | 12,026
Other 8,757 14,316 | 14,254
|
LAND, BUILDINGS AND EQUIPMENT 368,107 363,418 | 794,450
Allowance for depreciation and amortization (16,482) -- | (292,336)
--------------------------------------------
|
TOTAL LAND, BUILDINGS AND EQUIPMENT 351,625 363,418 | 502,114
--------------------------------------------
|
$ 795,141 $ 911,341 | $ 1,317,475
============================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>4
CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------------------------------
May 30, November 29, | May 31,
(In thousands) 1998 1997 | 1997
---------------------------------------------
|
<S> <C> <C> | <C>
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
CURRENT LIABILITIES |
Current portion of long-term debt $ 3,139 $ 9,354 | $ 19,208
Trade accounts payable 51,687 75,583 | 150,357
Other current liabilities 114,249 136,741 | 159,306
Income taxes payable 2,960 2,362 | 5,632
--------------------------------------------
TOTAL CURRENT LIABILITIES 172,035 224,040 | 334,503
|
LONG-TERM DEBT, less portion |
classified as current liability (4) 392,160 424,031 | 647,187
|
NON-CURRENT LIABILITIES |
Deferred income taxes 50,476 58,788 | 42,682
Other 20,900 20,682 | 24,626
|
SHAREHOLDERS' EQUITY (5) |
Common Stock, $.01 par value, 50,000,000 shares |
authorized, 20,000,000 shares issued at |
May 30, 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 $81,737 aggregate |
liquidation preference at May 31, 1997 -- -- | 40,600
Common Stock, $.01 par value: |
Voting, 150,000,000 shares authorized, |
39,520,241shares issued at May 31, 1997 -- -- | 395
Non-Voting Class A, 5,000,000 shares authorized, |
450,000 shares issued at May 31, 1997 -- -- | 5
Additional paid-in capital 183,600 183,600 | 487,838
Accumulated deficit (24,230) -- | (260,361)
--------------------------------------------
|
TOTAL SHAREHOLDERS' EQUITY 159,570 183,800 | 268,477
--------------------------------------------
|
$ 795,141 $ 911,341 | $ 1,317,475
============================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>5
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
----------------------------------
Twenty-Six | Twenty-Six
Weeks Ended | Weeks Ended
May 30, | May 31,
(In thousands) 1998 | 1997
----------------------------------
<S> <C> | <C>
Cash Flows from Operating Activities |
|
Net loss $ (24,230) | $ (21,364)
Adjustments to reconcile net loss to net cash |
provided by operating activities: |
Depreciation and amortization 17,167 | 25,841
Deferred income taxes (5,577) | 2,171
Non-cash interest 350 | 1,600
Other 218 | 2,046
Changes in assets and liabilities 17,501 | (15,224)
---------------------------------
|
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 5,429 | (4,930)
|
Cash Flows from Investing Activities |
|
Additions to land, buildings and equipment (6,186) | (19,895)
Proceeds from sale of land, buildings and equipment 28,900 | 6,772
Acquisition of business, excluding working capital: |
Purchase price in excess of net assets acquired -- | (1,015)
Decrease (increase) in other assets 5,559 | (1,337)
---------------------------------
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 28,273 | (15,475)
|
Cash Flows from Financing Activities |
|
Retirements of long-term debt (59,086) | (7,450)
Proceeds from long-term debt 21,000 | 36,838
Other 33 | (1,561)
---------------------------------
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (38,053) | 27,827
---------------------------------
Net increase in cash and cash equivalents (4,351) | 7,422
Cash and cash equivalents, beginning of period 11,961 | 425
---------------------------------
Cash and cash equivalents, end of period $ 7,610 | $ 7,847
=================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>6
NOTES TO CONDENSED FINANCIAL STATEMENTS
Twenty-six weeks ended May 30, 1998, and May 31, 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 income (loss) per common share has been computed based on the
weighted-average number of common shares outstanding during the period.
Dilutive net income (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 for the twenty-six weeks
ended May 30, 1998, the impact of considering such stock options would be
antidilutive. Accordingly, diluted loss per common share for that period
has been computed without considering such stock options. 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 $30.2 million higher than
reported at May 30, 1998, and May 31, 1997, respectively.
(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
May 30, November 29, May 31,
(In thousands) 1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
Exit Financing Agreement, variable interest rate $ 295,158 $ 317,133 $ --
Mortgage loan, variable interest rate 98,984 102,010 --
Note payable, variable interest rate -- 13,000 --
Amended Credit Agreement -- -- 390,837
Mortgage loan payable to insurance company -- -- 100,608
Senior subordinated notes -- -- 173,655
Other senior debt 1,157 1,242 1,295
--------- -------- --------
395,299 433,385 666,395
Less portion classified as current liability (3,139) (9,354) (19,208)
-------- -------- --------
$ 392,160 $ 424,031 $ 647,187
========= ======== ========
</TABLE>
(5) During the first half of 1998, the Company granted 1,410,000 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
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended May 30, 1998, decreased 23.5% from the same
period of 1997 in total and 13.2% on a same-store sales basis. (Same stores are
those open one full year.) Net sales for the first half of 1998 decreased 22.0%
from the same period of 1997 in total and 10.9% on a same-store sales basis.
Management believes continuing competitive pressure and the lingering effects of
the Chapter 11 filing have contributed to sales declines throughout 1998. In
addition, management believes that the weather-delayed spring selling season and
deflation in commodity wood product prices had a negative impact on sales during
the second quarter. Same-store sales to professional customers during the first
half of 1998 declined 6.1% and same-store sales to do-it-yourself customers
declined 13.7%. During the second half of fiscal 1997, the Company closed 30
stores whose sales were $82.4 million and $146.8 million in the second quarter
and first half of 1997, respectively. The Company also closed 3 stores at the
end of the 1998 second quarter.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 74.1% and 73.1% for the
second quarter of 1998 and 1997, respectively. For the first half of 1998 and
1997, cost of merchandise sold as a percent of sales was 74.1% and 72.4%,
respectively. The increase for the second quarter and first half 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 22.2% and 22.9% of sales for
the second quarter of 1998 and 1997, respectively. For the first half of 1998
and 1997, selling, general and administrative expenses were 24.9% and 25.2% of
sales, respectively. The decrease as a percent of sales for the 1998 periods was
due to successful efforts to lower expenses. Selling, general and administrative
expenses for the second quarter and first half of 1998 decreased approximately
$39.0 million and $65.2 million, respectively, compared to the same periods 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 second
quarter and first half 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 second quarter and first half of 1998 decreased
compared to the same periods 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 the Plan of Reorganization effective December 2,
1997.
The income tax benefit for the first half of 1998 was $7.9 million compared to
$6.5 million for the first half of 1997. 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. 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. The 1997
second quarter income tax provision reduced the first quarter income tax benefit
by $12.9 million as a result of adjusting the estimated annual effective income
tax rate for the fiscal year.
Net Income (Loss)
Net income for the quarter ended May 30, 1998, was $0.7 million compared to net
loss of $13.2 million for the same period of 1997. Excluding the effect of the
second quarter 1997 tax provision adjustment, net earnings for the second
quarter improved in 1998 due to lower selling, general and administrative
expenses as well as a lower depreciation and amortization provision and lower
interest expense. For the first half of 1998, net loss was $24.2 million
compared to $21.4 million for the same period of 1997. Net loss for the first
halves of 1998 and 1997 were primarily the result of decreased same-store sales.
Basic and diluted income per
<PAGE>8
common share were $0.04 for the second quarter of 1998, while basic and diluted
loss per common share were $1.21 for the first half of 1998. Excluding the first
quarter of 1998 special charge, net loss for the first half of 1998 would have
been $20.0 million and basic and diluted loss per common share would have been
$1.00.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $5.4 million for the first half of
1998 compared to cash used in operating activities of $4.9 million for the same
period of 1997. The increase in cash from operating activities was primarily
caused by decreased merchandise inventories. During the first half of 1998 and
1997, the Company used cash of approximately $0.7 million and $3.3 million,
respectively, in operating activities related to the execution of the 1997, 1996
and 1995 restructuring plans and $9.6 million in the first half of 1998 for
costs related to the Chapter 11 filing. In addition, the Company used $5.3
million in the first half 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 Exit Financing Agreement to supplement
cash generated by operations. At May 30, 1998, $78.4 million was available for
borrowing under the Exit Financing Agreement. At May 30, 1998, working capital
was $239.5 million compared to $258.4 million and $152.0 million at November 29,
1997 and May 31, 1997, respectively. The current ratios at May 30, 1998,
November 29, 1997, and May 31, 1997, were 2.39 to 1, 2.15 to 1, and 1.45 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 $6.2 million
and $19.9 million during the first half 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.
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 half of 1998, the Company sold 17 real estate
properties related to stores previously closed for approximately $28.9 million
of cash proceeds which were applied to outstanding debt. Additionally, in the
first half 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. 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, subject to the possible adverse
impact of loan covenants described below. As a result of the 1997 Chapter 11
filing, trade creditors have significantly shortened credit terms and the
availability of trade credit cannot be assured. The Exit Financing Agreement
contains a number of financial covenants with which the Company must comply.
Management is unable to predict if it will achieve compliance with these
covenants at the end of fiscal 1998 as a result of various factors, including
certain factors which are beyond management's control, including competitive
conditions, economic conditions, supplier support, lumber prices, and weather,
which could cause noncompliance. In order to achieve compliance with these
covenants, current negative sales trends would need to improve. Management is
currently in discussions with its bank lenders for the purpose of revising the
terms of the credit agreement, including the financial covenants. The Company
believes it will be able to negotiate operating flexibility with its lenders,
although 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.
<PAGE>9
FORWARD-LOOKING STATEMENTS
Statements above in the subsections of this report entitled "Costs and
Expenses," and "Liquidity and Capital Resources," 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 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.
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements of Payless Cashways, Inc. for
the thirteen week and twenty-six week periods ended May 30, 1998 and May 31,
1997, have been reviewed by KPMG Peat Marwick LLP, independent auditors. Their
report is included in this filing.
<PAGE>10
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 11 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 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 with a trial date anticipated in early 1999. 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.
The Annual Meeting of Shareholders was held April 15, 1998. Shareholders
voted in favor of the nominee for director: H. D. Cleberg (17,688,325 for,
118,307 withheld). Directors who were previously elected and whose term of
office as a director continued after the meeting were Peter G. Danis, Donald E.
Roller, David M. Chamberlain, Max D. Hopper, Peter M. Wood, and David G.
Gundling.
Item 5. Other Information.
Subsequent to the Annual Meeting of Shareholders, Millard E. Barron has
been appointed President and Chief Executive Officer and elected to the Board of
Directors as a Class I member whose term expires in 2001.
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
damages 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
second distribution of shares in partial satisfaction and discharge of their
allowed claims on or about June 30, 1998. The Company expects to have
distributed over 91% of the 8,269,329 shares upon completion of this second,
partial distribution. When a sufficient number of additional Class 3A Claims of
general, unsecured creditors have been allowed, a subsequent distribution is
expected to be made, although it is unlikely that creditors with allowed claims
who received shares in the first or second distribution will become entitled to
receive shares in such a subsequent distribution. The date for such a subsequent
distribution is not currently known. Fractional shares from each partial
distribution will be combined at the time of the final distribution with whole
shares distributed at that time. No cash for remaining fractional interests,
including claims of former stockholdlers owning less than 100 shares, will be
paid.
<PAGE>11
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.
15.1 Letter re unaudited financial information - KPMG Peat
Marwick LLP.
27.1 Financial data schedule.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by Payless during the quarter
ended May 30, 1998.
<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: July 13, 1998 By: s/Richard G. Luse
-------------------------------------
Richard G. Luse, Senior Vice President,
Finance and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE> 1
[Letterhead of KPMG Peat Marwick LLP]
EXHIBIT 15.1
Independent Auditors' Report
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed balance sheets of Payless Cashways,
Inc. as of May 30, 1998 and May 31, 1997 and the related condensed
statements of operations and cash flows for the thirteen and twenty-six week
periods then ended. These condensed financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Payless Cashways, Inc. as of November 29, 1997
and the related statements of operations, shareholders' equity and cash flows
for the fiscal year then ended (not presented herein); and in our report dated
January 19, 1998, we expressed an unqualified opinion on those financial
statements. As discussed in note A to the financial statements, the November 29,
1997 balance sheet reflects the application of fresh-start reporting as of
that date and, therefore, is not comparable in all respects to the balance
sheets of the Company prior to November 29, 1997. In our opinion, the
information set forth in the accompanying condensed balance sheet as of
November 29, 1997 is fairly presented, in all material respects, in relation
to the balance sheet from which it has been derived.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
June 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the May 30,
1998, financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> MAY-30-1998
<CASH> 7610
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 371943
<CURRENT-ASSETS> 411568
<PP&E> 368107
<DEPRECIATION> (16482)
<TOTAL-ASSETS> 795141
<CURRENT-LIABILITIES> 172035
<BONDS> 392160
0
0
<COMMON> 200
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<TOTAL-LIABILITY-AND-EQUITY> 795141
<SALES> 900190
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<CGS> 666880
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (32177)
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<INCOME-CONTINUING> (24230)
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
