<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)
Independent Auditors' Report
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed balance sheets of Payless
Cashways, Inc. as of February 27, 1999 and February 28, 1998 and the
related condensed statements of operations and cash flows for the
thirteen-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 28,
1998 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 15, 1999, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of November 28, 1998 is fairly
presented, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/KPMG LLP
Kansas City, Missouri
March 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the February
27, 1999, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-END> FEB-27-1999
<CASH> 3967
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 374908
<CURRENT-ASSETS> 405810
<PP&E> 379341
<DEPRECIATION> (39591)
<TOTAL-ASSETS> 770374
<CURRENT-LIABILITIES> 173520
<BONDS> 390707
0
0
<COMMON> 200
<OTHER-SE> 151273
<TOTAL-LIABILITY-AND-EQUITY> 770374
<SALES> 391873
<TOTAL-REVENUES> 392218
<CGS> 285939
<TOTAL-COSTS> 285939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8612
<INCOME-PRETAX> (17786)
<INCOME-TAX> (7826)
<INCOME-CONTINUING> (9960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9960)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
