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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F
      ---        REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 
      ---             (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                          OR
      ---         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       X                  SECURITIES EXCHANGE ACT OF 1934
      ---             For the fiscal year ended December 31, 1997
                                          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: 000-29358
                            Denison International plc
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             (Exact name of Registrant as specified in its charter)

                                 Not Applicable
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                 (Translation of Registrant's name into English)

                                England and Wales
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                 (Jurisdiction of incorporation or organization)

                                  Masters House
                              107 Hammersmith Road
                                 London W14 OQH
                                     England
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                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class                         Name of each exchange on which 
                                                      registered
-------------------                         ----------------------------------
     None                                                  None
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.

  American Depositary Shares (as evidenced by American Depositary Receipts),
                      each representing one Ordinary Share
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                              (Title of Class)

    Securities for which there is a reporting obligation pursuant to
                        Section 15(d) of the Act.

                                   None
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                             (Title of Class)

<PAGE>

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

               11,057,700 Ordinary Shares, $0.01 par value
            7,015 `A' Ordinary Shares, (pound)8.00 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                          Yes  ---           No  ---
                                X
                               ---               ---
  

Indicate by check mark which financial statement item the registrant has elected
to follow.

               Item 17         ---     Item 18       ---
                                                      X 
                               ---                   ---
                                                               

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<PAGE>


                                   TABLE OF CONTENTS
                                                                      Page
                                                                      ----
PART I

  Item 1.  Description of Business...........................................2

  Item 2.  Description of Property...........................................12

  Item 3.  Legal Proceedings.................................................12

  Item 4.  Control of Registrant.............................................13

  Item 5.  Nature of Trading Market..........................................13

  Item 6.  Exchange Controls and Other Limitations Affecting 
           Security Holders..................................................14

  Item 7.  Taxation..........................................................14

  Item 8.  Selected Financial Data...........................................23

  Item 9.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations.............................25

  Item 9A.  Quantitative and Qualitative Disclosures About Market Risk.......30

  Item 10.  Directors and Officers of Registrant.............................31

  Item 11.  Compensation of Directors and Officers...........................32

  Item 12.  Options to Purchase Securities from Registrant or 
            Subsidiaries.....................................................33

  Item 13.  Interest of Management in Certain Transactions...................33

PART II

  Item 14.  Description of Securities to be Registered.......................34

PART III

  Item 15.  Defaults Upon Senior Securities..................................34

  Item 16.  Changes in Securities, Changes in Security for Registered
             Securities and Use of Proceeds..................................34

PART IV

  Item 17.  Financial Statements.............................................34

 Item 18.  Financial Statements.............................................34

  Item 19.  Financial Statements and Exhibits................................34



<PAGE>






        As used herein, references to the "Company" and "Denison" refer to
Denison International plc and its subsidiaries, unless the context indicates
otherwise.

         References to Shares herein refer to (i) the Ordinary Shares of
Denison, $0.01 par value per Ordinary Share (the "Ordinary Shares") and (ii)
Denison's American Depositary Shares, each of which represents one Ordinary
Share ("ADSs"). The ADSs are evidenced by American Depositary Receipts ("ADRs").

         Denison publishes its financial statements in U.S. dollars. In this
Form 20-F, references to "dollars" or "$" are to U.S. dollars and references to
"pounds sterling," "(pound)" or "p" are to UK currency. Except as otherwise
stated herein, all monetary amounts in this Form 20-F have been presented in
dollars.

         The Company publishes annual reports containing annual audited
consolidated financial statements and opinions thereon by independent public
auditors. Such financial statements are prepared on the basis of generally
accepted accounting principles in the United States ("US GAAP") expressed in
U.S. dollars. The Company has published quarterly updates and semi-annual
reports containing unaudited financial information prepared on the same basis as
its audited US GAAP consolidated financial statements.

         The discussion below contains certain "forward-looking statements" (as
such term is defined in the rules promulgated pursuant to the Securities Act)
that are based on the beliefs of the Company's management, as well as
assumptions made by, and information currently available to, the Company's
management. Such forward-looking statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company's
actual result, performance or achievements in fiscal 1998 and beyond could
differ materially from those expressed in, or implied by, any such
forward-looking statements. Factors that could cause or contribute to such
material differences include, but are not limited to, those discussed in Item 1
of this Form 20-F, as well as those discussed elsewhere in this Form 20-F. The
Company undertakes no obligation to release publicly any updates or revisions to
any such forward-looking statements that may reflect events or circumstances
occurring after the date of this Form 20-F.



<PAGE>




                            PART I

Item 1.  Description of Business.

                           BUSINESS
Overview

         Denison designs, manufactures, sells and services highly-engineered
components for use in hydraulic fluid power systems, as well as complete
hydraulic fluid power systems. Hydraulic systems, which are part of larger
pieces of machinery and equipment, provide the force to move and position very
heavy materials and equipment as well as the precision to move and position very
light loads with a high degree of accuracy. The components manufactured by the
Company for these systems include hydraulic pumps, motors and valves. Many of
Denison's products are designed to be used under demanding conditions, such as
elevated pressure, high temperature, variable speed and low decibel levels. The
Company sells its products globally to a diverse group of end-users for use in a
broad array of industrial applications, such as machine tools and material
handling equipment, various mobile applications, such as construction,
agricultural and utility equipment, and in marine applications, such as military
equipment.

         The Company focuses on the specialty segment of the hydraulic power
market and works closely with its customers to meet their specified performance
objectives. Denison's product offerings include a wide variety of piston pumps
and motors; vane pumps and motors; pressure, directional and proportional valve
products; and electronic control products. Denison's products enjoy excellent
brand recognition and significant market share in certain sectors of the market
targeted by the Company. The Company markets and sells its products primarily
through a global network of regional sales and service subsidiaries, independent
fluid power equipment distributors and, to a lesser extent, directly to
end-users. In the United States, the Company relies primarily on independent
fluid power distributors which also distribute other products that do not
generally compete with Denison's. In Europe and Asia, Denison primarily sells
its products directly to OEMs through its regional sales and service
subsidiaries.

         Denison, whose operations date back to the early 1930s, is a pioneer in
the hydraulic products market. The Company's long history of innovation can be
traced back to its first product, the hydraulic-powered car pusher, a
revolutionary development which led to widespread application of hydraulic power
as a solution for numerous industrial and mobile requirements. Denison's
research and development efforts have resulted in its being granted
approximately 600 patents since its inception. The business of the Company was
acquired by its present owners in 1993 from Hagglund & Soner AB. The Company has
conducted business under the "Denison" name since 1932.

         The Company was incorporated in England and Wales as a private company
limited by shares in March 1993 and was re-registered as a public limited
company on July 28, 1997. On August 8, 1997, the Company completed an initial
public offering in which it issued and sold 450,000 Ordinary Shares at $16.00
per share. The net proceeds from the offering were $4,480,000.

         The Company's principal executive offices are located at Masters House,
107 Hammersmith Road, London W14 0QH, England and its telephone number is
011-44-171-603-1515. The Company's U.S. headquarters is located at 14249
Industrial Parkway, Marysville, Ohio 43040.





                                      -2-
<PAGE>




Industry Overview

         Hydraulics, or fluid power, is a motion control technology that is used
to transfer and control force and power through fluids under pressure. Hydraulic
systems are typically comprised of a pump, valves, manifolds and actuators.
Pumps are used to move fluid from one location to another. Pressure is generated
when the fluid encounters resistance. Valves and manifolds control the flow of
fluids, and actuators, such as cylinders and rotary motors, convert pressure
into mechanical energy.

         Hydraulic systems offer greater flexibility of layout, compact design
and higher performance-to-weight ratio than other forms of motion control, such
as mechanical and electrical systems. Hydraulic systems provide the force to
move and position materials and equipment weighing several tons as well as the
precision to move and position very light loads with a high degree of accuracy.
For example, hydraulics is a tool powerful enough for heavy-duty steel
production in blast furnaces and precise enough for handling of steel ingots in
a stamping mill. As a result, hydraulic systems are integral to a wide variety
of industrial, mobile and marine applications. Although generally not noticed by
most end-product users, virtually every production process uses hydraulic power
as does almost every machine, vehicle and aircraft.

         The hydraulic pump and valve market is a highly-fragmented,
multi-billion dollar worldwide industry. The hydraulics market is divided
broadly into two product segments: specialty and commodity. The specialty
segment is comprised of highly-engineered, high-performance, specialized
hydraulic products, which are generally more complex and used in demanding
applications. Specialty products tend to be less price sensitive, generally have
higher margins and are more likely to utilize servicing and maintenance. The
commodity segment is comprised of lower performance products which are sold for
use in price-sensitive applications.

         Demand and growth in different application sectors of the hydraulics
industry have typically been driven by various external economic factors. The
industrial sector of the hydraulics industry has typically been affected by the
cyclicality of the overall economy. Sales of mobile hydraulic systems and
components have been driven by infrastructure development factors such as
construction and new housing starts. Sales of marine systems have been largely
influenced by military expenditures and, thus, are less affected by cyclical
economic factors. Demand and growth in each of the industrial, mobile and marine
sectors of the hydraulics market are also affected by the replacement cycle of
the hydraulic products.

Products

         The Company designs, manufactures, sells and services a broad range of
components for use in hydraulic fluid power systems, as well as complete
hydraulic fluid power systems, for applications with high reliability,
performance, precision and durability requirements. The Company's primary
products are piston pumps and motors, vane pumps and motors, and valves. In
1997, piston pumps and motors accounted for 36.4% of the Company's net sales,
vane pumps and motors accounted for 30.4% of the Company's net sales and valves
accounted for 24.1% of the Company's net sales. In addition, the Company
manufactures electronic control products and certain other components and
accessories used in hydraulic systems. Other products sales accounted for 9.1%
of the Company's net sales.

         The markets served by the Company are substantial and diversified, with
no single customer accounting for 4% or more of its net sales in 1997. The
Company's products are used in many different industrial, mobile and marine  



                                      -3-
<PAGE>




applications, including mining machinery, drilling equipment, excavators,
cranes, machine tools, die casting and plastics processing machinery.

Pumps and Motors

         Hydraulic pumps include piston pumps and motors, which provide
adjustable flow and variable displacement, and vane pumps and motors, which
provide continuous flow and fixed displacement. Each type of pump or motor is
suitable for particular uses, depending upon variables such as speed, pressure,
operating temperature, noise level, life expectancy and cost. Piston pumps and
motors are used in tractors, tanks, machine tools, sophisticated winches, such
as anchors on a ship or deck cranes on an aircraft carrier, as well as in other
products with complex performance requirements, such as varying or multiple
speeds or pressures. Vane pumps and motors are used in less complex applications
generally requiring low noise levels but little or no variation in flow, such as
refuse trucks, cranes and large presses.

         All hydraulic pumps operate on the displacement principle in which a
fluid (typically petroleum-based oil) is transferred from an inlet (suction
port) into a mechanically-sealed, low-pressure chamber and subsequently, to a
high-pressure chamber having the outlet (pressure port). The transfer of the
fluid inside the pump can be accomplished by the movement of screws, gears,
vanes or pistons which compact the fluid and create pressure.

         Hydraulic motors operate on a principle which is the reverse of the
hydraulic pump process, absorbing hydraulic flow and pressure and converting
them into mechanical energy and rotary motion. This rotary motion can then be
used for various industrial applications, including the rotation of the wheels
of a mobile loader, driving winches on mobile crane systems or turning the
rollers on a conveyer belt.

         Pumps and motors operate in either an open- or closed-loop system. In
an open-loop system, the hydraulic fluid is drawn into one or more pumps to
produce flow and then travels to a number of different actuators performing
independent functions. For example, an industrial conveyor belt system,
involving many unrelated functions, may use an open-loop system. In a
closed-loop system, the pump is dedicated to a single motor or set of motors
performing a single function. Unlike in an open-loop system, in which the
hydraulic fluid goes to a storage "reservoir" after passing through the motor,
in a closed-loop system, the oil returns to the pump before being transferred
back to the motor. The closed-loop system enables the flow direction of the
hydraulic fluid to be reversed while the system is operating. This, in turn,
allows for rapid changes in direction and speed of the motor which is useful in
applications such as rotating the wheels of a front-loader. In general, piston
pumps are specifically manufactured for use in either an open-loop or
closed-loop system, while vane pumps are typically used only in open-loop
systems. A motor can generally be used in either an open- or closed-loop system.

         Piston Pumps and Motors. Piston pumps are distinguished from vane pumps
by their ability to produce variable displacement; the amount of hydraulic fluid
passing through the pump, and thus the pressure generated by the hydraulic
system, can be varied to meet the changing requirements of the application.
Variable displacement generally reduces the cost of operating the hydraulic
system because the pump can operate at lowered displacement when the system
requirements are lowered, thus saving energy. Piston pumps are also typically
used with high horsepower applications because their design enables them to
operate at greater pressures than vane pumps.





                                      -4-
<PAGE>




         Denison manufactures a full range of piston pumps which operate at
pressures as high as 7,250 pounds per square inch ("psi") and which vary in size
from 0.9 cubic inches to 38.9 cubic inches, and in displacement from 11 to 303
gallons per minute ("gpm"). Denison is particularly well-known in the hydraulics
industry for its large-size piston pumps, such as the larger piston pumps in the
Company's Gold Cup Series and in the Premier Series. Denison is one of very few
manufacturers that offers very large piston pumps as a standard, rather than a
custom-made, product. Denison's large-size piston pumps are distinguished from
those of its competitors by its proprietary "barrel-bearing" design, which
enables the pump to run in a stable condition at high speed and pressure.
Management believes the "barrel-bearing" design gives the larger Denison piston
pumps a sturdier construction than other piston pump designs, resulting in a
longer life cycle in severe duty applications such as heavy mining equipment and
aircraft carrier steering systems.

         All Denison piston pumps are manufactured at the Company's Marysville,
Ohio facility. During 1997, the Marysville plant produced and shipped in excess
of 16,000 units.

         Vane Pumps and Motors. Vane pumps and motors are ideal for applications
which require a fixed displacement in which the pressure produced does not need
to be adjusted during operation. Vane pumps and motors typically produce a low
noise level and are ideal for applications which require low noise output, such
as garbage trucks, injection molding machines and other devices found in
workplaces where OSHA regulations mandate reduced noise levels. In addition, due
to their simpler design, vane pumps and motors are less susceptible than piston
products to contamination from impurities in the hydraulic system, a feature
that makes vane pumps and motors ideal for use in steel production and mining,
which produce many contaminants.

         Denison is the second-largest manufacturer of vane pumps in the world
in terms of net sales. The Company produces a full range of vane pumps and
motors which operate at pressures in excess of 4,500 psi and which vary in size
from 0.35 cubic inches to 16 cubic inches, and in displacement from 1 to 250
gpm. Denison's newest vane pump product is the T7, which is in the prototype
stage. The T7 is designed for use in industrial applications, and offers less
noise and leakage and higher operating pressure than earlier vane pump models.

         Denison's vane pumps are recognized as among the strongest products in
the hydraulics industry and are distinguished from competitors' vane pumps by
Denison's double-lip design, in which the vane is in contact with the cam ring
at two points rather than at one as with the single-lip design. This double-lip
design makes Denison's vane pumps less susceptible to contamination than
single-lip pumps. The Company believes that no other manufacturer currently
offers the double-lip design, a feature of all vane pumps manufactured by
Denison since the 1940s.

         All Denison vane pumps are manufactured at the Company's Vierzon,
France facility. During 1997, the Vierzon plant produced and dispatched in
excess of 60,000 units.

Valves

         Valves function by changing the size or direction of the orifice
through which the pressurized fluid passes as it travels from the pump to the
piston or motor. This function provides control over the direction, pressure and
flow of the pressurized fluid depending upon the requirements of the system in
which the valve is operating. Often, electronic controllers are used to control
the size and direction of the valve orifice.




                                      -5-
<PAGE>




         Denison manufactures four basic types of valves: directional control
valves which alter the path of pressurized fluid through the hydraulic systems;
pressure control valves which regulate the pressure of the hydraulic fluid; flow
control valves which match the hydraulic fluid's flow with the requirements of
the system; and check valves which allow fluid to pass in one direction and not
the other. Denison's valves are used in a variety of commercial settings,
including injection molding, metal and material forming, mobile equipment such
as cranes, and marine systems such as ship-mounted winches.

         Denison is one of the few manufacturers of flange mounted pressure
control valves, a design which enables the valve to be attached directly to
another hydraulic component, such as a pump or a motor. Most competitors' valves
must be connected to the associated component with hydraulic lines, which tend
to be more expensive and are less effective at controlling leaks than flange
mounting.

         All Denison valves are manufactured at the Company's Hilden, Germany
plant, with the exception of the proprietary design smaller directional control
valves, which are manufactured for the Company pursuant to an agreement with a
Czech company, a line of pressure control valves, manufactured for Denison by a
Swiss company, and a line of cartridge valves, manufactured for Denison by an
English company. In each case, the manufacturing company produces the valves
using Denison's specification. During 1997, the Hilden factory supplied
approximately 210,000 units, of which approximately 120,000 were manufactured at
the Hilden factory.

Electronics

         Denison manufactures electronic controllers to be used with its piston
pumps and motors. Electronic controllers act as an interface between a hydraulic
component and the master controls of the hydraulic system operator and as a
protective device against unusual and potentially damaging signals from the
hydraulic system.

         The Venus Controller is Denison's newest and most sophisticated
microprocessor-based controller. It is programmed and adjusted with a personal
computer or other small computerized device, providing faster response and
greater accuracy than older analog devices. The Venus Controller is
distinguished from many competitors' controllers by its ability to
simultaneously control several different hydraulic functions or components. For
example, it can control both open-loop and closed-loop functions, whereas many
competitors' products require different controllers for each of these functions.
This simplifies the control and adjustment of hydraulic systems.

         The Venus Controller is manufactured at the Marysville, Ohio facility.
The other Denison controllers are manufactured at the Marysville, Ohio facility
and the Hilden, Germany facility.

Service

         The Company provides a full array of aftermarket services, consisting
primarily of upgrades and replacement of its own and other manufacturers'
hydraulic related products and systems, and to a lesser extent field service,
repairs and maintenance. The Company provides these aftermarket services through
its own regional sales and service subsidiaries and through its network of
independent fluid power equipment distributors.

         Denison's large installed customer base provides it with significant
aftermarket sales of spare parts and services. In the past, the highest level of
aftermarket service has been piston pumps which tend to be more complex and
require more maintenance than vane pumps. Approximately 100,000 piston pumps



                                      -6-
<PAGE>




and 250,000 vane pumps have been manufactured by Denison
and are currently in use and therefore may be subject to service. In 1997, 11.2%
of the Company's net sales were derived from aftermarket services, primarily the
sales of spare and replacement parts.

Product Development

         Denison has a long history of emphasizing research and development,
dating back to the formation of the Company in 1932. Denison was an early
technological leader within the hydraulics industry and has been granted
approximately 600 patents since the Company's inception. Denison has remained
strongly committed to being on the forefront of technological innovation, as
evidenced by the Company's continuing focus on development of new products and
enhancements to existing products.

         As of December 31, 1997, Denison's research and development staff
consisted of a total of 42 employees. Twenty-one of these employees conduct
research and development on piston pumps and motors at Denison's Ohio facility;
ten focus on research and development related to vane pumps and motors at
Denison's France facility; and eleven perform research and development on
industrial valves at Denison's Germany plant. The main activities of the
research and development staff involve modifying and improving existing products
and designing variations of existing products to suit specific customer needs. A
smaller portion of their time is spent on developing new concepts and new
product designs. Denison currently has no plans to significantly change the
number of its R&D employees. Denison incurred research and development costs of
$2.3 million, $2.6 million and $3.2 million in the years ended December 31,
1995, 1996 and 1997, respectively.

Manufacturing and Suppliers

         The Company's production facilities are located in Marysville, Ohio,
Vierzon, France and Hilden, Germany. The Marysville plant manufactures piston
pumps and motors, the Vierzon plant manufactures vane pumps and motors, and the
Hilden plant manufactures valves. The manufacturing plants have undergone
significant upgrading and rationalization in recent years and are now in
superior manufacturing condition. Currently, the facilities are operated in two
to three shifts with the possibility of increasing capacity with existing
machinery by increasing working hours. Approximately 34% of the manufacturing
workforce is dedicated to the production of piston pumps and motors, 43% to the
production of vane pumps and motors and 23% to the production of valves. Each
facility is equipped with testing equipment to maintain the Company's high
quality control standards. Both the Vierzon and Hilden facilities are ISO9001
certified and the Marysville facility is working toward ISO certification.

         The Company manufactures in-house virtually all of the high value-added
or quality critical components such as the rotating groups, body components and
controls used to build its products. The Company has computerized numerically
controlled type flexible machinery and equipment that is organized in a series
of work cells, utilizing just-in-time production scheduling techniques. The
Company has spent $20.0 million on new production equipment in the last four
years. As a result of these investments, significant gains in productivity
efficiency have been realized since 1993. Management believes that the
improvement programs in progress will further add to efficiency and promote cost
reductions, particularly in piston pump and valve production.

         The Company's ability to produce components to high-level standards of
complex design makes it difficult for competitors to offer products of equal
performance for certain demanding applications. Modern and innovative machining
practices are employed to produce a wide array of products, while assuring
process control. The Company also utilizes specialized and precision grinding



                                      -7-
<PAGE>




methods that allow superior speed, precision and efficiency, and innovative
fabrication and manufacturing processes All manufacturing processes
employed are well proven and support the Company's efforts to produce products
that are both highly durable and reliable.

         The primary products purchased from suppliers are castings (all
products), solenoids (valves), turned parts (valves), steel bars (vane and
piston), bearings (vane and piston), brass (piston) and shafts. The Company has
implemented an aggressive program of consolidating suppliers of component parts
and raw materials. This program has resulted in an increased supply of component
parts, improved quality, and reduced costs of production materials. Currently,
there are few common suppliers between the different manufacturing facilities.
Management anticipates that the continuation of this program will yield
additional savings in the future.

         The Company's operations involve the handling and use of substances
that are subject to foreign, Federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
soil, air, and water and establish standards for their storage and disposal. The
Company is not involved in any pending or threatened proceedings that would
require curtailment of its operations because of such regulations. The Company
believes that it is in material compliance with all of such laws in the United
States, and it continually expends funds to assure that it remains in material
compliance. Recent investigations of the Company's European facilities have
identified areas of contamination and practices which may be in violation of
applicable regulations. Compliance with foreign and domestic environmental laws
has not had, and is not expected to have, any material effect on the Company's
earnings or competitive position.

Sales and Marketing

         Denison has an extensive and well-trained international sales network
comprised of 15 regional sales and service subsidiaries and 193 independent
fluid power equipment distributors in 52 countries. Distributors buy products
from the Company and resell them to end-users. To a small extent, other
manufacturers' products are distributed through the Company's channels, however,
the Company's distributors do not typically carry products which compete with
the Company's products. Denison's sales and service subsidiaries are full
service offices engaged in the customized modification, design, manufacture,
packaging, sale and servicing of the Company's hydraulic components and systems.
Typically, the sales and service subsidiaries as well as the distributors are
staffed with professional engineers who are capable of designing hydraulic
systems to meet the requirements of customers' applications. The network is
divided into three main geographical regions: Europe, North America and the
Asia-Pacific region.

         The Company has a particularly strong sales and marketing network in
the United States, which is comprised of 44 sales and marketing employees in 10
states, as well as 27 independent distributors. Direct sales to OEMs and the
government account for approximately 46% of total U.S. net sales, with the
balance of U.S. net sales effected through distributors.

         Denison's regional sales and service subsidiaries are located in 15
countries around the world, including Germany, the United Kingdom, France,
Italy, Scandinavia, Spain, Singapore, Hong Kong, Japan and Australia. Denison's
plants sell pumps and valves to its regional subsidiaries, which maintain small
inventories of the components and parts with the highest customer demand. Each
of the regional subsidiaries has the capacity to modify or convert pumps, motors
and valves on-site to meet specific needs of customers, thus allowing the
subsidiaries to offer a flexible product line without maintaining an extensive
inventory. The regional subsidiaries also have sophisticated test rigs to permit



                                      -8-
<PAGE>




on-site diagnosis and repair of Denison products. Together with the
additional 193 distributors throughout the world, the regional subsidiaries
constitute an international sales network providing extensive support in
application engineering, service and repair parts for Denison products
worldwide.

         OEMs and distributors are normally updated with technical developments
through meetings, training sessions and product brochures, while promotion
efforts to other customers are handled by the distributors themselves. The OEMs
prefer to purchase all their required equipment from a single source supplier.
In order to capitalize on this trend, the Company intends to become a full range
supplier within chosen niches in various market sectors. These chosen niches
include metal forming, material forming, capital plant and machine tools in the
industrial sector; earthmoving and construction, special purpose machinery
(including mining) and agriculture in the mobile sector; and a number of
applications in the commercial and military marine sector. These have been
selected not only on the basis of fit with existing products, but also on the
basis of product overlap and management's expectation of above-average growth in
demand for these products in the foreseeable future. Management estimates that
it is possible for Denison to increase its presence as a full range supplier
within these niches through relatively few additions to its existing product
range.

Customers

         Denison's broad base of well-known customers in the hydraulics industry
in the United States, Europe and the Asia-Pacific region attests to the high
reliability and quality of the Company's products. In 1997, Denison's top ten
OEM and direct end-user customers accounted for approximately 12% of net sales,
and the top ten customers overall accounted for under 20% of net sales. The
markets served by the Company are substantial and diversified, with no single
customer accounting for more than 4% of the Company's net sales in 1997.

         The Company's products are primarily utilized in industrial, mobile and
marine applications. Industrial applications involve equipment that generally is
stationary in factories or processing plants, such as presses, injection molding
equipment, power units, drilling equipment, test stands, mining machinery,
metal-forming and metal-cutting machinery and machine tools. The requirements of
the industrial marketplace are more demanding than most mobile applications
since industrial equipment typically operates at significantly higher cycles.
The Company's products are designed to meet these operating imperatives.
Denison's industrial customers include Cincinnati Milacron (machine tools and
injection molding equipment); Ingersoll-Rand and Driltech (rotary drills);
General Electric and Solar Turbines (power generation); Harris Waste Management
and Kershaw Manufacturing (presses and boilers); and Husky (injection molding
equipment).

         Mobile applications involve equipment that generally is not fixed in
place, such as construction, demolition, agricultural, mining, lumber and pulp
harvest, and utility equipment. These industries tend to place a premium on
considerations of space, weight and cost. Mobile customers include Komatsu
(construction equipment); Case and Volvo (wheel loaders); Plasser & Theurer
(railroad repair machinery); and PPM Crane (mobile cranes and excavators).

         Marine applications involve equipment used on sea vessels by both
commercial and military end-users, such as anchors, ship-mounted winches and
deck cranes on aircraft carriers. Marine customers include the U.S.
Navy and Hepburn Engineering.

         End users who purchase the Company's products through distributors
include Bethlehem Steel and Kaiser Aluminum (primary metals); Boeing and Textron
(aerospace); Boise Cascade and Roseberg Forest Products (pulp and paper 



                                      -9-
<PAGE>




industry); and Westinghouse and Stewart & Stevenson (power generation). Other 
major customers include large OEMs such as Grove Manufacturing and Tamrock in 
the United States; Grange (France), Hagglund & Soner AB (Sweden), 
Krupp (Germany) and MIR (Italy), in Europe; and IHI, Kawasaki and Mitsubishi 
in Japan.

Backlog

         The Company's backlog of unfilled firm orders was $26.6 million at
December 31, 1997, compared with $26.4 million at December 31, 1996. The Company
estimates that approximately 98% of the December 31, 1997 backlog will be filled
by December 31, 1998.

Competition

         The hydraulics industry is highly fragmented and intensely competitive.
The Company competes primarily on the basis of the performance, quality and
durability of its products, as well as the availability of aftermarket support
through its regional sales and service subsidiaries and through its network of
independent fluid power equipment distributors.

         The Company competes with divisions of large corporations, such as
Rexroth and Vickers, and divisions of Parker Hannifin and Bosch, as well as
companies with more limited product lines. Some of the Company's competitors are
larger and have greater financial and other resources than the Company and thus
can better withstand adverse economic or market conditions as compared to the
Company. In addition, companies not currently in direct competition with the
Company may introduce competing products in the future.

         The Company has a large number of competitors, some of which are
full-line producers and others that are niche suppliers like the Company. The
most significant competitors market globally. In addition, the Company faces
competition from a number of local companies in regional markets. Full-line
producers have the ability to provide integrated hydraulic systems to customers,
including components functionally similar to those manufactured by the Company.
There has been some consolidation activity in recent years, with large,
full-line producers filling out their product lines with the acquisition of
smaller, privately held producers. The Company's main competitors by product
include Rexroth, Oilgear, Hydrakraft and Parker Hannifin (piston products);
Vickers, Atos and Parker Hannifin (vane products); and Rexroth, Bosch, Vickers,
Atos and Parker Hannifin (valve products).

Employees

         As of December 31, 1997, the Company had 954 full-time employees,
including 496 employees in manufacturing and operations, 42 employees in product
development, 206 employees in sales and marketing and 210 employees in
management and administration. In addition, the Company utilizes the services of
approximately 22 temporary employees. Of the Company's full-time employees, 278
are working in the United States, 172 in Germany, 277 in France and the
remainder in the Company's sales and service facilities. The Company has not
experienced any work stoppage and considers its relations with its employees to
be satisfactory.

         There is a collective bargaining agreement with the International
Association of Machinists and Aerospace Workers Local Lodge 427, which covers
all hourly-paid production and maintenance employees (149 employees overall) at
the U.S. facility and expires in June 1999. Management at the U.S. facility
knows of no grievances which are likely to threaten work stoppage. The French
facility has a collective bargaining agreement, the "Convention Collective de la
Matallurgie," which covers all employees and is mandatory in French companies



                                      -10-
<PAGE>




which engage in activities such as Denison's. The non-management personnel are 
represented by several unions. While the German facility is not directly subject
to collective bargaining agreements, it does adopt certain provisions of 
collective bargaining agreements applicable to the metalworking industry in its 
employment contracts.  Such provisions relate to matters such as working 
conditions, wages and year-end bonuses. Management at each of the facilities 
believes labor relations to be good.

Environmental Matters

         The Company's operations involve the handling and use of substances
that are subject to foreign, federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
soil, air and water and establish standards for their storage and disposal. A
risk of environmental liability is inherent in manufacturing activities. The
Company has recently completed investigation and cleanup efforts at two former
U.S. facilities.

         Recent investigations of the Company's European facilities have
identified areas of contamination and some practices which may be in violation
of applicable regulations. The Company plans to follow-up these investigations
to determine whether any remediation and/or any changes in current practices are
necessary. There can be no assurance that remediation of these facilities will
not be required or that fines or sanctions will not be imposed on the Company
for violations of environmental law, if any are determined to exist. While
management does not believe that compliance with environmental requirements is
likely to have a material adverse effect on the Company, there can be no
assurance that future additional environmental compliance or remediation
obligations will not arise at one or more of the Company's facilities or that
such obligations could not have a material adverse effect on the Company's
financial condition or results of operations.

Patents and Trademarks

         The Company believes that the growth of its business is dependent upon
the quality of its products, its ability to produce products that meet the
requirements of its customers and its relationships in the marketplace, rather
than the extent of its patents and trademarks. The Company currently has over
100 patents and has been granted approximately 600 patents since its inception.
The loss of any single patent is not likely to have a material adverse effect on
the Company's business, financial condition and results of operations.





                                      -11-
<PAGE>


Item 2.  Description of Property.

         Denison has administrative, sales and manufacturing facilities located
in Marysville, Ohio; Vierzon, France; and Hilden, Germany. All three facilities
are owned by the Company and occupy 170,000, 174,100 and 146,600 square feet,
respectively. The Marysville plant manufactures piston pumps and motors, the
Vierzon plant manufactures vane pumps and motors, and the Hilden plant
manufactures valves. The manufacturing plants have undergone significant
upgrading and rationalization in recent years and are now in superior
manufacturing condition. Currently, the facilities are operated in two to three
shifts with the possibility of increasing capacity with existing machinery by
increasing working hours. Approximately 34% of the manufacturing workforce is
dedicated to the production of piston pumps and motors, 43% to the production of
vane pumps and motors and 23% to the production of valves. Each facility is
equipped with testing equipment to maintain the Company's high quality control
standards. Both the Vierzon and Hilden facilities are ISO9001 certified and the
Marysville facility is working toward ISO certification.

         The Company also owns a sales and service facility in Wakefield,
England. In addition, the Company leases or subleases facilities for its
regional sales and service subsidiaries in the following countries: Australia,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan,
Luxembourg, the Netherlands, Singapore, Spain, Sweden, the United Kingdom and
the United States. The Company believes that its existing facilities are
sufficient for its current needs, and that suitable additional or alternative
space will be available in the future on commercially reasonable terms as
needed.

Item 3.  Legal Proceedings.

         The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.





                                      -12-
<PAGE>






Item 4.  Control of Registrant.

         The table below sets forth certain information with respect to the
beneficial ownership of the Shares by the principal shareholders (each person or
entity known to the Company to own beneficially ten percent or more of the
shares) at March 1, 1998.


Title of Class      Identity of Person 
                        or Group              Amount Owned (1)  Percent of Class
--------------   --------------------      -----------------    ----------------

Ordinary Shares     J. Colin Keith (2)         1,400,000           12.7%

Ordinary Shares     Anders C.H. Brag (2)       1,350,000           12.2%

Ordinary Shares     E.F. Gittes (2)            1,200,000           10.8%

Ordinary Shares     All directors and 
                    executive officers
                    as a group 
                    (8 persons) (3)           4,102,820            37.1%


(1) For purposes of this table, ownership is determined in accordance with the
beneficial ownership rules of the commission which deem shares to be
beneficially owned by any person who has, or shares, voting or investment power
with respect to the Ordinary Shares. Unless otherwise indicated, the commission
believes based on information furnished by such persons, that the persons named
in this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned.

(2) Mr. Keith is Chairman of the board of Directors of the Company; Mr. Brag is
managing Director of the Company; Mr. Gittes is a director of the Company.

(3) Includes an aggregate 74,070 Ordinary Shares held for the account of
Christopher Mills, a director of the Company, and certain members of his family.



Item 5.  Nature of Trading Market.

         The principal trading market for the Company's securities is ADSs
listed on the Nasdaq National Market. The Company's ADSs have traded in the U.S.
since August 8, 1997 under the symbol "DENHY." Each ADS represents one Ordinary
Share, par value $0.01 per Ordinary Share. Each ADS is evidenced by an ADR.
Bankers Trust Company is the Depositary for the ADRs. As of December 31, 1997,
11,057,700 ADSs were held by 13 registered ADR holders. The largest
holder, The Depository Trust Company, holds 4,381,440 shares representing 53
participants.

         The following table shows the high and low sales prices of the ADSs on
the Nasdaq National Market for each quarterly period since the offering of the
ADSs to the public in August 1997.

    Quarterly Period Ended                        Price per ADS (US$)
    ----------------------                        -------------------
                                                  High            Low
                                                  ----            ---


 September 30, 1997 (from August 7, 1997)         19.375          17.250
 December 31, 1997                                21.125          15.875

         At March 31, 1998, the last reported price for an ADS on the Nasdaq
National Market was $18.50.





                                      -13-
<PAGE>




Item 6.  Exchange Controls and Other Limitations Affecting Security Holders.

         Although there are currently no English foreign exchange control
restrictions on the payment of dividends on the Ordinary Shares or the ADSs,
under current English law, dividends may not be paid to the governments of Iraq
or Libya (or persons exercising public functions in such countries) or to any
resident of Iraq or any person treated as so resident (each of the foregoing, a
"Prohibited Person").

         There are no restrictions under the Company's Memorandum and Articles
of Association that limit the right of non-resident or foreign owners to hold
the Company's securities, including the Ordinary Shares and the ADSs. However,
under current English law, Ordinary Shares or ADSs may not be owned by a
Prohibited Person.

Item 7.  Taxation.

         The following is a summary of certain material U.S. federal income and
U.K. tax consequences for holders for of Ordinary Shares or ADSs. This summary
is based on the tax laws of the United States (including the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, final, temporary
and proposed regulations thereunder, published rulings and court decisions) and
the tax law and practice of the United Kingdom, as well as on the Income Tax
Convention between the United States of America and the United Kingdom (the
"Treaty") and the Estate and Gift Tax Convention Between the United States of
America and the United Kingdom (the "Estate Tax Treaty") all as in effect at the
date hereof, all of which are subject to change (or changes in interpretation),
possibly with retroactive effect.

         For purposes of this discussion, a "U.S. Holder" is any beneficial
owner of Ordinary Shares or ADSs that is (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized under the laws of the United
States, or (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of the source, or (iv) a trust if a court within the U.S. is
able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control substantial decisions of
the trust. The term "United States" means the United States of America
(including the States and the District of Columbia). A "Non-U.S. Holder" is any
beneficial owner of Ordinary Shares or ADSs that is not a U.S. Holder.

         This discussion does not address any aspects of U.S. taxation other
than federal income taxation or any aspects of U.K. taxation other than income
and capital gains taxation, inheritance taxation and stamp duty and stamp duty
reserve tax. The discussion does not address the U.K. tax consequences for a
U.K. resident or ordinarily resident person of owning, acquiring or disposing of
ADRs evidencing ADSs or Ordinary Shares.

         In general, and taking into account the earlier  assumptions,  for U.S.
federal income and U.K. tax purposes, beneficial holders of ADRs evidencing ADSs
will be treated as the beneficial  owners of the Ordinary Shares  represented by
those ADRs,  and  exchanges of Ordinary  Shares for ADSs,  and ADRs for Ordinary
Shares,  will not be subject to U.S.  federal  income or to U.K.  tax apart from
U.K. stamp duty and stamp duty reserve tax.





                                      -14-
<PAGE>


Taxation of Dividends

         The following is a summary of United Kingdom and United States taxation
of dividends. The Company currently intends to retain all of its earnings to
finance its operations and future growth and does not expect to pay any cash
dividends in the foreseeable future.


United Kingdom Taxation

         Under U.K. tax law, the Company can pay two kinds of
dividends--conventional dividends and foreign income dividends ("FIDs"). As a
result of changes introduced by the Finance (No. 2) Act 1997, the Company will
not be able to elect to pay a dividend as a FID on or after April 6, 1999, nor
will any dividend paid on or after such date be deemed to be a FID. Any
dividend, or portion thereof, which the Company has not elected to pay as a FID
will normally be treated as a conventional dividend although, in certain
circumstances, a dividend will be deemed to be a FID even though no such
election has been made. The Company, however, does not intend to pay a dividend
in such circumstances nor to make any such election and, therefore, this summary
does not address the tax treatment of FIDs.

         No U.K. income tax is withheld from dividend payments by the Company.
However, the Company is required when paying a dividend to account to the U.K.
Inland Revenue for an advance payment of corporation tax ("ACT"), currently at
the rate of 25%, of the amount of dividends paid to shareholders. ACT paid by
the Company can generally be set against its liability to mainstream corporation
tax, subject to certain limits and restrictions.

         An individual shareholder who is the beneficial owner of Ordinary
Shares or ADSs and resident in the United Kingdom for U.K. tax purposes is for
U.K. income tax purposes treated as having taxable income equal to the sum of
the dividend paid to him, plus a tax credit equal to 25% of the amount of the
dividend received (or 20% of the combined amount of the dividend and the related
ACT). The tax credit is set against the shareholder's U.K. income tax liability
on the dividend and is treated as satisfying the shareholder's lower or basic
tax liability in respect of the dividend or, if the individual is exempt from or
not liable to U.K. income tax on the dividend, it is refunded to him.
Shareholders liable to higher rate tax may be liable to pay further U.K. income
tax on the dividend received. As a result of changes introduced by the Finance
(No. 2) Act 1997, no refund of the tax credit will be made to individual
shareholders in respect of dividends paid on or after April 6, 1999.
Furthermore, although no change to the rate of ACT has been proposed, the rate
of tax credits in respect of dividends paid by the Company on or after April 6,
1999 will be reduced. The tax credit will be equal to one-ninth of the dividend
paid (or 10% of the aggregate of the dividend and the tax credit).

         Subject to certain exceptions, a U.S. Holder who is a resident of the
United States for purposes of the Treaty will be entitled to a payment from the
United Kingdom of the tax credit to which an individual resident in the United
Kingdom would have been entitled (the "tax credit") subject to a U.K.
withholding tax (the "withholding tax") equal to 15% of the sum of the dividend
paid and the tax credit (the net amount being the "tax credit payment"). For
purposes of the Treaty, a U.S. Holder generally will be considered a resident of
the United States if the U.S. Holder is (i) any person, other than a
corporation, resident in the United States for purposes of U.S. tax; but in the
case of a partnership, estate or trust, only to the extent that the income
derived by such partnership, estate or trust is subject to U.S. tax as the
income of a resident, either in its hands or the hands of its partners or
beneficiaries; and (ii) a U.S. corporation. For example, at current rates, a
dividend of (pound)8.00 to such a U.S. Holder would result in a claim for a tax
credit of (pound)2.00, making a total entitlement of (pound)10.00, but subject
to a withholding tax of (pound)1.50, resulting in a net receipt (before any
applicable U.S. taxes) of (pound)8.50.




                                      -15-
<PAGE>




         No tax credit payment is available, however, (i) to U.S. Holders whose
holdings are effectively connected with either (a) a permanent establishment in
the United Kingdom through which the U.S. Holder carries on a business in the
United Kingdom or (b) a fixed base in the United Kingdom from which the U.S.  
Holder performs independent personal services, or (ii) to U.S. corporations
which are also resident in the United Kingdom, or (iii) under certain
circumstances to U.S. corporations at least 25% of the capital of which is held,
directly or indirectly, by persons that are not individual residents or 
nationals of the United States. Further, special rules may apply if the U.S.
holder (i) is a partnership, an estate or trust or (ii) is exempt from taxation
in the United States on dividends paid by the Company. As a result of the 
reduction in the tax credit amount introduced by the Finance (No. 2) Act 1997
(discussed above), no tax credit payment will be available to U.S.
Holders in respect of dividends paid on or after April 6, 1999.

United Kingdom Refund Procedure

         It is anticipated that, if the Company decides to pay dividends and if
at that time it is thought to be beneficial to U.S. Holders to do so,
arrangements will be made by the Depositary of the ADSs so that, subject to
certain exceptions, the tax credit payment (if any) will be made at the same
time as and together with any dividend being paid to a U.S. Holder otherwise
entitled to a tax credit payment (the "H Arrangements"), if where the ADSs are
held directly by the registered U.S. Holder, the registered holder completes the
declaration on the reverse of the dividend check and presents the check for
payment within three months from the date of the issue of the check. If the U.S.
Holder holds the ADSs through an account held by an agent, dealer or broker with
the Depository, a similar declaration on behalf of the U.S. Holder must be made
by the agent, dealer or broker.

         These arrangements are implemented at the discretion of the U.K. Inland
Revenue and may be amended or revoked without notice. They do not apply to
certain shareholders or U.S. Holders, including partnerships, certain investment
or holding companies and bodies exempt from U.S. tax on the dividends received
(apart from certain pension funds), estates or trusts with beneficiaries outside
the United States and persons holding 10% or more of the class of shares in
respect of which a dividend is paid, who must make a direct claim. Such U.S.
Holders must, in order to obtain a refund of a tax credit payment, file in the
manner and at the time described in Revenue Procedure 80-18, 1980-1 C.B. 623 and
Revenue Procedure 81-58, 1981-2 C.B. 678 (summarized below), a claim for a tax
credit payment identifying the dividends with respect to which the tax credit
was paid. Claims for tax credit payments must be made within six years of the
U.K. year of assessment (generally the 12 month period ending April 5 in each
year) in which the related dividend was paid, in accordance with the procedures
set out below.

         The first claim by such U.S. Holder for a refund of a tax credit
payment is made by sending the appropriate U.K. form in duplicate to the
Director of the Internal Revenue Service Center with which the U.S. Holder's
last federal income tax return was filed. Forms may be obtained from the
Internal Revenue Service, Assistant Commissioner (International), 950 L'Enfant
Plaza South, S.W., Washington, D.C. 20024, Attention: Taxpayers' Service
Division. Because a refund claim is not considered made until the U.K. tax
authorities receive the appropriate form from the Internal Revenue Service (the
"Service"), forms should be sent to the Service well before the end of the
applicable limitation period. Any claim for a refund of a tax credit payment by
a U.S. Holder after the first claim should be filed directly with the U.K.
Inland Revenue, Financial Intermediaries and Claims Office, Fitz Roy House, P.O.
Box 46, Nottingham NG2 1BD, England.


                                      -16-
<PAGE>



         U.S.  Holders who are not resident or ordinarily  resident in the 
United  Kingdom and have no other source of U.K. income are not required to
file a U.K. income tax return.

United States Federal Income Taxation         

         U.S. Holders. Except as may be required under the CFC, foreign personal
holding company or passive foreign investment company rules discussed below,
under the U.S. federal income tax laws, U.S. Holders will include in gross
income the gross amount of any dividend paid (before reduction for United
Kingdom withholding taxes) by the Company out of its current or accumulated
earnings and profits (as determined under United States federal income tax
principles) as ordinary income when the dividend is actually or constructively
received by the U.S. Holder, in the case of Ordinary Shares, or by the
Depositary, in the case of ADSs. Distributions in excess of the Company's
earnings and profits will be treated, for U.S. federal income tax purposes,
first as a non-taxable return of capital to the extent of the U.S. Holder's
basis in the ADSs or Ordinary Shares, and then as gain from the sale or exchange
of such ADSs or Ordinary Shares. The dividend will not be eligible for the
dividends-received deduction generally allowed to United States corporations in
respect of dividends received from other United States corporations. The amount
of the dividend distribution includible in the income of a U.S. Holder will be
the dollar value of the pounds sterling payments made, determined at the spot
pounds sterling/dollar rate on the date such dividend distribution is includible
in the income of a U.S. Holder, regardless of whether that payment is in fact
converted into dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the dividend payment is
includible in income to the date such payment is converted into dollars will be
treated as ordinary income or loss. Such gain or loss will generally be income
from sources within the United States for foreign tax credit limitation
purposes.

         Subject to certain limitations, the U.K. tax withheld in accordance
with the Treaty and paid over to the United Kingdom will be treated for U.S.
federal tax purposes as a foreign income tax that may be credited against the
U.S. Holder's federal income tax liability of the U.S. Holders. Under recently
enacted legislation, no foreign tax credit is permitted to U.S. Holders who (i)
have held their shares for less than 16 days during the 30 day period beginning
on the date which is 15 days before the record date for the dividend, or (ii) to
the extent the recipient of the dividend is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property. To the extent a refund
of the tax withheld is available to a U.S. Holder under the laws of the United
Kingdom or under the Treaty, the amount of tax that is withheld will not be
eligible for credit against the U.S. Holder's U.S. federal income tax liability.
For foreign tax credit limitation purposes, the dividend will be income from
sources without the U.S. and generally will be classified as passive income (or,
in the case of certain holders, financial services income) for purposes of
determining the U.S. foreign tax credit limitation. In general, for tax years
beginning after 1997, individuals with creditable foreign taxes of $300 or less
($600 in the case of a joint return) and who have exclusively passive foreign
income may elect annually to be exempt from the foreign tax credit limitation
rules. In lieu of claiming a U.S. foreign tax credit, the U.S. Holder may elect
to claim a deduction for the U.K. tax withheld against such U.S. Holder's
federal income.

         The rules relating to the determination of and the limitations relating
to the U.S. foreign tax credit are complex and prospective investors should
consult their own tax advisors with respect thereto.





                                      -17-
<PAGE>



         Distributions of additional Ordinary Shares to U.S. Holders with
respect to their Ordinary Shares or ADSs that are made as part of a pro rata
distribution to all shareholders of the Company generally will not be subject to
U.S. federal income tax.

         Non-U.S.  Holders.  Dividends paid to a Non-U.S.  Holder in respect of
Ordinary Shares or ADSs will not be subject to United States federal income 
tax unless such dividends are  effectively  connected with the conduct of a
U.S. trade or business within the United States by such Non-U.S. Holder
(and are attributable to an office or other fixed place of business in the 
United States or a permanent establishment maintained in the United States by 
such Non-U.S. Holder, if an applicable income tax treaty so requires as a 
condition for such Non-U.S. Holder to be subject to United States
taxation on a net income basis in respect of income from ordinary shares or
ADSs), in which case the Non-U.S. Holder generally will be subject to tax in
respect of such dividends in the same manner as a U.S. Holder. Any such
effectively connected dividends received by a corporate non-U.S. Holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.

Taxation of Capital Gains

  United Kingdom Taxation

         Under the Treaty, each country may in general tax capital gains in
accordance with the provisions of its domestic law. Under the present U.K. law,
a U.S. Holder that is not resident (and, in the case of an individual, not
ordinarily resident) in the U.K. for U.K. tax purposes and who does not carry on
a trade, profession or vocation in the U.K. through a branch or agency to which
the Ordinary Shares or ADSs are attributable will not be liable for U.K.
taxation on capital gains or eligible for relief for allowable losses realized
on the sale or other disposal (including redemption) of such Ordinary Shares or
ADSs.

  United States Federal Income Taxation

         U.S. Holders. Upon a sale or other disposition of Ordinary Shares or
ADSs, a U.S. Holder will recognize gain or loss for United States federal income
tax purposes in an amount equal to the difference between the U.S. dollar value
of the amount realized and the U.S. Holder's adjusted tax basis (determined in
U.S. dollars) in such Ordinary Shares or ADSs. Generally, such gain or loss will
be capital gain or loss. Under recently enacted legislation, the maximum regular
individual U.S. federal income tax rate on capital gains is 20% for assets held
for more than 18 months and 28% for assets held for more than 12 months but not
more than 18 months. Capital gains on the sale of assets held for one year or
less are subject to U.S. federal income tax at ordinary income rates. Certain
limitations exist on the deductibility of capital losses by both corporate and
individual taxpayers. Any tax imposed by the United Kingdom directly on the gain
from such a sale or other disposition would generally be eligible for the U.S.
foreign tax credit; however, because the gain would be U.S. source, the U.S.
Holder might not be able to use the credit otherwise available because of the
foreign tax credit limitation rules.

         Non-U.S. Holders. A Non-U.S. Holder will not be subject to United
States federal income tax in respect of gain recognized on a disposition of
Ordinary Shares or ADSs unless (i) the gain is effectively connected with a
trade or business of the Non-U.S. Holder in the United States or (ii) in the
case of a Non-U.S. Holder who is an individual, such holder is present in the
United States for 183 or more days in the taxable year of the sale and certain
other conditions apply. Effectively connected



                                      -18-
<PAGE>



gains  realized  by  a  corporate  Non-U.S.   Holder  may  also,  under  certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
lower rate as may be specified by an applicable income tax treaty.


  Passive Foreign Investment Company Considerations

         Special United States federal income tax rules apply to U.S. Holders
owning shares of a "passive foreign investment company" ("PFIC"). A foreign
corporation will be considered a PFIC for any taxable year in which 75% or more 
of its gross income is passive income or in which 50% or more of the average 
value (or, if a CFC or if elected, the adjusted tax basis) of its assets are 
considered "passive assets" (generally assets that generate passive income). 
Based on an analysis of current law and of its financial position, the Company 
believes that it is not a PFIC for United States federal income tax purposes
and does not anticipate that it will become a PFIC in the foreseeable future,
although no assurances can be made that the applicable tax law or other relevant
circumstances will not change in a manner which affects the PFIC determination.
If the Company were classified as a PFIC, a U.S. Holder could be subject to 
increased tax liability (possibly including an interest charge) upon the sale 
or other disposition of Ordinary Shares or ADSs or upon the receipt of "excess 
distributions", unless such U.S. Holder elected to be taxed currently on its 
pro rata portion of the Company's income (a "QEF Election"), whether or not 
such income was distributed in the form of dividends or otherwise. Under 
recently enacted legislation, for tax years beginning after 1997, U.S. Holders 
may elect to mark to market stock in a marketable PFIC (a "Mark to Market 
Election"). In general, U.S. Holders making a Mark to Market Election would be 
required to recognize as ordinary income or loss the difference between the U.S.
Holder's adjusted basis in their PFIC shares and the fair market value of such 
shares. The Company intends to monitor its status under the PFIC rules and, 
in the event that the Company makes a determination that it is a PFIC for any
taxable year, it will promptly notify its U.S. Holders of such determination 
and will provide its U.S. Holders with the required information necessary to 
make the QEF Election.

  Controlled Foreign Corporation Discussion

         Under Subpart F of the Code, a CFC is a foreign corporation that on any
day of its taxable year is owned, directly, indirectly, or by attribution, more
than 50%, by vote or value, by "U.S. Shareholders." For this purpose, a "U.S.
Shareholder" is a U.S. person (as defined in Section 957(c) of the Code) who
owns directly, indirectly or by attribution at least 10% of the total combined
voting power of all shares entitled to vote of the foreign corporation.

         If a foreign corporation has been a CFC for an uninterrupted period of
at least 30 days during the CFC's taxable year, a U.S. Shareholder who owns
stock in the CFC on the last day in such year must include in income for his
taxable year in which or with which the taxable year of the CFC ends, the total
of (i) his pro rata share of the CFC's Subpart F income for such taxable year,
(ii) his pro rata share of the CFC's previously excluded Subpart F income
withdrawn from investments in less developed countries for such year, (iii) his
pro rata share of the CFC's previously excluded Subpart F income from foreign
base company shipping operations for such year; and (iv) his pro rata share of
the CFC's increase in earnings invested in U.S. property for such year. Amounts
distributed by a CFC to U.S. Shareholders are tax free to the extent that such
amounts have been previously taken into income by such U.S. Shareholders.

         A U.S. person (as defined in Section 957(c)) who owns less than 10% of
the total combined voting power of all classes of voting stock of the Company
directly, indirectly, or by attribution, is not



                                      -19-
<PAGE>


taxed on the  undistributed  income of the Company even if the Company is a CFC.
Distributions  to  shareholders  who are not  U.S.  Shareholders  (but  are U.S.
Holders)  will be taxed under the  ordinary  rules  relating to the  taxation of
distributions  discussed above. U.S. Holders who own more than 5%, but less than
10% of the Company's  voting  stock,  may have certain  reporting  requirements,
however.

         Subject to certain limitations, under Section 1248 of the Code, if a
U.S. person sells or exchanges stock in a foreign corporation, or receives a
distribution from a foreign corporation which for U.S. tax purposes is treated
as an exchange of stock, and such person owns, or is considered as owning by
applying certain rules of constructive ownership, 10% or more of the total
combined voting power of all classes of stock entitled to vote of such foreign
corporation at any time during the five-year period ending on the date of sale
or exchange when such foreign corporation was a CFC, then the gain recognized on
the sale or exchange of such stock shall be included in the gross income of such
person as a dividend, to the extent of earnings and profits of the foreign
corporation accumulated during the period or periods the stock sold or exchanged
was held by such person while such foreign corporation was a CFC.

         Management reported that the Company met the requirements to be a CFC
for at least 30 days during the Company's 1997 tax year. As such, the Company
was a CFC for 1997. Following the completion of the initial public offering in
August 1997 (the "Offering"), the Company expects that ownership of its shares
is such that it will not meet the requirements to be treated as a CFC, although
there can be no assurance that the Company will not be, or in the future become,
a CFC. The Company's status as a CFC depends on the extent to which its U.S.
Shareholders own, in the aggregate, more than 50% of the Company (by vote or
value) and, therefore, the Company's classification as a CFC is not within the
control of the Company.

         The Company will attempt to monitor its status, particularly the
identity of its U.S. Shareholders, and will, promptly following the end of any
taxable year in which it has determined that it is a CFC, notify all of its U.S.
Shareholders that it is a CFC. If the Company becomes a CFC, it will comply with
all reporting requirements applicable to such classification.

  Foreign Personal Holding Company Discussion

         In general, the Company and any of its non-U.S. subsidiaries may be
classified as a "foreign personal holding company" ("FPHC") if in any taxable
year, five or fewer U.S. Holders own directly, indirectly, or by attribution,
50% (by vote or value) of the Company's stock (the "Ownership Test") and at
least 60% (or, in certain circumstances, at least 50%) of the gross income of
the Company or any non-U.S. subsidiaries of the Company consists of certain
passive income for purposes of the FPHC provisions (the "Income Test").

         If the Company or any of its subsidiaries becomes a FPHC, each U.S.
Holder of ADSs or Ordinary Shares who held such shares on the last day of the
taxable year of the Company or, if earlier, the last day of its taxable year in
which the Ownership Test was met, would be required to include in gross income
as a deemed dividend such U.S. Holder's pro rata portion of the undistributed
"passive" income of the Company, even if no cash dividend were actually paid. In
such a case, a U.S. Holder would generally be entitled to increase its tax basis
in the ADSs or Ordinary Shares of the Company by the amount of the deemed
dividend.

         It is likely that the Company has met the Ownership Test for FPHC
purposes prior to the Offering. However, following the Offering, it has not met
the Ownership Test. In addition, based on



                                      -20-
<PAGE>



an analysis of current law and its financial position, the Company believes that
neither it nor any of its non-U.S. subsidiaries meets the Income Test. Thus, the
Company's  U.S.  Holders  should  not be  subject  to the FPHC  rules.  While no
assurance can be given that the Company and its non-U.S.  subsidiaries  will not
be subject  to the FPHC  rules,  the  Company  intends  to manage its  financial
affairs to avoid such  classification.  If the Company determines that it or any
of its non-U.S. subsidiaries is a FPHC, it will provide appropriate notification
to the Company's U.S. Holders.

United Kingdom Inheritance Tax

         Under the Estate Tax Treaty, Ordinary Shares or ADSs held beneficially
by an individual U.S. Holder who is domiciled for the purpose of such treaty in
the U.S. and is not for purposes of such treaty a national of or domiciled in
the United Kingdom will not, provided any tax chargeable in the U.S. is paid, be
subject to U.K. inheritance tax on the disposal of the Ordinary Shares or ADSs
by way of gift or upon the individual's death unless they are part of the
business property of a permanent establishment of the individual in the United
Kingdom or, in the case of a U.S. Holder who performs independent personal
services, pertain to a fixed base situated in the United Kingdom. Where the ADSs
or Ordinary Shares have been placed in trust by a settler who, at the time of
settlement, was a U.S. Holder, the ADSs or Ordinary Shares will generally not be
subject to U.K. inheritance tax if the settler, at the time of the settlement,
was domiciled in the United States for the purposes of the treaty and was not a
U.K. national and the ADSs or Ordinary Shares are not part of the business
property of a U.K. permanent establishment and do not pertain to a U.K. fixed
base, as more fully summarized above. In the exceptional case where the shares
are subject both to U.K. inheritance tax and to U.S. federal gift or estate tax,
the treaty generally provides for the tax paid in the United Kingdom to be
credited against tax paid in the United States or for tax paid in the United
States to be credited against tax payable in the United Kingdom based on
priority rules set out in that treaty.

United States Federal Gift and Estate Tax

         In general, an individual U.S. Holder will be subject to U.S. gift and
estate taxes with respect to his or her ownership of ADSs or Ordinary Shares in
the same manner and to the same extent as with respect to other types of
personal property. Holders who are not individual citizens or residents of the
United States will generally not be subject to U.S. federal gift and estate tax.

United Kingdom Stamp Duty and Stamp Duty Reserve Tax

         Stamp duty reserve tax at the then-applicable rate arises upon the
issue to the Depositary of the new Ordinary Shares by the Company. The current
rate of stamp duty reserve tax is 1.5% of the market value of the Ordinary
Shares. The stamp duty reserve tax arising on such issue will be paid by the
Company.

         Provided that the instrument of transfer is not executed in the United
Kingdom and remains at all subsequent times outside the United Kingdom, no U.K.
stamp duty will be payable on the acquisition or transfer of ADSs representing
Ordinary Shares, evidenced by ADRs, nor will an agreement to transfer such ADSs
evidenced by ADRs give rise to a liability to stamp duty reserve tax.

         A transfer of Ordinary Shares in registered form by the Depositary or
its nominee to the beneficial owners of the relevant ADS or its nominee when the
beneficial owner is not transferring beneficial ownership will give rise to a
fixed charge to U.K. stamp duty of 50p.



                                      -21-
<PAGE>



         Purchasing Ordinary Shares in registered form, as opposed to ADRs, will
normally give rise to a charge to U.K. stamp duty at the rate of 50p per
(pound)100 (or part thereof) (or stamp duty reserve tax at the rate of 0.5%) of
the price payable for the Ordinary Shares. Stamp duty and stamp duty reserve tax
generally are the responsibilities of the purchaser. Where such Ordinary Shares
are later transferred to the Depositary or Depositary's nominee or agent, stamp
duty or stamp duty reserve tax will normally be payable at the rate of (in the
case of stamp duty) (pound)1.50 per (pound)100 (or part thereof) of, or (in the
case of stamp duty reserve tax) 1.5% of the consideration for the transfer or,
if none, of the value of the Ordinary Shares at the time of transfer. Such tax
is payable by the Depositary but under the Deposit Agreement, holders of ADRs
must pay an amount equal to such tax to the Depositary.


Backup Withholding and Information Reporting

         In general, information reporting requirements will apply to dividend
payments (or other taxable distributions) in respect of Ordinary Shares or ADSs
made within the United States to a non-corporate U.S. person, and "backup
withholding" at the rate of 31% will apply to such payments (i) if the holder or
beneficial owner fails to provide an accurate taxpayer identification number,
(ii) if there has been notification from the Service of a failure by the holder
or beneficial owner to report all interest or dividends required to be shown on
its U.S. federal income tax returns or (iii) in certain circumstances, if the
holder or beneficial owner fails to comply with applicable certification
requirements. Certain corporations and persons that are not U.S. persons may be
required to establish their exemption from information reporting and backup
withholding by certifying their status on Internal Revenue Service Forms W-8 or
W-9. Moreover, under U.S. Treasury Regulations proposed to be effective for
payments made after 1997, in the case of ADSs or Ordinary Shares held by a
foreign partnership, this certification requirement would generally be applied
to the partners of the partnership, and the partnership would be required to
provide certain information, including a U.S. taxpayer identification number.

         In general, payment of the proceeds from the sale of Ordinary Shares or
ADSs through a U.S. office of a broker is subject to both U.S. backup
withholding and information reporting unless the holder or beneficial owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. U.S. information reporting and backup withholding
generally will not apply to a payment made with respect to a transaction
effected by a foreign office of a foreign broker unless (i) the foreign broker
is a CFC or (ii) 50% or more of the gross income of the foreign broker for the
3-year period ending with the close of its taxable year preceding the payment
was effectively connected with the conduct of a trade or business in the United
States unless the broker has documentary evidence in its files that the holder
or beneficial owner is a non-U.S. person or the holder or beneficial owner
otherwise establishes an exemption.

         Amounts withheld under the backup withholding rules may be credited
against a holder's tax liability, and a holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the Service.



                                      -22-
<PAGE>



Item 8.  Selected Financial Data.

         The selected consolidated financial data for each of the three years in
the period ended December 31, 1997 are derived from the Consolidated Financial
Statements of the Company, which have been prepared in accordance with US GAAP
and audited by Ernst & Young Chartered Accountants, Independent Auditors. The
selected consolidated financial data for the period beginning on June 15, 1993,
the date of the consummation of the Acquisition and ended December 31, 1993 are
derived from unaudited financial statements. The selected consolidated financial
data of the Company set forth below are qualified by reference to, and should be
read in conjunction with, "Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Form 20-F.

Consolidated Statement of Operations Data:
<TABLE>

<CAPTION>
                                                            Year Ended December 31,
                                         ------------------------------------------------------------

                          1993 (1)           1994            1995             1996            1997
                          --------           ----            ----             ----            ----
                                            (Dollars in thousands, except share data)
<S>                          <C>            <C>             <C>              <C>             <C>    
Net sales              $      51,530    $    115,847    $     139,255    $     148,149   $    148,388
Cost of sales                 34,742          76,738           91,185           95,312         94,008
                       -------------    ------------    -------------    -------------   ------------
Gross profit                  16,788          39,109           48,070           52,837         54,380
Selling, general
  and administrative
  expenses                    14,954          28,066           35,066           35,336         33,618
                       -------------    ------------    -------------    -------------   ------------
Operating income               1,834          11,043           13,004           17,501         20,762
Other income                     157             258              369            1,829          2,175
Interest income
  (expense), net               (567)           (581)            (372)               48            218
                       -------------    -----------     ------------     -------------   ------------
Income before taxes            1,424          10,720           13,001           19,378         23,155
Provision for income
  taxes                          154             858            1,657            2,437          3,367
                       -------------    ------------    -------------    -------------   ------------
Net income             $       1,270    $      9,862    $      11,344    $      16,941   $     19,788
                       -------------    ------------    -------------    -------------   ------------
Basic earnings
 per share             $        0.12    $       0.94    $        1.08    $        1.61   $       1.84
                       -------------    ------------    -------------    -------------   ------------
Diluted earnings
 per share             $        0.12    $       0.93    $        1.06    $        1.59   $       1.82
                       -------------    ------------    -------------    -------------   ------------
                       -------------    ------------    -------------    -------------   ------------


</TABLE>
(1)  For the period beginning June 15, 1993 and ended December 31, 1993.




                                      -23-
<PAGE>






Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>

                                                                          At December 31,
                                                  -----------------------------------------------------------

                                     1993          1994           1995              1996             1997
                                     ----          ----           ----              ----             ----
                                                           (Dollars in thousands)
<S>                                <C>            <C>              <C>            <C>                <C>    

Cash and cash
  equivalents                    $    6,636    $    11,442     $    16,001     $    19,144           $  30,337
Working capital                      22,577         32,364          39,782          51,074              63,834
Total assets                         52,547         68,450          86,023          93,726             107,493
Total debt(1)                         9,145         10,520           8,889           4,177               2,478
Redeemable preferred stock              987          1,044           1,036           1,141              --
Total shareholders' equity              549         11,998          24,355          39,120              59,552
</TABLE>

(1) Total debt comprises bank notes payable with a maturity of less than one
year, long-term debt (including current portion) and capital lease obligations
(including current portion).

Dividends

         The Company has never declared or paid dividends on its Ordinary
Shares. The Company currently intends to retain its earnings following the
Offering to finance the growth and development of its business and,
consequently, does not anticipate paying any dividends on the Ordinary Shares in
the foreseeable future. Under the Companies Act 1985, as amended, of Great
Britain (the "Companies Act"), dividends are payable on the Ordinary Shares only
out of profits available for distribution determined in accordance with
accounting principles generally accepted in the United Kingdom, which differ in
certain respects from US GAAP. In addition, certain of the Company's financing
agreements restrict the Company's ability to pay dividends to its shareholders
and it is anticipated that future financing agreements will have similar
restrictions. See "Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."





                                      -24-
<PAGE>






Item 9.  Management's Discussion and Analysis of Financial Condition and 
         Results of Operations.

         The following should be read in conjunction with "Item 8. Selected
Financial Data" and the Company's Consolidated Financial Statements and the
Notes related thereto appearing elsewhere in this Form 20-F.

         Although the Company reports its financial results in U.S. dollars,
approximately 65% of the Company's revenues and expenses are incurred in foreign
currencies. The fluctuation of the functional currencies earned by the Company
against the U.S. dollar has had the effect of increasing or decreasing (as
applicable) U.S. dollar reported net sales, as well as the cost of goods sold,
gross profit, selling, general and administrative expenses denominated in such
foreign currencies when translated into U.S. dollars as compared to prior
periods.

RESULTS OF OPERATIONS

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

         The Company's net sales increased 0.2% to $148.4 million in fiscal 1997
from $148.1 million in fiscal 1996. During the same period, net sales in North
America increased 6.9% to $57.4 million from $53.7 million; net sales in Europe
decreased 4.2% to $68.2 million from $71.2 million; and net sales in the
Asia-Pacific region decreased 2.2% to $22.7 million from $23.2 million. Despite
a strengthening U.S. dollar against most of the functional currencies earned by
the Company, overall net sales revenue increased due to continued strong demand
for the Company's three major product lines in North America, as well as an
improved economy and hydraulics market outlook for the Company's piston and vane
product lines in Europe.

         Restated, net sales (at the average exchange rate for fiscal 1996) for
fiscal 1997, were $157.5 million, a 6.3% increase over fiscal 1996. The
decreased sales revenue for the period attributable to the exchange rate
differences was $9.1 million. Restated (at the average exchange rate for fiscal
1996), net sales for fiscal 1997 for the Company's European operations increased
6.5% to $75.8 million from $71.2 million, and net sales for the Asia-Pacific
operations increased 5.7% to $24.5 million from $23.2 million.

         The Company's gross profit increased 2.9% to $54.4 million in fiscal
1997 from $52.8 million in fiscal 1996. Gross profit as a percentage of net
sales increased to 36.7% in fiscal 1997 from 35.7% in fiscal 1996. The increase
in gross profit was primarily due to increased sales to North American
distributors during fiscal 1997, and enhanced by continued margin improvement
derived from cost reduction initiatives previously implemented at the Company's
production facilities. Gross profit in North America increased 26.1% to $18.3
million in fiscal 1997 from $14.5 million in fiscal 1996.

         Gross profit in Europe decreased 8.7% to $27.9 million in fiscal 1997
from $30.5 million in fiscal 1996, and gross profit in the Asia-Pacific
increased 5.7% to $8.3 million in fiscal 1997 from $7.8 million in fiscal 1996.
Restated (at the average exchange rate for fiscal 1996), gross profit in Europe
was $31.0 million, or a 1.4% increase over fiscal 1996, and gross profit in the
Asia-Pacific was $8.9 million, or a 13.9% increase over fiscal 1996. The total
decreased gross profit for the period attributable to the exchange rate
differences was $3.8 million. Restated, gross profit as a percentage of net
sales increased to 36.9% for fiscal 1997 compared to 35.7% for fiscal 1996.

         Selling, general and administrative ("SG&A") expense decreased 4.9% to
$33.6 million in fiscal 1997 from $35.3 million in fiscal 1996. These expenses
as a percentage of net sales decreased to 



                                      -25-
<PAGE>




22.7% in fiscal 1997 compared to 23.9% in fiscal 1996. Restated (at the average
exchange rate for fiscal 1996), SG&A expenses increased 2.6% to $36.3 million
(23.0% of net sales) in fiscal 1997 from $35.3 million (23.9% of net sales) in
fiscal 1996. The restated increase in these expenses for fiscal 1997 as compared
to fiscal 1996 is due primarily to costs associated with expanding distribution
channels in Asia, and the recognition of restructuring charges in the Company's
German and Australian operations. The decrease in these expenses as a percentage
of net sales is reflected by a currency adjusted 6.3% increase in net sales
revenue leveraged from a 2.6% marginal increase in selling and administrative
expense.

         Operating income increased 18.6% to $20.8 million in fiscal 1997 from
$17.5 million in fiscal 1996. Operating income as a percentage of net sales
increased to 14.0% in fiscal 1997 from 11.8% in fiscal 1996. Restated (at the
average exchange rate for fiscal 1996), operating income increased 25.2% to
$21.9 million (13.9% of net sales) in fiscal 1997, from $17.5 million (11.8% of
net sales) in fiscal 1996. The decreased operating income for the period
attributable to the exchange rate differences was $1.1 million.

         Other income increased $0.4 million to $2.2 million (1.5% of net sales)
in fiscal 1997 from $1.8 million (1.2% of net sales) in fiscal 1996. The
increase in other income was a result of the recognition of a gain on disposal
of surplus real estate assets in Germany during fiscal 1997, exceeding similar
disposal gains arising from U.S. real estate sales in fiscal 1996.

         Net interest income was $218,000 in fiscal 1997 compared to $48,000 of
interest income in fiscal 1996. The increase in interest income was primarily
due to increased profitability, operating cash flows, and asset disposals
resulting in higher interest bearing cash balances held at the subsidiary level.
Additionally, funds from the Company's initial public offering increased
interest bearing cash balances held by the Company.

         The effective tax rate for fiscal 1997 was 14.5% compared to 12.6% for
fiscal 1996. The provision for taxes increased 38.2% to $3.4 million for fiscal
1997 compared to $2.4 million for fiscal 1996. This provision as a percentage of
net sales increased to 2.3% in fiscal 1997 from 1.6% in fiscal 1996. During
fiscal 1997, the Company recognized a tax credit of $1.9 million to record
deferred tax assets related to its U.S. operations. Excluding the effect of the
tax credit, the effective tax rate for fiscal 1997 was 22.7% compared to 12.6%
for fiscal 1996. Restated (excluding the $1.9 million tax credit), the provision
for taxes increased to $5.6 million for fiscal 1997, compared to $2.4 million
for fiscal 1996. This reduced tax expense may not reflect the actual cash outlay
for taxes, but is required to be recognized under U.S. deferred tax accounting
rules.

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

         Net sales increased 6.4% to $148.1 million in fiscal 1996 from $139.3
million in the comparable period in 1995. During the same period, net sales in
North America increased 18.3% to $53.7 million from $45.4 million; net sales in
Europe increased 1.9% to $71.2 million from $69.9 million; and net sales in the
Asia-Pacific region declined 3.1% to $23.2 million from $24.0 million.
Management believes that the increase in net sales was due primarily to
continued strong demand for the Company's products from OEM customers and
increased exports of piston pump products from North America.

         Net sales in the Asia-Pacific region were adversely affected by foreign
currency translation losses, largely as a result of a declining Japanese yen
against the dollar.  Restated (at the average 



                                      -26-
<PAGE>




exchange rate for fiscal 1995), net sales in the Asia-Pacific region were $24.5
million in fiscal 1996. The decrease in net sales in the Asia-Pacific region for
the period attributable to exchange rate differences was $2.0 million.

         Gross profit increased 9.9% to $52.8 million in fiscal 1996 from $48.1
million in fiscal 1995. Gross profit as a percentage of net sales increased to
35.7% in fiscal 1996 from 34.5% in fiscal 1995. The increase in gross profit was
primarily due to reductions in product cost, including the consolidation of the
Company's raw material suppliers, continuing improvements in production
processes, coupled with a shift in sales towards high-performance, higher-margin
products.

         SG&A expenses increased 0.8% to $35.3 million in fiscal 1996 from $35.1
million in fiscal 1995. SG&A expenses as a percentage of net sales decreased to
23.9% in fiscal 1996 from 25.2% in fiscal 1995 as a result of allocation of
selling, marketing and product handling costs over a larger base of net sales.
The increase in SG&A expenses was due mainly to slightly higher selling,
marketing and product handling costs associated with significantly improved
sales volume. In addition, the Company continued its program of expanding the
depth and reach of its selling efforts in the U.S., the region in which the
Company generated its largest net sales and margin growth during the past year.

         Operating income increased 34.6% to $17.5 million in fiscal 1996 from
$13.0 million in fiscal 1995. Operating income as a percentage of net sales
increased to 11.8% in fiscal 1996 from 9.3% in fiscal 1995. Restated (at the
average exchange rate for fiscal 1995), operating income increased to $17.8
million in fiscal 1996 from $13.0 million in fiscal 1995. Restated (at the
average exchange rate for fiscal 1995), operating income as a percentage of net
sales was 11.9% in fiscal 1996 compared to 9.3% in fiscal 1995.

         Other income increased to $1.8 million in fiscal 1996 from $0.4 million
in fiscal 1995. Other income as a percentage of net sales increased to 1.2% in
1996 from 0.3% in 1995. The increase in other income was the result of the
recognition of a gain on disposal of non-revenue generating fixed assets in the
U.S. during 1996.

         Net interest income was $48,000 in fiscal 1996 compared with net
interest expense of $372,000 in fiscal 1995. The increase in net interest income
was a result of the utilization of operating cash flows and disposals of fixed
assets to repay outstanding long-term debt of $1.0 million, borrowings under
lines of credit of $2.9 million and capital lease obligations of $1.3 million.

         The effective tax rate for fiscal 1996 was 12.6% compared to 12.7% in
fiscal 1995. Provision for income taxes increased to $2.4 million in fiscal 1996
from $1.7 million in fiscal 1995. This provision, as a percentage of net sales,
increased to 1.6% in fiscal 1996 from 1.2% in fiscal 1995, primarily due to an
increase in income before taxes of 49.1%, or $6.4 million, to $19.4 million in
1996, from $13.0 million in 1995.



                                      -27-

<PAGE>


<TABLE>
<CAPTION>

LIQUIDITY AND CAPITAL RESOURCES


                                                                   Year Ended and At December 31,
                                                     -------------------------------------------------------
                                                           1995               1996                1997
                                                     ---------------- ------------------ -------------------
                                                                    (Dollars in thousands)
<S>                                                       <C>                <C>                <C>   
Cash & cash equivalents                                   16,001             19,144             30,337
Net cash provided by operating activities                 11,460             11,578             16,985
Net cash used in investing activities                     (4,985)            (2,776)            (5,225)
Net cash provided by (used in) investing activities       (2,682)            (5,162)             1,899
Effect of exchange rate changes on cash                      766               (497)            (2,466)
</TABLE>

         Historically the Company has funded its cash requirements through cash
flow from operations, although short-term fluctuations in working capital
requirements for some of the Company's subsidiaries have been met through
borrowings under revolving lines of credit obtained locally. The Company's
primary uses of cash have been to fund capital expenditures and to service and
repay debt.

         Net cash provided by operating activities for fiscal 1997 increased to
$17.0 million from $11.6 million as compared to fiscal 1996. The increase in the
Company's cash generated from operations reflects primarily an increase in net
income. The $5.4 million increase in net cash provided by operating activities
for fiscal 1997 compared to fiscal 1996 was attributable to a $2.8 million
increase in net income, a $4.1 million increase in sources of cash from
operating assets and liabilities, and by a $1.7 million increase in deferred
income taxes. The Company anticipates that operating cash and capital
expenditure requirements will continue to be funded by cash flow from
operations, cash on hand and bank borrowings.

         Net cash used in investing activities was $5.2 million for fiscal 1997,
compared to $2.8 million for fiscal 1996. Investing activities consisted largely
of investment in manufacturing equipment for the Company's three production
facilities. Purchases of machinery and equipment were $7.4 million for fiscal
1997 compared to $4.6 million for fiscal 1996. During the same period, investing
activities also reflect the disposal of $2.2 million of non-revenue generating
real estate and other assets for fiscal 1997, compared to $1.8 million of real
estate and other asset disposals during fiscal 1996. The Company anticipates
that it will incur approximately $9.0 million for capital expenditures for
fiscal 1998, excluding any acquisitions of new businesses.

         Net cash provided by (used in) financing activities was $1.9 million
for fiscal 1997 compared to ($5.2 million) for fiscal 1996. The increase of $7.1
million in net cash provided by financing activities for fiscal 1997 compared to
fiscal 1996 was primarily attributable to $4.5 million of net proceeds
generated from the sale of ordinary shares related to the Company's initial
public offering and a $2.3 million reduction in net repayments of long-term
debt.

         The effect of exchange rate changes on cash and cash equivalents was
($2.5 million) and ($0.5 million) for fiscal 1997 and fiscal 1996, respectively.
As approximately two thirds of the Company's business is transacted in
currencies other than the U.S. dollar, foreign currency fluctuations had a
significant impact on dollar reported balances for fiscal 1997 compared to
fiscal 1996. The $2.0 million further decrease in the exchange rate impact on
cash and cash equivalents was attributable to a strengthening U.S. dollar
against most of the functional currencies earned by the Company in its European
and Asia-Pacific operations.



                                      -28-
<PAGE>




The average dollar-weighted foreign currency decline for fiscal 1997
for the Company's European and Asia-Pacific operations was 10.1% and 7.5%,
respectively.

         In September 1995, the Company's U.S. subsidiary entered into a loan
agreement with a bank that provides for a revolving line of credit of up to $3.0
million. The loan agreement was renewed in September 1997. Borrowings under the
loan agreement are secured by substantially all of the U.S. subsidiary's assets.
Interest on the revolving line of credit, which is at the prime rate (8.5% at
December 31, 1997) minus 0.5%, is payable monthly. The loan agreement contains
various restrictions and financial maintenance requirements, including the
requirement to maintain a compensating balance of $100,000. At December 31,
1997, the Company's U.S. subsidiary had $3.0 million of unused credit available
under this facility.

         Short-term borrowings outside the United States under available
informal credit facilities are typically a result of overdrafts. At December 31,
1997, the Company had $1.5 million of foreign debt outstanding. The Company also
has an additional $800,000 of unused foreign credit facilities. These facilities
may be withdrawn at any time by the banks. The weighted average interest rates
on short-term borrowings as of December 31, 1996 and 1997 were 4.8% and 4.1%
respectively.

Impact of Inflation

         The impact of inflation on the operating results of the Company has
been moderate in recent years reflecting generally lower rates of inflation in
the economy and relative stability in the Company's cost structure. Although
inflation has not had, and the Company does not expect that it will have, a
material impact on operating results, there is no assurance that the Company's
business will not be effected by inflation in the future.

Exposure to Currency Fluctuations

         A  significant  portion  of the  Company's  business  is  conducted  in
currencies  other than the dollar,  including  pounds  sterling,  French francs,
German marks and Japanese yen. The Company's  financial  statements are prepared
in dollars,  and therefore  fluctuations in exchange rates in the pound sterling
and other  currencies in which the Company does business  relative to the dollar
may  cause  fluctuations  in  reported  financial   information  which  are  not
necessarily  related to the  Company's  operations.  In 1996,  for example,  the
Company  experienced  an  increase  in  net  sales  in the  Asia-Pacific  region
(denominated in local  currencies);  however,  the  dollar-translated  net sales
figures  showed a net  decrease  due to the  fluctuation  of the dollar  against
thelocal  currencies.  Due to the  volatility of currency  exchange  rates,  the
Company  cannot  predict the effect of exchange  rate  fluctuations  upon future
operating  results.  Although the Company  currently  engages in transactions to
hedge a portion of the risks associated with  fluctuations in currency  exchange
rates,  it may not do so in the  future.  There  can be no  assurance  that  the
Company's  business,  financial  condition and results of operations will not be
materially  adversely affected by exchange rate fluctuations or that any hedging
techniques implemented by the Company will be effective.

         The following table illustrates the effect of the currency exchange
rates on certain of the Company's income items in fiscal 1996 and fiscal 1997
which have been recalculated to show what such amounts would have been applying
1995 average exchange rates to 1996 amounts and 1996 average exchange rates to
1997 amounts.





                                      -29-
<PAGE>





<TABLE>
<CAPTION>

                                       Year Ended December 31,

                                                               At 1995
                               1995            1996           Exchange
                              Actual          Actual             Rates
                             --------         ------           --------

                                    (Dollars in thousands)

<S>                          <C>              <C>              <C>     
Net sales                    $139,255         $148,149         $150,265
Gross profit                   48,070           52,837           53,878
Operating income  13,004       17,501           17,822
Net income                     11,344           16,941           17,266
Basic Earnings per share         1.08             1.61             1.64
Diluted earnings per share       1.06             1.59             1.62


</TABLE>
<TABLE>
<CAPTION>
                                       Year Ended December 31,

                                                                  At 1996
                              1996                 1997           Exchange
                              Actual              Actual           Rates
                             -------              ------          --------
                                                         
                                     (Dollars in thousands)


<S>                          <C>              <C>               <C>     
Net sales                    $148,149         $148,388          $157,459
Gross profit                   52,837           54,380            58,170
Operating income               17,501           20,762            21,913
Net income                     16,941           19,788            21,023
Basic earnings per share         1.61             1.84              1.96
Diluted earnings per share       1.59             1.82              1.94

</TABLE>


Year 2000 (Millennium) Issues

         Currently, many computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company and third parties with which the Company does business
rely on numerous computer programs in their day to day operations. The Company
is evaluating the Year 2000 issue, and as it relates to the Company's internal
computer systems and third party computer systems with which the Company
interacts. The Company is being advised by a majority of its vendors and
suppliers that certain of their products are Year 2000 compliant, or can be
upgraded, or will not be affected by the Year 2000 problem. The Company expects
to incur consulting and other expenses related to these issues; these costs will
be expensed as incurred. In addition, the appropriate course of action may
include a replacement of, or an upgrade to certain systems or equipment. There
can be no assurance that the Year 2000 issues will be resolved in 1998 or 1999.
The Company may incur significant costs in resolving its Year 2000 issues,
however, the Company believes this issue will not have a significant adverse
impact on the Company's operations.

Item 9A.  Quantitative and Qualitative Disclosures About Market Risk.

         Not Applicable.



                                      -30-
<PAGE>




Item 10.  Directors and Officers of Registrant.

         The following table sets forth the name and position of the directors
and executive officers of the Registrant.


  Name                       Position                Year of Initial Appointment
  ----                       --------                ---------------------------

J. Colin Keith           Chairman of the Board 
                         of Directors                        1993

David L. Weir            Chief Executive Officer,
                         President and Director               1997
                         

Anders C.H. Brag         Managing Director and 
                         Director                             1993

Enrique Foster Gittes    Director                             1993

Christopher H.B.
Mills (1)(2)              Director                             1993

James J. Nelson (1)(2)   Director                             1993

Anthony D. Mustacchio    Chief Financial Officer              1997

Paul G. Dumond           Company Secretary                    1993

----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

         Unless otherwise decided by the Company by ordinary resolution, the
number of directors shall be not less than three nor more than twelve. Directors
may be appointed by the Company by ordinary resolution; in addition, the Board
of Directors may appoint directors; any director so appointed retires from
office at the next annual general meeting, but is then eligible for
re-appointment.

         At each annual general meeting as nearly as possible (but not
exceeding) one-third of those directors subject to retirement by rotation are
obliged to retire by rotation, based principally upon length of time in office,
and are eligible for re-election. Any director appointed by the Board of
Directors since the previous annual general meeting is not subject to retirement
by rotation. A director may be removed by ordinary resolution of the Company in
general meeting or by all the other directors.

         The directors may from time to time appoint one or more of them to any
executive office on such terms and for such periods as they may (subject to the
provisions of the Companies Act and every other statute for the time being in
force concerning companies and affecting the Company) determine and, without
prejudice to the terms of any contract entered into in any particular case, may
at any time revoke any such appointment.

         The Board of Directors has established  Compensation  and Audit  
Committees,  each of which reports to the Board of Directors. The Compensation 
Committee, which consists of Messrs. Mills and  



                                      -31-
<PAGE>




Nelson, establishes compensation for the Board of Directors and other employees
and administers the Option Plan (defined below). The Audit Committee, which
consists of Messrs. Mills and Nelson, establishes standards for review of the
Company's compliance with applicable accounting and regulatory requirements and
assists the Board of Directors in fulfilling its responsibilities in connection
with the Company's accounting and financial reporting policies.

Item 11.  Compensation of Directors and Officers.

         The compensation of the Executive Directors and key personnel of the
Company is determined by the Board of Directors of the Company based on the
recommendations of the Compensation Committee.

         The aggregate amount of compensation of all directors and executive
officers of the Company as a group (8 persons) paid or accrued for services in
all capacities for fiscal 1997 was $0.9 million. Included in this amount is the
Chairman's compensation of approximately $130,000. The aggregate amount set
aside or accrued by the Company in the year ended December 31, 1997, to provide
pension, retirement or similar benefits for such persons was approximately
$38,400.

         All directors of the Company are paid fees for serving on the Board of
Directors. The basic annual fee received by each director is $20,000. The basic
annual fee may be paid, in part, in Ordinary Shares or ADSs. All directors are
also reimbursed for reasonable expenses incurred in attending Board of Directors
and Committee meetings.

         The directors have power to provide benefits whether by payment of
gratuities, pensions or otherwise to (or to any person in respect of) any
director or ex-director and for the purpose of providing any such benefits to
contribute to any scheme or fund or to pay premiums.

         In 1996, Denison Hydraulics, Inc., the Company's U.S. subsidiary, and
Mr. Weir entered into an agreement regarding Mr. Weir's employment with the U.S.
subsidiary, the definitive terms of which were set forth in an agreement
effective as of August 26, 1996. Pursuant to this agreement, the U.S. subsidiary
agreed to employ Mr. Weir as President for a two-year period ending on May 3,
1998, subject to the right of the U.S. subsidiary to terminate the employment
relationship for cause on prior written notice to Mr. Weir or without cause on
prior written notice. Mr. Weir has the right to terminate the agreement on
written notice to the U.S. subsidiary, provided that the effective date of such
resignation is no more than one month from the date of notice. The agreement
provides that the U.S. subsidiary pay Mr. Weir an annual base salary which is
subject to annual review effective each January 1 of the term of the agreement.
Mr. Weir is entitled to participate in an incentive bonus program, which is
based on meeting certain performance criteria and strategic objectives agreed to
by Mr. Weir and the board of directors of the U.S. subsidiary, and is subject to
a maximum payment of 50% of his base salary. The agreement also entitles Mr.
Weir to standard health and other insurance benefits and to the use of a company
car. The agreement contains certain non-compete and confidentiality provisions.





                                      -32-
<PAGE>




Item 12.  Options to Purchase Securities from Registrant or Subsidiaries.

         In 1994, the Company adopted the Denison International Stock Option
Plan (the "Option Plan") pursuant to which the Board (or a committee thereof)
may grant to certain senior executives of the Company or its subsidiaries
options to acquire Ordinary Shares. The price at which Ordinary Shares may be
acquired on exercise of an option must not be less than the market value of the
underlying shares on the date on which the option is granted.

         On July 24, 1997, the Company's Board of Directors and shareholders
approved an amendment to the Option Plan. Such amendment included an increase in
the number of Ordinary Shares reserved for issuance under the Option Plan to
850,000 Ordinary Shares.

         As of the date hereof, options under the Option Plan for acquisition of
355,250 Ordinary Shares by senior executives of the Company were outstanding.
Exercise prices range from $0.75 to $17.60. All options vest over a period of
four years following the date of the grant and lapse between five and ten years
after the date of the grant. Options lapse on dates from June 28, 2004 through
December 15, 2007. As of the date hereof, options under the Option Plan for the
purchase of 138,250 Ordinary Shares were held by all directors and officers of
the Company as a group.

Item 13.  Interest of Management in Certain Transactions.

         None.





                                      -33-
<PAGE>






                                     PART II

Item 14. Description of Securities to be Registered.

         Not applicable.

                                    PART III

Item 15. Defaults Upon Senior Securities.

         There have been no defaults with respect to any indebtedness of the
Company.

Item 16. Changes in Securities, Changes in Security for Registered Securities 
         and Use of Proceeds

         The Company has not used the net proceeds of the initial public
offering held in August 1997. The net proceeds totaling approximately $4.5
million are currently being held in cash and short-term investments.

                                     PART IV

Item 17. Financial Statements.

         Not applicable.  See "Item 18.  Financial Statements."

Item 18. Financial Statements.

         See pages F-1 through F-25.

Item 19. Financial Statements and Exhibits.

         (a)  Financial Statements

                  The following financial statements, together with the report
              of Ernst & Young Chartered Accountants, Independent Auditors, are
              filed as part of this Annual Report.

                  Report and Consent of Independent Auditors.

                  Consolidated Statement of Operations for the Years Ended
                  December 31, 1995, 1996 and 1997.

                  Consolidated Balance Sheets as of December 31, 1996 and 1997.

                  Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 1995, 1996 and 1997.

                  Consolidated Statements of Changes in Shareholders' Equity for
                  the Years Ended December 31, 1995, 1996 and 1997.

                  Notes to Consolidated Financial Statements.

                  





                                      -34-
<PAGE>



                 Financial Statement Schedule for the Years Ended December 31,
                 1995, 1996 and 1997: Schedule II-Valuation and Qualifying
                 Accounts.


         (b)  Exhibits

                  None.





                                      -35-
<PAGE>




                                                     
                                   SIGNATURES



         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Form 20-F to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                          DENISON INTERNATIONAL PLC
                                                    (Registrant)


                                          By:      /s/  Anthony D. Mustacchio
                                                 Anthony D. Mustacchio
                                                 Chief Financial Officer


Date:  April 2, 1998




                                       36

<PAGE>


                                                       

                            DENISON INTERNATIONAL plc

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                            Page

Report and Consent of Independent Auditors                                   F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997                 F-3

Consolidated Statements of Operations for the years ended December 31,
  1995, 1996 and 1997                                                        F-5

Consolidated Statements of Changes in Shareholders' Equity for the years
  ended December 31, 1995, 1996 and 1997                                     F-6

Consolidated Statements of Cash Flows for the years ended December 31,
  1995, 1996 and 1997                                                        F-7

Notes to Consolidated Financial Statements                                   F-9

Financial Statement Schedule for the years ended December 31, 1995, 
  1996 and 1997
     Schedule II - Valuation and Qualifying Accounts                        F-23




                                      F-1
<PAGE>





                         REPORT OF INDEPENDENT AUDITORS


To Board of Directors and Shareholders
Denison International plc

          We have audited the consolidated balance sheets of Denison
International plc as of December 31, 1996 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. We have also
audited the financial statement schedule listed in the index at Item 19(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

         We conducted our audits in accordance with United Kingdom auditing
standards which do not differ in any significant respect from United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe 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 consolidated financial position of
Denison International plc at December 31, 1996 and 1997, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.


                                                /s/ Ernst & Young
                                                ERNST & YOUNG
                                                Chartered Accountants

London, England
April 2, 1998


                        CONSENT OF INDEPENDENT AUDITORS

         We consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 333-07500) pertaining to the Denison International
Stock Option Plan of the reference to our firm in Item 8. Selected Financial
Data and of our report on the consolidated financial statements of Denison
International plc included in the Annual Report on Form 20-F of Denison
International plc for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.

                                                /s/ Ernst & Young
                                                ERNST & YOUNG
                                                Chartered Accountants

London, England
April 2, 1998
                    


                                      F-2
<PAGE>







                            DENISON INTERNATIONAL plc

                           CONSOLIDATED BALANCE SHEETS
                 (U.S. dollars in thousands, except share data)

                                                 December 31,
                                                 ------------
                                               1996         1997
---- ----
Current assets:
  Cash and cash equivalents                  $19,144       $30,337
  Accounts receivable, less 
  allowances of $2,538 and 
  $3,087 in 1996 and 1997, 
  respectively                                29,558        29,212
  Inventories                                 30,332        28,182
  Other current assets                         2,321         3,327
                                              ------         -----
     Total current assets                     81,355        91,058
  Property, plant and equipment, net          11,709        14,948
  Other assets                                   662         1,487
                                             --------    ----------
     Total assets                            $93,726      $107,493




                                      F-3
<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                             December 31,
                                             1996            1997
                                             ----            ----
Current liabilities:
  Notes payable to bank                     $ 2,223       $  1,472
  Accounts payable                           10,213          9,413
  Accrued payroll and related expenses        6,359          5,170
  Other accrued liabilities                   9,745          8,601
  Income tax payable                          1,082          1,906
  Current portion of capital lease 
  obligations                                   659            662
     Total current liabilities               30,281         27,224
Noncurrent liabilities:
  Capital lease obligations, less
  current portion                             1,295            344
  Pension accrual                            10,990          9,482
  Other noncurrent liabilities                5,787          6,733
  Negative goodwill, net of accumulated
  amortization of  $2,755 and $3,406
     in 1996 and 1997, respectively           5,112          4,158
  Redeemable preferred stock, (pound)1 par
  value; 667,500 shares authorized,
  issued and outstanding in 1996              1,141           ----
                                             ------         ------
                                             24,325         20,717



 Shareholders' equity:
     `A' ordinary shares (pound)8.00 
      par value; 7,125 shares authorized, 
      and 7,015 issued and outstanding in 
      1996 and 1997                                    86                 86 
      Ordinary shares $0.01 par value; 
      15,000,000 shares authorized, and 
      10,528,950 and 11,057,700 shares 
      issued and outstanding in 1996 
      and 1997, respectively                          105                111
    Additional paid-in capital                        862              5,411
    Capital redemption reserve                         --              1,090
    Retained earnings                              39,417             58,115
    Pension liability adjustment                     (540)               (43)
    Cumulative translation adjustment                (810)            (5,218)
                                                  --------           --------
       Total shareholders' equity                  39,120             59,552
                                                  --------           --------
       Total liabilities and shareholders' 
       equity                                     $93,726           $107,493

        The accompanying notes are an integral part of these statements.




                                      F-4
<PAGE>







                            DENISON INTERNATIONAL plc

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (U.S. dollars in thousands, except per share data)


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


Net sales                   $   139,255      $   148,149      $   148,388
Cost of sales                    91,185           95,312           94,008
                              ---------        ---------        ---------
Gross profit                     48,070           52,837           54,380
Selling, general and
  administrative expenses        35,066           35,336           33,618
                              ---------        ---------        ---------
Operating income                 13,004           17,501           20,762
Other income                        369            1,829            2,175
Interest (expense)
  income, net                      (372)              48              218
                              ---------        ---------        ---------
Income before taxes              13,001           19,378           23,155
Provision for income taxes        1,657            2,437            3,367
                               --------        ---------        ---------
Net income                    $  11,344        $  16,941        $  19,788
                              ---------        ---------        ---------

Basic earnings per share      $    1.08        $    1.61        $    1.84
                              ---------        ---------        ---------

Diluted earnings per share    $    1.06        $    1.59        $    1.82
                              ---------        ---------        ---------



        The accompanying notes are an integral part of these statements.




                                      F-5
<PAGE>




<TABLE>
<CAPTION>


                            DENISON INTERNATIONAL plc

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 (U.S. dollars in thousands, except share data)

                                 Share Capital(i)
                   ---------------------------------------------
                                                   A      Ordin-   Addi-                                  Cumu-
                           A                    Ordinary    ary   tional                                 lative
                       Ordinary   Ordinary    shares of   shares   paid    Capital     Re-     Pension   trans-
                       shares of  shares of                 of      in     redem-    tained   liability  lation
                   (pound)8.00      $0.01   (pound)8.00    $0.01  capital   tion    earnings   adjust-   adjust-
                         each       each          each     each    (ii)    reserve    (iii)     ment      ments     Total
                         ----       ----          ----     ----    ----    -------    -----     ----      -----     -----
                                 (number of shares)


<S>                      <C>     <C>              <C>       <C>    <C>       <C>     <C>         <C>       <C>    <C>    
Balance at January
   1, 1995                7,015   10,528,950       $86      $105    $862       --    $11,132     $(615)    $428    $11,998
   Net income                --           --        --        --       --      --     11,344        --      --      11,344
   Pension liability
   adjustment                --           --        --        --       --      --          --       82      --        82
   Translation
   adjustment                --           --        --        --       --      --         --        --     931        931
                          -----    ----------      ---      ----     -----   ------   -------  -------  ------     -------
Balance at December
  31, 1995                7,015   10,528,950        86       105     862       --      22,476    (533)    1,359    24,355
   Net income                --          --         --        --       --      --      16,941      --        --    16,941
   Pension liability
   adjustment                --          --         --        --       --      --         --       (7)       --       (7)
   Translation
   adjustment                --          --         --        --       --      --         --       --    (2,169)  (2,169)
                          ------   ----------       ---      ----     -----   ------   ------- -------  -------  -------
Balance at December
  31, 1996                7,015   10,528,950        86       105      862       --     39,417     (540)    (810)   39,120
   Issuance of ordinary
      shares in
      connection with
      initial public
      offering              --       450,000        --      5       4,475       --         --       --      --       4,480
   Exercise of stock
      options               --        93,750        --      1          74       --         --       --      --       75
   Ordinary shares
      canceled              --       (15,000)       --      --        --        --         --       --      --       --
   Net income               --            --        --      --        --        --     19,788       --      --       19,788
   Pension liability
   adjustment               --            --        --      --        --        --         --       497     --       497
   Translation
   adjustment               --            --        --      --        --        --         --       --     (4,408)  (4,408)
   Transfer on
   redemption of
   redeemable
   preferred stock           --           --       --      --        --       1,090    (1,090)       --        --        --
Balance at 
  December 31, 1997       7,015   11,057,700       $86    $111  $ 5,411      $1,090    $58,115      $(43)   $(5,218)  $59,552
                          -----   ----------      ----    ----  -------      ------    -------     -----    --------  -------

(i)      The share capital has been retroactively restated to reflect the
         restructuring of the Company's share capital in July 1997, as described
         in Note 1(c) of Notes to the Consolidated Financial Statements.
(ii)     Additional paid in capital is not distributable.
(iii)    Retained earnings available for distribution as dividends by the parent
         company at December 31, 1997 were $48,950,000.


             The accompanying notes are an integral part of these statements.
</TABLE>




                                      F-6
<PAGE>






<TABLE>
<CAPTION>

                            DENISON INTERNATIONAL plc

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (U.S. dollars in thousands)


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


<S>                                     <C>               <C>           <C>    
CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net income                              $ 11,344          $16,941       $19,788
Adjustments to reconcile
  net income to net cash
  provided by operating
  activities:
   Amortization of negative
   goodwill                                 (726)            (718)         (754)
   Depreciation                            1,790            2,881         3,382
   Deferred income taxes                      --               --        (1,668)
   Gain on sale of assets                   (369)           (1,829)      (2,175)
   Changes in operating assets
   and liabilities:
      Accounts receivable                 (4,227)           (1,938)      (2,431)
      Inventories                         (1,755)           (3,056)        (568)
      Other current assets                  (652)              650         (255)
      Other assets                           155              (156)          26
      Accounts payable                     1,981            (1,170)         252
      Accrued payroll and
      related expenses                     2,974              (608)        (538)
      Income tax payable                     798               (73)         928
   Other accrued liabilities                (205)              312         (379)
      Pension accrual                       (274)             (513)         356
      Other noncurrent
      liabilities                            626               855        1,021
                                         ---------         -------      --------
Net cash provided by
  operating activities                    11,460            11,578       16,985
                                         --------          -------      -------

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Purchase of property, plant
  and equipment                          (5,354)            (4,605)      (7,400)
Proceeds from disposal of
  property, plant and
  equipment                                 369              1,829        2,175
                                         -------          ---------      -------
Net cash used in investing
  activities                             (4,985)            (2,776)      (5,225)
                                         -------            -------      -------




                                      F-7
<PAGE>


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


CASH FLOWS FROM FINANCING
  ACTIVITIES:
Proceeds from borrowings
  under long-term debt
  agreement                             1,001               --               --
Net repayment on lines of credit         (964)          (2,880)            (528)
Redemption of preferred stock              --               --           (1,090)
Repayment of long-term debt            (1,691)            (950)              --
Repayment of capital lease
  obligations                          (1,028)          (1,332)          (1,038)
Net proceeds from sale of
  ordinary shares                          --               --            4,480
Proceeds from exercise
  of stock options                         --               --               75
                                      -------          --------        --------
Net cash (used in) provided
   by financing activities             (2,682)           (5,162)          1,899
                                      -------          --------        --------
EFFECT OF EXCHANGE RATE
  CHANGES ON CASH                         766              (497)         (2,466)
                                      -------          --------        --------
NET INCREASE IN CASH AND
   CASH EQUIVALENTS                     4,559             3,143          11,193
CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                 11,442            16,001          19,144
CASH AND CASH EQUIVALENTS
  AT END OF YEAR                      $16,001           $19,144         $30,337
                                    ---------           -------         -------
SUPPLEMENTAL DISCLOSURE OF
  CASH FLOW INFORMATION
Interest paid                        $   688          $   319          $   330
Income taxes paid                    $ 1,048          $ 2,449          $ 4,107
SUPPLEMENTAL DISCLOSURE OF
  NON-CASH INVESTING AND
  FINANCING ACTIVITIES
Acquisition of property
  and equipment through
  capital leases                     $   577          $   466        $     218


        The accompanying notes are an integral part of these statements.
</TABLE>




                                      F-8
<PAGE>







                            DENISON INTERNATIONAL plc

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  The Company

(a)  Business of the Company

         Denison International plc (the "Company"), a Company incorporated in
England and Wales, and its subsidiaries manufacture and distribute hydraulic
pumps and valves. The manufacturing plants are located in the United States,
Germany and France and there are sales and distribution operations in the United
Kingdom, Canada, Sweden, Denmark, The Netherlands, Spain, Italy, Japan,
Australia, Hong Kong and Singapore.

(b)  Incorporation, Reorganization and Basis of Preparation

         The Company was incorporated on March 10, 1993 as Alnery No. 1278
Limited and on May 14, 1993 changed its name to Denison International Limited
("DIL") and re-registered as a public limited company on July 28, 1997. All of
the Company's subsidiary undertakings, with the exception of Denison
International (Proprietary) Limited ("Denison Australia"), Denison International
SA ("Denison Spain"), Denison Hydraulics SEA Pte Limited ("Denison Singapore")
and Denison Hydraulics Limited ("Denison Hong Kong") were acquired on June 15,
1993. Denison Australia was acquired on August 1, 1993 and Denison Spain was
acquired on November 1, 1993. Denison Singapore and Denison Hong Kong were
established in 1995 and 1994, respectively. Denison Hydraulik GmbH ("Denison
Germany") was acquired by the Company on June 15, 1993 and on the same date sold
to Denison Holdings Limited ("DHL"), a company owned by the same shareholders as
the Company. DHL was incorporated on November 26, 1992 and did not trade prior
to this acquisition. On April 12, 1994 the Company acquired the entire issued
share capital of DHL in a share for share exchange.

         The acquisition of DHL by the Company has been accounted for as a
combination of entities under common control. Accordingly, the financial
statements are presented as if the combination had been in effect for all
periods presented using the pooling-of-interests method.

(c)  Share Restructuring and Initial Public Offering

         Throughout the period from January 1, 1994 to December 31, 1996, the
Company's authorized share capital was (pound)682,500, divided into 500,000 A
Ordinary Shares, (pound)0.01 par value per share, ("A Ordinary Share") and
1,000,000 B Ordinary Shares, (pound)0.01 par value per share ("B Ordinary
Share") and 667,500 cumulative redeemable preference shares, (pound)1.00 par
value per share. Each A Ordinary Share entitled the holder to one vote and each
B Ordinary Share entitled the holder to 1.85 votes.

         On January 23, 1997 the Company redeemed the 667,500 preference shares.

         On July 24, 1997 (i) 667,500 unallocated preference shares, (pound)1.00
par value per share, were canceled; (ii) the Company's then outstanding A
Ordinary Shares and B Ordinary Shares were redesignated as Ordinary Shares,
(pound)0.01 par value per share, ranking pari passu; (iii) the Company made a
bonus issue (stock dividend) of seven Ordinary Shares for every one Ordinary
Share then held;



                                      F-9
<PAGE>




(iv) the then outstanding Ordinary Shares, (pound)0.01 par value per share, were
consolidated into 700,930 Ordinary Shares, (pound)0.08 par value per share; (v)
all of the authorized and outstanding Ordinary Shares, (pound)0.08 par value per
share, were redesignated as A Ordinary Shares; (vi) the Company made a bonus
issue (stock dividend) of fifteen Ordinary Shares, $0.01 par value per share,
for each A Ordinary Share; (vii) 570 A Ordinary Shares, (pound)0.08 par value
per share, were subscribed; and (viii) the then outstanding A Ordinary Shares
were consolidated into 7,015 A Ordinary Shares, (pound)8 par value per share.

         As a result, the Company's authorized share capital was 15,000,000
Ordinary Shares, $0.01 par value per share, and 7,125 A Ordinary Shares,
(pound)8 par value per share. After the reorganization, there were 10,513,950
Ordinary Shares and 7,015 A Ordinary Shares issued and outstanding.

         On August 8, 1997 the Company completed an initial public offering in
which it issued and sold 450,000 Ordinary shares at $16.00 per share (the
"Offering"). Net proceeds from the Offering were $4,480,000.

2.  Basis of Financial Statements

  Companies Act 1985

         These consolidated financial statements do not comprise the Company's
statutory accounts within the meaning of section 240 of the Companies Act 1985,
as amended, of Great Britain (the "Companies Act"). The Company's statutory
accounts, which are its primary consolidated financial statements, are prepared
in accordance with accounting principles generally accepted in the United
Kingdom ("U.K. GAAP") in compliance with the Companies Act and are presented in
pounds sterling. Statutory accounts for the years ended December 31, 1995 and
1996 have been, and for the year ended December 31, 1997 will be, delivered to
the Registrar of Companies for England and Wales. The auditors' reports on those
accounts were unqualified.

  Principles of Consolidation

         The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. Significant
intercompany accounts and transactions have been eliminated on consolidation.
The consolidated financial statements reflect the merger of DIL with DHL on
April 12, 1994 which has been accounted for as a combination of entities under
common control using the pooling-of-interests method.

  Use of Estimates

         The preparation of the consolidated financial statements in conformity
with United States generally accepted accounting principles ("U.S. GAAP")
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.

3.  Significant Accounting Policies

         The financial statements have been prepared in accordance with U.S.
GAAP. Certain reclassifications have been made to 1995 and 1996 balances to
conform with 1997 presentation. The significant accounting policies applied in
their preparation are as follows:




                                      F-10
<PAGE>





  Cash and Cash Equivalents

         The Company considers all highly liquid investments having an original
maturity of three months or less to be cash equivalents.

  Inventories

         Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Work-in-progress and
finished goods include the cost of direct materials and labor plus a reasonable
proportion of manufacturing overheads based on normal levels of activity.

  Property, Plant and Equipment

         Property, plant and equipment are depreciated using the straight-line
method over their estimated useful lives as follows:

     Buildings owned by the Company                33 to 38 years
     Long leaseholds                                Life of lease
     Plant and equipment                            4 to 10 years

         Land is not depreciated.

  Negative Goodwill

         Negative goodwill is amortized using the straight-line method over ten
years. Negative goodwill represents the excess of the estimated fair value of
net assets acquired (after the elimination of the carrying value of all
noncurrent assets) over the purchase price.

  Environmental Remediation

         Environmental liabilities are recorded based on the most probable cost
if known or on the estimated minimum cost, determined on a site by site basis.
The Company's environmental liabilities are not discounted and do not take into
consideration any possible future insurance proceeds or any significant amounts
of claims against other third parties.

  Revenue Recognition

         The Company recognizes revenues from the sale of its products at the
time of shipment to the customer. Provision is made currently for estimated
product returns which may occur.

  Warranty

         The Company generally warrants its products for one year. An estimate
of the amount required to cover warranty expense on products sold is charged
against income at the time of sale. Other liabilities include accrued warranty
costs of $3.4 million and $4.1 million at December 31, 1996 and 1997,
respectively, of which $1.6 million and $2.3 million are classified as
short-term.





                                      F-11
<PAGE>




  Advertising Expense

         The Company expenses the costs of advertising as incurred. Advertising
expenses include the promotion of specific products and kinds of advertising
include Company and product catalogues, business and industrial publications.
Advertising expense was $1.7 million, $1.9 million and $1.3 million for the
years ended December 31, 1995, 1996 and 1997, respectively.

  Research and Development

         Expenditures for research and development are expensed as incurred.
Research and development expense was $2.3 million, $2.6 million and $3.2 million
for the years ended December 31, 1995, 1996 and 1997, respectively.

  Income Taxes

         Full provision is made for taxation using the liability method on all
temporary differences between financial reporting and tax bases of assets and
liabilities, using enacted tax rates and laws.

Foreign Currency

         The functional currencies of the Company and its subsidiaries are their
local currencies. The Company translates the financial statements of its
non-U.K. subsidiaries into pounds sterling using year-end rates for balance
sheet amounts and average rates for statements of operations and cash flows.
Translation gains and losses are accumulated as a separate component of
shareholders' equity.

         For U.S. reporting purposes, these consolidated financial statements
are translated from pounds sterling into U.S. dollars using year-end rates for
the balance sheets and average rates for statements of operations and cash flows
in accordance with Financial Accounting Standards Board Statement No. 52,
"Foreign Currency Translation."

         Foreign currency transactions are converted into functional currencies
at the rates of exchange ruling at the transaction date or translated at the
year-end rate in the case of transactions not then finalized. Exchange gains and
losses arising from transactions in foreign currencies are insignificant for all
years presented.

         Forward foreign exchange contracts purchased from time to time to hedge
future purchases are accounted for as hedges of anticipated transactions. The
deferred gain or loss is recognized in earnings when the related transaction
takes place.

  Stock Based Compensation

         The Company accounts for employee share option grants using the
intrinsic value method in accordance with Accounting Principle Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, because
the exercise price equals the estimated market price on the date of grant, no
compensation expense has been recognized for stock option awards. The effect of
applying the fair value method of Financial Accounting Standards Board Statement
No. 123, "Accounting and Disclosure of Stock-Based Compensation" to the
Company's option grants results in net income and earnings per share that are
not materially different from the amounts reported.



                                      F-12
<PAGE>




  Earnings per Share

         In 1997, the Financial Accounting Standards Board issued Statement No.
128. "Earnings per Share". Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the former fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.

  Concentrations of Business and Credit Risk

         Financial instruments which potentially subject the Company to credit
risk consist principally of trade receivables. The Company performs on-going
credit evaluations of its customers and generally does not require collateral.
The Company maintains adequate reserves for potential losses and such losses,
which have historically been minimal, have been within management's estimates.

         The Company sells the majority of its products to distributors and
original equipment manufactures throughout North America, Europe and
Asia-Pacific.

4.  Inventories

         Inventories consisted of the following:

                                                    December 31,
                                                   -------------
                                             1996               1997
                                             ----               ----
                                         (U.S. dollars in thousands)

Finished goods                                 $20,270           $16,365
Work-in-progress                                 3,994             2,861
Raw materials and supplies                       6,068             8,956
                                               -------           -------
                                               $30,332           $28,182
                                              --------          ---------

5.  Property, Plant and Equipment

         Property, plant and equipment, net, consisted of the following:

                                                         December 31,
                                                   1996               1997
                                                   ----               ----
                                                (U.S. dollars in thousands)

Cost:
Land and buildings                             $ 1,275           $ 1,378
Machinery and equipment                         14,746            20,096
Motor vehicles                                   1,193               913
                                               -------            ------
                                                17,214            22,387
Less accumulated depreciation 
and amortization                                (5,505)           (7,439)
                                               -------           --------
Property, plant and equipment, net            $ 11,709           $14,948
                                              ---------          --------



                                      F-13
<PAGE>




6.  Bank Notes Payable

         In September 1997, the Company's U.S. subsidiary renewed a loan
agreement (the Agreement) with a bank that provides for a revolving line of
credit of up to $3.0 million. Borrowings under the Agreement would be secured by
substantially all of the subsidiary's assets. Interest on the revolving line of
credit is payable monthly at the prime rate less 0.5% percent (8.0% at December
31, 1997). The Agreement contains various restrictions and financial maintenance
requirements. Additionally, the Company is required to maintain a compensating
balance of $100,000. At December 31, 1997, no borrowings were outstanding on the
revolving line of credit.

         Short-term borrowings outside the United States under available
informal credit facilities are typically a result of overdrafts. At December 31,
1997, the Company had $1.5 million of foreign debt outstanding. The Company also
has an additional $800,000 of unused foreign credit facilities. These facilities
may be withdrawn at any time by the banks.

         The weighted  average interest rates on short-term  borrowings as of 
December 31,  1996 and 1997 were 4.8% and 4.1%, respectively.

7.  Fair Value of Financial Instruments

         The Company estimates the fair values of financial instruments at the
balance sheet dates using available market information and appropriate valuation
methodologies. These estimates are highly subjective in nature and involve
uncertainties and significant judgment in interpretation of current market data.
The estimated fair values of the Company's financial instruments approximate
their carrying values at December 31, 1996 and 1997.

         The Company conducts its business in various foreign currencies. As a
result, it is subject to the transaction exposures that arise from foreign
exchange rate movements between the dates that foreign currency transactions are
recorded and the date they are consummated. The Company hedges some anticipated
transactions, primarily intercompany purchases, through the use of forward
contracts. Gains and losses on contracts that are designated and effective as
hedges of such transactions are deferred and included in other assets or other
liabilities, respectively. They are recognized in income in the same period as
the hedged transactions. Deferred gains and losses on forward contracts and the
related value at risk were not material at December 31, 1996 and 1997. There can
be no assurance that these strategies will be effective.

8.  Redeemable Preferred Stock

         The Company at its option, redeemed all of the outstanding preferred
shares at par in January 1997. The Company was required to redeem the shares by
June 15, 1998 or as soon thereafter as the Company would be permitted to do so
in accordance with local statutes. Holders of preferred shares earned a 3%
dividend per annum and generally had no voting rights. In the event of
liquidation, dissolution or winding up of the Company, the holders of preferred
shares were entitled to receive repayment in full of the capital paid up on the
share and payment of any dividends in arrears and accrued dividends in priority
to the holders of any other class of shares in the capital of the Company.


                                      F-14
<PAGE>






9.  Stock Options

          The Company's Executive Stock Option Plan authorizes awards to
employees in the form of options to purchase the Company's Ordinary Shares. The
aggregate number of Ordinary Shares for which options may be granted under the
plan is 850,000. Options granted under the plan are for periods not to exceed 10
years, and must be issued at the higher of par value or the fair market value of
the shares on the date of grant. Options vest one year from the date of grant
subject to any additional restrictions which may be imposed by the board of
directors. The effect of applying the fair value method of Financial Accounting
Standards Board Statement No. 123 "Accounting and Disclosure of Stock-Based
Compensation" to the Company's option grants result in net income and earnings
per share that are not materially different from the amounts reported. Prior to
the Offering, the Company used the minimum value method to estimate the fair
value of options at the grant date, assuming a risk free rate of 6%, no dividend
yield and an expected life of 5 years. After the Offering, the Company adopted
the Black-Scholes method to estimate the fair value of options at the date of
grant, assuming a risk-free interest rate of 6%, volatility of 26%, no dividend
yield and an expected life of 5 years.

    The following table summarizes share option activity for Ordinary Shares:
<TABLE>
<CAPTION>


                                        1995                         1996                      1997
                               ------------------------ ------------------------------ -----------------------
                                              Weighted                      Weighted                 Weighted
                                              Average                        Average                  Average
                                              Exercise                      Exercise                 Exercise
                               Options           Price      Options            Price      Options       Price               
                               ------------------------ -----------------------------  -----------------------
<S>                                <C>        <C>           <C>                 <C>        <C>        <C>
Outstanding beginning of year      165,000    $   0.86       150,000           $ 0.93      150,000  $    0.93
Granted                             15,000        1.93            -                        299,000      16.29
Exercised                                -                        -                        (93,750)      0.80
Forfeited                         (30,000)        1.04            -                              -          -
                               ----------------------- ------------------------------    -----------------------
Outstanding end of year            150,000  $     0.93       150,000           $ 0.93      355,250  $   13.89                     
                               ----------------------- ------------------------------    -----------------------

Exercisable at end of year          33,750                    71,250                        15,000
Weighted-average fair value
  of options granted during
  the year                      $     0.50                $       -                        $ 5.47
                                                                                        

</TABLE>
The weighted-average fair value of options granted during the year excludes the
fair value of options granted at an exercise price exceeding the market price on
the date of grant. The fair value and exercise price of these options were $4.80
and $17.60, respectively.







                                      F-15
<PAGE>


<TABLE>
<CAPTION>
Share options outstanding at December 31, 1996 and 1997 are summarized as
follows:
                                                    
                                               Outstanding                                    Exercisable
                               --------------------------------------------   -----------------------------------
                                                          Weighted-
                                          Weighted        Average                                 Weighted
                                          Average         Remaining                               Average
                                          Exercise        Contractual                             Exercise
                               Number      Price                Life                 Number       Price
                               --------------------------------------------   -----------------------------------
<S>                              <C>        <C>                   <C>               <C>           <C>  
December 31, 1996
   Exercise prices between
    $.75 and $1.93                150,000    $0.93                 7.7               71,250        $0.87

   Exercise prices between              -        -                  -                     -            -
    $16.00 and $17.60                                                                    
                                        

December 31, 1997
   Exercise prices between
    $.75 and $1.93                 56,250    $1.14                 6.8               15,000        $1.49

   Exercise prices between
    $16.00 and $17.60             299,000    16.29                 8.5                    -            -

</TABLE>
<TABLE>
<CAPTION>

10.      Earnings per Share

         The following table sets forth the computation of basic and diluted
earnings per share:

                                                      1995            1996             1997
                                                ----------------- ----------------- ----------
                                                (U.S. dollars in thousands, except share and
                                                               per share data)
                                                
<S>                                              <C>             <C>              <C>           
Numerator:
    Net income                                 $       11,344  $       16,941   $       19,788
                                               --------------  --------------   --------------

Denominator:
    Denominator for basic earnings per
share -- weighted-average shares                   10,535,965      10,535,965       10,738,578
    Effect of dilutive stock options                  137,524         141,319          125,467
                                                -------------   -------------    -------------
    Denominator for diluted earnings
per share -- adjusted weighted-
average shares
                                                   10,673,489      10,677,284       10,864,045
                                               --------------    ------------    -------------      

Basic earnings per share                       $         1.08  $         1.61   $         1.84
                                               --------------  --------------   --------------

Diluted earnings per share                     $         1.06  $         1.59   $         1.82
                                               --------------  --------------   --------------

</TABLE>
11.  Commitments

         The Company has purchase commitments with various vendors for
approximately $4.7 million as of December 31, 1997. These purchase commitments
are payable during 1998.



                                      F-16
<PAGE>




         Future minimum lease payments under capital leases and non-cancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1997:

                                            Capital         Operating
                                            Leases           Leases
                                            -------         ---------
                                           (U.S. dollars in thousands)

1998                                         $ 716           $ 1,719
1999                                           313             1,084
2000                                            39               548
2001                                            --               137
2002                                            --                89
Thereafter                                      --                44
                                            ------             -----
Total minimum lease payments                 1,068            $3,621
                                                              ------
Less amount representing interest             (62)
                                             -----
                                             1,006
Less current portion                         (662)
                                            ------
Long-term obligation                        $  344
                                            ------


         Property, plant and equipment include the following amounts for leases
that have been capitalized at December 31, 1996 and 1997:

                                                  December 31,
                                          1996                 1997
                                          ----                 ----
                                          (U.S. dollars in thousands)

Machinery and equipment                  $2,259               $1,764
Motor vehicles                              323                   --
                                         ------                -----
                                          2,582                1,764
Less accumulated depreciation              (864)                (510)
                                         ------               ------
                                         $1,718               $1,254
                                         ------               ------

         Amortization of leased assets, over the shorter of the lease term and
their useful economic life, is included in depreciation expense. The interest
element of the rental obligations is charged to income over the period of the
lease at the estimated effective interest rate implicit in the lease.

         Rent  expense  charged  to  operations  for the  years  ended  
December 31,  1995,  1996 and 1997 was $1.9 million, $1.6 million and 
$1.8 million, respectively.





                                      F-17
<PAGE>






12.  Income Taxes

         For financial reporting purposes, income before income taxes includes
the following components:

                                 Year ended December 31,

                               1995           1996              1997
                               -----          ----              ----
                              (U.S. dollars in thousands)

Pretax income:
   United Kingdom            $   1,020        $ 1,190           $ 1,775
   Foreign                      11,981         18,188            21,380
                               --------        -------           -------
                             $  13,001        $19,378            23,155

Significant components of the provision for income tax expense were as follows:

                                Year ended December 31,
                              1995          1996                1997
                              ----          ----                ----
                              (U.S. dollars in thousands)

Current:
   United Kingdom          $ --             $    9             $    --   

   Foreign                  1,657            2,428               5,035
                            -----           ------               ------
   Total Current           $1,657            $2,437             $5,035
                           -------          -------            ---------

Deferred:
   United Kingdom             --                --                  --
   Foreign                    --                --               (1,668)
   Total provision for 
   income taxes            $1,657           $2,437               $3,367
                           --------        -------              --------

         The effective tax rate on earnings before income taxes varies from the
current U.K. statutory income tax rate as follows:


                                                       December 31,
                                                       ------------
                                               1995        1996        1997
                                               ----        ----        ----

Provision at statutory rate                     33%         33%         31%
Reduction in valuation allowance 
  relating to utilization
  of NOL carry forwards and other 
  deferred tax assets                          (17)          (18)        (7)
Release of valuation allowance                  --            --         (7)
Amortization of negative goodwill               (2)           (1)        (1)
Tax credits                                     (1)           --         --
Other--net                                      --            (1)        (1)
                                              -----         -----      -----
Effective tax rate                              13%           13%        15%
                                              -----         -----      -----





                                      F-18
<PAGE>






         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 for income tax purposes.  
Significant components of the Company's deferred tax liabilities and assets 
are as follows:

                                                    December 31,
                                                    ------------
                                              1996                 1997
                                              ----                 ----
                                            (U.S. dollars in thousands)

Deferred tax liabilities                    $    599           $    220
                                            --------           ---------

Deferred tax assets:
   Fixed assets                                4,449             1,749
   Net operating losses                       12,321             9,423
   Other                                       2,978             3,313
Valuation allowance                         (19,149)           (12,597)
                                            -------            --------
Net deferred tax assets                     $    599          $  1,888
                                            --------          --------

         Having adopted FAS 109 "Accounting for Income Taxes", a valuation
allowance has been provided against the net deferred tax assets for financial
reporting purposes in respect of temporary differences and net operating loss
carryforwards. These deferred tax assets primarily relate to existing net
operating losses and basis differences that arose as part of the June 15, 1993
acquisition. At the time of the acquisition, it was management's belief that it
was more likely than not that the related tax benefits would not be realized.
Therefore, a valuation reserve was established. Certain of these net operating
losses and future tax deductions are subject to limitations under foreign tax
law which are described further below. When the deferred tax assets from the
acquisition are realized, the Company records a reduction in the current year
income tax expense equal to the valuation reserve which has been realized. In
addition, as a result of continuing profitability in the U.S., the valuation
allowance has been reduced by $1.9 million in respect of deferred tax assets
expected to be utilized in the next two years.

         At December 31, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $1.5 million for U.K. tax purposes. There is no
expiration date for these losses. In addition, the Company had approximately
$28.5 million of NOLs for foreign income tax purposes, of which $18.8 million
will be allowable against national taxes and $9.7 million will be allowable
against local trade taxes. The NOLs and certain future tax deductions in the
U.S. will be limited under Section 382 of the Internal Revenue Code to $0.6
million per year. The Company and its subsidiaries file for group relief or
consolidated tax returns in the jurisdictions where available.

         The Company has not provided for taxes on undistributed foreign
earnings since the Company intends to reinvest these earnings in the future
growth of the business. Determination of the amount of unrecognized deferred
U.K. income tax liability is not practicable because of the complexities
associated with the calculation.

13.  Pension Plans

         The Company operates four defined benefit plans in the United States,
Germany and Japan. The plans are generally funded in advance by contributions
from members at levels set in the rules, and from the Company at rates assessed
by each plan's professionally qualified actuaries. Plan assets consist
principally of corporate and government bonds and common stocks.




                                      F-19
<PAGE>









         Pension expense for the Company's defined benefit plans consists of the
following:

                                           Year ended December 31,
                                       1995         1996         1997
                                       ----         ----         ----
                                         (U.S. dollars in thousands)

Service cost                           $   500     $  456       $  332
Interest cost on projected 
  benefit obligation                       938        971          882
Actual return on plan assets              (662)      (320)       (333)
Net amortization and deferral              276        (45)        (58)
                                        ------     -------     -------
Net periodic pension cost              $ 1,052     $1,062       $  823
                                       -------    --------     --------

         The funded status of the plans was as follows:

                                                        December 31,
                                                    1996            1997
                                                    ----            ----
                                                    (U.S. dollars in thousands)

Actuarial present value of
  benefit obligations:
Vested benefit obligation                          $13,070           $12,222
Accumulated benefit obligation                      14,131            13,157
                                                   -------           -------
Projected benefit obligation                        15,216             14,082
Plan assets at fair value                            5,207             5,189
                                                   -------           -------
Projected benefit obligation in excess
  of plan assets                                  $ 10,009            $8,893
Unrecognized net gain                                  944               995
Unamortized transition liability                      (503)             (449)
Adjustment to recognize minimum liability              540                43
                                                   -------          --------
Accrued pension cost                               $10,990            $9,482
                                                   -------           ------- 

         The assumptions used in determining the funded status of the plans were
as follows:

                                                     December 31,
                                                     -----------
                                            1995      1996          1997
                                            ----      ----          ----

Discount rate                           2.9-7.0%      2.9-7.0%     2.9-7.0%
Rate of increase in compensation 
  levels                                2.2-3.0%      2.2-2.5%     2.2-2.5%
Expected long-term rate of 
  return on assets                      2.9-9.0%      2.9-9.0%     2.9-9.0%

14.  Other Benefit Plans

         In addition to the Company's defined benefit pension plans, the
Company's U.S. subsidiary provides health care and life insurance benefits for
certain retired employees, and life insurance benefits for certain active
employees. The health care and life insurance plans are non-contributory and the
health care plan contains other cost-sharing features such as deductibles and
coinsurance.





                                      F-20
<PAGE>






         Net periodic postretirement benefit cost includes the following
components:

                                      Year ended December 31,
                                      -----------------------
                                 1995            1996           1997
                                 ----            ----           ----
                                    (U.S. dollars in thousands)

Service cost                      $5              $ 6            $ 6
Interest cost                     54               65             63
Amortization cost                 --               18             15
                                 ----              ---           ---
                                 $59              $89            $84
                                 ---              ---            ---

         The following table sets forth the plans' funded status and accumulated
postretirement benefit obligation which has been fully accrued in the Company's
consolidated balance sheet:

                                               December 31,
                                               ------------
                                          1996              1997
                                          ----              ----
                                         (U.S. dollars in thousands)

Accumulated postretirement 
  benefit obligation:
Retirees                                  $ 758            $ 708
Active plan participants                   185               203
                                          ----              ----
                                           943               911
Unrecognized net loss                     (239)             (178)
                                          -----             -----
Accrued postretirement benefit cost      $ 704             $ 733
                                         -----             -----


         The annual assumed health care cost trend is 8% for the two years
subsequent to December 31, 1997 and is assumed to decrease to 6% and remain at
that level thereafter. The effect of a 1% annual increase in the assumed health
care cost trend rate would increase the accumulated postretirement benefit
obligation and the aggregate of the annual service and interest costs by
approximately 2.7%.

15.  Contingencies

         In 1997, the Company received notice from the Ohio Environmental
Protection Agency that no further action is required for remediation at the
Company's former Columbus, Ohio site. The Company remains involved in cleanup
efforts at a Company owned site. The total anticipated cost of the cleanup
efforts is $3.4 million of which $1.2 million has been spent as of December 31,
1997. Remaining accrued cleanup costs total $2.2 million of which $0.5 million
and $1.7 million are classified in the consolidated financial statements as
short-term and long-term accrued liabilities, respectively.

         Because of the uncertainties relating to remediation activities, the
future expenditures to remediate the currently identified sites could be higher
than the accrued liability. Although it is difficult to assess the final outcome
related to environmental exposures, management believes that these liabilities
are fully accrued for in the accompanying consolidated financial statements.





                                      F-21
<PAGE>






16.  Segment Information
<TABLE>
<CAPTION>

         A summary of the Company's operations by geographic area follows:

                                                                   Year ended and at December 31, 1995
                                                                   -----------------------------------
                                          United      Rest of    North
                                          Kingdom     Europe    America       Asia/Pacific    Eliminations    Consolidated
                                          -------     -------   --------      ------------    ------------    ------------
                                                                   (U.S. dollars in thousands)

<S>                                        <C>       <C>         <C>             <C>             <C>             <C>     
Sales to unaffiliated companies            $ 9,406   $ 60,450    $45,418         $23,981         $     --        $139,255
Transfers between geographic area              117     21,066     10,350             151          (31,684)             --
                                           -------   --------    -------         -------         --------        --------
Net Sales                                  $ 9,523   $ 81,516    $55,768         $24,132         $(31,684)       $139,255
                                           -------   -------     -------         -------          -------        --------
Operating income                           $   395   $  7,747    $ 3,717         $ 1,145         $     --        $ 13,004
Identifiable assets                          3,810     48,595     18,978          14,640               --          86,023

                                                                   Year ended and at December 31, 1996
                                                                   ------------------------------------
                                          United      Rest of    North
                                          Kingdom     Europe    America       Asia/Pacific    Eliminations    Consolidated
                                          -------     -------   -------       ------------    ------------    ------------
                                                                   (U.S. dollars in thousands)

Sales to unaffiliated companies            $10,037   $ 61,142    $53,732         $23,238         $     --        $148,149
Transfers between geographic area              180     42,392     12,829             255          (55,656)             --
                                           -------   --------    -------         -------         --------        --------
Net Sales                                  $10,217   $103,534    $66,561         $23,493         $(55,656)       $148,149
                                           -------   --------    -------         -------          -------        --------
Operating income                           $   559   $  9,601    $ 5,336         $ 2,005         $     --        $ 17,501
Identifiable assets                          4,872     49,196     23,761          15,897               --          93,726



                                                                           Year ended and at December 31, 1997
                                                                           -----------------------------------
                                             United  Rest of  North
                                             Kingdom Europe   America           Asia/Pacific     Eliminations   Consolidated
                                             ------- -------  -------           ------------     ------------   ------------     
                                                                            (U.S. dollars in thousands)

Sales to unaffiliated companies            $11,248   $ 56,975    $57,439         $22,726         $     --        $148,388
Transfers between geographic area              164     38,772     13,647             108          (52,691)             --
                                           -------   --------    -------         -------         --------        --------
Net Sales                                  $11,412    $95,747    $71,086         $22,834         $(52,691)       $148,388
                                           -------    -------    -------         -------         ---------       --------
Operating income                         $   2,309   $  7,927    $ 8,586         $ 1,940         $     --        $ 20,762
Identifiable assets                         10,098     51,868     30,847          14,680               --         107,493
</TABLE>







                                      F-22
<PAGE>



                                                                     SCHEDULE II
<TABLE>
<CAPTION>

                            DENISON INTERNATIONAL PLC

                        VALUATION AND QUALIFYING ACCOUNTS

                                                                        Additions
                                                                  --------------------
                                      Balance at     Charged to     Charged to                      Balance at
                                      beginning      costs and        other          Deductions     end of 
                                      of period      expenses       accounts       (write-offs)     period
                                     -----------    -----------   -----------      ------------    -----------
Description
<S>                                     <C>            <C>       <C>                  <C>           <C>    <C>

Allowance for bad and doubtful 
  debts
  Year ended December 31, 1995           2,667            590         4  (a)          (591)          2,670
  Year ended December 31, 1996           2,670            692        12  (a)          (836)          2,538
  Year ended December 31, 1997           2,538          1,291     (210)  (a)          (532)          3,087
</TABLE>

(a) Exchange adjustment





                                      F-23