APPLIED POWER INC - 10-K Annual Report

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

FORM 10-K

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

For the fiscal year ended AUGUST 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 No. 1 - 11288

APPLIED POWER INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)

WISCONSIN 39-0168610
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

13000 WEST SILVER SPRING DRIVE
BUTLER, WISCONSIN 53007
MAILING ADDRESS: P.O. BOX 325, MILWAUKEE, WISCONSIN 53201
---------------------------------------------------------
(Address of principal executive offices)

(414) 781-6600
----------------------------------------------------
(Registrant's telephone number, including area code)

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

CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.20 PAR VALUE PER SHARE -----------------------
------------------------ (Name of each exchange on
(Title of each class) which registered)

Securities registered pursuant to Section 12(g) of the Act: NONE

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

YES X NO
--- ---

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

As of October 31, 1997, the aggregate market value of Common Stock held by
non-affiliates was approximately $825.7 million, and there were 13,862,778
shares of the Registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 9, 1998 are incorporated by reference into
Part III hereof.

PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF THE COMPANY
- - ----------------------------------
Applied Power Inc. (the "Company"), a Wisconsin corporation incorporated in
1910, is a diversified global company engaged in the business of providing
tools, equipment, systems and supply items to a variety of end-users and
original equipment manufacturers ("OEMs") in the manufacturing, computer,
semiconductor, telecommunication, datacom, construction, electrical,
transportation, recreational vehicle, natural resource, aerospace, defense and
other industries.

The Company's operations are divided into three business segments:

Tools & Supplies
- - ----------------
Industrial and electrical tools and supplies sold primarily through
distribution.

Engineered Solutions
- - --------------------
Motion and vibration control products and systems customized and primarily
sold to OEM customers.

Technical Environments and Enclosures
- - -------------------------------------
Technical environment solutions for computer rooms, offices, laboratories
and manufacturing and enclosures for electronic equipment.

During the fiscal year, the Company's Technical Environments and Enclosures
segment acquired several businesses. Certain assets of Everest Electronic
Equipment, Inc. ("Everest") were acquired on September 26, 1996. Everest
manufactures electronic enclosures and is headquartered in Anaheim,
California. On January 13, 1997, the Company acquired C Fab Group Limited ("C
Fab"), located in Dublin, Ireland, which also manufactures electronic
enclosures. The Company purchased certain assets of All-Round Systemen B.V.
("All-Round") on April 1, 1997. All-Round was one of TEE's distributors based
in the Netherlands. Another electronic equipment business, Hormann Security
Systems Limited ("Hormann"), was purchased on June 5, 1997. Hormann is
headquartered in Cork, Ireland.

Following the end of the fiscal year, the Company, through a wholly-owned
subsidiary, accepted for payment all shares of Versa Technologies, Inc.
(Versa/Tek ) common stock which were tendered pursuant to the Company's tender
offer to purchase all outstanding shares. Versa/Tek, based in Racine,
Wisconsin, is a value-added manufacturer of custom engineered components and
systems for diverse industrial markets. In addition, the Company acquired
certain assets of Nylo-Flex Manufacturing Company, Inc. ("Nylo-Flex")
subsequent to year end. Nylo-Flex, headquartered in Mobile, Alabama, does
business under the TAM name and is a manufacturer, packager and distributor of
high quality battery terminals, battery cables and battery maintenance
accessories to the automotive, marine, farm, fleet and industrial markets.

For further information regarding the Company's acquisitions, see Note B -
Acquisitions and Note O - Subsequent Events in Notes to Consolidated
Financial Statements.

Financial information by segment and geographic area, as well as information
related to export sales, is included in Note M - Segment Information in
Notes to Consolidated Financial Statements, which is included as part of Item
8 of Part II of this report and is incorporated herein by reference.

All dollar amounts are in US thousands unless otherwise indicated.

DESCRIPTION OF BUSINESS SEGMENTS
- - --------------------------------

TOOLS & SUPPLIES

Tools & Supplies, formally known as Distributed Products, is engaged in the
design, manufacture and distribution of tools and supplies to the
construction, electrical wholesale, retail Do-It-Yourself, datacom, retail
automotive, industrial and production automation markets. These products are
sold under a variety of brand names of which the two most well known are
Enerpac and GB Electrical.
2

Tools & Supplies furnishes approximately 10,000 SKU's. The vast majority of
products are manufactured, while select low volume products are sourced.
Enerpac is a specialist in hydraulic high force tools for the construction and
industrial markets, and also supplies quick mold change systems for the
plastic injection molding industry, quick die change systems for the metal
stamping industry, industrial products for the professional automotive repair
market and workholding products for the machining industry. GB Electrical is a
large volume manufacturer of wire connectors, conduit benders, plastic cable
ties and fish tapes for the electrical wiring industry.

Tools & Supplies has engineering, manufacturing and warehousing operations in
various areas of the United States, including Wisconsin, Illinois, Minnesota,
North Carolina, California, Nevada and Connecticut. Globally, the segment has
operations throughout Europe, Asia and, to a lesser extent, South America.

The high force tools and other production automation components are primarily
distributed through a worldwide network of over 2,500 independent distributors
as well as directly to certain OEM customers. Wholesale distributors, home
centers, hardware co-ops, mass merchandisers and automotive parts and
accessory retailers combine to distribute the segment's electrical tools and
supply product lines. This network includes approximately 4,000 electrical
wholesale accounts as well as retailers including Home Depot, Lowes, Menards,
Sears, Ace, Wal-Mart, K- Mart, Tru-Serve, Western Auto, Northern Automotive
and other major chains, which in total represent over 15,000 consumer outlets.

ENGINEERED SOLUTIONS

Engineered Solutions focuses on developing and marketing value-added,
customized solutions for OEMs in the automotive, truck, off-highway equipment,
medical, aerospace, recreational vehicle, semiconductor, defense and
industrial markets. Engineered Solutions markets under a variety of well known
brand names such as APITECH/Power-Packer and Barry Controls. Engineered
Solutions expertise is primarily in the areas of motion and vibration control.
The business is particularly skilled in using electronics to create smart or
active systems to control motion.

Primary applications in the automotive industry include convertible top
actuation systems and electric hydraulic valves used to control hydraulic
systems on cars. In the truck industry, the business supplies cab-over-engine
hydraulic tilt systems, cab suspension systems, engine mount systems and other
vibration isolation components. Medical applications include self-contained
hydraulic actuators that are primarily used in conjunction with hospital beds
as well as vibration isolation products for medical instrumentation. In
aerospace, the segment is a leading supplier of engine vibration isolation
systems to aircraft manufacturers as well as directly to airlines to support
maintenance operations. In recreational vehicles, the Company supplies
leveling and slide-out systems. In addition to these major markets, the
segment's products are used in a wide variety of applications in other
industries.

The segment maintains engineering, manufacturing and sales organizations in
North America, Europe and Asia. The segment's products are primarily sold
through direct sales people, with sales representatives being used in certain
situations. The segment's success requires close cost control, high quality
and just-in-time delivery. The segment's manufacturing operations possess
certain quality certifications such as ISO-9001 and QS-9000.

TECHNICAL ENVIRONMENTS AND ENCLOSURES

Technical Environments and Enclosures ("TEE") designs, manufactures and sells
furnishings and enclosures utilized in technology intensive business
environments. The business is comprised of two product lines which are Wright
Line (Technical Environments) and APW Technical Enclosures. Wright Line
applications include local area networks, multimedia production, electrical
engineering and testing, electronic manufacturing, telecommunication centers
and R&D laboratories. In addition, Wright Line provides modular workstations
used in the computerized office. APW Technical Enclosures designs,
manufactures and sells metal and plastic enclosures to a wide variety of
electronic OEM's in the computer, semiconductor, telecommunication, medical
and electronic industries.

TEE sells customized systems primarily using direct sales personnel and
employs over 340 direct sales people worldwide. TEE's products are marketed in
Asia and Europe through direct salespeople and dealers, depending on the
country. Its products are primarily sold to commercial and governmental
end-users. Sales to the Federal Government, which now average approximately
12% of total TEE net sales, are made pursuant to a contract between TEE and
the US Government's General Services Administration ("GSA"). The government
sales are primarily for

3

technical environments. As the technical enclosure product line grows within
TEE, it is expected that the percent of total TEE sales attributable to the
GSA contract will continue to decline. TEE products are primarily manufactured
in Massachusetts, New Hampshire and California in the United States and in
Ireland.

COMPETITION
- - -----------
The Company competes on the basis of product design, quality, availability,
performance, customer service and price. The Company believes that its
technical skills, global presence, shared technology base, close working
relationships with customers as well as patent protection bolster its
competitive position.

The Company's businesses face competition to varying degrees in each of their
markets. In general, each product line competes with a small group of
different competitors. No one company competes directly with the Company
across all of its businesses.

RESEARCH AND DEVELOPMENT
- - ------------------------
The Company maintains engineering staffs at several locations which design new
products and make improvements to existing product lines. Expenditures for
research and development were $9,960, $9,852 and $8,725 in fiscal years 1997,
1996 and 1995, respectively, the majority of which was expended by the
Engineered Solutions segment. Substantially all research, development and
product improvement expenditures are Company funded.

PATENTS AND TRADEMARKS
- - ----------------------
The Company has been issued a number of patents that provide protection of
valuable designs and processes in its Tools & Supplies and Engineered
Solutions businesses. Numerous other United States and foreign patents and
trademarks are owned by the Company, although no such individual patent or
trademark (or group thereof) is believed to be of sufficient importance that
its termination would have a material adverse effect on the Company's
business.

MANUFACTURING, MATERIALS AND SUPPLIERS
- - --------------------------------------
The majority of the Company's manufacturing operations include the assembly of
parts and components which have been purchased by the Company from a number of
suppliers. In the absence of unusual circumstances, substantially all such
parts and components are normally available from a number of local and
national suppliers.

ORDER BACKLOGS AND SEASONALITY
- - ------------------------------
At August 31, 1997, the Company had approximately $106,500 in backlog,
compared to approximately $83,500 at August 31, 1996. Substantially all orders
are expected to be completed prior to August 31, 1998. The Company's sales are
subject to minor seasonal fluctuations, with second quarter sales
traditionally being the lowest of the year.

EMPLOYEE RELATIONS
- - ------------------
As of August 31, 1997, the Company employed 4,235 people on a full-time basis.
In general, the Company enjoys good relationships with its employees.

ENVIRONMENTAL COMPLIANCE
- - ------------------------
The Company has facilities in numerous geographic locations which are subject
to a range of environmental laws and regulations. Compliance with these laws
has and will require expenditures on a continuing basis. Environmental
expenditures are expensed or capitalized depending on their future economic
benefit. The Company has been identified by the United States Environmental
Protection Agency as a "Potentially Responsible Party" regarding seven
multi-party Superfund sites. Based on its investigations, the Company believes
it is a de minimis participant in each case, and that any liability which may
be incurred as a result of its involvement with such Superfund sites, taken
together with its expenditures for environmental compliance, will not have a
material adverse effect on its financial position. Liabilities are recorded
when environmental remediation is probable and the costs can be reasonably
estimated. Environmental remediation accruals of $448 and $611 were included
in the Consolidated Balance Sheet at

4

August 31, 1997 and 1996, respectively. For further information, refer to Note
N - "Contingencies and Litigation" in Notes to Consolidated Financial
Statements.

ITEM 2. PROPERTIES
----------
The following table summarizes the principal manufacturing, warehouse and
office facilities owned or leased by the Company:

Location and Business Size (sq. feet) Owned/Leased
- - --------------------------------------------------------------------------

TOOLS & SUPPLIES
- - ----------------
Glendale, Wisconsin 313,000 Leased
Columbus, Wisconsin 130,000 Leased
Veenendaal, Netherlands 97,000 Owned
Pachuca, Mexico 78,000 Leased
San Diego, California 69,000 Leased
Troyes, France 58,000 Leased
Reno, Nevada 55,000 Owned
Tecate, Mexico 54,000 Leased
Tokyo, Japan 53,000 Leased
Matthews, North Carolina 33,000 Owned
Alexandria, Minnesota 25,000 Owned
Seoul, South Korea 23,000 Leased
Sydney, Australia 23,000 Leased
Singapore, Singapore 15,000 Leased

ENGINEERED SOLUTIONS
- - --------------------
Brighton, Massachusetts 146,000 Leased
Burbank, California 126,000 Leased
Oldenzaal, Netherlands 115,000 Owned
Westfield, Wisconsin 40,000 Owned
Hersham, England 39,000 Leased

TECHNICAL ENVIRONMENTS AND ENCLOSURES
- - -------------------------------------
Worcester, Massachusetts 240,000 Owned
Anaheim, California 148,000 Leased
Dublin, Ireland 75,000 Owned
Cork, Ireland 70,000 Leased
West Boylston, Massachusetts 60,000 Owned
Portsmouth, New Hampshire 55,000 Leased
Garden Grove, California 47,000 Leased

In addition to these properties, the Company utilizes a number of smaller
facilities in Spain, Italy, Canada, Brazil, France, Germany, Russia, Taiwan,
India, Hong Kong, Malaysia, the Peoples Republic of China, the United Kingdom
and the United States. The Company's headquarters are based in a 68,000 square
foot leased office facility in Butler, Wisconsin, which is also utilized by
the Tools & Supplies and Engineered Solutions segments.

The Company's strategy is to lease properties when available and economically
advantageous. Leases for the majority of the Company's facilities include
renewal options. For additional information, see Note H - "Leases" in Notes to
Consolidated Financial Statements. The Company believes its current properties
are well maintained and in general are adequately sized to house existing
operations.

ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is a party to various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor and patent claims. (For further
information related to environmental claims, refer to the section titled
"Environmental Compliance" in Item 1). The Company has

5

recorded reserves for estimated losses based on the specific circumstances of
each case. Such reserves are recorded when the loss is probable and can be
reasonably estimated. In the opinion of management, the resolution of these
contingencies will not have a material adverse effect on the Company's
financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.

EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
The names, ages and positions of all of the executive officers of the Company
are listed below.

Name Age Position
- - ---- --- --------
Richard G. Sim 53 Chairman, President and Chief Executive Officer;
Director

William J. Albrecht 46 Senior Vice President, Engineered Solutions

Gustav H.P. Boel 53 Vice President, President of Enerpac

Philip T. Burkart 40 Vice President, President of Technical
Environments and Enclosures

Theodore M. Lecher 46 Vice President, President of GB Electrical, Inc.

Robert C. Arzbaecher 37 Vice President, Chief Financial Officer

Douglas R. Dorszynski 45 Vice President, Tax and Treasurer

Richard D. Carroll 34 Corporate Controller

Anthony W. Asmuth III 55 Secretary

Richard G. Sim was elected President and Chief Operating Officer in 1985,
Chief Executive Officer in 1986 and Chairman of the Board in 1988. From 1982
through 1985, Mr. Sim was a General Manager in the General Electric Medical
Systems Business Group. He is also a director of IPSCO Inc. and Oshkosh Truck
Corporation.

William J. Albrecht was named Senior Vice President of Engineered Solutions in
1994. Prior to that, he served as Vice President and President of Power-Packer
and APITECH since 1991. He joined the Company in 1989 as General Manager of
the APITECH Division in the United States. Prior to joining the Company, Mr.
Albrecht was Director of National Accounts and Industrial Power Systems at
Generac Corp. from 1987 to 1989 and Vice President-Sales at NP Marketing from
1985 to 1987.

Gustav H.P. Boel was elected Vice President of the Company and named President
of the Company's Enerpac business in 1995. From 1991 until that time, he was
Managing Director of Power-Packer Europe. From 1990 to 1991, Mr. Boel was
Technical Director for Groeneveld, located in Holland. Prior to 1990, he spent
nineteen years with Enerpac in the Netherlands, where he last held the
position of Managing Director.

Philip T. Burkart was elected Vice President of the Company in 1995 and named
the President of TEE in 1994. From 1990 to 1994, Mr. Burkart held various
positions within TEE including: General Manager, Vice President, Marketing and
Operations and Director of Marketing. Prior to joining the Company, Mr.
Burkart was a Marketing Manager for GE Medical Systems.

Theodore M. Lecher has served as President of GB Electrical, Inc. (Gardner
Bender, Inc. prior to its acquisition by the Company in 1988) since 1986, and
as a Company Vice President since 1988. He was Vice President-General Manager
of Gardner Bender, Inc. from 1983 to 1986, and prior to that, Director of
Sales and Marketing since 1980. Mr. Lecher has been associated with GB
Electrical, Inc. since 1977.

6

Robert C. Arzbaecher was named Vice President and Chief Financial Officer in
1994. He had served as Vice President, Finance of Tools & Supplies from 1993
to 1994. He joined the Company in 1992 as Controller. From 1988 through 1991,
Mr. Arzbaecher was employed by Grabill Aerospace Industries LTD, where he last
held the position of Chief Financial Officer. Prior to 1988, Mr. Arzbaecher
held various financial positions at Farley Industries Inc. and at Grant
Thornton and Company, a public accounting firm.

Douglas R. Dorszynski was appointed Vice President, Tax and Treasurer in 1994.
Mr. Dorszynski joined the Company in 1983 as Corporate Tax Manager and was
subsequently appointed Director, Tax and Special Project Planning in 1985.
Prior to joining the Company, Mr. Dorszynski was employed by Arthur Young &
Co., a public accounting firm, from 1978 to 1983.

Richard D. Carroll joined the Company as Corporate Controller in 1996. Mr.
Carroll was previously employed with the Northwest Indiana Water Company as
its Vice President/Controller during 1995. Prior to that, he was Controller
for Nypro Chicago from 1993 to 1995. From 1990 through 1993, Mr. Carroll was
Controller at Roquette America, Inc. Prior to that, he was employed at Grabill
Aerospace Industries LTD and at Grant Thornton and Company, a public
accounting firm.

Anthony W. Asmuth III is a partner in the law firm of Quarles & Brady,
Milwaukee, Wisconsin, having joined that firm in 1989. Quarles & Brady
performs legal services for the Company and certain of its subsidiaries. Prior
to joining Quarles & Brady, he was a shareholder of the law firm of Whyte
Hirschboeck Dudek S.C. Mr. Asmuth had previously served as Secretary of the
Company from 1986 to 1993. He was re-elected Secretary in 1994.

Each officer is appointed by the Board of Directors and holds office until he
resigns, dies, is removed or a different person is appointed to the office.
The Board of Directors generally appoints officers at its meeting following
the Annual Meeting of Shareholders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange under the
symbol APW. At October 31, 1997, the approximate number of record shareholders
of common stock was 455. The high and low sales prices of the common stock by
quarter for each of the past two years are as follows:

FISCAL YEAR PERIOD HIGH LOW
----------- -------------------------- --------- ----------
1997 June 1 to August 31 $ 63 1/2 $ 43 3/4
March 1 to May 31 45 1/8 39 1/8
December 1 to February 28 42 7/8 36 3/8
September 1 to November 30 37 1/2 29 3/8

1996 June 1 to August 31 $ 30 3/8 $ 27 1/8
March 1 to May 31 33 28 7/8
December 1 to February 29 32 3/8 26 3/4
September 1 to November 30 35 1/8 28 3/4

Quarterly dividends of $0.03 per share were declared and paid for each of the
quarters above.

7

ITEM 6. SELECTED FINANCIAL DATA
-----------------------
(In Millions, except per share amounts)

For the years ended August 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----

Net Sales $ 672.3 $ 571.2 $ 527.1 $ 433.6 $ 398.7
Gross Profit 252.9 219.9 201.4 163.5 151.0
Earnings(Loss)
Continuing Operations 42.0 33.7 25.0 16.9 7.1 (1)
Discontinued Operations - - - (0.4) (3.8)
Extraordinary Loss - - (4.9) - -
Cumulative Effect of Accounting Change - - - - (4.4)
------- ------- ------- ------- -------
Net Earnings(Loss) $ 42.0 $ 33.7 $ 20.1 $ 16.5 $ (1.1)

Earnings(Loss) Per Share
Continuing Operations $ 2.92 $ 2.41 $ 1.82 $ 1.27 $ 0.54 (1)
Discontinued Operations - - - (0.03) (0.29)
Extraordinary Loss - - (0.36) - -
Cumulative Effect of Accounting Change - - - - (0.33)
------- ------- ------- ------- -------
Net Earnings(Loss) Per Share $ 2.92 $ 2.41 $ 1.46 $ 1.25 $ (0.08)

Dividends Per Common Share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12

August 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total Assets $ 463.6 $ 381.2 $ 332.9 $ 317.4 $ 306.3
Long-term Obligations $ 101.7 $ 76.5 $ 74.3 $ 88.7 $ 97.5
Shareholders' Equity $ 204.1 $ 168.5 $ 131.7 $ 107.3 $ 88.0
Actual Shares Outstanding 13.8 13.7 13.4 13.2 13.0

(1) Earnings from Continuing Operations for 1993 reflect after-tax
restructuring charges of $5.0 ($0.38 per share).

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

(Dollars in Millions, except per share amounts)

- - ----------------------------------------------------------------------------------------------------------
RESULTS OF CONTINUING OPERATIONS Years Ended August 31, Percentage of Net Sales
- - ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------

Net Sales $ 672.3 $ 571.2 $ 527.1 100.0% 100.0% 100.0%
Gross Profit 252.9 219.9 201.4 37.6 38.5 38.2

Operating Expenses 180.0 162.6 152.6 26.8 28.5 29.0
Operating Earnings 72.9 57.3 48.8 10.8 10.0 9.3
Other Expenses 10.2 8.2 11.9 1.5 1.4 2.3
Earnings Before Income Taxes 62.7 49.1 36.9 9.3 8.6 7.0
Income Tax Expense 20.7 15.4 11.9 3.1 2.7 2.3

Earnings Before Accounting Change and
Extraordinary Loss 42.0 33.7 25.0 6.2 5.9 4.7
Extraordinary Loss - - (4.9) - - (0.9)
Net Earnings $ 42.0 $ 33.7 $ 20.1 6.2% 5.9% 3.8%
==========================================================================================================

The preceding table sets forth the results of continuing operations of the
Company for the years ended August 31, 1997, 1996 and 1995.

8

RECLASSIFICATIONS
- - -----------------
Certain prior year amounts have been reclassified to conform to fiscal 1997
presentation, including but not limited to the reclassification of financial
data previously reported in Tools & Supplies into Engineered Solutions and
TEE.

OVERVIEW
- - --------
In fiscal 1997, earnings per share improved 21% to $2.92 compared to $2.41 in
1996. Net earnings have more than doubled over the last two years as a result
of higher sales volume, improved operating margins and lower financing costs.

NET SALES
- - ---------
Net sales increased 18% during fiscal 1997 to $672.3 from $571.2 in fiscal
1996. The increase in sales was primarily the result of increased volume and
the effect of acquisitions. The incremental effect of acquisitions was
approximately $79.7 in fiscal 1997. Price changes have not had a significant
impact on the comparability of net sales during the last three years.
Excluding the unfavorable impact on translated sales from the stronger US
Dollar, sales increased 21% over 1996.

- - ---------------------------------------------------------------------------
Sales Percentage Change
from Prior Year
- - ---------------------------------------------------------------------------
SEGMENT SALES 1997 1996 1995 1997 1996 1995
- - ---------------------------------------------------------------------------
Tools & Supplies $ 292.5 $ 281.2 $ 264.9 4% 6% 19%
Engineered Solutions 189.5 193.8 192.2 (2) 1 18
Technical
Environments and
Enclosures 190.3 96.2 70.0 98 37 42
- - ---------------------------------------------------------------------------
Totals $ 672.3 $ 571.2 $ 527.1 18% 8% 22%
===========================================================================

Sales in the Tools & Supplies segment increased 4% in 1997 to $292.5 from
$281.2 in 1996. The increase was primarily the result of $11.7 of increased
sales from acquisitions net of product line dispositions. The impact of the
stronger US Dollar negatively impacted reported sales by 5% for the year. The
growth rate slowed in 1997 compared to 1996 due to economic softening in some
of the economies that the Tools & Supplies segment operates in, specifically
Europe and Asia. In 1996, sales for Tools & Supplies increased 6% over 1995.
The increase for 1996 was attributed to expansion into developing markets in
Southeast Asia, Latin America and South America and approximately $16.7 from
acquisitions net of product line dispositions. The impact of the stronger US
Dollar in 1996 over 1995 negatively impacted sales by approximately 1%.

Sales for the Engineered Solutions segment fell 2% compared to 1996. The
decrease was primarily the result of the sale of the mobile equipment valve
line and the completion of the Cadillac valve contract, both in 1996.
Excluding the impact of these two items, sales increased 4% for the year. The
strengthening US Dollar negatively impacted sales by 3% in 1997. Sales
increased 1% in 1996 over 1995 primarily the result of the improving aerospace
market in the US.

Technical Environments & Enclosures (TEE) nearly doubled its sales in 1997
with an increase of 98% over 1996. The increase was the result of the
acquisitions of Everest, C Fab and Hormann Electronics, as well as the
continued expansion of its direct sales force in the US, Europe and Asia.
Excluding acquisitions and the negative impact of the stronger US Dollar,
TEE's sales grew 34%. In 1996, sales grew 37% due to the continued demand for
its products, the expansion of its direct sales force and geographic expansion
in Europe and Asia.

- - ---------------------------------------------------------------------------
Sales Percentage Change
from Prior Year
- - ---------------------------------------------------------------------------
GEOGRAPHIC SALES 1997 1996 1995 1997 1996 1995
- - ---------------------------------------------------------------------------
North America $ 448.2 $ 360.8 $ 323.0 24% 12% 16%
Europe 160.7 143.7 136.8 12 5 38
Japan and Asia 52.0 56.8 55.3 (8) 3 27
Pacific
Latin America 11.4 9.9 12.0 15 (18) 6
- - ---------------------------------------------------------------------------
Totals $ 672.3 $ 571.2 $ 527.1 18% 8% 22%
===========================================================================

9

The Company does business in many different geographic regions and is subject
to various economic conditions. The improved economic environment in North
America and the effect of acquisitions made in the third quarter of 1996 and
first quarter of 1997 combined to increase sales 24% in this region over 1996.
Sales increased 12% in 1996 over 1995 primarily due to improving US economy
and the acquisition made in the third quarter of 1996.

Sales in Europe grew 12% in 1997 compared to 5% in 1996. The primary reason
for the growth in 1997 was two acquisitions made during 1997. The slowing
economies in Europe were the main reason sales grew 5% in 1996 compared to 38%
in 1995. Sales in Japan and Asia Pacific fell 8% in 1997. Excluding the
negative effect of the strengthening US Dollar, sales fell only 2%. The
slowing economies in these regions were the causes for this decline. In 1996,
sales grew 3% in Japan and Asia Pacific and 9% excluding the foreign currency
fluctuations. This growth rate was in line with the overall economic growth
for these regions. The sales growth generated in Latin America during 1997 was
the result of geographic expansion in this region. In 1996, Latin American
sales were significantly impacted by the devaluation of the Mexican Peso.
Excluding the effect of this devaluation, sales growth was 1% in 1996.

GROSS PROFIT
- - ------------
Gross profit increased 15% in 1997 to $252.9 compared to $219.9 in 1996 and
$201.4 in 1995. The increase in gross profit resulted primarily from increased
sales in 1997 and 1996.

- - -------------------------------------------------------------------------
GROSS PROFIT PERCENTAGES BY SEGMENT 1997 1996 1995
- - -------------------------------------------------------------------------
Tools & Supplies 37.6% 40.5% 42.1%
Engineered Solutions 32.8 30.0 28.8
Technical Environments and Enclosures 42.5 49.9 48.8
- - -------------------------------------------------------------------------
Totals 37.6% 38.5% 38.2%
=========================================================================

The overall gross profit percentage is primarily influenced by the relative
sales mix between Tools & Supplies, Engineered Solutions and TEE. Engineered
Solutions gross profit percentages are lower than either TEE or Tools &
Supplies because a much higher proportion of its sales are made to OEM
customers, which typically generate lower margins than non-OEM customers. The
gross profit margin in Engineered Solutions has increased in each of the last
two years as a result of continued efforts to reduce costs associated with
manufacturing. Tools & Supplies gross profit margin declined in 1997 compared
to 1996 primarily due to $2.1 of non-recurring charges and competitive pricing
pressures. Gross profit margin in Tools & Supplies declined in 1996 relative
to 1995 as a result of inefficiencies during the implementation of automated
warehousing, competitive pricing pressures, higher discounts to distributors
and increased shipments to OEM customers. Gross profit in TEE fell during 1997
compared to 1996. This is the result of the effect of the enclosure related
acquisitions that took place during 1997. The enclosure businesses sell to OEM
customers and carry a lower gross profit margin than the technical environment
business. As the enclosure business becomes a larger percentage of TEE's
overall business, the gross profit within TEE is expected to continue to
decline. However, the enclosure businesses operate with lower selling,
administrative and engineering expenses compared to the environment business.
TEE gross profit margin increased in 1996 compared to 1995 due to higher
production levels. The overall gross profit margin of the Company will vary
depending on the levels of OEM sales within Engineered Solutions and the
enclosure business within TEE.

OPERATING EXPENSES
- - ------------------
Operating expenses increased 11% and 7% in 1997 and 1996, respectively. During
the corresponding periods, sales increased 18% and 8%, respectively. The
majority of the increase since 1995 relates to variable selling expenses,
primarily commissions and increased amortization of goodwill associated with
recent acquisitions. The Wright Line business within TEE has a direct sales
force whose compensation is commission based. As a result of the sales growth
in the Wright Line business over the last few years, its operating expenses
have increased accordingly.

In addition to variable selling expenses, total operating costs have increased
as a result of acquisitions, product development programs and expenditures for
geographic expansion into emerging markets. Approximately $8.4 of the increase
in fiscal 1997 was attributable to businesses acquired since the second
quarter of 1996. Approximately $3.2 of the increase in fiscal 1996 was the
result of acquisitions that took place since the third quarter of 1995. During
the

10

last few years, the company has also opened sales offices in Russia, China and
India, and has increased its presence in Latin America and Southeast Asia.

Overall, lower corporate expenses as a percent of sales, the effects of the
lower operating cost enclosure businesses and the Company's goal to
continually identify ways to be more cost efficient have allowed the Company
to reduce operating costs as a percent of sales to 27% and 28% in 1997 and
1996, respectively, from 29% in 1995.

OTHER EXPENSE(INCOME)
- - ---------------------

- - ---------------------------------------------------------------------
OTHER EXPENSE(INCOME) 1997 1996 1995
- - ---------------------------------------------------------------------
Net financing costs $ 12.0 $ 8.5 $ 10.3
Other - net (1.9) (0.2) 1.7
=====================================================================

The increase in net financing costs noted in 1997 is attributable to increased
debt levels following significant acquisitions completed during 1996 and 1997.
Previously, net financing costs had been decreasing, reflecting lower interest
rates and reduced debt levels. The Company refinanced certain debt in 1995,
which also had the impact of lowering its financing costs. For further
information, see "Liquidity and Capital Resources" below.

"Other - net" includes foreign exchange (gains)losses and miscellaneous other
(income)expense. In 1997, the US Dollar strengthened against most of the major
currencies and the Company realized foreign exchange gains due to transactions
denominated in currencies outside of the functional currencies of certain of
its foreign units. In 1996, net foreign exchange losses were slightly more
than offset by miscellaneous income realized.

INCOME TAX EXPENSE
- - ------------------
The Company's effective income tax rate was 33.0% and 31.4% in 1997 and 1996,
respectively. The rate is largely impacted by the proportion of earnings
generated inside and outside the US, as well as the utilization of foreign tax
credits in the US. Higher US earnings and the utilization of foreign tax
credits had a favorable impact on the effective tax rate in 1997 and 1996.

EXTRAORDINARY LOSS
- - ------------------
The Company recorded an extraordinary loss of $4.9, or $0.36 per share, in
1995 in connection with the March 30, 1995 extinguishment of its $64.4, 9.92%
Senior Unsecured Notes. The pre-tax extraordinary loss of $7.3 was comprised
of an estimated "make whole" provision of $4.1, costs associated with the
cancellation of underlying interest rate swap agreements of $3.0 and the
write-off of $0.2 of deferred financing costs. For further information, see
Note G - "Long-term Debt" in Notes to Consolidated Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS
- - -----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share." The
Company intends to adopt this statement, as required, in its interim financial
statements issued for the second quarter of fiscal 1998. Under the new
requirements for calculating primary earnings per share, to be called basic
earnings per share, the dilutive effect of the Company's stock plans will be
excluded. Adoption of this statement will increase basic earnings per share
previously reported as primary earnings per share by $0.13, $0.09 and $0.06
for each of the three years ended August 31, 1997, 1996 and 1995,
respectively. SFAS No. 128 is not expected to have a material impact on fully
diluted earnings per share.

In June 1997, the Financial Accounting Standards Board issued two additional
statements. SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," are both
effective for years beginning after December 15, 1997. The Company is
assessing the required disclosures and expects to adopt these statements in
fiscal 1998.

11

LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Outstanding debt at August 31, 1997 totaled $123.1, an increase of $30.5 since
the beginning of the year. The increase in debt is a direct result of the
business acquisitions that were made during 1997. End-of-year debt to total
capital was 36% in 1997 compared to 33% in 1996. Approximately $64.8 of cash
was generated from operating activities in 1997, a 98% increase over 1996. The
Company used $75.0 of cash to fund acquisitions and $22.6 was used to fund
capital expenditures. In 1996, $32.8 of cash was generated from operations of
which $33.9 was used to fund acquisitions and $22.7 was used to fund capital
expenditures. The balance of cash generated in 1996 originated from the
additional sale of receivables. Dividends of $1.7 and $1.6 were paid during
1997 and 1996, respectively.

The Company extinguished all $64.4 of its 9.92% Senior Unsecured Notes on
March 30, 1995. The funds used to retire the debt and disburse the "make
whole" payments totaling $4.0 were obtained from new borrowings, including
those under a temporary expansion of the Company's then existing $40.0
multi-currency revolving credit agreement. The Company replaced the original
$40.0 multi- currency credit agreement and the temporary $40.0 expansion with
the proceeds from a $120.0 multi-currency credit agreement in August 1995.

In August 1996, the multi-currency credit agreement was amended to provide
unsecured credit availability of $170.0 and extend the expiration date to
August 2001. During 1997, the Company incurred interest at a rate of .375 to
..45 of 1% above the 30-day IBOR, determined by the underlying currency of the
debt which the Company is borrowing. At August 31, 1997, the Company had
borrowings denominated in the US Dollar, the Japanese Yen and the German Mark.
For additional information, see Note G - "Long-term Debt" in Notes to
Consolidated Financial Statements.

To reduce interest rate risk, the Company has entered into interest rate swap
agreements which effectively convert $85.0 of the Company's variable rate debt
to a weighted average fixed rate of 6.0% at August 31, 1997. The swap
agreements expire on varying dates through 2003.

In 1995, the Company replaced its former $25.0 accounts receivable financing
facility with a new facility that expires in August 1998 and provides up to
$50.0 of multi-currency accounts receivable financing. During 1996, the
agreement was amended to extend the terms through August 1999. An incremental
$0.6 of receivables was financed in 1997, bringing the total balance financed
to $50.0 at August 31, 1997. Proceeds were used to reduce debt. For additional
information, see Note D - "Accounts Receivable Financing" in Notes to
Consolidated Financial Statements.

On August 29, 1997, the Company entered into a letter agreement that provided
for a committed credit line of an additional $140.0 for a term of 364 days.
The purpose of the agreement was to secure funding for the tender offer for
the common stock of Versa Technologies, Inc. Subsequent to year end, on
October 3, 1997, the $140.0 credit agreement was executed.

On October 22, 1997, the Company replaced its $170.0 multi-currency credit
agreement and the $140.0 credit agreement with a new multi-currency credit
agreement which provides up to $350.0 in borrowings and expires in 2002.
Additionally, the Company entered into interest rate swap agreements which
effectively convert an additional $30.0 of variable rate debt to fixed rates
at a weighted average interest rate of 6.23%. These swap agreements expire
between 2002 and 2004.

The Company does not purchase or hold any derivative financial instruments for
trading purposes.

The following table summarizes the Company's total capitalization over the
last three years.

- - ----------------------------------------------------------------------------
Dollars Percentage of Total
Capitalization
- - ----------------------------------------------------------------------------
TOTAL CAPITALIZATION 1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------
Total Debt $ 123.1 $ 92.6 $ 87.0 36% 33% 37%
Shareholders' Equity 204.1 168.5 131.7 60 61 56
Deferred Taxes 14.6 15.4 16.4 4 6 7
- - ----------------------------------------------------------------------------
Totals $ 341.8 $ 276.5 $ 235.1 100% 100% 100%
============================================================================

12

In order to minimize interest expense, the Company intentionally maintains low
cash balances and uses available cash to reduce short-term bank borrowings.
Funds available under unused non- committed lines and the $170.0
multi-currency credit agreement totaled $50.0 and $68.3, respectively, as of
August 31, 1997. The Company believes that such availability, as subsequently
expanded by the $350.0 multi-currency credit agreement, plus funds generated
from operations will be adequate to fund operating activities, including
capital expenditures and working capital, for the next fiscal year.

YEAR 2000 CONSIDERATIONS
- - ------------------------
The Company is taking actions to assure that its computer systems are capable
of processing periods for the year 2000 and beyond. The costs associated with
this are not expected to have a material impact on the results of the Company.

INFLATION
- - ---------
No meaningful measures of inflation are available because the Company has a
significant number of small operations which operate in countries with diverse
rates of inflation and currency rate movements.

OUTLOOK
- - -------
The Company expects its trend of increasing sales and earnings per share to
continue into 1998, assuming no significant downturn in the economy in North
America or Western Europe. Net sales are expected to be approximately $900.0
with improved operating profit margins offset by increased interest expense
and a higher effective tax rate generating record earnings per share. The
strength of its core business segments, integration of recent acquisitions and
additional strategic acquisitions will be the driving forces of the growth.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
- - -------------------------------------------
Certain statements in the above section entitled "Outlook," as well as
statements in other Company communications, which are not historical facts,
are forward looking statements that involve risks and uncertainties. There are
several risk factors which are beyond the Company's control which could cause
the Company's actual results to differ from those expressed in such forward
looking statements. Those risk factors include, without limitation, general
economic conditions and market conditions in the industrial production,
trucking, construction, aerospace, automotive, recreational vehicle, computer,
semiconductor, telecommunication, electronic and defense industries in North
America, Europe and Asia, market acceptance of existing and new products,
successful integration of acquisitions, competitive pricing, foreign currency
risk, interest rate risk and other factors.

SUBSEQUENT EVENTS
- - -----------------
On October 3, 1997, the Company, through a wholly-owned subsidiary, accepted
for payment all shares of Versa Technologies, Inc. ("Versa/Tek") common stock
which were tendered pursuant to the Company's tender offer to purchase all
outstanding shares at a cash price of $24.625 net per share. Consideration for
the transaction totaled approximately $140.0. The transaction was funded with
proceeds from a $140.0, 364-day revolving credit facility from existing
lenders. Versa/Tek, based in Racine, Wisconsin, is a value-added manufacturer
of custom engineered components and systems for diverse industrial markets.

On October 15, 1997, the Company acquired certain assets of Nylo-Flex
Manufacturing Company, Inc. ("Nylo-Flex") for approximately $3.0 in cash. The
transaction was funded by proceeds from borrowings under existing credit
facilities. Nylo-Flex, headquartered in Mobile, Alabama, does business under
the TAM name and is a manufacturer, packager and distributor of high quality
battery terminals, battery cables and battery maintenance accessories to the
automotive, marine, farm, fleet and industrial markets.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-----------------------------------------------------------
Not Applicable.

13

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Quarterly financial data for 1997 and 1996 is as follows:
(In Millions, except per share amounts)

1997
----------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- --------

Net Sales $ 153.1 $ 157.2 $ 173.8 $ 188.2
Gross Profit 60.6 60.4 64.6 67.2
Net Earnings $ 9.5 $ 9.5 $ 11.1 $ 11.9
======= ======= ======= ========
Net Earnings Per Share $ 0.67 $ 0.66 $ 0.77 $ 0.82
======= ======= ======= ========

1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- --------

Net Sales $ 139.3 $ 137.1 $ 147.5 $ 147.3
Gross Profit 54.1 51.7 55.4 58.7
Net Earnings $ 7.7 $ 7.7 $ 9.1 $ 9.2
======= ======= ======= ========
Net Earnings Per Share $ 0.55 $ 0.55 $ 0.65 $ 0.66
======= ======= ======= ========

The Consolidated Financial Statements are included on pages 18 to 35 and are
incorporated by reference herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
Not Applicable. The change in the Company's independent public accountants was
previously reported on a current report on Form 8-K dated November 10, 1997.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item is incorporated by reference from the
"Election of Directors" and "Other Information -- Section 16(a) Beneficial
Ownership Reporting Compliance" sections of the Company's Proxy Statement for
its Annual Meeting of Shareholders to be held on January 9, 1998 (the "1998
Annual Meeting Proxy Statement"). See also "Executive Officers of the
Registrant" in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is incorporated by reference from the
"Board Meetings, Committees and Director Compensation" section and the
"Executive Compensation" section (other than the subsections thereof entitled
"Report of the Compensation Committee of the Board of Directors on Executive
Compensation" and Performance Graphs") of the 1998 Annual Meeting Proxy
Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is incorporated by reference from the
"Certain Beneficial Owners" and "Election of Directors" sections of the 1998
Annual Meeting Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.

14

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) Documents filed as part of this report:
---------------------------------------
1. Consolidated Financial Statements
---------------------------------
See "Index to Consolidated Financial Statements and Financial
Statement Schedules" on page 16, the Independent Auditors'
Report on page 17 and the Consolidated Financial Statements on
pages 18 to 35, all of which are incorporated herein by
reference.

2. Financial Statement Schedules
-----------------------------
See "Index to Consolidated Financial Statements and Financial
Statement Schedules" on page 16 and the Financial Statement
Schedule on page 36, all of which are incorporated herein by
reference.

3. Exhibits
--------
See "Index to Exhibits" on pages 38 to 43, which is
incorporated herein by reference.

(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed in the fourth quarter.

15

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
- - ------------------------------------------ ----
Independent Auditors' Report 17

Consolidated Statement of Earnings
For the years ended August 31, 1997, 1996 and 1995 18

Consolidated Balance Sheet
As of August 31, 1997 and 1996 19

Consolidated Statement of Shareholders' Equity
For the years ended August 31, 1997, 1996 and 1995 20

Consolidated Statement of Cash Flows
For the years ended August 31, 1997, 1996 and 1995 21

Notes to Consolidated Financial Statements 22 - 35

INDEX TO FINANCIAL STATEMENT SCHEDULES
- - --------------------------------------
Schedule II - Valuation and Qualifying Accounts 36

All other schedules are omitted because they are not applicable, not required,
or because the required information is included in the consolidated financial
statements or notes thereto.

16

Independent Auditors' Report
- - ----------------------------

To the Shareholders and Directors of Applied Power Inc.:

We have audited the accompanying consolidated balance sheets of Applied Power
Inc. and subsidiaries as of August 31, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended August 31, 1997. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based
on our audits.

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

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

DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 25, 1997

17

APPLIED POWER INC.
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Years ended August 31,
------------------------------
1997 1996 1995
-------- -------- --------

Net sales $672,316 $571,215 $527,058
Cost of products sold 419,420 351,283 325,621
-------- -------- --------
Gross Profit 252,896 219,932 201,437

Engineering, selling and
administrative expenses 173,200 158,485 149,210
Amortization of intangible assets 6,813 4,054 3,369
-------- -------- --------
Operating Earnings 72,883 57,393 48,858

Other Expense(Income):
Net financing costs 12,003 8,456 10,291
Other - net (1,863) (230) 1,694
-------- -------- --------
Earnings Before Income Tax Expense and
Extraordinary Loss 62,743 49,167 36,873

Income Tax Expense 20,705 15,438 11,868
-------- -------- --------
Earnings Before Extraordinary Loss 42,038 33,729 25,005
Extraordinary Loss from Early
Extinguishment of Debt, net of $2,423 tax
benefit - - (4,920)
-------- -------- --------
Net Earnings $42,038 $33,729 $20,085
======== ======== ========
Primary Earnings(Loss)
Per Share:
Earnings Before Extraordinary
Loss $2.92 $2.41 $1.82
Extraordinary Loss - - (0.36)
-------- -------- --------
Net Earnings Per Share $2.92 $2.41 $1.46
======== ======== ========
Weighted Average Common and Equivalent
Shares (000's) 14,377 13,983 13,746
======== ======== ========

Fully Diluted Earnings(Loss) Per Share:
Earnings Before Extraordinary Loss $2.88 $2.41 $1.79
Extraordinary Loss - - (0.35)
-------- -------- --------
Net Earnings Per Share $2.88 $2.41 $1.44
======== ======== ========
Weighted Average Common and Equivalent
Shares (000's) 14,613 13,983 13,958
======== ======== ========

The accompanying notes are an integral part of these financial statements

18

APPLIED POWER INC.
CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

August 31,
-------------------
1997 1996
ASSETS -------- --------

Current Assets
Cash and cash
equivalents $ 5,846 $ 1,001
Accounts receivable, less allowances of $4,329 and
$4,179, respectively 84,697 68,747
Inventories 115,761 120,648
Prepaid income tax 11,209 10,734
Prepaid expenses 8,393 5,775
-------- --------
Total Current Assets 225,906 206,905

Other Assets 7,305 6,370
Goodwill, net of accumulated amortization of $17,870 and
$13,937, respectively 109,078 58,266
Other Intangibles, net of accumulated amortization of
$14,691 and $11,917, respectively 30,723 33,464

Property, Plant and
Equipment
Property 2,197 1,923
Plant 46,501 40,252
Machinery and equipment 142,638 125,950
-------- --------
191,336 168,125
Less: Accumulated depreciation (100,756) (91,889)
-------- --------
Net Property, Plant and Equipment 90,580 76,236
-------- --------

Total Assets $463,592 $381,241
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Liabilities
Short-term borrowings $ 21,428 $ 16,068
Trade accounts payable 54,555 41,397
Accrued compensation and benefits 24,736 20,805
Income taxes payable 7,093 7,081
Other current liabilities 20,462 22,378
-------- --------
Total Current Liabilities 128,274 107,729

Long-term Debt 101,663 76,548
Deferred Income Tax 14,596 15,395
Other Deferred Liabilities 14,950 13,114

Shareholders' Equity
Class A common stock, $0.20 par value per share,
authorized 40,000,000 shares, issued and outstanding
13,816,678 and 13,652,349 shares, respectively 2,763 2,730
Additional paid-in capital 38,388 34,383
Retained earnings 166,776 126,392
Cumulative translation adjustments (3,818) 4,950
-------- --------
Total Shareholders' Equity 204,109 168,455
-------- --------

Total Liabilities and Shareholders' Equity $463,592 $381,241
======== ========

The accompanying notes are an integral part of these financial statements

19

APPLIED POWER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Years Ended August 31, 1997, 1996, and 1995
-------------------------------------------
Class A Additional Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustments
------- ---------- -------- -----------

Balances at September 1, 1994 $ 2,630 $23,648 $75,802 $ 5,231
Net earnings for the year - - 20,085 -
Cash dividends declared - $0.12 per
share - - (1,602) -
Exercise of stock options 51 4,168 - -
Tax benefit of option exercises - 512 - -
Currency translation adjustments - - - 1,161
------- ------- ------- -------

Balances at August 31, 1995 2,681 28,328 94,285 6,392
Net earnings for the year - - 33,729 -
Cash dividends declared -
$0.12 per share - - (1,622) -
Exercise of stock options 24 1,582 - -
Issuance of stock in acquisition 25 3,905 - -
Tax benefit of option exercises - 568 - -
Currency translation adjustments - - - (1,442)
------- ------- ------- -------

Balances at August 31, 1996 2,730 34,383 126,392 4,950
Net earnings for the year - - 42,038 -
Cash dividends declared -
$0.12 per share - - (1,654) -
Exercise of stock options 33 2,883 - -
Tax benefit of option exercises - 1,052 - -
Other - 70 - -
Currency translation adjustments - - - (8,768)
------- ------- ------- -------

Balances at August 31, 1997 $ 2,763 $ 38,388 $166,776 $ (3,818)
======= ======= ======= =======

The accompanying notes are an integral part of these financial statements

20

APPLIED POWER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

Years ended August 31,
---------------------------------
1997 1996 1995
---------------------------------

Net Earnings $42,038 $33,729 $20,085
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 23,663 21,078 18,456
Non-cash charge - extraordinary loss - - 4,920
Provision for deferred taxes (1,274) (1,588) (2,707)
Changes in operating assets and liabilities,
excluding the effects of business
acquisitions and disposals:
Accounts receivable (9,147) (5,703) (15,413)
Inventories 6,121 (14,219) (8,170)
Prepaid expenses and other assets (5,013) (2,505) (2,077)
Trade accounts payable 5,898 2,262 1,231
Other liabilities 2,544 (240) 7,499
------- -------- -------
Net Cash Provided by Operating Activities 64,830 32,814 23,824

Investing Activities
Proceeds on the sale of property, plant
and equipment 3,517 821 614
Additions to property, plant and equipment (22,641) (22,734) (15,986)
Business acquisitions (75,015) (33,949) (2,758)
Product line dispositions - 5,181 -
Other 79 65 162
------- -------- -------
Net Cash Used in Investing Activities (94,060) (50,616) (17,968)

Financing Activities
Proceeds from issuance of long-term debt 77,000 42,433 116,055
Principal payments on long-term debt (49,932) (37,877) (123,997)
Refinancing expenditures - - (4,370)
Net borrowings(repayments) on short-term
credit facilities 6,691 3,484 (2,092)
Net commercial paper repayments - (3,276) (6,671)
Additional receivables financed 525 13,275 11,200
Dividends paid on common stock (1,654) (1,622) (1,602)
Stock option exercises and other 2,867 1,551 4,219
------- -------- -------
Net Cash Provided by(Used in) Financing Activities 35,497 17,968 (7,258)

Effect of Exchange Rate Changes on Cash (1,422) (76) 406
------- -------- -------

Net Increase(Decrease) in Cash and Cash Equivalents 4,845 90 (996)

Cash and Cash Equivalents - Beginning of Year 1,001 911 1,907
------- -------- -------
Cash and Cash Equivalents - End of Year $ 5,846 $ 1,001 $ 911
======= ======== =======

The accompanying notes are an integral part of these financial statements

21

APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the
accounts of Applied Power Inc. and its subsidiaries ("Applied Power" or the
"Company"). All significant intercompany balances, transactions and profits
have been eliminated.

Cash and Cash Equivalents: The Company considers all highly liquid investments
with original maturities of 90 days or less to be cash equivalents.

Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.

Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated over the estimated useful lives of
the assets, ranging from two to thirty years, under the straight-line method
for financial reporting purposes and both straight-line and accelerated
methods for tax purposes. Expenditures for maintenance and repairs not
expected to extend the useful life of an asset beyond its normal useful life
are expensed.

Intangible Assets: Goodwill is amortized on a straight-line basis over periods
of fifteen to forty years. Other intangible assets, consisting primarily of
purchased patents, trademarks and noncompete agreements, are amortized over
periods from two to forty years. The Company periodically evaluates the
carrying value of intangible assets in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Impairment of
goodwill, if any, is measured on the basis of whether anticipated undiscounted
operating cash flows generated by the acquired businesses will recover the
recorded goodwill balances over the remaining amortization period. At August
31, 1997 and 1996, no impairment of goodwill was indicated.

Revenue Recognition: Revenues and costs of products sold are recognized as the
related products are shipped.

Research and Development Costs: Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or
significant improvements to existing products totaled approximately $9,960,
$9,852 and $8,725 in 1997, 1996 and 1995, respectively.

Financing Costs: Net financing costs represents interest expense on debt
obligations, investment income and accounts receivable financing costs.

Income Taxes: The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." For further information, see Note L -
"Income Taxes."

Earnings Per Share: Earnings per share is based on the weighted average number
of common and common equivalent shares outstanding during the year. The
dilutive effect of stock options, which are considered common stock
equivalents, is calculated using the treasury stock method.

Foreign Currency Translation: Foreign currency translation adjustments are
generally excluded from the Consolidated Statement of Earnings and are
included in Cumulative translation adjustments in the Consolidated Balance
Sheet. Gains and losses resulting from foreign currency transactions are
included in Other - net in the Consolidated Statement of Earnings.

Derivative Financial Instruments: Derivative financial instruments are
primarily utilized by the Company to manage risks associated with interest
rate market volatility and foreign exchange exposures. The Company does not
hold or

22

issue derivative financial instruments for trading purposes. The Company
currently holds both interest rate and foreign currency swap agreements. For
both interest rate and foreign currency swap agreements, the differential to
be paid or received is accrued monthly as an adjustment to interest expense.
The Company also utilizes foreign currency forward contracts to hedge existing
foreign exchange exposures. Gains and losses resulting from these instruments
are recognized in the same period as the underlying transaction. For further
information, see Note G - "Long-term Debt."

Use of Estimates: The financial statements have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on estimates and assumptions by management. Actual results could differ
from those amounts.

New Accounting Standards: In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share," which is required to be
adopted in the Company's interim financial statements issued for the second
quarter of fiscal 1998. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings per
share, to be called basic earnings per share, the dilutive effect of stock
options will be excluded. Adoption of this statement will increase basic
earnings per share previously reported as primary earnings per share by $0.13,
$0.09 and $0.06 for each of the three years ended August 31, 1997, 1996 and
1995, respectively. SFAS No. 128 is not expected to have a material impact on
fully diluted earnings per share.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." Both statements are effective for
fiscal years beginning after December 15, 1997. The Company is currently
assessing the impact these statements will have on its required disclosures.

Reclassifications: Certain prior year amounts shown have been reclassified to
conform to fiscal 1997 presentation, including but not limited to the
reclassification of financial data previously reported in Tools & Supplies
into Engineered Solutions and TEE.

NOTE B - ACQUISITIONS

The Company, through its C Fab subsidiary, acquired all of the outstanding
stock of Hormann Security Systems Limited ("Hormann") on June 6, 1997 for
approximately $10,000 in cash. The transaction was funded through borrowings
under existing credit facilities. Approximately $4,200 of the purchase price
was assigned to goodwill. Hormann, based in Cork, Ireland, assembles
electronic equipment for a variety of customers. The operating results of
Hormann subsequent to June 6, 1997 are included in the Consolidated Statement
of Earnings.

On April 1, 1997, the Company's Wright Line subsidiary purchased certain
assets of All-Round Systemen B.V. ("All-Round"), one of its distributors based
in the Netherlands. Of the approximately $1,500 cash paid for the assets,
$1,400 was assigned to goodwill. The results of All-Round subsequent to April
1, 1997 are included in the Consolidated Statement of Earnings.

On January 13, 1997, the Company, through its Wright Line subsidiary, acquired
C Fab Group Limited ("C Fab") for approximately $11,300 in net cash plus
future consideration. The amount of future consideration ranges between $0 and
$12,000 based on targeted sales and earnings. At August 31, 1997, no amounts
had been paid related to the earn-out. The transaction generated goodwill of
approximately $5,600, and was funded through borrowings under existing credit
facilities. C Fab, headquartered in Dublin, Ireland, manufactures electronic
enclosures used by the computer, telecom, datacom and other industries. The
results of operations for C Fab subsequent to the acquisition date are
included in the Consolidated Statement of Earnings.

The Company, through its Wright Line subsidiary, purchased the net assets of
Everest Electronic Equipment, Inc. ("Everest") on September 26, 1996 for cash
consideration of $52,000, which was funded through borrowings under existing
credit facilities. Approximately $43,000 of the purchase price was assigned to
goodwill. Everest is a

23

manufacturer of custom and standard electronic enclosures used by the
computer, telecom, datacom and other industries and is headquartered in
Anaheim, California. The results of Everest subsequent to September 26, 1996
are included in the Consolidated Statement of Earnings. The following
unaudited pro forma data summarizes the results of operations for the periods
indicated as if the acquisition of Everest had been completed on September 1,
1995, the beginning of the 1996 fiscal year. The pro forma data give effect to
actual operating results prior to the acquisition and adjustments to interest
expense, depreciation, goodwill amortization and income taxes. These pro forma
amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisition had occurred on September 1, 1995 or
that may be obtained in the future. The pro forma data do not give effect to
the acquisitions completed subsequent to August 31, 1997. See Note O -
"Subsequent Events."

- - ----------------------------------------------------------------
Years Ended August 31,
- - ----------------------------------------------------------------
1997 1996
- - ----------------------------------------------------------------
Net Sales $675,812 $613,760
Net Earnings $ 42,128 $ 35,059
Net Earnings Per Share $ 2.93 $ 2.51
================================================================

On May 15, 1996, CalTerm, Inc. ("CalTerm") was merged with a wholly-owned
subsidiary of the Company. Consideration included 122,810 shares of Applied
Power Inc. Class A common stock (valued at approximately $3,930) and
approximately $1,038 in cash. In addition, the Company assumed approximately
$6,000 of outstanding debt which was extinguished by the Company shortly after
the merger. In conjunction with the acquisition, a warehouse operated by
CalTerm in Reno, Nevada was purchased for approximately $2,300 and there were
payments of $1,000 for non-compete agreements. Three individuals received
employment agreements and related stock options. Cash payments required were
funded through borrowings under existing credit facilities. Goodwill of
approximately $2,000 was recorded as a result of this transaction.
Headquartered in San Diego, California, CalTerm is a supplier of electrical
consumables and tools primarily to the retail automotive aftermarket. The
results of operations of CalTerm subsequent to the acquisition date are
included in the Consolidated Statement of Earnings.

On February 23, 1996, the Company's TEE division acquired the European
distribution rights for its products for cash of $1,250 plus forgiveness of
accounts receivable outstanding of $723 from its European distributor.
Goodwill of approximately $1,900 was generated in conjunction with the
transaction.

On December 8, 1995, the Company acquired the remaining 10% minority interest
in Applied Power Korea. Cash of $388 was used in the acquisition, which
generated goodwill of approximately $340. The results of operations of this
subsidiary have historically been included in the Consolidated Statement of
Earnings.

On October 26, 1995, the Company's Enerpac division acquired the assets of
Designed Fluid-Air Systems, Inc. ("DFAS"). Consideration consisted of $298 in
cash plus future royalties over the next five years not to exceed $500 in the
aggregate. As of August 31, 1997, approximately $50 in royalties were earned.
Approximately $100 of the purchase price was assigned to goodwill. DFAS,
located in Oswego, Illinois, designs, fabricates and assembles customized
quick die change systems utilizing hydraulic, pneumatic and electrical
components. The operating results of DFAS subsequent to the acquisition date
are included in the Consolidated Statement of Earnings.

On September 29, 1995, the Company completed the acquisition of substantially
all of the assets and certain liabilities of Vision Plastics Manufacturing
Company ("Vision") for $3,557 in cash. Included in the liabilities assumed was
$1,357 of outstanding mortgage debt, which was subsequently extinguished by
the Company during the first quarter of fiscal 1996. On January 10, 1996, in a
separate transaction, the Company acquired certain proprietary technology
rights and patents related to Vision. Total consideration for the two
transactions of approximately $21,500 was funded by proceeds from borrowings
under existing credit facilities. Intangible assets of $19,942 were recorded
which included approximately $950 of goodwill. Vision, based in San Diego,
California, manufactures plastic cable ties which are sold through electrical
wholesale, retail and OEM channels. The operating results of Vision subsequent
to September 29, 1995 are included in the Consolidated Statement of Earnings.

24

The Company acquired all of the outstanding stock of New England Controls,
Inc. ("NECON") on June 28, 1995 for approximately $2,059 in cash.
Approximately $1,536 of the purchase price was assigned to goodwill. NECON,
based in Milford, Connecticut, manufactures electrical switches for the
electrical wholesale, retail and OEM markets. The operating results of NECON
subsequent to June 28, 1995 are included in the Consolidated Statement of
Earnings.

All acquisitions were accounted for using the purchase method. The
transactions, except for Everest, were not material to the results of
operations or the financial position of the Company.

NOTE C - SALES OF PRODUCT LINES

On January 24, 1996, the Company sold substantially all of the assets and
liabilities of its APITECH mobile equipment product line. Total consideration
from the transaction, which included future collection of retained accounts
receivable, was approximately $5,200, which approximated the book value of the
product line.

On December 13, 1995, the Company's GB Electrical subsidiary sold its HIT
spring steel product line for approximately $2,400 in cash. Proceeds from the
sale approximated the book value of the product line.

NOTE D - ACCOUNTS RECEIVABLE FINANCING

In August 1995, the Company entered into a multi-currency accounts receivable
financing agreement that allows up to the equivalent of $50,000 of sold
receivables at any one time. The agreement, as amended August 30, 1996 and
again on February 28, 1997, expires in August 1999.

Under the terms of such agreement, the Company and certain subsidiaries
(collectively, "Originators") sell trade accounts receivable to Applied Power
Credit Corporation ("APCC"), a wholly-owned limited purpose subsidiary of the
Company. APCC is a separate corporate entity that sells participating
interests in its pool of accounts receivable to financial institutions
("Purchasers"). The Purchasers, in turn, receive an ownership and security
interest in the pool of receivables. Participation interests in new
receivables generated by the Originators are purchased by APCC and resold to
the Purchasers as collections reduce previously sold participation interests.
The sold accounts receivable are reflected as a reduction of receivables in
the Consolidated Balance Sheet. APCC has the risk of credit loss on such
receivables up to a maximum recourse amount and, accordingly, the full amount
of the allowance for doubtful accounts has been retained on the Company's
Consolidated Balance Sheet. The Company retains collection and administrative
responsibilities on the participation interests sold as servicer for APCC and
the Purchasers.

At August 31, 1997 and 1996, accounts receivable were reduced by $50,000 and
$49,475, respectively, representing receivable interests sold under this
program. The proceeds from the sales were used to reduce debt.

Accounts receivable financing costs totaling $2,978, $2,324 and $1,892 for the
years ended August 31, 1997, 1996 and 1995, respectively, are included with
financing costs in the accompanying Consolidated Statement of Earnings.

NOTE E - NET INVENTORIES

Inventory cost is determined using the last-in, first-out ("LIFO") method for
substantially all US owned inventory (approximately 69% of total inventories
in both 1997 and 1996). The first-in, first-out or average cost methods are
used for all other inventories. If the LIFO method was not used, inventory
balances would be higher than the amounts in the Consolidated Balance Sheet by
approximately $7,920 and $9,222 at August 31, 1997 and 1996, respectively.

It is not practical to segregate the amounts of raw materials, work-in-process
or finished goods at the respective balance sheet dates, since the segregation
is possible only as the result of physical inventories which are taken at
dates different from the balance sheet dates. The systems at many of the
Company's operating units have not been designed to capture this segregation
due to the very short production cycle of their products and the minimal
amount of work-in-process.

25

NOTE F - SHORT-TERM BORROWINGS

The Company had borrowings under unsecured non-committed lines of credit with
banks aggregating approximately $21,428 and $16,068 at August 31, 1997 and
1996, respectively. Interest rates vary depending on the currency being
borrowed. The weighted average interest rates on the US and non- US short-term
borrowings were 6.22% and 9.37% at August 31, 1997 and 1996, respectively. The
amount of unused available borrowings under such lines of credit was
approximately $50,000 at August 31, 1997.

NOTE G - LONG-TERM DEBT

- - ----------------------------------------------------------------------
August 31,
- - ----------------------------------------------------------------------
1997 1996
- - ----------------------------------------------------------------------
Borrowings under:
Multi-currency revolving credit agreement $101,663 $ 76,298
Other notes - 250
- - ----------------------------------------------------------------------
Total Long-term Debt $101,663 $ 76,548
======================================================================

During 1995, the Company recorded an extraordinary loss of $4,920 ($0.36 per
share) relating to the March 30, 1995 extinguishment of the outstanding
$64,350, 9.92% Senior Unsecured Notes. The pre-tax extraordinary loss of
$7,343 was comprised of an estimated "make whole" provision of $4,050, costs
associated with the cancellation of underlying interest rate swap agreements
of $3,047 and the write-off of deferred financing costs of $246.

Funds used to retire the Senior Unsecured Notes and pay the "make whole"
obligation were obtained from borrowings under a then existing $40,000
multi-currency revolving credit agreement and a temporary $40,000 expansion to
the existing multi-currency revolving credit agreement. These borrowings were
extinguished on August 21, 1995, and all amounts outstanding were
simultaneously reborrowed under a $120,000 multi-currency revolving credit
agreement.

The $120,000 multi-currency revolving credit agreement was amended August 29,
1996 to increase the credit line to $170,000 and extend the term to August
2001. The Company can borrow at a floating rate of IBOR plus .30 to .70 of 1%
annually, depending on the debt-to-capital ratio. Currently, the Company
incurs interest at .450 of 1% above 30-day IBOR, determined by the underlying
currency of the debt which the Company is borrowing. At August 31, 1997, the
Company had borrowings denominated in the US Dollar, the Japanese Yen and the
German Mark. A commitment fee, currently computed at a rate of .175 of 1%
annually, is payable quarterly on the average unused credit line. The unused
credit line at August 31, 1997 was $68,337.

The multi-currency credit agreement contains customary restrictions concerning
investments, liens on assets, sales of assets, dividend payments, maximum
levels of debt and minimum levels of shareholders' equity. In addition, the
agreement requires the Company to maintain certain financial ratios. As of
August 31, 1997, the Company was in compliance with all debt covenants. Under
the most restrictive covenant, approximately $89,277 of retained earnings was
available for the payment of future dividends on common stock as of August 31,
1997.

On August 29, 1997, the Company entered into a letter agreement that provided
for a committed credit line of an additional $140,000 for a term of 364 days.
The purpose of the agreement was to secure funding for the tender offer for
the common stock of Versa Technologies, Inc. Subsequent to year end, the
$140,000 credit agreement was executed. In addition, the Company subsequently
replaced its $170,000 multi-currency credit agreement and the additional
$140,000 credit agreement with a new multi-currency credit agreement which
provides up to $350,000 in borrowings and expires in 2002.

Derivative Financial Instruments: As part of its interest rate management
program, the Company periodically enters into interest rate swap agreements
with respect to portions of its outstanding debt. The interest rate swap
agreements in place at August 31, 1997 effectively convert $85,000 of the
Company's variable rate debt to a weighted average

26

fixed rate of 6.03%. The swap agreements expire on varying dates through 2003.
The accompanying Consolidated Balance Sheet at August 31, 1997 does not
reflect a value for these swap agreements. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk
that the eventual dollar cash flows resulting from the sale and purchase of
products in foreign currencies will be adversely affected by changes in
exchange rates. In addition, the Company seeks to manage the impact of foreign
currency fluctuations related to the repayment of intercompany borrowings.
Fluctuations in the value of hedging instruments are offset by fluctuations in
the value of the underlying exposures being hedged.

The Company uses forward exchange contracts to hedge certain firm purchases
and sales commitments and the related receivables and payables including other
third party or intercompany foreign currency transactions. Cross-currency
swaps are used to hedge foreign currency denominated payments related to
intercompany loan agreements. Hedged transactions are denominated primarily in
European currencies. The net realized and unrealized gains or losses on
forward contracts deferred at August 31, 1997 were negligible.

The counterparties to these financial instruments consist of major financial
institutions with investment grade or better credit ratings. The Company does
not expect any losses from nonperformance by these counterparties.

Fair Values: The fair value of the Company's short-term borrowings and
long-term debt approximated book value as of August 31, 1997 and 1996. The
fair value of debt instruments is calculated by discounting the cash flow of
such obligations using the market interest rates for similar instruments. If
the Company decided to terminate the interest rate swap agreements, the
Company would have had to pay $553 as of August 31, 1997. The swap agreements
in place at August 31, 1996 had a fair value of approximately $886. The
estimated fair values of the foreign currency contracts in place at August 31,
1997 were negligible.

Aggregate Maturities: Long-term debt outstanding at August 31, 1997 is payable
in its entirety in 2001.

The Company paid $11,705, $8,084 and $10,363 for financing costs in 1997, 1996
and 1995, respectively, excluding the "make whole" payments associated with
refinancing the 9.92% Senior Unsecured Debt.

NOTE H - LEASES

The Company leases certain facilities, computers, equipment and vehicles under
various lease agreements over periods of one to twenty years. Under most
arrangements, the Company pays the property taxes, insurance, maintenance and
expenses related to the leased property. Many of the leases include provisions
which enable the Company to renew leases based upon the fair values on the
date of expiration of the initial lease.

Future obligations on non-cancelable operating leases in effect at August 31,
1997 were: $12,775 in 1998; $11,423 in 1999; $9,770 in 2000; $7,371 in 2001;
$7,058 in 2002 and $24,794 thereafter.

Total rental expense under operating leases was $12,295, $10,739 and $11,076
in 1997, 1996 and 1995, respectively.

NOTE I - STOCK OPTION PLANS

A total of 4,092,901 shares of Class A common stock are authorized under the
Company's stock option plans, of which a total of 1,269,443 have been issued
through exercises of option grants. At August 31, 1997, 2,823,458 shares were
reserved for issuance under the plans.

Employee Plans: On January 8, 1997, shareholders of the Company approved the
adoption of the Applied Power Inc. 1996 Stock Plan (the "1996 Plan").
Previously, the Company had three nonqualified stock option plans for
employees - the 1985, 1987 and 1990 plans. No further options may be granted
under the 1985, 1987 or 1990 plans, although options previously issued and
outstanding under these plans remain exercisable pursuant to the provisions of
the plans. Under the terms of the 1996 Plan, options may be granted to
officers and key employees. Options generally have a maximum term of ten years
and an exercise price equal to 100% of the fair market value of a share of the
Company's common stock at the date of grant. Options generally vest 50% after
2 years and 100% after 5 years.

27

A summary of option activity under the four plans is as follows:

- - --------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
- - --------------------------------------------------------------------------
Outstanding at September 1, 1994 1,585,535 $ 16.82
Granted 227,740 28.46
Exercised (250,136) 16.43
Canceled (119,450) 17.55
- - --------------------------------------------------------------------------
Outstanding at August 31, 1995 1,443,689 $ 18.93
Granted 80,854 31.21
Exercised (121,949) 12.87
Canceled (154,699) 21.82
- - --------------------------------------------------------------------------
Outstanding at August 31, 1996 1,247,895 $ 20.13
Granted 229,250 36.58
Exercised (164,329) 17.73
Canceled (31,358) 26.44
- - --------------------------------------------------------------------------
Outstanding at August 31, 1997 1,281,458 $ 23.13
- - --------------------------------------------------------------------------
Exercisable at August 31, 1997 892,045 $ 20.45
==========================================================================

The following table summarizes information concerning currently outstanding
and exercisable options:

- - -----------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- - -----------------------------------------------------------------------------
$8.50 8,500 0.4 years $ 8.50 8,500 $ 8.50
$13.50 - $20.19 686,045 3.5 years $17.07 631,758 $17.19
$20.56 - $30.38 301,963 7.2 years $25.55 151,287 $25.21
$31.75 - $44.75 278,950 9.1 years $35.25 100,500 $34.75
$52.25 6,000 9.9 years $52.25
- - -----------------------------------------------------------------------------
1,281,458 $23.13 892,045 $20.45
=============================================================================

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for the outside
director plan. If the Company had accounted for these stock options issued to
employees in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net earnings and earnings per share would have
been changed to the pro forma amounts indicated below:

- - ---------------------------------------------------------------
Years Ended August 31,
- - ---------------------------------------------------------------
1997 1996
- - ---------------------------------------------------------------
Net earnings - as reported $42,038 $33,729
Net earnings - pro forma 41,197 33,643
Earnings per share - as reported $ 2.92 $ 2.41
Earnings per share - pro forma 2.87 2.41
===============================================================

The pro forma effects of applying SFAS No. 123 may not be representative of
the effects on reported net income and earnings per share for future years
since options vest over several years and additional awards are made each
year.

28

The fair value of Applied Power stock options used to compute pro forma net
earnings and pro forma earnings per share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model. The weighted
average fair values per share of options granted in 1997 and 1996 are $11.03
and $8.80, respectively. The following weighted average assumptions were used
in completing the model:

- - ----------------------------------------------------------------------
Years Ended August 31,
- - ----------------------------------------------------------------------
1997 1996
- - ----------------------------------------------------------------------
Dividend yield 0.33% 0.40%
Expected volatility 19.0% 18.3%
Risk-free rate of return 6.3% 6.3%
Forfeitures 2% ANNUALLY 2% annually
Expected life 5 YEARS 5 years
======================================================================

Outside Director Plan: Annually, each outside director is granted stock
options to purchase 1,500 shares of common stock at a price equal to the
market price of the underlying stock on the date of grant. The amount of
shares granted was increased in 1997, from 1,000 shares, by an amendment to
the plan adopted on October 31, 1996. These options are recorded as
compensation expense as required by SFAS No. 123. A maximum of 60,000 shares
may be issued under this plan. Options vest 100% after 11 months.

A summary of option activity under this plan is as follows:

- - --------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
- - --------------------------------------------------------------------------
Outstanding at September 1, 1994 19,000 $17.43
Granted 5,000 25.00
Exercised (4,000) 17.81
- - --------------------------------------------------------------------------
Outstanding at August 31, 1995 20,000 $19.25
Granted 6,000 27.63
Exercised (1,000) 17.00
- - --------------------------------------------------------------------------
Outstanding at August 31, 1996 25,000 $21.53
Granted 7,500 38.88
Canceled (2,000) 16.84
- - --------------------------------------------------------------------------
Outstanding at August 31, 1997 30,500 $26.05
- - --------------------------------------------------------------------------
Exercisable at August 31, 1997 23,000 $21.93
==========================================================================

NOTE J - EMPLOYEE STOCK OWNERSHIP AND RETIREMENT PLANS

US Employees: Primarily all of the Company's full-time US employees are
participants in the Applied Power Inc. Employee Stock Ownership Plan (the
"ESOP Plan"). Under the provisions of the ESOP Plan, the plan administrator
acquires shares of Class A common stock on the open market and allocates such
shares to accounts set aside for Company employees' retirements. Contributions
equal 3% of each employee's annual cash compensation, subject to IRS
limitations. During the years ended August 31, 1997, 1996 and 1995, pre-tax
expense related to the ESOP Plan was $2,614, $1,735 and $1,720, respectively.

The Company also offers an employee 401(k) Savings Plan (the "Savings Plan")
to encourage eligible employees to save on a regular basis for their
retirements. Primarily all full-time US employees are eligible to participate
in the Savings Plan, and generally may contribute up to 15% of their base
compensation. Effective January 1, 1996, the Company's annual match equals
approximately 25% of each participant's first 6% of earnings. Expense
attributable to the Savings Plan was approximately $1,035, $672 and $643 for
1997, 1996 and 1995, respectively.

Non-US Employees: The Company contributes to a number of retirement programs
for employees outside the US. Pension expense amounted to approximately
$1,000, $948 and $821 in 1997, 1996 and 1995, respectively. These

29

plans are not required to report to US governmental agencies under the
Employee Retirement Income Security Act of 1974 and the Company does not,
therefore, determine the actuarial value of accumulated plan benefits or net
assets available for benefits.

NOTE K - POSTRETIREMENT BENEFITS

The Company does not offer postretirement health care and life insurance
benefits to employees. However, certain employees of businesses previously
acquired by the Company were entitled to such benefits upon retirement. The
individuals receiving health care benefits under these programs are required
to make monthly contributions to defray a portion of the cost. Retiree
contributions are adjusted annually. Retirees currently do not contribute
toward the cost of life insurance. The accounting for retiree health care
benefits assumes retirees will continue to contribute toward the cost of such
benefits.

Net periodic postretirement benefit expense for 1997, 1996 and 1995 included
the following components:

- - ------------------------------------------------------------------------
1997 1996 1995
- - ------------------------------------------------------------------------
Service cost of benefits earned $ 5 $ 8 $ 9
Interest cost on accumulated postretirement 353 400 482
benefit obligation
Amortization of unrecognized gain (305) (251) (180)
- - ------------------------------------------------------------------------
Total Postretirement Benefit Expense $ 53 $ 157 $ 311
========================================================================

The Company's accumulated postretirement benefit obligation for such benefits
is as follows:

- - --------------------------------------------------------------------
August 31,
- - --------------------------------------------------------------------
1997 1996
- - --------------------------------------------------------------------
Retirees $3,843 $4,174
Vested former employees 748 1,029
Active employees 174 225
- - --------------------------------------------------------------------
Subtotal 4,765 5,428
Unrecognized gain 4,312 4,131
- - --------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation $9,077 $9,559
====================================================================

The Company's postretirement benefit obligation is not funded. Benefits paid
in 1997 and 1996 were $128 and $22 higher than that expensed during those
years, respectively. Payments in 1995 were $24 lower than that expensed during
that year.

The health care cost trend rate used in the actuarial calculations was 10.2%,
trending downward to 6.5% by the year 2009, and remaining level thereafter.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% in each of the years 1997, 1996 and 1995. The effect of a
one percentage-point increase in health care cost trend rates would change the
accumulated postretirement benefit obligation by approximately 8%.

30

NOTE L - INCOME TAXES

Income tax expense for continuing operations consists of the following:

- - --------------------------------------------------------------------------
1997 1996 1995
- - --------------------------------------------------------------------------
Currently Payable:
Federal $14,736 $ 9,361 $ 7,007
Foreign 5,415 6,059 6,313
State 1,828 1,606 1,255
- - --------------------------------------------------------------------------
Subtotals 21,979 17,026 14,575
- - --------------------------------------------------------------------------
Deferred:
Federal (1,196) (711) (2,582)
Foreign 87 (780) 230
State (165) (97) (355)
- - --------------------------------------------------------------------------
Subtotals (1,274) (1,588) (2,707)
- - --------------------------------------------------------------------------
Totals $20,705 $15,438 $11,868
==========================================================================

Components of deferred income tax benefits include the following:

- - --------------------------------------------------------------------------
1997 1996 1995
- - --------------------------------------------------------------------------
Compensation and other employee benefits $ (677) $ 371 $ (443)
Inventory items (873) (694) 26
Depreciation and amortization 258 (1,917) (956)
Restructuring expenses (65) 373 574
Deferred income 526 574 (1,225)
Book reserves and other items (443) (295) (683)
- - --------------------------------------------------------------------------
Totals $ (1,274) $(1,588) $(2,707)
==========================================================================

Income tax expense differs from the amounts computed by applying the Federal
income tax rate to earnings before income tax expense. A reconciliation of
income taxes at the US statutory rate to the effective tax rate follows:

- - ------------------------------------------------------------------------------
Percent of Pre-tax Earnings
- - ------------------------------------------------------------------------------
1997 1996 1995
- - ------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal effect 1.7 2.0 1.6
Non-deductible amortization 0.8 0.9 1.2
Net effects of foreign tax rates and credits (4.2) (5.0) (5.6)
Other items (0.3) (1.5) -
- - ------------------------------------------------------------------------------
Effective Tax Rate 33.0% 31.4% 32.2%
==============================================================================

31

Temporary differences and carryforwards which gave rise to the deferred tax
assets and liabilities included the following items:

- - ----------------------------------------------------------------------
August 31,
- - ----------------------------------------------------------------------
1997 1996
- - ----------------------------------------------------------------------
Deferred tax assets:
Operating loss and foreign tax credit $ 3,487 $ 2,064
carryforwards
Compensation and other employee benefits 6,004 5,327
Inventory items 6,531 5,821
Restructuring expenses 242 177
Deferred income 611 1,137
Book reserves and other items 3,321 3,092
- - ----------------------------------------------------------------------
20,196 17,618
Valuation allowance (4,206) (2,441)
- - ----------------------------------------------------------------------
15,990 15,177
- - ----------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization 10,571 10,313
Inventory items 3,882 4,045
Other items 4,924 5,480
- - ----------------------------------------------------------------------
19,377 19,838
- - ----------------------------------------------------------------------
Net Deferred Tax Liability $(3,387) $(4,661)
======================================================================

The valuation allowance primarily represents foreign and state loss
carryforwards for which utilization is uncertain. The increase in the
valuation allowance represents the current year increase in such losses. The
majority of the foreign losses may be carried forward indefinitely. The state
loss carryforwards expire in various years through 2012.

Income taxes paid during 1997, 1996 and 1995 were $20,666, $17,039 and
$12,280, respectively.

The Company's policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the US.
Accordingly, the Company does not currently provide for the additional US and
foreign income taxes which would become payable upon remission of
undistributed earnings of foreign subsidiaries. Undistributed earnings on
which additional income taxes have not been provided amounted to approximately
$59,000 at August 31, 1997. If all such undistributed earnings were remitted,
an additional provision for income taxes of approximately $3,000 would have
been necessary as of August 31, 1997.

Earnings from continuing operations before income taxes from non-US operations
were $11,612, $10,639 and $16,156 for 1997, 1996 and 1995, respectively.

NOTE M - SEGMENT INFORMATION

The Company's operations are classified into three business segments: Tools &
Supplies, Engineered Solutions and Technical Environments and Enclosures.
Tools & Supplies is involved in the design, manufacture and distribution of
tools and supplies to the construction, electrical wholesale, retail DIY,
datacom, retail automotive, industrial and production automation markets.
Engineered Solutions focuses on developing and marketing value-added,
customized solutions for OEMs in the automotive, truck, off-highway equipment,
medical, aerospace, semiconductor, defense and industrial markets. Technical
Environments and Enclosures designs, manufactures and sells furnishings and
enclosures utilized in technology intensive business environments.

32

Summarized financial information by business segment is as follows:

- - -----------------------------------------------------------------------
1997 1996 1995
- - -----------------------------------------------------------------------
NET SALES:
Tools & Supplies $292,492 $281,225 $264,823
Engineered Solutions 189,481 193,812 192,219
Technical Environments and Enclosures 190,343 96,178 70,016
- - -----------------------------------------------------------------------
Totals $672,316 $571,215 $527,058
=======================================================================

OPERATIONS BEFORE INCOME TAXES:
Tools & Supplies $ 28,890 $ 35,044 $ 35,628
Engineered Solutions 20,590 14,978 13,880
Technical Environments and Enclosures 30,636 13,678 8,289
General corporate and other (17,373) (14,533) (20,924)
- - -----------------------------------------------------------------------
Totals $ 62,743 $ 49,167 $ 36,873
=======================================================================

DEPRECIATION AND AMORTIZATION:
Tools & Supplies $ 9,521 $ 8,631 $ 6,578
Engineered Solutions 8,218 9,410 9,119
Technical Environments and Enclosures 5,849 2,971 2,704
General corporate and other 75 66 55
- - -----------------------------------------------------------------------
Totals $ 23,663 $ 21,078 $ 18,456
=======================================================================

CAPITAL EXPENDITURES:
Tools & Supplies $ 8,125 $ 9,515 $ 6,440
Engineered Solutions 6,133 6,497 6,321
Technical Environments and Enclosures 8,312 6,715 2,955
General corporate and other 71 7 270
- - -----------------------------------------------------------------------
Totals $ 22,641 $ 22,734 $ 15,986
=======================================================================

- - -----------------------------------------------------------------------
August 31,
- - -----------------------------------------------------------------------
1997 1996 1995
- - -----------------------------------------------------------------------
ASSETS:
Tools & Supplies $196,666 $209,270 $163,053
Engineered Solutions 120,372 122,669 129,682
Technical Environments and Enclosures 135,449 37,077 25,969
General corporate 11,105 12,225 14,242
- - -----------------------------------------------------------------------
Totals $463,592 $381,241 $332,946
=======================================================================

33

Summarized financial information by geographic region is as follows:

- - --------------------------------------------------------------------------
1997 1996 1995
- - --------------------------------------------------------------------------
NET SALES:
North America $448,231 $360,844 $323,015
Europe 160,656 143,683 136,813
Japan and Asia Pacific 51,961 56,750 55,208
Latin America 11,468 9,938 12,022
- - --------------------------------------------------------------------------
Totals $672,316 $571,215 $527,058
==========================================================================

OPERATIONS BEFORE INCOME TAXES:
North America $ 66,281 $ 45,070 $ 34,885
Europe 16,458 16,043 14,850
Japan and Asia Pacific (1,120) 3,772 7,207
Latin America (1,503) (1,185) 855
General corporate and other (17,373) (14,533) (20,924)
- - --------------------------------------------------------------------------
Totals $ 62,743 $ 49,167 $ 36,873
==========================================================================

- - --------------------------------------------------------------------------
August 31,
- - --------------------------------------------------------------------------
1997 1996 1995
- - --------------------------------------------------------------------------
ASSETS:
North America $299,572 $240,420 $192,032
Europe 109,220 78,445 77,505
Japan and Asia Pacific 33,668 38,834 37,200
Latin America 10,027 11,317 11,967
General corporate 11,105 12,225 14,242
- - --------------------------------------------------------------------------
Totals $463,592 $381,241 $332,946
==========================================================================

Operations before income taxes for each business and geographic segment do not
include general corporate expenses, interest expense or currency exchange
adjustments. Sales between business segments and geographic areas are
insignificant and are accounted for at prices intended to yield a reasonable
return to the selling affiliate. No single customer accounted for more than
10% of total sales in 1997, 1996 or 1995. Export sales from domestic
operations were less than 10% in each of the periods presented.

Corporate assets, which are not allocated, represent principally cash and
prepaid taxes.

NOTE N - CONTINGENCIES AND LITIGATION

The Company had outstanding letters of credit totaling $773 and $830 at August
31, 1997 and 1996, respectively. The letters of credit generally serve as
collateral for liabilities included in the Consolidated Balance Sheet.

The Company is involved in various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor and patent claims. The Company has
recorded reserves for loss contingencies based on the specific circumstances
of each case. Such reserves are recorded when the occurrence of loss is
probable and can be reasonably estimated. In the opinion of management, the
resolution of these contingencies will not have a material adverse effect on
the Company's financial condition or results of operations.

The Company has facilities at numerous geographic locations which are subject
to a range of environmental laws and regulations. Environmental costs are
expensed or capitalized depending on their future economic benefit.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental

34

remediation is probable and the costs can be reasonably estimated. Although
the level of future expenditures for environmental remediation is impossible
to determine with any degree of certainty, it is management's opinion that
such costs will not have a material effect on the Company's financial
position. Environmental remediation accruals of $448 and $611 were included in
the Consolidated Balance Sheet at August 31, 1997 and 1996, respectively.

NOTE O - SUBSEQUENT EVENTS

Subsequent to year end, the Company, through a wholly-owned subsidiary,
accepted for payment all shares of Versa Technologies, Inc. ("Versa/Tek")
common stock which were tendered pursuant to the Company's tender offer to
purchase all outstanding shares at a cash price of $24.625 net per share.
Consideration for the transaction was expected to total approximately
$140,000. The transaction will be funded with proceeds from a $140,000,
364-day revolving credit facility from existing lenders. Versa/Tek, based in
Racine, Wisconsin, is a value-added manufacturer of custom engineered
components and systems for diverse industrial markets.

Subsequent to year end, the Company agreed to terms for the acquisition of
certain assets of Nylo-Flex Manufacturing Company, Inc. ("Nylo-Flex") for
approximately $3,000 in cash. The transaction is expected to be funded by
proceeds from borrowings under existing credit facilities. Nylo-Flex,
headquartered in Mobile, Alabama, does business under the TAM name and is a
manufacturer, packager and distributor of high quality battery terminals,
battery cables and battery maintenance accessories to the automotive, marine,
farm, fleet and industrial markets.

35

APPLIED POWER INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

Additions Deductions
----------------------- -----------------------
Accounts
Balance at Charged to Written Off Balance
Beginning Costs and Net Less at End
Description of Period Expenses Acquired Recoveries Other of Period
- - ----------------------------- ---------- ----------- -------- ----------- ------ ---------

Deducted from assets to
which they apply:

Allowance for losses -
trade accounts receivable

August 31, 1997 $ 4,179 $1,696 $133 $1,370 $309 $ 4,329
======= ====== ==== ====== ==== =======
August 31, 1996 $ 3,593 $1,203 $100 $ 662 $ 55 $ 4,179
======= ====== ==== ====== ==== =======
August 31, 1995 $ 3,131 $1,255 - $ 840 $(47) $ 3,593
======= ====== ==== ====== ==== =======

Allowance for losses -
inventory
August 31, 1997 $12,045 $7,488 $456 $5,674 $452 $13,872
======= ====== ==== ====== ==== =======
August 31, 1996 $ 8,371 $7,529 $ 30 $3,794 $ 91 $12,045
======= ====== ==== ====== ==== =======
August 31, 1995 $ 6,268 $5,413 - $3,429 $(119) $ 8,371
======= ====== ==== ====== ==== =======

36

SIGNATURES

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

APPLIED POWER INC.
(Registrant)

Dated: November 14, 1997 By: /s/ Robert C. Arzbaecher
-------------------------
Robert C. Arzbaecher
Vice President and
Chief Financial Officer

POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard G. Sim and Robert C.
Arzbaecher, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all and any other
regulatory authority, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

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

SIGNATURE TITLE
--------- -----

/s/ Richard G. Sim Chairman of the Board, President and
- - --------------------------------- Chief Executive Officer; Director
Richard G. Sim

/s/ Robert C. Arzbaecher Vice President and Chief Financial
- - --------------------------------- Officer (Principal Financial Officer)
Robert C. Arzbaecher

/s/ Richard D. Carroll Controller
- - --------------------------------- (Principal Accounting Officer)
Richard D. Carroll

/s/ H. Richard Crowther Director
- - ---------------------------------
H. Richard Crowther

/s/ Jack L. Heckel Director
- - ---------------------------------
Jack L. Heckel

/s/ Richard A. Kashnow Director
- - ---------------------------------
Richard A. Kashnow

/s/ L. Dennis Kozlowski Director
- - ---------------------------------
L. Dennis Kozlowski

/s/ John J. McDonough Director
- - ---------------------------------
John J. McDonough

- - ------------
* Each of the above signatures is affixed as of November 14, 1997.

37

APPLIED POWER INC.
(COMMISSION FILE NO. 1-11288)
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997

INDEX TO EXHIBITS

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

3.1 (a) Amended and Restated Exhibit 19.1(a) to the
Articles of Incorporation (as Registrant's Form 10-Q for
adopted January 8, 1987) quarter ended February 28, 1990
("2/28/90 10-Q")

(b) Articles of Amendment to Exhibit 19.1(b) to 2/28/90 10-Q
Amended and Restated Articles
of Incorporation, amending
Sections 3.1 and 3.2 of Article
III and Article IV (as adopted
January 13, 1990)

3.2 Amended and Restated By-Laws X
(as last amended by amendment to
Section 3.01 decreasing the number
of directors to six, adopted August
8, 1996 and effective as of
January 8, 1997)

4+

4.1 Articles III, IV and V of Amended See Exhibit 3.1 above
and Restated Articles of
Incorporation, as amended

4.2 Agreement for Purchase and Sale, Exhibit 19.2(a)-(g) to the
dated August 29, 1990, between Registrant's Form 10-Q for
Minnesota Mining and quarter ended May 31, 1991
Manufacturing Company and
Applied Power Inc., and seven related
Leases, each dated April 29, 1991,
between Bernard Garland and
Sheldon Garland, d/b/a Garland
Enterprises, as Landlord, and
Applied Power Inc., as Tenant

+ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish to the Securities and Exchange Commission upon request a copy of
any unfiled instruments, or any unfiled exhibits or schedules to filed
instruments, defining the rights of security holders.

38

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

4.3 (a) Multi-currency Credit Agreement, Exhibit 4.3 to the Registrant's
dated as of August 22, 1995 Form 10-K for fiscal year ended
between Applied Power Inc. and August 31, 1995
Applied Power Finance S.A., as ("1995 10-K")
borrowers, various financial
institutions, as lenders, Bank of
America National Trust and Savings
Association, as agent, and BA
Securities, Inc., as arranger

(b) First Amendment Agreement Exhibit 4.3(b) to 1996 10-K
dated as of August 29, 1996

4.4 (a) Amended and Restated Receivables Exhibit 4.4 to 1995 10-K
Purchase Agreement, dated as of
August 30, 1995, between Applied
Power Inc., Barry Wright
Corporation, Technical Environments
and Enclosures, GB Electrical, Inc.,
and certain other subsidiaries from
time to time parties thereto, as
sellers, and PNC Bank, National
Association, and other financial
institutions from time to time parties
thereto, as purchasers

(b) First Amendment to Amended Exhibit 4.4(b) to 1996 10-K
and Restated Receivables Purchase
Agreement dated as of August 30,
1996

(c) Second Amended and Restated X
Receivables Purchase Agreement
dated as of February 28, 1997

4.5 Credit Agreement, dated as of Exhibit (b)(2) filed with Amendment
October 3, 1997 among Applied No. 3 to the Registrant's Tender
Power Inc., Bank of America Offer Statement on Schedule 14D-1
National Trust and Savings dated October 6, 1997
Association, as agent, and the other (File No. 5-13342)
financial institutions party hereto

39

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

4.6 Multi-currency Credit Agreement, X
dated as of October 22, 1997
between Applied Power Inc. and
Applied Power Finance, S.A., as
borrowers, various financial
institutions, as lenders, Bank of
America National Trust and Savings
Association, as agent, and BA
Robertson Stephens, as arranger

10.1* Employment Agreement dated Exhibit 10.1 to the Registrant's
May 9, 1994 between Applied form 10-K for fiscal year ended
Power Inc. and Richard G. Sim August 31, 1994
(superseding Employment Agreement
dated July 5, 1985, as amended)

10.2* (a) Applied Power Inc. 1985 Stock Exhibit 10.2(a) to the Registrant's
Option Plan adopted by Board of Form 10-K for fiscal year ended
Directors on August 1, 1985 and August 31, 1989 ("1989 10-K")
approved by shareholders on
January 6, 1986, as amended
("1985 Plan")

(b) Amendment to 1985 Plan adopted Exhibit 10.2(b) to 1989 10-K
by Board of Directors on November
8, 1989 and approved by shareholders
on January 13, 1990

(c) Amendment to 1985 Plan adopted Exhibit 10.2(c) to the
by Board of Directors on August 9, Registrant's Form 10-K for fiscal year
1990 ended August 31, 1990 ("1990 10-K")

(d) Amendment to 1985 Plan adopted X
by Board of Directors on May 8, 1997

10.3* (a) Applied Power Inc. 1987 Exhibit 10.8 to the Registrant's
Nonqualified Stock Option Plan Form 10-K for fiscal year ended
adopted by Board of Directors on August 31,1987
November 3, 1987 and approved by
shareholders on January 7, 1988
("1987 Plan")

* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.

40

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

(b) Amendment to 1987 Plan adopted See Exhibit 10.2(b)
by Board of Directors on November
8, 1989 and approved by shareholders
on January 13, 1990

(c) Amendment to 1987 Plan adopted X
by Board of Directors on May 8, 1997

10.4* (a) Applied Power Inc. 1990 Stock Exhibit A to the Registrant's Proxy
Option Plan adopted by Board of Statement dated December 5, 1990
Directors on August 9, 1990 and for 1991 Annual Meeting of
approved by shareholders on Shareholders
January 7, 1991 ("1990 Plan")

(b) Amendment to 1990 Plan adopted Exhibit 10.5(b) to the Registrant's
by Board of Directors on August 10, Form 10-K for fiscal year ended
1992 and approved by shareholders August 31, 1992
on January 7, 1993

(c) Amendment to 1990 Plan adopted X
by Board of Directors on May 8, 1997

10.5* Description of Fiscal 1997 Exhibit 10.6 to 1996 10-K
Management Bonus Arrangements

10.6* Description of Fiscal 1998 X
Management Bonus Arrangements

10.7* (a) Applied Power Inc. 1989 Exhibit 10.7 to 1989 10-K
Outside Directors' Stock Option
Plan adopted by Board of Directors
on November 8, 1989 and
approved by shareholders on
January 13, 1990 ("1989 Plan")

(b) Amendment to 1989 Plan Exhibit 10.7(b) to 1990 10-K
adopted by Board of Directors on
November 9, 1990 and approved
by shareholders on January 7, 1991

* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.

41

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

(c) Amendment to 1989 Plan Exhibit 10.7(c) to 1996 10-K
adopted by Board of Directors on
October 31, 1996

10.8* Outside Directors' Deferred Exhibit 10.8 to 1995 10-K
Compensation Plan adopted by Board
of Directors on May 4, 1995

10.9 Asset Purchase Agreement Exhibit 2.1 to the Registrant's
between Applied Power Inc. and Form 8-K dated October 11, 1996
Wright Line Inc., on the one hand
and Everest Electronic Equipment,
Inc., Wallace H. Twedt, Terry D.
Wells and Robert L. Wells, on the
other hand dated August 27, 1996

10.10* (a) 1996 Stock Plan adopted by Board Annex A to the Registrant's Proxy
of Directors on August 8, 1996 and Statement dated November 19, 1996
proposed for shareholder approval for 1997 Annual Meeting of
on January 8, 1997 Shareholders

(b) Amendment to 1996 Stock Plan X
adopted by Board of Directors on
May 8, 1997

10.11* Deferred Compensation Plan Exhibit 10.11 to 1996 10-K
adopted by Board of Directors on
October 31, 1996

10.12 Agreement and Plan of Merger, Exhibit (c)(1) to Registrant's
dated as of September 2, 1997, Tender Offer Statement on
among Applied Power Inc., TVPA Schedule 14D-1 filed on September
Corp. and Versa Technologies, Inc. 5, 1997 (File No. 5-13342)

11 Statement regarding Computation of X
Earnings Per Share

21 Subsidiaries of the Registrant X

23 Consent of Deloitte & Touche LLP X

* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.

42

INCORPORATED HEREIN FILED
EXHIBIT DESCRIPTION BY REFERENCE TO HEREWITH
--------- ------------------------------ -------------------- --------

24 Power of Attorney See Signature Page of this report

27 Financial Data Schedule X

43