SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
        (Mark One)
        X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             For the fiscal year ended December 31, 1996

                                       OR

        __   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from __________ to __________

                         Commission file number 33-64142

                           UNITED STATES LEATHER, INC.
                            (Exact name of registrant
                          as specified in its charter)

   Wisconsin                                                       13-3503310
   (State or other jurisdiction                              (I.R.S. Employer
   of incorporation or organization)                      Identification No.)


   1403 West Bruce Street                                               53204
   Milwaukee, Wisconsin                                            (Zip Code)
   (Address of principal executive offices)


   Registrant's telephone number, including area code:         (414) 383-6030
   Securities registered pursuant to Section 12(b) of the Act:      None
   Securities registered pursuant to Section 12(g) of the Act:      None

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

   Indicate by check mark 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, in 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 ]

                                 _______________

   As of the date hereof and at all times during 1996 there was no public
   market for the Company's Common Stock.

   Number of shares outstanding of the Company's Common Stock as of the date
   hereof:  100
                                 _______________

                 COMPANY'S DOCUMENTS INCORPORATED BY REFERENCE:

                                      None
   <PAGE>

   Part I

   Item 1.   Business

   General

             United States Leather, Inc., a Wisconsin corporation (the
   "Company"), is one of the largest and most diversified producers of
   leather in North America, and a leading leather producer for the domestic
   furniture and footwear industries.  The Company produces and markets a
   broad line of finished leather and related products which are sold to a
   diverse customer base in the United States and internationally in three
   principal markets:  furniture, footwear and personal leather goods, and
   automotive.  The Company also sells unfinished hides, partially finished
   hides and leather by-products to other leather producers, although these
   sales constitute only a small portion of the Company's overall revenue.

             The Company's finished leather operations are divided into three
   principal lines of business:

             Furniture Group.  The Company, under the trade name Lackawanna
   Leather, is a leading supplier of upholstery leather to the furniture
   industry. Furniture Group sales were $99.8 million in 1996.

             Footwear and Personal Leather Goods Group.  The Company is a
   leading producer of finished leather for footwear, personal accessories,
   sporting goods, apparel and other personal leather goods.  Selling under
   the brand names Pfister & Vogel, A. L. Gebhardt, A. R. Clarke and Caldwell
   Moser Leather, the Group's sales in 1996 aggregated approximately $181.0
   million.

             Automotive Group.  The Company is an emerging producer of
   finished leather for use in automobile interiors.  Group sales in 1996
   were approximately $19.4 million.

             The Company also operated two divisions which it discontinued
   during 1996.  The USL Trading Division traded hides and sold partially
   finished leather and unwanted or excess hides.  Prior to being
   discontinued, Trading's sales in 1996 were $7.4 million.  The Company also
   operated a branch in Germany which procured partially finished hides from
   outside sources, principally from South America, contracted for them to be
   finished and sold the finished leather to furniture manufacturers in
   Europe.  Prior to its closing, 1996 sales were approximately $4.2 million.

             The Company was formed in December, 1988 for the purpose of
   acquiring Lackawanna Leather, Pfister & Vogel and A. L. Gebhardt in a
   leveraged buyout sponsored by Bear Stearns Acquisition Corp. VII ("BSAC
   VII"), an affiliate of The Bear Stearns Companies, Inc.  The Company's
   principal executive offices are located at 1403 West Bruce St., Milwaukee,
   Wisconsin 53204.  Its telephone number is (414)-383-6030.

   The 1996 Holding Company Recapitalization

             In a series of transactions completed in 1993, the Company was
   reorganized into a corporate structure consisting of  the Company and two
   new holding companies:  United States Leather Holdings, Inc. ("USLH"),
   which owned 100% of the capital stock of the Company, and U.S. Leather
   Holdings, Inc. ("Old Holdings"), which in turn owned 100% of the capital
   stock of USLH.  Old Holdings also carried, as of April 9, 1996, $86.0
   million aggregate principal amount of 15% Senior Debentures Due 2004 (the
   "Old Holdings Debentures"), approximately 87% of which were owned by The
   Equitable Life Assurance Society of the United States and certain of its
   affiliates and 13% of which were owned by First Plaza Group Trust (the
   "Former Holding Company Debenture Holders").  The Old Holdings Debentures
   were secured by the capital stock of USLH.

             A default occurred with respect to the Old Holdings Debentures
   due to the noncompliance, as of December 31, 1995, of Old Holdings with a
   financial covenant contained in the Old Holdings Debentures.  Old Holdings
   was unable to cure the default; however, the default did not give rise to
   any cross-defaults or other recourse to the Company's 10-1/4% Senior Notes
   Due 2003 (the "Senior Notes") or $65 million revolving credit facility in
   place at the time (the "Old Revolving Credit Facility").

             On April 9, 1996, a series of transactions were completed, with
   the consent of Old Holdings, USLH and the Company, which resulted in the
   Former Holding Company Debenture Holders foreclosing on their security.
   Such foreclosure resulted in the cancellation of the Old Holdings
   Debentures and the contribution of all USLH capital stock to Leather U.S.,
   Inc. (the "New Holding Company"), a company wholly owned by the Former
   Holding Company Debenture Holders. The foreclosure also resulted in the
   elimination of any ownership interest in USLH or the Company by BSAC VII.
   The nominees of BSAC VII resigned from the Board of Directors of the
   Company and were replaced by nominees of the New Holding Company.  The
   1996 Holding Company Recapitalization did not cause a default under any of
   the existing debt of the Company, nor did it constitute a change of
   control or default under the Senior Notes or the Old Revolving Credit
   Facility.

             Upon the consummation of the 1996 Holding Company
   Recapitalization, the Company and its parent companies were reorganized
   into their current structure:  the Company is a wholly-owned subsidiary of
   USLH which is in turn a wholly-owned subsidiary of the New Holding
   Company.  The New Holding Company and USLH have no assets other than the
   shares of their respective subsidiary, and have no independent operations.
   The Company owns all of its operating assets directly, except those owned
   by A.R. Clarke Limited ("A.R. Clarke"), the Company's wholly-owned
   subsidiary.  The Company's principal indebtedness are the Senior Notes and
   its revolving credit facility.

             In November 1996, the Company entered into a new $80 million
   asset-backed revolving credit facility (the "New Revolving Credit
   Facility") that replaced the Old Revolving Credit Facility.  In December
   1996 the New Revolving Credit Facility was amended and restated to reflect
   the syndication of the facility among a number of financial institutions.
   In February 1997 the New Revolving Credit Facility was amended to, among
   other things, modify certain financial covenants.  In March 1997 the New
   Credit Agreement was further amended to, among other things, eliminate
   certain December 31, 1996 financial covenants.  See Item 7 of this Form
   10-K under the caption "Liquidity and Capital Resources."

   Company Reorganization

             Prior to 1996, the Company, while reporting as an integrated
   company, operated as a series of stand-alone divisions or subsidiaries
   with separate financial statements and management teams for each unit.
   During 1996, the Company eliminated this divisional structure and
   reorganized its management structure along functional lines, and its
   business structure (i.e. segment financial reporting) along the lines of
   markets served.  While the Company has preserved Lackawanna Leather,
   Pfister & Vogel, A.L. Gebhardt, Caldwell-Moser, and A.R. Clarke as valued
   trade names, it no longer evaluates or reports business results according
   to these designations.

             In April, 1996, at the time of the 1996 Holding Company
   Recapitalization previously discussed,  the Company retained Claymore
   Partners Ltd., financial consultants with expertise in company
   turnarounds, to assume day-to-day management control of the Company.
   William F. Loftus, a partner in Claymore Partners, was appointed Chief
   Executive Officer of the Company.

             During 1996, the Company began a series of initiatives to
   strengthen the Company's financial position and return it to
   profitability.  Among these initiatives were (1) the reorganization of the
   management of the Company previously discussed, which included the
   elimination of division presidents, the elimination or replacement of
   several other senior executives in the Company, and a general reduction in
   salaried workforce, (2) comprehensive reviews of the Company's products
   and inventories, (3) closing two operations which had not been profitable
   and were not strategically critical to the Company, (4) replacing critical
   talent which had been lost in prior years, and (5) vacating the Company's
   corporate offices and moving such offices into one of the Company's
   operating facilities.  During 1996, the Company also continued efforts to
   grow the business of its Automotive Group.

   The Leather Manufacturing Process

             The leather manufacturing process begins with the conversion of
   raw cattle hides into "wet blue" leather through soaking and agitating in
   alkaline and chromium solutions that dissolve the hair and preserve the
   hide.  The term "wet blue" is derived from the fact that this initial
   tanning process turns the hides into a bluish color.

             After bluing, hides are split and shaved to obtain uniform
   thicknesses and separated into classifications referred to as grain (the
   outside portion of the split hide which is considered the most desirable
   and is used to make the higher quality finished leathers) and splits (the
   interior portion of the hide used to make less expensive suedes and other
   leathers).  Grains are further sorted according to the quality of the
   tanned hide, based on such criteria as appearance, the number of surface
   defects and weight.  Hides are then colored with dyes, treated with fat
   liquors to soften and smooth the leather, and then dried and finished
   through a variety of sophisticated processes to improve the appearance and
   performance of the grain and, in some cases, to add such properties as
   water resistance.  Finally, hides are electronically measured and packaged
   for shipment to customers who, with the exception of certain automotive
   customers, cut the finished leather for their products.  In the case of
   certain automotive customers, the Company cuts the leather into prescribed
   patterns (known as "cut sets"), and then sells such sets to seating
   manufacturers.

             As with any manufacturing process which involves organic
   materials such as cattle hides, which vary from lot to lot and season to
   season, there is a certain amount of art in addition to science which goes
   into the successful production of quality leathers.  The manufacturing
   processes must generate finished leathers with the consistent and
   distinctive properties customers require.  The process also requires a
   selection of hides in order to permit the manufacture of the array of
   products customers demand.

             By its nature, leather manufacturing regularly generates excess
   and off-quality products.  Excess inventories may be created by changes in
   leather fashions, overestimation of customer requirements for a particular
   leather product or by customer returns.  Off-quality inventories may be
   created by hide defects, equipment malfunctions or manufacturing process
   mistakes.  Historically, the Company adopted the practice of holding such
   inventories for rework and/or resale into other finished markets.  Such
   practices, however, consumed manufacturing capacity and sales effort, and
   often required such stocks to remain idly in inventory until a suitable
   opportunity to rework or sell the products arose.  In 1996, the Company
   changed its policy toward disposing of these inventories.  The new policy
   calls for less rework, fewer small-lot sales (which require extensive time
   and effort from the sales force), and more bulk sales to leather brokers,
   particularly offshore brokers.  As a consequence, the Company now writes
   such inventories down to a lower estimated net realizable value and
   attempts to sell them more promptly.  Sales of excess and off-quality
   inventories, although less than 3% of total Company sales, doubled in 1996
   from 1995.

   Sales

             The Company's finished leather operations are divided into three
   principal lines of business.  The following chart summarizes the Company's
   sales by line of business:

                                                  1996     1995    % Change

    Furniture Group                             $ 99.8   $127.1     (21)%
    Footwear and Personal Leather Goods Group    181.0    191.7      (6)
    Automotive Group                              19.4      9.3     109
    Other                                         11.6     32.6     (64)
                                                ------   ------    ------
         Total Net Sales                        $311.8   $360.7     (14)%
                                                ======   ======    ======

             The Company sells its products into markets which tend to be
   cyclical.  Furniture Group sales are affected by such factors as housing
   starts and completions, interest rates, consumer confidence levels and
   general economic conditions.  Footwear and Personal Leather Goods Group
   sales tend to be functions of retail and fashion trends, and can also be
   affected by international markets, since the majority of footwear is now
   manufactured overseas.  Automotive Group sales are influenced by
   automobile sales and the economic and social factors which influence such
   sales.

   Furniture Group

             The Furniture Group was founded as Lackawanna Leather in 1896,
   and continues to sell under the Lackawanna trade name today.  The Group
   produces and markets finished leather for the furniture industry and, to a
   lesser extent, the aircraft seat manufacturing industry.  Group sales in
   1996 were $99.8 million, which accounted for 32.0% of the Company's net
   sales.

             Finished upholstery leather is sold primarily to furniture
   manufacturers, generally at three different price categories:
   promotional, medium fashion and high fashion.  Under the Lackawanna trade
   name, the Company is a leader in the medium and high fashion categories,
   and has a substantial share of the market serving the promotional price
   category.  Selling such brands as Regency, Passport, Captiva, Rustica and
   Commanche, the group has built upon its strength in the mid-to-upper
   fashion categories to develop and sell new leathers at competitive price
   points, thus helping to satisfy consumer demand for quality leather
   furniture at affordable prices.  To maintain its leading market position,
   the group works closely with its customer base to develop and refine its
   leather upholstery products in a variety of fashion-oriented colors and
   textures.

             The Furniture Group sells its products domestically through a
   five person direct sales force reporting to the group's Vice President of
   Sales and Marketing.

             The Furniture Group receives tanned and partially tanned hides
   primarily from the Company's tanneries in Omaha, Nebraska and Milwaukee,
   Wisconsin, although it also acquires such hides from other domestic and
   international tanneries.  The Group finishes the hides and then packages
   and ships them to customers from its plant in Conover, North Carolina.

   Footwear and Personal Leather Goods Group

             The Company markets finished leather to the footwear and
   personal leather goods industries under the trade names of the companies
   originally acquired to form the Footwear and Personal Leather Goods Group
   - Pfister & Vogel, A.L. Gebhardt, A.R. Clarke and Caldwell Moser.  The
   Group is a leading producer of finished leathers used in the production of
   high quality dress and casual footwear, rugged outdoor and athletic
   footwear, leather apparel, sporting goods and personal accessories such as
   gloves, belts and handbags.  Under the Caldwell Moser trade name, the
   Group produces leather for shoe laces and harder, more durable leathers
   for such applications as shoe soles, saddles and animal collars.  The
   Group also provides contract tanning and finishing services to other small
   leather producers, and also sells finished splits, wet blue and various
   leather by-products.  Group sales in 1996 were $181.0 million, which
   accounted for 58.1% of the Company's net sales.

             The diversity of the Group's product line, enhanced regularly by
   the introduction of new products, is the source of the Company's
   competitive strength in the footwear and personal leather goods market
   segments.  Under the Pfister & Vogel trade name alone, the Company markets
   over 100 types of shoe leather, each with its own distinct combination of
   color, finish and texture.  Examples are Durashu, the standard penny
   loafer shoe leather since the 1950's, Raindance, a highly water resistant
   shoe leather used in outdoor hiking and boat shoes, Thunderhead, a heavy
   oil, water resistant outdoor leather used in outdoor hiking shoes, and
   Cyclone, a heavy oil, pull-up leather used in men's casual footwear.  The
   Company believes that the color, texture and consistency of its various
   products have been developed through a process that it considers
   proprietary in nature.

             The Footwear and Personal Leather Goods Group manufactures
   finished leather at  facilities located in Milwaukee, Wisconsin, Berlin,
   Wisconsin,  New Albany, Indiana and Toronto, Canada.  Through the
   diversity and flexibility of these facilities, the Company is able to (a)
   cost-effectively produce a wide variety of leather products, including
   waterproof and water resistant leathers, as well as splits and other by-
   products, (b) support a customer base numbering in excess of 1,000, (c)
   productively utilize the different selections of leather each lot of hides
   produces, and (d) support, as needed, the tanning needs of the Company's
   Furniture and Automotive Groups.

             Export sales are an increasingly important aspect of the
   international footwear market, as manufacturers continue to shift
   production from domestic facilities to overseas operations, especially in
   the Far East.  In addition to exporting finished products into these
   markets, the Company also contracts for certain leather tanning and
   finishing in China to support the growing demand for such operations in
   closer proximity to shoe manufacturers' overseas operations.

             The Company supports its footwear and personal leather goods
   sales through a fourteen person direct sales and marketing force augmented
   by manufacturers representatives in Europe, Asia, Canada and the United
   States.  The Company also maintains a sales office in Taiwan to support
   its Far East sales operations.

   Automotive Group

             The Company formed the Automotive Group in 1992 to supply
   finished leather to the worldwide automotive leather interior market,
   which the Company believes is over $1.0 billion per year.  Until 1996, the
   Group's sales consisted almost exclusively of finished hides sold to
   automotive original equipment manufacturers and aftermarket suppliers.  In
   1996, however, the Group began selling cut sets to seating manufacturers
   that supply a major domestic automobile manufacturer.  Of the Group's
   $19.4 million 1996 sales, approximately 35% were sold as cut sets.  The
   Group has been awarded 19 cut-to-pattern contracts to date, which are
   expected to provide substantial volume growth for the Company going
   forward.

             The Company manufactures its Automotive leather at its
   facilities in Omaha, Nebraska.

             The Automotive Group markets its products through automotive
   manufacturers' representatives located in the United States, Canada and
   Asia.

   Other

             In 1996, the Company discontinued its USL Trading Division and
   the German operations of its Furniture Group.  The USL Trading Division
   traded hides and sold partially finished leather and unwanted or excess
   hides on the open market.  The German operations procured partially
   finished hides from outside sources, principally South America, contracted
   for them to be finished and then sold the finished leather to
   manufacturers in Europe.  Since these operations consisted mostly of
   buying and selling activities, rather than the core manufacturing
   competencies for which the Company had become best known, and since
   neither produced or were expected to produce in the foreseeable future a
   material strategic or financial benefit, management  decided to
   discontinue their operations.  Each operation ceased doing business during
   1996.  Aggregate sales of these discontinued operations in 1996 were less
   than 4% of total Company sales.

   Raw Materials

             The single largest component of the cost of finished leather is
   the cost of the cattle hide.  Hide costs in each of the past three years
   have accounted for approximately 60% of the Company's cost of goods sold.
   The Company believes it purchases approximately 5% of the hides taken from
   cattle slaughtered in the United States, and that it is among the largest
   U.S. buyers of raw domestic cattle hides.  The three largest domestic meat
   packers account for approximately 60% of the total number of U.S. cattle
   slaughtered for commercial purposes and, accordingly, are also the
   Company's largest suppliers of hides.  The Company purchases most of its
   raw cattle hides domestically on a spot basis; however, due to the general
   availability of such hides, the concentration of hide supplies among a
   limited number of meat packers has not historically had a materially
   adverse effect on the Company's ability to source raw hides.

             Imported cattle hides in the form of partially tanned and
   finished leather constituted approximately 13% of the Company's
   manufacturing material requirements in 1996.  Most of such imports by the
   Company in 1996 were from tanners in Thailand and Argentina.

             The Company's diverse product line enables it to utilize a wide
   variety of hide grades and types.  Consequently, the Company is able to
   purchase large quantities of varied hides and use substantially all of the
   hides contained in each shipment from the meat packers.  This, in turn,
   enables the Company to centralize its raw hide purchasing.

             Hides are a by-product of the cattle slaughtered to meet the
   worldwide demand for beef and beef products.  Prices are subject to
   cyclical, seasonal and other market fluctuations.  Historically, the
   Company has been generally successful in passing along raw material price
   increases to customers unless the demand for finished leather was weak.
   Such increases take time to implement and when prices rise significantly
   in a short period of time the Company's margins have suffered until such
   time as the price increases are fully implemented.  Such price increases,
   however, may also impact demand for leather goods by prompting customers
   to consider alternative materials, especially in the furniture and
   automotive segments. Hide price increases and decreases immediately impact
   the Company's cost of goods sold because the Company recognizes such
   changes immediately through its LIFO method of accounting.   Coupled with
   delays in passing such changes through to selling prices for finished
   products, hide price fluctuations may have a material impact on the
   Company's reported financial results.

             From time to time, in an effort to improve the selection and
   yield of hides, the Company will build hide inventories during the fall
   for use during the winter season.  Such hide buys benefit the Company
   because the hides have fewer defects, have less hair and therefore cost
   less to tan, and generally produce higher quality leathers.  The Company
   did not execute such a hide buy in 1996 because of the increase in hide
   prices in the months immediately preceding the buying season, and
   management did not wish to take the risk of carrying higher priced
   inventories should hide prices recede to the levels of the first half of
   the year.

             Other materials consumed in leather tanning and finishing, such
   as chemicals and dyes, typically aggregate less than 13% of total cost of
   goods sold.  Such materials are readily available from a variety of
   suppliers.

   Competition

             Each of the Company's principal markets - furniture, footwear
   and personal leather goods, and automotive - is highly competitive, and
   certain of the Company's competitors may have greater financial or other
   resources than the Company.  Competition is based on price, service,
   quality and the ability to supply customers in a timely manner with a
   diverse product line through wide-spread marketing and distribution
   channels.  The Company has historically been subject to both domestic and
   international competition.  The Company's efforts to increase its
   international sales could be adversely affected by, among other things,
   currency fluctuations.

             Furniture Group.  The Furniture Group competes with both foreign
   and domestic leather manufacturers, domestic agents who represent foreign
   tanneries, and companies that import leather in a partially tanned state
   to finish and sell domestically.  Foreign leather manufacturers with
   significant domestic facilities include Elmo Leather of America, Inc., a
   Swedish concern, Valdapone SPA, an Italian concern, and Louis Schweitzer
   GmbH, a German concern that is represented by Arcona Trading Co., Inc.
   Domestic manufacturers include Prime Tanning Company, Inc., Irving Tanning
   Company, Inc., and Garden State Tanning, Inc.  Agents located in the
   United States that represent several small foreign tanneries domestically
   include Americraft Leather, Inc. and Friitala of America, Inc.  Arpel
   Trading Co., Inc.  represents foreign tanneries domestically and imports
   foreign partially tanned hides to finish and sell in the United States.
   Arpel also purchases partially tanned hides produced and rejected by
   domestic leather manufacturers, including the Company, to refinish and
   sell domestically.

             Footwear and Personal Leather Goods Group.  Competition in the
   footwear and personal leather goods markets is highly fragmented.  In the
   men's footwear market, in which the Company competes primarily under the
   Pfister & Vogel trade name, its principal competitors include Prime
   Tanning Company, Inc., the Irving Tanning Company, S. B. Foot Tanning
   Company and Dominion Tanners (Canada), a division of United Canadian
   Shares, Limited.  Competitors in other market segments tend to be smaller
   tanneries with a single or very limited product focus.

             Automotive Group.  Domestically, competitors which supply
   leather products to the automotive industry include Eagle Ottawa Leather
   Company, a division of Trostel, Albert & Sons Company, Garden State
   Tanning, Inc. and Seton Leather Company.  These competitors supply
   predominantly precut leather to seat and interior manufacturers.
   Additional competition in the United States comes from smaller foreign
   tanneries seeking to enter the U.S. automotive market by selling whole
   finished hides to U.S. automotive suppliers.  Whole hide competition in
   international automotive OEM markets typically comes from furniture
   leather manufacturers, including those previously mentioned.

   International Sales

             International sales include export sales from the Company's
   domestic operations, and sales by A.R. Clarke, Ltd. (a division of the
   Footwear and Personal Leather Goods Group) to markets other than the
   United States, and sales, prior to discontinuation, from the Company's
   German operations.  International sales for the years 1996, 1995 and 1994
   are as follows:

                                      1996       1995       1994
                                           ($ in  millions)

         Asia                        $46.5      $53.6      $41.6
         Europe                       17.1       16.8       16.0
         Americas                     44.9       49.0       36.0
                                    ------     ------      -----
              Total International
              Sales                 $108.5     $119.4      $93.6
                                    ======     ======      =====


   Research and Development

             The Company's research and development activities are directed
   toward leather product development and improvement designed to meet the
   specific requirements of its customers.  They involve both the formulation
   of proprietary processes and the development of new leather finishes.  The
   Company works closely with its customers in its product development
   initiatives.  The Company has spent approximately $2.3 million, $2.4
   million, and $2.1 million for research and development in 1996, 1995 and
   1994, respectively.

   Major Customers

             The Company has no customer that accounts for more than 10% of
   its combined net sales.

   Patents and Trademarks

             The Company does not rely to any material degree on intellectual
   property protection.  The Company has no registered copyrights.  The
   Company has been issued two patents relative to certain environmental
   processes.

             The Company has several registered trademarks and trade names in
   both the United States and Canada, and has submitted Applications for
   Registration of Trademarks for several more.  Registered trade names
   include Lackawanna Genuine Leather, Pfister & Vogel, and A.L. Gebhardt,
   among others.

   Employees

             As of December 31, 1996, the Company employed approximately
   1,600 full-time employees, approximately 92% of which were engaged in
   manufacturing, with the remaining 8% engaged in sales, marketing and
   administrative activities.  Approximately 775 employees engaged in
   manufacturing activities as of December 31, 1996 were covered by
   collective bargaining agreements.  None of these agreements expire in
   1997.  One agreement covering approximately 85 employees expires on
   January 31, 1998 and another covering approximately 310 employees expires
   on May 10, 1998.

   Environmental Matters

             The Company's leather manufacturing and finishing operations are
   subject to numerous federal, state and local laws and regulations
   governing the protection of the environment.  These laws and regulations
   establish specific requirements for the handling of hazardous materials
   and wastes, impose limitations on the emission of air and water pollutants
   and establish administrative requirements for permits and reporting.  The
   Company places a high priority on compliance with environmental laws and
   regulations, and believes that it has obtained all material permits,
   licenses, orders or agreements from appropriate federal, state, and local
   regulators currently required for its manufacturing operations.  The
   Company's Board of Directors has adopted appropriate policies toward
   environmental compliance, and the Company has a designated corporate
   officer responsible implementing such policies.

             Except as set forth below, the Company is not aware of any
   current material environmental liabilities that exist at any of the
   Company's facilities because of prior leather manufacturing operations or
   waste management practices.  The Company has also implemented appropriate
   programs designed to minimize pollution and waste production.

             The Company believes all of its facilities have either installed
   appropriate pretreatment equipment and are in compliance in all material
   respects with federal, state and local pretreatment categorical standards
   or are zero discharge facilities.  Besides having to comply with such
   categorical standards specific to the tanning industry, each facility must
   also comply with local generic pretreatment standards as a condition of
   discharge.  Operational systems are subject to upsets and equipment
   malfunctions, which may lead to occasional violations of such discharge
   standards.

             In 1995, one of the Company's Milwaukee, Wisconsin facilities
   experienced equipment malfunctions which caused chromium discharges in
   excess of allowable limits.  A Consent Order with the Milwaukee
   Metropolitan Sewerage District ("MMSD") was signed, which provided for
   daily sampling and a fine of less than $100,000.  Although the Company
   implemented measures to provide additional redundancy and monitoring to
   reduce the likelihood of a recurrence of such excess chromium discharges,
   and although such recurrences have been reduced, they have not been
   eliminated.  In October, 1996,  the Company received a Notice of
   Noncompliance from the MMSD for two incidents of excess chromium
   discharges during the first quarter of 1996, and in January, 1997, the
   Company self-reported two additional such occurrences.  These incidents
   were caused by cross-connections in the facility's various effluent
   collection sewers.  Corrective measures were taken and the Company
   continues daily monitoring for chromium.  No fines or penalties were
   levied as a consequence of the 1996 or the 1997 incidents.

             In February, 1997, the Company received a Notice of Continuing
   Violation from the MMSD for exceeding Oil and Grease discharge limits at
   another of its Milwaukee, Wisconsin facilities.  The Company is
   implementing steps to improve controls over slug loads of oil and grease
   discharged into the municipal sewer systems, including increased sampling
   and testing.  In the meantime, the Company has also petitioned the MMSD to
   revise the Company's Discharge Permits to allow it to use an alternate
   method for testing discharge quantities.  The proposed alternate method is
   an approved method, and results in significantly lower discharge ratios
   than the method specified by the existing Discharge Permits, and would
   place the Company well within permitted discharge levels.  Although there
   can be no assurances that this alternate method will be approved, the
   Company believes that this will be the outcome because the local
   authorities have also recommended this course of action and have indicated
   that the discharges are not a serious problem for their systems.  No fines
   or penalties have been levied on the Company relating to this action.

             Under existing environmental laws, companies can be held liable
   for cleanup costs if they arrange for the disposal or treatment of
   hazardous substances which are subsequently released into the environment.
   Accordingly, the Company may be potentially liable for the cleanup of
   hazardous substances at facilities to which the Company shipped hazardous
   substances for treatment or disposal.  In general, the potential for such
   liability is minimized because most leather manufacturing waste materials
   have been delisted or are exempt from regulation as hazardous waste.
   However, there are a number of solvents and other materials containing
   hazardous substances that have been shipped from the Company's facilities
   for disposal or treatment.

             The North Carolina Department of Environment, Health and Natural
   Resources identified the Company's facilities at Conover, North Carolina
   as a potentially responsible party ("PRP") that arranged for the disposal
   or treatment of hazardous waste at the Seaboard Chemical facility in North
   Carolina. During the Phase I Remediation process, the Company was adjudged
   to be a de minimis contributor to the site and, with its payment of
   $25,512, was able to discharge its Phase I Remediation liability.  The
   Company joined a PRP group consisting of 946 companies to  negotiate the
   Phase II Remedial Investigation and Feasibility Study ("RI/FS") with the
   North Carolina Department of Environment, Health and Natural Resources
   ("DEHNR").  This group negotiated an Administrative Order of Consent with
   DEHNR to conduct the remedial investigation of the site.  The
   Administrative Order contains a covenant not to sue the members of the PRP
   group, and provides signatories with protection from contribution actions.
   Although there can be no assurances, the Company expects that (1) the
   Company will continue to be identified as a de minimis contributor to the
   site, (2) the Company's share of the costs remaining to clean up the site
   will aggregate less than $500,000, and (3) since approximately 35% of the
   wastes in question were sent to the site during ownership of the Conover
   facilities by a previous owner, such previous owner will assume his pro
   rata share of the cleanup costs under the indemnity provisions of the
   January 13, 1985 Asset Purchase Agreement which conveyed these facilities
   to the Company.

             In March, 1993 and December, 1995, the Environmental Protection
   Agency of the United States ("EPA") completed removal actions at the
   Cherokee Oil Sites, a commercial waste treatment facility located in
   Charlotte, North Carolina.  The Company had sent non-hazardous wastewater
   from its facilities in Conover, NC to these sites between December, 1988
   and October, 1990.  EPA spent approximately $6.5 million to clean up and
   remove wastes from the sites, and is now attempting to recover costs from
   users of the facility.  In March, 1996, EPA sent the Company a CERCLA
   Section 104(e) Information Request ("104(e) Request") relative to the
   wastes sent by the Company to the sites.  The Company responded to the
   Request in May, 1996 and, in order to prevent the Department of Justice
   from filing a cost recovery action in federal court, executed a Tolling
   Agreement along with other parties to allow time to negotiate a
   settlement.  In March, 1997, the Company and the EPA tentatively agreed to
   settle the Company's share of cleanup costs for approximately $78,000.
   Final settlement is expected to be completed by the end of 1997.

             In July, 1996, EPA revised the categorical pH standard for
   tannery discharges to publicly owned treatment works.  This revised
   standard has allowed the Company's facilities in Milwaukee, Wisconsin and
   Omaha, Nebraska to discontinue costly pH neutralization.  Based on EPA's
   action, authorities in Toronto, Canada also modified pH requirements, thus
   allowing the Company's A.R. Clarke operation to also cease such
   neutralization procedures.

   Item 2.   Properties

             As of December 31, 1996, the Company operated 16 manufacturing
   facilities in North America, of which ten were located in Wisconsin, three
   were located in Nebraska, and one each was located in North Carolina,
   Indiana and Toronto, Canada.  All but one of these facilities was owned by
   the Company.  The aggregate floor area of these facilities was
   approximately 1.5 million square feet, as follows:

                         Approximate
                            Area                          Principal Purpose
      Location          (in sq. ft.)    Owned or Leased      of Facility

    Milwaukee, WI           340,000          Owned          Manufacturing
    Milwaukee, WI           140,000          Owned          Manufacturing
    Conover, NC             175,000          Owned          Manufacturing
    Toronto, Canada         130,000          Owned         Mfg./Warehouse
    New Albany, IN          120,000          Owned          Manufacturing
    Omaha, NE               108,000          Owned          Manufacturing
    Milwaukee, WI            81,000          Owned        Admin./Warehouse
    Berlin, WI               80,000          Owned          Manufacturing
    Milwaukee, WI            70,000          Owned          Manufacturing
    Milwaukee, WI            70,000          Owned         Mfg./Warehouse
    Milwaukee, WI            50,000          Owned        Admin./Warehouse
    Omaha, NE                50,000          Owned          Manufacturing
    Berlin, WI               40,000          Owned          Manufacturing
    Milwaukee, WI            26,000          Owned            Warehouse
    Omaha, NE                24,000         Leased          Manufacturing
    Milwaukee, WI            22,000          Owned            Warehouse

             The Company considers its plant and equipment to be in generally
   good condition.  In addition to capital expenditures to replace worn out
   or obsolete equipment, the Company incurred expenses to maintain and
   repair its plants and equipment of $10.2 million, $10.5 million, and $11.1
   million in 1996, 1995 and 1994 respectively.

             The Company's executive offices are located at 1403 W. Bruce
   St., Milwaukee, WI 53204, within one of the owned facilities summarized
   above.

   Item 3.   Legal Proceedings

             In May 1995, the Company received a request for information from
   the United States Customs Service (the "Customs Service") concerning the
   classification and duties paid on a series of importations of Russian and
   Romanian Wet Blue from 1991 to 1993.  Upon review of the Harmonized Tariff
   Schedules in effect in 1991, 1992 and 1993, the Company determined that it
   had paid less than the proper import duty and thereupon paid approximately
   $164,000 in additional duty.  In April and September 1996, the Customs
   Service issued a total of three penalty notices related to this matter.
   One of the penalty cases relating to such notices has been settled for
   less than $12,000.  The two remaining cases are pending, with a total
   potential exposure of approximately $680,000.  Petitions for relief from
   two remaining penalty cases have been filed, and a final administrative
   determination is expected by the end of 1997.  The Company believes it is
   adequately reserved for any additional duties or penalties.

             The Company is involved in various environmental matters, as
   described in Item 1 of this Form 10-K under the caption "Environmental
   Matters."

             The Company is also involved in other litigation and
   proceedings.  Based on current information, management believes that
   future costs, if any, in excess of insurance coverage with respect to such
   litigation and proceedings, will not be material to the Company's
   financial position or results of operations.

   Item 4.   Submission of Matters to a Vote of Security-Holders

             No matters were submitted to a vote of the Company's security
   holders in the fourth quarter of 1996.

   Item 5.   Market for Registrant's Common Equity and Related Stockholder
   Matters

             As of December 31, 1996, there was no public market for the
   Company's common stock.  All 100 shares of the Company's common stock are
   owned by USLH, which is a wholly owned subsidiary of the New Holding
   Company.  The Company paid cash dividends on its common equity of $50,000
   in 1996, $1.2 million in 1995 and $4.0 million in 1994.  During the first
   two months of 1996, prior to the 1996 Holding Company Recapitalization,
   essentially all of the remaining management shareholders at the time
   exercised their right to have Old Holdings cause the Company to repurchase
   their shares of the capital stock of Old Holdings.  Under the New
   Revolving Credit Facility, the Company may pay dividends up to $50,000 per
   year on its common equity under certain conditions.  The Indenture for the
   Senior Notes also places restrictions on common stock cash dividends.

   Item 6.   Selected Financial Data

             The following table sets forth the selected financial data of
   the Company for each of the preceding five years ended December 31, 1996.
   These selected data are derived from the audited consolidated financial
   statements of the Company.  The selected financial data presented herein
   are qualified in their entirety by, and should be read in conjunction
   with, the Company's Consolidated Financial Statements and Notes thereto
   included in Item 8 of this Form 10-K and "Management's Discussion and
   Analysis of Financial Condition and Results of Operations" included in
   Item 7 of this Form 10-K.

   <TABLE>
                                         UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF INCOME
                                                     (Amounts in thousands)
   <CAPTION>
                                                                                Year ended December 31,
                                                    1996           1995            1994            1993            1992

    <S>                                            <C>             <C>             <C>             <C>              <C>
    Income Statement Data
      Net Sales                                    $311,843        $360,660        $371,584        $351,902         $340,386
      Cost of sales(1)                              293,111         307,556         315,251         295,054          281,990
                                                   --------        --------        --------        --------         --------
      Gross profit                                   18,732          53,104          56,333          56,848           58,396
      Selling, general & administrative expenses     24,916          22,974          27,040          23,486           24,947
      Restructuring expenses                          3,744              --              --              --               --
      Amortization of intangible assets               4,134           3,529           3,177           3,334            3,410
      Refinancing expenses(2)                            --              --              --              --            2,206
                                                   --------        --------         -------         -------         --------
      Income (loss) from operations                 (14,062)         26,601          26,116          30,028           27,833
      Interest expense                               17,159          18,062          17,283          23,111           25,949
                                                   --------        --------         -------         -------         --------
      Income (loss) before provision for income
         taxes and extraordinary item               (31,221)          8,539           8,833           6,917            1,884
      Income tax (benefit) provision                (10,999)          4,373           4,685           3,791            1,694
                                                   --------         -------         -------         -------         --------
      Net income (loss) before extraordinary item   (20,222)          4,166           4,148           3,126              190
      Extraordinary gain (loss)                          --             417              --            (652)              --
                                                   --------         -------         -------         -------         --------
      Net income (loss)                             (20,222)          4,583           4,148           2,474              190
      Preferred Stock dividends                          --              --              --             705            1,324
                                                   --------         -------         -------         -------         --------
      Net income (loss) available for common
         shares(3)                                 ($20,222)         $4,583          $4,148          $1,769          ($1,134)
                                                   ========         =======         =======         =======         ========

      Ratio of earnings to fixed charges(4)             --           1.47            1.50            1.30            1.07
      Deficiency of earnings available to cover
         fixed charges(4)                          ($31,221)           --              --              --              --
    Other Data
      Gross profit margin (%)                         6.0%          14.7%           15.2%           16.2%            17.2%
      EBITDA(5)                                     ($2,941)        $36,319         $34,548         $38,440          $35,540
      FIFO EBITDA(5)                                  ($972)        $31,845         $44,038         $38,549          $37,867
      Capital Expenditures                           $6,523          $7,948          $6,062          $6,789           $7,495
      Square footage of finished leather sold       126,890         138,049         148,804         149,529          146,382

    Balance Sheet Data
      Working capital                               $44,117         $64,925         $65,902         $63,696          $65,530
      Total assets                                 $264,822        $285,994        $286,309        $295,525         $279,344
      Long-term debt, including current
        maturities                                 $130,257        $130,320        $134,237        $134,871         $215,935
      Redeemable Preferred Stock                         --              --              --              --          $17,548
      Stockholders' equity                          $61,073         $81,265         $78,047         $77,935         ($10,332)


   (1)  Included in cost of sales is a charge (credit) of $1,969, $(4,474),
        $9,490, $109 and $2,327 related to the change in LIFO inventory
        reserve for the years ended December 31, 1996, 1995, 1994, 1993 and
        1992, respectively.

   (2)  During 1992, the Company incurred expenses of $2,206 in connection
        with two proposed public offerings of the Company's debt and equity
        securities that were not consummated.

   (3)  The Company paid cash dividends of $50, $1,173 and $4,036 related to
        shares of common stock in 1996, 1995 and 1994, respectively.  There
        were no cash dividends paid or declared related to common stock for
        1993 or 1992.

   (4)  For purposes of computing the ratio and deficiency of earnings to
        fixed charges, earnings represents income from operations, less that
        portion of rental obligations on operating leases that is
        representative of interest.  Fixed charges represents the sum of
        interest expense plus such portion of rental obligations that is
        representative of interest.

   (5)  EBITDA, the primary earnings measurement used in the Indenture,
        represents income or loss from operations plus non-cash charges
        related to depreciation and amortization of intangible assets.  FIFO
        EBITDA, the primary earnings measurement in the New Revolving Credit
        Facility, represents EBITDA plus or minus charges or credits to
        operations related to the change in the LIFO inventory reserve from
        December 31 of the prior year to December 31 of the current year.
        Neither EBITDA nor FIFO EBITDA is determined pursuant to generally
        accepted accounting principles ("GAAP"), and should not be considered
        in isolation or as an alternative to GAAP-derived measurements.

   </TABLE>

   Item 7.   Management's Discussion and Analysis of Financial Condition and
             Results of Operations

   Special Note Regarding Forward-Looking Statements

             Certain matters discussed herein are "forward-looking
   statements" intended to qualify for the safe harbors from liability
   established by the Private Securities Litigation Reform Act of 1995.
   These forward-looking statements can generally be identified as such
   because the context of the statement will include words such as Company
   "believes," "anticipates," "expects" or words of similar import.
   Similarly, statements that describe the Company's future plans, objectives
   or goals are forward-looking statements.  Such forward-looking statements
   are subject to certain risks and uncertainties which are described in
   close proximity to such statements and which could cause actual results to
   differ materially from those currently anticipated.  Readers are urged to
   consider these factors carefully in evaluating the forward-looking
   statements and are cautioned not to place undue reliance on such forward-
   looking statements.  The forward-looking statements made herein are only
   made as of the date of this report and the Company undertakes no
   obligation to publicly update such forward-looking statements to reflect
   subsequent events or circumstances.

   Company Reorganization

             Prior to 1996, the Company, while reporting as an integrated
   company, operated as a series of stand-alone divisions or subsidiaries
   with separate financial statements and management teams for each unit.
   During 1996, the Company eliminated this divisional structure and
   reorganized its management structure along functional lines, and its
   business structure (i.e. segment financial reporting) along the lines of
   markets served.  While the Company has preserved Lackawanna Leather,
   Pfister & Vogel, A.L. Gebhardt, Caldwell-Moser, and A.R. Clarke as valued
   trade names, it no longer evaluates or reports business results according
   to these designations.

             In April, 1996, at the time of the 1996 Holding Company
   Recapitalization previously discussed,  the Company retained Claymore
   Partners Ltd., financial consultants with extensive expertise in company
   turnarounds, to assume day-to-day management control of the Company.
   William F. Loftus, a partner in Claymore Partners, was appointed Chief
   Executive Officer of the Company.

             During 1996, the Company began a series of initiatives to
   strengthen the Company's financial position and return it to
   profitability.  Among these initiatives were (1) the reorganization of the
   management of the Company previously discussed, which included the
   elimination of division presidents, the elimination or replacement of
   several other senior executives in the Company, and a general reduction in
   salaried workforce, (2) comprehensive reviews of the Company's products
   and inventories, (3) closing two operations which had not been profitable
   and were not strategically critical to the Company (see Item 1 of this
   Form 10-K under the caption "General"), (4) replacing critical talent
   which had been lost in prior years, and (5) vacating the Company's
   corporate offices and moving such offices into one of the Company's
   operating facilities.  During 1996, the Company also continued efforts to
   grow the business of its Automotive Group.

             These initiatives, while begun in 1996, did not have a material
   positive impact on 1996 results.  In fact, because many of them required
   certain up-front costs and/or reserve provisions, they impacted 1996
   negatively.

   General

             The Company reported net sales of $311.8 million, $360.7 million
   and $371.6 million in 1996, 1995 and 1994 respectively, of which sales of
   finished leather accounted for approximately 90%, 87% and 89%
   respectively.  The balance of sales revenues were attributable principally
   to sales of by-products, which included splits, wet blues and raw
   cattlehides.

   Results of Operations

             The following table sets forth certain consolidated income
   statement data of the Company as a percentage of net sales for the periods
   indicated.

                                1996        1995         1994

    Net Sales                 100.0%       100.0%       100.0%
    Gross Profit                6.0         14.7         15.2
    Income/(loss) from         (4.5)         7.4          7.0
    operations
    Net income/(loss)          (6.5)         1.3          1.1

   1996 Compared to 1995

             General.  The Company experienced a net loss of $20.2 million in
   1996, compared to a net profit of $4.6 million in 1995.  This loss was the
   result of increased competition from other leather producers, increased
   cattlehide prices, restructuring and turnaround initiatives undertaken by
   the Company, and certain quality problems the Company experienced.  In
   connection with the restructuring and turnaround initiatives, the Company
   recorded a series of charges in 1996 totalling $16.5 million which
   management believes are unusual or non-recurring items.  In the aggregate,
   these charges increased the Company's cost of goods sold by $12.2 million,
   selling general and administrative expenses by $0.6 million, and resulted
   in a charge for restructuring expenses of $3.7 million.  The cost of goods
   sold charges included $8.6 million in inventory reserve provisions to
   reflect a change in Company policy toward disposing of excess and off-
   quality products (see Item 1 of this Form 10-K under the caption "The
   Leather Manufacturing Process"), $2.2 million to recognize that certain
   contracts the Company held were impaired, $0.9 million for the recovery
   and disposal of products produced using certain chemicals which were later
   determined to be defective, and $0.5 million in inventory writedowns in
   connection with the closing of German operations.  In addition, the
   Company incurred operating losses in 1996 aggregating $1.8 million in
   connection with the activities of the USL Trading Operation and German
   operations prior to their being discontinued.

             Net Sales.  The Company's net sales in 1996 were $311.8 million,
   a decrease of $48.8 million or 14% from the prior year period.  After
   adjusting for discontinued operations, net sales decreased by $27.9
   million or 9% to $300.2 million in 1996 from $328.1 million in 1995.  The
   decrease was entirely attributable to lower finished leather sales.
   Square footage of finished leather sales dropped 8% in 1996 compared to
   1995 because of lower volume in the Company's Furniture Group, driven by
   severe price-based competition from foreign tanneries in the Company's
   promotional product lines, and quality and delivery problems the Company
   experienced in 1996 in its mid and high fashion products.  Volume in 1996
   in the Company's Automotive Group was up substantially from 1995 due to
   higher OEM and cut-to-pattern business, while volume in the Footwear and
   Personal Leather Goods Group was approximately unchanged.  Average selling
   prices in 1996 dropped slightly from the levels experienced in 1995
   because of (1) lower cattlehide prices in late 1995 and early 1996 which
   were passed on to customers in 1996, (2) increased sales of excess and
   off-quality inventories stemming from the Company's previously mentioned
   policy change, and (3) lower selling prices in certain segments of the
   Company's Automotive Group business.

             Gross Profit.  The Company's gross profit decreased to $18.7
   million in 1996, from $53.1 million in 1995, a $34.4 million reduction.
   Gross margins decreased approximately 8.7%, from 14.7% to 6.0%.  Excluding
   discontinued operations, gross profit decreased by $33.2 million.  Much of
   the decrease was the result of higher cattlehide costs experienced in
   1996.  After dropping through the second half of 1995 and much of the
   first half of 1996, the purchase price of cattlehides rose significantly
   in the second half of 1996.  Approximately $7.6 million more was charged
   to cost of goods sold for hide costs in 1996 than in 1995.  Due to the
   restructuring and turnaround initiatives discussed previously, cost of
   goods sold increased $12.2 million in 1996.  Lower sales volumes and
   prices resulted in approximately $7.0 million lower gross profit in 1996
   than 1995.  The Company also experienced increased conversion costs in
   1996, as it absorbed inefficiencies and other ramp-up expenses associated
   with the Automotive Group's cut-to-pattern initiatives, and as it
   implemented remedial measures to cure quality and delivery problems.

             Selling, General and Administrative Expenses.  Selling, general
   and administrative expenses in 1996 were $24.9 million, compared with
   $23.0 million in 1995.  The increase, after adjusting for $0.6 million of
   non-recurring unusual items previously discussed, was principally the
   result of fees paid for outside professional services, including
   management fees paid to Claymore Partners, and executive recruitment fees
   paid in connection with the implementation of the Company's
   reorganization.

             Restructuring Expenses.  In 1996, the Company incurred $3.7
   million of restructuring expenses.  These included severance costs
   associated with the management reorganization previously discussed, costs
   incurred in connection with the closing of the Company's German
   operations, writedown of the lease for the prior corporate headquarters
   space, and writedown of equipment used in certain manufacturing processes
   which the Company intends to sell in 1997.  No restructuring expenses were
   recorded in 1995.

             Interest Expense.  Interest expense in 1996 was $17.2 million,
   $0.9 million lower than that of the prior year.  The decrease was
   principally the result of borrowings which averaged approximately $5.2
   million lower in 1996 than in 1995, and lower amortization of deferred
   financing fees.

             Loss Before Taxes and Extraordinary Items.  The loss before
   taxes and extraordinary items was $31.2 million in 1996, compared to
   income before taxes and extraordinary items of $8.5 million in 1995.
   Lower gross profits and restructuring expenses were the principal drivers
   behind the $39.8 million reduction from 1995 to 1996 in the Company's
   income/(loss) before taxes and extraordinary items.

             Income Tax Provision.  The Company recorded a $11.0 million
   favorable tax provision in 1996, as a result of the operating losses it
   generated, compared with a $4.4 million charge in 1995.  The effective tax
   rate, prior to the inclusion in income of non-deductible amortization of
   goodwill and extraordinary items, was 35.2% in 1996, compared with 38.2%
   in 1995.

             Loss Before Extraordinary Items.  The loss before extraordinary
   items was $20.2 million in 1996, compared with net income before
   extraordinary items of $4.2 million in 1995.  Pre-tax operating losses and
   the slightly lower tax rate were the reasons for the change.

             Extraordinary Items.  In 1995, the Company recorded a $0.4
   million extraordinary gain in connection with the repurchase of $4.0
   million of its 10-1/4 Senior Notes due 2003.  No extraordinary items were
   recorded in 1996.

             Net Loss.  The net loss was $20.2 million in 1996, compared to
   net income of $4.6 million in 1995.  The reasons for the loss are
   described above.

   1995 Compared to 1994

             Net Sales.  The Company's net sales in 1995 were $360.7 million,
   a decrease of $10.9 million or 2.9% from the prior year period.  Finished
   leather sales during the period accounted for all of the decline, as by-
   product sales and sales by the USL Trading Division increased by $6.1
   million during the period.  Total square footage of finished leather
   declined 7.2% principally because of lower demand for finished leather in
   the Company's footwear markets, although volume in furniture and personal
   leather goods was also somewhat lower.  The decline in footwear volume was
   attributed to generally weak retail footwear sales during the mild 1995
   winter and to continued inroads made by imports and foreign tanners in the
   U.S. footwear market.  Partially offsetting these lower volumes were
   modestly improved pricing stemming principally from increased cattlehide
   prices during the first half of 1995, and the acquisition in January 1995
   of A.R. Clarke.

             Gross Profit.  The Company's gross profit decreased from $56.3
   million in 1994 to $53.1 million in 1995, a reduction of $3.2 million or
   5.7%.  Gross margins dropped .5% from 15.2% in 1994 to 14.7% in 1995.
   Contributing to these decreases were (1) lower sales volumes, partially
   offset by selling price increases and the acquisition of A.R. Clarke
   discussed in the previous paragraph, and (2) increased unit manufacturing
   costs resulting from lower manufacturing volumes and costs associated with
   launching new products in the Company's furniture and automotive segments,
   partially offset by (3) lower cattlehide prices during the second half of
   1995 and the resulting $4.4 million LIFO credit to cost of goods sold
   compared with a $9.5 million LIFO charge in 1994.

             Selling, General and Administrative Expenses.  Selling, general
   and administrative expenses were $23.0 million in 1995, compared with
   $27.0 million in 1994.  The 15% reduction was the result of lower
   incentive compensation payments and accruals, lower insurance costs,
   reduced fees for professional services and decreased write-offs and
   provisions for bad debts, partially offset by the addition of selling,
   general and administrative expenses associated with the acquisition of
   A.R. Clarke.

             Interest Expense.  Interest expense in 1995 was $18.1 million,
   $0.8 million higher than that of the prior year.  Increased borrowings
   stemming from higher average FIFO inventories and the acquisition of A.R.
   Clarke, and higher interest rates were the principal reasons for the
   increase.

             Income Before Taxes and Extraordinary Items.  Income before
   taxes and extraordinary items was $8.5 million in 1995, a decrease of $0.3
   million from $8.8 million in 1994.  Lower gross profits and higher
   interest expenses in 1995, as discussed previously, were partially offset
   by decreases in selling, general and administrative expenses from the
   prior year.

             Income Tax Provision.  The Company's tax provision in 1995 was
   $4.4 million compared with $4.7 million in 1994.  Lower income before
   taxes and a reduction in the effective tax rate, before adjusting for
   extraordinary items and non-deductible amortization of goodwill, from
   38.2% to 40.4%, respectively, accounted for the difference.

             Net Income Before Extraordinary Items.  Net income before
   extraordinary items was essentially unchanged from 1994 to 1995 at $4.2
   million.

             Extraordinary Gain.  the Company recorded a $0.4 million
   extraordinary gain in 1995 in connection with the repurchase of its 10-1/4%
   Senior Notes due 2003.

             Net Income.  Net income increased from $4.1 million in 1994 to
   $4.6 million in 1995.

   Seasonality

             The Company does not believe that its business is subject to
   seasonal factors which would materially affect its financial performance.
   However, the Company periodically shuts down its manufacturing operations
   during the third and fourth quarter for routine maintenance of such
   facilities.  As a result of these shutdowns, the Company may experience
   modest declines in sales and profitability during these quarter when
   compared to other quarters during the year.  Further, seasonal variations
   in hide quality can impact the Company's financial performance.  See Item
   1 of this Form 10-K under the caption "Raw Materials."

   Liquidity and Capital Resources

             General.  The Company's ongoing liquidity requirements arise
   principally from its indebtedness and the funding of working capital.
   Such requirements are primarily driven by mandatory interest and principal
   payments, and fluctuations in raw material costs.  Vendor credit from
   cattlehide suppliers is generally limited to selling terms of
   approximately seven days.  Although the Company purchases raw material
   throughout the year, there may be times that the Company builds raw
   material inventories because of the availability of higher quality hides.
   See Item 1 of this Form 10-K under the caption "Raw Materials."  The
   Company borrows under its revolving credit facilities to meet its working
   capital needs.

             Capital expenditures were $6.5 million, $7.9 million and $6.1
   million in 1996, 1995 and 1994, respectively.  Most of these capital
   expenditures were for the replacement of worn out or obsolete equipment
   used in manufacturing processes, although expenditures were also made for
   safety and environmental compliance, productivity improvements and to
   alleviate capacity bottlenecks.  The Company also expended $1.1 million in
   each of 1996 and 1995, and $0.8 million in 1994 to acquire an enterprise-
   wide suite of information systems applications to upgrade manufacturing
   controls, improve manufacturing productivity and avoid century dating
   problems which exist in the Company's legacy computer systems.  Upon
   completion of this project, the Company believes it will no longer be
   materially exposed to internally-generated century dating problems, since
   the Company will have converted all of its critical legacy computer
   systems.  The Company estimates that the project will be completed in
   1998.

             Cash flow from operations was $1.7 million, $12.5 million and
   $25.6 million in 1996, 1995 and 1994, respectively.  During these periods,
   the Company's operations used cash primarily for capital expenditures,
   interest payments, including semi-annual interest payments on its Senior
   Notes due 2003 and, prior to the 1996 Holding Company Recapitalization,
   interest payments on its Senior Subordinated Debentures, the repurchase of
   a portion of its public notes, cash dividends on its common stock and, in
   1995, the acquisition of A.R. Clarke.  The $10.8 million decrease in cash
   flow from operations in 1996 compared to 1995 was due to operating losses
   experienced during 1996 compared with operating income in 1995, partially
   offset by working capital reductions, principally related to inventories
   and accounts receivable.  LIFO inventories dropped approximately $9.1
   million during 1996 due principally to the writedowns taken in connection
   with the Company's new policy on excess and off-quality inventories;
   accounts receivable balances dropped approximately $8.8 million during
   1996 because of lower sales volume late in the year, due partially to
   calendar-driven year end factory shutdowns, improved collections and
   additional provisions made for potentially doubtful accounts.  Days sales
   outstanding ("DSO") in accounts receivable were 41 days as of December 31,
   1996, compared with 47 days as of December 31, 1995.  The $13.1 million
   reduction in cash flow from operations from 1994 to 1995 was due
   principally to the non-recurrence of inventory reductions that the Company
   implemented in 1994.  Cash flow from operations, together with cash on
   hand and borrowings under the Company's revolving bank loan facilities,
   has been sufficient to meet the Company's debt service requirements.  The
   Company has implemented price increases to reflect the current cattlehide
   market, which it expects will favorably impact 1997 results, although
   there can be no assurances that such increases will hold in the
   marketplace, or that further changes in hide markets will not make other
   pricing actions necessary.

             During 1996, 1995 and 1994, the Company paid $50,000, $1.2
   million and $4.0 million, respectively, of cash dividends on its common
   stock.  Under the New Revolving Credit Facility, the Company is limited to
   paying cash dividends on its common stock only to fund certain
   administrative expenses of USLH and the New Holding Company up to a
   maximum of $50,000 per year.  The Senior Notes due 2003 also limit the
   Company's ability to pay cash dividends.

             On December 31, 1996, the Company's outstanding indebtedness was
   $162.1 million, which consisted of $130 million principal amount of Senior
   Notes due 2003 and $31.8 million of borrowings under the New Revolving
   Credit Facility.  The Senior Notes mature in July, 2003, at which time the
   entire $130 million principal amount becomes due.  The New Revolving
   Credit Facility is an $80 million facility maturing on October 31, 2001.
   At December 31, 1996, the Company had approximately $41.6 million
   available under the New Revolving Credit Facility, after deducting
   outstanding borrowings and letters of credit issued thereunder.  However,
   pursuant to a February 1997 amendment to the New Revolving Credit Facility
   described below, the availability under the New Revolving Credit Facility
   would have been reduced to $19.2 million as of December 31, 1996.

             On April 9, 1996, a series of transactions were completed, with
   the consent of Old Holdings, USLH and the Company, which resulted in the
   Former Holding Company Debenture Holders foreclosing on their security.
   Such foreclosure occurred as a result of the noncompliance, as of December
   31, 1995, by Holdings of a financial covenant contained in the Old
   Holdings Debentures.  The foreclosure resulted in the cancellation of the
   Old Holdings Debentures and the contribution of all of the capital stock
   of USLH, the holding company which owns 100% of the capital stock of the
   Company, to the New Holding Company.  The foreclosure also resulted in the
   elimination of any ownership interest in USLH or the Company by BSAC VII.
   The nominees of BSAC VII resigned from the Board of Directors of the
   Company and were replaced by nominees of the New Holding Company.  The
   1996 Holding Company Recapitalization did not cause a default under any of
   the existing debt of the Company, nor did it constitute a change of
   control or default under the Senior Notes or the Old Revolving Credit
   Facility.

             On November 1, 1996, the Company replaced the Old Revolving
   Credit Facility with a new $80 million revolving credit facility.  In
   December 1996 the New Revolving Credit Facility was amended and restated
   to reflect the syndication of the facility among a number of financial
   institutions.  Loans made under the New Revolving Credit Facility are
   secured by essentially all the assets of the Company, except for real
   property.  Loan availability is based on the Company's accounts receivable
   and inventories balances after certain exclusions.  The agreement includes
   certain financial covenants, as well as restrictions related to, among
   other things, capital expenditures and indebtedness.

             The Company incurred a substantial loss in 1996.  Although
   management has implemented measures which it believes will eventually
   improve the financial performance of the Company, there can be no
   assurance that such measures will be sufficient to permit the Company to
   reverse recent trends and meet all of its obligations going forward.  Due
   to the loss incurred in 1996, the Company was not in compliance at
   December 31, 1996 with certain financial covenants contained in the New
   Revolving Credit Facility.  In February 1997 the New Revolving Credit
   Facility was amended to extend until March 31, 1997 the Company's
   reporting requirements with respect to compliance with the December 31,
   1996 financial covenants so that no formal default or event of default
   would occur under the New Revolving Credit Facility prior to such date.
   This amendment also suspended the Company's ability to borrow under the
   overadvance provisions contained in the New Revolving Credit Facility.  In
   March 1997 the New Revolving Credit Facility was further amended to (1)
   eliminate FIFO EBITDA related covenants for 1996, (2) change the FIFO
   EBITDA related covenants for 1997, (3) establish a fixed charge ratio
   covenant beginning in 1998, (4) reduce the availability, (5) eliminate the
   Company's ability to utilize overadvance borrowings and (6) increase the
   annual interest rate charged on amounts borrowed to LIBOR plus 2.75% or
   prime plus 1.00%.  As a result of this amendment and the working capital
   needs of the Company since December 31, 1996, management estimates the
   availability under the New Resolving Credit Facility was approximately $5
   million as of March 15, 1997.  Management believes that the Company will
   be in compliance with the amended 1997 financial covenants contained in
   the New Revolving Credit Facility and that the Company will have
   sufficient liquidity to conduct its operations.  However, there can be no
   assurance that the Company's operations will generate sufficient cash
   flow, considered together with the amounts available under the New
   Revolving Credit Facility, to meet the Company's future liquidity
   requirements.

   New Accounting Pronouncements

             Information with respect to new accounting pronouncements is
   included in Item 8 of this Form 10-K in Note 2 of the Notes to
   Consolidated Financial Statements.

   Item 8.   Financial Statements and Supplementary Data

             The consolidated financial statements of the Company for the
   three years ended December 31, 1996 are set forth on pages F-1 through F-
   17 of this Form 10-K.  See Item 14 of this Form 10-K under the caption
   "Exhibits, Financial Statement Schedules and Reports on Form 8-K" for a
   complete list of the Company's financial statements and financial
   statement schedules.

   Item 9.   Changes in and Disagreements With Accountants on Accounting and
             Financial Disclosure

             None.

                                    Part III

   Item 10.  Directors and Executive Officers

             The following table sets forth the name, age and position with
   the Company of each person who, as of March 21, 1997, is a director,
   nominee for director, and/or executive officer of the Company:

             Name              Age           Position with the Company


    William F. Loftus           58    President and Chief Executive Officer

    Kinzie L. Weimer            46    Senior Vice President, Chief
                                      Financial Officer and Secretary

    Edwin M. Taylor, Jr.        48    Vice President, Human Resources and
                                      Administration

    George B. Stockman          47    Vice President, Environmental Affairs

    Dan Yakel                   53    Controller and Assistant Secretary

    Anthony Biancanello         57    Director

    Michael J. Drabb            63    Director

    Michael L. Pulte            59    Director


             William F. Loftus has been a member of the Board of Directors of
   the Company since April 1996.  Mr. Loftus is a partner in Claymore
   Partners, Ltd., for whom he has served since 1995.  Previously, Mr. Loftus
   served in a variety of senior financial and managerial positions with
   Turner & Partners from 1993 until 1995, Cabot Corporation from 1991 to
   1992, as well as with Allied Signal Corporation and E.I. duPont de Nemours
   & Co. prior to 1991.  Mr. Loftus also serves as President and Chief
   Executive Officer of Leather U.S., Inc. and USLH.

             Kinzie L. Weimer has served as Senior Vice President, Chief
   Financial Officer and Secretary of the Company since December 1996.  Mr.
   Weimer previously served as  Senior Vice President and Chief Financial
   Officer of Dade International Inc. from 1995 to 1996, and as Vice
   President and Chief Financial Officer of Eon Labs, Inc. from 1994 to 1995.
   Mr. Weimer held a variety of  financial management positions in the
   General Electric Company from 1973 through 1993, including graduating from
   GE's Financial Management Program in 1975.  Mr. Weimer has also served,
   since December 1996 as Vice President and Secretary of the Leather U.S.,
   Inc. and USLH.

             Edwin M. Taylor, Jr. has served as Vice President of Human
   Resources and Administration of the Company since August 1996.  Mr. Taylor
   was Director of Human Resources for the Company's Furniture Group from
   1994 until assignment to his present position in 1996.  Previously, Mr.
   Taylor served in increasingly responsible positions in the Human Resources
   functions of Meredith/Burda Printing Company (a subsidiary of R.R.
   Donnelley and Sons Company since 1993) from 1979 to 1994.

             George B. Stockman has served as Vice President of Environmental
   Affairs since January 1995.  Previously, Mr. Stockman was Vice President
   of Manufacturing at the Company's Pfister & Vogel operations from December
   1990 until December 1994, and, prior to 1990 served in a variety of
   technical, environmental and manufacturing positions for P&V since 1972.

             Dan Yakel has served as the Company's Corporate Controller and
   Assistant Secretary since July 1996.  From 1994 until assignment to his
   present position in 1996, Mr. Yakel was the Chief Financial Officer of the
   Company's Footwear and Personal Leather Goods Group.  Previously, Mr.
   Yakel served the Company in a variety of financial positions since 1972.

             Anthony Biancanello has been a member of the Company's Board of
   Directors since April 1996.  Mr. Biancanello is the Chairman, President
   and Chief Executive Officer of Berwick Capital, Inc., a private investment
   company he founded in 1990.  Previously, he was the co-founder, in 1976,
   of The Berwick Group, Inc., a general consulting company which he co-
   managed until 1990.  Prior to this, Mr. Biancanello was a senior
   consultant with Arthur D. Little, Inc. from 1972 until 1976, and
   previously held senior systems engineering positions with Sanders
   Associates, Inc. and the Raytheon Company.  Mr. Biancanello also served as
   an officer in the United States Navy with service in Vietnam.  Mr.
   Biancanello is also a member of the Board of Directors of Leather U.S.,
   Inc. and USLH.

             Michael J. Drabb has been a member of the Company's Board of
   Directors since April 1996.  Mr. Drabb has served as Executive Vice
   President and Director of O'Brien Asset Management since 1993, and
   previously, was Executive Vice President of The Mutual Life Insurance
   Company of New York ("MONY") from 1989 until 1992.  From 1987 to 1989, Mr.
   Drabb was President of MONY Capital Management.  In addition to serving on
   the Boards of the Company, Leather U.S., Inc. and USLH, Mr. Drabb is a
   Director of J.P. Foodservice, Inc. and several funds sponsored by the New
   York Life Insurance and Annuity Corporation and MONY.

             Michael L. Pulte has been a member of the Company's Board of
   Directors since April 1996.  Mr. Pulte served The Joseph Horne Co., Inc.
   from 1977 until 1994, including positions as Chairman of the Board,
   President and Chief Executive Officer from 1991 to 1994, Senior Vice
   President, Chief Operating Officer and Director from 1987 to 1991, Senior
   Vice President of Operations and Real Estate from 1979 to 1987 and Vice
   President and Director of Stores from 1977 to 1979.  Previously, Mr. Pulte
   served in a variety of managerial and professional positions with The M.
   O'Neil Company and the J. L. Hudson Company.  Mr. Pulte is a member of
   several professional and civic association boards, and also serves as a
   Director of Leather U.S., Inc. and USLH.

             In March 1997 James Neidhart resigned as a director of the
   Company.  Mr. Neidhart became a director in April 1996 in connection with
   the 1996 Holding Company Recapitalization.

   Item 11.  Executive Compensation

             The Company compensates Messrs. Biancanello, Drabb and Pulte, as
   directors, $15,000 annually plus $1,000 per meeting of the Board ($500 for
   meetings by teleconference).  Mr. Loftus is not compensated as a director.
   The Company also reimburses its directors for expenses incurred in
   connection with travel to and from Board meetings.

             The following table sets forth the cash and non-cash
   compensation paid or accrued in 1996, 1995 and 1994 to the current and
   former Chief Executive Officer of the Company, the two persons who were
   executive officers at the end of 1996 whose combined salary and bonus for
   1996 exceeded $100,000 and two persons who were former executive officers
   at the end of 1996 whose combined salary and bonus for 1996 exceeded
   $100,000.

   <TABLE>
   <CAPTION>
                                                                                                         Defined
           Name and                                                                  Other             Contribution
      Principal Position      Year           Salary               Bonus          Compensation(1)          Plans

    <S>                       <C>           <C>                 <C>               <C>                    <C>

    William F. Loftus         1996               -0-                -0-           $382,104(2)               -0-
     President and CEO        1995               -0-                -0-                -0-                  -0-
                              1994               -0-                -0-                -0-                  -0-

    Ernst H. Hagen            1996          $203,999                -0-           $  3,440(3)            $8,324
     Former Vice President    1995           185,000                -0-              5,277(3)             8,550
     of Operations            1994           156,000            $51,480              3,977(3)             9,149

    Dan Yakel                 1996          $133,000                -0-           $  8,715(5)            $6,650
     Corporate Controller     1995           133,000                -0-                -0-                8,550
                              1994           127,900            $42,200                -0-                7,946

    Robert E. Koe             1996          $546,364(4)        $200,000(4)        $ 15,293(3)            $9,053
     Former Chairman,         1995           530,450                -0-             40,826(3)             8,550
     President and CEO        1994           515,000            265,000             39,824(3)             9,864

    Robert A. Hale            1996          $360,500(4)        $ 54,075(4)        $  2,197(5)            $8,105
     Former Senior Vice       1995           175,000                -0-              4,461(3)             8,550
     President, Chief         1994           159,000             52,000             29,944(5)             7,319
     Financial Officer and
     Secretary

    Anton K. Mayer            1996          $216,610                -0-           $109,320(6)            $5,323
     Former Executive Vice    1995           287,789                -0-             67,819(3)             8,550
     President and former     1994           276,856           $ 88,245            102,360(5)               -0-
     President of the
     Lackawanna division


   (1)  Except as otherwise provided herein, no amounts for executive
        perquisites and other personal benefits, securities or property are
        shown because the aggregate dollar amount per executive is less than
        the lesser of $50,000 or 10% of annual salary and bonus.

   (2)  Amounts paid to Claymore Partners Ltd. in connection with Mr. Loftus'
        service as President and Chief Executive Office pursuant to the
        Company's agreement with Claymore Partners Ltd.  See Item 11 of this
        Form 10-K under the caption "Employment Agreement."

   (3)  Amounts paid under the Company's Supplementary Retirement Program.

   (4)  Includes amounts paid pursuant to severance arrangements.

   (5)  Amounts paid under the Company's 1992 Long Term Incentive Plan, which
        was canceled upon the consummation of the 1996 Holding Company
        Recapitalization.

   (6)  Includes $60,386 paid to Mr. Mayer under the Company's Supplementary
        Retirement Program and $48,934 paid under the Company's 1992 Long
        Term Incentive Plan.

             Messrs. Koe, Hale and Mayer resigned from the Company during
   1996 and Mr. Hagen resigned from the Company in 1997.

   </TABLE>

   Long Term Incentive Plans

             All long term incentive plans existing prior to the 1996 Holding
   Company Recapitalization were terminated as of May, 1996.

             Executive Incentive Compensation Plan.  In December 1996, the
   Board of Directors of the Company approved the United States Leather, Inc.
   Executive Incentive Compensation Plan (the "Incentive Plan") for certain
   key executive positions within the Company.  The purpose of the Incentive
   Plan is to motivate the key executive group in the Company to achieve
   certain earnings goals set forth in the Company's annual business plan.
   The amount of each participant's potential award under the Incentive Plan
   (the "Target Award") is determined by the Board of Directors at the
   beginning of each fiscal year as a percentage of such participant's annual
   base salary.  One-half of each participant's Target Award is based on
   attaining the Company's earnings goal (the "Target Portion") and the other
   half is based on a subjective evaluation of the participant's individual
   performance (the "Discretionary Portion").  If the Company exceeds the
   earnings goal of its business plan, the Target Portion of the Target Award
   is increased, with a maximum increase of two times such Target Portion if
   the actual earnings are 50% or greater than the earnings goal; however, in
   no event will the amount paid to a participant in any given year exceed
   twice the Target Award set for such participant.

             Executive Equity Ownership Plan.  In December 1996, the Board of
   Directors of the Company approved the United States Leather, Inc.
   Executive Equity Ownership Plan (the "Equity Ownership Plan") for certain
   key executive positions within the Company.  The purpose of the Equity
   Ownership Plan is to incent the selected executives to increase the value
   of the Company, and provide them an opportunity to share in such increased
   value at such time as the Company may be sold by its present owners to new
   owners.  The Equity Ownership Plan provides for each selected executive to
   defer all or part of his or her incentive compensation under the Incentive
   Plan (such incentive compensation to be awarded in the year following that
   in which it is earned) into the Equity Ownership Plan for a maximum of
   three years.  When the Company is sold, amounts deferred will be paid out
   to each participant plus (1) interest accrued at predetermined rates on
   such deferrals, and (2) matching Company contributions based on a formula
   which is governed by the value of the Company at the time of sale.  Such
   matching contributions may range from zero to twice the amount contributed
   by each executive.  If the Company is not sold within the three-year life
   of the Equity Ownership Plan, each participant will be paid the sum of his
   or her deferred incentive compensation plus interest.  The Equity
   Ownership Plan also contains a retention feature which requires each
   participant to forfeit both his or her contributions and any matching
   payments should he or she voluntarily terminate his or her employment with
   the Company prior to the date on which a sale is consummated.

             Option Grants.  No stock options were granted in 1996, and none
   were outstanding from prior years as of December 31, 1996.  All rights
   under stock options granted in prior years terminated with the 1996
   Holding Company Recapitalization.

   Compensation Committee Interlocks and Insider Participation

             In 1996, the Board of Directors formed a compensation committee
   consisting of Mr. Drabb and Mr. Pulte, and prior to his resignation from
   the Board of Directors, Mr. Neidhart.  No executive officer of the Company
   has served as a director or member of the compensation committee of any
   other entity of which one or more executive officers has served on the
   Board of Directors of the Company.

   Employment Agreement

             Effective April 1, 1996, the Company entered into an agreement
   with Claymore Partners Ltd. ("Claymore") providing for, among other
   things, William F. Loftus' service as President and Chief Executive
   Officer of the Company.  Under the terms of this agreement, Claymore also
   agreed to provide the Company with certain financial consulting and
   business planning services.  In exchange for the services provided,
   Claymore is reimbursed at the rate of $200 per hour for work performed by
   partners of Claymore (including Mr. Loftus) and $160 per hour for work
   performed by senior associates of Claymore, plus in each case,
   reimbursement for out of pocket expenses at cost.  The Company also agreed
   to indemnify Claymore against any liabilities that Claymore may incur in
   connection with its service to the Company under the agreement.  The
   Agreement may be canceled by either party at any time.

   Item 12.  Security Ownership of Certain Beneficial Owners and Management

             All 100 outstanding shares of the Company's common stock are
   owned by USLH, which is a wholly-owned subsidiary of the New Holding
   Company.  The common stock of the New Holding Company is owned, in its
   entirety, by The Equitable Life Assurance Society of the United States and
   certain of its affiliates (87.23%) and First Plaza Group Trust (12.77%).

   Item 13.  Certain Relationships and Related Transactions

             The Company is an indirect wholly-owned subsidiary of the New
   Holding Company and will join in the filing of a consolidated federal
   income tax return with the New Holding Company.  As a member of the New
   Holding Company consolidated group, the Company and the New Holding
   Company are jointly and severally liable for all income tax liabilities of
   the group for years during which the Company is a member of the group.
   The Company and Old Holdings had entered into a Tax Sharing Agreement
   which relates to the payment of taxes and certain related matters.  With
   the 1996 Holding Company Recapitalization, this Tax Sharing Agreement was
   terminated.

   <PAGE>

   Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a)(1)    Consolidated Financial Statements                           Page

        As of December 31, 1996, 1995 and 1994 and for
        each of the three years then ended:

        Report of Independent Public Accountants . . . . . . . . . . . .  F-1

        Consolidated Balance Sheets - December 31, 1996
        and December 31, 1995  . . . . . . . . . . . . . . . . . . . . .  F-2

        Consolidated Statements of Operations for the Years
        Ended December 31, 1996,
             December 31, 1995 and December 31, 1994 . . . . . . . . . .  F-3

        Consolidated Statement of Stockholders' Equity for
        the Years Ended
             December 31, 1996, December 31, 1995 and
             December 31, 1994 . . . . . . . . . . . . . . . . . . . . .  F-4

        Consolidated Statements of Cash Flows for the Years Ended
             December 31, 1996, December 31, 1995
             and December 31, 1994 . . . . . . . . . . . . . . . . . . .  F-5

        Notes to Consolidated Financial Statements . . . . . . . . . . .  F-6

   (a)(2)    Financial Statement Schedules

        None

   (b)  Reports on Form 8-K

        The Company did not file any Reports on Form 8-K during the fourth
   quarter of 1996.

   (c)  Exhibits

        The Exhibits filed or incorporated by reference herewith are as
   specified in the Exhibit Index included herein.

   <PAGE>

                                   SIGNATURES

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

   Dated:  March 31, 1997                  UNITED STATES LEATHER, INC.



                                      By:  /s/William F. Loftus
                                           William F. Loftus
                                           President and Chief Executive
                                           Officer

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

           Name                         Title                   Date


    /s/William F. Loftus      President and Chief Executive   March 31, 1997
    William F. Loftus         Officer and Director
                              (Principal Executive Officer)


    /s/Kinzie L. Weimer       Senior Vice President, Chief    March 31, 1997
    Kinzie L. Weimer          Financial Officer and
                              Secretary (Principal
                              Financial Officer and
                              Principal Accounting Officer)


    /s/Anthony Biancanello    Director                        March 31, 1997
    Anthony Biancanello


    /s/Michael J. Drabb       Director                        March 31, 1997
    Michael J. Drabb


    /s/Michael L. Pulte       Director                        March 31, 1997
    Michael L. Pulte

    <PAGE>

           Supplemental Information to be Furnished With Reports Filed
               Pursuant to Section 15(d) of the Act by Registrants
     Which Have Not Registered Securities Pursuant to Section 12 of the Act

             (c)  No annual report or proxy material has been sent to the
   Company's security holders.

   <PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



   To the Board of Directors
   of United States Leather, Inc.:

             We have audited the accompanying consolidated balance sheets of
   United States Leather, Inc. (a Wisconsin corporation) and subsidiaries as
   of December 31, 1996 and 1995, and the related consolidated statements of
   operations, stockholder's equity and cash flows for each of the three
   years in the period ended December 31, 1996.  These financial statements
   are the responsibility of the Company's management.  Our responsibility is
   to express an opinion on these financial statements 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 financial statements referred to above
   present fairly, in all material respects, the financial position of United
   States Leather, Inc. and subsidiaries as of December 31, 1996 and 1995,
   and the results of their operations and their cash flows for each of the
   three years in the period ended December 31, 1996, in conformity with
   generally accepted accounting principles.

                                             ARTHUR ANDERSEN LLP


   Milwaukee, Wisconsin
   March 28, 1997

   <PAGE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands, except share and per share data)

                     ASSETS                         As of December 31,
                                                   1996             1995
    Current Assets:
      Cash                                      $  2,894       $  4,614
      Accounts receivable, less allowances
        of $2,892 and $3,924                      35,819         44,603
      Inventories                                 64,749         73,886
      Prepaid expenses and other                   1,228          1,441
      Refundable income taxes                      2,700            572
                                                 -------        -------
         Total current assets                    107,390        125,116

    Property, Plant and Equipment:
      Land                                         2,213          2,184
      Buildings and improvements                  18,424         16,326
      Machinery and equipment                     57,178         55,403
      Furniture and fixtures                       2,746          2,804
      Other                                        3,851          1,982
                                                 -------        -------
                                                  84,412         78,699
      Less-Accumulated depreciation              (36,811)       (30,575)
                                                 -------        -------
      Property, plant and equipment, net          47,601         48,124

    Other Long-Term Assets:
      Goodwill, net of amortization of
        $25,612 and $22,115                      101,371        104,868
      Other                                        8,460          7,886
                                                 -------        -------
         Total assets                           $264,822       $285,994
                                                 =======        =======
    LIABILITIES AND STOCKHOLDER'S EQUITY
    Current Liabilities:
      Current maturities of long-term debt      $    210       $    175
      Revolving credit facility                   31,795         26,610
      Payable to bank                              5,358          5,025
      Accounts payable                             7,898         10,367
      Accrued liabilities                         17,352         13,003
      Income taxes payable                           105            312
      Deferred income taxes                          555          4,699
                                                 -------        -------
         Total current liabilities                63,273         60,191

    Long-Term Liabilities:
      Long-term debt, less current
        maturities                               130,047        130,145
      Deferred income taxes                          794          7,423
      Other long-term liabilities                  9,635          6,970

    Stockholder's Equity:
      Preferred Stock, $.01 par value-
       5,000,000 shares authorized, no
       shares issued                                  --             --
      Common Stock, voting, $.01 par
       value-35,000,000 shares
       authorized, 100 shares issued                   1              1
      Additional paid-in capital                  92,344         92,344
      Cumulative translation adjustment             (112)          (192)
      Accumulated deficit                        (31,160)       (10,888)
                                                 -------        -------
         Total stockholder's equity               61,073         81,265
                                                 -------        -------
         Total liabilities and
           stockholder's equity                 $264,822       $285,994
                                                 =======        =======

   The accompanying notes are an integral part of these consolidated balance
   sheets.

   <PAGE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             (Amounts in thousands, except share and per share data)

                                       For the Years Ended December 31,

                                    1996            1995          1994

    Net Sales                       $311,843       $360,660     $371,584
    Cost of Sales                    293,111        307,556      315,251
                                     -------        -------      -------
    Gross profit                      18,732         53,104       56,333
    Selling, general and
     administrative expenses          24,916         22,974       27,040
    Restructuring expense              3,744             --           --
    Amortization of intangible
     assets                            4,134          3,529        3,177
                                     -------        -------      -------
    Income (loss) from
     operations                      (14,062)        26,601       26,116
    Interest expense                  17,159         18,062       17,283
                                     -------        -------      -------
    Income (loss) before taxes
     and extraordinary item          (31,221)         8,539        8,833
    Income tax provision
     (benefit)                       (10,999)         4,373        4,685
                                     -------        -------      -------
    Net income (loss) before
     extraordinary item              (20,222)         4,166        4,148
    Extraordinary item, net of
     tax                                  --            417           --
                                     -------        -------      -------
    Net income (loss)               $(20,222)      $  4,583     $  4,148
                                     =======        =======      =======
    Per Common Share Data:
    Net income (loss) before
     extraordinary item            $(202,220)      $ 41,660     $ 41,480
    Extraordinary item                    --          4,170           --
                                     -------        -------      -------
    Net income (loss)              $(202,220)      $ 45,830     $ 41,480
                                     =======        =======      =======


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

   <PAGE>

   <TABLE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                             (Amounts in thousands)
   <CAPTION>
                                                     Additional     Cumulative                       Total
                                          Common       Paid-in     Translation    Accumulated    Stockholder's
                                          Stock        Capital      Adjustment      Deficit         Equity

    <S>                                   <C>          <C>            <C>          <C>               <C>
    BALANCE, December 31, 1993                $1       $92,344            --       ($14,410)         $77,935
       Net Income                             --            --            --          4,148            4,148
       Common Stock Dividends                 --            --            --         (4,036)          (4,036)
                                          ------        ------        ------        -------          -------
    BALANCE, December 31, 1994                $1       $92,344            --       ($14,298)         $78,047
                                          ======        ======        ======        =======          =======
       Net Income                             --            --            --          4,583            4,583
       Cumulative Translation
        Adjustment                            --            --          (192)            --             (192)
       Common Stock Dividends                 --            --            --         (1,173)          (1,173)
                                          ------        ------        ------        -------           ------
    BALANCE, December 31, 1995                $1       $92,344         ($192)      ($10,888)         $81,265
                                          ======        ======        ======        =======           ======
       Net Loss                               --            --            --        (20,222)         (20,222)
       Cumulative Translation
        Adjustment                            --            --            80             --               80
       Common Stock Dividends                 --            --            --            (50)             (50)
                                         -------       -------       -------        -------          -------
    BALANCE, December 31, 1996                $1       $92,344         ($112)      ($31,160)         $61,073
                                         =======       =======       =======        =======          =======
   </TABLE>


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

   <PAGE>
                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             (Amounts in thousands, except share and per share data)

                                        For the Years Ended December 31,
                                         1996          1995        1994
    Cash Flows from Operating
    Activities:
       Net income (loss)               $(20,222)     $ 4,583     $ 4,148
       Adjustments to reconcile net
        income (loss) to net cash
        provided by operating
        activities:
         Depreciation and
          amortization                   11,121        9,718       8,432
         Noncash (gain) loss                 55            9         (88)
         Noncash gain on
          extraordinary item                 --         (417)         --
         Noncash interest expense         1,213        1,455       1,369
         Deferred income taxes          (10,773)         (21)       (621)
         Change in assets and
          liabilities:
           Accounts receivable            8,784        2,774         619
           Inventories                    9,137       (1,728)      9,306
           Prepaid expenses and other       213        1,921        (253)
           Other assets                       9        1,791        (418)
           Accounts payable              (2,469)      (4,010)      2,736
           Accrued liabilities            4,349         (528)      1,238
           Income taxes
            payable/receivable           (2,335)         772        (830)
           Other long-term
            liabilities                   2,664       (3,791)        (60)
                                        -------      -------     -------
           Net cash provided by
            operating activities          1,746       12,528      25,578
                                        -------      -------     -------
    Cash Flows from Investing
     Activities:
       Capital expenditures              (6,523)      (7,948)     (6,062)
       Acquisition of A.R. Clarke &
        Co., Limited                         --       (4,914)         --
       Purchase of software license      (1,089)      (1,080)       (830)
                                        -------      -------     -------
         Net cash used in investing
          activities                     (7,612)     (13,942)     (6,892)
                                        -------      -------     -------
    Cash Flows from Financing
     Activities:
       Payments of revolving credit
        facility                        (93,049)     (76,648)    (84,090)
       Borrowings under revolving
        credit facility                  98,234       82,258      71,140
       Net change in payable to bank        334          890       1,196
       Senior debt refinancing fees      (1,240)          --          --
       Proceeds from construction
        loan                                 --           --         427
       Purchase of Senior Notes              --       (3,280)       (870)
       Payment of long-term debt           (163)         (43)       (172)
       Payment of common stock
        dividends                           (50)      (1,173)     (4,036)
                                        -------      -------     -------
         Net cash provided by (used
          in) financing activities        4,066        2,004     (16,405)
                                        -------      -------     -------
    Effect of Exchange Rate Changes
     on Cash                                 80         (192)         --
                                        -------      -------     -------
    Net (decrease) increase in cash      (1,720)         398       2,281
    Cash, beginning of period             4,614        4,216       1,935
                                        -------      -------     -------
    Cash, end of period                 $ 2,894      $ 4,614     $ 4,216
                                        =======      =======     =======
    Supplemental cash flow
     disclosures:
      Interest paid                     $15,963      $16,663     $15,776
      Income taxes paid (refunds
        received)                        (1,684)       5,021       6,100



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

   <PAGE>

                  UNITED STATES LEATHER, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
             (Amounts in thousands, except share and per share data)


   (1)  Basis of Presentation

   Acquisition:

             On December 30, 1988, United States Leather, Inc. (the
   "Company") acquired Lackawanna Leather Company ("Lackawanna"), Pfister &
   Vogel Leather Company ("Pfister & Vogel") and A.L. Gebhardt Company, Inc.
   ("Gebhardt") in a leveraged buyout transaction for an aggregate purchase
   price including covenant-not-to-compete payments and related transaction
   costs of $231,407 (the "Acquisition").  Of the aggregate purchase price,
   $23,000 was paid by the Company in 1989 in the form of a final
   distribution to the seller.  Since the transaction resulted in a 100%
   change in control, the Acquisition was accounted for under the purchase
   method of accounting and, as a result, $126,726, which represents the
   excess of the purchase price over the fair value of net assets acquired,
   was allocated to goodwill and is being amortized over 40 years.

   1996 Holding Company Recapitalization:

             On April 9, 1996, a series of transactions were completed with
   the consent of the Company which resulted in a change in the ultimate
   ownership of the Company from U.S. Leather Holdings, Inc. ("Old Holdings")
   to Leather U.S., Inc. (the "New Holding Company").  Old Holdings had been
   in default under its senior debentures (the "Old Holdings Debentures") due
   to the noncompliance by Old Holdings of a financial covenant contained in
   the Old Holdings Debentures as of December 31, 1995.

             The holders of the Old Holdings Debentures foreclosed, with Old
   Holdings consent, on their security which was the stock of Old Holdings'
   direct subsidiary, United States Leather Holdings, Inc. ("USLH"), the
   immediate parent of the Company.  Such foreclosure resulted in the
   satisfaction and cancellation of the Old Holdings Debentures.  The
   covenant default, and the subsequent consensus foreclosure, did not
   constitute a default or a change in control under the terms of the
   Company's existing public or bank debt.

             Such foreclosure resulted in the elimination of any ownership in
   the Company by Bear Stearns Acquisition Corp. VII, the majority
   shareholder of Old Holdings, and vested complete ultimate share ownership
   in the Company in The Equitable Life Assurance Society of the United
   States and certain of its affiliates and First Plaza Group Trust.  The
   nominees of Bear Stearns Acquisition Corp. VII have resigned from the
   Board of  Directors of the Company and have been replaced by nominees of
   the New Holding Company.

   (2)  Summary of Significant Accounting Policies

   Revenue recognition:

             Revenue is recognized upon shipment of the Company's products.

   Cash:

             The Company considers all highly liquid investments with a
   maturity of three months or less when purchased to be cash equivalents.

   Inventories:

             Substantially all of the Company's inventories are valued at the
   lower of cost, determined on a last-in, first-out (LIFO) basis, or market.
   Inventory costs include raw material, primarily cattlehides, labor and
   factory overhead.

   Property, plant and equipment:

             Property, plant and equipment acquired in the Acquisition have
   been recorded at their estimated fair market values at the Acquisition
   date.  Property, plant and equipment acquired after the Acquisition are
   stated at cost.  Property, plant and equipment is depreciated on a
   straight-line basis over the following estimated useful lives:

                                           Years

             Buildings and improvements    10 - 30
             Machinery and equipment        3 - 10

   Goodwill:

             Goodwill is amortized on a straight-line basis over 40 years.
   The Company continually evaluates whether later events and circumstances
   have occurred that indicate the remaining estimated useful life of
   goodwill may warrant revision or that the remaining balance of goodwill
   may not be recoverable.  When factors indicate that goodwill should be
   evaluated for possible impairment, the Company uses an estimate of the
   related segment's discounted net cash flows over the remaining life of the
   goodwill in measuring whether the goodwill is recoverable.  Amortization
   expense was $3,497, $3,177, and $3,177 for 1996, 1995 and 1994,
   respectively.

   Other Assets:

             Other assets include $5,306 and $5,179 of deferred financing
   costs at December 31, 1996 and 1995, respectively.  These costs are
   amortized as interest expense over the terms of the related debt.  Such
   expense was $1,093, $1,329 and $1,258 for 1996, 1995 and 1994,
   respectively.  Other assets also include $2,192 and $1,740 of license and
   consulting fees for a fully integrated set of software modules covering
   all primary functional areas of the business at December 31, 1996 and
   1995, respectively.  These costs are amortized over the life of the
   license agreement.  Amortization expense in 1996 and 1995 was $586 and
   $352, respectively.

   Accrued liabilities:

             Accrued liabilities include $5,752 and $5,738 of accrued
   interest payable as of December 31, 1996 and 1995, respectively.

   Payable to bank:

             Payable to bank represents outstanding checks written by the
   Company in excess of cash balances.  This amount is classified as a
   current liability by the Company.

   Income taxes:

             The Company accounts for income taxes under Statement of
   Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
   Taxes."  Under the liability method prescribed by SFAS No. 109, deferred
   taxes are provided based upon enacted tax laws and rates applicable to the
   periods in which the taxes become payable.

   Net income (loss) per share:

             Net income (loss) per share is calculated by dividing net income
   (loss) by the weighted average of Common Shares and Common Share
   equivalents outstanding during the period.  The average weighted number of
   Common Shares and Common Share equivalents outstanding used in the
   computation of net income (loss) per share was 100 for 1996, 1995 and
   1994.

             In March 1997, the Financial Accounting Standards Board issued
   Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
   This standard establishes standards for computing and presenting earnings
   per share ("EPS") and applies to entities with publicly held common stock
   or potential common stock.  This standard simplifies the standards for
   computing earnings per share previously found in APB Opinion No. 15,
   Earnings Per Share.  The standard is effective for fiscal years ending
   after December 15, 1997.

   Research and development:

             Research and development costs are expensed as incurred.
   Expenses were $2,333, $2,402 and $2,120 for 1996, 1995 and 1994,
   respectively.

   Refinancing expense:

             During 1996, the Company incurred expenditures of $1,225 in
   relation to the refinancing of the revolver discussed in Note (8).  These
   expenditures have been capitalized as deferred financing costs and are
   included in Other Assets.  During 1995, the Company incurred expenses of
   $179 in relation to the acquisition of A.R. Clarke discussed in Note (4).
   These expenditures have been capitalized as deferred financing costs and
   are included in Other Assets.

   Use of estimates:

             The preparation of financial statements in conformity with
   generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosure of contingent assets and liabilities at the
   date of the financial statements and the reported amounts of revenues and
   expenses during the reporting period.  Actual results could differ from
   those estimates.

   Foreign Currency Translation:

             Foreign currency balance sheet accounts are translated into U.S.
   dollars at the rates of exchange in effect at fiscal year end.  Income and
   expenses are translated at the average rates of exchange in effect during
   the year.  The related translation adjustments are made directly to a
   separate component of stockholder's equity.

   Long-Lived Assets:

             In March 1995 the Financial Accounting Standards Board issued
   Statement of Financial Accounting Standards No. 121, "Accounting for the
   Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
   The Company adopted this standard during 1996.  The adoption of this
   standard did not have a material effect on the Company's financial
   position or results of operations.

   (3)  Description of Business

             The Company, which operates in a single business segment,
   produces a broad line of semi-finished and finished leather and related
   products which are sold domestically and internationally to a diverse
   customer base in three principal markets:  furniture, footwear and
   personal leather goods, and automotive.  During 1996, the Company changed
   its focus from reporting results by division to reporting by business
   line.  The three principal lines of business are as follows:

             Furniture Group - The Company, under the trade name Lackawanna
   Leather, is a supplier of upholstery leather to the furniture industry.

             Footwear and Personal Leather Goods Group - The Company is a
   producer of finished leather for footwear, accessories, sporting goods,
   apparel and other personal leather goods.  Sales are made under the brand
   names of Pfister & Vogel, A.L. Gebhardt, A.R. Clarke and Caldwell-Moser
   Leather.

             Automotive Group - The Company is a producer of finished leather
   for use in automobile interiors.

             International sales include export sales from the Company's
   domestic operations, and sales by A.R. Clarke, Ltd. (a division of the
   Footwear and Personal Leather Goods Group) to markets other than the
   United States, and sales, prior to discontinuation, from the Company's
   German operations.  International sales for the years 1996, 1995 and 1994
   are as follows:

    Area                            1996          1995          1994

    Asia  . . . . . . . . . .      $46,471       $53,631       $41,592
    Europe  . . . . . . . . .       17,113        16,763        15,984
    Americas  . . . . . . . .       44,934        49,008        35,983
                                   -------       -------       -------
         Total  . . . . . . .     $108,518      $119,402       $93,558
                                   =======       =======       =======

   (4)  Purchase of A.R. Clarke & Co., Limited

             On January 30, 1995, the Company purchased substantially all of
   the non-cash assets of A.R. Clarke & Co., Limited of Toronto, Canada for
   approximately $4,914 in cash, plus the assumption of certain liabilities
   approximating $800.  This acquisition was accounted for under the purchase
   method of accounting and accordingly, the acquired company's results of
   operations are included in the Company's consolidated statement of
   operations beginning on January 31, 1995.  No material amount of goodwill
   arose out of this acquisition.  The purchase was financed through
   borrowings under the Company's revolving credit facility, which was
   amended and restated in the first quarter of 1995 to accommodate the
   acquisition.  The Company's pro forma results of operations for 1995 are
   not materially different than historical results and thus are not
   presented.

   (5)  Allowance for Doubtful Accounts

             Information for the allowance for doubtful accounts is as
   follows:

                              Balance    Additions   Write-offs    Balance
                             Beginning    Charged      Net of      End of
                              of Year    to Income   Recoveries     Year

    Year ended December 31,
     1996 . . . . . . . . .     $3,924      $1,752       $2,784     $2,892
    Year ended December 31,
     1995 . . . . . . . . .      3,113         927          116      3,924
    Year ended December 31,
     1994 . . . . . . . . .      2,047       2,257        1,191      3,113

             The allowance for doubtful accounts is based on management's
   estimate of amounts expected to be uncollectible considering historical
   experience and the information management is able to obtain regarding the
   financial condition of major customers.  Due to the concentration of the
   Company's customers in three key industries (furniture, footwear and
   personal leather goods, and automotive), significant changes in these
   markets could cause management's estimates of uncollectible accounts to
   differ materially from the estimates used in the consolidated financial
   statements as of December 31, 1996.

   (6)  Inventories

             Inventories consisted of the following at December 31:

                                                  1996          1995
    At lower of cost, using the first-in,
     first-out (FIFO) cost method or market:
       Raw materials and supplies . . . . .       $18,556      $18,367
       Work-in-process  . . . . . . . . . .        29,655       32,549
       Finished goods . . . . . . . . . . .        25,253       29,716
                                                   ------       ------
        Total FIFO inventories  . . . . . .        73,464       80,632
    Difference between FIFO and LIFO cost of
     inventories  . . . . . . . . . . . . .        (8,715)      (6,746)
                                                   ------       ------
        Total LIFO inventories  . . . . . .       $64,749      $73,886
                                                   ======       ======

   (7)  Lease Commitments

             The Company leases certain manufacturing, warehouse,
   transportation and office facilities and equipment.  The leases generally
   require the Company to pay tax, insurance and maintenance expenses
   relating to the leased assets.

             As of December 31, 1996, future minimum lease payments required
   under operating leases are as follows:

                       Year
                       1997                       $454
                       1998                        249
                       1999                        144
                       2000                         51
                       2001                         24
                       Thereafter                   24
                                                  ----
                                                  $946
                                                  ====

             Rent expense under operating leases for the years ended December
   31, 1996, 1995 and 1994 was $504, $582 and $887, respectively.

   (8)  Revolving Credit Facility

             The Company entered into a new five year, $80,000, asset-based
   revolving credit facility (the "New Revolving Credit Facility") on
   November 1, 1996 with a group of banks (the "Bank Group").  The New
   Revolving Credit Facility is secured by essentially all of the assets of
   the Company  with the exception of real property.  Loans under the New
   Revolving Credit Facility bear interest at a rate equal to 0.25% plus
   prime or 2.00% plus LIBOR.  The Company pays a 0.375% commitment fee on
   the unused portion of the facility.  Included in the New Revolving Credit
   Facility is a $10,000 line related to letters of credit.  As of December
   31, 1996, letter of credit agreements aggregating $7,619 were outstanding
   under this agreement.  These agreements guarantee the Company's compliance
   with certain contractual obligations relating to imported raw material
   purchases.  The terms of the agreement covering the New Revolving Credit
   Facility includes certain financial covenants as well as restrictions
   related to, among other things, capital expenditures and indebtedness.

             Due to the loss incurred in 1996, the Company was not in
   compliance at December 31, 1996 with certain financial covenants contained
   in the New Revolving Credit Facility.  In February 1997 the New Revolving
   Credit Facility was amended to extend until March 31, 1997 the Company's
   reporting requirements with respect to compliance with the December 31,
   1996 financial covenants so that no formal default or event of default
   would occur under the New Revolving Credit Facility prior to such date.
   The amendment also suspended the Company's ability to borrow under the
   overadvance provisions contained in the new Revolving Credit Facility.  In
   March 1997 the New Revolving Credit Facility was further amended to (1)
   eliminate FIFO EBITDA related covenants for 1996, (2) change the FIFO
   EBITDA related covenants for 1997, (3) establish a fixed charge ratio
   covenant beginning in 1998, (4) reduce the availability, (5) eliminate the
   Company's ability to utilize overadvance borrowings and (6) increase the
   annual interest rate charged on amounts borrowed to LIBOR plus 2.75% or
   prime plus 1.00%.

             The maximum and average outstanding borrowings and the weighted
   average interest rates were calculated on daily borrowings outstanding.
   Letters of credit of $7,619 and $1,754 as of December 31, 1996 and 1995,
   respectively, reduced available capacity under the facilities to $41,571
   and $36,636 as of December 31, 1996 and 1995, respectively.  However, had
   the elimination of the overadvance provisions of the New Revolving Credit
   Facility pursuant to the March 1997 amendment been in effect at December
   31, 1996, the available capacity under the New Revolving Credit Facility
   on such date would have been $19,245.

   (9)  Long-Term Debt

    Long-term debt consisted of the                  1996         1995
     following:

      10 1/4% unsecured Senior Notes due
      2003 (the "Senior Notes") interest
      payable semi-annually January 31,
      and July 31, net of unamortized
      discount of $661 and $762 at               $129,339     $129,238
      December 31, 1996 and 1995,
      respectively
      Other                                           918        1,082
                                                  -------      -------
    Total debt                                   $130,257     $130,320
    Less - current maturities                       (210)        (175)
                                                  -------      -------
    Long-term debt                               $130,047     $130,145
                                                  =======      =======

      Scheduled maturities:
               Year                             Amount
               1997                              $210
               1998                               640
               1999                                39
               2000                                21
               2001                                --
            Thereafter                        129,347
                                              -------
                                             $130,257
                                              =======

        The terms of the Senior Notes contain certain covenants which
   restrict, among other things, additional indebtedness, restricted payments
   and investments.  These covenants are generally less restrictive than
   those contained in the New Revolving Credit Facility.  At December 31,
   1996 the Company did not meet certain financial criteria established by
   such covenants and therefore was prohibited from incurring any additional
   indebtedness as defined in the Senior Notes indenture.  Further, an
   acceleration of the amounts borrowed under the New Revolving Credit
   Facility after a default will cause a cross-default under the Senior Note
   indenture.

        During 1995, the Company purchased Senior Notes with an aggregate
   principal amount of $4,000.  These have been reflected as a retirement of
   the Senior Notes in the consolidated balance sheet as of December 31, 1996
   and 1995.

        Based on quoted market prices or dealer quotes, the fair market value
   of the outstanding Senior Notes was $113,100 and $96,200 at December 31,
   1996 and 1995, respectively.  The fair market value of the New Revolving
   Credit Facility discussed in Note 8 approximates its book value.

   (10) Income Taxes

        The Company is an indirect wholly-owned subsidiary of the New Holding
   Company and it will join in the filing of a consolidated federal income
   tax return with the New Holding Company.  The income tax provision and
   related tax accounts of the Company are prepared as if the Company were
   filing on a stand-alone basis.

        Income taxes have been provided for (benefitted) in the accompanying
   financial statements as follows:

                                  1996        1995        1994
    Current:
      Federal                   $(2,700)      $3,792      $4,431
      Foreign                        311         280          --
      State                            -         297         875
                                --------      ------      ------
                                 (2,389)       4,369       5,306

    Deferred                     (8,610)           4       (621)
                                 -------      ------      ------
                               $(10,999)      $4,373      $4,685
                                 =======      ======      ======

        A reconciliation of the statutory Federal income tax rate to the
   effective income tax rate for the year ended December 31 is as follows:


                                                Year ended December 31,
                                           1996          1995        1994
    Statutory Federal income tax rate      ($35.0)%      35.0%       35.0%
    State income taxes, net of Federal        2.8         2.3         6.4
     income tax benefit
    Benefit related to foreign sales          0.1        (5.5)       (5.1)
     corporation
    Nondeductible amortization of            (4.0)       13.0        12.6
     intangibles
    Meals and entertainment                  (0.1)        1.0         1.2
    Other                                     1.0         5.4         2.9
                                             ----        ----        ----
    Effective income tax rate               (35.2)%      51.2%       53.0%
                                             ====        ====        ====


        Temporary differences and credits which give rise to deferred tax
   liabilities as of December 31 are as follows:

                                                   1996            1995
    Deferred tax assets:
      Allowance for doubtful accounts            $1,099           $1,402
      Accrued liabilities and other               3,150            1,993
      Other                                          87              142
      Net operating loss carryforward             7,428                -
      Valuation allowance                          (500)               -
                                                 -------          ------
         Total deferred tax assets               11,264            3,537
                                                =======           ======
    Deferred tax liabilities:
      Depreciation                                7,809            7,565
      Inventory                                   4,804            8,094
                                                 ------           ------
      Total deferred tax liabilities             12,613           15,659
                                                 ------           ------
      Net deferred tax liability                 $1,349          $12,122
                                                 ======           ======


        The Company has tax benefits from net operating loss carryforwards
   for Federal tax totaling $6,142 that expire December 31, 2010.  In
   addition the Company has tax benefits from state net operating loss
   carryforwards for state purposes of $1,286 that expire through 2010.  The
   Company has recorded a valuation reserve of $500 for certain tax benefits
   from state operating loss carryforwards that management believes may not
   be realized.

   (11) Stockholder's Equity

   Common Stock

        The Company has 35,000,000 shares of authorized Common Stock, $.01
   par value, 100 shares of which are issued and outstanding.

        Prior to 1996, certain members of management held shares in Old
   Holdings, the Company's ultimate parent.  Under the provisions of the
   stockholders agreement between Old Holdings and the management
   shareholders (the "Stockholders Agreement"), the Company was obligated to
   purchase shares held by management, at the employee's option, at their
   original purchase price (a net amount of approximately $1,870).  In
   January 1996, all of the management shareholders required the Company to
   purchase their Old Holdings shares as provided for in the Stockholders
   Agreement.  Accordingly, the Company paid $1,755 to those shareholders in
   January 1996.

   Preferred Stock

        The Company has 5,000,000 shares of authorized preferred stock, $.01
   par value, none of which was issued and outstanding.  The Board of
   Directors is authorized to issue preferred stock with such voting powers,
   dividends, or other rights as it may deem advisable.

   (12) Profit Sharing and Pension Plans

        Substantially all of the employees of United States Leather, Inc.
   participate in profit sharing plans.  Charges to income relating to these
   plans were $1,589, $1,914 and $1,461 for the periods ending December 31,
   1996, 1995 and 1994, respectively.   Prior to 1995, the Company had
   defined benefit pension plans covering substantially all of the employees
   of Lackawanna and the salaried employees of United States Leather, Inc.
   and Pfister & Vogel.  In 1995, the Company terminated the plans and
   settled the accumulated benefit obligation of $8,981 by making lump-sum
   distributions, and purchasing non-participating annuity contracts.
   Defined benefits were not provided under any successor plan.

        As a result, the Company recognized a gain of $235 in 1995 determined
   as follows:

                                        Before       Effect of      After
    Assets and obligations:           Termination   Termination  Termination
      Assets and obligations:
      Accumulated benefit
       obligation                        $(8,981)      $ 8,715        $(266)
      Effects of projected future
       compensation levels                     -             -            -
                                          -------      -------      -------
      Projected benefit obligation        (8,981)        8,715         (266)

      Plan assets at fair value            8,981        (8,715)         266

    Items not yet recognized in
      earnings:
      Unrecognized net asset at
       transition                              -             -            -
      Unrecognized prior service
       cost resulting from plan
       amendment                            (374)          374            -
      Unrecognized net asset
       subsequent to transition              139         (139)            -
                                          ------        ------       ------
    (Accrued) prepaid pension cost
     on the statement of financial
     position                            $  (235)      $   235      $     -
                                          ======        ======       ======
    Net periodic pension cost
     included the following:
                                            1995          1994

      Service cost                        $   78         $ 519
      Interest cost on projected
       benefit obligation                    591           686
      Actual return on plan assets          (948)          271
      Net amortization and deferral          285          (925)
                                           -----         -----
         Net periodic pension cost        $    6         $ 551
                                           =====         =====


   (13) Incentive and Stock Option Plans

        During 1994, the Board of Directors of Old Holdings established the
   U.S. Leather Holdings, Inc. Long-term Incentive Plan (the "Plan").  The
   Plan permitted the grant of nonqualified stock options, incentive stock
   options, stock appreciation rights, restricted stock, performance units
   and performance shares to the Company's employees.  There were 175,000
   shares of Old Holdings' common shares reserved for issuance under the
   Plan.  There were no option grants in 1995 or 1996.  All options granted
   had an exercise price equal to or greater than the fair value of Holdings
   common stock at the date of grant, as determined by the Holdings Board of
   Directors.  There is no public market for Holdings' common shares or
   preferred shares.  In May 1996, the Company terminated this Plan and the
   outstanding options became null and void with the replacement of the top
   holding company.  As of December 31, 1995, there were 109,200 options
   outstanding under the Plan.

   (14) Environmental Matters

        The Company's production facilities are subject to numerous
   environmental laws and regulations concerning, among other things,
   emissions to the air, discharges to the land, surface, subsurface strata
   and water, and the generation, handling, storage, transportation and
   treatment of waste byproducts and regulation regarding health and safety
   matters.  The Company believes that its business, operations and
   facilities are being operated in substantial compliance in all material
   respects with applicable environmental and health and safety laws and
   regulations.  The Company has been identified as a "potentially
   responsible party" ("PRP") by the EPA at three off-site disposal
   facilities and while it has responded to a section 104(e) request
   concerning its use of another off-site disposal facility, it has not been
   identified as a PRP at this site.  Based on information currently
   available regarding the estimated remediation costs at these sites and the
   Company's relatively minimal contributions to such sites, the Company
   believes that its ultimate liability will not materially adversely affect
   its consolidated financial statements.  In addition, the Company believes
   that it is entitled to indemnification from the previous owners of its
   divisions with respect to any potential liability at three of the four
   sites, although no assurances can be given as to the ability of the
   Company to enforce, or collect any amounts due under, such
   indemnification.

   (15) Operational Restructuring and Liquidity

        For the year ended December 31, 1996, the Company reported a $20.2
   million net loss.  The Company is highly leveraged, and certain
   developments have had an adverse effect on the Company.

        During 1996, the Company began a series of initiatives to strengthen
   the Company's financial position and return it to profitability.  Among
   these initiatives were (1) the reorganization of the management of the
   Company, which included the elimination of division presidents, the
   elimination or replacement of several other senior executives in the
   Company, and a general reduction in salaried workforce, (2) comprehensive
   reviews of the Company's products and inventories, (3) closing two
   operations which had not been profitable and were not strategically
   critical to the Company, (4) replacing critical talent which had been lost
   in prior years, and (5) vacating the Company's corporate offices and
   moving such offices into one of the Company's operating facilities.
   During 1996, the Company also continued efforts to grow the business of
   its Automotive Group.  These initiatives, while begun in 1996, did not
   have a material positive impact on 1996 results.  In fact, because many of
   them required certain up-front costs and/or reserve provisions, they
   impacted 1996 negatively.  The Company recorded a series of charges in
   1996 of $16.5 million which management believes are unusual or non-
   recurring items.  In the aggregate, these charges increased the Company's
   cost of goods sold by $12.2 million, selling, general and administrative
   expenses by $0.6 million, and resulted in a charge for restructuring
   expenses of $3.7 million.  In addition, the Company incurred operating
   losses in 1996 aggregating $1.8 million in connection with the activities
   of the USL Trading Operation and German operations prior to their being
   discontinued.

        The Company believes that the above initiatives will eventually
   improve the financial performance of the Company.  In addition, as
   discussed in Note 8, the Company has amended the New Revolving Credit
   Agreement to eliminate the 1996 noncompliance and to reset the 1997
   financial covenants.  Management believes that the Company will be in
   compliance with the 1997 financial covenants and that the Company will
   have sufficient liquidity to conduct its operations.  However, there can
   be no assurances that the Company's operations will generate sufficient
   cash flow, considered together with the amounts available under the New
   Revolving Credit Agreement, to meet the Company's future liquidity
   requirements.

   <PAGE>

                                  EXHIBIT INDEX

                           UNITED STATES LEATHER, INC.
                           ANNUAL REPORT ON FORM 10-K


    Exhibit      Exhibit
    Number

    3.1          Restated Articles of Incorporation of the Company, as
                 amended [Incorporated by reference to Exhibit 3.1 to
                 Amendment No. 2 to the Company's Registration Statement on
                 Form S-1 (File No. 33-64142)].

    3.2          Bylaws of the Company, as amended [Incorporated by
                 reference to Exhibit 3.2 to Amendment No. 2 to the
                 Company's Registration Statement on Form S-1 (File No. 33-
                 64142)].

    4.1          Indenture dated August 2, 1993, between the Company and
                 M&I First National Bank, as Trustee, in respect of the
                 Company's 10-1/4% Senior Notes due 2003, including the form
                 of Note [Incorporated by reference to Exhibit 4.5 to
                 Amendment No. 2 to the Company's Registration Statement on
                 Form S-1 (File No. 33-64142)].

    4.2          Restated Revolving Credit Agreement dated as of December
                 20, 1996, among United States Leather, Inc., A.R. Clarke
                 Limited, The First Bank of Boston and the other banks
                 which are parties thereto.

    4.3          Amendment No. 1 dated as of February 14, 1997, to Restated
                 Revolving Credit Agreement dated as of December 20, 1996,
                 among United States Leather, Inc., A.R. Clarke Limited,
                 The First Bank of Boston and the other banks which are
                 parties thereto.

    4.4          Amendment No. 2 dated as of March 28, 1997, to Restated
                 Revolving Credit Agreement dated as of December 20, 1996,
                 among United States Leather, Inc., A.R. Clarke Limited,
                 The First Bank of Boston and the other banks which are
                 parties thereto.

    10.1         Letter Agreement with Claymore Partners, Ltd.

    10.2         United States Leather, Inc. Executive Incentive
                 Compensation Plan

    10.3         United States Leather, Inc. Executive Equity Ownership
                 Plan

    12.1         Statement re: computation of ratios of earnings to fixed
                 charges

    12.2         Statement re: computation of deficiency of earnings to
                 fixed charges

    21           Subsidiaries of the Company

    27           Financial Data Schedule (EDGAR version only)