UNITED STATES

                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

For the fiscal year ended December 31, 1999
                             OR

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

For the transition period from         to

Commission file number - 1-9294

                               Imo Industries Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                               21-0733751
     (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)

       997 Lenox Drive, Suite 111
       Lawrenceville, New Jersey                               08648
  (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code 609-896-7600.

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,  and will not be contained,  to the best
of Registrant's knowledge, in this Form 10-K or any amendment to this Form 10-K.

(X )

    Shares of  Registrant's  common stock,  $.01 par value, outstanding  as of
March 30, 2000 ......................100

                       DOCUMENTS INCORPORATED BY REFERENCE

Identification of Documents                    Part into which Incorporated
         None



                                     PART I

Item 1.  Business.


General

Imo  Industries  Inc.  (hereinafter  with its  subsidiaries  referred  to as the
"Company")  is an  integrated  multinational  manufacturer  of a broad  range of
engineered  industrial  products  designed  primarily  to  transfer  liquids  or
regulate and control motion in a variety of industrial applications. The Company
markets its  products  on a  worldwide  basis to a diverse  customer  base.  The
Company  operates  in  two  distinct  industry  segments:   Fluid  Handling  and
Industrial Positioning.

      Fluid  Handling.  The Fluid Handling  segment designs and produces a broad
range of pumps, including screw,  centrifugal and gear pumps. The pumps designed
and produced by the Fluid Handling  segment serve a variety of  applications  in
the following industries: chemicals, marine and offshore engineering, energy and
power generation,  sewage and environmental  engineering,  pulp and paper, water
treatment and other process industries.  In Fluid Handling,  the Company markets
its products principally under the Imo and Warren brand names.

      Industrial  Positioning.  The Industrial  Positioning  segment designs and
produces  a wide  range of  power  transmission  and  motion  control  products,
including enclosed gear drives, speed reducers, open gearing components,  AC and
DC motor  controllers,  push-pull  cable,  remote control systems and marine and
power equipment after-market products. In Industrial Positioning,  the Company's
Boston Gear and Morse Controls units are among sales leaders in their respective
market  segments.  Boston Gear  products  have  applications  in a wide range of
industrial  manufacturing  operations,  ranging  from  packaging  machinery  and
equipment to integrated steel and pulp and paper mills.  Morse Controls products
are sold into a variety of end use markets with a  concentration  in the marine,
mobile equipment and aviation sectors.

History

The Company,  founded in 1901 in the United States by Dr. Carl Gustaf Patrick de
Laval, a Swedish  scientist,  was incorporated in Delaware on March 2, 1959. The
Company was acquired by Transamerica  Corporation  ("Transamerica") in 1963, and
in 1964, Transamerica merged its existing wholly owned manufacturing subsidiary,
General  Metals  Corporation,  into the  Company.  At the close of  business  on
December 18, 1986,  Transamerica  distributed  all of the issued and outstanding
shares of the Company common stock to holders of record of  Transamerica  common
stock on the basis of one share of Company  common  stock for each ten shares of
Transamerica common stock held and since that time the Company has operated on a
stand-alone basis.

On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of
the Company's  outstanding  shares of common stock  pursuant to its tender offer
for all outstanding  shares of common stock of the Company (the  "Acquisition").
The consideration  paid was $7.05 per share of common stock or $112.1 million in
total.  On July 2, 1998, Imo Merger Corp., a wholly owned  subsidiary of Colfax,
merged with and into Imo,  pursuant to a short-form  merger  under  Delaware law
("back-end merger").  The Company was the surviving  corporation in the back-end
merger and as result became a wholly owned subsidiary of Colfax.

Information  regarding the  Acquisition of the Company is contained in Note 2 to
the  Consolidated  Financial  Statements  included  in Part IV of this Form 10-K
Report as indexed at Item 14(a)(1).

Industry Segments

A description  of the principal  products and services  offered by each business
segment of the Company,  as well as the principal  markets for such products and
services,  are set forth below.  Certain  information with respect to net sales,
operating  profit,  and  identifiable  assets of each of these  segments  and by
geographic  area  is  contained  in  Note  11  to  the  Consolidated   Financial
Statements.

Fluid Handling

The Fluid  Handling  business  segment is a leading  worldwide  manufacturer  of
rotary screw pumps.  The three units that comprise the Fluid Handling segment --
Imo Pump,  Imo AB and Warren  Pumps Inc.  -- design and  manufacture  screw-type
fuel, lube oil and hydraulic pumps for use primarily by the marine, process, oil
and gas and elevator industries. The segment's three-screw pumps are the leading
low-noise-level  pumps used in United States Navy and commercial vessels.  These
pumps are also used to power hydraulic  elevators,  lubricate diesel engines and
fuel gas turbines.  The segment's two-screw pumps are used by the pulp and paper
industry and in other high-viscosity process applications.

Industrial Positioning

The Industrial  Positioning  business  segment  produces speed  reducers,  loose
gearing,  and precision  mechanical and electronic control products and systems,
that are recognized as leading products in their market niches.  This segment is
comprised  of four units:  Boston  Gear,  a leading  producer of gears and speed
reducers, Fincor Electronics,  a producer of adjustable-speed motor controllers,
Morse Controls, a manufacturer of push-pull cable and control systems and Sierra
International  Inc.,  a marketer  of  after-market  marine  and power  equipment
products.  Speed  reducers  are used to reduce the output speed and increase the
torque of power trains in numerous products,  ranging from industrial  machinery
to exercise  treadmills.  Adjustable-speed  motor  controllers  are used for the
accurate control of electric motor speed,  torque,  shaft position and direction
of rotation  in  applications  such as ski lifts,  textile  machinery,  overhead
cranes and large printing presses.  These operations also produce worm gear sets
used as speed reducers by original  equipment  manufacturers  and by oil and gas
and industrial machinery customers. Push-pull cable and control systems are used
to control and actuate functions,  such as steering and valve adjustment,  as an
alternative to electrical  systems.  Applications  include  throttle control and
steering systems for both off-the-road vehicles and pleasure boats. After-market
marine and power equipment  products  include engine parts and flexible hose for
pleasure craft and lawn and garden equipment.

Discontinued Operations

In  April  1997,   August  1997  and  February   1998,   the  Company  sold  its
Electro-Optical   Systems,   Instrumentation   and  Roltra   Morse   businesses,
respectively.  In  accordance  with APB Opinion No. 30, the  disposals  of these
business  segments  have been  accounted  for as  discontinued  operations  and,
accordingly,  their  operating  results  have been  segregated  and  reported as
Discontinued Operations in the accompanying Consolidated Statements of Income.

Roltra Morse

On  February  27,  1998,  the  Company  completed  the sale of its Roltra  Morse
business  to  Magna  International  Inc.  for  cash  of $30  million,  plus  the
assumption of Roltra Morse's debt. The sale price  approximated the recorded net
book value of the  business.  Net proceeds were used to reduce  domestic  senior
debt.

Instrumentation

On August  29,  1997,  the  Company  completed  the sale of its  Instrumentation
business  segment to Danaher  Corporation  for  proceeds of $85  million,  which
approximated  its net book value. Net cash proceeds were used to reduce domestic
senior  debt.  The  majority  shareholders  of the Company are also  substantial
shareholders of Danaher Corporation.

Electro-Optical Systems

On April 28, 1997, the Company completed the sale of the Varo Electronic Systems
division to a small defense  contractor for $12 million in cash, the proceeds of
which were used to reduce its domestic  senior debt.  The sale of this  business
completed the sale of the Electro-Optical Systems business.

See Note 3 to the  Consolidated  Financial  Statements  for  additional  details
regarding the discontinued operations.

Cost Reduction Programs

In connection  with the  Acquisition,  the Company  implemented a cost reduction
program.  The cost of this  program  was $18.6  million  and was  accrued for in
accordance  with the  purchase  method of  accounting.  It is comprised of $10.5
million related to severance and  termination  benefits as a result of headcount
reductions at the Company's corporate  headquarters.  In addition,  $1.2 million
and $6.9  million  of costs for the  Company's  Fluid  Handling  and  Industrial
Positioning  segments,  respectively,   related  to  severance  and  termination
benefits  resulting from headcount  reductions and the  consolidation of certain
manufacturing  facilities.  The program was completed in 1999. The required cash
outlay  related to this program was $8.1  million in 1997,  $7.4 million in 1998
and $3.1 million in 1999.

Competition

The  Company's  products and services  are marketed on a worldwide  basis.  Most
markets in which the Company  operates  are highly  competitive.  The  principal
elements of competition  for the products  manufactured in each of the Company's
business segments are design features,  product quality,  customer service,  and
price.  Because the Company  competes in certain narrowly defined niche markets,
there is not any single  company that competes  directly with the Company across
all of the Company's product lines.

Product Distribution and Customers

The Company's  products are sold  primarily  through the Company's  direct sales
forces.   During  1999,   sales  by  the  Company's  direct  sales  forces  were
approximately  77% and 60% of the  Fluid  Handling  and  Industrial  Positioning
segments,   respectively.   The  Company's  remaining  sales  are  made  through
distributors, dealers and agents.

None of the Company's business segments is dependent on any single customer or a
few  customers,  the loss of which would have a material  adverse  effect on the
respective segments, or on the Company as a whole. No customer accounted for 10%
or more of consolidated sales from continuing operations in 1999, 1998 or 1997.

Backlog

The Company's  backlog of unfilled  orders at February 25, 2000 and 1999, and at
December 31, 1999, 1998 and 1997, by business segment, was as follows:

                           February 25,            December 31,
                          2000       1999      1999     1998      1997
                                  (Dollars in millions)
Fluid Handling          $ 27.9     $ 33.0     $25.7   $ 32.1    $ 29.5
Industrial                36.6       29.8      33.3     30.2      31.8
Positioning
                        $ 64.5     $ 62.8    $ 59.0   $ 62.3    $ 61.3

Backlog is considered significant only to the Fluid Handling segment, given that
the products of that operation  require long lead times for manufacture.  Of the
total  backlog  at  December  31,  1999,  the  Company  believes  that  all  but
approximately $1.1 million of its orders will be filled in 2000.

Raw Materials

The Company  obtains raw materials,  component parts and supplies from a variety
of sources,  generally from more than one supplier.  The Company's principal raw
materials  are metals and plastics.  The Company's  suppliers and sources of raw
materials are based in both the United States and international  countries.  The
Company  believes  that its sources of raw  materials are adequate for its needs
for the  foreseeable  future.  The  loss of any one  supplier  would  not have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.

Patents, Licenses and Trademarks

The Company owns numerous  unexpired U.S. patents (currently having a term of 17
years from the date of issuance and expiring at various times in the future) and
foreign  patents  (having an  initial  term that is  governed  by the law of the
country and expiring at various times in the future),  including counterparts of
certain of its U.S.  patents,  in major  industrial  countries of the world. The
Company's  products are marketed under various trade names and  registered  U.S.
and foreign  trademarks  (having an initial  term that is governed by the law of
the country and expiring at various times in the future). The Company,  however,
does not consider any one patent or trademark,  or any group thereof,  essential
to its  business as a whole,  or to any of its  business  segments.  The Company
relies,  to an  extent,  on  proprietary  product  knowledge  and  manufacturing
processes in its operations.

Research and Development

The Company's ongoing research and development  programs involve the development
of  new   technologies   to  enhance  the  performance  or  lower  the  cost  of
manufacturing its products, and the redesign of existing product lines either to
increase their efficiency or to lower their manufacturing cost. Expenditures for
research and development  charged against  continuing  operations for 1999, 1998
and 1997 by business segment were as follows:

                                   Year Ended December 31,
                                1999        1998        1997
                                   (Dollars in millions)
Fluid Handling                  $1.5        $2.1        $2.1
Industrial Positioning           2.8         3.2         3.4
                                $4.3        $5.3        $5.5

Environmental Matters

In connection with the Company's  separation from Transamerica in 1986, three of
the Company's  properties required compliance with the New Jersey  Environmental
Cleanup  Responsibility  Act, which was amended by the Industrial  Site Recovery
Act  ("ISRA").  ISRA required  that the  Company's  three New Jersey  industrial
establishments  undergo an approved remediation.  Remediation has been completed
at two sites and final closure  approvals  have been sought.  As a result of the
sale of a portion of the third  establishment,  this site has been  divided into
two separate sites for ISRA compliance.  Both sites have undergone cleanup,  but
the New Jersey  Department of Environmental  Protection and Energy has requested
and  received  from the  Company  additional  sampling  information.  If further
cleanup is required,  the Company does not expect it to have a material  adverse
effect on its financial condition.

The Company  has been  identified  in a number of  instances  as a  "Potentially
Responsible  Party"  by the U.S.  Environmental  Protection  Agency,  and in one
instance by the State of  Washington,  with respect to the disposal of hazardous
wastes at a number of facilities  that have been targeted for clean-up  pursuant
to the  Comprehensive  Environmental  Response  Compensation  and  Liability Act
("CERCLA") or similar state law. Similarly, the Company has received notice that
it is one of a number  of  defendants  named in an  action  filed in the  United
States District Court,  for the Southern  District of Ohio Western Division by a
group of plaintiffs who are attempting to allocate a share of cleanup costs, for
which they are responsible,  to a large number of additional parties,  including
the Company.  Although CERCLA and corresponding state law liability is joint and
several,  the  Company  believes  that its  liability  will not have a  material
adverse effect on the financial  condition of the Company since it believes that
it  either  qualifies  as a de  minimis  or  minor  contributor  at  each  site.
Accordingly,  the Company believes that the portion of remediation costs that it
will be responsible for will therefore not be material.

The Company has current and former  operations  in numerous  locations,  some of
which require environmental remediation.  The Company, however, does not know of
or believe that any such matters or the cost of any required corrective measure,
either individually or in the aggregate,  will have a material adverse effect on
the financial condition of the Company. There can be no assurance, however, that
these matters, or other environmental matters not currently known to the Company
will not have such a material adverse effect.

Seasonality

General economic conditions worldwide continue to create business  opportunities
for the  coming  year in many of the  markets  in which  the  Company  operates.
Management  believes that because of the nature of its  industrial  products and
the fact that the Company sells diverse products to many markets, the Company is
not  significantly  affected by the cyclical  behavior,  or seasonality,  of any
particular market that it serves.

Associates

At February  25,  2000,  the Company  employed  approximately  1,900  associates
worldwide.  Approximately  1,300  associates were employed in the United States,
and  approximately  600 associates  were employed  outside of the United States.
There  are  approximately   400  associates   worldwide  covered  by  collective
bargaining  agreements  with various  unions  expiring in 2000 through 2002. The
Company considers its relations with its associates to be satisfactory.

Item 2. Properties.

The location of the Company's manufacturing  facilities at February 25, 2000 are
as follows:

Location                        Product                        Owned/Leased

Fluid Handling

Monroe, North Carolina    Three-screw and two-screw pumps          Owned
Columbia, Kentucky        Three-screw, gear and elevator pumps     Owned
Warren, Massachusetts     Two-screw, gear and centrifugal pumps    Owned
Stockholm, Sweden         Three-screw pumps                        Owned
Paris, France             Three-screw pumps                        Leased

Industrial Positioning

Charlotte, North Carolina Open gearing and clutches                Owned
Clearwater, Florida       Marine hose products                     Leased
Hudson, Ohio              Cables and controls                      Leased
Litchfield, Illinois      Marine and power equipment after-market  Owned
                          parts

Louisburg, North Carolina Worm gear speed reducers                 Owned
Sarasota, Florida         Marine hydraulics                        Owned
York, Pennsylvania        Electronic drives                        Owned
Basildon, England         Cables and controls                      Leased
Heiligenhaus, Germany     Cables and controls                      Owned
Paris, France             Cables and controls                      Leased
Marsta, Sweden            Cables and controls                      Owned
Singapore                 Cables, controls and roller chain        Leased
Sydney, Australia         Cables and controls                      Owned

The Company believes that its machinery,  plants and offices are in satisfactory
operating  condition  and are  adequate  for the uses to which they are put. The
Company  believes that its properties have sufficient  capacity to substantially
increase  its  current  utilization  without  incurring  significant  additional
capital expenditures.

Item 3. Legal Proceedings.

The Company and one of its  subsidiaries are two of a large number of defendants
in a number of lawsuits brought in various  jurisdictions by approximately 4,500
claimants who allege injury caused by exposure to asbestos. Although neither the
Company nor any of its  subsidiaries has ever been a producer or direct supplier
of asbestos,  it is alleged that the industrial and marine  products sold by the
Company and the subsidiary named in such complaints  contained  components which
contained  asbestos.  Suits  against the Company  and its  subsidiary  have been
tendered to its insurers,  who are defending  under their stated  reservation of
rights.  In  addition,  the  Company  and the  subsidiary  are  named in  cases,
involving   approximately   32,000  claimants,   which  were   "administratively
dismissed" by the U.S.  District Court for the Eastern District of Pennsylvania.
Cases that have been "administratively  dismissed" may be reinstated only upon a
showing  to  the  Court  that  (i)  there  is   satisfactory   evidence   of  an
asbestos-related injury; and (ii) there is probative evidence that the plaintiff
was exposed to products or equipment  supplied by each  individual  defendant in
the case. The Company  believes that it has adequate  insurance  coverage or has
established appropriate reserves to cover potential liabilities related to these
cases.

The Company is a defendant in a lawsuit  brought in the United  States  District
Court  for the  District  of New  Jersey  alleging  failure  in  performance  of
equipment sold in 1986 by the Company's  former Deltex  division.  The complaint
seeks  damages in excess of $12  million.  The Company  believes  that there are
legal and  factual  defenses  to the  claim and  intends  to defend  the  action
vigorously.  On June 2, 1999, the Court granted a summary  judgment motion filed
by the Company which effectively dismissed all claims.  Plaintiffs have appealed
this judgment to the United States Court of Appeals for the Third Circuit.

The  Company  was a defendant  in a lawsuit in the U.S.  District  Court for the
Western District of Pennsylvania,  which alleged component failures in equipment
sold by its former  diesel engine  division.  The  complaint  sought  damages of
approximately  $3 million.  On September  30, 1997,  the Court granted a summary
judgment  motion filed by the Company  which  effectively  dismissed  all claims
against it. Plaintiffs have appealed this judgment to the United States Court of
Appeals  for the Third  Circuit.  On June 3, 1999,  the United  States  Court of
Appeals for the Third Circuit  upheld the District  Court's  September 30, 1997,
decision thereby upholding the dismissal of all claims against the Company.

The Company is a defendant  in a lawsuit in the  Circuit  Court of Cook  County,
Illinois alleging performance  shortfalls in products delivered by the Company's
former  Delaval  Turbine  Division  and  claiming  damages of  approximately  $8
million.  The Company entered into an agreement with the plaintiff  settling all
claims.   Co-Defendant,   Federal  Insurance  Company,   has  recently  filed  a
counterclaim  for attorney's fees. The Company believes that there are legal and
factual defenses to the claim and intends to defend the action vigorously.

On June 3, 1997,  the Company was served with a complaint  in a case  brought in
the Superior Court of New Jersey which alleges  damages in excess of $10 million
incurred as a result of losses under a Government  Contract Bid  transferred  in
connection  with  the  sale  of the  Company's  former  Electro-Optical  Systems
business.  The  Electro-Optical  Systems business was sold in a transaction that
closed on June 2, 1995. The sales contract provided certain  representations and
warranties  as to the status of the business at the time of sale.  The complaint
alleges that the Company failed to provide  notice of a "reasonably  anticipated
loss" under a bid that was pending at the time of the  transfer of the  business
and  therefore a  representation  was  breached.  The contract was  subsequently
awarded to the Company's Varo subsidiary and thereafter transferred to the buyer
of the Electro-Optical  Systems business.  The case is in the preliminary stages
of pleading but the Company  believes that there are legal and factual  defenses
to the claims and intends to defend the action vigorously.

The operations of the Company,  like those of other companies engaged in similar
businesses, involve the use, disposal and clean up of substances regulated under
environmental  protection  laws.  In a number of instances  the Company has been
identified  as  a  Potentially  Responsible  Party  by  the  U.S.  Environmental
Protection Agency, and in one instance by the State of Washington,  with respect
to the disposal of  hazardous  wastes at a number of  facilities  that have been
targeted for clean-up  pursuant to CERCLA or similar state law.  Similarly,  the
Company has received notice that it is one of a number of defendants named in an
action filed in the United States District Court,  for the Southern  District of
Ohio Western  Division by a group of plaintiffs who are attempting to allocate a
share of cleanup  costs,  for which they are  responsible,  to a large number of
additional  parties,  including the Company.  Although CERCLA and  corresponding
state  law  liability  is joint  and  several,  the  Company  believes  that its
liability will not have a material adverse effect on the financial  condition of
the Company since it believes that it either  qualifies as a de minimis or minor
contributor at each site. Accordingly,  the Company believes that the portion of
remediation  costs that it will be  responsible  for will not be  material.  For
additional  information see section  entitled  Environmental  Matters in Part I,
Item 1 of this Form 10-K Report.

The Company is also involved in various other pending legal proceedings  arising
out of the  ordinary  course  of the  Company's  business.  None of these  legal
proceedings  is  expected  to have a material  adverse  effect on the  financial
condition of the Company.  With respect to these  proceedings and the litigation
and claims  described in the  preceding  paragraphs,  management  of the Company
believes that it either will  prevail,  has adequate  insurance  coverage or has
established appropriate reserves to cover potential liabilities. There can be no
assurance,  however, as to the ultimate outcome of any of these matters,  and if
all or  substantially  all of  these  legal  proceedings  were to be  determined
adversely  to the  Company,  there  could be a  material  adverse  effect on the
financial condition of the Company.

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

None

                                     PART II

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

The Company  delisted its Common Stock from the New York Stock  Exchange on July
2, 1998. The Common Stock was deregistered under the Securities  Exchange Act of
1934.

Item 6. Selected Financial Data.
(Dollars in millions except per share amounts) (a)




                                           Post-Acquis.  Pre-Acquis.
                           Year      Year    August 29, January 1,   Year Ended
                          Ended     Ended    1997 to      1997      December 31,
                          December December December   to August  --------------
                         31, 1999*  31, 1998* 31, 1997   28, 1997  1996    1995
--------------------------------------------------------------------------------
Net sales                   $287.5  $308.9    $106.7    $210.2   $309.5  $297.1
Income (loss) from continuing
  operations before
  extraordinary item          15.3    10.9      (5.7)    (31.3)  (33.1)     7.2
Discontinued operations,
  net of taxes                 ---     ---     (12.2)      2.4   (16.8)    27.0
Extraordinary item (net
  of tax)                     (0.2)   (5.2)     (3.3)      ---    (8.5)    (4.4)
Net income (loss)             15.1     5.7     (21.2)    (28.9)  (58.4)    29.8
--------------------------------------------------------------------------------
(Loss) earnings per share, basic and diluted:
Continuing operations before
  extraordinary item                            (.33)    (1.82)  (1.93)     .42

  Discontinued operations, net of taxes         (.71)      .14   ( .99)    1.58
  Extraordinary item                            (.20)      ---    (.49)    (.26)
  Net (loss) income                            (1.24)    (1.68)  (3.41)    1.74
Cash dividends per share       ---     ---       ---       ---      ---     ---
--------------------------------------------------------------------------------
Total assets                 377.1   389.0     463.3              330.9   365.4
Total long-term debt, including
  current portion            169.1   174.3     223.4              276.0   244.5
================================================================================


(a)  The notes to the consolidated  financial  statements  located in Part IV of
     this  Form  10-K  Report  as  indexed  atItem  14(a)(l)  should  be read in
     conjunction with this summary.

* As a result of the back-end merger on July 2, 1998,  earnings per share is not
presented for 1999 and 1998.

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


The following  discussion and analysis of the Company's  consolidated results of
operations  and  financial  condition  should  be read in  conjunction  with the
audited  Consolidated  Financial Statements included elsewhere in this Form 10-K
Report.

Comparisons  of the results of operations  for the year ended December 31, 1999,
with the  results  for the years ended  December  31,  1998 and 1997,  are being
presented on an historical  basis. The year ended December 31, 1999 and 1998 and
the four months ended December 31, 1997,  include  changes in  depreciation  and
amortization  that  resulted  from the  application  of the  purchase  method of
accounting for the Acquisition.  For further information on the pro forma effect
of the  Acquisition  on the  Company,  see Note 2 in the  Notes to  Consolidated
Financial Statements.

Recent Events

Sierra  International  Inc.  Acquisition:  On December 1, 1999, the Company
purchased the stock of Sierra  International  Inc.  ("Sierra")  from Echlin
Inc.,  a  subsidiary  of Dana  Corporation.  Sierra  sells and  distributes
replacement  parts for marine and power equipment  applications  and marine
hose  products.   Sierra  has  become  part  of  the  Company's  Industrial
Positioning segment.

Results of Operations

The Company's former Roltra Morse,  Instrumentation and Electro-Optical  Systems
businesses  are  accounted  for as  discontinued  operations.  Accordingly,  the
operating  results of these  businesses  have been  segregated  and  reported as
Discontinued   Operations  in  the  audited  Consolidated  Financial  Statements
included  elsewhere  in this Form  10-K  Report.  The  discussion  that  follows
concerns only the results of continuing  operations,  which are grouped into two
business  segments  for  management  and  financial  reporting  purposes:  Fluid
Handling and Industrial Positioning.

1999 Compared to 1998

Sales.  Net sales from  continuing  operations in 1999  decreased 6.9% to $287.5
million, compared with $308.9 million in 1998, as a result of the Fluid Handling
segment's  sales  decreasing  10.4%  and a  decrease  of 4.9% in the  Industrial
Positioning  segment's  sales. The decrease in the Fluid Handling segment is due
to cyclicality in the crude oil,  machinery support and pulp & paper markets and
unfavorable  effects  of a 4.6%  change in the  exchange  rates for the  Swedish
Krona. The decrease in the Industrial Positioning segment is due to lower demand
in the agricultural and power transmission sectors, unfavorable foreign currency
fluctuations, the sale of the conveyor business in Germany on July 31, 1998, and
inventory reduction programs initiated by key customers.

Gross Profit.  Gross profit in 1999  decreased as a percentage of sales to 32.2%
compared  with  32.5%  in  1998,  as  a  result  of  reduced  sales  volume  and
manufacturing levels.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  to 17.6% of net sales in the twelve  months
ended  December  31,  1999,  as  compared  with  18.3% in the 1998  period.  The
decreased  expenses as a percentage of sales in 1999 was the result of continued
cost reduction programs in each of the Company's operating units.

Interest Expense.  Average borrowings in 1999 were  approximately  $33.2 million
lower than in 1998.  Total  interest  expense of $16.7  million in 1999 was $4.6
million,  or 21.6%,  lower than in 1998, due primarily to the reduction of debt,
through the generation of operating cash flow.

Income from  Continuing  Operations.  The  Company  had income  from  continuing
operations of $15.3 million in 1999, compared with $10.9 million in 1998, due to
the decrease in interest expense.

1998 Compared to 1997

Sales.  Net sales from  continuing  operations in 1998  decreased 2.5% to $308.9
million, compared with $316.9 million in 1997, as a result of the Fluid Handling
segment's  sales  remaining  flat  and a  decrease  of  4.0%  in the  Industrial
Positioning segment's sales. The decrease in the Industrial  Positioning segment
sales is primarily due to the sale of the Delroyd  product line,  which was sold
on December 31, 1997.

Gross Profit.  Gross profit in 1998  increased as a percentage of sales to 32.5%
compared  with  30.0%  in  1997.  The  higher  gross  profit  was  a  result  of
productivity  improvements  in each segment due to cost reduction and efficiency
initiatives implemented after the Acquisition.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  to 18.3% of net sales in the twelve  months
ended December 31, 1998, as compared with 21.5% in the 1997 period. The decrease
in expenses,  as a percent of sales in 1998,  was primarily due to the reduction
in  corporate   overhead  expenses  and  Company-wide  cost  reduction  programs
instituted after the Acquisition.

Interest Expense.  Average borrowings in 1998 were approximately  $102.6 million
lower  than in 1997.  Total  interest  expense  of $21.3  million in 1998 was $5
million, or 19.0%, lower than in 1997, due primarily to the reduction of debt as
a result of the sale of Roltra  Morse and the  Instrumentation  business and the
purchase of a portion of the 11.75% senior subordinated debentures during 1998.

Income (Loss) from Continuing Operations. The Company had income from continuing
operations  of  $10.9  million  in  1998.  In 1997,  the  loss  from  continuing
operations was $36.9 million, which included unusual charges of $31.3 million.

Income  (Loss) from  Discontinued  Operations.  Roltra  Morse's net loss of $1.0
million,  which includes $0.2 million of allocated  interest,  was included with
the net  book  value  of the  assets  on the  date of sale  February  27,  1998.
Therefore  there was no income from  discontinued  operations for the year ended
December  31,  1998  compared  with a loss of $9.8  million  for the year  ended
December 31, 1997.

Other Operating Results

Unusual Items.  During the year ended  December 31, 1997,  the Company  recorded
unusual charges of $31.3 million against income from continuing operations.  The
first nine months of 1997 included an unusual  charge of $10.5 million  relating
to the  settlement of a judgment  against the Company in favor of  International
Insurance  Company.  In addition,  the Company recorded unusual charges of $20.8
million in the third quarter of 1997. Of these charges, $15.8 million related to
the sale of the Company and represent  indirect and general expenses incurred by
the Company in connection  with the sale process which were paid in 1997, and $5
million related to an additional legal provision  concerning  certain litigation
matters.

Extraordinary  Items. The year ended December 31, 1999, include an extraordinary
charge of $0.2 million net of tax, related to the early  extinguishment  of $3.5
million of its 11.75% senior subordinated notes due in 2006.

The year  ended  December  31,  1998,  include an  extraordinary  charge of $5.2
million net of tax,  representing charges related to the early extinguishment of
the Company's debt under its current senior secured credit  facilities (the "New
Credit  Agreement")  and  its  Notes,  as well as the  write-off  of  previously
deferred loan costs.

Provision for Income Taxes.  Income tax expense from  continuing  operations was
$8.8  million,  $7.0  million,  and  $1.5  million  for  1999,  1998  and  1997,
respectively.

Income tax expense for the year ended  1999,  represents  current tax expense of
$1.1  million for federal  alternative  minimum  tax,  foreign and state  income
taxes,   as  the  Company  is  utilizing   existing  U.S.  net  operating   loss
carryforwards to offset its domestic earnings.

The net deferred tax benefit  currently  recorded at December 31, 1999, is $32.8
million, a level where management  believes that it is more likely than not that
the tax benefit will be realized.

The Company establishes  valuation  allowances in accordance with the provisions
of  FASB  Statement  No.  109,   "Accounting  for  Income  Taxes."  The  Company
continually  reviews the adequacy of the valuation  allowance and is recognizing
these  benefits only as  reassessment  indicates that it is more likely than not
that the benefits will be realized. The valuation allowance was $1.7 million for
December  31, 1999 and  December  31,  1998.  In 1998,  the Company  reduced its
valuation reserve by $51.6 million due to its belief that it is more likely than
not these tax  benefits  will be realized in future  years.  The revision of the
valuation reserve is due to the change in purchase  accounting  estimates during
the first year after acquisition.

The Company has net operating loss carryforwards of approximately  $82.9 million
expiring in years 2000 through  2018,  and minimum tax credits of  approximately
$2.6  million,   which  may  be  carried   forward   indefinitely.   Tax  credit
carryforwards  include  foreign  tax  credits  of  approximately  $3.4  million,
expiring beginning in the year 2002. These carryforwards are available to offset
future  taxable  income,  subject  to  Section  382  limitations,   due  to  the
Acquisition.

Taxes have not been provided on the unremitted earnings of foreign  subsidiaries
since it is the Company's  intention to  indefinitely  reinvest  these  earnings
overseas.  The  amount of  foreign  withholding  taxes  that would be payable on
remittance of these earnings is approximately $1.3 million.

Liquidity and Capital Resources

Short-term and Long-term Debt

As of December 31, 1999,  the Company had $10.4 million of  outstanding  standby
letters of credit.  The Company had $7.3  million in foreign  short-term  credit
facilities with amounts outstanding at December 31, 1999 of $1.3 million. Due to
the short-term nature of these debt instruments it is the Company's opinion that
the carrying amounts approximate the fair value.

In  addition,  the Company  had  outstanding  $75  million of its 11.75%  senior
subordinated  notes due in 2006,  $36.7 million of term loan  borrowings,  $52.3
million in revolver borrowings, and $5 million due to Ameridrives International,
L.P.,  whose majority  shareholders  are also the majority  shareholders  of the
Company.

Cash Flow

The  Company's  operating  activities  provided  cash of $39.5  million in 1999,
compared with cash provided of $39.6 million in 1998.  The cash provided in 1999
is principally due to net operating profits and the decrease in working capital.

The Company's total debt as a percent of its total  capitalization  decreased to
59.2% at December 31,  1999,  compared  with 62.6% at December  31,  1998,  as a
result of the debt paid down due to internal cash generation.

Capital expenditures of continuing operations increased to $6.4 million compared
with the 1998 level of $6 million due to  expenditures  related to  productivity
improvements  and new product  development  in the operating  segments.  In 1999
capital  spending  was  used  for  the  purpose  of  maintaining  and  improving
competitive advantages at the Company's operations. The Company anticipates that
capital  expenditures in 2000 will increase over the 1999 level primarily due to
expenditures related to new product development in the operating segments. There
were no material outstanding commitments for the acquisition of property, plant,
and equipment at December 31, 1999.

Management  believes  that cash flow from  operations  and cash  available  from
unused credit facilities will be sufficient to fund future  anticipated  working
capital needs, capital spending requirements and debt service requirements.

Year 2000

All of the Company's essential  processes,  systems, and business functions were
compliant  with the Year 2000  requirements  by the end of 1999. The Company did
not experience any Year 2000 consequences that affected its financial  position,
liquidity or results of operations.

The costs of the Company's  Year 2000  compliance  program were funded with cash
flows from operations. Some of these costs related solely to the modification of
existing systems,  while others were for new systems that also improved business
functionality.  In total, these costs were not substantially  different from the
normal, recurring costs for system development,  in part due to the reallocation
of internal  resources to implement  the new business  systems.  Costs  incurred
related  to Year 2000  issues,  outside  of normal and  routine  upgrades,  were
approximately  $1.6  million in total  which was spread over the last few years.
The Company does not believe that there will be any significant  future costs or
problems related to the Year 2000.

Seasonality; Customer Concentration; Inflation

General economic conditions worldwide continue to create business  opportunities
for the  coming  year in many of the  markets  in which  the  Company  operates.
Management  believes that because of the nature of its  industrial  products and
the fact that the Company sells diverse products to many markets, the Company is
not  significantly  affected by the cyclical  behavior,  or seasonality,  of any
particular market that it serves.

None of the Company's business segments is dependent on any single customer or a
few  customers,  the loss of which would have a material  adverse  effect on the
respective segments, or on the Company as a whole. No customer accounted for 10%
or more of consolidated sales in 1999, 1998 or 1997.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES  LITIGATION  REFORM ACT OF 1995. Except for historical  matters,  the
matters discussed in this Form 10-K Report are forward-looking  statements based
on current  expectations  and involve risks and  uncertainties.  Forward-looking
statements  include,  but are not limited  to,  statements  under the  following
headings:  (i) Item 1 - "Backlog, Raw Materials and Environmental Matters" - the
expected ability to fill existing orders in 2000, the continued  adequacy of the
Company's raw materials sources, and the future impact of environmental  matters
on the financial  condition of the Company;  (ii) Item 3 - "Legal Proceedings" -
the  future  impact  of legal  proceedings  on the  financial  condition  of the
Company.  The  Company  wishes to caution  the reader  that,  in addition to the
matters  described  above,  various factors such as delays in contracts from key
customers,  demand and market  acceptance  risk for new  products,  continued or
increased competitive pricing and the effects of under-utilization of plants and
facilities,  particularly  in  Europe,  and the  impact  of  worldwide  economic
conditions on demand for the Company's  products,  could cause results to differ
materially from those in any forward-looking statement.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The Company  periodically enters into foreign exchange contracts for purposes of
hedging its  exposure to foreign  currency  exchange  rate  fluctuations.  These
contracts  hedge  firm  commitments  between  the  Swedish  Krona and the German
Deutschmark and the United States Dollar.  At December 31, 1999, the Company had
foreign currency  contracts with notional amounts  totaling  approximately  $0.1
million with various  expiration dates through June 2000. The amount of deferred
gain or loss associated with these contracts is not material.

All foreign  currency  derivative  agreements are with major  commercial  banks;
therefore the risk of credit loss from nonperformance by the banks is considered
by management to be minimal.  The Company  evaluates its exposure to credit loss
on an ongoing basis.

Item 8.   Financial Statements and Supplementary Data.

The consolidated  financial  statements and supplementary  data required by Part
II,  Item 8 of Form 10-K are  included  in Part IV of this  Form 10-K  Report as
indexed at Item 14(a)(1).

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

None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

Not Applicable

Item 11.  Executive Compensation.

Not Applicable

Item  12. Security Ownership ofCertain Beneficial Owners and Management.

Not Applicable

Item 13.  Certain Relationships and Related Transactions.

None

                                     PART IV

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

(a)  (1)     Financial Statements

            The Financial Statements and Supplementary Data required by Part II,
       Item 8 of Form 10-K are included in this Part IV of this Form 10-K Report
       as follows:

Consolidated Financial Statements

  Consolidated  Statements  of Income and  Comprehensive  Income for Years Ended
    December  31, 1999,  December  31, 1998,  the period from January 1, 1997 to
    August 28,  1997  (pre-Acquisition)  and the period  from August 29, 1997 to
    December 31, 1997 (post-Acquisition)

  Consolidated Balance Sheets at December 31, 1999 and 1998
  Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
    December  31,  1998,  the period  from  January  1, 1997 to August 28,  1997
   (pre-Acquisition)  and the period from  August 29, 1997 to December  31, 1997
   (post-Acquisition)

  Consolidated  Statements of Shareholders' Equity (Deficit) for the Years Ended
    December  31, 1999,  December  31, 1998,  the period from January 1, 1997 to
    August 28,  1997  (pre-Acquisition)  and the period  from August 29, 1997 to
    December 31, 1997 (post-Acquisition)

  Notes to Consolidated Financial Statements
  Report of Independent Public Accountants
  Report of Independent Public Accountants on Schedule II
  Quarterly Financial Information (unaudited)

     (2)     Financial Statement Schedules

      The  following  consolidated  financial  statement  schedule for the years
      ended  December  31,  1999 and 1998,  the period  from  January 1, 1997 to
      August 28, 1997  (pre-Acquisition)  and the period from August 29, 1997 to
      December 31, 1997  (post-Acquisition)  is filed as part of this Report and
      should be read in conjunction  with the Company's  Consolidated  Financial
      Statements.

Schedule

  II           Valuation and Qualifying Accounts

                All  other   schedules  for  which  provision  is  made  in  the
       applicable  regulation  of the  Securities  and Exchange  Commission  are
       omitted  because they are not required under the related  instructions or
       because the required  information is given in the financial statements or
       notes thereto.

     (3)      Exhibits

            The Exhibits listed in the accompanying  Index to Exhibits are filed
            as part of this Report.

(b)   Reports on Form 8-K

         None

                                  EXHIBIT INDEX

 Exhibit No.    Note No.         Description

    3(i)         (23)        The Company's Restated Certificate of
                             Incorporation, as amended March 10, 1989 and
                             November 10, 1992 and April 30, 1997

    3(ii)        (28)        The Company's Bylaws

    4.1 (A)      (18)        Indenture, dated as of April 15, 1996, between the
                             Company and IBJ Schroder Bank & Trust Company, as
                             Trustee

        (B)      (28)        Second Supplemental Indenture, dated as of August
                             26, 1997, between the Company   and IBJ
                             Schroder Bank & Trust Company, as Trustee

    4.3          (18)        Registration Rights Agreement, dated as of April
                             23, 1996, between the Company and the Initial
                             Purchasers

    4.3 (A)      (20)        Rights Agreement dated as of April 30, 1997 between
                             the Company and  First Chicago Trust Company of New
                             York, which includes, as Exhibit A thereto, the
                             Certificate of Designation, Preferences and Rights
                             of Series B Junior Participating Preferred Stock
                             of Imo Industries Inc., as Exhibit B thereto, the
                             Form of Rights Certificate and as Exhibit C
                             thereto, the Summary of Rights to Purchase
                             Preferred Stock.

        (B)      (21)        Amendment to Rights Agreement dated June 25, 1997
                             between the Company and First Chicago Trust Company
                             of New York

        (C)      (22)        Second Amendment to Rights Agreement dated July 25,
                             1997 between the Company and First Chicago Trust
                             Company of New York

        (D)      (24)        Third Amendment to Rights Agreement dated August
                             21, 1997 between the Company and First Chicago
                             Trust Company of New York

        (E)      (29)        Fourth Amendment to Rights Agreement dated April
                             30, 1998 between the Company and First Chicago
                             Trust Company of New York

             Management Contracts, Compensatory Plans and Arrangements:

   10.1          (14)        Amended and restated Equity Incentive Plan for
                             Key Employees

   10.2          (16)        Amended and restated 1988 Equity Incentive Plan for
                             Outside Directors

   10.3          (15)        1995 Equity Incentive Plan for Outside Directors

   10.4          (17)        The Company's Supplemental Retirement Income Plan

   10.5          (8)         Change in Control Agreement dated January 9, 1987
                             between the Company and John J. Carr

   10.6          (8)         Change in Control Agreement dated August 5, 1992
                             between the Company and William M. Brown

   10.7          (8)         Change in Control Agreement dated August 13, 1992
                             between the Company and Thomas J. Bird

   10.8          (10)        Change in Control Agreement dated September 13,
                             1993 between the Company and Donald K. Farrar

   10.9          (19)        Change in Control Agreement dated May 21, 1996
                             between the Company and Donald N. Rosenberg

   10.10         (19)        Severance Agreement dated February 6, 1997 between
                             Imo Industries (UK) Limited and Brian Lewis

   10.11         (19)        Consultancy Agreement dated February 13, 1997
                             between Imo Industries Inc. and Brian Lewis

                     Other Material Contracts:

   10.12                     (A) (3),(4) The Company's  Salaried Employees Stock
                             Savings  Plan as  amended  on July 1,  1987  and as
                             amended on June 14, 1988

         (B)      (7)        Amendment dated March 16, 1989 to the Imo
                             Industries Inc. Employees Stock Savings Plan

         (C)      (5)        Amendments dated September 6,1990 and February 14,
                             1991 to the Imo Industries Inc. Employees Stock
                             Savings Plan

         (D)      (6)        Amendment dated May 9, 1991 to the Imo Industries
                             Inc. Employees Stock Savings Plan

         (E)      (8)        Amendments dated December 30, 1991 and August 3,
                             1992 to the Imo Industries Inc. Employees Stock
                             Savings Plan

         (F)     (12)        Trust Agreement for the Imo Industries Inc.
                             Employees Stock Savings Plan as of March 1, 1995
                             between the Company and Eagle Trust Company

  10.13           (1)        Distribution Agreement dated December 18, 1986
                             between Transamerica Corporation and the Company

  10.14           (1)        Tax Agreement between the Company and Transamerica
                             Corporation

  10.15 (J)       (9)        Warrant dated July 15, 1993 issued by the Company
                             to The Prudential Insurance Company of America

  10.16           (2)        Stock Purchase Agreement dated November 30, 1987
                             between the Company and TRIFIN B.V.

  10.17           (5)        Stock Purchase Agreement dated as of May 31, 1990
                             among United Scientific Holdings PLC, United
                             Scientific Inc. and the Company

  10.18           (10)       Stock Purchase Agreement dated as of October 28,
                             1993 among the Company, Imo Industries GmbH, Mark
                             Controls Corporation and Mark Controls GmbH i. Gr.,
                             as amended

  10.19 (A)       (18)       Credit Agreement dated as of April 29, 1996 among
                             the Company, as Borrower, Varo Inc., as Guarantor,
                             Warren Pumps Inc. as Guarantor, the Institutions
                             from time to time party thereto as Lenders and
                             Issuing Banks, and Citicorp USA, Inc., as Agent

  10.19 (B)       (19)       First Amendment dated as of February 19, 1997 to
                             the Credit Agreement dated as of April 29, 1996
                             among the Company, as Borrower, Varo Inc., as
                             Guarantor, Warren Pumps, Inc. as Guarantor, the
                             Institutions from time to time party thereto as
                             Lenders and Issuing Banks, and Citicorp USA, Inc.,
                             as Agent

  10.20 (A)       (11)       Asset Purchase Agreement dated as of November 4,
                             1994 by and among the Company, Imo Industries
                             International Inc. and Mannesmann Capital
                             Corporation

        (B)       (12)       Agreement, Amendment and Waiver dated January 17,
                             1995 by and among the Company and Mannesmann
                             Capital Corporation

  10.21           (12)       Asset and Stock Purchase Agreement dated as of
                             January 1, 1995 by and among the Company and Thermo
                             Jarrell Ash Corporation

  10.22           (13)       Purchase and Sale Agreement among Litton
                             Industries, Inc., and Litton Systems, Inc. and
                             Imo Industries Inc., Baird Corporation,
                             Optic-Electronic International, Inc. and Varo Inc.
                             dated May 11, 1995 and amended and restated as of
                             June 2, 1995

  10.23  (A)      (19)       Asset Purchase Agreement dated as of  September 13,
                             1996 between Varo Inc. and Varo Acquisition Corp.

         (B)      (19)       Reinstatement Agreement dated January 28, 1997
                             between Varo Inc. and Varo Acquisition Corp.

  10.24           (21)       Agreement and Plan of Merger, dated June 26, 1997,
                             among United Dominion Industries Limited, UD
                             Delaware Corp. and Imo Industries Inc.

  10.25           (22)       Share Purchase Agreement, dated July 25, 1997,
                             between II Acquisition Corp. and the Company

  10.26           (25)       Asset Purchase Agreement dated as of August 29,
                             1997 among the Registrant and certain of its
                             subsidiaries and Danaher Corporation and
                             certain of its subsidiaries

  10.27 (A)       (26)       Credit and Guaranty Agreement dated as of August
                             29, 1997 among the Company, as Borrower, II
                             Acquisition Corp., as Guarantor, Certain
                             Financial Institutions, as Lenders, The Bank of
                             Nova Scotia, as Administrative and Documentation
                             Agent and Nationsbanc Capital Markets, Inc., as
                             Syndication Agent for the Lenders

        (B)       (28)       First Amendment to Credit and Guaranty Agreement
                             dated as of November 6, 1997

        (C)       (28)       Second Amendment to Credit and Guaranty Agreement
                             dated as of December 2, 1997

        (D)       (28)       Third Amendment to Credit and Guaranty Agreement
                             dated as of February 16, 1998

        (E)       (30)       Fourth Amendment to Credit and Guaranty Agreement
                             dated as of March 9, 1998

        (F)       (31)       Fifth Amendment to Credit and Guaranty Agreement
                             dated as of June 1, 1998

        (G)       (32)       Sixth Amendment to Credit and Guaranty Agreement
                             dated as of October 15, 1998

        (H)                  Seventh Amendment to Credit and Guaranty Agreement
                             dated as of August 3, 1999

        (I)                  Eighth Amendment to Credit and Guaranty Agreement
                             dated as of November 29, 1999

  10.28           (27)       Stock Purchase Agreement dated as of January 30,
                             1998 between the Registrant and Magna International
                             Inc.

  10.29                      Receivables Purchase Agreement dated as of November
                             29, 1999 among Imo Funding Company, LLC, Imo

                             Industries Inc., Liberty Street Funding Corp. and
                             The Bank of Nova Scotia

  10.30                      Purchase and Sale Agreement dated as of November
                             29, 1999 among the Originators named herein, Imo
                             Industries Inc. and Imo Funding Company, LLC

  10.31                      Stock Purchase Agreement by and between Echlin Inc.
                             and Imo Industries, Inc. dated as of October 13,
                             1999

   21                        Subsidiaries of the Company

   27                        Financial Data Schedule as of December 31, 1999

-----------------------------------------------
NOTES

(1)   Incorporated  by reference to the  Company's  Form 8 Amendment No. 2 filed
      with the  Commission on December 9, 1986 amending the Company's Form 10 as
      filed with the Commission on October 15, 1986.
(2)   Incorporated  by  reference  to the  Company's  Form  8-K  filed  with the
      Commission on February 17, 1987.
(3)   Incorporated  by  reference to the Imo  Industries  Inc.  Employees  Stock
      Savings Plan Form 11-K filed with the Commission on April 13, 1988.
(4)   Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 29, 1990.
(5)   Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 28, 1991.
(6)   Incorporated  by  reference  to the  Company's  Form  S-8  filed  with the
      Commission on June 17, 1991.
(7)   Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 26, 1992.
(8)   Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on April 19, 1993.
(9)   Incorporated  by  reference  to the  Company's  Form 10-K/A filed with the
      Commission  on August 6, 1993  amending the  Company's  Form 10-K as filed
      with the Commission on April 19, 1993.
(10)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 31, 1994.
(11)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on November 14, 1994.
(12)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 29, 1995.
(13)  Incorporated  by  reference  to the  Company's  Form  8-K  filed  with the
      Commission on June 19, 1995.
(14)  Incorporated  by  reference  to the  Company's  Form S-8 as filed with the
      Commission on June 23, 1995, Registration No. 33-60533
(15)  Incorporated  by  reference  to the  Company's  Form S-8 as filed with the
      Commission on June 23, 1995, Registration No. 33-60535
(16)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on November 13, 1995.
(17)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 28, 1996.
(18)  Incorporated by reference to the Company's Form S-4 (Registration
      No. 333-3477) filed with the Commission on May 10, 1996.
(19)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 27, 1997.
(20)  Incorporated by reference to the Company's Form 8-A Registration Statement
      filed with the Commission on May 2, 1997.
(21)  Incorporated    by   reference   to   the   Company's    Schedule    14D-9
      Solicitation/Recommendation Statement filed with the Commission on July 2,
      1997.
(22)  Incorporated    by   reference   to   the   Company's    Schedule    14D-9
      Solicitation/Recommendation  Statement  filed with the  Commission on July
      31, 1997.
(23)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on August 14, 1997.
(24)  Incorporated  by  reference  to the  Company's  Form  8-K  filed  with the
      Commission on August 27, 1997.
(25)  Incorporated  by  reference  to the  Company's  Form  8-K  filed  with the
      Commission on September 15, 1997.
(26)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on November 14, 1997.
(27)  Incorporated  by  reference  to the  Company's  Form  8-K  filed  with the
      Commission on March 13, 1998.
(28)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 31, 1998.
(29)  Incorporated  by  reference  to the  Company's  Form 8-A/A  filed with the
      Commission on May 1, 1998.
(30)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on May 13, 1998.
(31)  Incorporated  by  reference  to the  Company's  Form 10-Q  filed  with the
      Commission on August 14, 1998.
(32)  Incorporated  by  reference  to the  Company's  Form 10-K  filed  with the
      Commission on March 31, 1999.

                                   SIGNATURES

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

Date: March 30, 2000

IMO INDUSTRIES INC.



By: /s/ JOHN A. YOUNG

John A. Young

Vice President and

Chief Financial 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 Imo Industries Inc.
and in the capacities and on the dates indicated.

/s/ PHILIP W. KNISELY     Chief Executive Officer,
Philip W. Knisely         President and Director
                          (principal executive officer)          March 30, 2000


/s/ JOHN A. YOUNG         Vice President and
John A. Young             Chief Financial Officer
                          (principal financial officer)          March 30, 2000


/s/ G. SCOTT FAISON       Corporate Controller
G. Scott Faison           (principal accounting officer)         March 30, 2000


/s/ STEVEN M. RALES       Director                               March 30, 2000
Steven M. Rales

/s/ MITCHELL P. RALES     Director                               March 30, 2000
Mitchell P. Rales

/s/ NEIL D. COHEN         Director                               March 30, 2000
Neil D. Cohen

Consolidated Statements of Income and Comprehensive Income
(Dollars in thousands except per share amounts)

                                                       Post-Acquis.  Pre-Acquis.
                                Year Ended  Year Ended  Aug.29, 1997 Jan.1, 1997
                                December    December      to Dec.      to Aug.
                                31, 1999    31, 1998      31, 1997      28, 1997
--------------------------------------------------------------------------------

Net Sales                           $287,507   $308,870   $106,711     $210,151
Cost of products sold                194,936    208,579     76,597      145,276
--------------------------------------------------------------------------------
Gross Profit                          92,571    100,291     30,114       64,875
Selling, general and administrative
  expenses                            50,516     56,464     21,411       46,724
Research and development expenses      4,344      5,317      1,913        3,636
Unusual items                            ---        ---      5,000       26,344
--------------------------------------------------------------------------------
Income (Loss) From Operations         37,711     38,510      1,790      (11,829)
Other income                           1,045        684        825           22
Gain on sale of assets                 2,066        ---        ---          ---
Interest expense                      16,668     21,293      8,069       18,190
--------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations Before Income

  Taxes and Extraordinary Item        24,154     17,901     (5,454)     (29,997)
Income taxes                           8,840      7,008        235        1,254
--------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations Before

  Extraordinary Item                  15,314     10,893     (5,689)     (31,251)
Discontinued operations:
  Income (loss) from operations (net
    of income tax expense of
    $0, $0, $77 and $664)                ---       ---      (3,753)       2,372
  Estimated loss on disposal             ---       ---      (8,430)         ---
--------------------------------------------------------------------------------
     Total Income (Loss) from

     Discontinued Operations             ---       ---     (12,183)       2,372
--------------------------------------------------------------------------------
Extraordinary item - loss on
  extinguishment of debt (net of tax)   (216)    (5,223)    (3,348)         ---
--------------------------------------------------------------------------------
Net Income (Loss)                   $ 15,098     $5,670   $(21,220)    $(28,879)
================================================================================
Other comprehensive income (loss), net of taxes -
     Foreign currency translation
     adjustments                      (1,774)      (266)     2,122       (3,346)
--------------------------------------------------------------------------------
Comprehensive Income (Loss)         $ 13,324     $5,404   $(19,098)    $(32,225)
================================================================================

Earnings (loss) per share, basic and diluted: (See Note 1)
  Continuing operations before extraordinary item          $ (.33)       $(1.82)
  Discontinued operations                                    (.71)          .14
  Extraordinary item                                         (.20)          ---
--------------------------------------------------------------------------------
          Net loss                                         $(1.24)       $(1.68)
--------------------------------------------------------------------------------
Weighted average number of shares
  outstanding                                           17,127,859   17,126,192
================================================================================

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




Imo Industries Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except par value)

December 31,                                      1999       1998
------------------------------------------------------------------
Assets
Current Assets

Cash and cash equivalents                       $2,898    $ 6,230
Trade accounts and notes receivable, less
 allowance of $1,348 in 1999 and $1,058 in 1998 30,075     40,125
Inventories                                     57,844     53,114
Deferred income tax assets                      11,972     16,096
Prepaid expenses and other current assets        3,051      2,525
------------------------------------------------------------------
Total Current Assets                           105,840    118,090
------------------------------------------------------------------
Property, plant and equipment
Land                                             4,710      4,450
Buildings and improvements                      20,745     21,063
Machinery and equipment                         49,040     41,577
------------------------------------------------------------------
                                                74,495     67,090
Less accumulated depreciation and
 amortization                                  (12,911)    (7,660)
-------------------------------------------------------------------
Net property, plant and equipment               61,584     59,430
Intangible assets, principally goodwill, net   180,746    177,826
Investments in and advances to
 unconsolidated companies                        5,069      4,536
Deferred income tax assets                      20,845     25,680
Other assets                                     2,637      3,410
------------------------------------------------------------------
Total Assets                                 $ 376,721  $ 388,972
==================================================================
Liabilities and Shareholders' Equity
Current Liabilities

Notes payable                                  $ 1,295     $  817
Trade accounts payable                          21,854     15,350
Accrued expenses and other liabilities          31,928     43,125
Accrued costs related to discontinued
 operations                                      2,559      4,289
Income taxes payable                               ---      5,505
Current portion of long-term debt                9,447      8,486
------------------------------------------------------------------
Total Current Liabilities                       67,083     77,572
------------------------------------------------------------------
Long-term debt                                 159,624    165,843
Accrued postretirement benefits - long-term      8,555      9,155
Accrued pension expense and other
 liabilities                                    23,869     32,136
------------------------------------------------------------------
Total Liabilities                              259,131    284,706
------------------------------------------------------------------
Shareholders' Equity
Preferred stock:  $1.00 par value;
 authorized and
 unissued 5,000,000 shares                         ---        ---
Common stock:  $1.00 par value; authorized
 and issued 100 shares                               1          1
Additional paid-in capital                     120,751    120,751
Retained deficit                                  (452)   (15,550)
Cumulative foreign currency translation
 adjustments                                    (2,710)      (936)
------------------------------------------------------------------
Total Shareholders' Equity                     117,590    104,266
------------------------------------------------------------------
Total Liabilities and Shareholders' Equity   $ 376,721  $ 388,972
==================================================================

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

Imo Industries Inc. and Subsidiaries
Consolidated Statements of Cash Flows

(Dollars in thousands)
                                                       Post-Acquis.  Pre-Acquis.
                                Year Ended  Year Ended  Aug.29, 1997 Jan.1, 1997
                                December    December      to Dec.      to Aug.
                                31, 1999    31, 1998      31, 1997      28, 1997
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss)                   $ 15,098     $5,670  $(21,220)    $ (28,879)
Adjustments to reconcile net income
 (loss) to net cash provided by (used by)
  continuing operations:
     Discontinued operations            ---        ---     12,183        (2,372)
     Depreciation                     5,597      4,880      3,674         6,747
     Amortization                     5,354      6,872      2,007         1,867
     Provision for deferred income
      taxes                           7,730      4,668        ---           ---
     Extraordinary item                 216      5,223      3,348           ---
     Unusual items                      ---        ---      5,000        26,344
     Other                              111         49        369           750

 Other changes in operating  assets and  liabilities  (excluding  the effects of
 acquisitions and dispositions):

     Accounts and notes receivable   15,413     13,549     (6,467)        1,730
     Inventories                      5,737     11,774      1,759        (1,930)
     Accounts payable and accrued
       expenses                      (5,330)   (21,019)   (17,028)       (9,794)
     Other operating assets and
      liabilities                    (8,713)     9,163     (1,608)       (3,855)
--------------------------------------------------------------------------------
     Net cash provided by (used by)
       continuing operations         41,213     40,829    (17,983)       (9,392)
     Net cash used by discontinued
       operations                    (1,730)    (1,219)    (1,342)       (1,377)
--------------------------------------------------------------------------------
Net Cash Provided by (Used by)
  Operating Activities               39,483     39,610    (19,325)      (10,769)
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net proceeds from sale of businesses
 and sales of property, plant and
 equipment                            2,332     32,726     88,024        25,235
Purchases of property, plant and
  equipment                          (6,402)    (6,049)    (3,740)       (4,555)
Acquisition of Sierra International
  Inc.                              (33,036)       ---        ---          ---
Net investing activities of
  discontinued operations               ---     (1,164)    (5,104)       (3,692)
Other                                   ---         80       (497)          141
--------------------------------------------------------------------------------
Net Cash (Used by) Provided by

  Investing Activities              (37,106)    25,593     78,683        17,129
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in notes payable    511    (2,421)    (15,900)       18,786
Proceeds from long-term borrowings   68,500     23,559    129,270           119
Principal payments on long-term debt(73,685)  (71,583)   (164,719)      (25,792)
Purchase of minority shares             ---    (6,247)        ---           ---
Payment of debt financing costs         ---       ---      (5,368)         (384)
Premium payment on repurchase of
 long-term debt                        (210)   (5,822)        ---           ---
Other                                   ---       (37)        281          (102)
--------------------------------------------------------------------------------
Net Cash (Used by) Provided by

  Financing Activities               (4,884)  (62,551)    (56,436)       (7,373)
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash(825)       50         453          (253)
--------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash

  Equivalents                        (3,332)    2,702       3,375        (1,266)
Cash and cash equivalents at beginning
  of the period                       6,230     3,528         153         1,419
--------------------------------------------------------------------------------
Cash and Cash Equivalents at End of

 the Period                          $2,898    $6,230    $  3,528        $  153
================================================================================
Supplemental disclosures of cash flow information:

  Cash paid during the period for:

    Interest                        $15,560   $22,443    $ 13,344      $ 19,564
    Income taxes                    $ 2,671   $ 2,725    $  1,263      $  2,006

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

<TABLE>

Imo Industries Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity

(Dollars in thousands)

<CAPTION>

                                                Cumulative
                                                 Foreign   Minimum
                              Additional        Currency   Pension   Unearned
                      Common   Paid-in RetainedTranslation Liability Compen- Treasury
                       Stock   Capital  Deficit Adjustment Adjustment sation   Stock    Total
----------------------------------------------------------------------------------------------
<S>                  <C>     <C>     <C>        <C>     <C>       <C>     <C>        <C>

Balance at
  January 1, 1997    $18,797 $80,466 $(134,962) $  554  $(2,503)  $ (719) $(18,020)  $(56,387)
Net loss                 ---     ---   (28,879)    ---      ---      ---       ---    (28,879)
Foreign currency
  translation
  adjustments            ---     ---       ---  (3,346)     ---      ---       ---     (3,346)
Restricted shares
  issued under
  the equity
  incentive plans         4       11       ---     ---      ---       48       ---         63
--------------------------------------------------------------------------------------------
Pre-Acquisition
  Balance at
  August 28, 1997    18,801   80,477  (163,841) (2,792)  (2,503)    (671)  (18,020)   (88,549)
---------------------------------------------------------------------------------------------
Adjustment to new
  cost basis of Colfax
  Corporation on August
  29, 1997           (1,673)  26,328   152,045   2,792    2,503      671    18,020    200,686
---------------------------------------------------------------------------------------------
Post-Acquisition
  Balance at
  August 29, 1997    17,128  106,805   (11,796)    ---      ---      ---      ---     112,137
Net loss                ---      ---   (21,220)    ---      ---      ---      ---     (21,220)
Foreign currency
  translation
  adjustments           ---      ---       ---    (670)     ---      ---      ---        (670)
---------------------------------------------------------------------------------------------
Balance at
  December 31, 1997  17,128  106,805   (33,016)   (670)     ---      ---      ---      90,247
Net income              ---      ---     5,670     ---      ---      ---      ---       5,670
Purchase of minority
  interest              ---   (3,181)   11,796     ---      ---      ---      ---       8,615
New equity structure
  upon merger with
  Imo Merger Corp.  (17,127)  17,127       ---     ---      ---      ---      ---        ---
Foreign currency
  translation
  adjustments           ---     ---        ---    (266)     ---      ---      ---       (266)
---------------------------------------------------------------------------------------------
Balance at
  December 31, 1998       1  120,751   (15,550)   (936)     ---      ---      ---    104,266
Net income              ---      ---    15,098     ---      ---      ---      ---     15,098
Foreign currency
  translation
  adjustments           ---      ---      ---   (1,774)     ---      ---      ---     (1,774)
---------------------------------------------------------------------------------------------
Balance at
 December 31, 1999   $   1 $ 120,751    $ (452)$(2,710)  $  ---   $  ---   $  ---  $ 117,590
=============================================================================================

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

</TABLE>

Notes to Consolidated Financial Statements

Note 1  Significant Accounting Policies

Consolidation: The consolidated financial statements include the accounts of the
Company   and  its   majority-owned   subsidiaries.   Significant   intercompany
transactions have been eliminated in consolidation.  The Company uses the equity
method to account for  investments  in  corporations  in which it does not own a
majority voting interest but has the ability to exercise  significant  influence
over operating and financial policies.

Translation  of Foreign  Currencies:  Assets and  liabilities  of  international
operations are translated into U.S. dollars at year-end  exchange rates.  Income
and  expense  accounts  are  translated  into U.S.  dollars at average  rates of
exchange prevailing during the year. Translation  adjustments are reflected as a
separate component of shareholders' equity and comprehensive income.

Cash Equivalents:  Cash equivalents include investments in government securities
funds and  certificates of deposit.  Investment  periods are generally less than
one month.

Inventories:  Inventories are carried at the lower of cost or market, cost being
determined  principally on the basis of standards which approximate actual costs
on the first-in, first-out method, and market being determined by net realizable
value. Appropriate  consideration is being given to deterioration,  obsolescence
and other factors in evaluating net realizable value.

Revenue Recognition: Revenues are recorded generally when the Company's products
are shipped.  Revenue is recorded on unshipped,  completed products when certain
criteria  are met,  including  the  customer  requesting  to be billed  prior to
shipment  and the title and risk of loss  passing to the customer at the billing
date.

Depreciation  and  Amortization:  Depreciation  and  amortization  of plant  and
equipment  are computed  principally  by the  straight-line  method based on the
estimated useful lives of the assets as follows: buildings and improvements,  10
to 40 years and machinery and equipment, 3 to 15 years.

Earnings  Per Share:  Basic and diluted net income  (loss) per share for 1997 is
calculated  based on the actual weighted average shares  outstanding.  For 1997,
outstanding  stock  options and warrants are not  considered  as their effect is
antidulutive.  As a result of the back-end merger on July 2, 1998,  earnings per
share is not presented for 1999 and 1998. (See Note 2).

Recent  Accounting  Pronouncements:  In  June  1998,  the  Financial  Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative  Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other  contracts,  and for hedging  activities.  This statement is effective for
fiscal years beginning after June 15, 2000. The Company believes that results of
operations will not be materially affected by the adoption of this statement.

Intangible  Assets:  Goodwill of businesses  acquired is being  amortized on the
straight-line  basis over 40 years.  The carrying  value of goodwill is reviewed
when  indicators of impairment are present,  by evaluating  future cash flows of
the  associated  operations  to  determine  if  impairment  exists.  Goodwill at
December 31, 1999 and 1998 was $177.2 million and $173.1 million,  respectively,
net of respective  accumulated  amortization  of $12.0 million and $7.5 million.
Patents are amortized over the shorter of their legal or estimated useful lives.

Management 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.

Note 2  Acquisition By Colfax Corporation

On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of
the Company's  outstanding  shares of common stock  pursuant to its tender offer
for  all   outstanding   shares  of  the  common   stock  of  the  Company  (the
"Acquisition").  The  consideration  paid was $7.05 per share of common stock or
$112.1  million in total.  On July 2, 1998,  Imo Merger  Corp.,  a wholly  owned
subsidiary of Colfax,  merged with and into Imo, pursuant to a short-form merger
under  Delaware  law  ("back-end   merger").   The  Company  was  the  surviving
corporation  in the  back-end  merger  and  as  result  became  a  wholly  owned
subsidiary  of Colfax.  As of  December  31,  1999,  942,693 of the  outstanding
1,221,888 common shares held by minority  shareholders were converted to cash. A
payable of $2.0  million was accrued at December  31,  1999,  for the  remaining
279,195 shares that were not converted as of that date. Total  consideration for
the purchase of Imo was $120.7 million.

The Acquisition has been accounted for under the purchase  method.  The purchase
price  was  allocated  as  follows:  tangible  assets  - $314.5  million;  other
intangible  assets  - $8.4  million;  and  liabilities  -  $382.7  million.  The
allocation was based on the estimated fair values at the date of acquisition and
resulted  in an excess of  purchase  price  over  assets  acquired,  liabilities
assumed, and additional purchase liabilities recorded, for continuing operations
of $180.5 million,  which is being  amortized on a  straight-line  basis over 40
years.

Included in the liabilities above were approximately $18.6 million for severance
and related costs, and consolidation of certain acquired facilities. At December
31,  1999,  none of these  liabilities  remained on the  balance  sheet and $3.1
million  remained at December 31, 1998. Of the $18.6 million charged against the
liability,  $16.2 million related to  restructuring  and $2.4 million related to
severance payments.

In  conjunction  with the  Acquisition,  the Company  recorded a charge of $15.8
million  including  a  $10.0  million  contract  fee  paid  to  United  Dominion
Industries  ("UDI") as a result of the termination of a merger agreement between
UDI and the Company,  $3.4 million of commissions,  advisory and legal fees, and
$2.4 million of employee retention bonuses. (See Note 7).

Cost Reduction Programs

In connection  with the  Acquisition,  the Company  implemented a cost reduction
program.  The cost of this  program  was $18.6  million  and was  accrued for in
accordance  with the  purchase  method of  accounting.  It is comprised of $10.5
million related to severance and  termination  benefits as a result of headcount
reductions at the Company's corporate  headquarters.  In addition,  $1.2 million
and $6.9  million  of costs for the  Company's  Fluid  Handling  and  Industrial
Positioning  segments,  respectively,   related  to  severance  and  termination
benefits  resulting from headcount  reductions and the  consolidation of certain
manufacturing  facilities.  The program was  completed in 1999.  The cash outlay
related to this program was $8.1 million in 1997,  $7.4 million in 1998 and $3.1
million during 1999.

Note 3  Discontinued Operations

In  February  1998 and  August  1997,  the  Company  sold its  Roltra  Morse and
Instrumentation businesses,  respectively.  In April 1997, the Company completed
the sale of the Varo Electronic Systems division. In accordance with APB Opinion
No. 30, the  disposals of these  business  segments  have been  accounted for as
discontinued  operations and,  accordingly,  their  operating  results have been
segregated  and  reported  as  Discontinued   Operations  in  the   accompanying
Consolidated Statements of Income and Comprehensive Income.

The income (loss) from  operations of the  Discontinued  Operations for 1998 and
1997 includes  allocated interest expense of $0.2 million and $2.7 million ($2.4
million -  pre-Acquisition),  respectively.  Allocated  interest  expense  is an
allocation of corporate interest expense to the Discontinued Operations based on
the ratio of net assets to be sold to the sum of the Company's  consolidated net
assets, if positive,  plus consolidated debt. The operating loss of $0.9 million
for Roltra  Morse for the two months  ended  February  28, 1998 was accrued as a
portion of the estimated loss on disposal as of December 31, 1997.

Roltra Morse

On  February  27,  1998,  the  Company  completed  the sale of its Roltra  Morse
business  to  Magna  International  Inc.  for  cash  of $30  million,  plus  the
assumption of Roltra Morse's debt. The sale price  approximated the recorded net
book value of the  business.  Net proceeds were used to reduce  domestic  senior
debt.

The Roltra Morse business had operating  losses of $0.9 million and $6.7 million
for 1998 and 1997,  respectively.  The 1997  operating  loss included an unusual
charge of $0.7 million  (pre-Acquisition)  due to fees  incurred  related to the
previously failed attempt to sell the Roltra Morse business.

Instrumentation

On August  29,  1997,  the  Company  completed  the sale of its  Instrumentation
business segment to Danaher  Corporation for  approximately  $85 million,  which
approximated  its net book value.  The majority  shareholders of the Company are
also  substantial  shareholders of Danaher  Corporation.  The purchase price was
determined  on the basis of arms  length  negotiations  between  the Company and
Danaher  Corporation.  A portion  of the  proceeds  was used to reduce  domestic
senior debt by $68.1 million.

The  Instrumentation  business  had income from  operations  of $5.3 million for
1997.

Electro-Optical Systems

On April 28, 1997, the Company completed the sale of the Varo Electronic Systems
division to a small defense contractor for $12 million, which was used to reduce
senior  domestic debt.  The sale of this business  completed the disposal of the
Electro-Optical Systems business.

In the third quarter of 1997,  the Company  recorded an additional  $3.4 million
loss on disposal related to changes in estimates on certain reserve requirements
associated with the retained liabilities of this business.

The Electro-Optical  Systems business had income from operations of $0.8 million
for 1997. The income in 1997 offset increases in estimated reserve requirements.

Note 4 Restructuring Asset Sales

1999 Assets  Sales:  During  1999,  the Company  completed  the sales of certain
non-operating real estate for net proceeds of $0.1 million.

1998 Assets  Sales:  On February  27,  1998,  the Company  sold its Roltra Morse
business segment to Magna International. During 1998, the Company also completed
the sales of certain non-operating real estate for net proceeds of $0.6 million.

1997 Asset Sales:  On August 29,  1997,  the Company  completed  the sale of its
Instrumentation  business  segment to Danaher  Corporation  for  proceeds of $85
million,  which  approximated  its net book value.  In April  1997,  the Company
completed the sale of its Varo  Electronic  Systems  division to a small defense
contractor for $12 million.  The sale of this business completed the sale of the
Electro-Optical  Systems business.  In 1997, the Company also completed sales of
certain of its  non-operating  real estate for total  proceeds of  approximately
$14.1 million.

On December 31, 1997,  the Company sold certain  assets of its Delroyd  business
unit to Nuttall  Gear LLC for $2.3  million in cash.  Also on December 31, 1997,
the Company  acquired  certain  assets of the Centric  Clutch  business  unit of
Ameridrives International, L.P. for $1.3 million in cash. The majority owners of
Nuttall Gear and Ameridrives International, L.P. are also majority owners of the
Company.  The  transactions  were  negotiated on an arms length basis,  and were
based on the valuations of independent appraisers.

Note 5 Inventories

Inventories are summarized as follows:

December 31 (Dollars in thousands)                1999              1998
-------------------------------------------------------------------------
Finished products                             $ 24,740          $ 18,926
Work in process                                 14,277            17,880
Materials and supplies                          19,904            17,545
-------------------------------------------------------------------------
                                                58,921            54,351
Less customers' progress payments               (1,077)           (1,237)
--------------------------------------------------------------------------
                                              $ 57,844          $ 53,114
=========================================================================


Note 6  Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

December 31 (Dollars in thousands)                1999              1998
-------------------------------------------------------------------------
Accrued product warranty costs                  $2,507           $ 1,423
Accrued litigation and claims costs              7,124            15,003
Payroll and related items                        8,403             8,845
Accrued interest payable                         2,496             2,014
Accrued restructuring costs                        909             3,126
Accrued divestiture costs                          977             1,502
Accrued environmental costs                      1,548             1,934
Advance customer payments                          539             1,363
Other                                            7,425             7,915
-------------------------------------------------------------------------
                                              $ 31,928          $ 43,125
=========================================================================


Note 7  Unusual Items

1997

During the year ended December 31, 1997, the Company recorded unusual charges of
$31.3 million in income from  continuing  operations.  The first eight months of
1997  included  an unusual  charge of $10.5  million  relating  to the  judgment
against the Company in favor of International  Insurance  Company.  In addition,
the Company  recorded  unusual  charges of $20.8 million in the third quarter of
1997. Of these  charges,  $15.8  million  related to the sale of the Company and
represented  indirect and general expenses incurred by the Company in connection
with the sale  process  which were paid in 1997,  and $5  million  related to an
additional legal provision concerning certain litigation matters.

Note 8  Income Taxes

The components of income tax expense from continuing operations are:
                                           Post-Acquis.   Pre-Acquis.
                                            August 29,     January 1,
                                               1997          1997
                     Year Ended December 31,  to December    to August

(Dollars in thousands)     1999      1998      31, 1997      28, 1997
----------------------------------------------------------------------

Current:
     Federal             $  (449)    $ 233        $ ---         $ ---
     Foreign               1,326     1,801           94           994
     State                   233       306          141           260
----------------------------------------------------------------------
                           1,110     2,340          235         1,254
----------------------------------------------------------------------
Deferred:
     Federal               6,450     4,668          ---           ---
     Foreign and State     1,280       ---          ---           ---
----------------------------------------------------------------------
                           7,730     4,668          ---           ---
----------------------------------------------------------------------
                          $8,840    $7,008         $235        $1,254
======================================================================

Income tax expense for 1997 from discontinued  operations was $.7 million. There
was no income tax expense for discontinued operations during 1998 or 1999.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax assets and  liabilities  as of December 31, 1999 and
1998 are as follows:

December 31
(Dollars in thousands)              1999                 1998
----------------------------------------------------------------------
                             Current   Long-term  Current  Long-term

----------------------------------------------------------------------
Deferred tax assets:
     Postretirement benefit    $  234     $ 3,235   $  234    $ 3,204
      obligation
     Expenses not currently    12,942       6,467   17,066      7,720
      deductible
     Net operating loss           ---      29,026      ---     32,299
      carryover
     Tax credit carryover         ---       6,071      ---      4,471
----------------------------------------------------------------------
Total deferred tax assets      13,176      44,799   17,300     47,694
Valuation allowance for

  deferred tax assets          (1,204)       (516)  (1,204)      (516)
----------------------------------------------------------------------
Net deferred tax assets        11,972      44,283   16,096     47,178
----------------------------------------------------------------------
Deferred tax liabilities:
     Tax over book depreciation   ---      16,835      ---     14,487
     Other                        ---       6,603      ---      7,011
----------------------------------------------------------------------
Total deferred tax liabilities    ---      23,438      ---     21,498
----------------------------------------------------------------------
Net deferred tax assets      $ 11,972    $ 20,845 $ 16,096   $ 25,680
======================================================================

The net  deferred  tax asset  currently  recorded at December  31, 1999 is $32.8
million, a level where management  believes that it is more likely than not that
the tax benefit  will be  realized.  Although the Company has a history of prior
losses,  these losses were  primarily  attributable  to divested  businesses and
unusual items.

The Company establishes  valuation  allowances in accordance with the provisions
of  FASB  Statement  No.  109,   "Accounting  for  Income  Taxes."  The  Company
continually  reviews the adequacy of the valuation  allowance and is recognizing
these  benefits only as  reassessment  indicates that it is more likely than not
that the benefits will be realized. The valuation allowance was $1.7 million for
December  31, 1999 and  December  31,  1998.  In 1998,  the Company  reduced its
valuation reserve by $51.6 million due to its belief that it is more likely than
not that these tax benefits  will be realized in future  years.  The revision of
the  valuation  reserve is due to the change in  purchase  accounting  estimates
during the first year after acquisition.

At  December  31,  1999,   unremitted  earnings  of  foreign  subsidiaries  were
approximately $26 million.  Since it is the Company's  intention to indefinitely
reinvest these earnings, no U.S. taxes have been provided.  Determination of the
amount of unrecognized  deferred tax liability on these  unremitted  earnings is
not practicable.  The amount of foreign  withholding taxes that would be payable
upon remittance of those earnings is approximately $1.3 million.

The components of income (loss) from continuing  operations  before income taxes
and extraordinary item:

                                          Post-Acquisition Pre-Acquisition
                                             August 29,    January 1,
                                                1997          1997
Year Ended December 31                      to December    to August
(Dollars in thousands)    1999      1998      31, 1997      28, 1997
-----------------------------------------------------------------------
United States            $ 14,291   $ 7,963     $(7,612)     $(29,023)
Foreign                     9,863     9,938       2,158          (974)
-----------------------------------------------------------------------
                          $24,154   $17,901     $(5,454)     $(29,997)
=======================================================================

U.S.   income  tax  expense   (benefit)  at  the  statutory  tax  rate  is
reconciled below to the overall U.S. and foreign income tax expense.

                                               Post-Acquisition Pre-Acquisition
                                                  August 29,    January 1,
                                                     1997          1997
 Year Ended December 31                           to December    to August
(Dollars in thousands)         1999      1998      31, 1997      28, 1997
-----------------------------------------------------------------------------
Tax at U.S. federal income   $ 8,454   $ 6,265      $ (1,909)     $ (10,499)
  tax rate
State taxes,  net of federal
  income tax effect              151       198            92            169
Impact of foreign  tax rates
  and credits, and tax
  refunds                     (1,247)   (1,677)          228           (660)
Net U.S. tax on
  distributions of
  current foreign earnings       486       266           355            ---
Goodwill   amortization  and

  write-off                    1,574     1,995           458            222
Change in valuation reserve      ---       ---         1,720          7,472
Nondeductible foreign losses     ---       ---            89          1,017
Other                           (578)      (39)         (798)         3,533
-----------------------------------------------------------------------------
Income tax expense           $ 8,840   $ 7,008         $ 235        $ 1,254
=============================================================================

The Company has net operating loss carryforwards of approximately  $82.9 million
expiring in years 2000 through  2018,  and minimum tax credits of  approximately
$2.6  million,   which  may  be  carried   forward   indefinitely.   Tax  credit
carryforwards  include  foreign tax credits of  approximately  $3.4 million that
expire beginning in the year 2002. These  carryforwards  are available to offset
future federal taxable income,  subject to the Section 382  limitations,  due to
the Acquisition.

Note 9  Long-Term Debt and Notes Payable

Long-Term Debt

Long-term debt consists of the following:

December 31 (Dollars in thousands)                1999          1998
---------------------------------------------------------------------
Term Loans (1) (2)                            $ 36,689       $46,538
Revolver Loans (1) (2)                          52,250        41,000
Due to Amerdrives International, L.P. (3)        5,000         5,000
Senior subordinated notes with interest at
  11.75%, due May 1, 2006, net of unamortized
  discount of $0.8 million in 1999 and
  $0.9 million in 1998                          74,217        77,591
Other                                              915         4,200
---------------------------------------------------------------------
                                               169,071       174,329
Less current portion                            (9,447)       (8,486)
---------------------------------------------------------------------
                                              $159,624      $165,843
=====================================================================


(1)Quarterly  principal  payments  are as follows:  $2.1  million due  quarterly
   November 29, 1999 to August 29, 2000; $3.0 million due quarterly November 29,
   2000 to August 29, 2001; and $4.5 million due quarterly  November 29, 2001 to
   August 29, 2002. All revolver balances are due on August 29, 2002.

(2)These loans bear interest at prime plus .50%, or LIBOR plus 1.75%.  The prime
   and LIBOR margins are a sliding  scale based on the  Company's  total debt to
   EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.)

(3)The majority  shareholders of Ameridrives  International,  L.P. are also
   the  majority  shareholders  of the Company.  This loan bears  interest
   at LIBOR + 1.50%.
-------------------------------------------------------------------

On August 29, 1997, the Company completed the refinancing of its domestic senior
debt. Under terms of the refinancing,  the Company entered into an agreement for
$143 million in senior  secured credit  facilities  with a group of lenders (the
"Credit  Agreement").   Initial  borrowings  under  the  Credit  Agreement  were
approximately  $127.1  million.  Proceeds of the Credit  Agreement  were used to
refinance all obligations  under the Company's  previous credit  agreement.  The
cost of the  implementation  of the New Credit  Agreement will be amortized over
its term.

The Credit Agreement,  which is secured by the assets of the Company's  domestic
operations and all or a portion of the stock of certain  subsidiaries,  provided
for a five year, $70 million revolving credit facility ("Revolver Loans") (which
includes a $30 million  letter of credit  sub-facility),  and a $73 million term
loan facility  ("Term Loans")  amortizing to August 29, 2002.  Proceeds from the
August 29, 1997 sale of the Instrumentation  business were used to repay amounts
on the  Revolver  Loans  and Term  Loans of $54.2  million  and  $13.9  million,
respectively  (See Note 3). At the same time,  and in keeping  with the terms of
the Credit  Agreement,  the $73 million  term loan  facility  was reduced to $59
million, which reduced the total facility to $129 million.

On  February  27,  1998,  the  Company  completed  the sale of its Roltra  Morse
business to Magna International Inc. (See Note 3). The net proceeds were used to
reduce  domestic  senior debt by $30 million on February 27, 1998,  including $8
million of the outstanding  Term Loans.  The sale of Roltra Morse and use of the
proceeds to reduce its domestic senior debt increased the availability under its
revolving   credit   facility  to  purchase  a  portion  of  its  11.75%  senior
subordinated notes (the "Notes") on the open market.

The aggregate  annual  maturities of long-term debt, in thousands,  for the four
years subsequent to 2000 are:

(Dollars in thousands)
----------------------------------------------------------------------
2001                                                          $13,682
2002                                                           70,895
2003                                                              ---
2004                                                              ---
Thereafter                                                     75,047
----------------------------------------------------------------------

Total                                                       $ 159,624
======================================================================

The Term Loans have required mandatory prepayments under certain conditions such
as from proceeds from asset sales, specified percentages of net proceeds of debt
or equity  issuances,  and a  percentage  of excess  cash  flow.  The  mandatory
prepayments  will be  applied  to the  Term  Loans  pro  rata,  and  then to the
repayment of the Revolver Loans. Mandatory prepayments applied to the Term Loans
reduce the  scheduled  quarterly  principal  payments on a pro rata  basis.  The
interest rates on the Revolver and Term Loans are based on current market rates.
Consequently, the carrying value of the Term Loans approximates fair value.

The Credit  Agreement  requires  the  Company to meet  certain  objectives  with
respect  to  financial  ratios.  The  Credit  Agreement  and the  Notes  contain
provisions,  which place certain  limitations  on dividend  payments and outside
borrowings.  Under the most restrictive of such provisions, the Credit Agreement
requires the Company to maintain certain minimum interest coverage, fixed charge
coverage and maximum permitted debt levels and prohibits dividends.  The Company
was in  compliance  with all of its  covenants  under the  Credit  Agreement  at
December 31, 1999.

The Notes are not redeemable  prior to May 1, 2001. On or after May 1, 2001, the
Notes are redeemable at the option of the Company,  in whole or in part, at 106%
of their principal  amount,  plus accrued  interest,  declining to 100% of their
principal  amount plus  accrued  interest  on or after May 1, 2004.  Interest is
payable semi-annually on May 1 and November 1.

The year ended  December  31,  1999,  includes an  extraordinary  charge of $0.2
million, as a result of the early extinguishment of a portion of its Notes.

The year  ended  December  31,  1998,  include an  extraordinary  charge of $5.2
million net of tax,  representing charges related to the early extinguishment of
the Company's debt under its current  senior  secured credit  facilities and its
Notes, as well as the write-off of previously deferred loan costs.

The year ended  December  31,  1997  includes  an  extraordinary  charge of $3.3
million.  In the third  quarter of 1997,  a $0.3  million  extraordinary  charge
consisting of the write-off of deferred debt expense was recorded related to the
repayment  of a portion of the Term Loans  under the Credit  Agreement  with the
proceeds from the sale of the Instrumentation  business. An extraordinary charge
of $3 million  was  recorded in the fourth  quarter of 1997,  as a result of the
open market  purchase of a portion of the Notes in  November  1997.  This charge
represents a cash outlay of $2.3 million  incurred in connection  with the early
extinguishment of the debt as well as the write-off of previously  deferred loan
costs.

Notes Payable

The  Company's  continuing  operations  had $7.3  million in foreign  short-term
credit facilities with amounts outstanding at December 31, 1999 of $1.3 million.
Due to the  short-term  nature of these  debt  instruments  it is the  Company's
opinion that the carrying amounts approximate the fair value. As of December 31,
1999, the Company had $10.4 million of outstanding standby letters of credit.

Note 10  Shareholders' Equity

On August 29, 1997, the Board of Directors  accelerated the  exercisability  and
deemed  exercised  for cash all stock  options  outstanding  under the Company's
Equity  Incentive Plan for Key Employees,  the Equity Incentive Plan for Outside
Directors,   and  the  1995  Equity   Incentive  Plan  for  Outside   Directors,
(collectively  the "Plans").  The cash paid for outstanding stock options deemed
exercised  was based upon the greater of the excess of the tender offer price of
Acquisition  Corp. of $7.05 over the per share option  exercise  price and zero.
The cash  payment  of  outstanding  options  resulted  in no  options  remaining
outstanding as of August 29, 1997. In addition, on November 5, 1997, pursuant to
resolution of the Board of Directors, the Plans were terminated effective August
29, 1997.

On July 2, 1998, Colfax Corporation's wholly-owned subsidiary, Imo Merger Corp.,
merged with and into Imo,  pursuant to a short-form  merger  under  Delaware law
("back-end  merger").  Imo was the surviving  corporation in the back-end merger
and as a result became a wholly-owned  subsidiary of Colfax. At the merger date,
Imo assumed the capital  structure of Imo Merger Corp.,  of 100 shares of common
stock, par value $.01 per share.

Employees Stock Savings Plan

Prior to August 1, 1997, up to 1,600,000  shares of the  Company's  common stock
were  reserved for issuance  under the  Company's  Employee  Stock  Savings Plan
("ESSP").  The Committee of the ESSP approved a policy change,  effective August
1, 1997, in that employer  matching  contributions to the ESSP are to be paid in
cash rather than through issuance of Company common stock. As of August 1, 1997,
this plan policy change  effectively  eliminated  the  restriction on the use of
authorized but unissued shares of common stock.

Treasury Stock

On  August  29,  1997,  the  Company  canceled  the  shares  of  treasury  stock
outstanding as of that date totaling  1,672,788  shares of the Company's  common
stock with a cost basis of approximately $18 million.

Note 11  Operations by Industry Segment and Geographic Area

The Company  classifies its continuing  operations  into two business  segments:
Fluid  Handling  and  Industrial  Positioning.  Detailed  information  regarding
products by segment is contained in the section entitled  "Business" included in
Part I, Item 1 of this Form 10-K Report.  Amounts related to pre-Acquisition and
post-Acquisition  have not been  separated,  as the effect of the Acquisition on
the segments was not material.  Information about the business of the Company by
business segment, foreign operations and geographic area is presented below:

Year Ended December 31
(Dollars in thousands)                         1999       1998       1997
--------------------------------------------------------------------------
Net Sales

     Fluid Handling                        $101,094   $112,768   $112,486
     Industrial Positioning                 186,413    196,102    204,376
--------------------------------------------------------------------------
Total net sales                            $287,507   $308,870   $316,862
==========================================================================
Segment operating income

     Fluid Handling                        $ 22,779   $ 21,462    $14,503
     Industrial Positioning                  23,198     26,323     12,984
--------------------------------------------------------------------------
Total segment operating income               45,977     47,785     27,487
--------------------------------------------------------------------------
Equity in income (loss) of                      ---         31       (519)
unconsolidated companies
Unallocated corporate expenses (1)           (7,344)    (9,275)   (37,703)
Gain on sale of assets                        2,066        ---        ---
Net interest expense                        (16,545)   (20,640)   (24,716)
--------------------------------------------------------------------------
Income (loss) from continuing
  operations before income taxes and
  extraordinary item                       $ 24,154   $ 17,901   $(35,451)
==========================================================================

A reconciliation of segment operating income to income from operations follows:

Year Ended December 31
(Dollars in thousands)              1999          1998        1997
-------------------------------------------------------------------
Segment operating income        $ 45,977      $ 47,785     $27,487
Unallocated corporate
  expenses (1)                    (7,344)       (9,275)    (37,703)
Other income (expense)              (922)          ---         177
-------------------------------------------------------------------
Income (loss) from operations   $ 37,711      $ 38,510   $ (10,039)
====================================================================

(1)Unallocated corporate expenses include unusual items of $31.3 million for the
   year ended December 31, 1997.

Year Ended December 31
(Dollars in thousands)                1999          1998
---------------------------------------------------------
Identifiable assets

     Fluid Handling               $ 53,536      $ 58,090
     Industrial Positioning        125,018       105,169
     Corporate                     198,167       225,713
---------------------------------------------------------
Total identifiable assets         $376,721      $388,972
=========================================================
Depreciation and amortization

     Fluid Handling                $ 1,978       $ 1,651
     Industrial Positioning          3,360         2,930
     Corporate                       5,613         7,171
---------------------------------------------------------
Total depreciation and

  amortization                     $10,951       $11,752
=========================================================
Capital expenditures

     Fluid Handling                 $1,362       $ 2,768
     Industrial Positioning          4,738         3,233
     Corporate                         302            48
---------------------------------------------------------
Total capital expenditures          $6,402       $ 6,049
=========================================================

Identifiable  assets of corporate at December 31, 1999 and 1998 include goodwill
of  $178.2  million  and  $173.1  million  related  to the  Acquisition  of Imo,
respectively (See Note 2).

The continuing operations of the Company on a geographic basis are as follows:

Year Ended December 31
(Dollars in thousands)                1999          1998         1997
----------------------------------------------------------------------
Net sales

     United States                $199,691      $203,685     $214,150
     Foreign                        87,816       105,185      102,712
----------------------------------------------------------------------
Total net sales                   $287,507      $308,870     $316,862
======================================================================
Segment operating income

     United States                $ 34,881       $34,523      $25,050
     Foreign                        11,096        13,262        2,437
----------------------------------------------------------------------
Total segment operating income    $ 45,977       $47,785      $27,487
======================================================================


Year Ended December 31
(Dollars in thousands)                1999          1998         1997
----------------------------------------------------------------------
Identifiable assets
  Continuing Operations:
     United States                $319,711      $327,720     $380,263
     Foreign                        57,010        61,252       68,110
  Discontinued Operations:
     United States                     ---           ---         (562)
     Foreign                           ---           ---       15,489
----------------------------------------------------------------------
Total identifiable assets         $376,721      $388,972     $463,300
======================================================================

Export sales

     Asia                           $3,463        $5,277      $ 5,011
     Canada                          5,616         3,801        4,878
     Europe                          3,461         3,288        2,745
     Latin America                   1,105         1,241          779
     Middle East & North Africa        544           769          604
     South America                   3,215         7,031        7,349
     Other                           2,183         3,440        2,236
----------------------------------------------------------------------
Total export sales                $ 19,587      $ 24,847      $23,602
======================================================================

No one customer accounted for 10% or more of consolidated sales in 1999, 1998 or
1997.

Note 12  Pension Plans and Other Postretirement Benefits

The  Company  and  its   subsidiaries   have  various   pension  plans  covering
substantially  all of their  employees.  Benefits  under these pension plans for
substantially all U.S.  employees ceased to accrue on January 31, 1999, when the
Company froze  benefits  under its primary  pension plan. At the same time,  the
Company  increased the length of service  credit for the pension plan by 20% and
enhanced  its  401k  plan.  Curtailment  of  the  pension  plan  resulted  in  a
curtailment gain of $6.5 million, while the increased length of service resulted
in a loss of $4.9 million. Both changes were contemplated at the Acquisition and
were recorded as purchase accounting adjustments.

It is the general  policy of the Company to fund its pension plans in conformity
with  requirements  of applicable  laws and  regulations.  Net periodic  pension
(income) cost was $(3.8) million in 1999,  $0.7 million in 1998 and $3.8 million
in 1997, and includes  amortization of prior service cost and transition amounts
for periods of 5 to 15 years.  The 1999,  1998 and 1997 expense  includes  costs
related to retained pension liabilities of discontinued operations.

In addition to providing pension  benefits,  the Company provides certain health
care and life  insurance  benefits  for certain  retired  union  employees.  The
Company's  unionized  retiree  benefits  are  determined  by their  individually
negotiated  contracts.  The Company's  contribution  toward the full cost of the
benefits is based on the retiree's age and continuous unbroken length of service
with the Company. The Company's policy is to pay the cost of medical benefits as
claims are incurred. Life insurance costs are paid as insured premiums are due.

The  following  sets forth the funded  status of the plans as of the most recent
actuarial valuation using a measurement date of December 31.

                                        Pension Benefits      Other Benefits

--------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands)                  1999       1998       1999       1998
--------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of
  year                                $219,638   $208,778    $10,004     $9,345
Service cost                               331      2,367         19          9
Interest cost                           14,882     15,169        643        674
Amendments                                 ---        241        ---         85
Actuarial loss (gain)                  (12,813)    13,807       (705)     1,027
Purchase accounting                        ---     (7,292)       ---        ---
Effect of plan change                      407        ---        ---        ---
Estimated benefits paid                (15,683)   (13,432)      (947)    (1,136)
--------------------------------------------------------------------------------
Benefit obligation at end of year     $206,762   $219,638    $ 9,014    $10,004
--------------------------------------------------------------------------------

Change in plan assets:
Fair value of plan assets at
  beginning of year                   $214,742   $201,638        ---        ---
Estimated return on plan assets         35,811     25,424        ---        ---
Employer contribution                      844      1,112        947      1,136
Estimated benefits paid                (15,683)   (13,432)      (947)    (1,136)
--------------------------------------------------------------------------------
Fair value of plan assets at end of
  year                               $ 235,714   $214,742        ---        ---
--------------------------------------------------------------------------------

Funded status                         $ 28,952   $ (4,896)   $(9,014)  $(10,004)
Unrecognized actuarial (gain) loss     (30,056)      (340)      (197)       508
Unrecognized prior service cost            583         55         79         85
Unrecognized net obligation                153        ---        ---        ---
--------------------------------------------------------------------------------
Accrued benefit cost                    $ (368)  $ (5,181)  $ (9,132)   $(9,411)
================================================================================

                                        Pension Benefits      Other Benefits

--------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands)                  1999       1998       1999       1998
--------------------------------------------------------------------------------
Discount rate                             7.75%      6.75%      7.75%      6.75%
Expected return on plan assets            9.25%       9.0%       ---        ---
Rate of compensation increase              ---       5.3%        ---        ---

For measurement purposes, a 5% annual rate of increase in the per capita cost of
covered  health care benefits was assumed for 2000 and in all future years.  The
rate of  compensation  increase  was zero in 1999 because the plan was frozen on
January 31, 1999.

                                        Pension Benefits      Other Benefits

--------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands)                  1999       1998       1999       1998
--------------------------------------------------------------------------------
Components of net periodic benefit cost:

Service cost                              $ 331     $2,367      $ 19        $ 9
Interest cost                            14,882     15,169       643        674
Expected return on plan assets          (19,128)   (16,834)      ---        ---
Amortization of prior service cost          132         (8)        6        ---
--------------------------------------------------------------------------------
Net periodic benefit (income) cost     $ (3,783)      $694      $668      $ 683
================================================================================

The Canada  pension  plan had a  curtailment  loss of $.1 million for 1999.  The
Louisburg pension plan had a settlement loss of $.1 million for 1999.

The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with  accumulated  benefit  obligations  in
excess  of plan  assets  were  $2.8  million,  $2.8  million  and $1.4  million,
respectively,  as of December  31, 1999 and related to the  Louisburg,  Varo and
Canada pension plans.  The projected  benefit  obligation,  accumulated  benefit
obligation, and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $203.4 million, $203.4 million
and $197.8 million,  respectively, as of December 31, 1998 and related to the US
Salaried, Louisburg, Warren and Varo pension plans

Assumed  health care cost trend rates have a  significant  effect on the amounts
reported  for the health  care plan.  A  one-percentage-point  change in assumed
health care cost trend rates would have the following effects:

                                  1-Percentage-Point    1-Percentage-Point

(Dollars in thousands)                  Increase             Decrease
------------------------------------------------------------------
Effect on total of service and
interest cost components                  $ 55               $ (46)
Effect on the postretirement benefit      $688               $(595)
obligation

Plan assets at December 31, 1999 are invested in fixed  income  investments  and
equity  securities  whose values are subject to  fluctuations  of the securities
market.

The  Company   maintains  a  defined   contribution   plan   ("Plan")   covering
substantially  all  domestic,   non-union  employees.   Eligible  employees  may
generally  contribute from 1% to 15% of their compensation on a pre-tax basis to
the Plan.  The  Company's  expense for 1999,  1998 and 1997 was $2 million,  $.4
million and $.6 million,  respectively,  related to the Plan. Effective February
1,  1999,  the  Company  contributions  are based on 50% of the first 6% of each
participant's  pre-tax  contribution.   In  addition,   the  Company  will  also
contribute  3%  of  all  employees'  salary  (including   non-contribution  plan
participants) to the defined contribution plan, effective January 1, 1999.

Note 13  Leases

The Company leases certain manufacturing and office facilities,  equipment,  and
automobiles  under long-term  leases.  Future minimum rental  payments  required
under operating  leases of continuing  operations that have initial or remaining
noncancelable lease terms in excess of one year, as of December 31, 1999, are:

 (Dollars in thousands)
----------------------------------------------------------------------
2000                                                           $3,470
2001                                                            2,723
2002                                                            2,131
2003                                                            1,693
2004                                                              514
Thereafter                                                      3,259
----------------------------------------------------------------------

Total minimum lease payments                                 $ 13,790
======================================================================

Total  rental  expense  under  operating   leases  charged  against   continuing
operations  was $6.5  million in 1999,  $7.3 million in 1998 and $7.8 million in
1997.

Note 14  Foreign Exchange Contracts

The Company  periodically enters into foreign exchange contracts for purposes of
hedging its  exposure to foreign  currency  exchange  rate  fluctuations.  These
contracts  hedge  firm  commitments  between  the  Swedish  Krona and the German
Deutschmark and the United States Dollar.  At December 31, 1999, the Company had
foreign currency  contracts with notional amounts  totaling  approximately  $0.1
million with various  expiration dates through June 2000. The amount of deferred
gain or loss associated with these contracts is not material.

All foreign  currency  derivative  agreements are with major  commercial  banks;
therefore the risk of credit loss from nonperformance by the banks is considered
by management to be minimal.  The Company  evaluates its exposure to credit loss
on an ongoing basis.

Note 15  Sierra International Inc. Acquisition

On December 1, 1999,  the Company  purchased  the stock of Sierra  International
Inc. ("Sierra") from Echlin Inc., a subsidiary of Dana Corporation. Sierra sells
and distributes  replacement  parts for marine and power equipment  applications
and marine hose  products.  Sierra has become part of the  Company's  Industrial
Positioning segment.

Note 16   Accounts Receivable Securitization

On November 29,  1999,  the Company  entered  into an  agreement  to sell,  on a
revolving  basis, an interest in a defined pool of trade accounts  receivable of
up to $35 million.  At December  31, 1999, a $21 million  interest had been sold
under this  agreement.  Proceeds from the sale were used to finance a portion of
the  Sierra  acquisition.  The sale is  reflected  as a  reduction  of  accounts
receivable and as operating cash flows.  As collections  reduce  previously sold
interests,  new accounts receivable are customarily sold. The discount fees were
$0.1 million in 1999,  and are  included in interest  expense.  The Company,  as
agent for the purchaser, retains collection and administrative  responsibilities
for the participating interests of the defined pool.

SFAS No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments of Liabilities," provides accounting and reporting standards for
sales,  securitization  and servicing of receivables and other financial  assets
and  extinguishments  of  liabilities.  The Company adopted the Statement in the
1999 fourth  quarter.  The  provisions  of the  Statement do not have a material
impact on the accounting for actual or future sales of trade accounts receivable
under the securitization agreement referred to above.

Note 17   Contingencies

The Company and one of its  subsidiaries are two of a large number of defendants
in a number of lawsuits brought in various  jurisdictions by approximately 4,500
claimants who allege injury caused by exposure to asbestos. Although neither the
Company nor any of its  subsidiaries has ever been a producer or direct supplier
of asbestos,  it is alleged that the industrial and marine  products sold by the
Company and the subsidiary named in such complaints  contained  components which
contained  asbestos.  Suits  against the Company  and its  subsidiary  have been
tendered to its insurers,  who are defending  under their stated  reservation of
rights.  In  addition,  the  Company  and the  subsidiary  are  named in  cases,
involving   approximately   32,000  claimants,   which  were   "administratively
dismissed" by the U.S.  District Court for the Eastern District of Pennsylvania.
Cases that have been "administratively  dismissed" may be reinstated only upon a
showing  to  the  Court  that  (i)  there  is   satisfactory   evidence   of  an
asbestos-related injury; and (ii) there is probative evidence that the plaintiff
was exposed to products or equipment  supplied by each  individual  defendant in
the case. The Company  believes that it has adequate  insurance  coverage or has
established appropriate reserves to cover potential liabilities related to these
cases.

The Company is a defendant in a lawsuit  brought in the United  States  District
Court  for the  District  of New  Jersey  alleging  failure  in  performance  of
equipment sold in 1986 by the Company's  former Deltex  division.  The complaint
seeks  damages in excess of $12  million.  The Company  believes  that there are
legal and  factual  defenses  to the  claim and  intends  to defend  the  action
vigorously.  On June 2, 1999, the Court granted a summary  judgment motion filed
by the Company which effectively dismissed all claims.  Plaintiffs have appealed
this judgment to the United States Court of Appeals for the Third Circuit.

The  Company  was a defendant  in a lawsuit in the U.S.  District  Court for the
Western District of Pennsylvania,  which alleged component failures in equipment
sold by its former  diesel engine  division.  The  complaint  sought  damages of
approximately  $3 million.  On September  30, 1997,  the Court granted a summary
judgment  motion filed by the Company  which  effectively  dismissed  all claims
against it. Plaintiffs have appealed this judgment to the United States Court of
Appeals  for the Third  Circuit.  On June 3, 1999,  the United  States  Court of
Appeals for the Third Circuit  upheld the District  Court's  September 30, 1997,
decision thereby upholding the dismissal of all claims against the Company.

The Company is a defendant  in a lawsuit in the  Circuit  Court of Cook  County,
Illinois alleging performance  shortfalls in products delivered by the Company's
former  Delaval  Turbine  Division  and  claiming  damages of  approximately  $8
million.  The Company entered into an agreement with the plaintiff  settling all
claims.   Co-Defendant,   Federal  Insurance  Company,   has  recently  filed  a
counterclaim  for attorney's fees. The Company believes that there are legal and
factual defenses to the claim and intends to defend the action vigorously.

On June 3, 1997,  the Company was served with a complaint  in a case  brought in
the Superior Court of New Jersey which alleges  damages in excess of $10 million
incurred as a result of losses under a Government  Contract Bid  transferred  in
connection  with  the  sale  of the  Company's  former  Electro-Optical  Systems
business.  The  Electro-Optical  Systems business was sold in a transaction that
closed on June 2, 1995. The sales contract provided certain  representations and
warranties  as to the status of the business at the time of sale.  The complaint
alleges that the Company failed to provide  notice of a "reasonably  anticipated
loss" under a bid that was pending at the time of the  transfer of the  business
and  therefore a  representation  was  breached.  The contract was  subsequently
awarded to the Company's Varo subsidiary and thereafter transferred to the buyer
of the Electro-Optical  Systems business.  The case is in the preliminary stages
of pleading but the Company  believes that there are legal and factual  defenses
to the claims and intends to defend the action vigorously.

The operations of the Company,  like those of other companies engaged in similar
businesses, involve the use, disposal and clean up of substances regulated under
environmental  protection  laws.  In a number of instances  the Company has been
identified  as  a  Potentially  Responsible  Party  by  the  U.S.  Environmental
Protection Agency, and in one instance by the State of Washington,  with respect
to the disposal of  hazardous  wastes at a number of  facilities  that have been
targeted for clean-up  pursuant to CERCLA or similar state law.  Similarly,  the
Company has received notice that it is one of a number of defendants named in an
action filed in the United States District Court,  for the Southern  District of
Ohio Western  Division by a group of plaintiffs who are attempting to allocate a
share of cleanup  costs,  for which they are  responsible,  to a large number of
additional  parties,  including the Company.  Although CERCLA and  corresponding
state  law  liability  is joint  and  several,  the  Company  believes  that its
liability will not have a material adverse effect on the financial  condition of
the Company since it believes that it either  qualifies as a de minimis or minor
contributor at each site. Accordingly,  the Company believes that the portion of
remediation  costs that it will be  responsible  for will not be  material.  For
additional  information see section  entitled  Environmental  Matters in Part I,
Item 1 of this Form 10-K Report.

The Company is also involved in various other pending legal proceedings  arising
out of the  ordinary  course  of the  Company's  business.  None of these  legal
proceedings  is  expected  to have a material  adverse  effect on the  financial
condition of the Company.  With respect to these  proceedings and the litigation
and claims  described in the  preceding  paragraphs,  management  of the Company
believes that it either will  prevail,  has adequate  insurance  coverage or has
established appropriate reserves to cover potential liabilities. There can be no
assurance,  however, as to the ultimate outcome of any of these matters,  and if
all or  substantially  all of  these  legal  proceedings  were to be  determined
adversely  to the  Company,  there  could be a  material  adverse  effect on the
financial condition of the Company.

The Company is self-insured  for a portion of its product  liability and certain
other liability  exposures.  Depending on the nature of the liability claim, and
with certain exceptions, the Company's maximum self-insured exposure ranges from
$250,000 to $500,000 per claim with certain maximum  aggregate policy limits per
claim year. With respect to the exceptions,  which relate  principally to diesel
and turbine units sold before 1991, the Company's maximum self-insured  exposure
is $5 million per claim.

                      Report of Independent Public Accountants

To the Shareholders and Board of Directors of
Imo Industries Inc.:

We have audited the accompanying  consolidated  balance sheets of Imo Industries
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related  consolidated  statements  of income and  comprehensive  income,
shareholders'  equity and cash flows for the years ended  December  31, 1999 and
1998,  and for the  periods  from August 29,  1997,  through  December  31, 1997
(post-Acquisition),   and  from  January  1,  1997,   through  August  28,  1997
(pre-Acquisition.)  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 an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Imo Industries Inc.
and  subsidiaries  as of December  31,  1999 and 1998,  and the results of their
operations  and its cash flows for the years ended  December  31, 1999 and 1998,
and  for  the  periods  from  August  29,  1997,   through   December  31,  1997
(post-Acquisition),   and  from  January  1,  1997,   through  August  28,  1997
(pre-Acquisition), in conformity with generally accepted accounting principles.

                               ARTHUR ANDERSEN LLP

Richmond, Virginia
February 11, 2000




               Report of Independent Public Accountants on Schedule II



To the Shareholders and Board of Directors of
Imo Industries Inc.:

We have audited in accordance  with generally  accepted  auditing  standards the
consolidated financial statements included in the Form 10-K Annual Report of Imo
Industries  Inc. (a Delaware  corporation)  and  subsidiaries as of December 31,
1999 and 1998,  and for the years ended  December 31, 1999 and 1998, and for the
periods from August 29, 1997, through December 31, 1997 (post-Acquisition),  and
from January 1, 1997, through August 28, 1997 (pre-Acquisition), and have issued
our report thereon dated February 17, 2000. Our audits were made for the purpose
of forming an opinion on the basic consolidated  financial statements taken as a
whole.  Schedule II filed as a part of the Company's  Form 10-K Annual Report is
the responsibility of the Company's  management and is presented for purposes of
complying with the Securities and Exchange  Commission's rules and is not a part
of the basic consolidated financial statements. This schedule has been subjected
to the  auditing  procedures  applied  in the  audit of the  basic  consolidated
financial  statements  and,  in our  opinion,  fairly  states,  in all  material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.

                               ARTHUR ANDERSEN LLP

Richmond, Virginia
February 11, 2000




Imo Industries Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
Quarterly financial information for 1999 and 1998 is as follows:

                                              1st       2nd      3rd       4th
1999 (Dollars in thousands except per       Quarter   Quarter  Quarter   Quarter
share amounts) (a)

Net Sales                                   $ 74,499  $ 75,843 $ 67,159 $ 70,006
Gross profit                                  23,768    25,650   20,899   22,254
Income from continuing operations before
  extraordinary item                           3,321     5,352    2,278    4,363
Extraordinary Item                              (216)      ---      ---      ---
Net income                                     3,105     5,352    2,278    4,363


                                              1st       2nd      3rd       4th
1998 (Dollars in thousands except per       Quarter   Quarter  Quarter   Quarter
share amounts) (a)

Net Sales                                  $ 83,031  $ 81,084 $ 75,464  $ 69,291
Gross profit                                 26,745    26,447   24,047    23,052
Income (loss)from continuing operations
  before extraordinary item                   3,324     3,842    3,772      (45)
Extraordinary Item                           (5,603)      ---   (1,114)    1,494
Net income (loss)                            (2,279)    3,842    2,658     1,449


(a) The notes to the  consolidated  financial  statements  located in Part IV of
this Form 10-K Report as indexed at Item 14(a)(1)  should be read in conjunction
with this summary.

<TABLE>

                                   SCHEDULE II

                      IMO INDUSTRIES INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

                             (Dollars in thousands)

THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
<CAPTION>

                                                   ADDITIONS
                                 BALANCE     ----------------------
                                    AT         CHARGED                                 BALANCE
                                 BEGINNING   TO COSTS       OTHER -    DEDUCTIONS -     AT END
                                  OF YEAR     EXPENSES     DESCRIBE     DESCRIBE        OF YEAR

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

YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts    $1,058      $  360       $ 200 (8)     $  50  (2)    $1,348
                                                                            220  (3)
                                 =========  ==========  ==========     =========      =========
Inventory valuation allowance      $7,222     $ 1,211       $  36 (2)    $2,810  (5)    $5,682
                                                              821 (8)       700  (2)
                                                                             98  (1)
                                 =========  ==========  ==========     =========      =========
Valuation allowance for deferred
  tax assets                       $1,720      $  ---      $  ---        $  ---         $1,720
                                 =========  ==========  ==========     =========      =========
Accrued product warranty
  liability                        $1,423     $ 1,655       $ 602 (2)    $1,349  (4)    $2,507
                                                              176 (8)
                                 =========  ==========  ==========     =========      =========
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts    $1,435     $ (158)       $   3 (2)     $ 229  (3)    $1,058
                                                                            (7)  (1)
                                 =========  ==========  ==========     =========      =========
Inventory valuation allowance      $9,508      $  974       $  53 (2)    $3,249  (5)    $7,222
                                                                             64  (1)
                                 =========  ==========  ==========     =========      =========
Valuation allowance for deferred
  tax assets                      $53,257      $  ---      $  ---       $51,537  (7)    $1,720
                                 =========  ==========  ==========     =========      =========
Accrued product warranty
  liability                        $1,844     $ 1,224       $  46        $1,691  (4)    $1,423
                                 =========  ==========  ==========     =========      =========
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts    $1,346     $ 1,813   $      32 (2)     $ 295  (3)    $1,435
                                                                             55  (1)
                                                                          1,406  (6)
                                 =========  ==========  ==========     =========      =========
Inventory valuation allowance      $9,929     $13,418       $ 360 (2)    $3,613  (5)    $9,508
                                                                            382  (1)
                                                                         10,204  (6)
                                 =========  ==========  ==========     =========      =========
Valuation allowance for deferred
  tax assets                      $44,065     $ 9,192      $  ---        $  ---        $53,257
                                 =========  ==========  ==========     =========      =========
Accrued product warranty
  liability                        $2,007     $ 1,815      $  ---         $  28  (1)    $1,844
                                                                          1,950  (4)
                                 =========  ==========  ==========     =========      =========



(1)  Foreign exchange adjustments.
(2)  Reclassifications and adjustments.
(3)  Uncollectible accounts written off, net of recoveries.
(4)  Product warranty claims honored during the year.
(5)  Charges against inventory valuation account during the year.
(6)  In conjunction with the acquisition of the Company and purchase  accounting
     adjustments as of August 28, 1997, the reserves were reset to zero.
(7)  True up balances and reduce  valuation  reserve due to management's  belief
     that it is more likely than not that deferred tax benefits will be utilized
     in the future.
(8)  Sierra acquisition (not included in the beginning balance)
</TABLE>