<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/ X / Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended August 28, 1999
or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-4437
PAYLESS CASHWAYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 42-0945849
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of Principal Executive Offices) (Zip Code)
(816) 234-6000
(Registrant's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES / X / NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 19,997,092 shares of Common Stock, $.01 par value, outstanding as of
September 30, 1999.
<PAGE>2
PAYLESS CASHWAYS, INC.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
STATEMENTS OF OPERATIONS (Unaudited) (1)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------------- --------------------------------
August 28, August 29, August 28, August 29,
(In thousands, except per share amounts) 1999 1998 1999 1998
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 492,160 $ 523,508 $ 1,376,761 $ 1,423,698
Other income 523 908 1,587 2,688
-------------------------------- --------------------------------
492,683 524,416 1,378,348 1,426,386
Costs and expenses
Cost of merchandise sold (3) 362,217 393,021 1,014,869 1,059,901
Selling, general and administrative 109,030 112,382 325,653 336,748
Special charges (credits), net (2) and (3) -- 837 (5,400) 6,421
Provision for depreciation and amortization 9,585 7,835 26,321 25,002
Interest expense 8,636 8,994 26,158 29,144
-------------------------------- --------------------------------
489,468 523,069 1,387,601 1,457,216
-------------------------------- --------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 3,215 1,347 (9,253) (30,830)
Federal and state income taxes 1,502 332 (3,821) (7,615)
-------------------------------- --------------------------------
NET INCOME (LOSS) $ 1,713 $ 1,015 $ (5,432) $ (23,215)
================================ ================================
Weighted average common shares outstanding 20,000 20,000 20,000 20,000
-------------------------------- --------------------------------
Net income (loss) per common share-basic (4) $ 0.09 $ 0.05 $ (0.27) $ (1.16)
================================ ================================
Weighted average common and dilutive
common equivalent shares outstanding 20,170 20,004 20,000 20,000
-------------------------------- --------------------------------
Net income (loss) per common share-diluted (4) $ 0.09 $ 0.05 $ (0.27) $ (1.16)
================================ ================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>3
PAYLESS CASHWAYS, INC.
<TABLE>
CONDENSED BALANCE SHEETS (Unaudited) (1)
<CAPTION>
August 28, November 28, August 29,
(In thousands) 1999 1998 1998
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,241 $ 1,950 $ 8,984
Merchandise inventories (5) 361,687 349,452 376,739
Prepaid expenses and other current assets 22,716 17,506 11,635
Income taxes receivable 773 1,338 9,649
Deferred income taxes 69 8,026 3,296
---------------------------------------------------------
TOTAL CURRENT ASSETS 387,486 378,272 410,303
OTHER ASSETS
Real estate held for sale 4,730 14,144 18,815
Deferred financing costs 2,202 3,319 3,570
Other 14,597 6,897 8,010
LAND, BUILDINGS AND EQUIPMENT 396,273 377,868 364,832
Allowance for depreciation and amortization (56,949) (32,146) (24,194)
---------------------------------------------------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 339,324 345,722 340,638
---------------------------------------------------------
$ 748,339 $ 748,354 $ 781,336
=========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (6) $ 10,160 $ 11,068 $ 10,143
Trade accounts payable 68,000 52,325 44,446
Other current liabilities 96,407 116,345 112,749
Income taxes payable 1,924 2,350 7,436
---------------------------------------------------------
TOTAL CURRENT LIABILITIES 176,491 182,088 174,774
LONG-TERM DEBT, less portion
classified as current liability (6) 362,185 336,557 381,000
NON-CURRENT LIABILITIES
Deferred income taxes 35,364 47,142 43,935
Other 18,298 21,134 21,042
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,000,000 shares issued 200 200 200
Additional paid-in capital 183,600 183,600 183,600
Accumulated deficit (27,799) (22,367) (23,215)
---------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 156,001 161,433 160,585
---------------------------------------------------------
$ 748,339 $ 748,354 $ 781,336
=========================================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>4
PAYLESS CASHWAYS, INC.
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
<CAPTION>
Thirty-Nine Weeks Ended
----------------------------------------------
August 28, August 29,
(In thousands) 1999 1998
----------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (5,432) $ (23,215)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Non-cash special credits (2) (10,600) --
Depreciation and amortization 26,321 25,002
Deferred income taxes (3,821) (9,484)
Non-cash interest 1,217 530
Other 481 385
Changes in assets and liabilities (12,046) 11,524
----------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,880) 4,742
Cash Flows from Investing Activities
Additions to land, buildings and equipment (28,669) (9,929)
Proceeds from sale of land, buildings and equipment 15,920 39,646
(Increase) decrease in other assets (7,700) 6,306
----------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (20,449) 36,023
Cash Flows from Financing Activities
Principal payments on long-term debt (21,280) (64,242)
Net proceeds from revolving credit facility 46,000 22,000
Financing fees (100) (1,500)
----------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 24,620 (43,742)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents 291 (2,977)
Cash and cash equivalents, beginning of period 1,950 11,961
----------------------------------------------
Cash and cash equivalents, end of period $ 2,241 $ 8,984
==============================================
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>5
PAYLESS CASHWAYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Thirty-nine weeks ended August 28, 1999, and August 29, 1998.
(1) The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q. To the extent that
information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or
consistent with the audited financial statements incorporated by
reference in the Company's Form 10-K for the year ended November 28,
1998, such information and footnotes have not been duplicated herein. In
the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation of
financial statements have been reflected herein. The November 28, 1998,
condensed balance sheet has been derived from the audited financial
statements as of that date.
(2) In the second quarter of fiscal 1999, the Company recorded a $10.6
million ($5.6 million after tax) non-cash curtailment gain in connection
with its non-contributory defined benefit pension plan. Benefits under
the pension plan were frozen effective June 17, 1999. The curtailment
gain is included in special charges (credits), net, in the accompanying
statements of operations for the thirty-nine weeks ended August 28, 1999.
(3) A special charge of $5.2 million ($2.8 million after tax) was recorded in
the second quarter of fiscal 1999 in connection with the closing of five
stores. In addition, the Company recorded an inventory write-down of $3.4
million ($1.8 million after tax), included in cost of merchandise sold,
in connection with the store closings. The 1999 special charge includes:
<TABLE>
<CAPTION>
Amount Amount Reserve
Charged Utilized at
(In millions) 1999 Through 8/28/99 8/28/99
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate disposal costs $ 3.7 $ -- $ 3.7
Other costs 1.5 -- 1.5
-------------------------------------------------------------------------------------------------------------------
$ 5.2 $ -- $ 5.2
===================================================================================================================
</TABLE>
(4) Basic earnings per common share have been computed based on the
weighted-average number of common shares outstanding during the period.
Dilutive earnings per common share are computed based on the
weighted-average number of common shares plus potential common shares
outstanding during the period, when dilutive, consisting of certain stock
options. Given the net loss reported for the thirty-nine weeks ended
August 28, 1999, and August 29, 1998, the impact of considering such
stock options would be antidilutive.
(5) Approximately 80% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the
LIFO method is only made at the end of each fiscal year based on the
inventory levels and costs at that time, interim LIFO determinations must
necessarily be based on management's estimates of expected year-end
inventory levels and costs. Since future estimates of inventory levels
and costs are subject to change, interim financial results reflect the
Company's most recent estimate of the effect of inflation and are subject
to final year-end LIFO inventory amounts. If the FIFO (first-in,
first-out) method of inventory accounting had been used by the Company,
inventories would have been $1.7 million lower and $1.0 million higher
than reported at August 28, 1999, and August 29, 1998, respectively.
(6) Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 28, November 28, August 29,
(In thousands) 1999 1998 1998
----------------------------------------------------
<S> <C> <C> <C>
1997 Credit Agreement, variable interest rate $ 286,088 $ 251,458 $ 294,283
Mortgage loan, variable interest rate 85,279 95,078 95,736
Other senior debt 978 1,089 1,124
----------------------------------------------------
372,345 347,625 391,143
Less portion classified as current liability (10,160) (11,068) (10,143)
----------------------------------------------------
$ 362,185 $ 336,557 $ 381,000
====================================================
</TABLE>
<PAGE>6
PAYLESS CASHWAYS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the third quarter of 1999, decreased 6.0% from the same period of
1998 in total and 2.5% on a same-store sales basis. Same stores are those open
one full year. Net sales for the first three quarters of 1999 decreased 3.3%
from the same period of 1998 in total and increased 0.8% on a same-store sales
basis. Sales decreases in total for both periods are a result of closing seven
stores in the first three quarters of 1999 and two stores in the first three
quarters of 1998 whose sales were $37.7 million and $95.2 million for the first
three quarters of 1999 and 1998, respectively. Same-store sales to professional
customers during the third quarter of 1999 increased 4.1% and same-store sales
to do-it-yourself customers declined 9.4%. To address the decrease in same-store
sales to do-it-yourself customers, the Company intends to improve its
assortments and in-stock position.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 73.6% and 75.1% for the third
quarter of 1999 and 1998, respectively. For the first three quarters of 1999 and
1998, cost of merchandise sold as a percent of sales was 73.7% and 74.4%,
respectively. Inventory write-downs of $3.4 million ($1.8 million after tax),
related to the closing of five stores, recorded in the second quarter of 1999
and $1.3 million ($0.8 million after tax), related to the closing of three
stores, recorded in the third quarter of 1998, were 0.2% and 0.1% of sales for
the first three quarters of 1999 and 1998, respectively. Excluding the effects
of inventory write-downs, the decrease of cost of merchandise sold as a percent
of sales for the third quarter of 1999 and the first three quarters of 1999 was
primarily due to improved product acquisition costs and reduced promotional
activities.
Selling, general and administrative expenses were 22.2% and 21.5% of sales for
the third quarter of 1999 and 1998, respectively. For the first three quarters
of 1999 and 1998, selling, general and administrative expenses were 23.7% of
sales. The increase as a percent of sales for the third quarter of 1999 was due
primarily to increased credit costs. The Company has entered into an agreement
to replace the current commercial and consumer credit program provider, expected
to go into effect on October 27, 1999, and believes that these costs will be
reduced significantly in the future. Selling, general and administrative
expenses for the third quarter and first three quarters of 1999 decreased
approximately $3.4 million and $11.1 million, respectively, compared to the same
periods of the prior year. The reductions in selling, general and administrative
expenses were primarily the result of closed stores.
During the second quarter of 1999, the Company recorded a $10.6 million ($5.6
million after tax) non-cash curtailment gain in connection with freezing its
non-contributory defined benefit pension plan. In addition, a special charge of
$5.2 million ($2.8 million after tax) was recorded in connection with the
closing of five stores. During the third quarter of 1998, the Company recorded a
special charge of $0.8 million ($0.5 million after tax) in connection with the
closing of three stores. Additionally, a special charge of $5.6 million ($4.2
million after tax), primarily a cash charge, was recorded in the first quarter
of 1998 to reflect severance costs related to the elimination of staff at the
Company's headquarters and regional administrative centers.
The provision for depreciation and amortization was 1.9% and 1.5% of sales for
the third quarter of 1999 and 1998, respectively. For the first three quarters
of 1999 and 1998, the provision was 1.9% and 1.8% of sales, respectively.
Excluding a $1.1 million ($0.6 million after tax) depreciation charge for
accelerated depreciation on certain leasehold improvements recorded in the third
quarter of 1999, the provision was 1.7% and 1.8% of sales for the third quarter
of 1999 and the first three quarters of 1999, respectively.
Interest expense for the third quarter and first three quarters decreased
compared to the same periods of 1998 primarily due to lower borrowing levels in
1999 and, to some extent, lower interest rates in 1999.
The income tax benefit for the first three quarters of 1999 was $3.8 million
compared to $7.6 million for the first three quarters of 1998. The effective tax
rates for both periods were different from the 35% statutory rate primarily due
to various expenses that are permanently non-deductible for income tax purposes.
Such tax benefits reflect management's estimates of the annual effective tax
rates at the end of each quarter and are subject to change throughout the year.
<PAGE>7
PAYLESS CASHWAYS, INC.
Net Income (Loss)
Net income for the third quarter of 1999, was $1.7 million compared to $1.0
million for the same period of 1998. Excluding the effect of non-routine items
and restating the 1998 effective tax rate to the actual annual rate, net income
was $2.3 million and $2.2 million for third quarter 1999 and 1998, respectively.
For the first three quarters of 1999, net loss was $5.4 million compared to
$23.2 million for the same period of 1998. Excluding the effect of non-routine
items and restating the 1998 effective tax rate to the actual annual rate, net
loss for the first three quarters of 1999 and 1998 was $6.0 million and $14.5
million, respectively. Basic and diluted net income per common share were $0.09
and $0.05 for the third quarter of 1999 and 1998, respectively, while basic and
diluted net loss per common share were $0.27 and $1.16 for the first three
quarters of 1999 and 1998, respectively. The improvement in 1999 earnings per
common share was primarily due to improved gross margin management and the
closing of under-performing stores.
THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. If not remedied, this could result in system failure
or miscalculations.
The Company has completed an assessment of the impact of the Year 2000 on its
computer systems, both hardware and software, and has developed a plan to timely
address the Year 2000 issue. Systems that interact with customers and that focus
on the core business functions of buying, selling, and accounting have been
given the highest priority. Some of the Company's current systems are being
renovated and others are being replaced with Year 2000-compliant systems. All
renovation code and system replacements are being unit-tested as they are
completed. Code renovation was completed as of March 1, 1999 and integrated
full-system testing was completed during the third quarter of 1999. All core
business systems requiring replacement are approximately 98% complete and this
activity is expected to continue through the remainder of 1999. The Company has
spent approximately $4.5 million, to-date, in the execution of the Year 2000
plan and estimates that expenditures to complete execution of the Year 2000 plan
will range from $0.2 million to $0.3 million. Most of such expenditures are
being charged to expense as incurred. The Company currently believes that it
will complete all phases of the plan without any material adverse consequences
to its business, operations, or financial condition.
All non-information technology, which contains or might contain imbedded
software chips that utilize a date function, such as distribution conveyance
systems, security systems, climate controls, and other electronic devices used
in daily business operations, have been inventoried and assessed. All
non-compliant systems are being upgraded and tested as compliant versions become
available. This work is expected to continue throughout 1999.
The Company continues to assess the extent to which the Company is vulnerable to
the failure of significant suppliers and other third parties to remediate their
own Year 2000 issues. The Company expects testing of interfaces with business
partners and vendors to continue through 1999. The Company does not anticipate
the cost of Year 2000 compliance by suppliers to be passed on to the Company.
However, there can be no assurances that failure to address the Year 2000 issue
by a third party on whom the Company's systems rely would not have a material
adverse effect on the Company.
The Company has developed contingency plans for possible Year 2000 problems and
expects to implement these plans by the end of the fourth quarter of 1999. The
costs of the Company's Year 2000 project and the date on which it will be
completed are based on management's best estimates. However, there can be no
assurance that these estimates will be achieved and actual results could differ
materially from those anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments and all hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities at their fair market values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value will have
no impact on earnings until the hedged item affects earnings. For derivatives
that are not designated as hedging instruments, or for the ineffective portion
of a hedging instrument, the change in fair value will affect current period
earnings. The
<PAGE>8
PAYLESS CASHWAYS, INC.
Company will adopt SFAS 133 during the first quarter of fiscal 2001 and does not
presently believe that it will have a significant effect on its financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $3.9 million for the first three quarters
of 1999 compared to cash provided by operating activities of $4.7 million for
the same period of 1998. The decrease in cash from operating activities was
primarily caused by increased merchandise inventories and decreased other
current liabilities due to store closings. During the first three quarters of
1999 and 1998, the Company used cash of approximately $3.4 million and $2.4
million, respectively, in operating activities related to special charges
accrued in fiscal years 1999, 1998, and 1997 and $10.2 million in the first
three quarters of 1998 for costs related to the Chapter 11 filing. In addition,
the Company used $5.4 million in the first three quarters of 1998 to pay
severance costs related to the elimination of staff at the Company's
headquarters and regional administrative centers.
Borrowings have been available under the 1997 Credit Agreement to supplement
cash generated by operations. At August 28, 1999, $48.3 million was available
for borrowing under the 1997 Credit Agreement. At August 28, 1999, working
capital was $211.0 million compared to $196.2 million and $235.5 million at
November 28, 1998, and August 29, 1998, respectively. The current ratios at
August 28, 1999, November 28, 1998, and August 29, 1998, were 2.20 to 1, 2.08 to
1, and 2.35 to 1, respectively.
The Company's primary investing activities are capital expenditures for the
renovation of existing stores, improved technology, and additional equipment.
The 1997 Credit Agreement governs the amount of capital expenditures that can be
made and permitted levels are as follows: $52.1 million (plus a carry-forward
amount from 1998) in 1999, $41.2 million in 2000, $51.3 million in 2001 and
$52.3 million in 2002. The Company spent approximately $28.7 million and $9.9
million during the first three quarters of 1999 and 1998, respectively, for
renovation of existing stores and additional equipment; 1999 expenditures also
include those for improved technology as well as the second quarter purchase of
ten previously leased stores for approximately $14.4 million. The Company
intends to fund the remaining fiscal 1999 capital expenditures of approximately
$11 million, consisting primarily of improved technology and investments to
improve the Company's capabilities to service the Pro customer (including store
remodels and new stores), with funds generated from operations, borrowings under
the 1997 Credit Agreement, and certain lease arrangements. During the first
three quarters of 1999 and 1998, the Company sold 13 and 22 real estate
properties, respectively, related to stores previously closed for approximately
$14.4 million and $37.7 million of cash proceeds, respectively, which were
applied to outstanding debt. Additionally, in the first three quarters of 1998,
the Company received $5.8 million from the surrender of certain life insurance
policies related to a terminated benefit plan.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. The Company's consolidated indebtedness is and will
continue to be substantial. Management believes that cash flow generated from
operations, borrowings available under the 1997 Credit Agreement, and other
lease financing sources should provide sufficient liquidity to meet all cash
requirements for the next 12 months. As a result of the Chapter 11 filing, trade
creditors significantly shortened credit terms. The Company believes that
progress with regard to improving terms and reestablishing trade credit is
continuing, but availability of trade credit cannot be assured. The 1997 Credit
Agreement contains a number of financial covenants with which the Company must
comply. Management currently expects that it will achieve compliance with these
covenants throughout fiscal 1999; however, factors beyond management's control,
including competitive conditions, economic conditions, supplier support, lumber
prices, and weather, could cause noncompliance. If compliance with these
covenants is not achieved, the Company may be required to renegotiate its
existing covenants with lenders or to refinance borrowings. Success in achieving
any such renegotiations or refinancing, or the specific terms thereof, including
interest rates, capital expenditure limits or borrowing capacity, cannot be
assured. If the Company fails to achieve compliance with these covenants or, in
the absence of such compliance, if the Company fails to amend such financial
covenants, the Company may be in default. If such default occurred, it would
permit acceleration of its debt under the 1997 Credit Agreement which, in turn,
would permit acceleration of substantially all of the Company's other long-term
debt.
The Company has been involved in discussions with new, as well as existing,
lenders regarding partial refinancing and restructuring of its 1997 Credit
Agreement. The new commercial and consumer credit provider agreement, discussed
below, positions the Company to complete the refinancing and restructuring of
the 1997 Credit Agreement and is expected
<PAGE>9
PAYLESS CASHWAYS, INC.
to occur in the fourth quarter. This new agreement is expected to improve the
Company's operating flexibility through elimination of certain restrictive
covenants.
The Company has entered into an agreement with a new commercial and consumer
credit provider to service the Company's credit programs. The agreement replaces
a previous agreement with another provider and is expected to go into effect on
October 27, 1999. The Company expects to process approximately $800 million in
annual sales under this agreement and save in excess of $8 million in fees on an
annualized basis. In addition to the traditional commercial program, the Company
will be offering a business revolving charge account as an alternative for
commercial customers. Commercial credit is a key component of the services the
Company offers to the professional customer and the Company believes that this
transition creates an opportunity to enhance customer satisfaction while
reducing costs.
FORWARD-LOOKING STATEMENTS
Statements made above in Item 2, Management Discussion and Analysis of Financial
Condition and Results of Operations, such as "estimate", "believe", "expect",
"anticipate", "intend" and similar expressions, which are not historical, are
forward-looking statements that involve risks and uncertainties. Such statements
include, without limitation, the Company's expectation as to future performance.
Such forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. There are certain
important factors that could cause results to differ materially from those
anticipated by the forward-looking statements made above. These statements are
based on the current plans and expectations of the Company and investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Among the factors that could cause actual results to differ materially are the
following: competitor activities; stability of customer demand; stability of the
work force; supplier support; consumer spending and debt levels; interest rates;
housing activity; lumber prices; product mix; growth of certain market segments;
weather; an excess of retail space devoted to the sale of building materials;
the success of the Company's strategy; successful implementation of the new
credit service agreement; and the success of the Company's remediation for the
year 2000 issue. Additional information concerning these and other factors is
contained in the Company's Securities and Exchange Commission filings, including
but not limited to the Form 10-K, copies of which are available from the Company
without charge or on the Company's web site, www.payless.cashways.com.
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements of Payless Cashways, Inc. for
the thirteen week and thirty-nine week periods ended August 28, 1999, and August
29, 1998, have been reviewed by KPMG LLP, independent auditors. Their report is
included in this filing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
No material changes in the Company's exposure to certain market risks have
occurred from the discussion contained in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, filed as part of the Company's Annual Report on
Form 10-K for the fiscal year ended November 28, 1998.
<PAGE>10
PAYLESS CASHWAYS, INC.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
A group of terminated employees and others filed a lawsuit against the Company
and other named defendants in the United States District Court for the Southern
District of Iowa. (See the full description of the lawsuit in Item 3-Legal
Proceedings contained in the Company's Form 10-K for the year ended November 28,
1998.) Although the Company denies any liability, the Company settled the matter
by issuing 522,716 shares of New Common Stock reserved for such claims pursuant
to the Chapter 11 reorganization along with insurance proceeds.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Raymond P. Springer assumed the responsibilities of Senior Vice
President-Finance and Chief Financial Officer, replacing Richard G.
Luse who left the Company to pursue other interests.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
4.0 Long-term debt instruments of the Company in amounts
not exceeding ten percent (10%) of the total assets of
the Company will be furnished to the Commission upon
request.
10.1* Form of Employment Agreement between the Company and
certain executive officers.
15.1 Letter re unaudited financial information - KPMG LLP.
27.1 Financial data schedule.
* Represents a management contract or a compensatory plan or
arrangement.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended August 28, 1999.
<PAGE>11
PAYLESS CASHWAYS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: October 11, 1999 By: /s/Raymond P. Springer
----------------------------------
Raymond P. Springer, Senior Vice President-
Finance and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE>1
EXHIBIT 10.1
FORM OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of ___________________
between PAYLESS CASHWAYS, INC., a Delaware corporation (the "Company"), and
___________________ (the "Executive").
WHEREAS, the Company desires to employ the Executive in the capacity of
____________________________, and the Executive desires to be employed by the
Company in such capacity and on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants of the parties
herein made, it is hereby agreed:
1. Term of Agreement. The term of this Agreement shall be one year,
commencing ____________________ and ending ___________________, unless sooner
terminated as provided in Paragraph 6 of this Agreement; PROVIDED, however, that
the Agreement shall be automatically renewed for an additional term of one year,
at the end of the initial one-year term and of each succeeding one-year term,
unless either the Company or the Executive shall serve notice on the other at
least ninety (90) days prior to the expiration of the term, in accordance with
the procedures set out in Paragraph 12 of this Agreement, that the party giving
notice intends to end the Agreement at the conclusion of the then-current term.
The Company shall not be required to show Cause, and the Executive shall not be
required to show Good Reason, to require the expiration of the Agreement under
the terms of this Paragraph.
2. Employment and Duties. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts employment, to perform such duties
and responsibilities of ____________________________ as are, from time to time,
assigned to the Executive by the Board of Directors or its designee. The
Executive agrees to devote full business time and effort to the diligent and
faithful performance of the Executive's duties under the direction of such
person as is designated by the Company's Board of Directors.
3. Compensation.
(a) Base Salary. As compensation for the Executive's services,
the Executive shall be paid a base salary at a minimum annual rate of
$__________ payable in equal bi-weekly installments, which salary shall be
reviewed annually and may be adjusted from time to time at the discretion of the
Board of Directors (the "Base Salary"); provided that the Base Salary shall not
be less than the amount stated in this Paragraph 3(a).
(b) Incentive Compensation. The Executive shall, in addition
to the Base Salary, also be eligible to receive incentive compensation under the
Company's Corporate Management Incentive Plan (the "CMIP"), or such other
program or plan for officers of the Company as from time to time may be in
effect, if any (the "Incentive Compensation"). The
<PAGE>2
existence and terms of any such program or plan shall be determined solely at
the discretion of the Compensation Committee of the Board of Directors. For
fiscal year 1999, the Executive's "Annual Incentive Target Percentage of Base
Compensation," as used in the CMIP, shall be _______ percent (___%) of Base
Salary.
(c) Other Benefits. The Executive shall be entitled to
participate in the Company's regular health, life, pension, vacation and
disability plans in accordance with their respective terms. The Company will
also provide employee benefits to the Executive in respect of the Executive's
employment as the Company customarily provides, from time to time, to its
officers, as described in Exhibit A attached to this Agreement. Nothing herein
shall be construed to limit the Company's discretion to amend, terminate or
otherwise modify any such plans or benefits, subject to the Executive's rights
under Paragraph 6(c)(iii) below.
4. Confidentiality, Non-Solicitation, and Non-Disparagement.
(a) Confidentiality of Proprietary Information. The Executive
agrees that, at all times, both during the Executive's employment with the
Company and after the expiration or termination thereof for any reason, the
Executive shall not divulge to any person, firm, corporation, or other entity,
or in any way use for the Executive's own benefit, except as required in the
conduct of the Company's business or as authorized in writing on behalf of the
Company, any trade secrets or confidential information (the "Proprietary
Information") obtained during the course of the Executive's employment with the
Company. The Proprietary Information includes, but is not limited to, customer
or client lists (including the names and/or positions of persons employed by
such customers or clients who play a role in the decisions of such customers or
clients concerning products or services of the type provided by the Company),
financial matters, inventory techniques and programs, Company records of
accounts, business projections, Company contracts, sales, merchandising or
marketing plans and strategies, pricing information and formulas, matters
contained in unpublished records and correspondence, planned expansion programs
(including areas of expansion and potential customer lists) and any and all
information concerning the business or affairs of the Company which is not known
by or generally available to the public. All papers and records of every kind
relating to the Proprietary Information, including any such papers and records
which shall at any time come into the possession of the Executive, shall be the
sole and exclusive property of the Company and shall be surrendered to the
Company upon termination of the Executive's employment for any reason or upon
request by the Company at any time either during or after the termination of
such employment. All information relating to or owned by customers of the
Company of which the Executive becomes aware or with which the Executive becomes
familiar through the Executive's employment with the Company shall be kept
confidential and not disclosed to others or used by the Executive directly or
indirectly except in the course of the Company's business. It is agreed that
Proprietary Information as herein described shall be protected from disclosure
under the terms of this Agreement, to the maximum extent permitted by law,
whether or not entitled to protection as a trade secret.
(b) Solicitation Prohibition. During the Executive's
employment with the Company and for a period of one (1) year after the
expiration or termination of this Agreement or of the Executive's employment
with the Company for any reason, the Executive shall not
<PAGE>3
directly or indirectly, whether as an individual for the Executive's own account
or on behalf of any other person, firm, corporation, partnership, joint venture
or entity whatsoever, solicit or endeavor to entice away from the Company any
employee who is employed by the Company. Additionally, during the Executive's
employment with the Company or for a period of one (1) year after the expiration
or termination of this Agreement or of Executive's employment with the Company
for any reason, the Executive shall not, directly or indirectly through any
other individual or entity, solicit the business of any customer of the Company,
or solicit, entice, persuade or induce any individual or entity to terminate,
reduce or refrain from forming, renewing or extending its relationship, whether
actual or prospective, with the Company.
(c) Disparagement Prohibition. The Executive acknowledges and
agrees that as a result of his position with the Company, disparaging or
critical statements made by the Executive may be uniquely detrimental to the
Company's interests and well-being. Therefore, the Executive agrees to use his
best efforts to assist the Company in promoting and preserving the good will and
other business interests of the Company. To this end, the Executive agrees to
refrain at all times, both during the Executive's employment and after the
termination thereof for any reason, from making disparaging comments or remarks
about the Company or its officers, employees, or directors.
(d) Definition of "Company". For the purposes of Paragraph 4,
the term "Company" shall mean the Company and any of its direct or indirect
parent or subsidiary organizations.
5. Covenant Not to Compete. During the Executive's employment with the
Company and for a period of one year after the expiration or termination of this
Agreement or of the Executive's employment with the Company (the "Noncompetition
Period"), if such termination is as a result of the expiration of this Agreement
under Paragraph 6(h), a termination for Good Reason by the Executive under
Paragraph 6(c), or a termination by the Company without Cause under Paragraph
6(d), the Executive agrees not to act as an owner or operator, officer or
director, employee, consultant or agent of any other person, firm, corporation,
partnership, joint venture or other entity which is engaged in the business of
building materials retailing in any state in which the Company is so engaged, or
has plans to be so engaged during the Noncompetition Period. The foregoing
provisions shall not prohibit the Executive from investing in any securities of
any corporation whose securities, or any of them, are listed on a national
securities exchange or traded in the over-the-counter market if the Executive
shall own less than one percent 1% of the outstanding voting stock of such
corporation. The Executive agrees that a breach of the covenants contained
herein will result in irreparable and continuing damage to the Company for which
there will be no adequate remedy at law, and in the event of any breach of such
agreement, the Company shall be entitled to injunctive and such other and
further relief, as may be proper, including damages, attorneys' fees, and
litigation costs.
6. Termination.
(a) Death or Disability. In the event of the Executive's death
or if the Executive should become unable to perform the essential functions of
the position of _________________________, with or without reasonable
accommodation by the Company,
<PAGE>4
this Agreement, and the Company's obligation to make further Base Salary
payments under the Agreement, shall terminate, and Executive shall not be
entitled to receive severance benefits. Executive shall be entitled to receive
any Incentive Compensation which the Executive has earned, if any, prorated to
the date of the termination of the Executive's employment by reason of death or
the date of termination, due to disability, of Executive's performance as
_________________________ under this Agreement. The Executive's rights to other
compensation and benefits shall be determined under the Company's benefit plans
and policies applicable to Executive then in effect.
(b) Termination for Cause by the Company. By following the
procedure set forth in Paragraph 6(e) the Company shall have the right to
terminate this Agreement and the employment of the Executive for "Cause" in the
event Executive:
(i) has committed a significant act of dishonesty,
deceit or breach of fiduciary duty in the performance of the
Executive's duties as an employee of the Company;
(ii) has neglected or failed to perform substantially
the duties of the Executive's employment under this Agreement,
including but not limited to an act of insubordination;
(iii) has acted or failed to act in any other way
that reflects materially and adversely upon the Company, including but
not limited to the Executive's conviction of, guilty plea, or plea of
nolo contendere to (A) any felony, or any misdemeanor involving moral
turpitude, or (B) any crime or offense involving dishonesty with
respect to the Company; or
(iv) has knowingly failed to comply with the
covenants contained in Paragraphs 4 or 5 of this Agreement.
If the employment of the Executive is terminated by the
Company for Cause, this Agreement and the Company's obligation to make further
Base Salary and Incentive Compensation payments hereunder shall thereupon
immediately terminate, and the Executive shall not be entitled to receive
severance benefits. The Executive's rights to other compensation and benefits
shall be determined under the Company's benefit plans and policies applicable to
the Executive then in effect.
(c) Termination for Good Reason by the Executive. By following
the procedure set forth in Paragraph 6(e), the Executive shall have the right to
terminate this Agreement and the Executive's employment with the Company for
"Good Reason" in the event:
(i) the Executive is not at all times a duly elected
______________________ of the Company;
(ii) there is any material reduction in the scope of
the Executive's authority and responsibility (provided, however, in the
event of any illness or injury
<PAGE>5
which prevents the Executive from performing the Executive's duties,
Good Reason shall not exist if the Company reassigns the Executive's
duties to one or more other employees until the Executive is able to
perform such duties);
(iii) there is a reduction in the Executive's Base
Salary below the minimum amount specified in Paragraph 3(a) above; a
material reduction in the Incentive Compensation opportunity of the
Executive, if any, under Paragraph 3(b) above; or a material reduction
in the other benefits to which Executive is entitled under Paragraph
3(c) above, as compared to the benefits available to Executive at the
time of execution of this Agreement.
(iv) the Company requires the Executive's principal
place of employment be relocated fifty (50) miles from its location as
of the date of this Agreement;
(v) the Company otherwise fails to perform its
material obligations under this Agreement.
If the employment of the Executive is terminated by the Executive for
Good Reason, the Executive shall be entitled to the severance benefits set forth
in Paragraph 6(f) below, but the Company's obligation to make further Base
Salary payments and incentive compensation payments shall cease on the effective
date of such termination. The Executive's rights to other compensation and
benefits shall be determined under the Company's benefit plans and policies
applicable to the Executive then in effect.
(d) Termination Without Cause or Without Good Reason. The
Company may terminate this Agreement and the Executive's employment without
Cause at any time, and in such event the Executive shall be entitled to the
severance benefits set forth in Paragraph 6(f) below. The Executive may
voluntarily terminate this Agreement and the Executive's employment without Good
Reason at any time, but in such event the Executive shall not be entitled to the
severance benefits set forth in Paragraph 6(f) below. If the Executive
voluntarily terminates this Agreement and the Executive's employment without
Good Reason, or if the Company terminates this Agreement and the Executive's
employment without Cause, then the Company's obligation to make further Base
Salary payments and Incentive Compensation payments shall cease on the effective
date of such termination. The Executive's rights to other compensation and
benefits shall be determined under the Company's benefit plans and policies
applicable to the Executive then in effect.
(e) Notice and Right to Cure. The party proposing to terminate
this Agreement and the employment of the Executive for Cause or Good Reason, as
the case may be, under Paragraph 6(b) or 6(c) above shall give written notice to
the other, specifying the reason therefor with particularity. In the case of a
termination pursuant to Paragraphs 6(b)(i), (iii) or (iv), or 6(c)(i), such
termination shall be effective immediately upon delivery of such notice. In the
case of any other proposed termination for Cause or Good Reason, as the case may
be, the notice shall be given with sufficient particularity so that the other
party will have an opportunity to correct any curable situation to the
reasonable satisfaction of the party giving the notice within
<PAGE>6
the period of time specified in the notice, which shall not be less than thirty
(30) days. If such correction is not so made or the circumstances or situation
are not curable, the party giving such notice may, within thirty (30) days after
the expiration of the time fixed to correct such situation, give written notice
to the other party that the employment is terminated as of the date of that
writing. Where the Agreement and the Executive's employment are terminated by
the Executive without Good Reason or by the Company without Cause, the
termination date shall be the date on which notification of termination shall be
mailed in accordance with Paragraph 12 of this Agreement, unless a different
termination date shall be designated by the party giving notice or agreed upon
by the Executive and the Company.
(f) Severance Benefits. If this Agreement and the Executive's
employment with the Company are terminated by reason of the Executive's death or
disability, or by the Company with Cause or by the Executive without Good Reason
then the Executive shall receive no severance benefits. If this Agreement and
the Executive's employment with the Company are terminated due to the expiration
of the Agreement, by the Company without Cause, or by the Executive for Good
Reason, then the Executive shall be entitled to the following benefits (the
"Severance Benefits"):
(i) Base Salary. The Company shall continue to pay to
the Executive the Executive's Base Salary for a period of one (1) year
after the date the Executive's employment with the Company is
terminated (the "Severance Period"), when and as such Base Salary would
have been paid, and as if the Executive continued to be employed during
such period and regardless of the death or disability of the Executive
after the date of termination.
(ii) Incentive Compensation. In the event the
Compensation Committee of the Board of Directors determines that
Incentive Compensation is to be paid in the year in which the
Executive's employment and this Agreement are terminated under
circumstances in which this Agreement provides for the payment of
Severance Benefits, then the Executive will receive Incentive
Compensation prorated for the time during which services were rendered
in the year of termination, to the extent provided by the Compensation
Committee for the calculation of Incentive Compensation for that year.
(iii) Continuation of Benefits. During the Severance
Period, the Company shall provide the Executive with medical, dental,
vision, and regular and supplemental life insurance coverage
substantially similar to the coverage which the Executive was receiving
or entitled to receive immediately prior to the date of the termination
of the Executive's employment. In addition, during the Severance
Period, the Company shall pay on behalf of the Executive the cost of
one annual physical examination and the cost of the preparation of the
Executive's federal, state and local tax returns in accordance with the
terms set out in Exhibit A. The Company shall provide such benefits to
the Executive at Company expense, subject to the same cost-sharing
provisions, if any, applicable to the Executive immediately prior to
the date of the termination of employment. Notwithstanding the
foregoing, the Executive shall not be entitled to receive such benefits
to the extent that the Executive obtains other employment which
provides comparable benefits during the Severance Period.
<PAGE>7
(iv) Outplacement Benefits. The Company, at its
expense, will provide to the Executive outplacement services, at a
maximum cost of $30,000, to be provided by an outplacement service
provider selected solely by the Company.
(v) Termination of Benefits. Notwithstanding any
other provision of this Agreement, in the event that the Executive at
any time violates the provisions of Paragraph 4(a), 4(b), 4(c), or 5 of
this Agreement, then the Company's obligations, if any, to provide base
salary continuation and other severance benefits as set out in
Paragraph 6(f) of this Agreement shall cease, and such payments and
benefits shall immediately cease.
(g) Change of Control. Subject to the Executive's compliance
with the terms and conditions of this Agreement, if during the term of the
Agreement the Executive's employment is terminated without Cause as a result of
a Change of Control (as defined below) of the Company, and if the Executive is
not offered a comparable position by the Company, then the Severance Period
shall be extended to the second anniversary of the date of the termination of
employment, and the Executive shall be entitled to receive continued payments of
Base Salary during the second year of the Severance Period. All Severance
Benefits other than continued payments of Base Salary shall cease on the first
anniversary of the termination of employment in the event of a Change of
Control. For purposes of this Paragraph 6(g), a Change of Control shall be
deemed to have occurred if:
(i) any "person" (as defined in Sections 13(d) and
14(d)(2) of the Exchange Act) become the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company
or its affiliates other than in connection with the acquisition by the
Company or its affiliates of a business) having 30% or more of the
voting power in the election of directors of the Company;
(ii) the occurrence within any twenty-four month
period of a change in the Board of Directors of the Company with the
result that the Incumbent Members (as defined below) do not constitute
a majority of the Company's Board of Directors. The term "Incumbent
Members" shall mean the members of the Board on the date immediately
preceding the commencement of such twenty-four month period, provided
that any person becoming a director during such twenty-four month
period whose election or nomination for election was approved by a
majority of the directors who, on the date of such election or
nomination for election, comprised the Incumbent Members shall be
considered one of the Incumbent Members in respect of such twenty-four
month period;
(iii) the stockholders of the Company approve a
merger or consolidation of the Company or approve the issuance of
voting securities of the Company in connection with a merger or
consolidation of the Company (or direct or indirect subsidiary of the
Company), other than (A) a merger or consolidation which
<PAGE>8
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding under an employee benefit plan of the Company, at least 66 2/3%
of the combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined above) is or becomes the
"beneficial owner" (as defined above), directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the Company
or its subsidiaries other than in connection with the acquisition by
the Company or its subsidiaries of a business) representing 30% or more
of the voting power in the election of directors of the Company; or
(iv) the stockholders of the Company approve a plan a
complete liquidation or dissolution of the Company or a sale, lease,
exchange or other disposition of all or substantially all of the
Company's assets, other than a sale, lease, exchange or other
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 66 2/3% of the combined voting power of
the voting securities of which are owned by "persons" (as defined
above) in substantially the same proportion as their ownership of the
Company immediately prior to such sale.
(h) Expiration of Term of Agreement. At the expiration of the
term of this Agreement as defined in Paragraph 1 above, if the Agreement has not
been previously terminated under Paragraph 6(a), (b), (c) or (d) of this
Agreement, all duties and obligations of the parties under this Agreement,
except those set out in Paragraphs 4, 5 and 6(f), when applicable, shall cease.
(i) Survival of Certain Provisions. Notwithstanding
the expiration or termination of this Agreement, and the Executive's
employment with the Company for any reason under this Agreement, the
provisions of Paragraphs 4, 5 and 6(f), when applicable, to the extent
provided therein, survive any such termination and shall be binding
upon the Executive and the Company in accordance with the provisions of
Paragraphs 4, 5 and 6(f).
7. Arbitration. Except as otherwise provided in this Paragraph, the
parties hereby agree that any dispute arising under this Agreement or any claim
for breach or violation of any provision of this Agreement shall be submitted to
arbitration, pursuant to the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association ("AAA"), to a single arbitrator
selected by mutual agreement of the parties or, if the parties do not mutually
agree on the arbitrator, in accordance with the rules of the AAA. The award
determination of the arbitrator shall be final and binding upon the parties.
Either party shall have the right to bring an action in any court of competent
jurisdiction to enforce this Paragraph and to enforce any arbitrator's award
rendered pursuant to this Paragraph. The venue for all proceedings in
arbitration under this provision, and for any judicial proceedings related to
the arbitration, shall
<PAGE>9
be in Kansas City, Missouri. Nothing in this Paragraph, however, shall prevent
the Company from seeking injunctive relief to preserve its rights under
Paragraph 4 or 5 of this Agreement.
8. Business Expenses. The Company shall reimburse the Executive for
entertainment and travel expenses related to the Company's business in
accordance with the policies of the Company applicable to the Executive on the
date of this Agreement, subject to the right of the Company to modify its
general policies relating to expense reimbursement for employees.
9. Severability. If any one or more of the provisions of this Agreement
shall be held invalid or unenforceable, the remaining provisions shall remain
valid and enforceable to the maximum extent permitted by law.
10. Entire Agreement. This Agreement contains a statement of all
agreements and understandings between the Executive and the Company on the
subject matters covered by the Agreement, and it replaces and supersedes all
prior contracts and agreements between the Executive and the Company concerning
such matters.
11. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the personal representatives, heirs and assigns of the Executive
and to any successors in interest and assigns of the Company.
12. Notices. All notices required or permitted to be given hereunder
shall be registered or certified mail addressed to the respective parties at
their addresses set forth below:
To the Executive: ____________________________
____________________________
____________________________
To the Company: Payless Cashways, Inc.
Two Pershing Square
2300 Main, P. 0. Box 419466
Kansas City, MO 64141-0466
Attn: Vice President - Human Resources
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main, Suite 1000
Kansas City, MO 64108
Attn: Gary Gilson
or such other address as a party hereto may notify the other in writing.
13. Applicable Law. This Agreement, or any portion thereof, shall be
interpreted in accordance with the laws of the State of Missouri.
<PAGE>10
14. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Executive may not assign any of his rights or
delegate any of his duties or obligations under this Agreement without the
Company's express written consent.
15. Non-Waiver Provision. The failure of either party of this Agreement
to insist upon strict adherence to any term of this Agreement, or to object to
any failure to comply with any provision of this Agreement, shall not (a)
constitute or operate as a waiver of that terms or provision, (b) estop that
party from enforcing that term or provision, or (c) preclude that party from
enforcing that term or provision or any other term or provision. The receipt of
a party to this Agreement of any benefit from this Agreement shall not effect a
waiver or estoppel of the right of that party to enforce any provision of this
Agreement.
16. Golden Parachute Savings Provision. If, in the absence of this
provision, any amount received or to be received by the Executive pursuant to
this Agreement would be subject to the "Excise Tax" imposed on "excess parachute
payments" by Section 4999 of the Internal Revenue Code of 1986 or any
corresponding provision of any later Federal tax law, the Company shall, in its
reasonable discretion, reduce the amounts payable to the largest amount that
will result in elimination of any Excise Tax liability.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
[INDIVIDUAL] PAYLESS CASHWAYS, INC.
___________________________ By:___________________________
Name: ________________________
Title: _______________________
<PAGE>11
Schedule for Exhibit 10.1
The following executive officers of Payless Cashways, Inc. have entered
into an employment agreement with Payless Cashways, Inc., in substantially the
form hereto:
<TABLE>
<CAPTION> Annual Incentive Target
Base Percentage of Base
Name Title Salary Compensation
- -------------------- ---------------------------------------- -------- -----------------------
<S> <C> <C> <C>
Millard E. Barron President and Chief Executive Officer $550,000 75%
Raymond P. Springer Senior Vice President - Finance, Chief $250,000 50%
Financial Officer
Edward L. Zimmerlin Senior Vice President - Merchandising $225,000 50%
and Marketing
James L. Deats Vice President - Information Systems $175,000 50%
Shawn J. Hepinstall Vice President - Merchandising, Hardware $160,000 50%
Store Products
Louise R. Iennaccaro Vice President - Human Resources $135,000 40%
David J. Krumbholz Vice President - Store Operations $212,000 50%
Timothy R. Mertz Vice President - Treasury, Treasurer $160,000 40%
</TABLE>
[Letterhead of KPMG 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 August 28, 1999 and August 29, 1998 and the related
condensed statements of operations and cash flows for the thirteen and
thirty-nine 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
September 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the August
28, 1999, financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-END> AUG-28-1999
<CASH> 2241
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 361687
<CURRENT-ASSETS> 387486
<PP&E> 396273
<DEPRECIATION> 56949
<TOTAL-ASSETS> 748339
<CURRENT-LIABILITIES> 176491
<BONDS> 362185
0
0
<COMMON> 200
<OTHER-SE> 155801
<TOTAL-LIABILITY-AND-EQUITY> 748339
<SALES> 1376761
<TOTAL-REVENUES> 1378348
<CGS> 1014869
<TOTAL-COSTS> 1014869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26158
<INCOME-PRETAX> (9253)
<INCOME-TAX> (3821)
<INCOME-CONTINUING> (5432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5432)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
