ALLIS CHALMERS CORP, 10-K405, 1998-03-31

ALLIS CHALMERS CORP
10-K405, 1998-03-31
MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT

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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

(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, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number 1-2199

ALLIS-CHALMERS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 39-0126090
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Box 512, Milwaukee, Wisconsin 53201-0512
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (414)475-2000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Common Stock - $.15 Par Value

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

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No

At March 3, 1998, there were 1,003,028 shares of Common Stock
outstanding.

<PAGE>

1997 FORM 10-K CONTENTS

PART I

Item Page

1. Business. 3
2. Properties. 5
3. Legal Proceedings. 5
4. Submission of Matters to a Vote of
Security Holders. 7

PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters. 8
6. Selected Financial Data. 9
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 10
7A. Quantitative and Qualitative
Disclosures about Market Risk. 14
8. Financial Statements and Supplementary
Data. 15
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure. 30

PART III
10. Directors and Executive Officers
of the Registrant. 31
11. Executive Compensation. 34
12. Security Ownership of Certain
Beneficial Owners and Management. 35
13. Certain Relationships and Related
Transactions. 37

PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. 38

Signatures. 41

<PAGE>

PART I

ITEM 1. BUSINESS.

(a) Development of the Business

GENERAL

Allis-Chalmers Corporation (Allis-Chalmers or the Company) was
incorporated in 1913 under Delaware law. The Company sold its major
operating businesses in 1988 in accordance with its First Amended and
Restated Joint Plan of Reorganization (Plan of Reorganization) under
Chapter 11 of the United States Bankruptcy Code. The Plan of
Reorganization was confirmed by the Bankruptcy Court on October 31, 1988
after acceptance by creditors and shareholders and was consummated on
December 2, 1988. See Item 3. LEGAL PROCEEDINGS for a discussion of such
proceedings.

The Company has its principal executive office in West Allis, Wisconsin
and it maintains three wholly-owned subsidiaries. One subsidiary, Houston
Dynamic Service, Inc., operates a machine repair business in Houston,
Texas; the other two subsidiaries, KILnGAS R&D, Inc. and U.S. Fluidcarbon
Inc., are inactive.

On September 22, 1994, the Company sold its B.R.B. Industries division.
B.R.B. Industries, which was acquired by the Company on December 20, 1989
in a purchase of assets, is a Hoboken, New Jersey manufacturer of molded
fabric products serving the apparel and lingerie markets and the home
sewing and notions industries.

(b) Financial Information About Industry Segments

The Company operates in a single industry segment -- the repair and
service of mechanical rotating equipment for the industrial, utility and
governmental aftermarkets.

The principal business activities of the Company are as follows:

MACHINE REPAIR

Sales of the machine repair business operated by Houston Dynamic Service,
Inc. (HDS), a wholly-owned subsidiary of the Company, were $4,062,000 in
1997, $4,060,000 in 1996 and $3,190,000 in 1995. The increase in 1996
and 1997 sales from 1995 was primarily the result of strong market
conditions coupled with a more focused marketing strategy and product
offering.

HDS services and repairs various types of mechanical equipment, including
compressors (centrifugal, rotary, axial and reciprocating), pumps,
turbines, engines, heat exchangers, centrifuges, rollers, gears, valves,
blowers, kilns, crushers and mills. Services provided include emergency
repair, disassembly, inspection, repair testing, parts duplication,
machining, balancing, metalizing, milling, grinding, boring, welding,
modification, reassembly, field machining, maintenance, alignment, field
service, installation, startup and training.

HDS employed 36 people on December 31, 1997. It operates out of a
facility in Houston, Texas which was purchased by HDS in 1990. The
facility includes repair shop and office space.

HDS serves various industrial customers, including those in the
petrochemical, chemical, refinery, utility, waste and waste treatment,
minerals processing, power generation, pulp and paper and irrigation
industries.

OTHER DATA

Competition in the Company's machine repair business consists of nine
major original equipment manufacturers (OEM) and numerous smaller
independent competitors. Many of these competitors have special strengths
in certain product areas because of customer preferences for OEM suppliers
or because specialized patented technologies are offered. The principal
methods of competition are price, quality, delivery, customer service and
warranty.

The principal raw materials and purchased components used in the machine
repair business are alloy and stainless steels, castings and forgings,
aluminum, copper, gears and other basic materials. Alternative sources of
supply exist or could be developed for all of these raw materials and
components. This business is highly labor intensive.

Some of the Company's products, processes and systems are covered by
patents owned by or licensed to the Company. No particular product,
process or system is dependent on a single fundamental patent, the loss of
which would jeopardize the Company's businesses. The Company licenses the
use of a number of its trademarks, from which it receives income.

During the past three years, Amoco Chemical was the only customer which
accounted for 10% or more of total Company sales -- Amoco Chemical
generated 12% of 1997 sales, 16% of 1996 sales and 26% of 1995 sales.

Expenditures relating to compliance with federal, state and local
environmental protection laws are not expected to have a material effect
on the Company's capital expenditures, results of operations, financial
condition or competitive position. The Company is not aware of any
present statutory requirements concerning environmental quality that would
necessitate capital outlays which would materially affect the Company. In
conjunction with consummation of the Plan of Reorganization, the Company
settled all known environmental claims asserted by the United States
Environmental Protection Agency (EPA) as well as claims asserted by
certain state agencies. However, the EPA and third parties have claimed
that Allis-Chalmers is liable for cleanup costs associated with certain
hazardous waste disposal sites in which products manufactured and sold by
Allis-Chalmers before consummation of the Plan of Reorganization were
ultimately disposed of by others. Since Allis-Chalmers manufactured and
sold the products disposed of in these sites before consummation of the
Plan of Reorganization, Allis-Chalmers has taken the position that all
cleanup costs or other liabilities related to these sites were discharged
in the bankruptcy. See Item 3. LEGAL PROCEEDINGS.

The Company's employment was 42, 44 and 34 at December 31, 1997, 1996 and
1995, respectively.

For more detailed information, the audited 1997 Consolidated Financial
Statements, Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in this report should be read in their entirety.

(d) Financial Information About Foreign and
Domestic Operations and Export Sales

The Company has no foreign operations or significant export sales.

ITEM 2. PROPERTIES.

The Company's principal operating facility is a repair shop and office
building in Houston, Texas, which is owned by HDS. Allis-Chalmers leases
its administrative offices in West Allis, Wisconsin on a short-term basis.
The facilities are considered adequate and suitable for the Company's
principal business.

ITEM 3. LEGAL PROCEEDINGS.

REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE

On June 29, 1987 Allis-Chalmers and 17 of its domestic subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Plan of Reorganization was confirmed
by the Bankruptcy Court on October 31, 1988 after acceptance by creditors
and shareholders, and the Plan of Reorganization was consummated on
December 2, 1988.

At confirmation, the Bankruptcy Court approved the establishment of the A-
C Reorganization Trust as the primary vehicle for distributions under the
Plan of Reorganization, two trust funds to service health care and life
insurance programs for retired employees and a trust fund to process and
liquidate future product liability claims. Cash of approximately $400
million and other assets with a net book value of $38 million were
distributed to creditors or transferred to the trusts, and the trusts
assumed responsibility for substantially all remaining cash distributions
to be made to holders of claims and interests pursuant to the Plan of
Reorganization. The Company was thereby discharged of all debts that
arose before confirmation of the Plan of Reorganization, and all of its
capital stock was canceled and made eligible for exchange for shares of
the reorganized Company.

The Company does not administer any of the aforementioned trusts and
retains no responsibility for the assets transferred to or distributions
to be made by such trusts pursuant to the Plan of Reorganization.

For a description of restrictions on the transfer of the common stock of
the reorganized Company, see Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.

ENVIRONMENTAL PROCEEDINGS

As part of the Plan of Reorganization the Company made a cash payment of
$4.5 million to the EPA in settlement of the EPA's claims for cleanup
costs at all sites where the Company was alleged to have disposed of
hazardous waste. The EPA settlement included both past and future cleanup
costs at these sites and released the Company of liability for claims of
contribution or indemnity which may be asserted by other potentially
responsible parties against Allis-Chalmers in connection with these
specific sites.

In addition to the EPA settlement, the Company negotiated settlements of
various environmental claims which had been asserted by certain state
environmental protection agencies. These settlements, totaling
approximately $200,000, were approved by the Bankruptcy Court.

Since consummation of the Plan of Reorganization on December 2, 1988, a
number of parties, including the EPA, have asserted that the Company is
responsible for the cleanup of hazardous waste sites. These assertions
have been made only with respect to the Company's prebankruptcy
activities. No claims have been asserted against the Company involving
its postbankruptcy operations.

Before the settlement with the EPA in the bankruptcy proceedings, an
attempt was made by the parties to identify all possible hazardous waste
disposal sites and to settle all liabilities relating to those sites.
Notwithstanding the breadth of the settlement, various EPA regional
offices have continued to assert cleanup claims against Allis-Chalmers
with respect to several sites. Apparently, not all offices of the EPA are
aware of the settlement agreement, since at least two of these claims
involve sites with respect to which the EPA specifically agreed not to
sue.

Certain other parties have asserted that the Company is responsible for
environmental cleanup costs or associated EPA fines in connection with
additional sites. In each instance the Company activities complained of
occurred prior to the Company's bankruptcy proceedings and the third
parties did not file proofs of claim in the bankruptcy proceedings. The
filing of such proofs of claim is required by the Bankruptcy Code to
effect a claim against a Chapter 11 debtor. A bankruptcy discharge
defense has been asserted by the Company in each instance.

Although the law in this area is still somewhat unsettled, three Federal
Courts of Appeal have held that a debtor can be discharged of
environmental cleanup liabilities related to its prebankruptcy activities.
The Company believes it will prevail in its position that its liability to
the EPA and third parties for prebankruptcy environmental cleanup costs
has been fully discharged. In one particular site, the EPA's Region III
has concurred with the Company's position that claims for environmental
cleanup were discharged pursuant to the bankruptcy. While each site is
unique with different circumstances, the Company has notified other
Regional Offices of the EPA of this determination associated with the
Region III site. The Company has not received responses from the other
Regional offices.

The EPA and certain state agencies also continue to request information in
connection with various waste disposal sites in which products
manufactured by Allis-Chalmers before consummation of the Plan of
Reorganization were ultimately disposed of by other parties. Although the
Company has been discharged of liabilities with respect to hazardous waste
sites, it is under a continuing obligation to provide information with
respect to its products to federal and state agencies. The A-C
Reorganization Trust, under its mandate to provide Plan of Reorganization
implementation services to the Company, has responded to these
informational requests because prebankruptcy activities are involved.

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

Not applicable.

PART II

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

The Company's Plan of Reorganization provided for cancelling the old
common stock of Allis-Chalmers on December 2, 1988 and issuing new common
stock of the reorganized Company (Common Stock) to certain holders of
claims and interests, including holders of old common stock.

After receiving approval of a majority of shareholders of Common Stock,
the Company amended its Amended and Restated Certificate of Incorporation
(Amendment), effective as of July 8, 1992, to effect a 1-for-15 reverse
stock split of the Common Stock pursuant to which each 15 shares of Common
Stock, $.01 par value per share, were combined into one share of new
Common Stock, $.15 par value per share. In lieu of the issuance of
fractional shares of Common Stock, the Amendment provided that
shareholders owning less than 15 shares of Common Stock were entitled to
receive a cash payment at the rate of $8.85 per share of Common Stock
(equivalent to $0.59 per share of the presplit Common Stock). This
action, decreased the number of outstanding shares of Common Stock to
1,003,596 from 15,164,195 shares immediately prior to the reverse stock
split and decreased the number of shareholders to 7,408 from 17,799 prior
to the reverse stock split. Per share amounts in the accompanying
financial statements reflect the reverse stock split.

Pursuant to the Stock Sales Escrow Agreement which was established in
conjunction with the Plan of Reorganization, the Company's stock transfer
agent, Continental Stock Transfer & Trust Company, completed the first
release of shares of Common Stock from escrow in July 1992. Stock
certificates, representing approximately 40% of the outstanding shares of
Common Stock held in escrow, were distributed to shareholders of record as
of the close of business on July 8, 1992. The balance of the outstanding
shares of Common Stock were released from escrow on August 1, 1995.

The Common Stock is subject to trading restrictions that are set forth in
its Amended and Restated Certificate of Incorporation. The trading
restrictions are designed to maximize the likelihood of preserving the
Company's substantial net operating loss carryforwards. There is no
established public trading market for the Common Stock. It is not certain
when or if trading in the Common Stock will commence or on which
registered stock exchange or quotation system, if any, the Common Stock
may eventually be listed or quoted. At the present time, the Company does
not intend to file a listing application to any registered national stock
exchange or Nasdaq for trading or quotation of the Common Stock.

No dividends were declared or paid during 1997, 1996 or 1995.

<TABLE>

ITEM 6. SELECTED FINANCIAL DATA. 1.

1997 1996 1995 1994 1993
(millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Sales $4.1 $ 4.1 $ 3.2 $ 3.6 $ 3.3

Income (loss) from:
Continuing Operations (66.5) (1.7) (1.4) (1.1) (1.3)
Discontinued Operations - - - (0.2) 0.2
Sale of molded fabric
products division - - - (2.9) -
Cumulative effect of
accounting change - - - - (1.0)
---------- --------- -------- --------- ---------
Net loss (66.5) (1.7) (1.4) (4.2) (2.1)

Income (loss) per share (Basic
and Diluted) from:
Continuing Operations (66.34) (1.72) (1.44) (1.08) (1.31)
Discontinued Operations - - - (.23) .24
Sale of molded fabric
products division - - - (2.82) -
Cumulative effect of
accounting change - - - - (1.02)
--------- --------- -------- -------- --------
Net loss (66.34) (1.72) (1.44) (4.13) (2.09)

Statement of Financial
Condition Data:

Total assets 2.7 3.4 4.1 4.6 11.5

Long-term debt classified as:
Current 0.1 0.1 0.3 - 0.2
Long-term 0.2 0.3 - 0.3 3.1

Shareholders' deficit (68.0) (13.6) (9.9) (6.9) (3.2)

1. Reflects the results of operations of the Company's BRB division as a discontinued operation.

</TABLE>

<PAGE>

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

This discussion should be read in conjunction with the Report to Our
Shareholders and the Consolidated Financial Statements including the Notes
to Consolidated Financial Statements.

Overview

Allis-Chalmers, after emerging from Chapter 11 under the Company's Plan of
Reorganization which was consummated on December 2, 1988, entered into an
agreement with AL-CH Company, L.P. (Investor) pursuant to which the
Investor agreed to purchase 6.1 million shares of Common Stock (40% of the
outstanding Common Stock) for $3,750,000 in cash. The Investor is a
limited partnership controlled by Messrs. Robert E. Nederlander and
Leonard Toboroff.

The acquisition environment has been unfavorable since the Investor's cash
contribution to the Company and remained very difficult for the Company
during 1997. The problems continued to include the Company's lack of cash
for investment, limited availability of debt financing for acquisitions
and the financial exposure associated with the Allis-Chalmers Consolidated
Pension Plan (Consolidated Plan). Allis-Chalmers moved forward in 1997 to
resolve a major impediment to its future. On September 30, 1997, the
Pension Benefit Guaranty Corporation (PBGC) announced it had assumed the
assets and liabilities of the Consolidated Plan. In addition, the Company
has reached an agreement in principle with the PBGC on the settlement of
its liabilities to the PBGC arising from the termination of the
Consolidated Plan, subject to reaching an acceptable settlement with the
Internal Revenue Service (IRS) regarding certain excise taxes assessed on
unpaid delinquent Consolidated Plan underfunding installments. Therefore,
the Company continues to proceed cautiously with its efforts to identify
and evaluate potential candidates for acquisition.

The Company continues its efforts to conserve cash resources. However,
the expenses associated with the ongoing Securities and Exchange
Commission and other governmental reporting as well as legal, accounting
and audit, tax, insurance and costs associated with other corporate
requirements of a publicly held company will continue to make it difficult
for the Company, at its present size, to achieve a positive cash flow.

In 1994, the Company's independent pension actuaries changed the
assumptions for mortality and administrative expenses used to determine
the liabilities of the Consolidated Plan. Primarily as a result of the
changes in mortality assumptions to reflect decreased mortality rates of
the Company's retirees, the Consolidated Plan was underfunded on a present
value basis. In the first quarter of 1996, the Company made a cash
contribution in the amount of $205,000. The Company did not, however,
have the financial resources to make the other required payments during
1996 and 1997. Given the inability of the Company to fund such
obligations with its current financial resources, in February 1997,
Allis-Chalmers applied to the PBGC for a "distress" termination of the
Consolidated Plan under section 4041(c) of the Employee Retirement Income
Security Act of 1974, as "amended" (ERISA). The PBGC approved the
distress termination application in September 1997 and agreed to a plan
termination date of April 14, 1997. The PBGC became trustee of the
terminated Consolidated Plan on September 30, 1997.

Upon termination of the Consolidated Plan, Allis-Chalmers and its
subsidiaries incurred a liability to the PBGC for an amount equal to the
Consolidated Plan's unfunded benefit liabilities. Allis-Chalmers and its
subsidiaries also have liability to the PBGC, as trustee of the terminated
Consolidated Plan, for the outstanding balance of the Consolidated Plan's
accumulated funding deficiencies. The PBGC has estimated that the
unfunded benefit liabilities and the accumulated funding deficiencies
(together, the PBGC Liability) total approximately $67.9 million.

In September 1997, Allis-Chalmers and the PBGC entered into an agreement
in principle for the settlement of the PBGC Liability (the PBGC
Agreement). The PBGC Agreement calls for the PBGC to release Allis-
Chalmers and its subsidiaries from the PBGC Liability in return for that
number of shares of Allis-Chalmers' common stock that represents 35% of
the total number of shares issued and outstanding on a fully-diluted
basis.

The PBGC Agreement is subject to negotiation of definitive documentation
and to satisfactory resolution of Allis-Chalmers tax obligations with
respect to the Consolidated Plan under section 4971 of the Internal
Revenue Code of 1986, as amended (Code). Section 4971(a) of the Code
imposes, for each taxable year, a first-tier tax of 10 percent on the
amount of the accumulated funding deficiency under a plan like the
Consolidated Plan. Section 4971(b) of the Code imposes an additional,
second-tier tax equal to 100 percent of such accumulated funding
deficiency if the deficiency is not "corrected" within a specified period.
Liability for the taxes imposed under section 4971 extends, jointly and
severally, to Allis-Chalmers and to its commonly-controlled subsidiary
corporations.

Prior to its termination, the Consolidated Plan had an accumulated funding
deficiency in the taxable years 1995, 1996, and 1997. Those deficiencies
have resulted, or will result, in first-tier taxes under Code section
4971(a) of approximately $900,000.

On March 2, 1998, Allis-Chalmers sent the IRS a formal Offer in Compromise
of the Company's tax liability under Code section 4971. If accepted by
the IRS, the Offer in Compromise will (i) require Allis-Chalmers to pay
the IRS $25,000, plus interest from March 2, 1998 and (ii) extinguish the
Company's tax liability under Code section 4971, subject to the standard
conditions attendant to an Offer in Compromise.

Although the IRS has not yet responded to the Offer in Compromise, Allis-
Chalmers' management is hopeful that a mutually acceptable settlement can
be achieved. If a satisfactory settlement cannot be reached with IRS, or
if definitive documentation of the PBGC Agreement is not achieved for any
other reason, Allis-Chalmers will evaluate other alternatives, including a
bankruptcy filing.

Results of Operations

Results of operations for 1997, 1996 and 1995 reflect the sole operation
of the business of Allis-Chalmers: the machine repair business, HDS.

Sales totaled $4.1 million in 1997, compared with $4.1 million and $3.2
million in 1996 and 1995, respectively. The increase in sales for 1996
and 1997 from 1995 is primarily the result of strong market conditions
coupled with a more focused marketing strategy and product offering.

Gross margins, as a percentage of sales, were 25.0%, 26.1% and 25.7% in
1997, 1996 and 1995, respectively. Market activity was inconsistent
during most of 1997 where a higher number of orders were booked, but the
average dollar order was significantly lower than in 1996 due to
competitive pressures and product mix changes. This resulted in lower
gross margins than experienced in 1996.

Marketing and administrative expense was $1.7 million, $1.4 million and
$1.3 million in 1997, 1996 and 1995, respectively. Marketing and
administrative expense was 41.9% of sales in 1997 compared with 34.8% in
1996 and 41.1% in 1995. The increase in 1997 was primarily the result of
additional legal fees incurred in connection with the termination of the
Consolidated Plan and related negotiations with the PBGC and IRS along
with increased marketing expenses at HDS. Marketing and administrative
expense had been significantly reduced since 1994 as a result of cost
reduction activity at HDS and at the Company's corporate offices. A
significant portion of the Company's administrative expense relates to
expenses for Securities and Exchange Commission and other governmental
reporting as well as the legal, accounting and audit, tax, insurance and
other requirements of a publicly held company.

The Company had a loss from operations of $646,000 in 1997 compared with a
1996 loss of $353,000 and a loss of $491,000 in 1995. The change from
1996 resulted primarily from the aforementioned legal fees and HDS
marketing expenses.

Interest income in each of the years resulted mainly from earnings on
short-term investments. However, for the complete year of 1995, interest
income also was derived from a note receivable from the sale of the B.R.B.
Industries division ( a molded fabric business) in September 1994.
Interest expense primarily relates to a term loan, the proceeds of which
were used to purchase the shop and office building from which HDS
operates.

Pension expense which relates to the recognition of the pension liability
associated with the Consolidated Plan in accordance with Statement of
Financial Accounting Standards No. 87 "Employer's Accounting for
Pensions," was $1,397,000, $1,422,000 and $1,067,000 in 1997, 1996 and
1995, respectively. The 1997 expense was for a nine month period as the
transfer of the Consolidated Plan to the PBGC took place on September 30,
1997. The termination of the Consolidated Plan resulted in an additional
$64.5 million pension expense in 1997, including $.9 million for IRS
excise taxes.

The Company incurred a net loss of $66,545,000 (including recognition of
pension expense of $65,926,000), or $66.34 per common share, in 1997
compared with a net loss of $1,728,000 (including recognition of pension
expense of $1,422,000), or $1.72 per common share, in 1996. Pension
expense accounted for $65.73 per common share of the net loss in 1997.

Liquidity and Capital Resources

At December 31, 1997, the Company had cash and short-term investments
totaling $699,000, a decrease from $1,568,000 at December 31, 1996. This
decrease was the result of expenses associated with the ongoing corporate
reporting, as well as legal, accounting, pension, audit, tax and
insurance. In addition, HDS had expenditures of $304,000 for capital
items.

Trade receivables at December 31, 1997 were $683,000, compared with
$652,000 at December 31, 1996. This increase was primarily the result of
certain major projects completed and billed by HDS near the end of the
year.

Inventory at December 31, 1997 was $101,000, a slight increase from
$93,000 at year end 1996.

Net property, plant and equipment at December 31, 1997 was $1,107,000, an
increase from $937,000 at December 31, 1996. The Company spent $304,000
on capital expenditures during fiscal 1997. Approximately $185,000 was
invested in machinery and equipment acquisitions while approximately
$120,000 was spent to improve the operations facilities (including a much
needed revamping of the Company's electric service to the shop area and a
building enclosure to help increase operations capacity and
effectiveness). The expenditures for additional or upgrades of machinery
and tooling were necessary to reduce production costs by decreasing
downtime and increasing production efficiency output while positioning the
Company for further growth through the increased capacity and service
capabilities it offers to the marketplace.

Current maturities of long-term debt at December 31, 1997 were $38,000
compared with $54,000 at year-end 1996. This decrease included payments
on the real estate loan refinanced by HDS in August 1996. The proceeds of
the original loan were used in 1990 for the purchase of the land and
building in which HDS operates its business in Houston, Texas. The amount
refinanced is required to be repaid in monthly installments of $3,278
through August 20, 2001, when the remaining unpaid balance is due. At
December 31, 1997, the interest rate on the note was 10.5%. This rate is
subject to adjustments during the term of the note in accordance with
increases or decreases in the prime rate. The note is secured by the HDS
facility having a net book value of $456,000 at December 31, 1997 and the
Company's guaranty.

The Company's principal sources of cash include earnings from operations
and interest income on short-term investments. The cash requirements
needed for the administrative expenses associated with being a publicly
held company are significant, and management believes that the Company
will continue to use a substantial portion of its cash balances in 1998.

The A-C Reorganization Trust, pursuant to the Plan of Reorganization,
funds all costs incurred by Allis-Chalmers which relate to implementation
of the Plan of Reorganization. Such costs include an allocated share of
certain expenses for Company employees, professional fees and certain
other administrative expenses.

The EPA and certain state environmental protection agencies have requested
information in connection with eleven potential hazardous waste disposal
sites in which products manufactured by Allis-Chalmers before consummation
of the Plan of Reorganization were disposed. The EPA has claimed that
Allis-Chalmers is liable for cleanup costs associated with several
additional sites. The EPA's claims with respect to one other site were
withdrawn in 1994 based upon settlements reached with the EPA in the
bankruptcy proceeding. In addition, certain third parties have asserted
that Allis-Chalmers is liable for cleanup costs or associated EPA fines in
connection with additional sites. In one of these instances a former site
operator has joined Allis-Chalmers and 47 other potentially responsible
parties as a third-party defendant in a lawsuit involving cleanup of one
of the sites. In each instance the environmental claims asserted against
the Company involve its prebankruptcy operations. Accordingly,
Allis-Chalmers has taken the position that all cleanup costs or other
liabilities related to these sites were discharged in the bankruptcy. In
one particular site, the EPA's Region III has concurred with the Company's
position that claims for environmental cleanup were discharged pursuant to
the bankruptcy. While each site is unique with different circumstances,
the Company has notified other Regional offices of the EPA of this
determination associated with the Region III site. The Company has not
received responses from the other Regional offices. No environmental
claims have been asserted against the Company involving its postbankruptcy
operations.

Financial Condition

Shareholders' deficit at December 31, 1997 was $68.0 million. A three-
year comparison of shareholders' deficit follows:

(millions) 1997 1996 1995

January 1 $ (13.6) $ (9.9) $(6.9)
Net loss (66.5) (1.7) (1.4)
Pension liability adjustment 12.1 (2.0) (1.6)
--------- ------ -------
December 31 $ (68.0) $(13.6) $(9.9)
========= ====== =======

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements

Page
Financial Statements:

Report of Independent Accountants 16
Statement of Operations for the Three Years
Ended December 31, 1997 17
Statement of Accumulated Deficit for the
Three Years Ended
December 31, 1997 17
Statement of Financial Condition at
December 31, 1997 and 1996 18
Statement of Cash Flows for the Three Years
Ended December 31, 1997 19
Notes to Consolidated Financial Statements 20

Financial Statement Schedule

II Valuation and Qualifying Accounts 40

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Allis-Chalmers Corporation

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Allis-Chalmers Corporation and its subsidiaries at December
31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's application for
a distress termination of the Allis-Chalmers Consolidated Pension Plan
(the "Consolidated Plan") was approved by the Pension Benefit Guaranty
Corporation ("PBGC") on September 30, 1997. At such date, PBGC became the
trustee of the Consolidated Plan and the Company and it subsidiaries
incurred an estimated liability to PBGC for unfunded benefit liabilities
and accumulated funding deficiencies totaling approximately $68 million.
The Company does not have the financial resources to fund this liability
to PBGC. This matter raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to this
matter are described in Notes 9 and 10 to the financial statements. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

Price Waterhouse LLP
Milwaukee, Wisconsin
March 24, 1998

<PAGE>

STATEMENT OF OPERATIONS

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

Sale $4,062 $4,060 $3,190
Cost of sales 3,048 3,000 2,371
------ ------- ------
Gross Margin 1,014 1,060 819

Marketing and administrative
expense 1,660 1,413 1,310
------ ------- ------
Loss from Operations (646) (353) (491)

Other income (expense)
Interest income 54 70 136
Interest expense (45) (39) (46)
Pension expense (65,926) (1,422) (1,067)
Other 18 16 20
--------- -------- --------
Net Loss (66,545)$ (1,728)$ (1,448)
========= ======== ========
Net Loss per Common Share
(Basic and Diluted) (66.34) (1.72)$ (1.44)
========= ======== ========

STATEMENT OF ACCUMULATED DEFICIT

Year Ended December 31 1997 1996 1995
(thousands)

Accumulated deficit beginning
of year $ (9,746) $ (8,018) $(6,570)
Net loss (66,545) (1,728) (1,448)
-------- -------- --------
Accumulated deficit end
of year $ (76,291) $ (9,746) $(8,018)
======== ======== ========

The accompanying Notes are an integral part of the Financial Statements.

<PAGE>

STATEMENT OF FINANCIAL CONDITION

December 31 1997 1996
(thousands)

Assets

Cash and short-term investments $ 699 $ 1,568
Trade receivables, net (Note 3) 683 652
Inventories, net 101 93
Other current assets 121 136
------ ------
Total Current Assets 1,604 2,449

Net property, plant and equipment
(Note 4) 1,107 937
-------- ------
Total Assets $ 2,711 3,386
========= ==========

Liabilities and Shareholders' Deficit

Current maturities of long-term debt $ 38 $ 54
Trade accounts payable 219 82
Accrued employee benefits 123 136
Reserve for legal expenses 174 50
Accrued pension liability (Note 9) 68,801 6,949
Other current liabilities 110 356
-------- --------
Total Current Liabilities 69,465 7,627

Accrued pension liability (Note 9) - 8,131
Accrued postretirement benefit
obligations (Note 9) 990 993
Long-term debt (Note 6) 240 279
Shareholders' deficit (Note 7)
Common stock ($.15 par value, authorized
2,000,000 shares, outstanding 1,003,028
at December 31, 1997 and
December 31, 1996) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated
deficit of $424,208 eliminated on
December 2, 1988) (76,291) (9,746)
Pension liability adjustment - (12,205)
-------- --------
Total Shareholders' Deficit (67,984) (13,644)

Commitments and contingent
liabilities (Note 10)
Total Liabilities and Shareholders'
Deficit $ 2,711 $ 3,386
========= ==========

The accompanying Notes are an integral part of the Financial Statements.

<PAGE>

<TABLE>

STATEMENT OF CASH FLOWS
<CAPTION>

Year Ended December 31 1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ $(66,545) $(1,728) $(1,448)
Adjustments to reconcile net loss to
net cash (used) provided by operating
activities:
Depreciation and amortization 131 92 112
Changes in working capital:
(Increase) decrease in receivables, net (31) 241 240
(Increase) decrease in inventories (8) 35 (34)
Decrease (increase) in other current assets 15 106 (21)
Increase (decrease) in trade accounts
payable 137 9 (128)
Decrease in other current liabilities (135) (137) (42)
Increase in accrued pension liability 65,926 1,217 1,067
Other (3) (27) (13)
-------- --------- ---------
Net cash used by operating activities (513) (192) (267)

Cash flows from investing activities:
Capital expenditures (304) (127) (116)
Proceeds from sale of excess equipment 3 5 6
-------- --------- ---------
Net cash used by investing activities (301) (122) (110)

Cash flows from financing activities:
Net proceeds from issuance of long-term
debt - 311 67
Payment of long-term debt (55) (310) (34)
-------- --------- ---------
Net cash provided (used) by
financing activities (55) 1 33
-------- --------- ---------
Net decrease in cash and short-term
investments (869) (313) (344)

Cash and short-term investments at
beginning of year 1,568 1,881 2,225
-------- --------- ---------
Cash and short-term investments at
end of year $ 699 $ 1,568 $ 1,881
======== ========= =========
Supplemental information - interest
paid $ 45 $ 39 $ 46
======== ======== =========

The accompanying Notes are an integral part of the Financial Statements.

</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. EMERGENCE FROM CHAPTER 11

Allis-Chalmers Corporation (Allis-Chalmers or the Company) emerged from
Chapter 11 proceedings on October 31, 1988 under a plan of reorganization
which was consummated on December 2, 1988. The Company was thereby
discharged of all debts that arose before confirmation of its First
Amended and Restated Joint Plan of Reorganization (Plan of
Reorganization), and all of its capital stock was cancelled and made
eligible for exchange for shares of common stock of the reorganized
Company (Common Stock).

Claims asserted against the Company and allowed by the Bankruptcy Court
beyond those recorded prior to the consummation date amounted to
approximately $483 million. Such amounts were subsequently recorded by
the Company in 1988. Because total recorded liabilities discharged at
consummation exceeded the book value of assets and Common Stock
distributed to creditors and the various trusts at that date,
extraordinary income of $388.1 million was recorded.

See the Plan of Reorganization and the First Amended Disclosure Statement
dated September 14, 1988 for additional information regarding
distributions to holders of claims and interests.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Allis-Chalmers through its wholly-owned subsidiary, Houston Dynamic
Service, Inc., services and repairs various types of mechanical equipment,
including compressors, pumps, turbines, engines, heat exchangers,
centrifuges, rollers, gears, valves, blowers, kilns, crushers and mills.

Principles of Consolidation

The consolidated financial statements include the accounts of Allis-
Chalmers and its subsidiaries. All significant intercompany transactions
have been eliminated.

Short-Term Investments

Short-term investments consist primarily of government repurchase
agreements and commercial paper with original maturities at date of
purchase less than three months.

Fair Value of Financial Instruments

The carrying amounts in the Statement of Financial Condition for cash and
short-term investments, trade receivables and long-term debt approximate
their fair market value.

Inventories

Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.

Properties and Depreciation

Plant and equipment used in the business are stated at cost and
depreciated on the straight-line basis over the estimated useful lives of
the assets which generally range from 40 years for buildings, 3 to 12
years for machinery and equipment and 3 to 12 years for tools, patterns,
furniture and fixtures. Maintenance and repairs are expensed as incurred.
Expenditures which significantly increase asset values or extend useful
lives are capitalized.

Income Taxes

Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards (FASB) No. 109. See Note
5. Income Taxes.

(Loss) Income Per Common Share

In February, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." This statement establishes revised standards for
computing and presenting earnings per share and has been adopted by the
Company during the fourth quarter of 1997. Given the fact that the
Company did not have any common stock equivalents over the past several
years, its (loss) income per common share remain unchanged as basis and
diluted per share amounts are identical. As such, the adoption of this
statement, did not impact the historically reported (loss) income per
common share amounts.

Statement of Cash Flows

For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less at
date of purchase to be cash equivalents.

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.

Major Customers

In 1997, 1996 and 1995 Amoco Chemical was the only customer which
accounted for 10% or more of total sales -- 12% of 1997 sales, 16% of 1996
sales and 26% in 1995.

NOTE 3. RECEIVABLES

December 31 1997 1996
(thousands)
Trade accounts receivable $ 719 $ 682
Allowance for doubtful receivables (36) (30)
------- ------
$ 683 $ 652
======= ======

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

December 31 1997 1996
(thousands)
Land and buildings $ 545 $ 545
Machinery and equipment 1,426 1,339
Tools, patterns, furniture, fixtures
and leasehold improvements 582 441
------- ------
2,553 2,325
Accumulated depreciation (1,446) (1,388)
------- ------
$ 1,107 $ 937
======= ======

NOTE 5. INCOME TAXES

Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that
will result in differences between income for tax purposes and income for
financial statement purposes in future years. A valuation allowance is
established for deferred tax assets when management, based upon available
information, considers it more likely than not that a benefit from such
assets will not be realized.

The following table depicts the temporary differences as of December 31,
1997 and 1996:

1997 1996
(millions)

Net future tax deductible items $ 36 $ 13
Net operating loss carryforwards
and other tax credits 188 189
Valuation allowance (224) (202)
-------- ------
Net deferred taxes $ 0 $ 0
======== ======

Net future tax deductible items relate primarily to estimated future
bankruptcy claim payments to be made by the Company's two grantor trusts.
Gross deferred tax liabilities at December 31, 1997 are not material.

The Plan of Reorganization established the A-C Reorganization Trust to
settle claims and to make distributions to creditors and certain
shareholders. The Company transferred cash and certain other property to
the A-C Reorganization Trust on December 2, 1988. Payments made by the
Company to the A-C Reorganization Trust do not generate tax deductions for
the Company upon the transfer but generate deductions for the Company as
payments are made by the A-C Reorganization Trust to holders of claims.

The Plan of Reorganization also created a trust to process and liquidate
product liability claims. Payments made by the A-C Reorganization Trust
to the product liability trust do not generate current tax deductions for
the Company. Future deductions will be available to the Company as the
product liability trust makes payments to liquidate claims.

The Company believes the above-named trusts are grantor trusts and
therefore includes the income or loss of these trusts in the Company's
income or loss for tax purposes, resulting in an adjustment of the tax
basis of net operating and capital loss carryforwards. The income or loss
of these trusts is not included in the Company's results of operations for
financial reporting purposes.

Tax carryforwards at December 31, 1997 are estimated to consist of net
operating losses of $510 million expiring 1998 through 2009, investment
tax credits of $7 million expiring 1998 through 2001 and energy tax
credits of $3 million expiring 1998 through 2001.

During 1990, the Company initiated litigation against the Internal Revenue
Service (IRS) in the United States Bankruptcy Court for the Southern
District of New York, challenging the validity and retroactive
applicability of proposed regulations issued by the IRS on August 13,
1990. On January 2, 1992 the IRS issued final regulations under Sections
269 and 382 of the Internal Revenue Code of 1986 relating to the use of
net operating loss carryforwards following corporate reorganizations under
the Bankruptcy Code.

Following issuance of the final regulations the Company withdrew its
retroactivity challenge because the final regulations were made
retroactive only to August 14, 1990 and are not applicable to a plan of
reorganization that was completed before then. The Company's Plan of
Reorganization was consummated on December 2, 1988. The Company, however,
continued to challenge the validity of other provisions of the
regulations.

On June 8, 1992, the Bankruptcy Court issued a decision denying the
Company's motion for a judgment against the IRS with respect to the
application of Section 269 of the IRS Code to the Company. The Court also
granted the IRS's motion to dismiss the Company's complaint challenging
the regulations. The Court entered judgment pursuant to its decision on
June 29, 1992 and, consistent with the advice of its counsel, the Company
decided not to appeal that judgment.

Although the Company was unable to obtain a judgment that would have
prevented the IRS from applying Section 269 to the Company, the Court's
ruling leaves the Company in substantially the same position it was in
prior to issuance of the final regulations. The possibility of an IRS
challenge under Section 269 of the Internal Revenue Code to the Company's
use of its prepetition net operating loss carryforwards has always existed
and, in light of the Court's ruling, that possibility continues to exist.

The Court, however, stated that, should the IRS ever seek to use its new
Section 269 regulations to limit the Company's use of its net operating
loss carryforwards, nothing in its opinion would prejudice the Company's
right to defend itself by using the Court's confirmation finding that the
primary purpose of the Company's Plan of Reorganization was not tax
avoidance. While the Company's Common Stock is subject to trading
restrictions which are designed to maximize the likelihood of preserving
its net operating loss carryforwards, a change in ownership of the
Company could also limit the use of its net operating loss carryforwards.

NOTE 6. LONG-TERM DEBT

December 31 1997 1996
(thousands)

Real estate loan $ 248 $ 267
Other 30 66
------ -------
278 333
Less amounts classified as current 38 54
------- ------
$ 240 $ 279
======= ======

The real estate loan relates to the 1990 purchase of the land and building
in Houston, Texas which had previously been leased by HDS. In August
1996, HDS refinanced this loan which is required to be repaid in monthly
installments of $3,278 through August 20, 2001 when the remaining unpaid
balance shall be due. At December 31, 1997 and 1996, the interest rate on
the note was 10.5% and 10.25%, respectively. The rate will be adjusted
during the term of the note in accordance with increases or decreases in
the prime rate. The note is secured by the HDS facility having a net book
value of $456,000 at December 31, 1997 and the Company's guaranty.

NOTE 7. SHAREHOLDERS' DEFICIT

The components of Shareholders' Deficit are as follows:

December 31 1997 1996
(thousands)

Common stock $ 152 $ 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (76,291) (9,746)
Pension liability adjustment - (12,205)
------- ------
Shareholders' Deficit $(67,984) $(13,644)
======= =======

Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," requires recognition in the Statement of Financial
Condition of a minimum pension liability. The minimum pension liability
that must be recognized is equal to the excess of the accumulated benefit
obligation over plan assets. A reduction of shareholders' investment in
the amount of $12.2 million in 1996 was recorded. This unfunded amount
was recognized as expense in 1997 in connection with the distress
termination of the Consolidated Plan and recognition of the
Company's liability to the PBGC.

NOTE 8. LONG-TERM STOCK INCENTIVE PLAN

The Company's Long-Term Stock Incentive Plan (1989) provides for the grant
of stock options, stock appreciation rights, performance shares,
restricted stock, restricted stock units and other stock-based awards.
Under the plan the maximum number of shares which may be granted with
respect to stock-based awards is 50,000. Options may be granted at prices
equal to or not less than the fair market value at date of grant, except
that options to purchase up to 13,333 shares may be granted at a price
which is not less than the fair market value on October 25, 1989, the date
on which the plan was approved by shareholders. Options are exercisable
within a period not to exceed 10 years from date of grant. The plan also
provides for the discretionary grant of stock appreciation rights which
allow the holder to receive in cash or shares of common stock the
difference between the exercise price and the fair market value of the
stock at the date of exercise. There have been no grants under the plan.

NOTE 9. POSTRETIREMENT BENEFIT OBLIGATIONS

Pensions

As of the date of the Chapter 11 filings in June 1987, the Company
sponsored 19 defined benefit plans providing pensions for substantially
all U.S. employees. The pension plan for U.S. salaried employees was
capped and frozen effective March 31, 1987, so there have been no further
benefit accruals after that date. As a result of divestitures during the
Chapter 11 proceedings, eight active plans were transferred to the buyers
of the businesses, leaving the Company as sponsor of 11 plans, none of
which permitted additional benefit accruals. Effective January 1, 1989
the 11 remaining plans were consolidated into a single plan, the Allis-
Chalmers Consolidated Pension Plan (Consolidated Plan).

In accordance with the Plan of Reorganization, the 11 plans received a
Company contribution of $53.8 million in December 1988. As a result of
actions taken in connection with this contribution and the then-existing
securities of the pension plans, the assets of the Consolidated Plan were
invested in a dedicated bond portfolio that consisted of high-grade fixed
income securities in which the market value of the assets was matched to
the present value of the anticipated pension benefits and administrative
expenses of the Consolidated Plan in a way intended to make the pension
fund immune from interest rate fluctuations.

Under the Plan of Reorganization, future contributions to the Consolidated
Plan were required if the mortality assumptions used in calculating the
present value of the pension benefits expected to be paid or the
assumptions used in calculating the future administrative expenses proved
inaccurate. For the years 1989 through 1993, retirees eligible for
benefits under the Consolidated Plan, as a group, outlived the projections
of the mortality assumptions used in the Plan of Reorganization for
funding the Consolidated Plan. For the same five years, actual
administrative expenses were slightly in excess of assumed levels.
Effective January 1, 1994, the Company's independent actuaries reflected
such decreased mortality for funding calculation purposes. For the years
1994 through 1996, the mortality experience was negative compared with the
revised assumptions, in an amount in excess of the 1989-1993 average
actuarial loss. This mortality loss was partially offset, however, by
gains in the asset portfolio.

This underfunded condition in the Consolidated Plan required the Company
to make significant cash contributions to the Consolidated Plan pursuant
to the Employment Retirement Income Security Act of 1974, as "amended"
(ERISA) funding requirements starting in 1996.

The Company failed to make required quarterly contributions starting in
April 1996, resulting in the filing of a lien by the Pension Benefit
Guaranty Corporation (PBGC) against the Company. Given the inability of
the Company to fund such obligations with its lack of financial resources,
in February 1997, Allis-Chalmers applied to the PBGC for a "distress"
termination of the Consolidated Plan under section 4041(c) of ERISA. The
PBGC approved the distress termination application in September 1997 and
agreed to a termination date of April 14, 1997. The PBGC became trustee
of the terminated Consolidated Plan on September 30, 1997.

Upon termination of the Consolidated Plan, Allis-Chalmers and its
subsidiaries incurred a liability to the PBGC for an amount equal to the
Consolidated Plan's unfunded benefit liabilities. Allis-Chalmers and its
subsidiaries also have a liability to the PBGC, as trustee of the terminated
Consolidated Plan, for the outstanding balance of the Consolidated Plan's
accumulated funding deficiencies. The PBGC has estimated that the
unfunded benefit liabilities and the accumulated funding deficiencies
(together, the PBGC Liability) total approximately $67.9 million.

The PBGC Agreement is subject to negotiation of definitive documentation
and to satisfactory resolution of Allis-Chalmers' tax obligations with
respect to the Consolidated Plan under section 4971 of the Internal
Revenue Code of 1986, as amended (Code). Section 4971(a) of the Code
imposes, for each taxable year, a first-tier tax of 10 percent on the
amount of the accumulated funding deficiency under a plan like the
Consolidated Plan. Section 4971(b) of the Code imposes an additional,
second-tier tax equal to 100 percent of such accumulated funding
deficiency if the deficiency is not "corrected" within a specified period.
Liability for the taxes imposed under section 4971 extends, jointly and
severally, to Allis-Chalmers and to its commonly-controlled subsidiary
corporations.

Medical and Life

Pursuant to the Plan of Reorganization, the Company assumed the
contractual obligation to Simplicity Manufacturing, Inc. (SMI) to
reimburse SMI for 50% of the actual cost of medical and life insurance
claims for a select group of retirees (SMI Retirees) of the prior
Simplicity Manufacturing Division of Allis-Chalmers.

Net postretirement benefit expense for the years ended December 31, 1997,
1996 and 1995 included the following components (in thousands):

1997 1996 1995

Service cost $ - $ - $ -
Interest cost on accumulated
benefit obligation 62 54 59
Amortization of unrecognized
net gain (3) (17) (24)
------- ------ ------

Net postretirement benefit
expense $ 59 $ 37 35
======= ====== ======

Presently, the Company's postretirement benefit obligations are not
funded. The status of the Company's postretirement benefit obligations as
of December 31, 1997 and 1996 was as follows (in thousands):

1997 1996
Actuarial present value of
accumulated postretirement
benefit obligation $ 733 $ 867
Unrecognized net gain 257 126
-------- -------
Accrued postretirement benefit
liability $ 990 $ 993
======== =======

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.0% at December 31, 1997 and 7.5% at
December 31, 1996. The assumed rate in 1998 decreases 1/2% per year
until an ultimate rate of 5.0% is reached at December 31, 2001. The
health care cost trend rate has a significant effect on the amounts
reported. For example, a one percentage point increase in the health care
cost trend rate would increase the accumulated postretirement benefit
obligation by approximately $100,000 at December 31, 1997. The discount
rate used in determining the accumulated postretirement benefit obligation
was 7.50% at December 31, 1997 and December 31, 1996.

NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES

Substantially all litigation proceedings pending against the Company were
resolved pursuant to emergence from the Chapter 11 proceedings in
1988.Various loans, lease agreements and other commitments and contractual
obligations of the Company were also satisfied pursuant to the Plan of
Reorganization. The Company knows of no significant pre-Plan of
Reorganization lawsuits presently pending against it or its subsidiaries
which have not been assumed by the various trusts or other entities.

The Company is a party to litigation matters and claims which are normal
in the course of its operations, and, while the results of litigation and
claims cannot be predicted with certainty, management believes that the
final outcome of such matters will not have a material adverse effect on
the Company's consolidated financial position.

Environmental Matters

The Environmental Protection Agency (EPA) and certain state environmental
protection agencies have requested information in connection with eleven
potential hazardous waste disposal sites in which products manufactured by
Allis-Chalmers before consummation of the Plan of Reorganization were
disposed. The EPA has claimed that Allis-Chalmers is liable for cleanup
costs associated with several additional sites. The EPA's claims with
respect to one other site were withdrawn in 1994 based upon settlements
reached with the EPA in the bankruptcy proceeding. In addition, certain
third parties have asserted that Allis-Chalmers is liable for cleanup
costs or associated EPA fines in connection with additional sites. In one
of these instances a former site operator has joined Allis-Chalmers and 47
other potentially responsible parties as a third party defendant in a
lawsuit involving cleanup of one of the sites. In each instance the
environmental claims asserted against the Company involve its
prebankruptcy operations. Accordingly, Allis-Chalmers has taken the
position that all cleanup costs or other liabilities related to these
sites were discharged in the bankruptcy. In one particular site, the
EPA's Region III has concurred with the Company's position that claims for
environmental cleanup were discharged pursuant to the bankruptcy. While
each site is unique with different circumstances, the Company has notified
other Regional offices of the EPA of this determination associated with
the Region III site. The Company has not received responses from the
other Regional offices. No environmental claims have been asserted
against the Company involving its postbankruptcy operations.

Allis-Chalmers Consolidated Pension Plan

Contributions to the Consolidated Plan were required starting in 1996 due
to a change in the mortality assumptions used in calculating the present
value of the pension benefits expected to be paid and the assumptions used
in calculating the future administrative expenses compared with the
projections of the mortality and administrative expense assumptions used
in the Plan of Reorganization for funding the Consolidated Plan.
Contributions were projected to be $2.5 million in 1996, then increasing
to $3.1 million in 1997 and $8.1 million in 1998. After making one
installment of $205,000 on January 15, 1996, the Company failed to make
any subsequent installments. The Company's failure to make required
quarterly contributions starting in April 1996, resulted in the filing of
a lien by the PBGC against the Company. Given the inability of the
Company to fund such obligations with its current financial resources, in
February 1997, Allis-Chalmers applied to the PBGC for a "distress"
termination of the Consolidated Plan under section 4041(c) of ERISA. The
PBGC approved the distress termination application in September 1997 and
agreed to a plan termination date of April 14, 1997. The PBGC became
trustee of the terminated Consolidated Plan on September 30, 1997.

Upon termination of the Consolidated Plan, Allis-Chalmers and its
subsidiaries incurred a liability to the PBGC for an amount equal to the
Consolidated Plan's unfunded benefit liabilities. Allis-Chalmers and its
subsidiaries also have a liability to PBGC, as trustee of the terminated
Consolidated Plan, for the outstanding balance of the Consolidated Plan's
accumulated funding deficiencies. The PBGC has estimated that this PBGC
Liability totals approximately $67.9 million.

The PBGC Agreement is subject to negotiation of definitive documentation
and to satisfactory resolution of Allis-Chalmers' tax obligations with
respect to the Consolidated Plan under section 4971 of the Code. Section
4971(a) of the Code imposes, for each taxable year, a first-tier tax of 10
percent on the amount of the accumulated funding deficiency under a plan
like the Consolidated Plan. Section 4971(b) of the Code imposes an
additional, second-tier tax equal to 100 percent of such accumulated
funding deficiency if the deficiency is not "corrected" within a specified
period. Liability for the taxes imposed under section 4971 extends,
jointly and severally, to Allis-Chalmers and to its commonly-controlled
subsidiary corporations.

On March 2, 1998, Allis-Chalmers sent the IRS a formal Offer in Compromise
of the Company's tax liability under Code section 4971. If accepted by
the IRS, the Offer in Compromise will (i) require Allis-Chalmers to pay
the IRS $25,000, plus interest from March 2, 1998, and (ii) extinguish the
Company's tax liability under Code section 4971, subject to the standard
conditions attendant to an Offer in Compromise.

NOTE 11. RELATED PARTY TRANSACTIONS

H. Sean Mathis, Chairman of the Board and Chief Executive Officer,
Leonard Toboroff, Vice Chairman of the Board and Executive Vice President
and John T. Grigsby, Jr., Vice Chairman of the Board, Executive Vice
President and Chief Financial Officer, did not receive any compensation
for their services as executive officers of the Company for the three
years ended December 31, 1997.

<TABLE>

NOTE 12. QUARTERLY FINANCIAL DATA
(unaudited)
<CAPTION> First Second Third Fourth
Quarter Quarter Quarter Quarter
1997 1996 1997 1996 1997* 1996 1997 1996
(thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $1,028 $985 $985 $1,156 $813 $968 $1,236 $951
Gross Margin 211 290 268 342 161 176 374 252

Net Loss (604) (339) (554) (378) (65,187) (461) (200) (550)

Loss per Share (basic
and diluted) (.60) (.34) (.55) (.38) (64.99) (.46) (.20) (.54)

*Net loss and loss per share amounts have been restated compared with amounts previously reported by the Company to reflect
the termination of the Consolidated Plan and recognition of the related liability to the PBGC as of September 30, 1997.

</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

(a) Identification of Directors

The following individuals were elected as directors of the Company at
the meeting of shareholders on October 25, 1989 (or have been
appointed to fill vacancies caused by the resignation of two such
directors) to serve until the next meeting of shareholders.

John R. Collins, age 70, a director since December 1988. Mr. Collins
retired in 1989 after serving since 1985 as Administrative Assistant
to the Secretary-Treasurer of International Union, United Automobile,
Aerospace & Agricultural Implement Workers of America -- UAW.

John T. Grigsby, Jr., age 57, a director since December 1988.
Mr. Grigsby has been a Vice Chairman of the Board of the Company
since May 1989, an Executive Vice President since October 1989 and
Chief Financial Officer since January 1996, having previously served
since December 1988 as the Company's Chairman and Chief Executive
Officer. Prior to that time and since July 1987, Mr. Grigsby was
employed by the Company as Managing Director, Restructure Project.
Mr. Grigsby also serves as the A-C Reorganization Trustee, as
President of Thomson McKinnon Securities, Inc. during winddown and
liquidation of its affairs and President and Chief Executive Officer
of N.W. Liquidating, Inc. He has been a director of 1st Southern
Bank of Boca Raton, Florida since September 1987, First Florida
Industries, Inc. since July 1985 and Navistar International
Corporation since 1997.

H. Sean Mathis, age 50, a director since December 1988. Mr. Mathis
was elected as Chairman and Chief Executive Officer of the Company on
January 16, 1996 and prior thereto Mr. Mathis served as a Vice
President of the Company since July 1989. From July 1996 to
September 1997, Mr. Mathis was Chairman of the Board of Universal Gym
Equipment Inc., a privately owned company (Universal). In July 1997,
Universal filed for protection under Federal Bankruptcy Laws. In
September 1997, Mr. Mathis resigned as Chairman of the Board of
Universal. From 1991 to 1993, Mr. Mathis was President of RCL
Acquisition Corp., the predecessor firm of HMG. From 1993 to 1995,
Mr. Mathis was President and a Director of RCL Capital Corporation,
which was merged into DISC Graphics in November 1995. From 1988 to
October 1993, Mr. Mathis was a Director and Chief Operating Officer
of Ameriscribe Corporation (Ameriscribe), a national provider of
reprographic and related facilities management services. From August
1992 to May 1994, Mr. Mathis acted as the Federal Court Appointed
Trustee for International Wire News Service Liquidation Corp.,
formerly United Press International (UPI). From November 1991
through July 1992, Mr. Mathis was Vice Chairman and Director of UPI
(then a news syndication service). In August 1992, as a part of a
restructuring program, UPI filed for protection under the Federal
Bankruptcy Laws. Mr. Mathis is also a Director of Thousand Trails,
Inc., an operator of recreational parks.

Claude D. Montgomery, age 45, a director since December 1988. Since
November 1996, Mr. Montgomery has been a partner in Phillips Lytle
Hitchcock Blaine & Huber, a law firm. From June 1993 to October
1996, Mr. Montgomery was a director and shareholder in Marcus
Montgomery P.C., a law firm, formerly known as Marcus Montgomery
Wolfson P.C. Mr. Montgomery was a director and shareholder in Varet,
Marcus & Fink P.C., formerly known as Milgrim, Thomajan & Lee P.C.,
attorneys, New York, from August 1989 through June 1993.

Robert E. Nederlander, age 64, a director since May 1989.
Mr. Nederlander was elected by the Board of Directors on November 16,
1993 to serve as a Vice Chairman of the Board, having previously
served as Chairman of the Board and Chief Executive Officer of the
Company since May 1989. He resigned as Vice Chairman on October 18,
1996. He is also President and director of Nederlander Organization,
Inc., New York, an owner and operator of one of the world's largest
chains of theaters, since November 1981; President of Nederlander
Television and Film Productions, Inc. since October 1985; Partner in
the New York Yankees Baseball Club since 1973 and Managing General
Partner from September 13, 1990 through December 31, 1991; director
and Chairman of the Board of Riddell Sports, Inc. since April 1988;
Chairman of the Board of MEGO Financial Corporation since January
1988; and a director of MEGO Mortgage Corp., News Communications,
Inc. and HFS Incorporated since 1995 (which was merged into Cendant
in 1997).

John E. Sundman, age 71, a director since December 1988. Mr. Sundman
retired in December 1991 as Vice President of Corcap, Inc., Hartford,
Connecticut, a position which he held since July 1988, when Corcap
was spun off by Lydall, Inc., Manchester, Connecticut. He remains a
director of Corcap, Inc.

Allan R. Tessler, age 61, a director since September 1992. Mr.
Tessler served as Chairman of the Board and Chief Executive Officer
of the Company from November 1993 until January 1996. Mr. Tessler
is Chairman of the Board and Chief Executive Officer of International
Financial Group, Inc. since 1987; and Co-Chief Executive Officer of
Data Broadcasting Corporation since June 1992. Mr. Tessler is also
Chairman of the Board of Enhance Financial Services Group, Inc. and
Jackpot Enterprises, Inc. and director of The Limited, Inc.

Leonard Toboroff, age 64, a director since May 1989. Mr. Toboroff
has been a Vice Chairman of the Board and an Executive Vice President
of the Company since May 1989; a director and Vice Chairman of
Riddell Sports, Inc. from April 1988 to the present; a practicing
attorney continuously since 1961 to the present; a director since
August 1987 and former Chairman and Chief Executive Officer from
December 1987 to May 1988 of Ameriscribe; and formerly a director,
Chairman and Chief Executive Officer from May 1982 through June 1982
and Vice Chairman June 1982 through September 1988 of American
Bakeries Company. Mr. Toboroff is also a director of Banner
Aerospace, Inc. and Saratoga Beverage, Inc.

(b) Identification of Executive Officers

Name, Age as of March 1,
1998, and Position Business Experience

H. Sean Mathis, 50, See Item 10, subsection (a) above.
Chairman of the Board and
Chief Executive Officer

Leonard Toboroff, 64, See Item 10, subsection (a) above.
Vice Chairman of the Board
and Executive Vice
President

John T. Grigsby, Jr., 57, See Item 10, subsection (a) above.
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer

Jeffrey I. Lehman, 48, Mr. Lehman commenced his
Treasurer employment with
Allis-Chalmers and was elected to
his current position in February
1996. Since 1991, Mr. Lehman has
been employed by the A-C
Reorganization Trust and Thomson
McKinnon Securities during
winddown and liquidation of their
affairs. He has also provided
financial consultation since 1985.

William L. Vaitl, 64, Mr. Vaitl commenced his employment
Secretary & Assistant Treasurer with Allis-Chalmers in July 1962
serving in a number of management
positions including Assistant
Treasurer. From December 1988 to
the present, Mr. Vaitl has been
employed by the A-C Reorganization
Trust. In February 1996, he was
reappointed Assistant Treasurer
and in April 1997, elected as
corporate Secretary.

None

(d) Family Relationships

None

(e) Business Experience

See this Item 10, subsections (a) and (b) above.

(f) Involvement in Certain Legal Proceedings

None

(g) Promoters and Control Persons

Not applicable

ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

No executive officer earned in excess of $100,000 in 1997. H. Sean Mathis
who served as Chairman of the Board and Chief Executive Officer in 1996
and 1997, respectively, received no compensation.

LONG-TERM STOCK INCENTIVE PLAN

The Company's Long-Term Stock Incentive Plan (1989), adopted by the
shareholders at the 1989 shareholders meeting, provides for grants to
officers and key employees of stock options, stock appreciation rights,
performance shares, restricted stock, restricted stock units and other
stock-based awards. The maximum number of shares which may be granted
with respect to stock-based awards is 50,000. Options to purchase shares
may be granted at prices equal to not less than the fair market value at
the date of grant, except that options to purchase up to 13,333 shares may
be granted at a price which is not less than the fair market value on
October 25, 1989, the date on which the Stock Incentive Plan was approved
by shareholders. Options are exercisable within a period not to exceed 10
years from date of grant. Stock appreciation rights allow the holder to
receive the difference between the exercise price and the fair market
value of the stock at the date of exercise in cash or shares of common
stock. No stock options or stock appreciation rights have been granted to
date.

RETIREMENT PLAN

The Consolidated Plan covered 6 active employees at the beginning of 1997.
The Consolidated Plan is a tax qualified defined benefit pension plan.
Effective March 31, 1987, the Consolidated Plan was capped and frozen,
without further increase in benefits provided by the Company after that
date.

The retirement benefits paid under this plan are before any adjustment for
a surviving spouse's pension and are not subject to Social Security offset
or other deductions.

SAVINGS PLAN

The Company's Savings Plan was initiated in 1968. The Savings Plan
permits the Company to contribute in its discretion cash or stock to
participants' accounts. However, on June 1, 1985 the Company discontinued
contributions to the Savings Plan. Employees may terminate voluntary
participation in certain portions of the Savings Plan and withdraw their
voluntary after tax contributions at any time. However, there are
restrictions on withdrawals of the Company matching contributions.

Upon retirement, death or other termination of employment, employee
account balances generally may be withdrawn in lump sum or in
installments. Withdrawal of contributions is also permitted for defined
hardships.

During 1997 contributions by Company participants to the Savings Plan
under Section 401(k) of the Internal Revenue Code totaled $60,639. At
December 31, 1997 there were a total of 192 participants in the Savings
Plan, of whom 19 were active employees of the Company.

Due to the significant administrative costs associated with the Savings
Plan, on December 22, 1997, the Company filed an Application for
Determination for Terminating the Savings Plan with the IRS. Remaining
participants in the Savings Plan were notified of the termination which is
projected to be effective April 8, 1998. The Company is proceeding with
the termination process.

COMPENSATION OF DIRECTORS

Since December 1, 1990, the annual retainer for services as a director
(previously $13,500 per year) has been suspended, the attendance fee for
each Board meeting attended was reduced from $425 to $100 and the
attendance fee for each Committee meeting was suspended.

TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT

None.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.

(a) Security Ownership of Certain Beneficial Owners

The following table lists the beneficial ownership with respect to
all persons known to the Company to be the beneficial owner of more
than 5% of the Company's Common Stock as of March 1, 1998.

Amount and Nature Percent of
Name and Address of Ownership Class

AL-CH Company, L.P., 810 Seventh
Avenue, New York, NY 10019
(includes shares held by Messrs.
Nederlander and Toboroff
as described below) 407,251(1) 40.6%

Wells Fargo Bank, P.O. Box 60347,
Los Angeles, CA 90060, Trustee
under that certain Amended and
Restated Retiree Health Trust
Agreement for UAW Retired
Employees of Allis-Chalmers
Corporation 136,406 13.6%

Firstar Trust Company,
777 East Wisconsin Avenue,
Milwaukee, WI 53202, Trustee
under that certain Amended and
Restated Retiree Health Trust
Agreement for Non-UAW Retired
Employees of Allis-Chalmers
Corporation 101,977 10.2%

(1) Messrs. Nederlander and Toboroff are beneficial owners of and
have shared voting power and shared dispositive power over the
407,251 shares of common stock held by AL-CH Company, L.P., a
Delaware limited partnership, of which the general partners are
Q.E.N., Inc., a Michigan corporation controlled by Mr.
Nederlander, and Lenny Corp., a Delaware corporation controlled
by Mr. Toboroff. Mr. Allan R. Tessler is a limited partner in
AL-CH Company, L.P.

(b) Security Ownership of Management

The following table sets forth the number of shares of common stock
of the Company beneficially owned as of March 1, 1998 by directors
and all directors and executive officers as a group. Except as
otherwise noted in the footnotes, the persons listed have sole voting
and investment power over the shares beneficially owned.

Amount and Nature Percent of
Name of Ownership Class

John R. Collins 0 *
John T. Grigsby, Jr. 9,535 1.0%
H. Sean Mathis 0 *
Claude D. Montgomery 533(1) *
Robert E. Nederlander 407,251(2) 40.6%(2)
John E. Sundman 3,333 *
Allan R. Tessler 0 *
Leonard Toboroff 407,251(2) 40.6%(2)

All directors and
officers as a group
(nine persons) 420,652 42.0%

*less than 1%

(1) Shares are owned beneficially by Mr. Montgomery's spouse as to
which he disclaims beneficial ownership.

(2) Messrs. Nederlander and Toboroff are beneficial owners of and
have shared voting power and shared dispositive power over the
407,251 shares of common stock held by AL-CH Company, L.P., a
Delaware limited partnership, of which the general partners are
Q.E.N., Inc., a Michigan corporation controlled by Mr.
Nederlander, and Lenny Corp., a Delaware corporation controlled
by Mr. Toboroff. Mr. Allan R. Tessler is a limited partner in
AL-CH Company, L.P.

None

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

(a) Transactions with Management and Others

None

(b) Certain Business Relationships

None

(d) Transactions with Promoters

Not applicable

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.

(a) List of Documents Filed. The Index to Financial Statements
and Financial Schedule is included on page 15 of this
report. Financial statements Schedules not included in
this report have been omitted because they are
not applicable or the required information is shown in the
Financial Statements or Notes thereto.

(b) Reports on Form 8-K. There were no Reports on Form 8-K
filed in the fourth quarter of 1997.

2 .1. First Amended Disclosure Statement pursuant to
Section 1125 of the Bankruptcy Code, which includes the
First Amended and Restated Joint Plan of Reorganization
dated September 14, 1988 (incorporated by reference to the
Company's Report on Form 8-K dated December 1, 1988).

3.1. Amended and Restated Certificate of Incorporation
of Allis-Chalmers Corporation (incorporated by reference to
the Company's Report on Form 8-A dated August 12, 1992).

3.2. By-laws of Allis-Chalmers Corporation (incorporated
by reference to the Company's Report on Form 8-A dated
August 12, 1992).

10.1. Amended and Restated Retiree Health Trust Agreement
between Allis-Chalmers Corporation and Wells Fargo Bank
(incorporated by reference to Exhibit C-1 of the First
Amended and Restated Joint Plan of Reorganization dated
September 14, 1988 included in the Company's Report on Form
8-K dated December 1, 1988).

10.2. Amended and Restated Retiree Health Trust Agreement
between Allis-Chalmers Corporation and Firstar Trust
Company (incorporated by reference to Exhibit C-2 of the
First Amended and Restated Joint Plan of Reorganization
dated September 14, 1988 included in the Company's Report
on Form 8-K dated December 1, 1988).

10.3. Reorganization Trust Agreement between Allis-
Chalmers Corporation and John T. Grigsby, Jr., Trustee
(incorporated by reference to Exhibit D of the First
Amended and Restated Joint Plan of Reorganization dated
September 14, 1988 included in the Company's Report on Form
8-K dated December 1, 1988).

10.4. Product Liability Trust Agreement between Allis-
Chalmers Corporation and Bruce W. Strausberg, Trustee
(incorporated by reference to Exhibit E of the First
Amended and Restated Joint Plan of Reorganization dated
September 14, 1988 included in the Company's Report on Form
8-K dated December 1, 1988).

10.5.* Allis-Chalmers Corporation Long-Term Stock
Incentive Plan (1989) (incorporated by reference to the
Company's Report on Form 10-Q for the three months ended
September 30, 1989).

10.6. Subscription and Shareholder Agreement between
Allis-Chalmers Corporation and AL-CH Company, L.P. dated
May 18, 1989 (incorporated by reference to the Company's
Report on Form 8-K dated May 24, 1989).

10.7. Commercial Installment Loan Agreement by and between
Allis-Chalmers Corporation and Marine Midland Bank, N.A.,
dated as of December 20, 1989 (incorporated by reference to
the Company's Report on Form 8-K dated December 20, 1989).

10.8.* Employment Agreement between Allis-Chalmers
Corporation and John T. Grigsby, Jr. (incorporated by
reference to the Company's Report on Form 10-Q for the
three months ended September 30, 1989).

10.9.* Allis-Chalmers Savings Plan (incorporated by
reference to the Company's Report on Form 10-K for the year
ended December 31, 1988).

10.10.* Allis-Chalmers Consolidated Pension Plan
(incorporated by reference to the Company's Report on Form
10-K for the year ended December 31, 1988).

21.1. Subsidiaries of Allis-Chalmers Corporation.

27.1.Financial Data Schedule.

* A management contract or compensatory plan or arrangement.

<PAGE>

<TABLE>

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<CAPTION>

(thousands)

Balance at Balance
Year Ended Beginning at Close
December 31, 1995 of Period Additions Deductions of Period
<S> <C> <C> <C> <C>
Doubtful receivables $ 319 $ 0 $ 13 $ 306

Plant rearrangement $ 68 $ 0 $ 0 $ 68
---------- -------- -------- -----------

Balance at Balance
Year Ended Beginning at Close
December 31, 1996 of Period Additions Deductions of Period
<S> <C> <C> <C> <C>
Doubtful receivables $ 306 $ 0 $ 276(a) $ 30

Plant rearrangement $ 68 $ 0 $ 68 $ 0

Balance at Balance
Year Ended Beginning at Close
December 31, 1997 of Period Additions Deductions of Period
<S> <C> <C> <C> <C>
Doubtful receivables $ 30 $ 6 $ 0 $ 36

(a) Includes writeoff of uncollectible receivables, less recoveries.

</TABLE>

<PAGE>

SIGNATURES

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

Allis-Chalmers Corporation

/s/John T. Grigsby, Jr.
John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial Officer
Date: March 26, 1998

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this report has been signed on March 26,
1998 by the following persons on behalf of the registrant and in the
capacities indicated.

/s/H. Sean Mathis /s/Robert E. Nederlander
H. Sean Mathis Robert E. Nederlander, Director
Chairman of the Board,
Chief Executive Officer
and Director

/s/ John R. Collins /s/John E. Sundman
John R. Collins, Director John E. Sundman, Director

/s/John T. Grigsby, Jr. /s/Allan R. Tessler
John T. Grigsby, Jr. Director Allan R. Tessler, Director

/s/Claude D. Montgomery /s/Leonard Toboroff
Claude D. Montgomery, Director Leonard Toboroff, Director

ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT 21.1.
SUBSIDIARIES

State
in Which
Subsidiary
Organized

Houston Dynamic Service, Inc. Texas

KILnGAS R&D, Inc. Illinois

U.S. Fluidcarbon Inc. Delaware

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 189
<SECURITIES> 510
<RECEIVABLES> 719
<ALLOWANCES> 36
<INVENTORY> 101
<CURRENT-ASSETS> 1,604
<PP&E> 2,553
<DEPRECIATION> 1,446
<TOTAL-ASSETS> 2,711
<CURRENT-LIABILITIES> 69,465
<BONDS> 278
8,307
0
<COMMON> 0
<OTHER-SE> (76,291)
<TOTAL-LIABILITY-AND-EQUITY> (2,711)
<SALES> 0
<TOTAL-REVENUES> 4,062
<CGS> 0
<TOTAL-COSTS> 3,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> (66,545)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,545)
<EPS-PRIMARY> (66.34)
<EPS-DILUTED> (66.34)

</TABLE>