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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

    For the Year End                                    Commission File Number
    December 31, 1997                                          0-24094

                         LESLIE BUILDING PRODUCTS, INC.
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                           13-3764375
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification Number)

                  200 Mamaroneck Avenue, White Plains, NY 10601
              (Address of principal executive offices) (Zip Code)

        Registrant's Telephone Number including Area Code: (914) 421-2545
        Securities Registered pursuant to Section 12(b) of the Act: None
           Securities Registered pursuant to Section 12(g) of the Act:
                                  Common Stock
                                (Title of Class)

Check mark indicates 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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, if definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Aggregate market value of voting stock (Common Stock, $.01 par value) held by
non affiliates of Registrant (computed by reference to the closing price as of
March 9, 1998) was $7,391,008.

The number of shares outstanding of the Registrant's Common Stock, as of the
latest practicable date (March 9, 1998) was 4,862,624 shares of Common Stock.

Documents Incorporated by Reference

Proxy Statement with respect to Annual Meeting of Stockholders to be held on May
21, 1998 is incorporated by reference into Part III.

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<PAGE>

Item 1. BUSINESS

Introduction

      Leslie Building Products, Inc. (the "Company"), through its wholly-owned
subsidiary Leslie-Locke, Inc. ("Leslie-Locke"), is a manufacturer and marketer
of a wide variety of specialty building products for the professional and
do-it-yourself remodeling and residential construction industry. Its products
consist of (i) ornamental iron security products (including doors, window
guards, fencing and railings), (ii) residential ventilation products, and (iii)
specialty building products consisting of metal and fiberglass air distribution
products for the HVAC industry, and a full line of door louvers and vision lite
products for the architectural door market.

      The Company's principal executive and administrative offices are located
at 200 Mamaroneck Avenue, White Plains, New York, 10601; telephone number (914)
421 2545. The Common Stock of the Company is traded on the OTC-Bulletin Board
(symbol: LBPI).


Recent Event

      On November 12, 1997, the Company announced that its Board of Directors
was considering strategic alternatives for the Company's long-range business
plans. In this connection, the Company retained Harris Williams & Co. to assist
in evaluating, and possibly disposing of, all or certain of the three major
operating divisions of the Company's wholly-owned operating subsidiary,
Leslie-Locke, Inc.

      The Board's decision is motivated by the Company's desire to achieve
greater per share value for its stockholders. The home improvements products
business is in the midst of fundamental changes, including the rapid
consolidation of manufacturers and retailers, resulting in intense competitive
pressure. As a result, the Company's goal of increased per share return to its
stockholders is unlikely to be realized in the near future. Although operating
management is optimistic about the growth opportunities available to
Leslie-Locke, the Board of Directors believes that these opportunities could
best be realized by a significantly larger company which is in a better position
than the Company to compete in the changing industry. The specific restructuring
plans for the Company are dependent upon the ultimate outcome of these efforts.


BUSINESS OF THE COMPANY

      Leslie-Locke's categories of products consist of (i) patented
do-it-yourself systems of ornamental iron railings, columns and accessories,
security doors and window and door guards; (ii) ventilation devices, including
exterior applied static ventilators, energy-free turbine ventilators, power
attic ventilators, chimney caps, and whole-house fans, and (iii) specialty
building products consisting of metal and fiberglass air distribution products
for the HVAC industry, door louvers, and glass frames and vision lite products
for architectural doors. Most of these categories of products include a wide
variety of styles, sizes and colors resulting in the availability of over 2,000
different products. During 1997, Leslie-Locke sold two of its smaller operations
engaged in the manufacture of skylights and industrial rakes.

      Leslie Locke markets its products primarily to leading home center chains
and, to a lesser extent, to building material wholesalers, to commercial and
residential builders, and to remodelers and renovators. Approximately 70% of the
Company's consolidated net sales for 1997 were made by Leslie-Locke to The Home
Depot, Inc. Leslie-Locke has no long-term contracts for sales to The Home Depot.
While Leslie Locke competes with well over 100 national and regional
manufacturers, management believes that none of these suppliers offers the full
line of products offered


                                        (2)
<PAGE>

by Leslie Locke. Leslie-Locke's broad range of products makes it an important
supplier to leading national retail outlets. Leslie-Locke's products are
marketed by a nationwide sales force consisting of six sales personnel working
exclusively for Leslie-Locke, and 64 manufacturers' representatives and
distributors.

      Sales of Leslie Locke's products are somewhat seasonal in nature,
resulting in approximately 60% of its sales in the six-month period from March
through August. However, the wide variety of products offered by Leslie-Locke to
renovators and remodelers, and to a lesser extent to builders of new
construction, reduces the effects of cyclical changes experienced by businesses
solely dependent upon new construction.

      Raw materials utilized by Leslie Locke, consisting of steel, aluminum,
electric motors, fan blades and other components and accessories, are readily
available from a number of sources. Manufacturing operations consist primarily
of stamping or roll forming component parts from purchased steel or aluminum
coil, followed by painting and various assembly operations to create finished
products.

      Leslie-Locke's operations are subject to Federal, state and local
regulatory requirements relating to the use, storage, and disposal of certain
hazardous substances used in its manufacturing processes. Leslie-Locke believes
that it is currently operating in compliance with applicable regulations and
does not believe that costs of compliance with these laws and regulations will
have a material effect upon its capital expenditures, earnings or competitive
position.

      In December 1986, Leslie-Locke acquired White Metal Rolling and Stamping
Corp. ("White Metal"), a manufacturer of aluminum consumer and industrial
ladders. After an initial period of profitable operations, the ladder operation
incurred substantial operating losses as a result of competitive market
conditions, volatile raw material costs, and product liability claims which
became uninsured as a result of the insolvency of several of its insurance
carriers in the late 1980's. Because of these losses, White Metal's ladder
manufacturing operations were discontinued as of November 1990 and its assets
were sold. On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. See "Item 3. Legal Proceedings" and Note 5 of Notes to Consolidated
Financial Statements.

      On April 19, 1994, the Board of Directors of Drew Industries Incorporated
("Drew") approved a plan to transfer the stock of Leslie-Locke to the Company
and to distribute the common stock of the Company to Drew's stockholders on a
one-for-one basis (the "Spin-off"). The transfer of the stock of Leslie-Locke to
the Company was effective May 10, 1994, and the Spin-off was effective July 29,
1994. Since the Spin-off, the Company has been a stand-alone company, the common
stock of which is traded on the OTC-Bulletin Board (symbol: LBPI).

      Pursuant to a Shared Services Agreement, the Company and Drew agreed to
share certain administrative functions and employee services, such as management
overview and planning, tax preparation, financial reporting, coordination of the
independent audit, stockholder relations, and regulatory matters. The Company
reimburses Drew for the fair market value of such services. The Agreement
expired on December 31, 1997 and was extended to December 31, 1998.

Employees

      The Company has no full-time employees. Pursuant to the Shared Services
Agreement, certain employees of Drew perform administrative functions and
employee services such as management overview and planning, tax preparation,
financial reporting, coordination of the independent audit, stockholder
relations, and regulatory matters. The Company reimburses Drew for the fair
market value of such services.


                                        (3)
<PAGE>

      The approximate number of persons employed full-time by Leslie-Locke at
December 31, 1997 was 469. None of Leslie-Locke's employees are represented by a
union. The Company believes that relations with Leslie-Locke's employees are
good.

Item 2. PROPERTIES

      Leslie Locke leases two and owns two manufacturing and warehouse
facilities consisting of an aggregate of approximately 557,000 square feet, in
Compton, California (two); and Burgaw, North Carolina (two), and leases its
corporate offices in Atlanta, Georgia consisting of approximately 17,000 square
feet of office space.

      See Note 11 of Notes to Consolidated Financial Statements with respect to
the Company's lease obligations as of December 31, 1997.

Item 3. LEGAL PROCEEDINGS

      The ladder manufacturing business formerly conducted by White Metal,
Leslie-Locke's subsidiary, ceased operations in 1990. On September 30, 1994, the
date White Metal filed a voluntary petition seeking liquidation under chapter 7,
there were approximately 45 pending personal injury claims against White Metal
in various stages of demand or litigation, alleging a variety of injuries. The
initial demands made by claimants range from nominal amounts to several million
dollars; however, the average settlement amount of a claim against White Metal
had been in the range of $30,000. White Metal anticipates that additional claims
may be asserted in the future. As of December 31, 1997, based on past actuarial
studies and past experience, White Metal's estimated future product liability
was approximately $3.9 million, representing existing and future claims and
associated administrative costs. Most of White Metal's product liability
insurance has either expired or was provided by insurers that are now insolvent.
As a result, White Metal became self-insured for a substantial portion of
pending, and virtually all new, product liability claims. As a result of the
chapter 7 petition, all litigation against White Metal was stayed. Under certain
circumstances, the Bankruptcy Court could lift the stay and permit litigation of
specific claims to proceed.

      Prior to White Metal's chapter 7 petition, Leslie-Locke had been named as
a defendant in one personal injury case based on allegations of White Metal's
negligence in the manufacture of ladders, and an attempt was made to name
Leslie-Locke as a defendant in a second case. In the second case, the claim
against Leslie-Locke was dismissed by the court. The first case was settled by
White Metal upon payment made by the insurer. In September 1995, Leslie-Locke
was joined as a defendant in a personal injury action pending against White
Metal and other defendants on the theory that Leslie-Locke is the successor of
White Metal and assumed White Metal's liabilities. The case has been dormant
since January 1996 as a result of the commencement of bankruptcy proceedings by
another of the defendants. Because neither the Company nor Leslie-Locke are
engaged in the manufacture or marketing of ladders, and because the Company and
Leslie-Locke have maintained separate and distinct corporate entities,
businesses, manufacturing facilities and operations from White Metal and did not
assume White Metal's liabilities or succeed to its business, the Company and
Leslie-Locke disclaim any liability for the obligations of White Metal. In April
1996, the Company was named as a defendant in another White Metal related
personal injury case on the theory that the Company is the successor of White
Metal. The Company made a motion to dismiss the action, plaintiff failed to
respond, and the action against the Company was dismissed on default. There can
be no assurance that in the future any claim brought against White Metal, which
is asserted against the Company or Leslie-Locke, will be dismissed. Moreover,
while the Company and Leslie-Locke will vigorously oppose and defend any White
Metal


                                        (4)
<PAGE>

claim asserted against them, because claims against White Metal are asserted in
various jurisdictions, it is impossible to predict the outcome of any future
litigation involving these matters.

      On May 7, 1996, the Company and Leslie-Locke, and Drew, the former parent
of Leslie-Locke, and its subsidiary, Kinro, Inc., were served with a summons and
complaint in an adversary proceeding commenced by the chapter 7 trustee of White
Metal. The complaint, which appears to allege several duplicate claims, seeks
damages in the aggregate amount of $10.6 million plus attorneys fees, of which
approximately $7.5 million is sought, jointly and severally, from the Company,
Leslie-Locke, Drew and Kinro. The proceeding is based principally upon the
trustee's allegations that the Company and its affiliated companies obtained tax
benefits attributable to the use of White Metal's net operating losses. The
trustee seeks to recover the purported value of the tax savings achieved.
Management believes that the trustee's allegations are without merit and have no
basis in fact. In addition, the trustee alleges that White Metal made certain
payments to Leslie-Locke which were preferential and are recoverable by White
Metal, in the approximate amount of $2.2 million. Leslie-Locke denies liability
for any such amount and is vigorously defending against the allegations.
However, an estimate of potential loss, if any, cannot be made at this time. The
Company believes that the defense of this proceeding will not have a material
adverse impact on the Company's financial condition or results of operations.

      Neither the Company nor Leslie-Locke is a party to any other legal
proceedings which, in the opinion of Management, could have a material adverse
effect on the Company or its consolidated financial position.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                        (5)
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following tables set forth certain information with respect to the
Directors and Executive Officers of the Company as of December 31, 1997.

Name                      Position
Leigh J. Abrams      President, Chief Executive Officer and Director of the
(Age 55)             Company since July 1994.

Edward W. Rose, III  Chairman of the Board of Directors of the Company since
(Age 56)             July 1994.

Ralph C. Pepper      Director since July 1994.
(Age 55)

James F. Gero        Director since July 1994.
(Age 52)

Marshall B. Payne    Director since July 1994.
(Age 40)

Fredric M. Zinn      Chief Financial Officer of the Company since July 1994.
(Age 46)

Harvey J. Kaplan     Secretary and Treasurer of the Company since July 1994.
(Age 63)

      LEIGH J. ABRAMS, for more than the past five years has also been
President, Chief Executive Officer and a Director of Drew.

      EDWARD W. ROSE, III, for more than the past five years, has been President
and principal stockholder of Cardinal Investment Company, Inc., an investment
firm. Mr. Rose also serves as the Co-Managing General Partner of the Texas
Rangers Baseball Team, and as a director of the following public companies:
Osprey Holding, Inc., previously engaged in selling computer software for
hospitals; and ACE Cash Express, Inc. engaged in check cashing services. Mr.
Rose is also Chairman of the Board of Drew.

      RALPH C. PEPPER, since April 1989, has been the President of Leslie-Locke,
Inc., a subsidiary of the Company. From August 1985, to April 1989, Mr. Pepper
held various executive offices with Leslie-Locke, Inc.

      JAMES F. GERO, since March 1992, has been Chairman and Chief Executive
Officer of Sierra Technologies, Inc., a manufacturer of defense systems
technologies. From July 1987 to October 1989, Mr. Gero was Chairman and Chief
Executive Officer of Varo, Inc., a manufacturer of defense electronics, and from
1985 to 1987, Mr. Gero was President and Chief Executive Officer of Varo, Inc.
Mr. Gero also serves as a director of the following public companies:
Recognition Equipment, Inc., engaged in providing hardware, software and
services to automate work processing systems; American Medical Electronics,
Inc., engaged in manufacturing and distributing orthopedic and neurosurgical
medical devices; and Spar Aerospace Ltd., engaged in space robotics,
communications equipment and aerospace products and services. Mr. Gero is a
Director of Drew.


                                        (6)
<PAGE>

      MARSHALL B. PAYNE, for more than the past five years, has been Vice
President of Cardinal Investment Company, Inc., an investment firm. Mr. Payne
also serves as a director of the following public companies: Osprey Holding,
Inc., previously engaged in selling computer software for hospitals; and ACE
Cash Express, Inc., engaged in check cashing services.

      FREDRIC M. ZINN, a certified public accountant, for more than the past
five years, has also been Chief Financial Officer of Drew.

      HARVEY J. KAPLAN, a certified public accountant, for more than the past
five years, has also been Secretary and Treasurer of Drew.

Compliance with Section 16(a) of the Securities Exchange Act

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the NASD. Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

      Based on its review of the copies of such forms received by it, the
Company believes that during 1997 all such filing requirements applicable to its
officers and directors (the Company not being aware of any ten percent holder
other than Edward W. Rose, III a Director) were complied with.

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

Per Share Market Price Information

      The Common Stock of the Company is traded on the OTC-Bulletin Board
(symbol: LBPI). On March 9, 1998, there were 2,376 holders of record of the
Common Stock. The Company estimates that 2,000 to 4,000 additional stockholders
own shares of its Common Stock held in the name of Cede & Co. and other broker
and nominee names.


                                        (7)
<PAGE>

      The table below sets forth, for the periods indicated, the range of high
and low prices per share for the Common Stock as reported by the National
Association of Securities Dealers. The prices set forth below represent
quotations between dealers, without adjustment for retail mark up, mark down or
commissions, and do not necessarily represent actual transactions.

                                                          High      Low
                                                          ----      ---
         Calendar 1996
            Quarter ended March 31...................... $ 2.25   $ 2.13
            Quarter ended June 30....................... $ 2.38   $ 2.06
            Quarter ended September 30.................. $ 4.25   $ 2.06
            Quarter ended December 31................... $ 3.63   $ 3.13

         Calendar 1997
            Quarter ended March 31...................... $ 2.75   $ 1.38
            Quarter ended June 30....................... $ 1.81   $ 1.13
            Quarter ended September 30.................. $ 1.75   $ 1.25
            Quarter ended December 31................... $ 2.50   $ 1.19

      The closing price per share for the common stock on March 9, 1998 was
$2.63.

Dividend Information

      The Company has not paid any cash dividends on its Common Stock. Future
dividend policy with respect to the Common Stock will be determined by the Board
of Directors of the Company in light of prevailing financial needs and earnings
of the Company and other relevant factors; however, it is not anticipated that
the Company will pay dividends on its Common Stock in the foreseeable future.

      The Company's dividend policy is subject to restrictions contained in
financing agreements relating to its secured line of credit, which provide that
dividends upon the Common Stock may be payable only with the consent of the
lender. See Note 7 of Notes to Consolidated Financial Statements.


                                        (8)
<PAGE>

Item 6. SELECTED FINANCIAL DATA

      The following selected financial data should be read in conjunction with
the consolidated financial statements and related notes thereto included herein
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                          -------------------------------------------------------
                                            1997       1996        1995       1994(a)     1993(a)
-------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>         <C>         <C>         <C>
Operating Data:
  Net sales                               $ 88,325   $ 82,154    $ 75,993    $ 71,105    $ 63,689
                                          ========   ========    ========    ========    ========
  Operating profit (loss)                 $  1,503   $  2,299    $ (6,970)   $ (3,272)   $     29
                                          ========   ========    ========    ========    ========

  Income (loss) before income taxes       $    279   $    627    $ (8,069)   $ (4,202)   $ (1,000)
  Provision (benefit) for income taxes                                            264        (274)
                                          --------   --------    --------    --------    --------
  Net income (loss)                       $    279   $    627    $ (8,069)   $ (4,466)   $   (726)
                                          ========   ========    ========    ========    ========

  Net income (loss) per share (basic)(b)  $    .06   $    .13    $  (1.68)   $   (.93)   $   (.15)
                                          ========   ========    ========    ========    ========
  Net income (loss) per share (diluted)   $    .06   $    .13    $  (1.68)   $   (.93)   $   (.15)
                                          ========   ========    ========    ========    ========

Balance Sheet Data (at end of period):
  Working capital                         $  4,281   $ 11,241    $  7,015    $  7,929    $  8,631
  Total assets                            $ 34,129   $ 41,957    $ 38,749    $ 38,153    $ 35,242
  Long-term debt                          $  8,964   $ 17,598    $ 14,749    $  5,225    $ 10,522
  Stockholders' Equity                    $  8,885   $  8,563    $  7,868    $ 15,921    $ 12,780
</TABLE>

----------

(a) Operating results for 1995, 1994 and 1993 include pretax charges of
    $2,816,000, $4,433,000 and $1,035,000, respectively, in connection with
    facilities restructuring. In addition, operating results for 1995 include a
    pretax charge of $5,092,000 relating to a write-off of goodwill. See Notes 9
    and 10 of Notes to Consolidated Financial Statements.

(b) Net loss per share for 1994 and prior is based upon 4,787,393 pro forma
    shares, the number of shares distributed by Drew Industries Incorporated as
    of July 29, 1994.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      Leslie Building Products, Inc. ("Leslie Building Products"), including its
wholly-owned subsidiary Leslie-Locke, Inc. ("Leslie-Locke") (together, the
"Company"), is a diversified manufacturer and marketer of a wide variety of
specialty building products for the professional and do-it-yourself remodeling
and residential construction industry. Its products, which are manufactured and
marketed through three operating divisions, consist of (i) ornamental iron
security products (including doors, window guards, fencing and railings), (ii)
residential ventilation products, and (iii) speciality building products
consisting of metal and fiberglass air distribution products for the HVAC
industry, and a full line of door louvers and vision lite products for the
architectural door market. This broad range of products is marketed primarily to
leading home center chains and, to a lesser extent, to building material
distributors, hardware co-ops and mass merchandisers.


                                        (9)
<PAGE>

RESULTS OF OPERATIONS

Operations

      Net sales, gross margin and operating profit are (in thousands):

                                                      Year Ended December 31,
                                                 -------------------------------
                                                   1997       1996       1995
--------------------------------------------------------------------------------
Net sales                                        $ 88,325   $ 82,154   $ 75,993
                                                 ========   ========   ========

Gross profit                                     $ 15,013   $ 15,498   $ 13,483
Less:
  Selling, general and administrative expenses     13,510     13,199     12,545
  Facilities restructuring charge                                         2,816
  Revaluation of goodwill                                                 5,092
                                                 --------   --------   --------
Operating profit (loss)                          $  1,503   $  2,299   $ (6,970)
                                                 ========   ========   ========


Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

      Net sales increased 7.5% for 1997 compared to the prior year, as a result
of increased sales of all product lines except static vents, door louvers and
ornamental iron. This sales increase is primarily volume related. The increase
in ventilation sales, excluding static vents, is the result of new ventilation
product business awarded by two of the Company's major customers in December
1996. Approximately 70% of net sales are to The Home Depot.

      Gross profit as a percentage of sales declined 1.9% from the prior year.
Gross profit declined as a result of additional trade discounts given in the
first four months of 1997 in connection with acquiring the new business
described above. In addition, selling prices were reduced on certain items as a
result of competitive pressures, and the Company experienced increases in
freight rates. Offsetting this negative impact on profits was an increase in
production efficiencies including substantial overhead cuts. The Company also
obtained price reductions on certain raw materials and components. In addition,
in an effort to focus on its primary products, the Company sold its aluminum
rake business and its skylight business. These two product lines, which had
revenues of $2.9 million in 1996, or 3% of total revenues, were sold at a
breakeven.

      Selling, general and administrative expenses as a percentage of sales is
lower than last year. Reductions in fixed administrative costs were partially
offset by the increase in market development costs during the first four months
of 1997, incurred in connection with acquiring the new business described above,
as well as a provision of approximately $240,000 for accounts receivable
relating to the Chapter 11 filing of a major customer.


Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

      Net sales increased 8% over 1995 primarily as a result of continuing
volume increases in ventilation products, ductwork and security products offset
by a reduction in skylight sales and the discontinuance of postal product sales.
Sales to The Home Depot accounted for 58% of the Company's net sales in 1996 and
54% in 1995.

      Operating profit was $2,299,000 for 1996 compared to $938,000 before
charges for facilities restructuring and the revaluation of goodwill in 1995.
Gross profit percentage increased to 18.9% in 1996 from 17.7% in 1995 as a
result of reduced material costs and improved efficiencies at the new plant in
Burgaw, North Carolina. Increases in freight rates during the latter part of
1996 have had a continuing impact on 1997 margins.


                                        (10)
<PAGE>

      Selling expenses as a percentage of sales increased from 10.1% in 1995 to
10.5% in 1996 as a result of increases in commission rates and volume rebates.
General and administrative expenses decreased $276,000 in 1996, due to (i) lower
compensation related costs, (ii) $114,000 of goodwill amortization incurred in
1995 compared to none in 1996, and (iii) lower charges pursuant to a Shared
Services Agreement with Drew.

Restructuring

      In December 1994, the Board of Directors of the Company approved a plan to
restructure its manufacturing facilities in order to achieve more efficient and
less costly manufacturing and distribution of its products. The plan involved
(i) expanding the Company's facility in Burgaw, North Carolina by 157,000 square
feet, (ii) closing the Company's facilities in Chicago, Illinois and Atlanta,
Georgia and (iii) transferring operations of the closed facilities to the new
Burgaw factory and the Company's existing facility in Compton, California. The
Company recorded total pretax restructuring charges of $4,433,000 in 1994 and
$2,816,000 in 1995. The restructuring was substantially completed by December
31, 1995, and the restructuring reserve is -0- at December 31, 1997.

      Expenditures and non-cash write-offs against this accrual were:

<TABLE>
<CAPTION>
                                                                1997     1996     1995
--------------------------------------------------------------------------------------
<S>                                                           <C>      <C>      <C>
Idle plant expenses net of estimated sublease income          $  427   $1,214   $3,550
Expenses pursuant to the Company's existing post-employment
  and pension plans                                                9      367      669
Other                                                                              290
                                                              ------   ------   ------
     Total                                                    $  436   $1,581   $4,509
                                                              ======   ======   ======
</TABLE>

Revaluation of Goodwill

      In 1995, because operating results fell short of expectations and the
Company's stock price was below book value, the Company reevaluated its
accounting policy regarding goodwill impairment and adopted a new policy for
recognition and measurement of goodwill impairment based on a fair value
approach. The Company believes fair value is a preferable method to assess
goodwill as it believes that the value at which individual businesses could be
bought and sold in an arms-length transaction between a willing buyer and seller
is the most reasonable evidence and, therefore, the most relevant measure of
their value. The Company obtained an independent appraisal to determine the fair
value of its sole operating subsidiary, Leslie-Locke, to which the goodwill
relates. The determination of fair value was based on, among other things,
market comparables, discounted cash flow analyzes and a stock market valuation
of the Company. The stock market valuation of the Company was a reasonable
substitute for the value of Leslie-Locke since Leslie-Locke was the only
operating subsidiary of the Company. This change in the method of evaluating the
impairment and recoverability of goodwill resulted in a pretax charge to
operations of $5,092,000 in 1995 in order to write off the entire balance of the
goodwill. Goodwill amortization had been $170,000 per year.

Interest Expense, Net

      The reduction in interest expense from $1,672,000 in 1996 to $1,224,000 in
1997 results primarily from lower average borrowings under the Company's
revolving credit line. The lower borrowings are attributable to lower inventory
and improved cash management including faster turnover of receivables. In
addition, interest expense was reduced by the refinancing of bank debt by a $7
million Industrial Revenue Bond which has a lower interest rate.

      Interest costs on the Company's revolving debt increased from $406,000 in
1995 to $667,000 in 1996 primarily as a result of increased debt caused by the
costs of the restructuring in the latter part of 1995 and continuing into early
1996. Other interest increased $313,000 primarily as a result of the mortgage
loans and equipment loan


                                        (11)
<PAGE>

relating to the construction of the plants in Burgaw, North Carolina, which were
outstanding for the entire year in 1996 and only part of 1995.

Income Taxes

      The Company's income tax provision is recorded pursuant to the
requirements of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("Statement 109"). At December 31, 1997, the Company had a net operating
loss carryforward for Federal income tax purposes of approximately $4.1 million,
of which $3.7 million expires in the year 2010 and $.4 million expires in the
year 2011. The Company has net deferred tax assets at December 31, 1997 of $4.5
million, however, due to the uncertainty of future realization no income tax
benefit has been recorded. No income tax provision has been recorded in 1997
because the Company had losses for financial statement purposes in prior years,
primarily related to restructuring charges, on which no tax benefit was
recorded.

New Accounting Standards

      Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting both basic and diluted
earnings per share ("EPS"). Basic EPS represents the earnings available to each
common share outstanding during the reporting period. Diluted EPS reflect the
earnings available to each common share after the effect of all potentially
dilutive common shares, such as stock options. All prior period income per share
data have been restated to conform with SFAS No. 128.

      In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which permits companies
either to adopt a new method of accounting for employee stock options and
similar equity instruments or to continue following the historical accounting
method with supplemental pro forma disclosures. The Company is continuing its
historical practice, and provides the necessary additional information in
footnote disclosure.

      In June 1997, the Financial Accounting Board issued SFAS 130, "Reporting
Comprehensive Income," and SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," for fiscal years beginning after December
15, 1997. These statements address presentation and disclosure matters and will
have no impact on the company's financial position or results of operations.

Other

      Pursuant to a Shared Services Agreement with Drew Industries Incorporated
("Drew"), the Company's former parent, Drew and Leslie Building Products have
shared certain administrative functions and employee services, such as
management overview and planning, tax preparation, financial reporting,
coordination of independent audit, stockholder relations, and regulatory
matters. Drew has been reimbursed by Leslie Building Products for the fair
market value of such services. This Agreement expires on December 31, 1998 but
may be extended. The Company was charged management fees by Drew of $526,000 in
1997, $509,000 in 1996 and $588,000 in 1995.


                                        (12)
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      The Company has a $12 million revolving line of credit with Branch Banking
and Trust Company ("BBT"), consisting of cash advances of a maximum of $10.5
million, seasonally adjusted and depending upon collateral availability, and
letters of credit of $1.5 million, with interest payable at 0.625% over the
prime rate. The line of credit, of which $6 million is available at the close of
business on December 31, 1997, is adequate for the Company's anticipated needs.
The loan agreement expires in July 1999.

      Pursuant to its bank agreements the Company is prohibited from declaring
or paying dividends without the prior written consent of the lender.
Leslie-Locke is also required to maintain certain financial covenants typical to
secured borrowing arrangements. The most significant financial covenants
compared to Leslie- Locke's results for the most recent reported period, are as
follows (in thousands, except ratios):

<TABLE>
<CAPTION>
                                                          As of December 31, 1997 or
                                                            For the Year Then Ended
                                                 -----------------------------------------
                                                           Bank
                                                         Covenant           Actual Results
                                                         --------           --------------
<S>                                              <C>                        <C>
Consolidated Tangible Net Worth, as defined.....      At least $8,500          $8,775
Debt to Worth Ratio, as defined................. Not greater than 3.9 to 1        2.9
Working Capital, as defined.....................      At least $3,000          $4,316
Debt Service Coverage Ratio, as defined.........     At least 1.5 to 1            1.9
</TABLE>

      The Statements of Cash Flows reflect the following (in thousands):

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                              --------------------------------
                                                                1997        1996        1995
----------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>
Net cash flows  provided by (used for) operating activities   $ 11,279    $ (2,439)   $ (2,340)
Net cash flows  provided by (used for) investing activities   $    463    $   (841)   $ (7,827)
Net cash flows (used for) provided by financing activites     $ (8,873)   $  3,299    $  9,912
</TABLE>

      Net cash provided by operating activities was $11.3 million in 1997
compared to $2.6 million used for operations in 1996. Receivables were reduced
by $1.9 million in 1997 compared to an increase of $.2 million in 1996 as a
result of shorter average terms given to customers. Inventories decreased $6.1
million in 1997 compared to an increase of $4.6 million in 1996. The inventory
reduction in 1997 is a result of management's effort to reduce debt by more
efficient asset management. The inventory buildup in 1996 resulted from
increased levels of production in anticipation of increased 1997 sales to two
major customers.

      Cash flows provided by investing activities in 1997 primarily consists of
proceeds from the sale of the aluminum rake and skylight product lines reduced
by capital expenditures, which were only $.3 million. Capital expenditures
aggregated $.8 million for 1996 and $7.9 million for 1995. The capital
expenditures in 1995 relate primarily to the construction of a new plant in
Burgaw, North Carolina. Cash required for the 1995 capital expenditures was
provided primarily by the mortgage and equipment loans from BBT. The mortgage
was replaced by an Industrial Revenue Bond in 1997.

      Cash flows generated from operations in 1997 were used to reduce debt by
$8.9 million with the balance invested in cash. There is no revolving debt at
December 31, 1997 and mortgage debt consists primarily of an Industrial Revenue
Bond of $7 million. Seasonal borrowings will be required in 1998.


                                        (13)
<PAGE>

      At December 31, 1997, the estimated future product liability of White
Metal, Leslie-Locke's discontinued ladder manufacturing subsidiary, which is no
longer covered by insurance, was approximately $3.9 million. Such liability is
reflected in discontinued operations, net, on the Consolidated Balance Sheet.
Although Leslie-Locke was named as a defendant in certain product liability
actions, Leslie-Locke has not been held responsible, and the Company and
Leslie-Locke disclaim any liability for the obligations of White Metal.

      On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. In connection with the chapter 7 filing by White Metal, numerous proofs of
claim have been filed against White Metal. Included is a claim by Sears Roebuck
& Co., ("Sears") dated April 7, 1995, in the amount of $164 million, including
actual losses of $1.7 million and estimated future product liability losses for
the next 20 years, based upon indemnification obligations which Sears alleges
White Metal undertook in connection with White Metal's sale of ladders to Sears.
These proofs of claim have been evaluated in determining the Company's estimated
product liability accrual. The Company and Leslie-Locke have in the past
disclaimed, and continue to disclaim, any liability for the obligations of White
Metal.

      On May 7, 1996, the Company and Leslie-Locke, and Drew, the former parent
of Leslie-Locke, and its subsidiary, Kinro, Inc., were served with a summons and
complaint in an adversary proceeding commenced by the chapter 7 trustee of White
Metal. The complaint, which appears to allege several duplicate claims, seeks
damages in the aggregate amount of approximately $10.6 million plus attorneys'
fees, of which approximately $7.5 million is sought, jointly, and severally,
from the Company, Leslie-Locke, Drew and Kinro. The proceeding is based
principally upon the trustee's allegations that the Company and its affiliated
companies obtained tax benefits attributable to the use of White Metal's net
operating losses. The trustee seeks to recover the reported value of the tax
savings achieved. Management believes that the trustee's allegations are without
merit and have no basis in fact. In addition, the trustee alleges that White
Metal made certain payments to Leslie-Locke which were preferential and are
recoverable by White Metal, in the approximate amount of $2.2 million.
Leslie-Locke denies liability for any such amount and is vigorously defending
against the allegations. However, an estimate of potential loss, if any, cannot
be made at this time. The Company believes the defense of this proceeding will
not have a material adverse impact on its financial condition or results of
operations.

INFLATION

      The prices of raw materials, consisting primarily of steel, aluminum,
paint, electric motors and packaging materials are influenced by demand and
other factors specific to these commodities rather than being directly affected
by inflationary pressures.

STRATEGIC ALTERNATIVES

      On November 12, 1997, the Company announced that its Board of Directors
was considering strategic alternatives for the Company's long-range business
plans. In this connection, the Company retained Harris Williams & Co. to assist
in evaluating, and possibly disposing of, all or certain of the three major
operating divisions of the Company's wholly-owned operating subsidiary,
Leslie-Locke, Inc.

      The Board's decision is motivated by the Company's desire to achieve
greater per share value for its stockholders. The home improvements products
business is in the midst of fundamental changes, including the rapid
consolidation of manufacturers and retailers, resulting in intense competitive
pressure. As a result, the Company's goal of increased per share return to its
stockholders is unlikely to be realized in the near future. Although operating
management is optimistic about the growth opportunities available to
Leslie-Locke, the Board of Directors believes


                                        (14)
<PAGE>

that these opportunities could best be realized by a significantly larger
company which is in a better position than the Company to compete in the
changing industry. The specific restructuring plans for the Company are
dependent upon the ultimate outcome of these efforts.

YEAR 2000

      The company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has established processes for evaluating and managing the risks and
costs associated with this problem. The computing portfolio was identified and a
computer upgrade plan has been developed. The cost of achieving Year 2000
compliance is estimated to be approximately $.8 million to $1.5 million and will
be incurred through 1999.

FORWARD LOOKING STATEMENTS AND RISK FACTORS

      This report contains certain statements, including the Company's plans
regarding its operating performance which could be construed to be forward
looking statements within the meaning of the Securities and Exchange Act of
1934. These statements reflect the Company's current views with respect to
future plans, events and financial performance. The Company has identified
certain risk factors which could cause actual plans and results to differ
substantially from those included in the forward looking statements. These
factors include pricing pressures due to competition, raw material costs,
housing starts, interest rates, and the Year 2000 problem discussed above. In
addition, general economic conditions may affect the retail sale of the
Company's products.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Consolidated Financial Statements and Schedule of the Company and its
subsidiaries pursuant to this Item and Item 14 of this Report are set forth in
the Index to Consolidated Financial Statements included herein.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      Not applicable.

                                    PART III

      Part III of Form 10-K is incorporated by reference to the Company's Proxy
Statement with respect to its Annual Meeting of Stockholders to be held on May
21, 1998.


                                      (15)
<PAGE>

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES and REPORTS ON FORM 8 K

      (a) Documents Filed

            (1)   Financial Statements. See " Index to Consolidated Financial
                  Statements."

            (2)   Schedule. See " Index to Consolidated Financial Statements."

            (3)   Exhibits. See "List of Exhibits" at the end of this report
                  incorporated herein by reference.

      (b) Reports on Form 8 K

            No Current Reports on Form 8-K were filed during the quarter ended
            December 31, 1997.


                                      (16)
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                                LESLIE BUILDING PRODUCTS, INC.


Date: March 23, 1998                   By: /s/ Leigh J. Abrams
                                           -------------------
                                       Leigh J. Abrams, President

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.

            Each person whose signature appears below hereby authorizes Leigh J.
Abrams and Harvey J. Kaplan, or either of them, to file one or more amendments
to the Annual Report on Form 10-K which amendments may make such changes in such
Report as either of them deems appropriate, and each such person hereby appoints
Leigh J. Abrams and Harvey J. Kaplan, or either of them, as attorneys-in-fact to
execute in the name and on behalf of each such person individually, and in each
capacity stated below, such amendments to such Report.


Date               Signature                     Title

March 23, 1998     By:/s/Leigh J. Abrams         Director, President and Chief
                      ---------------------
                       (Leigh J. Abrams)         Executive Officer

March 23, 1998     By:/s/Harvey J. Kaplan        Secretary and Treasurer
                      ---------------------
                       (Harvey J. Kaplan)

March 23, 1998     By:/s/Fredric M. Zinn         Chief Financial Officer
                      ---------------------
                       (Fredric M. Zinn)

March 23, 1998     By:/s/John F. Cupak           Controller
                      ---------------------
                       (John F. Cupak)

March 23, 1998     By:/s/Edward W. Rose, III     Director
                      ---------------------
                       (Edward W. Rose, III)

March 23, 1998     By:/s/ James F. Gero          Director
                      ---------------------
                       (James F. Gero)

March 23, 1998     By:/s/Ralph C. Pepper         Director
                      ---------------------
                       (Ralph C. Pepper)

March 23, 1998     By:/s/Marshall B. Payne       Director
                      ---------------------
                       (Marshall B. Payne)


                                      (17)
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

      Independent Auditors' Report

      Consolidated statements of operations for the years ended December 31,
      1997, 1996 and 1995

      Consolidated balance sheets at December 31, 1997 and 1996

      Consolidated statements of cash flows for the years ended December 31,
      1997, 1996 and 1995

Consolidated statements of stockholders' equity for the years ended December 31,
1997, 1996 and 1995

      Notes to consolidated financial statements

Consolidated Financial Statement Schedules for the years ended December 31,
1997, 1996 and 1995

      Schedule II - Valuation and Qualifying Accounts

      Schedules other than that listed above are omitted as they are not
applicable or the information required is included in the consolidated financial
statements and notes thereto.


                                        (18)
<PAGE>

                          Independent Auditors' Report

The Board of Directors
Leslie Building Products, Inc.:

We have audited the consolidated balance sheets of Leslie Building Products,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Leslie Building
Products, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.


                                       /s/ KPMG Peat Marwick LLP

Stamford, Connecticut
February 18, 1998


                                        (19)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                         Year Ended December 31,
                                                 -------------------------------
                                                     1997       1996       1995
--------------------------------------------------------------------------------
(In thousands, except per share amounts)

Net sales (Note 14)                              $ 88,325   $ 82,154   $ 75,993
Cost of sales                                      73,312     66,656     62,510
                                                 --------   --------   --------
  Gross profit                                     15,013     15,498     13,483

Selling, general and administrative expenses       13,510     13,199     12,545
Restructuring expense (Note 9)                                            2,816
Revaluation of goodwill (Note 10)                                         5,092
                                                 --------   --------   --------
  Operating profit (loss)                           1,503      2,299     (6,970)

Interest expense, net                               1,224      1,672      1,099
                                                 --------   --------   --------

  Net income (loss) before income taxes               279        627     (8,069)
Provision for income taxes (Note 8)
                                                 --------   --------   --------

  Net income (loss)                              $    279   $    627   $ (8,069)
                                                 ========   ========   ========

Net income (loss) per share (basic) (Note 12)    $    .06   $    .13   $  (1.68)
                                                 ========   ========   ========

Net income (loss) per share (diluted) (Note 12)  $    .06   $    .13   $  (1.68)
                                                 ========   ========   ========

The accompanying notes are an integral part of these consolidated financial
statements.


                                      (20)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                                 -----------------
                                                                                  1997       1996
--------------------------------------------------------------------------------------------------
(In thousands, except shares and per share amounts)
<S>                                                                              <C>       <C>
ASSETS
Current assets
  Cash and short-term investments                                                $ 2,903   $    34
  Accounts receivable, trade, less allowances of $627 in 1997 and $404 in 1996     5,527     7,815
  Inventories (Note 2)                                                            10,181    16,891
  Prepaid expenses and other current assets                                        1,294     1,455
                                                                                 -------   -------
         Total current assets                                                     19,905    26,195

Fixed assets, net (Note 3)                                                        13,698    15,320
Other assets                                                                         526       442
                                                                                 -------   -------
         Total assets (Note 7)                                                   $34,129   $41,957
                                                                                 =======   =======


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Current maturities of long-term debt (Note 7)                                  $   651   $   933
  Accounts payable, trade                                                          5,957     6,442
  Accrued expenses and other current liabilities (Notes 4 and 9)                   5,163     3,882
  Discontinued operations, net (Note 5)                                            3,853     3,697
                                                                                 -------   -------
         Total current liabilities                                                15,624    14,954

Long-term debt (Note 7)                                                            8,964    17,598
Other long-term liabilities (Note 6)                                                 656       842
                                                                                 -------   -------
         Total liabilities                                                        25,244    33,394
                                                                                 -------   -------

Commitments and Contingencies (Notes 5 and 11)

Stockholders' equity (Notes 7 and 12)
  Common stock, par value $.01 per share: authorized 20,000,000 shares;
    issued and outstanding 4,860,178 shares in 1997 and 4,833,075 shares in 1996      48        48
  Paid-in capital                                                                 20,355    20,312
  Accumulated deficit                                                            (11,518)  (11,797)
                                                                                 -------   -------
     Total stockholders' equity                                                    8,885     8,563
                                                                                 -------   -------

         Total liabilities and stockholders' equity                              $34,129   $41,957
                                                                                 =======   =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                           (21)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                 --------------------------------
                                                                                   1997        1996        1995
-----------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                                              <C>         <C>         <C>
Cash flows from operating activities:
Net income (loss)                                                                $    279    $    627    $ (8,069)
Adjustments to reconcile net income (loss) to cash flows
   provided by (used for ) operating activities:
      Revaluation of goodwill                                                                               5,092
      Provision for restructuring                                                                           2,816
      Depreciation and amortization                                                 1,882       2,051       1,792
      Deferred taxes                                                                                          389
      Provision for accounts receivable                                               359          84          36
      Loss (gain) on disposal of fixed assets                                          28          19          (4)
      Changes in assets and liabilities:
           Accounts receivable, net                                                 1,929        (192)       (140)
           Inventories                                                              6,125      (4,649)        116
           Prepaid expenses and other assets                                          (89)        339        (316)
           Accounts payable, accrued expenses and other
                current liabilities                                                   749        (877)     (4,007)
           Other noncurrent liabilities                                              (139)          3         (45)
                                                                                 --------    --------    --------
           Net cash flows provided by (used for) operating
                activities from continuing operations                              11,123      (2,595)     (2,340)
Cash flows from discontinued operations                                               156         156          78
                                                                                 --------    --------    --------
           Net cash flows provided by (used for) operating activities              11,279      (2,439)     (2,262)
                                                                                 --------    --------    --------
Cash flows from investing activities:
   Capital expenditures                                                              (254)       (845)     (7,871)
   Proceeds from sales of assets                                                      717           4          44
                                                                                 --------    --------    --------
           Net cash flows provided by (used for) investing activities                 463        (841)     (7,827)
                                                                                 --------    --------    --------
Cash flows from financing activities:
   Industrial Revenue Bond                                                          7,000
   Mortgage loan                                                                                            4,313
   Equipment loan                                                                                 925       2,075
   Proceeds from secured line of credit and other borrowings                       30,614      35,089      34,800
   Repayments under secured line of  credit and other borrowings                  (46,530)    (32,783)    (31,018)
   Proceeds from employee purchases of common stock                                    43          68          16
   Other                                                                                                     (274)
                                                                                 --------    --------    --------
           Net cash flows (used for) provided by financing activities              (8,873)      3,299       9,912
                                                                                 --------    --------    --------
           Net increase (decrease) in cash                                          2,869          19        (177)
Cash at beginning of year                                                              34          15         192
                                                                                 --------    --------    --------
Cash and short-term investments at end of year                                   $  2,903    $     34    $     15
                                                                                 ========    ========    ========
Supplemental disclosure of cash flows information:
   Cash paid (received) during the year for:
      Interest on debt                                                           $  1,010    $  1,567    $    779
      Income tax (refunds) net of payments                                                   $   (270)   $     29
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      (22)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                       Total
                                           Common     Paid-in     Accumulated      Stockholders'
                                            Stock     Capital       Deficit           Equity
-----------------------------------------------------------------------------------------------
(In thousands, except shares)
<S>                                        <C>       <C>          <C>              <C>
Balance - December 31, 1994                  $ 48    $ 20,228      $  (4,355)         $ 5,921

   Net loss                                                           (8,069)           8,069)
   Employee purchases of 9,527 shares                      16                              16
                                             ----    --------      ---------          -------
Balance - December 31, 1995                    48      20,244        (12,424)           7,868

   Net income                                                            627              627
   Employee purchases of 36,155 shares                     68                              68
                                             ----    --------      ---------          -------
Balance - December 31, 1996                    48      20,312        (11,797)           8,563

   Net income                                                            279              279
   Employee purchases of 27,103 shares                     43                              43
                                             ----    --------      ---------          -------
Balance - December 31, 1997                  $ 48    $ 20,355      $ (11,518)         $ 8,885
                                             ====    ========      =========          =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      (23)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

      The Consolidated Financial Statements include the accounts of Leslie
Building Products and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The Company's only
active wholly-owned subsidiary, Leslie-Locke, Inc. ("Leslie-Locke") manufactures
and markets a wide variety of specialty building products for the professional
and do-it-yourself remodeling and residential construction industry. Its
products, which are manufactured and marketed through three operating divisions,
consist of (i) ornamental iron security products (including doors, window
guards, fencing and railings), (ii) residential ventilation products, and (iii)
speciality building products consisting of metal and fiberglass air distribution
products for the HVAC industry, and a full line of door louvers and vision lite
products for the architectural door market. Approximately 70% of Leslie-Locke's
sales are to The Home Depot.

Inventories

      Inventories are stated at the lower of cost (using the last-in, first-out,
and first-in, first-out methods) or market. Cost includes material, labor and
overhead (for manufactured products); market is replacement cost or realizable
value after allowance for costs of distribution.

Fixed Assets

      Fixed assets are depreciated principally on a straight-line basis over the
estimated useful lives of properties and equipment. Leasehold improvements and
leased equipment are amortized over the shorter of the lives of the leases or
the underlying assets. Maintenance and repairs are charged to operations as
incurred; significant betterments are capitalized.

Goodwill

      During 1995, the Company reevaluated its accounting policy towards
measurement of goodwill and changed to a fair value method. See Note 10.
Previously, the primary indicators of recoverability were current or forecasted
profitability, measured by profit before interest, but after amortization of the
goodwill.

Income Taxes

      The Company and its subsidiaries file separate Federal and state income
tax returns. The Company's subsidiaries generally file separate state income tax
returns on the same basis as the Federal income tax returns.


                                      (24)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

New Accounting Standards

      Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting both basic and diluted
earnings per share ("EPS"). Basic EPS represents the earnings available to each
common share outstanding during the reporting period. Diluted EPS reflect the
earnings available to each common share after the effect of all potentially
dilutive common shares, such as stock options.

      In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which permits companies
either to adopt a new method of accounting for employee stock options and
similar equity instruments or to continue following the historical accounting
method with supplemental pro forma disclosures. The Company is continuing its
historical practice, and provides the necessary additional information in
footnote disclosure.

Use of Estimates

      Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

(2) INVENTORIES

Inventories consist of the following (in thousands):

                                              1997         1996
-----------------------------------------------------------------


Finished goods                              $  5,886     $ 11,482
Work in process                                1,143        1,769
Raw materials                                  3,651        4,143
                                            --------     --------
                                              10,680       17,394
Adjustment to LIFO cost basis                   (499)        (503)
                                            --------     --------
     Total                                  $ 10,181     $ 16,891
                                            ========     ========


      Inventories stated at LIFO amounted to $6,352,000 at December 31, 1997 and
$9,916,000 at December 31, 1996.


                                      (25)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3) FIXED ASSETS

Fixed assets, at cost, consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          Estimated
                                                                        Useful Life
                                                     1997       1996       In Years
-----------------------------------------------------------------------------------
<S>                                               <C>        <C>        <C>
Land                                              $   595    $   595
Buildings and improvements                          9,676      9,648         40
Leasehold improvements                                635        635      5 to 15
Machinery and equipment                             9,105      9,586      5 to 10
Automotive equipment                                   27         27       2 to 4
Furniture and fixtures                              1,982      1,843      3 to 10
                                                  -------    -------
                                                   22,020       22,334
Less accumulated depreciation and amortization      8,322      7,014
                                                  -------    -------
           Fixed assets, net                      $13,698    $15,320
                                                  =======    =======
</TABLE>

      Depreciation and amortization of fixed assets consists of (in thousands):

<TABLE>
<CAPTION>
                                                            1997      1996      1995
-------------------------------------------------------------------------------------
<S>                                                        <C>       <C>       <C>
Charges to cost of sales                                   $1,500    $1,671    $1,389
Charges to selling, general and administrative expenses       216       214       177
                                                           ------    ------    ------

        Total                                              $1,716    $1,885    $1,566
                                                           ======    ======    ======
</TABLE>


(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of (in thousands):

                                                               1997      1996
------------------------------------------------------------------------------
Accrued advertising, sales allowances and related services    $2,309    $1,326
Accrued expenses and other                                     2,854     2,556
                                                              ------    ------

     Total                                                    $5,163    $3,882
                                                              ======    ======


(5) DISCONTINUED OPERATIONS

      In fiscal 1990, the Company discontinued the operations of White Metal
Rolling and Stamping Corp. ("White Metal"), the Company's ladder manufacturing
subsidiary, and sold certain assets of White Metal, (machinery, equipment and
supplies and customer lists) to a private company. The buyer did not assume any
liabilities of White


                                      (26)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Metal, nor acquire the White Metal name and will not produce White Metal
ladders. All manufacturing operations of White Metal ceased as of January 31,
1991 and substantially all of its remaining assets have since been liquidated.

      At December 31, 1997, White Metal's estimated future product liability,
which is no longer covered by insurance, was approximately $3.9 million. Such
liability is reflected in discontinued operations, net, on the Consolidated
Balance Sheet. Although Leslie-Locke was named as a defendant in certain product
liability actions, Leslie-Locke has not been held responsible, and the Company
and Leslie-Locke disclaim any liability for the obligations of White Metal.

      On September 30, 1994, White Metal filed a voluntary petition seeking
liquidation under the provisions of chapter 7 of the United States Bankruptcy
Code. In connection with the chapter 7 filing by White Metal, numerous proofs of
claim have been filed against White Metal. Included is a claim by Sears Roebuck
& Co., ("Sears") dated April 7, 1995, in the amount of $164 million, including
actual losses of $1.7 million and estimated future product liability losses for
the next 20 years, based upon indemnification obligations which Sears alleges
White Metal undertook in connection with White Metal's sale of ladders to Sears.
These proofs of claim have been evaluated in determining the Company's estimated
product liability accrual. The Company and Leslie-Locke have in the past
disclaimed, and continue to disclaim, any liability for the obligations of White
Metal.

      On May 7, 1996, the Company and Leslie-Locke, and Drew Industries
Incorporated ("Drew"), the former parent of Leslie-Locke, and its subsidiary,
Kinro, Inc., were served with a summons and complaint in an adversary proceeding
commenced by the chapter 7 trustee of White Metal. The complaint, which appears
to allege several duplicate claims, seeks damages in the aggregate amount of
approximately $10.6 million plus attorneys' fees, of which approximately $7.5
million is sought, jointly, and severally, from the Company, Leslie-Locke, Drew
and Kinro. The proceeding is based principally upon the trustee's allegations
that the Company and its affiliated companies obtained tax benefits attributable
to the use of White Metal's net operating losses. The trustee seeks to recover
the reported value of the tax savings achieved. Management believes that the
trustee's allegations are without merit and have no basis in fact. In addition,
the trustee alleges that White Metal made certain payments to Leslie-Locke which
were preferential and are recoverable by White Metal, in the approximate amount
of $2.2 million. Leslie-Locke denies liability for any such amount and is
vigorously defending against the allegations. However, an estimate of potential
loss, if any, cannot be made at this time. The Company believes the defense of
this proceeding will not have a material adverse impact on its financial
condition or results of operations.


(6) RETIREMENT AND OTHER BENEFIT PLANS

Postretirement Plans

      Leslie-Locke has a plan which provides for postretirement health care and
life insurance benefits for certain employees. New employees hired since 1994
are not eligible for such postretirement benefits. These benefits include major
medical insurance with deductible and coinsurance provisions and a lifetime
maximum benefit. Leslie-Locke pays all benefits on a current basis and the plan
is not funded. For 1997, 1996 and 1995 the postretirement benefit expense did
not have a material effect on operating results.

      At December 31, 1997, $253,000 of the Company's $268,000 liability for
postretirement benefits has been included in other long-term liabilities in the
Consolidated Balance Sheet. At December 31, 1996, $267,000 of the


                                      (27)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company's $282,000 liability for postretirement benefits has been included in
other long-term liabilities in the Consolidated Balance Sheet.

Postemployment Plans

      At December 31, 1997, $146,000 of the Company's $169,000 liability for
postemployment benefits has been included in other long-term liabilities in the
Consolidated Balance Sheet. At December 31, 1996, $105,000 of the Company's
$128,000 liability for postemployment benefits has been included in other
long-term liabilities in the Consolidated Balance Sheet.

Pension and Profit Sharing Plans

      Leslie-Locke has an hourly and a salaried defined benefit pension plan
covering all eligible employees. Pension expense relating to these plans was
$201,000, $204,000 and $190,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Leslie-Locke's contributions were determined according to
the minimum funding requirements under law in 1995 and 1996 and according to the
maximum deductibility under income tax regulations in 1997.

      The following assumptions and components were used to develop the net
pension expense (dollar amounts in thousands):

                                                        1997    1996    1995
-----------------------------------------------------------------------------
Assumptions:
   Discount rate                                         7.5%    7.5%    7.0%
   Rates of increase in compensation levels              4.5%    4.5%    4.5%
   Expected long-term rate of return on assets           9.0%    8.5%    8.5%
Components:
   Service cost - benefits earned during the period    $ 210   $ 211   $ 189
   Interest cost on projected benefits obligation        294     285     296
   Actual return on assets                              (624)   (278)   (269)
   Amortization of deferred plan items, net              321     (14)    (26)
                                                       -----   -----   -----
         Pension expense, net                          $ 201   $ 204   $ 190
                                                       =====   =====   =====


                                      (28)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      The following table sets forth the funded status of the plans and amounts
recognized in the Consolidated Balance Sheets (in thousands):

                                                              1997        1996
--------------------------------------------------------------------------------

Actuarial Present Value of Benefit Obligations:
     Vested benefit obligations                             $ 3,998     $ 3,129
     Non-vested benefit obligations                             246         141
                                                            -------     -------
     Accumulated benefit obligations                          4,244       3,270
     Benefits attributable to future salaries                   592         423
                                                            -------     -------
     Projected benefit obligations                            4,836       3,693
Plan assets at fair value                                     4,056       3,146
                                                            -------     -------
Excess of projected benefit obligations over Plan assets       (780)       (547)
Unrecognized net transition asset                              (349)       (384)
Unrecognized net loss                                           747         273
                                                            -------     -------
     Accrued pension liability recognized in the
        Consolidated Balance Sheets                         $  (382)    $  (658)
                                                            =======     =======

      The plans' assets include common stock, fixed income securities,
short-term investments and cash. Benefits are based upon years of credited
service and final average pay, including sales commissions and bonuses, for the
five highest consecutive years of earnings for the last ten calendar years
immediately preceding retirement. Participants are fully vested after five years
of continuous service as defined in the plan.

(7) LONG-TERM DEBT

      The Company has a $12 million revolving line of credit, secured by
substantially all of the Company's assets, with Branch Banking and Trust Company
("BBT"), consisting of cash advances of a maximum of $10.5 million, seasonally
adjusted and depending upon collateral availability, and letters of credit of
$1.5 million, with interest payable at 0.625% over the prime rate. At December
31, 1997, the interest rate on this line of credit was 9.125%. At December 31,
1997, there were no borrowings under this line of credit.

      Pursuant to its bank agreements, the Company is prohibited from declaring
or paying dividends without the prior written consent of the lender.
Leslie-Locke is also required to maintain certain financial covenants typical to
secured borrowing arrangements. For the year ended December 31, 1997 the Company
was in compliance with its debt covenants.

      On June 1, 1997, the Company obtained financing in the form of a $7
million Industrial Revenue Bond. The proceeds were used to pay the existing
mortgage to BBT on the Company's second plant in Burgaw, North Carolina and
other debt. The loan is for thirteen years with annual amortization beginning
June 1999 and is secured by a letter of credit from BBT which expires after
three years. Interest is variable with the tax exempt short-term market (4.4%
per annum at December 31, 1997) and there is a letter of credit fee of 1.9% per
annum.


                                      (29)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                           1997       1996
----------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>        <C>
Industrial Revenue Bond payable over thirteen years commencing June 1999 with
     variable interest rates                                                            $ 7,000
Notes payable pursuant to $10.5 million revolving line of credit, expiring July 1998               $ 8,113
Mortgage note payable to bank, interest at 8% per annum, principal
     and interest payable monthly based upon a 15-year amortization schedule
     commencing January 1994 with a balloon payment in June 2000,
     substantially prepaid in 1997                                                          152      3,691
Mortgage note payable to bank, interest at 2.825% over the LIBO rate, principal
     and interest payable monthly based upon a 15 year amortization schedule
     commencing September 1995 with a balloon payment in February 2001,
     prepaid in 1997                                                                                 3,803
Equipment note payable to bank , interest at 4% on $690,000 and 2.825% over
     the LIBO rate on the remainder, principal and interest payable monthly over
     seven years commencing July 1, 1996                                                  2,393      2,821
Other                                                                                        70        103
                                                                                        -------    -------
                                                                                          9,615     18,531
Less current portion                                                                        651        933
                                                                                        -------    -------
        Total long-term debt                                                            $ 8,964    $17,598
                                                                                        =======    =======
</TABLE>

      The approximate amount of maturities of long-term debt (in thousands) are:
1999 - $1,029; 2000 - $1,028; 2001 - $1,029; 2002 - $1,028; 2003 and thereafter
- $4,850.

(8) INCOME TAXES

      Income tax provision (benefit) in the Consolidated Statements of
Operations is as follows (in thousands):

                                  Year Ended December 31,
                                  ----------------------
                                  1997    1996     1995
--------------------------------------------------------


Current:
   Federal                        $       $       $(389)
   State

Deferred:
   Federal                                          389
   State                          ----    ----    -----
                                  $ --    $ --    $  --
                                  ====    ====    =====


                                      (30)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

      The provision (benefit) for income taxes differs from the amount computed
by applying the Federal statutory rate (34%) to income before income taxes for
the following reasons (in thousands):

                                                       Year Ended December 31,
                                                    ---------------------------
                                                       1997      1996      1995
-------------------------------------------------------------------------------


Income tax (benefit) at Federal statutory rate      $    95     $ 213   $(2,743)
Change in valuation allowance                          (135)     (305)      903
Write-off of goodwill                                                     1,731
Amortization of purchase adjustments on acquired
   companies and other non-deductible expenses           40        92       109
Other                                               -------     -----   -------
   Provision (benefit) for income taxes             $    --     $  --   $    --
                                                    =======     =====   =======

      The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are as follows (in thousands):

                                                              1997      1996
----------------------------------------------------------------------------
Deferred tax assets:
     Accounts receivable                                    $  244    $  157
     Inventories                                               309       412
     Accrual for plant restructuring                                     512
     Employee benefits other than pensions                     171       160
     Other accruals                                            393       247
     State tax credit carryforward                           1,800     1,150
     Net operating loss carryforwards                        1,980     2,107
                                                            ------    ------
           Total gross deferred tax assets                   4,897     4,745
     Less deferred tax valuation allowance                   4,511     4,095
                                                            ------    ------
           Deferred tax asset net of valuation allowance       386       650
Deferred tax liability:
     Fixed assets                                              386       650
                                                            ------    ------
           Net deferred tax asset                           $   --        $-
                                                            ======    ======

      The valuation allowance applies to deferred tax assets that may expire
before the Company can utilize them. Based upon its prior operating results, the
Company cannot conclude that the deferred tax assets are likely to be realized
in the ordinary course of operations. Accordingly, a valuation allowance is
required to reduce the carrying value of the net deferred tax asset to zero at
December 31, 1997 and 1996. The valuation allowance is periodically re-evaluated
based upon expected operating results.

      At December 31, 1997, the Company had a net operating loss carryforward
for Federal income tax purposes of approximately $4.1 million, of which $3.7
million expires in the year 2010 and $.4 million expires in the year 2011.


                                      (31)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(9) RESTRUCTURING

      In December 1994, the Board of Directors of the Company approved a plan to
restructure its manufacturing facilities in order to achieve more efficient and
less costly manufacturing and distribution of its products. The plan involved
(i) expanding the Company's facility in Burgaw, North Carolina by 157,000 square
feet, (ii) closing the Company's facilities in Chicago, Illinois and Atlanta,
Georgia and (iii) transferring operations of the closed facilities to the new
Burgaw factory and the Company's existing facility in Compton, California. The
restructuring was substantially completed by December 31, 1995. The Company has
recorded total pretax restructuring charges of $2,816,000 in 1995 and $4,433,000
in the fourth quarter of 1994.

      The components of the facilities restructuring charge are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           Accrual                                                     Accrual
                                                           Balance                                                     Balance
                                                     Beginning of Year        Provision            Activity          End of Year
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                      <C>                  <C>               <C>
1997
   Idle plant expenses, net of estimated
      sublease income                                      $  427                                  $  (427)            $    --
   Expenses pursuant to the Company's
      existing postemployment and pension plans                 9                                       (9)                 --
                                                           ------            ----------            -------             -------
                                                           $  436            $       --            $  (436)            $    --
                                                           ======            ==========            =======             =======

1996
   Idle plant expenses, net of estimated
      sublease income                                      $1,641                                  $(1,214)            $   427
   Expenses pursuant to the Company's
      existing postemployment and pension plans               376                                     (367)                  9
                                                           ------            ----------            -------             -------
                                                           $2,017            $       --            $(1,581)            $   436
                                                           ======            ==========            =======             =======

1995
   Idle plant expenses net of estimated
      sublease income                                      $2,509            $    2,682            $(3,550)            $ 1,641
   Expenses pursuant to the Company's
      existing postemployment and pension plans               911                   134               (669)                376
   Other                                                      290                                     (290)
                                                           ------            ----------            -------             -------
                                                           $3,710            $    2,816            $(4,509)            $ 2,017
                                                           ======            ==========            =======             =======
</TABLE>

      At December 31, 1996 the accrual of $436,000 is included in accrued
expenses and other current liabilities in the Consolidated Balance Sheet.


                                      (32)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10) REVALUATION OF GOODWILL

      During 1995, because operating results fell short of expectations, and the
Company's stock price was below book value, the Company reevaluated its
accounting policy regarding goodwill impairment and adopted a new policy for
recognition and measurement of goodwill impairment based on a fair value
approach. The Company believes fair value is a preferable method to assess
goodwill as it believes that the value at which individual businesses could be
bought and sold in an arms-length transaction between a willing buyer and seller
is the most reasonable evidence and, therefore, the most relevant measure of
their value. The Company obtained an independent appraisal to determine the fair
value of its sole operating subsidiary, Leslie-Locke, to which the goodwill
relates. The determination of fair value was based on, among other things,
market comparables, discounted cash flow analysis and stock market valuation of
the Company. The stock market valuation of the Company was a reasonable
substitute for the value of Leslie-Locke since Leslie-Locke was the only
operating subsidiary of the Company. This change in the method of evaluating the
impairment and recoverability of goodwill resulted in a pretax charge to
operations of $5,092,000 in 1995 in order to write off the entire balance of the
goodwill. Goodwill amortization had been $170,000 per year.


(11) COMMITMENTS AND CONTINGENCIES

Leases

      The Company's lease commitments are primarily for real estate and
vehicles. The significant real estate leases provide for renewal options and
periodic rental adjustments to reflect price index changes and require the
Company to pay for property taxes and all other costs associated with the leased
property. Most vehicle leases provide for contingent payments based upon miles
driven and other factors.

      Future minimum lease payments under operating leases at December 31, 1997
are $927,000 in 1998, $842,000 in 1999, $802,000 in 2000, $593,000 in 2001,
$504,000 in 2002 and $2,464,000 in 2003 to 2007. Rent expense for the years
1997, 1996 and 1995 was $1,389,000, $1,158,000 and $1,520,000, respectively.

Other

      As of December 31, 1997, letters of credit for $1,181,000 were outstanding
to secure certain obligations of the Company.


(12) STOCKHOLDERS' EQUITY

      There are 20,000,000 shares of Par Value $.01 Per Share Common Stock
authorized and there are 1,000,000 shares of Par Value $5 Per Share Preferred
Stock authorized, of which 4,833,075 shares of Common Stock and no shares of
Preferred Stock are outstanding.

Employee Stock Option Plan

      The Company has an Employee Stock Option Plan (the "Stock Option Plan")
pursuant to which the Company may grant officers, directors and key employees of
Leslie Building Products and Leslie-Locke options to purchase


                                      (33)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Leslie Building Products Common Stock. The Stock Option Plan provides for the
grant of stock options that qualify as incentive stock options ("ISOs") under
Section 422 of the Code and non-qualified stock options ("NQSOs").

      Under the Stock Option Plan, since 1994 Leslie Building Products' Stock
Option Plan Committee has been authorized to grant options to purchase up to an
aggregate of 300,000 shares of Leslie Building Products' Common Stock, of which
options for 96,617 shares have not yet been granted. The Committee will
determine the period for which each stock option may be exercisable, but in no
event may a stock option be exercisable more than 10 years from the date of
grant thereof. The number of shares available under the Stock Option Plan, and
the exercise price of options granted under the Stock Option Plan, are subject
to adjustments that may be made by the Committee to reflect stock splits, stock
dividends, recapitalization, mergers, or other major corporate action.

      The exercise price for options granted under the Stock Option Plan is
determined by the Committee in its sole discretion; provided, however, in the
case of an ISO granted to an optionee, the exercise price shall be at least
equal to 100% of the fair market value of the shares subject to such option on
the date of grant. The exercise price may be paid in cash or in shares of Leslie
Building Products Common Stock. Options granted under the Stock Option Plan
become exercisable in annual installments determined by the Committee and
accelerated vesting is subject to performance criteria.

      Transactions in stock options under this plan are summarized as follows:

<TABLE>
<CAPTION>
                                                                 Number
                                                                Of Shares            Option Price
-------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>
Granted in 1994 and outstanding at December 31, 1994             240,000             $ 1.66-$2.26
   Granted                                                        29,000             $ 1.55-$2.21
   Canceled                                                      (76,000)            $ 1.66
                                                                --------
Outstanding at December 31, 1995                                 193,000             $ 1.55-$2.26
   Granted                                                         7,883             $ 2.31-$3.21
   Canceled                                                       (5,000)            $ 1.66
                                                                --------
Outstanding at December 31, 1996                                 195,883             $ 1.55-$3.21
   Granted                                                         7,500             $ 2.05
                                                                --------
Outstanding at December 31, 1997                                 203,383             $ 1.55-$3.21
                                                                ========
Exercisable at December 31, 1997                                 128,500             $ 1.55-$3.21
                                                                ========
Options available for grant at December 31, 1997                  96,617
                                                                ========
</TABLE>

      Stock options generally expire in five years from the date they are
granted; options vest over service periods that range from zero to five years.

      The Company adopted the disclosure-only option under SFAS No.123,
Accounting for Stock-Based Compensation ("FAS 123"), as of December 31, 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average assumptions used for
grants included no dividend yields, risk-free interest rates of 5.5%, 5.9% and
5.4%; assumed expected volatilities of 76.9%, 56.8% and 51.5%; and expected
lives of 5, 5, and 5 years; for 1997, 1996 and 1995, respectively. The
respective number of shares available for granting options were 96,617, 104,117
and 107,000 at December 31, 1997, 1996 and 1995, respectively.

      If compensation cost for the Company's stock option plan had been
recognized in the income statement based upon the fair market method, net income
would have been reduced to $267,000 and $610,000 and earnings per share


                                      (34)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

would have been $.06 (basic and diluted ) and $.13 basic ($.12 diluted) in 1997
and 1996, respectively. Net loss per share would have been increased to
$8,081,000 or $1.69 per share (basic and diluted) in 1995.

      The following table summarizes information about stock options outstanding
at December 31, 1997:

                                           Average
                   Option                Remaining               Option
 Exercise          Shares                   Life                 Shares
   Price         Outstanding               (Years)             Exercisable
   -----         -----------               -------             -----------

$   1.55             21,500                  4.0                    8,600
$   1.66            154,000                  4.0                   92,400
$   2.05              7,500                  5.0                    7,500
$   2.21              7,500                  3.0                    7,500
$   2.26              5,000                  3.0                    5,000
$   2.31                383                  4.0
$   3.21              7,500                  4.0                    7,500
              -------------                                   -----------
                    203,383                                       128,500
              =============                                   ===========

Stock Purchase Plan

      Under the terms of the Company's 1995 Employee Stock Purchase Plan,
eligible employees may purchase shares of the Company's common stock through
payroll deductions.

      During 1997, 27,103 shares were purchased under the Stock Purchase Plan at
a cost of $1.12 to $2.12 per share. During 1996, 36,155 shares were purchased at
a cost of $1.97 to $2.02 per share. At December 31, 1997, there were 302,215
shares available for future purchases under the Plan.

Common Stock and Shares Outstanding

      Net income per common share (basic) is based on 4,850,905 shares,
4,817,138 shares and 4,789,592 shares for the years ended December 31, 1997,
1996 and 1995, respectively, the weighted average of common shares outstanding.
Net income per common share (diluted) is based on 4,864,493 shares and 4,888,230
shares for the years ended December 31, 1997 and 1996, respectively. Net income
(loss) per common share (basic) for 1995 is the same as net income (loss) per
common share (diluted) since the Company had a loss and therefore the exercise
of outstanding options would be antidilutive. The increase in diluted average
shares outstanding results from the assumed issuance of common stock pertaining
to stock options. The numerator, which is equal to net income, is constant for
both the basic and diluted income (loss) per share calculations.


                                      (35)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13) SHARED SERVICE AGREEMENT

      Pursuant to a Shares Services Agreement with Drew Industries Incorporated,
the Parent of the Company until the Company was spun off in July 1994, the
Company has paid management fees for certain administrative services which are
included in selling, general and administrative expenses as follows (in
thousands):

Year ended December 31, 1997..................................  $   526
Year ended December 31, 1996..................................  $   509
Year ended December 31, 1995..................................  $   588

(14) SIGNIFICANT CUSTOMERS

      The Home Depot accounted for 70%, 58% and 54% of the Company's net sales
in the years ended December 31, 1997, 1996 and 1995, respectively. Management
believes its relationship with this customer is good.


(15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      Interim unaudited financial information follows (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                  First     Second     Third     Fourth
                                                 Quarter    Quarter   Quarter    Quarter       Year
---------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>       <C>       <C>         <C>
Year Ended December 31, 1997
        Net sales                               $ 20,399    $28,300   $23,675   $ 15,951    $88,325
        Gross profit                               2,657      5,217     4,040      3,099     15,013
        Net income (loss)                         (1,267)       859       751        (64)       279
        Net income (loss) per share (basic)         (.26)       .18       .15       (.01)       .06
        Net income (loss) per share (diluted)       (.26)       .18       .15       (.01)       .06

Year Ended December 31, 1996
        Net sales                               $18, 751    $25,969   $21,226   $ 16,208    $82,154
        Gross profit                               3,247      5,192     4,257      2,802     15,498
        Net income (loss)                           (267)     1,039       479       (624)       627
        Net income (loss) per share (basic)         (.06)       .22       .10       (.13)       .13
        Net income (loss) per share (diluted)       (.06)       .21       .10       (.13)       .13
</TABLE>


                                      (36)
<PAGE>

                         LESLIE BUILDING PRODUCTS, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
COLUMN A                                          COLUMN B               COLUMN C             COLUMN D     COLUMN E
--------                                          --------     ----------------------------   --------     --------
                                                                         Additions
                                                               ----------------------------
                                                 Balance At    Charged To       Charged To                 Balance At
                                                  Beginning     Costs and          Other                      End
                                                  Of Period     Expenses         Accounts    Deductions    Of Period
-----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>              <C>          <C>           <C>
YEAR ENDED DECEMBER 31, 1997:
    Allowance for doubtful accounts
      receivable, trade                          $    404        $  359                       $  136(a)      $   627
    Reserve for liquidation losses -
      disposal of businesses                        2,587           156                                        2,743

YEAR ENDED DECEMBER 31, 1996:
      Allowance for doubtful accounts
         receivable, trade                       $    355        $   73                       $   24(a)      $   404
      Reserve for liquidation losses -
         disposal of businesses                     2,431           156                                        2,587

YEAR ENDED DECEMBER 31, 1995:
      Allowance for doubtful accounts
         receivable, trade                       $    390        $   42                       $   77(a)      $   355
      Reserve for liquidation losses -
         disposal of businesses                     2,353           156                           78(b)        2,431

(a) Represents accounts written-off net of recoveries.
(b) Represents liquidation expenses incurred, net of recoveries, in connection
    with disposal of discontinued operations.
</TABLE>

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<PAGE>

                                  EXHIBIT INDEX

Exhibit                                                         Sequentially
Number       Description                                        Numbered Page
-----------------------------------------------------------------------------
3.           Articles of Incorporation and By laws.

3.1          Leslie Building Products, Inc.
             Certificate of Incorporation, as amended.

3.2          Leslie Building Products, Inc. By laws.


      Exhibits 3.1 and 3.2 are incorporated by reference to the Exhibits bearing
the same numbers indicated on the Registration Statement of Leslie Building
Products, Inc. on Form 10 (Registration No. 0-24094).

10.     Material Contracts.

10.1    Plan and Agreement of Distribution between the Registrant and Drew
        Industries Incorporated, dated July 29, 1994.

10.3    Shared Services Agreement between the Registrant and Drew Industries
        Incorporated, dated July 29, 1994.

10.4    Tax Matters Agreement between the Registrant and Drew Industries
        Incorporated, dated July 29, 1994.

10.5    1994 Stock Option Plan of the Registrant and Subsidiaries, dated July
        29, 1994.

10.6(a) Pension Plan for Salaried Employees of Leslie-Locke, Inc.

10.6(b) Pension Plan for Hourly Rated Employees of Leslie-Locke, Inc.

10.7    Non-competition Agreements between Leslie-Locke Acquisition Sub., Inc.
        and Ralph C. Pepper and James S. Roach, respectively, dated August 28,
        1985.

10.12   Asset Purchase Agreement by and between White Metal Rolling and Stamping
        Corp. and R.D. Werner Co., Inc., dated as of November 23, 1990.

10.13   Guaranty and Non-competition Agreement given by Drew Industries
        Incorporated and Leslie-Locke, Inc., in favor of R.D. Werner Co., Inc.,
        dated as of November 23, 1990.

10.14   Lease between Leslie-Locke, Inc. and Trust Company of the West, dated
        December 6, 1991, as amended.

10.15   Loan Agreement between Branch Banking and Trust Company ("BBT") and
        Leslie-Locke, Inc. dated June 21, 1993.

10.16   $4,200,000 Promissory Note of Leslie-Locke, Inc. to BBT dated June 21,
        1993.


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<PAGE>

10.17   North Carolina Deed of Trust between Leslie-Locke, Inc. and BBT dated
        June 21, 1993.

10.18   Loan Agreement between BBT and Leslie-Locke dated July 29, 1994.

10.19   $6,000,000 Revolving Credit Note of Leslie-Locke, Inc. to BBT dated July
        29, 1994.

10.20   Security Agreement between BBT and Leslie-Locke dated July 29, 1994.

10.21   Guaranty Agreement between BBT and the Registrant dated July 29, 1994.

10.22   Supplemental Executive Retirement Plan for Leslie-Locke, effective
        January 1, 1994.

10.23   Loan Agreement between BBT and Leslie-Locke dated as of January 6, 1995.

10.24   Guaranty Agreement between BBT and Registrant dated as of January 6,
        1995.

10.25   Amended and Restated Loan Agreement between BBT and Leslie-Locke, Inc.,
        dated November 29, 1995.

10.26   Amended and Restated Revolving Credit Note of Leslie-Locke, Inc. to BBT,
        restated November 29, 1995.

10.27   Amended and Restated Security Agreement between BBT and Leslie-Locke,
        Inc., dated November 29, 1995.

10.28   Amended and Restated Guaranty Agreement between BBT and the Registrant,
        dated November 29, 1995.

10.29   1995 Second Consolidated Amendment Agreement to Loan Agreement by and
        among BBT, Leslie- Locke, Inc. and Registrant, dated November 29, 1995.

10.30   1995 Third Consolidated Amendment Agreement to Loan Agreement by and
        among BBT, Leslie-Locke, Inc. and Registrant, dated November 29, 1995.

10.31   1996 First Consolidated Amendment Agreement to November 29, 1995 Loan
        Agreement by and among BBT, Leslie-Locke, Inc. and Registrant, dated
        February 20, 1996.

10.32   Bond Purchase Agreement by and among The Pender County Industrial
        Facilities and Pollution Control Financing Authority, Blount Parrish &
        Roton, Inc. and Leslie-Locke, Inc., dated June 13, 1997

10.33   Remarketing Agreement by and among Leslie-Locke, Inc., The Pender County
        Industrial Facilities and Pollution Control Financing Authority and
        Blount Parrish & Roton, Inc., dated as of June 1, 1997

10.34   Security Agreement by and between Leslie-Locke, Inc. and Branch Banking
        and Trust Company dated as of June 1, 1997

10.35   Deed of Trust and Security Agreement by and among Leslie-Locke, Inc.,
        Jerone C. Herring, as Trustee, and Branch Banking and Trust Company
        dated June 1, 1997

10.36   Indenture of Trust by and between The Pender County Industrial
        Facilities and Pollution Control Financing Authority and Norwest Bank
        Minnesota, National Association, dated as of June 1, 1997


                                      (39)
<PAGE>

10.37   Bond by and between The Pender County Industrial Facilities and
        Pollution Control Financing Authority and Cede & Co. dated June 13, 1997

10.38   Loan Agreement by and between The Pender County Industrial Facilities
        and Pollution Control Financing Authority and Leslie-Locke, Inc. dated
        as of June 1, 1997

10.39   Promissory Note by and between Leslie-Locke, Inc. and The Pender County
        Industrial Facilities and Pollution Control Financing Authority dated
        June 13, 1997

10.40   Guaranty Agreement by and between Leslie-Locke, Inc. and Branch Banking
        and Trust Company dated as of June 1, 1997

10.41   Letter of Credit and Reimbursement Agreement by and between
        Leslie-Locke, Inc. and Branch Banking and Trust Company dated as of June
        1, 1997

      Exhibits 10.1-10.5 are incorporated by reference to the Exhibits bearing
the same numbers indicated on Post-Effective Amendment No. 1 on Form 10/A, dated
August 30, 1994, to the Registration Statement of Leslie Building Products, Inc.
on Form 10 (Registration No. 0-24094).

      Exhibits 10.6(a) and 10.6(b) are incorporated by reference to the Exhibits
bearing the same numbers indicated on the Registration Statement of Leslie
Building Products, Inc. on Form 10 (Registration No. 0-24094).

      Exhibit 10.7 is incorporated by reference to the Exhibit included in the
Current Report of Drew Industries Incorporated on Form 8-K dated September 6,
1985.

      Exhibits 10.12 and 10.13 are incorporated by reference to the Exhibits
bearing numbers 10.121 and 10.122, respectively, included in the Current Report
of Drew Industries Incorporated on Form 8-K, dated November 28, 1990.

      Exhibit 10.14 is incorporated by reference to the Exhibit bearing number
10.133 included in the Annual Report of Drew Industries Incorporated on Form
10-K for the fiscal year ended August 31, 1992.

      Exhibits 10.15-10.17 are incorporated by reference to the Exhibits bearing
numbers 10.136, 10.137 and 10.138, respectively, included in the Annual Report
of Drew Industries Incorporated on Form 10-K for the year ended December 31,
1993.

      Exhibits 10.18-10.24 are incorporated by reference to the Exhibits bearing
the same numbers included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.

      Exhibits 10.25-10.31 are incorporated by reference to the Exhibits bearing
the same numbers included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.

      Exhibits 10.32 - 10.41 are filed herewith.

21.     Subsidiaries

        Exhibit 21 is filed herewith ____________ .

23.     Consent of Independent Auditors.


                                      (40)
<PAGE>

        Exhibit 23 is filed herewith ____________ .

24. Powers of Attorney.

      Powers of Attorney of persons signing this Report are included as part of
this Report.


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