APPLIED POWER INC, 10-K, 1999-12-06

APPLIED POWER INC
10-K, 1999-12-06
MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT

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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, 1999

[_] 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 Identification No.)
incorporation or organization)

N22 W23685 Ridgeview Parkway West
Waukesha, Wisconsin 53188-1013
Mailing address: P.O. Box 325, Milwaukee, Wisconsin 53201
(Address of principal executive offices)

(262) 523-7600
(Registrant's telephone number, including area code)

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

Class A Common Stock,
$.20 par value per share New York Stock Exchange
(Title of each class) (Name of each exchange on 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 November 30, 1999, the aggregate market value of Common Stock held by
non-affiliates was approximately $1,218.7 million, and there were 38,984,504
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 12, 2000 are incorporated by reference into
Part III hereof.

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FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS

This document contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to
differ materially from the future results, performance or achievements
expressed or implied in such forward-looking statements. The words
"anticipate," "believe," "expect," "project," "objective" and similar
expressions are intended to identify forward-looking statements. In addition
to the assumptions and other factors referred to specifically in connection
with such statements, factors that could cause the Company's actual results to
differ materially from those contemplated in the forward-looking statements
include factors described under the caption "Risk Factors That May Affect
Future Results" on page 21 of Item 7 of this report.

PART I

Item 1. Business

General

Headquartered outside Milwaukee, Wisconsin, Applied Power Inc. (the
"Company" or "APW") is a Wisconsin corporation incorporated in 1910. APW is a
highly diversified global company organized along the lines of its two
business segments: Electronics and Industrial. To meet the needs of its
multinational customers and to serve new markets, the Company operates over
145 facilities in 24 countries, providing electronic systems and components,
tools, equipment and supply items to a variety of end users and original
equipment manufacturers ("OEMs"). Approximately 40% of the Company's fiscal
1999 sales and operating income were derived from operations outside the
United States. The Company's customers operate in the computer, semiconductor,
telecommunication, datacom, manufacturing, construction, electrical,
transportation, recreational vehicle, aerospace, defense and other industries.

Over the past three years, the Company has essentially reinvented itself.
Long a successful manufacturer of tools and industrial products and systems,
since 1997 the Company has diversified to become a global leader in the
fragmented electronic enclosure systems market. Sales of the Electronics group
increased to comprise 60% of the Company's total revenue in fiscal 1999 versus
42% in fiscal 1997. Reflecting this evolution of the Company, in May 1999, APW
realigned its business segments and organizational structure into two
customer-centered segments. The Electronics segment is the previous Enclosure
Products and Systems group plus McLean Thermal Management and Eder Industries.
The Industrial segment combines the remaining elements of the former
Engineered Solutions group with the Tools and Supplies businesses. Prior
period segment information has been restated to reflect the realignment of the
business segments.

In September 1999, the Company announced that it was exploring strategic
alternatives relating to the Industrial segment, including a possible sale of
the segment. These alternatives with the Industrial group would enable the
Company and its shareholders to focus on the strong potential of the
Electronics segment. Sale of the Industrial segment is conditional on any
potential transaction meeting structural and valuation criteria and would be
subject to normal required approvals.

The Electronics segment supplies electronic enclosures, power supplies,
thermal systems, backplanes and cabling either as individual products, or as
integrated systems or technical environments, incorporating certain of the
Company's product design, supply chain management, manufacturing, assembly and
testing capabilities. The Electronics group's products are used in a wide
range of telecommunication, computer networking, semiconductor equipment,
medical, electronic and manufacturing applications. In addition, APW's
Electronics segment provides design, integration and logistic capabilities to
its customers. Electronics segment customers include IBM, NCR, EMC, Hewlett
Packard, Nortel Networks, Sun, Nokia, Applied Materials, Ericsson, Qualcomm
and Lucent.

2
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The Company's Industrial segment provides a wide array of both standard and
custom industrial and electronic tools, products and accessories as well as
components and systems using hydraulic actuation and vibration control
technologies. Industrial products and systems are sold through a world-wide
distribution system into a variety of markets. Channels for the Company's
Industrial products include wholesale distributors, catalogs and retail
distribution as well as OEM automotive and recreational vehicle ("RV") markets
and aerospace and heavy industrial and construction markets.

Merger and Acquisitions

Since September 1996, the Company has invested approximately $1.3 billion
in mergers and acquisitions, principally focused on acquiring businesses which
complement the Company's existing activities, primarily within the Electronics
segment, or which expand the Company's geographic presence.

<TABLE>
<CAPTION>
Company
Date Acquired Purchase Price Primary Location(s) APW Business Segment
---- ---------- --------------- -------------------- ----------------------
($ in Millions)
<S> <C> <C> <C> <C>
September 1998.......... Rubicon $ 371 Europe Electronics
July 1998............... ZERO 386 United States/Europe Electronics
June 1998............... Vero 192 Europe Electronics
October 1997............ Versa/Tek 141 United States Industrial
Various................. Others (15) 217 United States/Europe Electronics/Industrial
------
Total................ $1,307
======
</TABLE>

During the last three fiscal years, APW has acquired 19 locations with the
three largest transactions, Vero Group plc ("Vero"), ZERO Corporation ("ZERO")
and Rubicon Group plc ("Rubicon"), focused on increasing the Company's
presence in the fast growing electronic enclosure systems market. Combined,
these three transactions provided greater access to high growth
telecommunications, networking, computer storage and Automated Teller Machine
("ATM") markets. The acquisitions also increased geographic coverage to better
support the Company's global customers and broadened the range of Company
products which can be integrated into its electronic enclosures by adding
thermal management systems, power supplies and backplanes to the Company's
product portfolio.

The Company plans to continue to grow through strategic acquisitions in
each of its business segments, with a particular focus on growing the
Electronics segment. APW views continued investment in businesses which
support the electronics industry, thereby leveraging the Company's electronic
enclosure systems capabilities, as a means of participating in the fast
growing, high technology computer, networking and telecommunications markets.
Electronics industry OEMs are increasingly outsourcing various aspects of
their supply chain to specialized manufacturers such as APW. In response to
the trend to outsourcing the Company has expanded its electronic enclosure
integration services to include components such as thermal management systems,
backplanes, power supplies, cables, wire harnesses, and to a lesser extent,
printed circuit boards. In addition, the Company provides design, integration
and logistic capabilities to its customers. APW believes that it is well
placed to benefit from further outsourcing and vendor consolidation within the
electronics industries due to the breadth of its product and service offerings
and its global capabilities.

For further information regarding the Company's acquisitions, see Note B--
"Merger, Acquisitions and Divestitures" in the 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.

Financial information by segment and geographic area, as well as
information related to export sales, is included in Note L--"Business Segment,
Geographic and Customer Information" in Notes to Consolidated Financial
Statements.

3
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Description of Business Segments

ELECTRONICS

A global leader in the fragmented electronic enclosure systems market,
APW's Electronics segment primarily manufactures electronic enclosure products
and systems sold to a variety of end users and OEMs in the networking,
telecommunication, computing and electronics industries. Electronic enclosures
are steel, aluminum or plastic cabinets that organize and configure individual
electronic components and house, protect and insulate the entire electronics
system. Electronics group product offerings include enclosure products such as
cases, racks, backplanes, thermal management systems, power supplies and
cabling as well as furniture for technical environments. APW applies its broad
design, engineering, supply chain management, manufacturing and assembly
expertise to integrate these products into customized, cost effective
solutions for its customers worldwide. Examples of Electronics' products and
systems include: weatherproof aluminum outdoor enclosures, incorporating the
Company's thermal management and power supply products; a steel computer data
storage enclosure that incorporates APW's power supplies, internal mechanical
racks and thermal management systems plus the cabling and wiring necessary to
integrate APW and customer supplied components into the final enclosure.

The Electronics segment's products are sold under the APW brand name and
under the APW--McLean, APW--Wright Line and ZERO Halliburton names in the case
of thermal management, technical furniture and cases products, respectively.

The Electronics segment's products are primarily sold direct, with specific
standard products going through distribution in selected markets. Electronics
group sales and manufacturing locations are mainly in Europe and North
America. The Electronics segment's customers include IBM, NCR, EMC, Hewlett
Packard, Nortel Networks, Sun, Nokia, Applied Materials, Ericsson, Qualcomm
and Lucent.

INDUSTRIAL

The Company's Industrial segment encompasses a broad range of niche
consumer and industrial manufacturing and distribution operations. The
segment's goal is to be the industry leader within each of these individual
product niches.

Certain businesses within the Industrial group possess particular technical
competencies, focused on hydraulic, electromechanical, rubber/elastomer
molding, magnetic and electronic control techniques. The technology based
businesses provide customized solutions to OEM customers in the truck,
aerospace, automotive, RV and other general industrial markets, primarily in
North America and Europe. Brand names that the Industrial group's technology
products trade under include: Barry Controls, Power Gear, Power Packer, Vlier,
Milwaukee Cylinder and Mox-Med. Most of the technology based products sales
are diversified by customer and end user industry and are primarily sold
through direct sales persons, with sales representatives and distributors used
in certain situations. As an OEM supplier, the Industrial group operates as a
just-in-time supplier and maintains numerous quality certifications including
ISO 9001 and ISO 9000. The Industrial segment also provides a wide array of
electrical and industrial tools and supplies to wholesale distributors,
catalogs and retail distribution channels. The group has particular expertise
in hydraulic design and plastic injection molding techniques. The Industrial
segment provides over 10,000 stock keeping units ("SKUs"), most of which are
designed and manufactured by the Company in North America. The Industrial
group maintains a sophisticated sourcing operation to supply additional
products to supplement its own products and meet its customers' needs.
Principal brand names used by the Company's retail oriented Industrial
companies include Enerpac, GB Gardner Bender, Ancor, Calterm and Del City. End
user markets targeted include general industrial, construction, retail marine,
retail automotive, do-it-yourself and production automation. To provide its
customers with the service levels required, the Industrial segment maintains a
sophisticated warehouse and physical distribution capability in North America,
Europe and Asia. Certain products are sold on an OEM basis.

4
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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. The Company believes that it is the global
leader in the fragmented electronic enclosures market.

Research and Development

The Company maintains engineering staffs at several locations that design
new products and make improvements to existing product lines. Expenditures for
research and development were $13.1 million, $13.9 million and $10.4 million
in fiscal years 1999, 1998 and 1997, respectively, the majority of which was
expended in the Industrial segment. Substantially all research, development
and product improvement expenditures are Company funded.

Patents and Trademarks

The Company owns numerous United States and foreign patents and trademarks.
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 businesses.

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, 1999, the Company had an order backlog of approximately
$318.6 million, compared to approximately $251.9 million at August 31, 1998.
Substantially all orders are expected to be completed prior to the end of
fiscal 2000. The Company's sales are subject to minor seasonal fluctuations,
with second fiscal quarter sales traditionally being the lowest of the year.

Employee Relations

As of August 31, 1999, the Company employed approximately 11,200 people on
a full-time equivalent basis, of which approximately 80 were represented by a
collective bargaining agreement. The Company enjoys good relationships with
its employees.

Environmental Compliance

The Company has facilities in numerous geographic locations that are
subject to a range of environmental laws and regulations. Compliance with
these laws has and will require expenditures on a continuing basis. The
Company has been identified by the United States Environmental Protection
Agency as a "Potentially Responsible Party" regarding various 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. Environmental costs are expensed or
capitalized depending on their future economic benefits. Expenditures that
have no future economic value are expensed. Liabilities are recorded when
environmental remediation is probable and the costs can be reasonably
estimated. Environmental expenditures over the last three years have not been
material. 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 are not presently expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows. Environmental remediation accruals of $3.1

5
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million and $4.0 million were included in the Consolidated Balance Sheet at
August 31 , 1999 and 1998, respectively. For further information, refer to Note
M--"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:

<TABLE>
<CAPTION>
Location and Business Size (sq. feet) Owned/Leased
--------------------- --------------- ------------

<S> <C> <C>
ELECTRONICS
-----------
Anaheim, California........................ 360,000 Leased
Monson, Massachusetts...................... 320,000 Owned
North Salt Lake, Utah...................... 292,000 Owned
Worcester, Massachusetts................... 240,000 Leased
San Jose, California....................... 190,000 Leased
Eastleigh, England......................... 186,000 Leased
Champlin, Minnesota........................ 184,000 Owned
Santa Clarita, California.................. 171,000 Leased
Middlesex, England......................... 165,000 Leased
Hudson, New Hampshire...................... 152,000 Leased
Monon, Indiana............................. 150,000 Owned
Garland, Texas............................. 150,000 Leased
Robbinsville, New Jersey................... 133,000 Owned
Poway, California.......................... 127,000 Leased
Tallaght Dublin, Ireland................... 120,000 Leased
Pacoima, California........................ 113,000 Leased
Dundee, Scotland........................... 111,000 Leased
Hamilton, Scotland......................... 110,000 Owned
Sheffield, England......................... 107,000 Owned
Beith, Scotland............................ 97,000 Owned/Leased
Southampton, England....................... 95,000 Leased
Grass Valley, California................... 92,000 Leased
Bremen, Germany............................ 91,000 Owned/Leased
Wandsworth London, England................. 87,000 Leased
Wallingford, Connecticut................... 76,000 Leased
Oak Creek, Wisconsin....................... 75,000 Leased
Radford, Virginia.......................... 68,000 Owned
Milton Ontario, Canada..................... 65,000 Leased
Aarup, Denmark............................. 63,000 Owned
Galway, Ireland............................ 62,000 Owned/Leased
West Boylston, Massachusetts............... 61,000 Owned
Portsmouth, New Hampshire.................. 55,000 Leased
Beith, Scotland............................ 55,000 Leased
Austin, Texas.............................. 51,000 Leased
Garden Grove, California................... 47,000 Leased
Cork, Ireland.............................. 47,000 Owned/Leased
Camarillo, California...................... 36,000 Leased
Irvine, California......................... 35,000 Leased
Beauvais, France........................... 32,000 Owned
Smethwick West Midlands, England........... 29,000 Leased
Hudson, New Hampshire...................... 26,000 Owned
Cedex, France.............................. 18,000 Leased
Berkhamsted, England....................... 17,000 Leased
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
Location and Business Size (sq. feet) Owned/Leased
--------------------- --------------- ------------

<S> <C> <C>
INDUSTRIAL
----------
Glendale, Wisconsin........................ 313,000 Owned/Leased
Troyes, France............................. 185,000 Leased
Brighton, Massachusetts.................... 144,000 Leased
Columbus, Wisconsin........................ 130,000 Leased
Burbank, California........................ 126,000 Leased
Oldenzaal, Netherlands..................... 126,000 Owned/Leased
Birmingham, England........................ 120,000 Owned
Rancho Dominguez, California............... 110,000 Leased
Veenendaal, Netherlands.................... 97,000 Leased
Mobile, Alabama............................ 75,000 Leased
Pachuca, Mexico............................ 73,000 Leased
Cudahy, Wisconsin.......................... 73,000 Owned
San Diego, California...................... 69,000 Leased
Hartford, Connecticut...................... 65,000 Owned
Oklahoma City, Oklahoma.................... 56,000 Leased
Portage, Wisconsin......................... 56,000 Owned
Reno, Nevada............................... 55,000 Owned
Tecate, Mexico............................. 54,000 Leased
Westfield, Wisconsin....................... 48,000 Owned
Tokyo, Japan............................... 39,000 Leased
Hersham, England........................... 39,000 Leased
Charlotte, North Carolina.................. 36,000 Leased
Tijuana, Mexico............................ 35,000 Leased
Matthews, North Carolina................... 33,000 Owned
Beaver Dam, Wisconsin...................... 31,000 Owned
Akhisar, Turkey............................ 25,000 Owned
Alexandria, Minnesota...................... 25,000 Owned
Birmingham, England........................ 25,000 Leased
Burlington, Kentucky....................... 23,000 Leased
Middlesex, England......................... 21,000 Leased
Cotati, California......................... 20,000 Leased
Taipei, Taiwan............................. 19,000 Leased
Mississauga, Ontario, Canada............... 18,000 Leased
Corsico, Italy............................. 18,000 Owned
Lancaster, Pennsylvania.................... 16,000 Leased
Dusseldorf, Germany........................ 15,000 Leased
Singapore, Singapore....................... 15,000 Leased
Butler, Wisconsin.......................... 68,000 Leased

CORPORATE
---------
Waukesha, Wisconsin........................ 18,000 Leased
</TABLE>

In addition to these properties, the Company utilizes a number of smaller
facilities in Australia, Brazil, the Peoples Republic of China, Denmark,
Finland, France, Germany, Hong Kong, India, Japan, South Korea, Spain, Sweden,
the United Kingdom and the United States.

The Company's strategy is to lease properties when possible 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.

7
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Item 3. Legal Proceedings

The Company is a party to various legal proceedings that 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 recorded reserves for
estimated losses based on the specific circumstances of each case. Such
reserves are recorded when it is probable that a loss has been incurred as of
the balance sheet date and such loss can be reasonably estimated. In the
opinion of management, the resolution of these contingencies is not expected
to have a material adverse effect on the Company's financial condition,
results of operations or cash flows. For further information, refer to Note
M--"Contingencies and Litigation" in the Notes to Consolidated Financial
Statements.

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.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard G. Sim.......... 55 Chairman, President and Chief Executive Officer;
Director
William J. Albrecht..... 48 Senior Vice President--Electronics
Gustav H.P. Boel........ 55 Senior Vice President--Industrial
Robert C. Arzbaecher.... 39 Senior Vice President and Chief Financial Officer
Anthony W. Asmuth III... 57 Secretary
</TABLE>

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 the Electronics
business segment in May 1999. Prior to that he was Senior Vice President of
the Company's Engineered Solutions group from 1994. Prior to that, he served
as Vice President and President of Power-Packer and APITECH from 1991. He
joined the Company in 1989 as Director of Marketing of the APITECH Division in
the United States and became General Manager shortly thereafter. Prior to
joining the Company, Mr. Albrecht was Director of National Accounts and
Industrial Power Systems at Generac Corp. from 1987 to 1989.

Gustav H.P. Boel was appointed Senior Vice President of the Industrial
business segment in May 1999. Previously, he served as a Vice President of the
Company with responsibilities for Tools and Supplies since 1998. Prior to
that, Mr. Boel was President of Enerpac from 1995. From 1991 to 1995, he
managed the Company's Engineered Solutions business in Europe. From 1990 to
1991, Mr. Boel was Technical Director for Groeneveld, located in the
Netherlands. Prior to 1990, Mr. Boel worked in Europe in various positions in
the industrial tool business.

Robert C. Arzbaecher was named Vice President and Chief Financial Officer
in 1994 and Senior Vice President in 1998. He had served as Vice President,
Finance of Tools and Supplies from 1993 to 1994. He joined the Company in 1992
as Corporate Controller. From 1988 through 1991, Mr. Arzbaecher was employed
by Grabill Aerospace Industries LTD, where he last held the position of Chief
Financial Officer.

8
<PAGE>

Anthony W. Asmuth III is a partner in the law firm of Quarles & Brady LLP,
Milwaukee, Wisconsin, having joined that firm in 1989. Quarles & Brady LLP
performs legal services for the Company and certain of its subsidiaries. Prior
to joining Quarles & Brady LLP, 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 November 30, 1999, the approximate number of record
shareholders of common stock was 4,260. The high and low sales prices of the
common stock by quarter for each of the past two years were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR PERIOD HIGH LOW
----------- ------ ---- ---
<S> <C> <C> <C>
1999 June 1 to August 31 $32 1/2 $23 13/16
March 1 to May 31 35 3/8 21 3/8
December 1 to February 28 38 7/8 23 3/8
September 1 to November 30 37 3/4 20 3/8

1998 June 1 to August 31 $38 $24 3/4
March 1 to May 31 40 33 1/2
December 1 to February 28 35 3/4 34 11/16
September 1 to November 30 34 1/4 29 1/2
</TABLE>

Quarterly dividends of $0.015 per share were declared and paid by the
Company for each of the quarters above.

9
<PAGE>

Item 6. Selected Financial Data

The following table sets forth selected consolidated financial information
of the Company for the five fiscal years in the period ended August 31, 1999.
This selected financial information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included herein.
The selected financial data reflect the combined results of operations and
financial position of Applied Power Inc. and ZERO Corporation restated for all
periods presented pursuant to the pooling of interests method of accounting
and includes the results of other acquired companies from their respective
effective dates of acquisition in accordance with the purchase method of
accounting. See Notes A--"Summary of Significant Accounting Policies" and B--
"Merger, Acquisitions and Divestitures" in Notes to Consolidated Financial
Statements.

<TABLE>
<CAPTION>
For the years ended August 31,
--------------------------------------------------
1999 1998(1) 1997(1) 1996(1) 1995(1)
-------- -------- ------- ------- -------
(In Millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales............... $1,751.0 $1,230.7 $897.8 $777.5 $706.8
Gross Profit............ 544.4 395.0(4) 327.2 290.4 263.0
Operating Expenses...... 325.1(2) 303.3(3)(4) 217.5 201.3 188.0
Amortization Expense.... 29.6 20.4(4) 8.0 5.1 4.3
Operating Profit........ 189.7(2) 71.3(3)(4) 101.7 84.0 70.7
Net Financing Costs..... 63.9 28.5 16.2 7.9 9.3
Net Earnings............ 79.4(2) 26.7(3)(4) 57.9 50.7 39.8(7)
Diluted Net Earnings Per
Share(5)............... $ 1.98(2) $ 0.66(3)(4) $ 1.47 $ 1.22 $ 0.97(7)
Dividends Per Common
Share.................. See (6) below

<CAPTION>
August 31,
--------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Assets............ $1,624.8 $1,174.7 $649.5 $547.1 $504.5
Long-term Debt.......... $ 808.4 $ 512.6 $153.2 $128.1 $ 74.2
Shareholders' Equity.... $ 417.8 $ 341.9 $305.4 $253.3 $277.3
Actual Shares
Outstanding............ 39.0 38.6 38.0 37.6 40.4
</TABLE>
- --------
(1) Prior to the merger of APW and ZERO Corporation ("ZERO"), ZERO had a March
31 fiscal year end. The historical results have been combined using an
August 31 year end for ZERO for the year ended August 31, 1998. For all
prior periods, the results of operations and financial position reflect
the combination of ZERO with a March 31 fiscal year end and the Company
with an August 31 fiscal year end. Net sales and net income for ZERO for
the period April 1, 1997 through August 31, 1997 (which results are not
included in the historical combined results) were $107.2 million and $7.9
million, respectively.
(2) Net Earnings in fiscal 1999 include a one-time loss resulting from a
contract termination of $7.8 million pre-tax, $4.7 million after tax, or
$0.12 per diluted share.
(3) Net Earnings in fiscal 1998 include a net gain of approximately $4.6
million after tax, $0.11 per diluted share, for special items recognized
by ZERO.
(4) Net Earnings in fiscal 1998 include charges related to merger,
restructuring and other non-recurring costs of $52.6 million after tax, or
$1.31 per share on a diluted basis. See Note F--"Merger, Restructuring and
Other Non-recurring Items" in Notes to Consolidated Financial Statements.
(5) Per share amounts for all periods presented have been restated to give
effect to the ZERO merger and a two-for-one stock split effected in the
form of a 100 percent stock dividend distributed to the Company's
shareholders of record as of January 22, 1998. To effect the stock split,
a total of 13.9 million shares of the Company's common stock were issued
on February 3, 1998.
(6) Prior to the merger, ZERO declared quarterly dividends of $0.03 per share
in its fiscal years ended March 31, 1998 and 1997, $0.11 per share in
fiscal 1996 and the fourth quarter of fiscal 1995 and $0.10 per share in
the first three quarters of fiscal 1995 and each quarter of fiscal 1994.
The Company declared quarterly dividends of $0.015 per share (as adjusted
for the stock split) in its fiscal years ended August 31, 1999, 1998,
1997, 1996 and 1995.
(7) Net Earnings and Net Earnings per Diluted Share in fiscal 1995 exclude an
extraordinary loss of $4.9 million, or $0.12 per diluted share, related to
the early extinguishment of debt.

10
<PAGE>

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in this report.

Over the past three year's, the Company has essentially reinvented itself.
Long a successful manufacturer of tools and industrial products and systems,
since 1997 the Company has diversified to become a global leader in the
fragmented electronic enclosure systems market. Sales of the Electronics group
increased to comprise 60% of the Company's total revenue in fiscal 1999 versus
42% in fiscal 1997. Reflecting this evolution of the Company, in May 1999, APW
realigned its business segments and organizational structure into two
customer-centered segments. The Electronics segment is the previous Enclosure
Products and Systems group plus McLean Thermal Management and Eder Industries.
The Industrial segment combines the remaining elements of the former
Engineered Solutions group with the Tools and Supplies businesses. Prior
period segment information has been restated to reflect the realignment of the
business segments.

Results of Operations

<TABLE>
<CAPTION>
Percentage of Net
Years Ended August 31, Sales
----------------------------------------- ------------------------------
1999(1) 1998(2) 1997 1999 1998 1997
-------- -------- ------ ----- ----- -----
($ Millions)
<S> <C> <C> <C> <C> <C> <C>
Net Sales.............................. $1,751.0 $1,230.7 $897.8 100.0% 100.0% 100.0%
Gross Profit........................... 544.4 420.8 327.2 31.1 34.2 36.4
Operating Expenses..................... 317.3 260.2 217.5 18.1 21.1 24.2
Amortization of Intangible Assets...... 29.6 15.3 8.0 1.7 1.2 0.9
Operating Earnings..................... 197.5 145.3 101.7 11.3 11.9 11.3
Net Financing Costs and Other
Expense.............................. 62.9 25.5 12.5 3.6 2.1 1.4
Earnings Before Income Tax Expense..... 134.6 119.8 89.2 7.7 9.8 9.9
Income Tax Expense..................... 50.5 45.1 31.3 2.9 3.7 3.5
Net Earnings........................... $ 84.1 $ 74.7 $ 57.9 4.8% 6.1% 6.4%
</TABLE>
- --------
(1) Operating results in fiscal 1999 exclude a one-time loss resulting from a
contract termination of $7.8 million pre-tax, $4.7 million after tax, or
$0.12 per diluted share.
(2) Operating results in fiscal 1998 exclude charges related to merger,
restructuring and other non-recurring costs of $69.4 million before tax,
$52.6 million net of applicable income tax, or $1.31 per share on a
diluted basis. See Note F--"Merger, Restructuring and Other Non-recurring
Items" in Notes to Consolidated Financial Statements. Fiscal 1998 results
also exclude a net gain of approximately $4.6 million after tax, or $0.11
per diluted share, for special items recognized by ZERO.

Business Combinations

In the fiscal 1999 fourth quarter, the Company, through a wholly-owned
subsidiary, acquired all of the outstanding stock of Innovative Metal
Fabrication, Inc. ("Innovative"). Innovative designs and manufactures
technical environments used in electronic assembly operations, as well as
electronic gaming enclosures, in two sites in Grass Valley, CA and Austin, TX
employing 90 people. In May 1999, the Company also acquired certain

11
<PAGE>

assets of Connector Technology, Inc. ("CTI") of Anaheim, CA. CTI, which
manufactures custom backplanes, was integrated with APW's Electronic Solutions
business unit. Both Innovative and CTI are included in the Electronics
segment. Also in the fourth quarter, a wholly-owned subsidiary of APW
purchased for the Industrial segment, shares of Ergun Kriko San Ticaret
("Ergun"), an Akhisar, Turkey based company specializing in the manufacture of
hydraulic cab-tilting systems and hydraulic bottle jacks for the Turkish truck
market. The total purchase price of the combined Innovative, CTI and Ergun
acquisitions totaled approximately $17.0 million, including fees and expenses.

On September 29, 1998, the Company, through its wholly-owned subsidiary,
APW Enclosure Systems Limited, accepted for payment all shares of Rubicon
Group plc ("Rubicon") common stock which had been tendered pursuant to the APW
Enclosure Systems Limited tender offer for all outstanding shares of common
stock at 2.35 pounds sterling per share and all outstanding shares of
cumulative preferred stock at 0.50 pounds sterling per share, which
constituted control, which resulted in the acquisition of the remaining
outstanding common shares. Rubicon is a leading provider of electronic
manufacturing services and engineered magnetic solutions to major OEMs in the
information technology and telecommunication industries. Consideration for the
transaction totaled approximately $371.5 million, including related fees and
expenses. APW Enclosure Systems Limited obtained all of the funds it expended
from the Company. To provide the necessary funds, the Company and Enerpac
B.V., a Netherlands subsidiary of the Company, as Borrowers, entered into a
Multicurrency Credit Agreement, dated as of October 14, 1998, providing for an
$850.0 million, five-year revolving credit facility (the "New Facility"). In
conjunction with the closing of the New Facility, the Company terminated its
prior $700.0 million , five-year revolving credit facility (the "Facility"),
and used certain funds received under the New Facility to repay borrowings
under the Facility.

On July 31, 1998, the Company completed its merger with ZERO Corporation
("ZERO"), a leading supplier of electrical and electronic system enclosure
products and thermal management products. The merger has been accounted for as
a pooling of interests. The Company issued approximately 10.6 million shares
of its common stock in exchange for all outstanding common stock of ZERO
Corporation and assumed outstanding options to purchase ZERO common stock that
were converted into options to purchase approximately 0.6 million shares of
the Company's common stock pursuant to the terms of the merger.

All financial data of Applied Power Inc. and its subsidiaries (the
"Company" or "APW") presented in this Form 10-K have been restated to include
the historical financial information of ZERO Corporation in accordance with
generally accepted accounting principles and pursuant to Regulation S-X. Prior
to the merger, ZERO had a March 31 fiscal year end. The historical results
have been combined using an August 31 year end for ZERO for the year ended
August 31, 1998. For all years preceding the merger, the results of operations
and financial position reflect the combination of ZERO with a March 31 fiscal
year end and the Company with an August 31 fiscal year end. Net sales and net
income for ZERO for the period April 1, 1997 through August 31, 1997 (which
results are not included in the historical combined results) were $107.2
million and $7.9 million, respectively.

Reclassifications

Certain prior year amounts have been reclassified to conform to the fiscal
1999 presentation, including, but not limited to, the reclassification of
previously reported segment data into the newly formed Industrial and
Electronics business segments.

Net Sales

Net sales increased 42% during fiscal 1999 to $1,751 million from $1,231
million in fiscal 1998. In aggregate, acquired businesses contributed $464.0
million in sales growth in fiscal 1999. Fiscal 1998 net sales increased 37%
over fiscal 1997. Acquisitions contributed approximately $256.0 million of the
fiscal 1998 sales increase. Price changes have not had a significant impact on
the comparability of net sales during the last three years.

12
<PAGE>

<TABLE>
<CAPTION>
Percentage Change
Sales from Prior Year
------------------------ ---------------------
Segment Sales 1999 1998 1997 1999 1998 1997
------------- -------- -------- ------ ----- ----- -----
($ Millions)
<S> <C> <C> <C> <C> <C> <C>
Electronics............. $1,055.3 $ 593.2 $375.3 78% 58% 43%
Industrial.............. 695.7 637.5 522.5 9 22 2
-------- -------- ------ ----- ----- -----
Total................. $1,751.0 $1,230.7 $897.8 42% 37% 15%
======== ======== ====== ===== ===== =====
</TABLE>

Electronics' fiscal 1999 sales increased $462.1 million, or 78%, over
fiscal 1998. The acquisition of Rubicon, and Innovative in fiscal 1999 and
inclusion of a full year sales of the Vero, AA Manufacturing, PMP, PTI,
Premier and Brown locations acquired in fiscal 1998 contributed $427.8 million
in sales to the Electronics segment in fiscal 1999. Exclusive of acquisitions
and the adverse impact of the strong dollar on reported sales, Electronics'
sales increased 7% in fiscal 1999. Fiscal 1999 Electronics sales growth
resulted from the continued expansion of the size, territory and content of
the segment's enclosure product lines, partially offset by lower thermal
management product sales as these lines were refocused on the higher growth
telecommunications market. Fiscal 1998 sales in the Electronics group,
excluding acquisitions and net of the negative impact of the stronger US
Dollar, grew 18% primarily as a result of the continued expansion of end user
electronics markets in the US and Europe.

Industrial sales increased 9% in fiscal 1999 and increased 4% absent the
effect of currency translation and acquired businesses. Strong growth in the
sale of recreational vehicle slide-outs and leveling systems in North America
and of automotive convertible top and truck lines in Europe contributed to the
sales gain but were partially offset by Asia related weakness at Enerpac.
Fiscal 1998 Industrial sales grew 22%, as acquisitions, notably the November
1997 Versa/Tek acquisition, contributed $104.8 million of the sales growth.
Excluding the impact of acquisitions and of foreign exchange, fiscal 1998
Industrial group sales increased 7%, due primarily to strength in the European
truck and automotive product sales. The Industrial segment's fiscal 2000 sales
comparisons will be affected by the anticipated first quarter fiscal 2000 sale
of two product lines, Rubicon Magnets and ZERO's Samuel Groves kitchenware
product line, which had combined fiscal 1999 sales approximating $30 million,
but minimal operating profit contribution.

<TABLE>
<CAPTION>
Percentage
Change from
Sales Prior Year
------------------------ ----------------
Geographic Sales 1999 1998 1997 1999 1998 1997
---------------- -------- -------- ------ ---- ---- ----
($ Millions)
<S> <C> <C> <C> <C> <C> <C>
North America..................... $1,044.1 $ 895.3 $653.3 17% 37% 20%
Europe............................ 664.2 284.2 181.0 134 57 9
Japan and Asia Pacific............ 31.5 37.6 52.0 (16) (28) (8)
Latin America..................... 11.2 13.6 11.5 (17) 18 16
-------- -------- ------ --- --- ---
Total........................... $1,751.0 $1,230.7 $897.8 42% 37% 15%
======== ======== ====== === === ===
</TABLE>

The Company does business in many different geographic regions and is
subject to various and diverse economic conditions. Fiscal 1999 North American
sales grew 17% due primarily to acquisitions made in the prior fiscal year and
internal growth of 6%. An improved economic environment in North America and
the effect of acquisitions combined to increase fiscal 1998 North American
sales 37% over 1997.

European sales volume in fiscal 1999 more than doubled due primarily to the
September 1998 acquisition of Rubicon and a full year of sales for the VERO
businesses acquired in fiscal 1998, both of which are concentrated in the U.K.
and continental Europe. European sales grew 57% in fiscal 1998 compared to
1997. The combination of the VERO acquisition, which contributed $53.9
million, along with strong internal growth accounted for fiscal 1998 growth.
Sales in Japan and Asia Pacific declined 16% and 28% in fiscal 1999 and 1998,
respectively, due primarily to the general economic malaise in this region. In
1997, sales decreased 8% in Japan and Asia Pacific, 6% of which was
attributable to foreign currency fluctuations. The remaining decrease

13
<PAGE>

was caused by weakening economic conditions. Sales in Latin America decreased
17% in fiscal 1999, attributable to the weakening economic climate in this
region during the year. Sales growth generated in Latin America during 1998
and 1997 was the result of geographic expansion in this region. As the
Company's recent acquisition strategy has focused on North America and Europe,
sales from Japan, Asia Pacific and Latin America are expected to become a
smaller percentage of the Company's future total sales.

Gross Profit

Gross profit increased 29% in fiscal 1999 to $544.4 million compared to
$420.8 million, exclusive of one-time charges, in fiscal 1998. In fiscal year
1998, gross profit increased 29% also from $327.2 million in fiscal year 1997.
The increases in gross profit dollars were primarily a result of the above
discussed increases in sales volume. The Company's gross profit as a
percentage of sales has declined over the last two years, primarily reflecting
an increased proportion of lower margin electronic enclosure and integration
revenue in the sales mix, partially offset by the success of cost reduction
and productivity enhancing measures in the Industrial group. Fiscal 1998 gross
profit included one-time charges of $25.8 million related to the decision to
discontinue certain product lines and stock keeping units ("SKU's"), primarily
in the Industrial segment, and, to a lesser extent, charges within the
Electronics group to conform ZERO inventory valuation methods to the
Company's.

<TABLE>
<CAPTION>
Gross Profit Percentages By Segment 1999 1998(1) 1997
----------------------------------- ---- ---- ----
<S> <C> <C> <C>
Electronics........................................... 27.6% 34.2% 39.1%
Industrial............................................ 36.4 34.2 34.6
---- ---- ----
Total............................................... 31.1% 34.2% 36.4%
==== ==== ====
</TABLE>
- --------
(1) Fiscal 1998 gross profit percentages exclude one-time charges of $25.8
million. Inclusive of such charges, fiscal 1998 gross profit as a percent
of sales were 32.9%, 31.3% and 32.1% for the Electronics segment,
Industrial segment and total Company, respectively.

Electronics' gross profit as a percentage of sales has declined in each of
the last two years, reflecting the group's aggressive move from primarily
technical environments into lower-margin electronic enclosures via
acquisitions in 1998 and 1997 and the acquisition of the Rubicon electronic
integration business in early fiscal 1999. The Company believes that the
electronic enclosure and integration markets offer the Company significant
growth opportunities albeit at a lower gross margin, partially offset by lower
selling, administrative and engineering expenses relative to sales, than the
group's historic average. The Industrial group's gross profit relative to
sales increased to 36.4% in fiscal 1999 from 34.2% in fiscal 1998 as a result
of increased emphasis on more profitable product lines and cost control and
manufacturing productivity initiatives. The slight decline in Industrial gross
profit as a percentage of sales in fiscal 1998 as compared to fiscal 1997
resulted primarily from a higher proportion of sales to lower-margin OEM
customers.

Engineering, Selling and Administrative Expenses ("SAE")

<TABLE>
<CAPTION>
SAE as a percent of sales 1999(1) 1998(2) 1997
------------------------- ------ ---- ----
<S> <C> <C> <C>
Electronics......................................... 17.1% 19.2% 20.7%
Industrial.......................................... 18.0% 20.2% 23.9%
---- ---- ----
Total (including Corporate SAE)................... 18.1% 21.1% 24.2%
==== ==== ====
</TABLE>
- --------
(1) SAE as a percent of sales in fiscal 1999 exclude a one-time loss resulting
from a contract termination of $7.8 million. Inclusive of the contract
termination charge, fiscal 1999 SAE as a percent of sales were 19.1% and
18.6% for the Industrial segment and total Company, respectively.
(2) Fiscal 1998 SAE percentages exclude one-time charges of $38.5 million.
Inclusive of such charges, fiscal 1998 SAE as a percent of sales were
20.9%, 22.2% and 24.3% for the Electronics segment, Industrial segment and
total Company, respectively.

14
<PAGE>

Fiscal 1999 SAE of $325.1 million increased $64.9 million, or 25%, over the
prior year, exclusive of prior year one-time charges. Fiscal 1999 SAE included
a one-time, pretax contract termination charge of $7.8 million. As a
percentage of sales, SAE exclusive of one-time charges declined to 18.1% in
fiscal 1999 from 21.1% and 24.2% in fiscal years 1998 and 1997, respectively.
The fiscal 1999 and 1998 declines in SAE expense as a percent of sales were
due primarily to acquisitions of electronic enclosure and electronic
integration businesses, which have a lower ratio of SAE to sales, combined
with cost reduction initiatives, primarily within the Industrial segment. It
is the Company's goal to continually identify ways to be more cost efficient,
allowing the Company to reduce operating costs as a percent of sales. In
addition to variable selling expenses, SAE has increased as a result of
acquisitions, product development programs and expenditures to support
expansion of the Electronics group and geographic expansion into emerging
markets.

Fiscal 1998 SAE included $38.5 million relating to a number of initiatives,
including: the ZERO merger and headquarters closing; rationalization of the
Company's Electronics segment's manufacturing facilities and infrastructure;
and the consolidation of certain support functions in the Industrial segment.
The Company's fiscal 1998 restructuring initiatives are further described
below in this Management Discussion and Analysis portion of this Form 10-K.

Amortization of Intangible Assets

<TABLE>
<CAPTION>
Amortization Percentage Change
Expense from Prior Year
------------------ ------------------
1999 1998(1) 1997 1999 1998(1) 1997
----- ------- ---- ---- ------- ----
($ Millions)
<S> <C> <C> <C> <C> <C> <C>
Electronics......................... $20.9 $ 7.8 $3.0 168% 160% 203%
Industrial.......................... 8.7 7.5 5.0 16 50 20
----- ----- ---- --- --- ---
Total............................. $29.6 $15.3 $8.0 93% 91% 56%
===== ===== ==== === === ===
</TABLE>
- --------
(1) Fiscal 1998 amortization expense in the Industrial segment excludes one-
time charges of $5.1 million relating to the write-down of goodwill at
locations in Germany and Mexico in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of". Inclusive of
such charges, fiscal 1998 amortization expense was $12.6 million and $20.4
million in the Industrial segment and total Company, respectively.

The fiscal 1999 increase in amortization expense was primarily a result of
the Electronics segment's acquisition of Rubicon in September 1998 and a full
year of amortization expense for acquisitions completed during fiscal 1998.
The fiscal 1998 increase in amortization expense resulted from the acquisition
of VERO, Brown Manufacturing Company, Premier Industries, Product Technology,
Inc., AA Manufacturing, Inc. and Performance Manufactured Products, Inc. in
the Electronics segment and of Versa Technologies, Nylo-Flex Manufacturing
Company, Del City Wire Co., Inc. and Ancor Products, Inc. in the Industrial
segment during the 1998 fiscal year, combined with a full year of amortization
expense on Hormann Security Systems Limited and C Fab Group Limited which were
acquired by the Electronics segment during fiscal 1997. The Company expects
that amortization expense, exclusive of the effect of future acquisitions,
will approximate $31 million in fiscal 2000.

Merger, Restructuring and Other Non-recurring Items

In the fourth quarter of fiscal 1998, the Company recorded restructuring
and other one-time charges of $52.6 million, or $1.31 per diluted share,
after-tax. The pre-tax charges of $69.4 million related to costs associated
with the ZERO merger, various plant consolidations principally associated with
the Electronics businesses, and other cost reductions and product
rationalization efforts of the Company. The pre-tax charges of $69.4 million
included $13.6 million for severance payments for a reduction of approximately
400 employees, of which a negligible amount was paid in fiscal 1998, and $9.3
million in ZERO merger costs. With the exception of approximately $5 million
in reserves relating primarily to long-term lease commitments and other
contractual

15
<PAGE>

obligations, no accrued restructuring reserves remained at August 31, 1999.
The following table summarizes the manner in which merger, restructuring and
other non-recurring items were recorded in the Company's fiscal 1998 income
statement.

<TABLE>
<CAPTION>
Year Ended August 31, 1998
---------------------------------------------
Merger, Restructuring & Other
Non-recurring Items Electronics Industrial Corporate Consolidated
----------------------------- ----------- ---------- --------- ------------
($ Millions)
<S> <C> <C> <C> <C>
Cost of products sold........ $ 8.3 $17.5 $ -- $25.8
Engineering, selling and
administrative expense...... 0.7 5.7 2.6 9.0
Amortization of intangible
assets...................... -- 5.1 -- 5.1
Restructuring charges........ 8.7 7.7 3.8 20.2
Merger related expenses...... -- -- 9.3 9.3
----- ----- ----- -----
Operating Earnings......... $17.7 $36.0 $15.7 $69.4
===== ===== ===== =====
</TABLE>

With respect to rationalization of the Electronics segment, it is the
Company's strategy to become the premier, global electronic enclosure
manufacturer. In line with that strategy, the Company completed eleven
electronic enclosure acquisitions in fiscal 1998 and 1997, operating 34
facilities in 11 countries at August 31, 1998. As a result of the Company's
rapid expansion into the electronic enclosure business, there were significant
rationalization and integration opportunities within and between the acquired
businesses. In late fiscal 1998, the Company formalized a plan to eliminate
redundancies and streamline operations within these acquired businesses. These
rationalization efforts include consolidating three facilities into one in the
northeastern United States, the consolidation of production of several product
lines between facilities, standardization of design and development functions,
and other organizational realignments. As a result of this plan, the Company
recorded $17.7 million for related charges, including provisions for costs
associated with employee severance, the closing of facilities and write-off of
discontinued inventory. The Company completed the planned reorganization of
its Electronics segment in fiscal 1999.

Also in late fiscal 1998, the Company initiated aggressive programs,
spanning both business segments, to eliminate or reduce product lines and
items which were not generating sufficient economic return. The programs
include the elimination of slow moving or marginal products and the entire
exit of less productive product lines. As a result of these programs, the
Company recorded a one-time $25.8 million charge to cost of products sold for
the write-down of discontinued or obsolete inventory to estimated net
realizable value. The Company's product line initiatives were materially
completed by the end of fiscal 1999.

Lastly, in the fourth quarter of fiscal 1998, the Company adopted a plan to
consolidate the headquarters functions of the Enerpac and Gardner Bender
divisions of the Industrial segment into a single headquarters in Glendale,
Wisconsin and plans to reorganize and to combine certain North American and
European facilities of the Company's Engineered Solutions segment. As a result
of these initiatives, the Company recorded charges of $36.0 million relating
primarily to employee severance payments, facility closure costs, operating
lease obligations and, in two cases the write-down of goodwill in accordance
with SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". For further information on the write-
down of goodwill, see Note A--"Summary of Significant Accounting Policies".
The Company completed its Industrial segment reorganization in fiscal 1999.

In addition to the $69.4 million charge, fiscal 1998 results also included
a pretax $4.5 million asset impairment charge recorded to reduce a European
subsidiary of ZERO in the Industrial segment to estimated net realizable
value. The assets of this European subsidiary are expected to be sold in the
first quarter of fiscal 2000. Any gain or loss on such sale is not expected to
be material. Net sales and operating earnings included in the Consolidated
Statement of Earnings attributable to this subsidiary were not material to
fiscal 1999 results.

16
<PAGE>

Other Expense (Income)

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
($ Millions)
<S> <C> <C> <C>
Net financing costs.................................. $63.9 $28.5 $16.2
Other--net........................................... (0.9) (14.6) (3.7)
</TABLE>

The fiscal 1999 increase in net financing costs was primarily the result of
borrowings to finance the acquisition of Vero and Rubicon and the March 1999
issuance of $200.0 million of 8.75% fixed rate, subordinated debt. The fiscal
1998 increase was attributable to borrowings to finance acquisitions during
this period. For further information, see "Liquidity and Capital Resources"
below.

"Other--net" includes foreign exchange gains and losses as well as
miscellaneous other income and expenses. The Company recognized gains on the
sale of two properties in fiscal 1998 totaling $11.6 million and life
insurance proceeds of $1.7 million. Additionally, during all fiscal years
presented the US Dollar strengthened against certain key currencies and the
Company realized foreign exchange gains on transactions denominated in
currencies outside of the functional currencies of certain of its foreign
units of $0.1 million, $0.7 million and $1.3 million in fiscal 1999, 1998 and
1997, respectively.

Income Tax Expense

The Company's effective income tax rate was 37.4%, 53.5% and 35.1% in
fiscal 1999, 1998 and 1997, respectively. The effective income tax rate for
fiscal 1998 was largely impacted by the current non-deductibility of the one-
time charges recorded in the fourth quarter. Excluding the one-time items, the
1998 effective income tax rate was 37.6%. The non-deductibility of goodwill on
many of the Company's acquisitions over the last three years has led to the
gradual increase in the Company's effective tax rate, a trend which is
expected to continue in 2000.

Cash Flow

In order to minimize interest expense, the Company intentionally maintains
low cash balances and uses available cash to reduce short-term bank
borrowings. Cash and cash equivalents increased $15.9 million in fiscal 1999
as compared to a decrease of $25.6 million in fiscal 1998 and an increase of
$14.0 million in fiscal 1997. Outstanding debt totaled $808.7 million, $512.6
million and $174.6 million at August 31 of each of fiscal 1999, 1998 and 1997,
respectively. Net borrowings in both fiscal 1999 and 1998 primarily reflect
incremental borrowings to fund acquisitions.

Net cash provided by operations, after considering non-cash items and
changes in operating assets and liabilities, totaled $150.4 million in fiscal
1999 as compared to $129.7 million and $84.0 million in fiscal 1998 and 1997,
respectively. The increase in fiscal 1999 resulted primarily from a higher
level of earnings before non-cash depreciation and amortization expenses. The
increase in cash provided by operations in fiscal 1998 over fiscal 1997 was
also a result of increased operating earnings before non-cash charges,
combined with a $64.1 million reduction in working capital.

Net cash used for investing activities was $460.7 million in fiscal 1999
versus $452.0 million and $104.3 million in fiscal 1998 and 1997,
respectively. Fiscal 1999 uses for investing included $409.2 for acquisitions,
primarily Rubicon, and a $65.9 million use for capital expenditures, partially
offset by $14.4 million in proceeds from the sale of assets. Fiscal 1998
included uses of $426.0 million to fund acquisitions and $56.8 million to fund
capital expenditures. Investing activities in fiscal 1997 included $77.0
million for acquisitions and $33.5 million for capital expenditures.

Financing activities provided net cash of $326.7 million, $297.6 million
and $35.8 million in fiscal 1999, 1998 and 1997, respectively. Net borrowings
in each period primarily reflected increased debt incurred to fund
acquisitions and $38.7 million and $39.7 million in fiscal 1999 and 1998,
respectively, in proceeds from the financing of trade receivables.
Additionally, in fiscal 1998, the Company used $17.8 million of cash to fund
the obligations of two ZERO employee benefit programs as a result of the
Company's merger with ZERO.

17
<PAGE>

Liquidity and Capital Resources

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 $850.0
million multi-currency credit agreement totaled $409.9 million as of August
31, 1999. During the next several years, a significant portion of the
Company's cash flow is expected to be used to fund business acquisitions, to
fund capital expenditures and to service indebtedness. Capital expenditures
are currently anticipated to approximate $60 million in fiscal 2000 and to
decline to a lower level per year thereafter. Such expenditures will be made
to upgrade and expand the Company's manufacturing facilities, primarily within
the Electronics segment. The Company periodically reviews electronic,
industrial and other businesses for potential investment, consistent with its
strategic objectives. Management intends that any acquisition which requires
significant funding would be financed using the Company's bank lines and,
depending upon market conditions, the Company's common stock. The Company
believes that availability under its bank lines, plus funds generated from
operations, will be adequate to fund operating activities, including capital
expenditures and working capital, for the next fiscal year.

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

<TABLE>
<CAPTION>
Percentage of
Total
Dollars Capitalization
---------------------- ----------------
Total Capitalization 1999 1998 1997 1999 1998 1997
-------------------- -------- ------ ------ ---- ---- ----
($ Million)
<S> <C> <C> <C> <C> <C> <C>
Total Debt......................... $ 808.7 $512.6 $174.6 65% 58% 35%
Shareholders' Equity............... 417.8 341.9 305.4 34 39 62
Deferred Income Taxes.............. 15.9 23.1 14.6 1 3 3
-------- ------ ------ --- --- ---
Totals........................... $1,242.4 $877.6 $494.6 100% 100% 100%
======== ====== ====== === === ===
</TABLE>

Outstanding debt at August 31, 1999 totaled $808.7 million, an increase of
$296.0 million since the beginning of fiscal 1999. The fiscal 1999 increase in
debt was a direct result of the September 1998 Rubicon acquisition, partially
offset by $68 million in net debt repayment in the latter half of fiscal 1999.
End of year debt to total capital was 65% on August 31, 1999, 58% on August
31, 1998 and 35% on August 31, 1997. The Company's interest coverage ratio in
fiscal years 1999, 1998 and 1997 was 4.3X, 6.9X and 8.4X, respectively.

On April 1, 1999, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2009 (the "Notes"). Net proceeds from the Notes
offering approximated $194.6 million after deducting underwriting discounts
and other offering expenses, and were used to repay a portion of the
borrowings outstanding under the Multicurrency Credit Agreement thereby
restoring the Company's borrowing capacity under that agreement. Interest on
the Notes is payable semi-annually, and the Company has the option to redeem
all or a portion of the Notes at certain specified redemption prices on or
after April 1, 2004. The Notes are subordinate in right of payment to the
prior payment in full of all senior debt as defined in the indenture.

On December 18, 1998, the Company amended its $90.0 million accounts
receivable financing facility to increase the amount of multi-currency
accounts receivable financing from $90.0 million to $150.0 million. The
facility was previously amended on August 28, 1998 by increasing the amount of
multi-currency accounts receivable financing from $80.0 million to $90.0
million. All other substantive terms of the agreement remain the same. As of
August 31, 1999, $128.4 million of accounts receivable was financed as
compared to the $89.7 million financed at August 31, 1998. The Company
financed incremental receivables of $38.7 million in fiscal 1999 and $39.7 in
fiscal 1998. Proceeds were used to reduce debt. For additional information,
see Note C--"Accounts Receivable Financing" in Notes to Consolidated Financial
Statements.

On October 14, 1998, the Company and Enerpac B.V., a Netherlands subsidiary
of the Company, as Borrowers, entered into a Multicurrency Credit Agreement
providing for an $850.0 million, five-year revolving credit facility (the "New
Facility") to provide funds to acquire Rubicon. In conjunction with the
closing of the New Facility, the Company terminated its prior $700.0 million,
five-year revolving credit facility (the

18
<PAGE>

"Facility"), and used certain funds received under the New Facility to repay
borrowings under the Facility. Previously, on June 18, 1998, the Company and
Enerpac B.V., a Netherlands subsidiary of the Company, entered into a
Multicurrency Credit Agreement (the "Credit Agreement"), providing for a
$700.0 million, five-year revolving credit facility (the "Facility") in order
to provide the necessary funds to Applied Power Limited to acquire all of the
VERO Group plc shares. In conjunction with the closing of the Facility, the
Company terminated its prior $350.0 million, five-year revolving credit
facility (the "Prior Facility"), and used certain funds received under the
Facility to repay borrowings under the Prior Facility. The Facility was used
to finance the remaining expenses of the VERO Group plc acquisition, provide
for working capital, capital expenditures and for other general corporate
purposes. At August 31, 1999, the Company had outstanding borrowings under the
New Facility denominated in the US Dollar, Euro and Japanese Yen. The Credit
Agreement contains certain restrictions concerning investments, liens on
assets, sales of assets, 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, 1999, the Company was in
compliance with all debt covenants. For additional information, see Note G--
"Debt" in Notes to Consolidated Financial Statements.

To reduce risk of interest rate increases, the Company has entered into
interest rate swap agreements which effectively convert $436.8 million of the
Company's variable rate debt to a weighted average fixed rate of 5.03% at
August 31, 1999. The swap agreements expire on varying dates through 2006.

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

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
requires that an entity recognize derivative instruments, including certain
derivative instruments embedded in other contracts, as either assets or
liabilities and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. In July 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of SFAS No. 133," which delays the effective date of SFAS No. 133 by one year.
As a result, SFAS No. 133 will be effective for the Company's 2001 fiscal
year. Adoption of SFAS No. 133 is not expected to have a material effect on
the Company based on its current derivative and hedging activities.

Year 2000 Considerations

As is the case for most companies, the Year 2000 computer issue creates a
risk for the Company. If the Company's systems, including both information
technology ("IT") and other systems which may include embedded technology and
micro-controllers, do not correctly recognize date information when the year
changes to 2000, there could be a material adverse impact on the Company's
operations.

The Company has taken action intended to ensure that its computer systems
are capable of processing periods for the Year 2000 and beyond. The Company
has developed and has clearly articulated a written policy that Year 2000
readiness is an important responsibility for all its business leaders. In
addition, the Company is aggressively pursuing a comprehensive set of programs
intended to reduce the risk of disruptions due to the Year 2000 problem. The
Company's Year 2000 plans are designed and monitored centrally but managed and
executed on a local level at each of the Company's more than 100 facilities.

The Company's Year 2000 programs have been executed in four phases as
described below:

Phase 1--Awareness--During this phase, the Company designed its Year
2000 programs, assigned responsibility for the effort, educated the
organization regarding Year 2000 risk and prepared and distributed a
comprehensive inventory review template.

19
<PAGE>

Phase 2--Inventory and Compliance Review--This phase included
compilation of an inventory of internal and external systems and risk
factors. The internal factor inventory included office, financial, business
and manufacturing systems and items which might include embedded chip
technology. The inventory of external factors included identification and
survey of critical vendors. The compliance status of each inventoried
system was documented during this phase. Local findings were verified by a
combination of independently trained internal and external Year 2000
reviewers.

Phase 3--Remediation and Contingency Planning--For each system
identified as not being Year 2000 ready in Phase 2, a remediation or
contingency plan was developed. The remediation plan could include system
elimination, replacement, upgrade or the addition of a software patch.
Contingency plans were also developed to address exposure related to
critical third-party vendor systems. With respect to third-party Year 2000
exposure, contingency plans could include alternative sourcing, increasing
inventory levels or otherwise reducing the Company's exposure to the third-
party system.

Phase 4--Testing--The final phase of the program involves testing the
Year 2000 readiness of all critical IT and non-IT systems. Programs
conducted during this phase include comprehensive testing of business
systems by rolling forward the system clocks to test a number of potential
problem dates, the testing of embedded chip technology in critical
manufacturing systems, the testing of electronic data interchange with
customers and Year 2000 readiness audits of critical third parties.

The Company has completed the first three phases of its Year 2000 programs
and substantially completed the final testing phase around the end of fiscal
1999. At this time, the Company believes that it has taken all reasonable
steps necessary to prepare for the Year 2000. However, it is impossible for
the Company to identify the potential impact and all related costs and
consequences of the potential Year 2000 failure by third parties, particularly
those that have either not responded, or incompletely responded, to inquiries
by the Company as to Year 2000 readiness.

Based on the current status of the Company's readiness efforts, the costs
associated with identified Year 2000 issues are not expected to have a
material effect on the results of operations or financial condition of the
Company. Many of the Company's business units have installed new business
management systems which go beyond just Year 2000 readiness. The costs of
purchased software and implementation of that software are capitalized. Some
businesses chose to upgrade existing systems to be compliant. These costs were
being expensed as incurred to the extent the upgrades did not provide
additional functionality. The Company does not believe that its Year 2000
programs have resulted in the deferral of other IT programs. The Company
historically has not quantified the costs of Year 2000 readiness and
remediation, but believes costs incurred to date were not material to the
Company's financial position. The Company estimates fiscal 1999 costs,
including internal costs such as payroll expenses incurred for the Year 2000
project, ranged between $3.0 million and $5.0 million, and were funded with
cash flow from operations.

At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 problem to have material adverse effects on the
Company's business, operations or financial condition. However, the Company
cannot be certain that it will not suffer business interruptions, either due
to its own Year 2000 problems or those of its customers or suppliers whose
Year 2000 problems may make it difficult or impossible to fulfill their
commitments to the Company. Furthermore, the Year 2000 problem has many
elements and potential consequences, some of which may not be reasonably
foreseeable, and there can be no assurances that every material Year 2000
problem will be identified and addressed or that unforeseen consequences will
not arise and possibly have a material adverse effect on the Company.
Unanticipated factors while implementing the changes necessary to mitigate
Year 2000 problems, including, but not limited to, the ability to locate and
correct all relevant codes in computer and imbedded systems, or the failure of
critical third parties to communicate and mitigate their Year 2000 problems,
could result in unanticipated adverse impacts on the business activities or
operations of the Company.

20
<PAGE>

European Economic Monetary Union

On January 1, 1999, eleven of the European Union countries (including eight
countries where APW operations are located) adopted the Euro as their single
currency, resulting in fixed conversion rates between their existing
currencies ("legacy currencies") and the Euro. The Euro trades on currency
exchanges and is available for non-cash transactions. Following the
introduction of the Euro, the legacy currencies remain legal tender in the
participating countries during the transition through January 1, 2002.
Beginning on January 1, 2002, the European Central Bank will issue Euro-
denominated bills and coins for use in cash transactions. On or before July 1,
2002, the participating countries will withdraw all legacy bills and coins and
use the Euro as their legal currency.

The Company's various operating units located in Europe which are affected
by the Euro conversion intend to maintain their books in their respective
legacy currency through a portion of the three year introductory period. At
this time, the Company does not expect the reasonably foreseeable consequences
of the ongoing Euro conversion to have material adverse effects on the
Company's business, operations or financial condition.

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

1999 was a significant year for Applied Power in terms of financial
performance and the strategic repositioning of the Company. The Industrial
segment's results reflected the benefit of a wide array of new product and
operational improvement projects APW has undertaken over the last few years.
The Company anticipates continued improvement in Industrial during fiscal
2000. During the last three years, however, Applied Power has been investing
preferentially in its Electronics business segment. Electronics, at slightly
over $1 billion in sales, is the most vertically integrated and largest
electronic enclosure company in the world. The market for products and
services of the type offered by Electronics is estimated at over $60 billion,
and growing. The second quarter of 1999 was the first full quarter that
included the results of the three major acquisitions made in calendar year
1998. The results APW reported for its fiscal 1999 third and fourth quarters,
relative to the second quarter results, indicate that the Company's
Electronics strategy yielding benefits in sales and associated earnings
growth. APW expects that fiscal 2000, allowing for seasonal fluctuation, will
continue to demonstrate the unique value creation opportunity which is
intrinsic in its leading position in the high growth, expansive electronics
market. Given APW's confidence in the future of the Electronics segment, the
Company recently announced a decision to explore the sale of Industrial. The
proposed sale of Industrial would allow the Company to focus all of its energy
and capital towards the Electronics opportunity. This decision, if
implemented, would complete the transition of Applied Power in four years from
being a pure industrial market business to a pure electronics market company.
The Company believes that these initiatives will enhance shareholder value.
Sale of the Industrial segment is conditional on any potential transaction
meeting structural and valuation criteria and would be subject to normal
required approvals.

Risk Factors That May Affect Future Results

Certain statements in this Form 10-K, including 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. The terms "anticipate", "believe", "estimate", "expect",
"objective", "plan", "project" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements are
subject to inherent risks and uncertainties that may cause actual results or
events to differ materially from those contemplated by such forward-looking
statements. In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that may cause actual
results or events

21
<PAGE>

to differ materially from those contemplated by such forward-looking
statements 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, to a lesser
extent, Asia, market acceptance of existing and new products, successful
integration of acquisitions, competitive pricing, foreign currency risk,
interest rate risk, unforeseen costs or consequences of Year 2000 issues, the
Company's ability to access capital markets, successful disposition of the
Industrial business, and other factors that may be referred to in the
Company's reports filed with the Securities and Exchange Commission from time
to time.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for trading purposes.

A discussion of the Company's accounting policies for derivative financial
instruments is included in Note A--"Summary of Significant Accounting
Policies" in Notes to Consolidated Financial Statements, and further
disclosure relating to financial instruments is included in Note G--"Debt."

Currency Risk--The Company has significant international operations. In
most instances, the Company's products are produced at manufacturing
facilities located near the customer. As a result, significant volumes of
finished goods are manufactured in countries for sale into those markets. For
goods purchased from other Company affiliates, the Company denominates the
transaction in the functional currency of the producing operation.

The Company has adopted the following guidelines to manage its foreign
exchange exposures:

(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the
buyer;

(ii) minimize the cost of hedging through the use of naturally offsetting
positions (borrowing in local currency), netting, pooling; and

(iii) where possible, sell product in the functional currency of the
producing operation.

The Company's identifiable foreign exchange exposures result primarily from
the anticipated purchase of product from affiliates and third-party suppliers
along with the repayment of intercompany loans with foreign subsidiaries
denominated in foreign currencies. The Company identifies naturally occurring
offsetting positions and then purchases hedging instruments to protect
anticipated exposures. The Company's financial position is not materially
sensitive to fluctuations in exchange rates as any gains or losses on foreign
currency exposures are generally offset by gains and losses on underlying
payables, receivables and net investments in foreign subsidiaries.

Interest Rate Risk--The Company enters into interest rate swaps to
stabilize financing costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, the Company contracts with a counter party to exchange the
difference between a fixed rate and a floating rate applied to the notional
amount of the swap. The Company's existing swap contracts range between two
and seven years in duration. The differential to be paid or received on
interest rate swap agreements is accrued as interest rates change and is
recognized in net income as an adjustment to interest expense. Credit and
market risk is minimized through diversification among counter parties with
high credit ratings.

22
<PAGE>

Commodity Prices--The Company is exposed to fluctuation in market prices
for steel. Therefore, the Company has established a program for centralized
negotiation of steel prices. This program allows the Company to take advantage
of economies of scale as well as to cap pricing. All business units are able
to purchase steel under this arrangement. In general, the contracts lock steel
pricing for 18 months and enable the Company to pay less if market prices
fall.

Item 8. Financial Statements and Supplementary Data

Quarterly financial data for 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
1999
----------------------------------
FIRST(1) SECOND THIRD FOURTH
-------- ------ -------- ---------
(In Millions, except per share
amounts)
<S> <C> <C> <C> <C>
Net Sales.............................. $435.7 $421.9 $440.5 $452.9
Gross Profit........................... 137.4 126.5 138.6 141.9
Net Earnings........................... 16.4 19.3 20.5 23.2
====== ====== ====== ======
Basic Earnings Per Share............... $ 0.42 $ 0.50 $ 0.53 $ 0.59
====== ====== ====== ======
Diluted Earnings Per Share............. $ 0.41 $ 0.48 $ 0.51 $ 0.58
====== ====== ====== ======

<CAPTION>
1998
----------------------------------
FIRST(2) SECOND THIRD(3) FOURTH(4)
-------- ------ -------- ---------
(In Millions, except per share
amounts)
<S> <C> <C> <C> <C>
Net Sales.............................. $275.4 $279.4 $303.9 $372.0
Gross Profit........................... 95.7 96.1 106.4 96.8
Net Earnings........................... 19.1 16.5 22.4 (31.3)
====== ====== ====== ======
Basic Earnings (Loss) Per Share........ $ 0.49 $ 0.43 $ 0.58 $(0.81)
====== ====== ====== ======
Diluted Earnings (Loss) Per Share...... $ 0.48 $ 0.41 $ 0.55 $(0.78)
====== ====== ====== ======
</TABLE>
- --------
(1) Includes a $4.7 million loss, after tax, as result of a contract
termination, or $0.12 per diluted share.
(2) Includes a $1.7 million gain, after tax, on life insurance proceeds, or
$0.04 per diluted share.
(3) Includes a $2.9 million net gain, after tax, on the sale of a facility and
the writedown of a European subsidiary to its estimated realizable value,
or $0.08 per diluted share.
(4) Includes restructuring and other one-time charges of $52.6 million, after
tax, or $1.31 per diluted share.

The Consolidated Financial Statements are included on pages 28 to 53 and
are incorporated by reference herein.

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

A change in the Company's independent public accountants during the 1998
fiscal year has been previously reported in a Current Report on Form 8-K dated
November 4, 1997 and filed on November 10, 1997.

23
<PAGE>

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 12, 2000 (the "2000
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 Graph") of the 2000 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 2000
Annual Meeting Proxy Statement.

Item 13. Certain Relationships and Related Transactions

None.

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 Schedule" on page 25, the Report of Independent
Accountants and Independent Auditors' Report on pages 26 to 27 and
the Consolidated Financial Statements on pages 28 to 53, all of
which are incorporated herein by reference.

2. Financial Statement Schedules

See "Index to Consolidated Financial Statements and Financial
Statement Schedule" on page 25, the Report of Independent
Accountants on Financial Statement Schedule on page 54 and the
Financial Statement Schedule on page 55, all of which are
incorporated herein by reference.

3. Exhibits

See "Index to Exhibits" on pages 57 to 60, which is incorporated
herein by reference.

(b) Reports on Form 8-K:

The following reports on Form 8-K were filed during the last quarter of
fiscal 1999:

None

The following reports on Form 8-K were filed subsequent to the end of
the 1999 fiscal year:

On October 1, 1999, the Company filed a Current Report on Form 8-K
dated September 24, 1999 reporting under Item 5 that the Company has
retained Credit Suisse First Boston as its financial advisor to explore
strategic alternatives relating to the Company's Industrial business
segment.

24
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants........................................ 26

Independent Auditors' Report............................................. 27

Consolidated Statement of Earnings
For the years ended August 31, 1999, 1998 and 1997..................... 28

Consolidated Balance Sheet
As of August 31, 1999 and 1998......................................... 29

Consolidated Statement of Shareholders' Equity and Comprehensive Income
For the years ended August 31, 1999, 1998 and 1997..................... 30

Consolidated Statement of Cash Flows
For the years ended August 31, 1999, 1998 and 1997..................... 31

Notes to Consolidated Financial Statements............................... 32-53

INDEX TO FINANCIAL STATEMENT SCHEDULE

Report of Independent Accountants on Financial Statement Schedule........ 54

Schedule II--Valuation and Qualifying Accounts........................... 55
</TABLE>

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.

25
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Directors of Applied Power Inc.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, shareholders' equity and comprehensive
income, and cash flows present fairly, in all material respects, the financial
position of Applied Power Inc. and its subsidiaries at August 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
two years in the period ended August 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
September 29, 1999

26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Directors of Applied Power Inc.:

We have audited the consolidated statements of earnings, shareholders'
equity and comprehensive income, and cash flows of Applied Power Inc. and
subsidiaries for the year ended August 31, 1997. Our audit also included the
consolidated financial statement schedule for the year ended August 31, 1997
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 audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements of Applied Power
Inc. and subsidiaries present fairly, in all material respects, the results of
their operations and their cash flows for the year 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
(November 24, 1999 as
to the restatement for
the 1998 pooling of
interests described in
Notes A and B)

27
<PAGE>

APPLIED POWER INC.

CONSOLIDATED STATEMENT OF EARNINGS

(Dollars in Thousands, except per share amounts)

<TABLE>
<CAPTION>
Years ended August 31,
--------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Net sales.................................... $1,751,042 $1,230,689 $897,758
Cost of products sold........................ 1,206,605 835,716 570,551
---------- ---------- --------
Gross Profit............................... 544,437 394,973 327,207

Engineering, selling and administrative
expenses.................................... 317,286 269,227 217,522
Amortization of intangible assets............ 29,624 20,353 8,013
Contract termination costs................... 7,824 -- --
Restructuring charges........................ -- 20,298 --
Merger related expenses...................... -- 9,276 --
Provision for estimated loss on sale of
subsidiary.................................. -- 4,500 --
---------- ---------- --------
Operating Earnings......................... 189,703 71,319 101,672

Other Expense (Income):
Net financing costs........................ 63,888 28,531 16,158
Other--net................................. (936) (14,597) (3,710)
---------- ---------- --------
Earnings Before Income Tax Expense........... 126,751 57,385 89,224

Income Tax Expense........................... 47,354 30,698 31,299
---------- ---------- --------

Net Earnings................................. $ 79,397 $ 26,687 $ 57,925
========== ========== ========

Basic Earnings Per Share:
Earnings Per Share......................... $ 2.04 $ 0.70 $ 1.53
========== ========== ========
Weighted Average Common Shares Outstanding
(000's)................................... 38,825 38,380 37,880
========== ========== ========

Diluted Earnings Per Share:
Earnings Per Share......................... $ 1.98 $ 0.66 $ 1.47
========== ========== ========
Weighted Average Common and Equivalent
Shares Outstanding (000's)................ 40,200 40,174 39,307
========== ========== ========
</TABLE>

The accompanying notes are an integral part of these financial statements

28
<PAGE>

APPLIED POWER INC.

CONSOLIDATED BALANCE SHEET

(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31,
----------------------
ASSETS 1999 1998
------ ---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................ $ 22,258 $ 6,349
Accounts receivable, less allowances of $7,607 and
$6,758, respectively................................ 149,525 147,380
Inventories.......................................... 207,518 164,786
Deferred income taxes................................ 16,060 29,905
Prepaid expenses..................................... 13,675 16,144
---------- ----------
Total Current Assets............................... 409,036 364,564

Property, Plant and Equipment
Property............................................. 17,565 6,249
Plant................................................ 82,424 74,411
Machinery and equipment.............................. 449,123 337,555
---------- ----------
549,112 418,215
Less: Accumulated depreciation....................... (275,210) (193,045)
---------- ----------
Net Property, Plant and Equipment.................. 273,902 225,170

Goodwill, net of accumulated amortization of $64,583
and $36,803, respectively............................. 845,704 499,973
Other Intangibles, net of accumulated amortization of
$25,080 and $19,338, respectively..................... 42,618 42,896
Other Assets........................................... 53,586 42,119
---------- ----------
Total Assets....................................... $1,624,846 $1,174,722
========== ==========

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities
Short-term borrowings................................ $ 230 $ 91
Trade accounts payable............................... 157,515 127,470
Accrued compensation and benefits.................... 47,089 45,457
Income taxes payable................................. 36,491 12,898
Other current liabilities............................ 82,340 74,792
---------- ----------
Total Current Liabilities.......................... 323,665 260,708

Long-term Debt......................................... 808,438 512,557
Deferred Income Taxes.................................. 15,869 23,065
Other Deferred Liabilities............................. 59,045 36,510

Shareholders' Equity
Class A common stock, $0.20 par value per share,
authorized 80,000,000 shares, issued and outstanding
38,978,340 and 38,626,068 shares, respectively...... 7,796 7,725
Additional paid-in capital........................... 12,388 5,817
Retained earnings.................................... 412,863 335,805
Accumulated other comprehensive income............... (15,218) (7,465)
---------- ----------
Total Shareholders' Equity......................... 417,829 341,882
---------- ----------
Total Liabilities and Shareholders' Equity......... $1,624,846 $1,174,722
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

29
<PAGE>

APPLIED POWER INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

(Dollars in Thousands)

<TABLE>
<CAPTION>
Years Ended August 31, 1999, 1998 and 1997
-------------------------------------------------------
Class Accumulated
A Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 1,
1996................... $2,893 $(4,890) $250,576 $ 4,707 $253,286
Net earnings for the
year................. -- -- 57,925 -- 57,925
Currency translation
adjustments.......... -- -- -- (8,394) (8,394)
--------
Total comprehensive
income............. 49,531
--------
Cash dividends
declared............. -- -- (3,114) -- (3,114)
Exercise of stock
options and issuance
of treasury stock.... 34 5,656 (861) -- 4,829
Tax benefit of option
exercises............ -- 1,052 -- -- 1,052
Stock repurchase and
other................ -- (223) -- -- (223)
------ ------- -------- -------- --------
Balance at August 31,
1997................... 2,927 1,595 304,526 (3,687) 305,361
Net earnings for the
year................. -- -- 26,687 -- 26,687
Currency translation
adjustments.......... -- -- -- (3,744) (3,744)
--------
Total comprehensive
income............. 22,943
--------
Cash dividends
declared............. -- -- (2,564) -- (2,564)
Exercise of stock
options.............. 72 7,686 -- -- 7,758
Tax benefit of option
exercises............ -- 929 -- -- 929
Issuance of Common
Stock in 2-for-1
stock split.......... 2,778 (2,778) -- -- --
Effect of ZERO
excluded period (Note
A)................... 1,948 (1,615) 7,156 (34) 7,455
------ ------- -------- -------- --------
Balance at August 31,
1998................... 7,725 5,817 335,805 (7,465) 341,882
Net earnings for the
year................. -- -- 79,397 -- 79,397
Currency translation
adjustments.......... -- -- -- (7,753) (7,753)
--------
Total comprehensive
income............. 71,644
--------
Cash dividends
declared............. -- -- (2,339) -- (2,339)
Exercise of stock
options.............. 71 4,641 -- -- 4,712
Tax benefit of option
exercises............ -- 1,930 -- -- 1,930
------ ------- -------- -------- --------
Balance at August 31,
1999................... $7,796 $12,388 $412,863 $(15,218) $417,829
====== ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements

30
<PAGE>

APPLIED POWER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in Thousands)

<TABLE>
<CAPTION>
Years ended August 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net Earnings................................ $ 79,397 $ 26,687 $ 57,925
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization............. 76,690 47,570 31,112
Gain from sale of assets.................. (1,128) (11,647) (511)
Provision for deferred income taxes....... 6,453 (8,508) (583)
Provision for loss on sale of subsidiary.. -- 4,500 --
Restructuring and other one-time charges,
net of tax benefit....................... 4,694 52,637 --
Changes in operating assets and
liabilities, excluding the effects of
business acquisitions and disposals:
Accounts receivable..................... 4,112 (3,273) (11,193)
Inventories............................. (14,274) 10,696 3,410
Prepaid expenses and other assets....... (7,832) 486 (6,637)
Trade accounts payable.................. 12,404 11,736 6,501
Other liabilities....................... (10,127) (1,217) 4,010
--------- --------- ---------
Net Cash Provided by Operating Activities..... 150,389 129,667 84,034

Investing Activities
Proceeds on sale of property, plant and
equipment.................................. 14,455 24,841 5,168
Additions to property, plant and equipment.. (65,902) (56,827) (33,463)
Business acquisitions....................... (409,211) (426,046) (76,951)
Product line dispositions and other......... -- 6,061 902
--------- --------- ---------
Net Cash Used in Investing Activities......... (460,658) (451,971) (104,344)

Financing Activities
Proceeds from issuance of long-term debt.... 484,716 384,418 77,000
Principal payments on long-term debt........ (269,854) (129,137) (50,205)
Net borrowings (repayments) on short-term
credit facilities.......................... (2,042) 16,158 6,691
Net commercial paper borrowings............. 65,760 -- --
Additional receivables financed............. 38,713 39,700 525
Proceeds from sale/leaseback transactions... 6,293 -- --
Pre-funding of trusts....................... -- (17,801) --
Dividends paid on common stock.............. (2,339) (2,564) (3,114)
Stock option exercises and other............ 5,452 6,855 4,863
--------- --------- ---------
Net Cash Provided by Financing Activities..... 326,699 297,629 35,760
Effect of Exchange Rate Changes on Cash....... (521) (882) (1,422)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. 15,909 (25,557) 14,028

Cash and Cash Equivalents--Beginning of Year.. 6,349 22,047 8,019
Effect of the ZERO excluded period (as
described in Note A)......................... -- 9,859 --
--------- --------- ---------
Cash and Cash Equivalents--End of Year........ $ 22,258 $ 6,349 $ 22,047
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements

31
<PAGE>

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,"
"APW" or the "Company"). The Company consolidates companies in which it owns
or controls more than fifty percent of the voting shares. The results of
companies acquired or disposed of during the fiscal year are included in the
consolidated financial statements from the effective date of acquisition or up
to the date of disposal except in the case of pooling of interests (see "Basis
of Presentation" below). All significant intercompany balances, transactions
and profits have been eliminated in consolidation.

Basis of Presentation: The consolidated financial statements have been
prepared in United States Dollars in accordance with generally accepted
accounting principles in the United States. As described more fully in Note
B--"Merger, Acquisitions and Divestitures," on July 31, 1998, ZERO
Corporation, a Delaware corporation ("ZERO"), became a wholly-owned subsidiary
of Applied Power through the merger of STB Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Applied Power ("STB"), with and
into ZERO (the "Merger") pursuant to an Agreement and Plan of Merger by and
among Applied Power, ZERO and STB dated as of April 6, 1998 (the "Merger
Agreement"). The consolidated financial statements have been prepared
following the pooling of interests method of accounting for the Merger and
therefore reflect the combined financial position, operating results and cash
flows of ZERO as if they had been combined for all periods presented. Prior to
the Merger, ZERO had a March 31 fiscal year end. The Consolidated Balance
Sheet, Statements of Earnings, Shareholders' Equity and Comprehensive Income,
and Cash Flows as of and for the year ended August 31, 1998 reflect the
combination of an August 31 year end consolidated financial position, results
of operations and cash flows for ZERO. The Statements of Consolidated
Earnings, Shareholders' Equity and Comprehensive Income, and Cash Flows for
the year ended August 31, 1997 reflect the combination of the results of
operations and cash flows of ZERO for the year ended March 31, 1997 and the
results of operations and cash flows of Applied Power Inc. for the fiscal year
ended August 31, 1997. The results of operations and cash flows for ZERO from
April 1, 1997 to August 31, 1997, which have been excluded from these
consolidated financial statements, are reflected as a fiscal 1998 adjustment
to the Consolidated Statements of Shareholders' Equity and Comprehensive
Income and Cash Flows. Net sales and net income for ZERO for the excluded
period from April 1, 1997 to August 31, 1997 were $107.2 million and $7.9
million, respectively.

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 either the straight-line or regulatory
methods for income tax purposes. Capital leases and leasehold improvements are
amortized over the life of the related asset or the life of the lease,
whichever is shorter. Expenditures for maintenance and repairs not expected to
extend the useful life of an asset beyond its normal useful life are expensed
as incurred.

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 goodwill and other intangible assets.
Impairment of goodwill, if any, is measured on the basis of whether

32
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

anticipated undiscounted operating cash flows generated by the underlying
assets exceeds the recorded goodwill. For the year ended August 31, 1998, the
Company recorded an impairment of goodwill of $5.6 million. For further
information, see Note F--"Merger, Restructuring and Other Non-recurring
Items." No impairment of goodwill was indicated at August 31, 1999 or 1997.

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 $13.1
million, $13.9 million and $10.4 million in fiscal 1999, 1998 and 1997,
respectively.

Financing Costs: Net financing costs represent interest expense, financing
fees, amortization of debt financing costs and accounts receivable financing
costs, net of interest and investment income earned.

Income Taxes: The Company uses the liability method to record deferred
income tax assets and liabilities relating to the expected future income tax
consequences of transactions that have been recognized in the Company's
financial statements. Under this method, deferred tax assets and liabilities
are determined based on the temporary differences between financial statement
carrying amounts and income tax bases of assets and liabilities using enacted
tax rates in effect in the years in which temporary differences are expected
to reverse. For further information, see Note K--"Income Taxes."

Earnings Per Share: The following table sets forth the computation of basic
and diluted earnings per share (fiscal 1999 and 1998 results include
restructuring charges and other one-time items--see Note F--"Merger,
Restructuring and Other Non-recurring Items"):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Numerator (000's):
Net earnings for basic and diluted earnings per
share.......................................... $79,397 $26,687 $57,925
------- ------- -------
Denominator (000's):
Weighted average common shares outstanding for
basic earnings per share....................... 38,825 38,380 37,880
Net effect of dilutive options based on the
treasury stock method using average market
price.......................................... 1,375 1,794 1,427
------- ------- -------
Weighted average common and equivalent shares
outstanding for diluted earnings per share..... 40,200 40,174 39,307
------- ------- -------
Basic Earnings Per Share.......................... $ 2.04 $ 0.70 $ 1.53
------- ------- -------
Diluted Earnings Per Share........................ $ 1.98 $ 0.66 $ 1.47
------- ------- -------
</TABLE>

Options to purchase approximately 0.4 million shares of common stock were
outstanding during fiscal 1999 but were not included in the above computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares. Less than 0.1 million
stock options were anti-dilutive for fiscal years 1998 and 1997.

Foreign Currency Translation: A significant portion of the Company's sales,
income and cash flow is derived from its international operations. The
financial position and the results of operations of the Company's foreign
operations are measured using the local or regional currency of the countries
in which they operate and

33
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

are translated into U.S. dollars. Revenues and expenses of foreign
subsidiaries are translated into U.S. dollars at the average exchange rate
effective during the fiscal year. Although the effects of foreign currency
fluctuations are mitigated by the fact that expenses of foreign subsidiaries
are generally incurred in the same currencies in which the sales are
generated, the reported results of operations of the Company's foreign
subsidiaries are affected by changes in foreign currency exchange rates and,
as compared to prior periods, will be higher or lower depending on the
weakening or strengthening of the U.S. dollar. In addition, a portion of the
Company's net assets are based in its foreign subsidiaries and are translated
into U.S. dollars at the foreign currency rate in effect at the end of each
period. Accordingly, the Company's consolidated shareholders' equity and
comprehensive income will fluctuate depending upon the strengthening or
weakening of the U.S. dollar. Such currency translation amounts constitute the
balance of accumulated other comprehensive income in the Consolidated Balance
Sheet at August 31, 1999 and 1998. Net gains resulting from foreign currency
transactions, included in "Other--net" in the Consolidated Statement of
Earnings, amounted to $0.1 million, $0.7 million and $1.3 million for the
years ended August 31, 1999, 1998 and 1997, respectively.

Foreign Currency Hedging: Borrowings under long-term foreign currency loans
are used to partially hedge against declines in the value of net investments
in certain foreign subsidiaries. The Company also periodically enters into
foreign currency contracts to hedge certain exposures related to selected
transactions that are relatively certain as to both timing and amount.

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 issue derivative financial instruments for trading purposes. The
Company currently holds only interest rate swap agreements. For interest rate
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--"Debt."

Use of Estimates: The financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the years presented. They also affect
the disclosure of contingencies. Actual results could differ from those
estimates and assumptions.

New Accounting Pronouncements: Effective September 1, 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income." This Statement
established new standards for the reporting and display of comprehensive
income and its components. Comprehensive income is defined as the change in
equity of a company during a period from transactions and events from nonowner
sources. The difference between net income and comprehensive income for the
Company is due to currency translation adjustments. Comprehensive income is
reflected in the Consolidated Statement of Shareholders' Equity and
Comprehensive Income. Prior year financial statements have been reclassified
to conform with the requirements of SFAS No. 130.

At August 31, 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information. The prior
years' segment information has been restated to present the Company's two
reportable segments, Electronics and Industrial. See Note L--"Business
Segment, Geographic and Customer Information" for these disclosures.

34
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective August 31, 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The provisions
of SFAS No. 132 revised employers' disclosures about pension and other
postretirement benefit plans. The Statement does not change the measurement or
recognition of these plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable. Prior
year disclosures have been restated to conform with the requirements of SFAS
No. 132. See Note J--"Employee Benefit Plans" for these disclosures.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
up Activities," which requires costs of start-up activities and organization
costs to be expensed as incurred. This Statement is effective for the Company
on September 1, 1999 and initial application must be reported as a cumulative
effect of a change in accounting principle. The adoption of SOP 98-5 did not
have a material effect on the Company's consolidated financial position or
operating results.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and was effective for all fiscal years
beginning after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of SFAS No. 133," and will now be effective for
fiscal years beginning after June 15, 2000, with early adoption permitted.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. Upon
adoption, the Company will be required to report derivative and hedging
instruments at fair value in the balance sheet and recognize changes in the
fair value of derivatives in net earnings or other comprehensive income, as
appropriate. This Statement will be effective for the Company's fiscal year
2001 first quarter financial statements and restatement of prior years will
not be permitted. Given the Company's current derivative and hedging
activities, the Statement is not expected to have a material effect on the
Company's financial position or results of operations.

Reclassifications: Certain prior year amounts shown have been reclassified
to conform to the fiscal 1999 presentation.

Note B--Merger, Acquisitions and Divestitures

Fiscal 1999--

Acquisitions

Cash paid for Rubicon totaled $371.5 million, with the purchase price
allocation resulting in $340.6 million of goodwill. To provide the necessary
funds, the Company entered into a Multicurrency Credit Agreement, dated as of
October 14, 1998, providing for an $850.0 million, five-year revolving credit
facility. The acquisition was recorded using the purchase method of
accounting.

35
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In June 1999, the Company, through a wholly-owned subsidiary, acquired all
of the outstanding stock of Innovative Metal Fabrication, Inc. ("Innovative").
Innovative designs and manufactures technical environments used in electronic
assembly operations, as well as electronic gaming enclosures, in two sites in
Grass Valley, CA and Austin, TX. In May 1999, the Company also acquired
certain assets of Connector Technology, Inc. ("CTI") of Anaheim, CA. CTI
manufactures custom backplanes and was integrated with APW's Electronic
Solutions business unit. Both Innovative and CTI are included in the
Electronics segment. Also, in the fourth quarter of fiscal 1999, a wholly-
owned subsidiary of APW purchased for the Industrial segment, shares of Ergun
Kriko San Ticaret ("Ergun"), an Akhisar, Turkey based company specializing in
the manufacture of hydraulic cab-tilting systems and hydraulic bottle jacks
for the Turkish truck market. The total purchase price of the combined
Innovative, CTI and Ergun acquisitions totaled approximately $17.0 million,
including fees and expenses, and was funded by borrowings under existing
credit facilities. All three acquisitions have been accounted for using the
purchase method and the results of operations of the acquired companies are
included in the Consolidated Statement of Earnings from their respective
acquisition dates. Preliminary allocations of the purchase price resulted in
approximately $10.9 million in goodwill.

Fiscal 1998--

Merger

On July 31, 1998, at special meetings for both companies, shareholders
voted to approve the merger of a newly created subsidiary of the Company into
ZERO Corporation. The Merger was completed after the approval of the
shareholders of the Company and ZERO at their respective shareholder meetings.
Under the terms of the Merger Agreement, ZERO stockholders received 0.85 of a
share of the Company's Common Stock for each share of ZERO Common Stock. The
Company issued approximately 10.6 million shares of its common stock in
exchange for all outstanding common stock of ZERO Corporation and assumed
outstanding options to purchase ZERO common stock that were converted into
options to purchase approximately 0.6 million shares of the Company's common
stock pursuant to the terms of the Merger. This equates to a purchase price of
approximately $386 million based on the July 30, 1998 closing stock price of
the Company. ZERO's primary business is protecting electronics. ZERO's system
packaging, thermal management and engineered cases serve the
telecommunication, instrumentation and data-processing markets. ZERO also
produces the line of ZERO Halliburton(R) cases for consumers worldwide and
cargo containers and proprietary loading systems to the airline industry. The
Merger has been accounted for using the pooling of interests method of
accounting, and therefore, the financial statements reflect the combined
financial position, operating results and cash flows of APW and ZERO as if
they had been combined for all periods presented. See Note A--"Summary of
Significant Accounting Policies--Basis of Presentation."

All fees and expenses related to the ZERO merger and to the integration of
the combined companies have been expensed as required under the pooling of
interests method of accounting. Such fees and expenses amounted to $20.1
million in 1998. This total includes transaction costs of approximately $9.3
million related to legal, accounting and financial advisory services. The
remaining $10.9 million reflects costs associated with organizational
realignment, closure of ZERO headquarters, facility consolidation and the
conforming of accounting policies.

36
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the separate results of ZERO and the Company,
for reported periods prior to the date of merger:

<TABLE>
<CAPTION>
(Unaudited) Nine
Months Ended Fiscal Year Ended
May 31, 1998 August 31, 1997
---------------- -----------------
<S> <C> <C>
Net Sales
Applied Power........................ $667,487 $672,316
ZERO Corporation..................... 191,227 225,442
-------- --------
Combined............................. $858,714 $897,758
======== ========

Net Earnings
Applied Power........................ $ 39,055 $ 42,038
ZERO Corporation..................... 18,944 15,887
-------- --------
Combined............................. $ 57,999 $ 57,925
======== ========
</TABLE>

Acquisitions

On June 5, 1998, Applied Power Limited, a United Kingdom subsidiary of the
Company, accepted for payment all of the VERO Group plc ("VERO") stock
tendered, which totaled over 72% of the outstanding VERO shares, pursuant to
Applied Power Limited's tender offer to acquire the entire issued share
capital of VERO at a price of 192 pence per VERO share (the "Offer"). Applied
Power Limited had previously acquired approximately 10% of VERO's shares, so
that after accepting the shares tendered, Applied Power Limited owned or had
accepted over 82% of VERO's shares. On June 19, 1998, Applied Power Limited
announced that additional shares tendered brought the total of the shares it
owned or had accepted for payment to over 90% of VERO's issued share capital
and that it would invoke Section 429 of the U.K. Companies Act of 1985, as
amended, to acquire the remaining outstanding shares of VERO stock. After the
required procedures were completed, Applied Power Limited owned all of the
issued share capital of VERO. Cash paid for the transaction totaled
approximately $191.7 million. Allocations of the purchase price resulted in
approximately $183.8 million of goodwill. VERO is a United Kingdom based
company that manufactures electronic enclosures, racks, backplanes and power
supplies. The acquisition has been recorded using the purchase method of
accounting. The operating results of VERO subsequent to June 5, 1998 are
included in the Consolidated Statement of Earnings.

On October 6, 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. The
balance of the outstanding shares was acquired for the same per share cash
price in a follow-up merger on October 9, 1997. Cash paid for the transaction
totaled approximately $141.0 million. Allocations of the purchase price
resulted in approximately $104.5 million of goodwill. The transaction was
primarily funded with proceeds from a $140.0 million, 364-day revolving credit
facility from the Company's then existing lenders. Versa/Tek, operating out of
several locations in Wisconsin, is a value-added manufacturer of custom
engineered components and systems for diverse industrial markets. The
acquisition has been recorded using the purchase method of accounting. The
operating results of Versa/Tek subsequent to October 6, 1997 are included in
the Consolidated Statement of Earnings.

In addition to the VERO and Versa/Tek acquisitions discussed above, in
fiscal 1998 the Company acquired eight other companies, primarily in its
Electronics business segment, for an aggregate of approximately $125.6
million, including $118.9 million in cash and the assumption of approximately
$6.7 million in debt. The cash portion of the acquisitions was funded by
borrowings under existing credit facilities. Each of these acquisitions

37
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

was accounted for using the purchase method of accounting and the results of
operations of the acquired companies are included in the Consolidated
Statement of Earnings from their respective acquisition dates. As a result of
the acquisitions, approximately $90.7 million in goodwill was recorded by the
Company.

The following unaudited pro forma data summarize the results of operations
for the periods presented as if the acquisitions of Rubicon, VERO and
Versa/Tek had been completed on September 1, 1997, the beginning of the
Company's 1998 fiscal year. The pro forma data give effect to actual operating
results prior to the respective acquisitions and adjustments to interest
expense, goodwill amortization and income tax expense. 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, 1997 or that may be
obtained in the future. The pro forma effects of all other fiscal 1999 and
1998 acquisitions are not included in the below data as they are not
significant to the net sales, net earnings and earnings per share amounts
reported in the accompanying financial statements.

<TABLE>
<CAPTION>
Fiscal Year Ended
August 31,
---------------------
1999 1998
---------- ----------
($ in 000's)
Except per share
amounts
<S> <C> <C>
Net Sales.......................................... $1,775,682 $1,667,055
Net Earnings....................................... $ 78,473 $ 25,284
Basic Earnings Per Share........................... $ 2.02 $ 0.66
Shares Used in Computation (000's)................. 38,825 38,380
Diluted Earnings Per Share......................... $ 1.95 $ 0.63
Shares Used in Computation (000's)................. 40,200 40,174
</TABLE>

Divestiture

On March 31, 1998, the Company completed the sale of the assets of Moxness
Industrial Products, a division of Versa/Tek. Total consideration from the
transaction was $6.0 million, which approximated book value of the assets.

Fiscal 1997--

Acquisitions

On September 26, 1996, the Company acquired the net assets of Everest
Electronic Equipment, Inc. ("Everest") for cash consideration of $52.0
million, which was funded through borrowings under then existing credit
facilities. Approximately $43.0 million of the purchase price was assigned to
goodwill. Everest is a manufacturer of custom and standard electronic
enclosures used by the computer, telecommunication, datacom and other
industries and is headquartered in Anaheim, California. The acquisition has
been recorded using the purchase method of accounting. The results of Everest
subsequent to the acquisition date are included in the Consolidated Statement
of Earnings.

In addition to the acquisition of Everest discussed above, in fiscal 1997
the Company acquired three other companies for an aggregate of approximately
$22.8 million in cash. The cash portion of the acquisitions' purchase price
was funded by borrowings under then existing credit facilities. Each of these
acquisitions was accounted for as a purchase and the results of operations of
the acquired companies are included in the Consolidated Statement of Earnings
from their respective acquisition dates. As a result of the acquisitions,
approximately $11.2 million in goodwill was recorded by the Company.

38
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note C--Accounts Receivable Financing

On November 20, 1997, the Company replaced its former $50.0 million
accounts receivable financing facility with a new facility that provided up to
$80.0 million of multi-currency accounts receivable financing. This new
agreement expires in November 2000. On August 28, 1998, the Company amended
the facility by increasing the amount of multi-currency accounts receivable
financing to $90.0 million. On December 18, 1998, the facility was increased
to $150.0 million of multi-currency accounts receivable financing. All other
substantive terms of the amended agreements remained the same.

Under the terms of this 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 to Purchasers 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 of 16% of sold
receivables. The Company retains collection and administrative
responsibilities on the participation interests sold as servicer for APCC and
the Purchasers.

At August 31, 1999 and 1998, accounts receivable were reduced by $128.4
million and $89.7 million, respectively, representing receivable interests
sold under this program. The proceeds from the sold receivables were used to
reduce debt.

Accounts receivable financing costs totaling $6.1 million, $4.3 million and
$3.0 million for the years ended August 31, 1999, 1998 and 1997, respectively,
are included in net financing costs in the accompanying Consolidated Statement
of Earnings.

Note D--Net Inventories

Inventory cost is determined using the last-in, first-out ("LIFO") method
for a portion of US owned inventory (approximately 32% and 37% of total
inventories in 1999 and 1998, respectively). 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 $8.0 million and $8.2 million at
August 31, 1999 and 1998, respectively.

The nature of the Company's products in several significant parts of its
business is such that they have a very short production cycle. Consequently,
the amount of work-in-process at any point in time is minimal. In addition,
many parts or components are ultimately either sold individually or assembled
with other parts making a distinction between raw materials and finished goods
unclear. At these locations, the Company has not deemed it necessary or cost
effective to categorize inventory by state of completion, but rather between
material, labor and overhead. Several other parts of the Company maintain and
manage their inventories using a job cost system where the distinction of
categories of inventory by state of completion is also not available.

As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only
be possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.

39
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note E--Shareholders' Equity

The authorized capital stock of the Company as of August 31, 1999 consists
of 80,000,000 shares of Class A Common Stock, $0.20 par value, of which
38,978,340 shares were issued and outstanding; 7,500,000 shares of Class B
Common Stock, $0.20 par value, none of which were issued and outstanding; and
800,000 shares of Cumulative Preferred Stock, $1.00 par value ("Preferred
Stock"), none of which have been issued. Holders of both classes of the
Company's Common Stock are entitled to such dividends as the Company's Board
of Directors may declare out of funds legally available, subject to any
contractual restrictions on the payment of dividends or other distributions on
the Common Stock. If the Company were to issue any of its Preferred Stock, no
dividends could be paid or set apart for payment on shares of Common Stock,
unless paid in Common Stock, until dividends on all of the issued and
outstanding shares of Preferred Stock had been paid or set apart for payment
and provision had been made for any mandatory sinking fund payments. In the
event of dissolution or liquidation of the Company, the holders of both
classes of Common Stock are entitled to share ratably all assets of the
Company remaining after payment of the Company's liabilities and satisfaction
of the rights of any series of Preferred Stock which may be outstanding. There
are no redemption or sinking fund provisions with respect to the Common Stock.

On January 8, 1998, the Board of Directors authorized a two-for-one stock
split effected in the form of a 100 percent stock dividend to shareholders of
record on January 22, 1998. To effect the stock split, a total of 13,891,578
shares of the Company's Class A Common Stock were issued on February 3, 1998.
All references in the accompanying consolidated financial statements to the
average number of common shares and related per share amounts have been
restated to reflect the stock split.

At the Annual Meeting of Shareholders on January 9, 1998, the shareholders
voted to increase the number of authorized shares of Class A Common from
40,000,000 to 80,000,000.

Note F--Merger, Restructuring and Other Non-recurring Items

Fiscal 1999--

In the first quarter of fiscal 1999, the Company incurred a $4.7 million
after-tax non-recurring charge, or $0.12 per share on a diluted basis, due to
the cancellation of a contract within the Industrial business segment. The
majority of these costs were incurred prior to fiscal 1999.

Fiscal 1998--

During the fourth quarter of fiscal 1998, the Company recorded
restructuring and other one-time charges of $69.4 million, $52.6 million net
of tax, or $1.31 per diluted share. The charge included $17.7 million in costs
necessary to eliminate redundancies and streamline operations within the
Company's rapidly expanding Electronics businesses. Included in the
Electronics $17.7 million charge was the consolidation of three facilities
into one in the northeastern United States, the consolidation of several
product lines between facilities, standardization of design and development
functions and other organizational realignments. Also included in the $69.4
million pretax charge was $36.0 million relating to efforts within the
Industrial segment to eliminate less productive products and product lines,
consolidate Gardner Bender and Enerpac headquarters and to combine certain
facilities. Included in the Industrial charge were costs relating primarily to
the write-off of obsolete inventory to net realizable value, employee
severance, facility closures, operating lease obligations, and, in two cases,
the write-down of goodwill in accordance with SFAS No. 121 "Accounting for
Impairment of Long-lived Assets to be Disposed of." Of the total charges
incurred, $13.6 million was recorded for severance payments to approximately
400 employees, the majority of which was paid in fiscal 1999. The Company
completed its planned Electronics and Industrial restructuring programs during
fiscal 1999. At August 31, 1999, approximately

40
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$5 million of restructuring reserves, relating primarily to remaining
obligations under operating leases and other contractual arrangements, were
included in other current liabilities.

In connection with the Merger with ZERO consummated in fiscal 1998 (Note
B--"Merger, Acquisitions and Divestitures"), the Company recorded transaction
costs of approximately $9.3 million related to legal, accounting and financial
advisory services. These were expensed as required under the pooling of
interests method of accounting. In addition, the Company incurred costs of
$10.9 million associated with organizational realignment, closure of ZERO
headquarters, a change in estimate of a receivable valuation and the write-off
of obsolete inventory due to conforming of product lines. These ZERO
transaction and other costs were part of the $69.4 million charge discussed
above.

These restructuring and other one-time charges were reflected in the fiscal
1998 Consolidated Statement of Earnings as follows:

Merger, Restructuring and Other Non-recurring Items

<TABLE>
<S> <C>
Cost of products sold............................................ $25,785
Engineering, selling and administrative expenses................. 9,019
Amortization of intangible assets................................ 5,062
Restructuring charges............................................ 20,298
Merger related expenses.......................................... 9,276
-------
Subtotal....................................................... 69,440
Less: Income tax benefit......................................... 16,803
-------
Total.......................................................... $52,637
=======
</TABLE>

In addition to the $69.4 million charge, fiscal 1998 results also included
a pretax $4.5 million asset impairment charge recorded to reduce a European
subsidiary of ZERO in the Industrial segment to estimated realizable value.
This charge is reported in the "Provision for estimated loss on sale of
subsidiary" caption in the Consolidated Statement of Earnings. The assets of
this European subsidiary are expected to be sold in the first quarter of
fiscal 2000 and would generate a negligible gain or loss upon sale. Net sales
and operating earnings included in the Consolidated Statement of Earnings
attributable to this subsidiary were not material to fiscal 1999 results.

Note G--Debt

<TABLE>
<CAPTION>
August 31,
-----------------
1999 1998
-------- --------
($ 000's)
<S> <C> <C>
Borrowings under:
Multi-currency revolving credit agreement............ $407,287 $360,672
Senior subordinated notes, due 2009.................. 200,000 --
Commercial paper..................................... 108,691 42,930
Senior promissory notes, due March 8, 2011........... 50,000 50,000
Floating rate unsecured loan notes, due 2003......... 30,681 27,386
Pound Sterling multi-currency revolving credit
agreement........................................... 5,623 26,218
Other................................................ 6,156 5,351
-------- --------
Total Long-term Debt................................. $808,438 $512,557
======== ========
</TABLE>

41
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

outstanding under the below discussed Credit Agreement, thereby restoring the
Company's borrowing capacity under that agreement. Interest on the Notes is
payable semi-annually, and the Company has the option to redeem all or a
portion of the Notes at certain specified redemption prices on or after April
1, 2004. The Notes are subordinate in right of payment to the prior payment in
full of all senior debt as defined in the indenture.

To provide the necessary funds for the Rubicon acquisition (See Note B--
"Merger, Acquisitions and Divestitures"), the Company and Enerpac B.V., a
Netherlands subsidiary of the Company, as Borrowers, entered into a
Multicurrency Credit Agreement (the "Credit Agreement"), dated as of October
14, 1998, providing for an $850.0 million, five-year revolving credit facility
(the "New Facility"). In conjunction with the closing of the New Facility, the
Company terminated its prior $700.0 million, five-year revolving credit
facility (the "Facility") and used certain funds received under the New
Facility to repay borrowings under the Facility.

At August 31, 1999, direct outstanding borrowings under the New Facility
were $407.3 million and commercial paper borrowings and the floating rate
unsecured loan notes, considered a utilization of the New Facility, were
$108.7 million and $30.7 million, respectively. At August 31, 1999, the
Company had borrowings under the New Facility of $235.0 million, $13.7 million
and $158.6 million denominated in the US Dollar, the Japanese Yen and the
Euro, respectively. Under the New Facility, the Company can borrow at a
floating rate of LIBOR plus 0.275% to 1.375% annually, depending on the
Company's debt-to-EBITDA ratio. Currently, the Company incurs interest at 1%
above 30-day LIBOR, determined by the underlying currency of the debt which
the Company is borrowing. A non-use fee, currently computed at a rate of
0.275% annually, is payable quarterly on the average unused credit line. The
unused credit line of the New Facility at August 31, 1999 was approximately
$303.3 million.

The Credit Agreement contains customary restrictions concerning
investments, liens on assets, sales of assets, 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, 1999, the
Company was in compliance with all debt covenants.

Commercial paper outstanding at August 31, 1999 totaled $108.7 million, net
of discount, and carried an average interest rate of 5.4%. The Company has the
ability and intent to maintain these commercial paper obligations, classified
as long term, for more than one year. Amounts outstanding as commercial paper
reduce the amount available for borrowings under the Credit Agreement.

The Senior Promissory Notes bear interest at 7.13%, and are payable in 11
annual installments of $4.5 million beginning March 8, 2001. The proceeds from
the notes were used solely for the repurchase of ZERO's common stock in a
Dutch Auction Tender Offer in fiscal 1996 and for payment of related expenses.

The floating rate unsecured loan notes were entered into by the Company as
a result of its acquisitions of VERO and Rubicon. The notes were exchanged
with individual shareholders of VERO and Rubicon, at their option, in lieu of
receiving cash payment for their tendered shares. The notes carry an interest
rate of LIBOR minus 0.50% and can be redeemed at the option of the note holder
on various dates through 2003.

The Pound Sterling multi-currency revolving credit agreement was entered
into by the Company's VERO subsidiary in April 1998, prior to the acquisition
of VERO by the Company. The facility provides up to 27.5 million Pounds
Sterling of multi-currency borrowings and expires in 2003. Any borrowings
under this agreement carry an interest rate of LIBOR plus 0.65%, determined by
the underlying currency of the debt which the Company is borrowing. At August
31, 1999, the facility had outstanding borrowings denominated in Pounds
Sterling, German Marks, French Francs, US Dollars, Danish Krone and Italian
Lira. The agreement has certain covenants regarding tangible net worth and
debt-to-net worth, neither of which were deemed restrictive at

42
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

August 31, 1999. The total unused line of credit available under this
agreement at August 31, 1999 was approximately $38.4 million.

"Other" long-term debt mainly consists of various foreign lines-of-credit.

The Company had other short-term borrowings under unsecured non-committed
lines of credit with banks at August 31, 1999 and 1998. Interest rates vary
depending on the currency being borrowed. The weighted average interest rates
on the US and non-US short-term borrowings were 5.45% and 5.24% at August 31,
1999 and 1998, respectively. The amount of unused available borrowings under
such lines of credit was approximately $57.6 million at August 31, 1999.

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 purpose of these swaps
is to protect the Company from the effect of an increase in interest rates.
The interest rate swap agreements in place at August 31, 1999 effectively
convert $436.8 million of the Company's variable rate debt to a weighted
average fixed rate of 5.03%. The swap agreements expire on varying dates
through 2006. The accompanying Consolidated Balance Sheet at August 31, 1999
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 US 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 and, to a lessor degree, the impact of
foreign currency fluctuations on the net assets of foreign subsidiaries.
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 purchase 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, 1999 were negligible. The Company also uses
borrowings under long-term foreign currency loans to partially hedge against
declines in the value of net investments in certain foreign subsidiaries.

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.

Adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in fiscal 2001 will require the Company to record these
instruments at their fair values. See Note A--"Summary of Significant
Accounting Policies--New Accounting Pronouncements."

Fair Values of Financial Instruments: The fair value of the Company's
$200.0 million Senior Subordinated Notes due 2009 is estimated based on quoted
market prices. At August 31, 1999, the fair value of those notes was estimated
to be approximately $189.0 million. At August 31, 1999, the fair value of the
Company's $50.0 million Senior Promissory Notes due March 8, 2001 was $50.7
million based on current market interest rates of similar debt instruments.

The fair value of the Company's short-term borrowings and other long-term
debt approximated book value as of August 31, 1999 and 1998 due to their
short-term nature and the fact that the interest rates approximated year-end
market rates of interest. The fair value of debt instruments is calculated by
discounting the cash flow of

43
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

such obligations using the market interest rates for similar instruments. If
the Company were to terminate its interest rate swap agreements, the Company
would have received $3.5 million at August 31, 1999, and would have had to pay
$4.2 million at August 31, 1998. The Company had no foreign currency contracts
in place at August 31, 1999.

Aggregate Maturities: Long-term debt principal outstanding at August 31,
1999 is payable as follows: none in fiscal 2000; $11.8 million in fiscal 2001;
none in fiscal 2002; $24.3 million in fiscal 2003; $522.3 million in fiscal
2004 and $250.0 million thereafter.

The Company paid $61.5 million, $24.8 million and $15.5 million for
financing costs in fiscal 1999, 1998 and 1997, respectively.

Note H--Leases

The Company leases certain facilities, computers, equipment and vehicles
under various lease agreements generally 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 the lease 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, 1999 are: $28.9 million in fiscal 2000; $25.1 million in fiscal 2001;
$29.9 million in fiscal 2002; $20.2 million in fiscal 2003; $16.3 million in
fiscal 2004 and $131.9 million thereafter.

Total rental expense under operating leases was $28.6 million, $20.1
million and $14.4 million in fiscal 1999, 1998 and 1997, respectively.

Note I--Stock Option Plans

At August 31, 1999, a total of 8,715,638 shares of Class A Common Stock
were authorized for issuance under the Company's employee and director stock
option plans (including the assumed ZERO stock options described below), of
which a total of 3,633,879 have been issued through exercises of option
grants. At August 31, 1999, 5,081,759 shares were reserved for issuance under
the plans, consisting of 2,548,290 shares subject to outstanding options and
2,533,469 shares available for further grants.

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
two years and 100% after five years.

In connection with the merger occurring in fiscal 1998 (see Note B--
"Merger, Acquisitions and Divestitures"), all of the options outstanding under
the former ZERO stock option plans were assumed by the Company and converted
into options to purchase shares of the Company's Class A Common Stock on terms
adjusted to reflect the merger exchange ratio. Options to acquire a total of
735,767 ZERO shares were converted into options to acquire a total of 625,402
Company shares. These options, as so adjusted, retain all of the rights, terms
and conditions of the respective plans under which they were originally
granted.

44
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ZERO's plans provided for the granting of options to purchase shares of
ZERO common stock to directors, officers and other key employees at a price
not less than the fair market value on the date of grant. Options were granted
for terms of five to eight years and become exercisable in annual installments
(generally one-third of the total grant) commencing one year from the date of
grant, on a cumulative basis.

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

<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding at August 31, 1996........................ 3,198,520 $11.37
Granted............................................. 642,865 19.61
Exercised........................................... (502,379) 11.16
Cancelled........................................... (87,396) 14.51
--------- ------
Outstanding at August 31, 1997........................ 3,251,610 $12.91
Effect of ZERO excluded period (Note A)............... (84,797) --
Granted............................................. 467,644 32.27
Exercised........................................... (721,160) 13.01
Cancelled........................................... (133,591) 18.85
--------- ------
Outstanding at August 31, 1998........................ 2,779,706 $15.72
Granted............................................. 646,230 27.45
Exercised........................................... (539,138) 14.82
Cancelled........................................... (401,508) 26.57
--------- ------
Outstanding at August 31, 1999........................ 2,485,290 $17.27
--------- ------
Exercisable at August 31, 1999........................ 1,499,045 $11.74
========= ======
</TABLE>

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

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Range of August 31, Remaining Average August 31, Average
Exercise 1999 Number Contractual Exercise 1999 Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.75- $8.38 550,288 2.5 $ 8.04 550,288 $ 8.04
$8.56-$10.69 534,932 2.5 $ 9.75 534,932 $ 9.75
$11.13-$17.75 529,309 6.1 $15.93 283,659 $15.85
$18.09-$27.72 569,215 8.1 $26.31 90,211 $23.29
$31.63-$37.66 301,546 7.9 $32.78 39,955 $34.27
--------- --- ------ --------- ------
$6.75-$37.66 2,485,290 5.2 $17.27 1,499,045 $11.74
========= === ====== ========= ======
</TABLE>

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 discussed below. If the Company had accounted for these stock
options issued to employees in

45
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Earnings--as reported........................ $79,397 $26,687 $57,925
Net Earnings--pro forma.......................... 77,981 25,592 56,946

Basic Earnings Per Share--as reported............ $ 2.04 $ 0.70 $ 1.53
Basic Earnings Per Share--pro forma.............. 2.01 0.67 1.50

Diluted Earnings Per Share--as reported.......... $ 1.98 $ 0.66 $ 1.47
Diluted Earnings Per Share--pro forma............ 1.94 0.64 1.45
</TABLE>

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.

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 fiscal 1999, 1998 and 1997
are $10.37, $11.54 and $4.90, respectively. The following weighted average
assumptions were used in completing the model:

<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.............................. 0.20% 0.24% 0.33%
Expected volatility......................... 31.9% 23.5% 19.0%
Risk-free rate of return.................... 6.4% 5.5% 6.3%
Expected life............................... 4.7 years 5.6 years 5.0 years
</TABLE>

Outside Director Plan: Annually, each outside director is granted stock
options to purchase 3,000 shares of Company common stock at a price equal to
the market price of the underlying stock on the date of grant. The number of
shares granted was increased in 1997, from 2,000 shares, by an amendment to
the plan adopted on October 31, 1996. As required by SFAS No. 123, these
options resulted in compensation expense in the accompanying Consolidated
Statement of Earnings. Total compensation expense related to Director stock
options was not material in each year presented. A maximum of 120,000 shares
may be issued under this plan. Director stock options completely vest 11
months after date of grant.

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

<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1996................. 50,000 $10.77
Granted...................................... 15,000 19.44
Cancelled.................................... (4,000) 8.42
------- ------
Outstanding at August 31, 1997................. 61,000 $13.03
Granted...................................... 15,000 34.50
Exercised.................................... (14,000) 10.09
------- ------
Outstanding at August 31, 1998................. 62,000 $18.88
Granted...................................... 15,000 37.06
Exercised.................................... (14,000) 10.09
------- ------
Outstanding at August 31, 1999................. 63,000 $25.17
------- ------
Exercisable at August 31, 1999................. 48,000 $21.45
======= ======
</TABLE>

46
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note J--Employee Benefit Plans

Defined Benefit Pension and Other Postretirement Benefit Plans--The Company
provides defined benefit pension and other postretirement benefits to certain
employees of businesses acquired by APW who were entitled to those benefits
prior to acquisition. The following tables provide a reconciliation of benefit
obligations, plan assets, funded status and net periodic benefit cost for
those plans:

<TABLE>
<CAPTION>
Versa/Tek Other
Pension VERO Postretirement
Benefits Pension Benefits Benefits
---------------- ------------------ ----------------
1999 1998 1999 1998 1999 1998
------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation--

Benefit obligation at
beginning of year...... $11,416 $ -- $ 50,698 $ -- $ 5,224 $ 4,661
Service cost............ 81 409 2,497 -- 19 18
Interest cost........... 787 786 3,315 -- 354 363
Amendments.............. -- (1,890) -- -- -- --
Curtailment gain........ -- (554) -- -- -- (34)
Acquisition............. -- 11,605 -- 50,698 -- 230
Translation difference.. -- -- (1,030) -- -- --
Employee contributions.. -- -- 1,071 -- -- --
Actuarial (gain)/loss... (213) 1,523 9,553 -- 639 324
Benefits paid........... (974) (463) (2,429) -- (364) (338)
------- ------- -------- -------- ------- -------
Benefit obligation at
end of year............ $11,097 $11,416 $ 63,675 $ 50,698 $ 5,872 $ 5,224
======= ======= ======== ======== ======= =======
Change in plan assets--

Fair value of plan
assets at beginning of
year................... $12,086 $ -- $ 39,938 $ -- $ -- $ --
Actual return on plan
assets................. 1,006 38 6,709 -- -- --
Acquisition............. -- 12,099 -- 39,938 -- --
Company contributions... 129 342 2,262 -- -- --
Employee contributions.. -- -- 1,071 -- -- --
Translation difference.. -- -- (792) -- -- --
Benefits paid from plan
assets................. (897) (393) (2,429) -- -- --
------- ------- -------- -------- ------- -------
Fair value of plan
assets
at end of year......... $12,324 $12,086 $ 46,759 $ 39,938 $ -- $ --
======= ======= ======== ======== ======= =======
Funded status of the
plans.................. $ 1,227 $ 670 $(16,916) $(10,760) $(5,872) $(5,224)
Unrecognized net
loss/(gain)............ 411 567 5,993 -- (2,828) (4,445)
------- ------- -------- -------- ------- -------
Prepaid (accrued)
benefit cost........... $ 1,638 $ 1,237 $(10,923) $(10,760) $(8,700) $(9,669)
======= ======= ======== ======== ======= =======
Weighted-average
assumptions as of
August 31--
Discount rate........... 7.75% 7.00% 5.80% 6.30% 7.75% 7.00%
Expected return on plan
assets................. 8.50% 8.50% 7.50% 8.00%
Rate of compensation
increase............... Frozen 5.00% 3.80% 3.90%
</TABLE>

47
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Other
Versa/Tek VERO Postretirement
Pension Benefits Pension Benefits Benefits
-------------------- ------------------ -------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ----- ---- ------- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit
cost--

Service cost............ $ 81 $ 409 $-- $ 3,569 $-- $-- $ 19 $ 18 $ 5
Employee contributions.. -- -- -- (1,071) -- -- -- -- --
Interest cost........... 787 786 -- 3,315 -- -- 354 363 353
Expected return on
assets................. (1,064) (972) -- (3,189) -- -- -- -- --
Amortization of
actuarial (gain)/loss.. 1 -- -- -- -- -- (294) (331) (305)
------- ----- ---- ------- ---- ---- ----- ----- -----
Benefit cost (credit)... $ (195) $ 223 $-- $ 2,624 $-- $-- $ 79 $ 50 $ 53
======= ===== ==== ======= ==== ==== ===== ===== =====
</TABLE>

At August 31, 1999, the Versa/Tek pension benefits consist of three plans
covering certain legacy Versa/Tek employees and executives. On March 31, 1999,
the Versa/Tek Hourly Plan was merged into the Versa/Tek Salaried Plan,
resulting in no change to the aggregate funding status of the two plans. In
fiscal 1998, the Company amended the plans to freeze the accumulation of
benefits. This change resulted in a decrease of approximately $1.9 million in
the projected benefit obligation. In March 1998, a $0.6 million curtailment
gain was incurred associated with the sale of the Moxness operation. The
Company makes actuarially determined contributions to a trust fund of the
funded plans which represents the maximum allowable for deduction in
determination of Federal taxable income. Trust assets consist primarily of
participating units in common stock and bond funds. The Company assumed the
prepaid benefit cost via acquisition of Versa/Tek in October of 1997.

The VERO pension benefits consist of two plans which cover the majority of
VERO's United Kingdom employees, executives and directors. The assets of the
plans are held in a separately administered trust and contributions are
determined based on triennial actuarial valuations using the projected unit
credit funding method. The Company assumed the accrued benefit obligation upon
acquisition of VERO in June of 1998.

APW employees (and their dependents) who retired before February 1, 1994
have the option of being covered by one of several medical plans. Deferred
vested employees who terminated employment before February 1, 1994 are also
eligible for this postretirement benefit. In addition, retiree life insurance
is available to all employees hired before 1988. Most individuals receiving
postretirement health care and life insurance benefits under the above
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.

The health care cost trend rate used in the actuarial calculations was
9.4%, trending downward to 6.5% by the year 2009, and remaining level
thereafter. A one percentage-point increase or decrease in the assumed health
care cost trend rate would increase or decrease the postretirement benefit
obligation by approximately $0.4 million and would not have a material effect
on aggregate service and interest cost components.

Defined Contribution Benefit Plans--Effective January 1, 1998, the Company
merged its former Employee Savings Plan with the Applied Power Inc. Employee
Stock Ownership Plan to create a single retirement program for eligible US
employees--the APW 401(k) Plan (the "401(k) Plan"). Substantially all of the
Company's full-time US employees are eligible to participate in the 401(k)
Plan. Under the provisions of the 401(k) 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. Company core
contributions generally equal 3% of each employees' annual cash compensation,
subject to IRS limitations. Additionally, employees generally may

48
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

contribute up to 15% of their base compensation. The Company also matches
approximately 25% of each employee's contribution up to the participant's
first 6% of earnings.

In addition to the APW 401(k) Plan, the Company maintains the ZERO
Corporation Retirement Savings Plan which covers substantially all full-time
US employees at former ZERO Corporation business units who have completed one
full year of service. Under the provisions of this plan, the Company makes
core contributions to employees' retirement accounts based upon percentages of
eligible employees' compensation, eligible employees may contribute a
percentage of their pre-tax compensation, subject to certain limitations, and
the Company matches a portion of the employee contributions up to 5% of the
participant's compensation for the period.

During the years ended August 31, 1999, 1998 and 1997, pre-tax expense
related to the above defined contribution plans was approximately $8.5
million, $6.0 million and $5.7 million, respectively.

Non-US Benefit Plans--The Company contributes to a number of retirement
programs for employees outside the United States. Pension expense under these
programs amounted to approximately $3.0 million, $2.3 million and $1.4 million
in fiscal 1999, 1998 and 1997, respectively. These plans are not required to
report to US governmental agencies under the Employee Retirement Income
Security Act of 1974 and, therefore, the Company does not determine the
actuarial value of accumulated plan benefits or net assets available for
benefits.

Note K--Income Taxes

Income tax expense consists of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Currently Payable:
Federal....................................... $22,178 $25,323 $23,607
Foreign....................................... 14,837 9,626 5,015
State......................................... 3,886 4,257 3,260
------- ------- -------
Subtotals....................................... 40,901 39,206 31,882
------- ------- -------
Deferred:
Federal....................................... 5,883 (8,887) (488)
Foreign....................................... 495 1,007 87
State......................................... 75 (628) (182)
------- ------- -------
Subtotals....................................... 6,453 (8,508) (583)
------- ------- -------
Totals.......................................... $47,354 $30,698 $31,299
======= ======= =======
</TABLE>

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:

<TABLE>
<CAPTION>
Percent of
Pre-tax
Earnings
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal effect............... 1.6 4.1 2.5
Non-deductible amortization and other expenses.......... 4.9 12.1 1.0
Net effects of foreign tax rates and credits............ (4.7) 5.7 (3.1)
Other items............................................. 0.6 (3.4) (0.3)
---- ---- ----
Effective Tax Rate...................................... 37.4% 53.5% 35.1%
==== ==== ====
</TABLE>

49
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
August 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Deferred income tax assets:
Operating loss and state tax credit carryforwards..... $ 6,833 $ 5,846
Compensation and other employee benefits.............. 14,489 15,803
Inventory items....................................... 7,711 15,012
Restructuring expenses................................ 5,890 6,012
Deferred income....................................... 664 700
Book reserves and other items......................... 4,326 6,599
------- -------
39,913 49,972
Valuation allowance................................... (6,833) (5,846)
------- -------
33,080 44,126
------- -------
Deferred income tax liabilities:
Depreciation and amortization......................... 26,976 27,496
Inventory items....................................... 3,120 3,342
Other items........................................... 2,793 6,448
------- -------
32,889 37,286
------- -------
Net Deferred Income Taxes............................... $ 191 $ 6,840
======= =======
</TABLE>

The valuation allowance represents a reserve for foreign and domestic
operating loss and state tax credit carryforwards for which utilization is
uncertain. The increase in the valuation allowance represents the current year
increase in such loss carryforwards. The majority of the foreign losses may be
carried forward indefinitely. The state loss carryforwards expire in various
years through 2014.

Income taxes paid during fiscal 1999, 1998 and 1997 were $37.2 million,
$49.7 million and $32.4 million, 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
$118.8 million at August 31, 1999. If all such undistributed earnings were
remitted, an additional provision for income taxes of approximately $5.9
million would have been necessary as of August 31, 1999.

Earnings from continuing operations before income taxes from non-US
operations were $50.0 million, $15.4 million and $10.5 million for 1999, 1998
and 1997, respectively.

Note L--Business Segment, Geographic and Customer Information

In fiscal 1999, the Company adopted SFAS No. 131, which establishes
standards for reporting information about operating segments and related
disclosures about products, geographic information and major customers.
Operating segment information for fiscal 1998 and 1997 have been restated to
conform with the requirements of SFAS No. 131.

50
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective May 1999, the Company is organized and managed along the lines of
its two product segments: Electronics and Industrial. Electronics is the
previous Enclosure Products and Systems segment plus the McLean Thermal
Management units and the Eder Industries unit, both formerly included in the
Engineered Solutions segment. Industrial consists of the previous Tools and
Supplies segment combined with the remaining units of the Engineered Solutions
segment. Prior period segment information has been restated to reflect this
realignment of business segments.

Electronics supplies electronic enclosures, power supplies, thermal
systems, backplanes, and cabling either as individual products, or as an
integrated system incorporating certain of the Company's product design,
supply chain management, assembly and test capabilities. Industrial provides
both standard and customized industrial and electrical tools and accessories
along with components and systems using thermal management, hydraulic,
actuation and vibration control technologies through a world-wide distribution
system into a variety of niche markets. The accounting policies of the
reportable segments are the same as those described in the "Summary of
Significant Accounting Policies" in Note A. 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.

The following table summarizes financial information by reportable segment.
The information for Earnings Before Income Tax Expense includes the effects of
the Merger, restructuring and other non-recurring items discussed in Note F--
"Merger, Restructuring and Other Non-recurring Items." Fiscal 1999 Industrial
segment results include the $7.8 million pre-tax charge related to a contract
termination. The $69.4 million restructuring and merger charge from fiscal
1998 was allocated by segment as follows: $17.7 million in the Electronics
segment, $36.0 million in the Industrial segment and $15.7 million in General
corporate and other. The $4.5 million asset impairment charge from fiscal 1998
was reported in the Industrial segment. Earnings Before Income Tax Expense for
each reportable segment and geographic region does not include general
corporate expenses, interest expense or currency exchange adjustments.

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Net Sales:
Electronics........................... $1,055,338 $ 593,210 $375,318
Industrial............................ 695,704 637,479 522,440
---------- ---------- --------
Totals.............................. $1,751,042 $1,230,689 $897,758
========== ========== ========

Earnings Before Income Tax Expense:
Electronics........................... $ 90,263 $ 62,050 $ 65,890
Industrial............................ 111,533 46,939 50,903
General corporate and other........... (75,045) (51,604) (27,569)
---------- ---------- --------
Totals.............................. $ 126,751 $ 57,385 $ 89,224
========== ========== ========

Depreciation and Amortization:
Electronics........................... $ 50,510 $ 22,728 $ 11,286
Industrial............................ 25,678 24,207 19,640
General corporate and other........... 502 635 186
---------- ---------- --------
Totals.............................. $ 76,690 $ 47,570 $ 31,112
========== ========== ========

Capital Expenditures:
Electronics........................... $ 43,017 $ 31,613 $ 17,729
Industrial............................ 22,686 24,820 15,433
General corporate and other........... 199 394 301
---------- ---------- --------
Totals.............................. $ 65,902 $ 56,827 $ 33,463
========== ========== ========
</TABLE>

51
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
August 31,
------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Assets:
Electronics............................. $1,127,911 $ 673,386 $242,322
Industrial.............................. 433,731 437,317 358,086
General corporate and other............. 63,204 64,019 49,138
---------- ---------- --------
Totals................................ $1,624,846 $1,174,722 $649,546
========== ========== ========
</TABLE>

The following table summarizes financial information by geographic region.
The information for Earnings Before Income Tax Expense includes the effects of
the Merger, restructuring and other non-recurring items discussed in Note F--
"Merger, Restructuring and Other Non-recurring Items." Fiscal 1999 North
America results include the $7.8 million pre-tax charge related to a contract
termination. The $69.4 million restructuring and merger charge from fiscal
1998 was allocated by geographic region as follows: $39.9 million in North
America, $7.7 million in Europe, $4.3 million in Japan and Asia Pacific, $1.8
million in Latin America and $15.7 million in General corporate and other. The
$4.5 million asset impairment charge from fiscal 1998 was reported in the
Europe region.

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Net Sales:
North America........................ $1,044,056 $ 895,355 $653,333
Europe............................... 664,241 284,189 180,995
Japan and Asia Pacific............... 31,485 37,588 51,962
Latin America........................ 11,259 13,557 11,468
---------- ---------- --------
Totals............................. $1,751,041 $1,230,689 $897,758
========== ========== ========

Earnings Before Income Tax Expense:
North America........................ $ 135,063 $ 91,511 $103,599
Europe............................... 64,220 20,474 15,818
Japan and Asia Pacific............... 2,412 (1,250) (1,121)
Latin America........................ 461 (1,746) (1,503)
General corporate and other.......... (75,045) (51,604) (27,569)
---------- ---------- --------
Totals............................. $ 126,751 $ 57,385 $ 89,224
========== ========== ========

<CAPTION>
August 31,
--------------------------------
<S> <C> <C> <C>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Assets:
North America........................ $ 715,609 $ 688,113 $430,838
Europe............................... 821,048 390,588 125,874
Japan and Asia Pacific............... 20,206 24,412 33,669
Latin America........................ 4,779 7,590 10,027
General corporate and other.......... 63,204 64,019 49,138
---------- ---------- --------
Totals............................. $1,624,846 $1,174,722 $649,546
========== ========== ========
</TABLE>

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

No single customer accounted for more than 5% of total net sales in 1999,
1998 or 1997. Export sales from domestic operations were less than 3% of total
net sales in each of the periods presented.

52
<PAGE>

APPLIED POWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

Note M--Contingencies and Litigation

The Company had outstanding letters of credit totaling $1.9 million and
$6.6 million at August 31, 1999 and 1998, respectively. The letters of credit
generally serve as collateral for liabilities included in the Consolidated
Balance Sheet.

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, patent claims and commission
disputes. The Company has recorded reserves for loss contingencies based on
the specific circumstances of each case. Such reserves are recorded when it is
probable that a loss has been incurred as of the balance sheet date and such
loss 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, results of operations or cash flows.

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 benefits.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental remediation is probable and the costs can be
reasonably estimated. Environmental expenditures over the last three years
have not been material. 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
adverse effect on the Company's financial position, results of operations or
cash flows. Environmental remediation accruals of $3.1 million and $4.0
million were included in the Consolidated Balance Sheet at August 31, 1999 and
1998, respectively.

Note N--Subsequent Events

SUPPLEMENTARY DATA

Unaudited quarterly financial data for the Company for 1999 and 1998 is
included in Item 8--"Financial Statements and Supplementary Data."

53
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Directors of Applied Power Inc.:

Our audits of the consolidated financial statements referred to in our
report dated September 29, 1999 appearing on page 26 of this Form 10-K also
included an audit of the information as of and for the years ended August 31,
1999 and 1998, respectively, set forth in the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein as of and for the years ended August 31, 1999 and 1998 when
read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
September 29, 1999

54
<PAGE>

APPLIED POWER INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
Additions Deductions
------------------- -----------
Effect Accounts
Balance at of Charged to Written Off Balance
Beginning Excluded Costs and Net Less at End
Description of Period Activity Expenses Acquired Recoveries Other of Period
----------- ---------- -------- ---------- -------- ----------- ----- ---------

Deduct from assets to
Which they apply:

<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for losses--
trade accounts
receivable
August 31, 1999......... $ 6,758 $-- $ 1,796 $1,254 $ 2,208 $ 7 $ 7,607
======= ==== ======= ====== ======= ===== =======
August 31, 1998......... $ 4,936 $ 74 $ 3,018 $ 722 $ 1,485 $(507) $ 6,758
======= ==== ======= ====== ======= ===== =======
August 31, 1997......... $ 4,938 $-- $ 1,797 $ 133 $ 1,623 $(309) $ 4,936
======= ==== ======= ====== ======= ===== =======
Allowance for losses--
Inventory
August 31, 1999......... $41,268 $-- $ 6,434 $1,609 $27,878 $(191) $21,242
======= ==== ======= ====== ======= ===== =======
August 31, 1998......... $13,741 $415 $31,118 $5,612 $ 9,004 $(614) $41,268
======= ==== ======= ====== ======= ===== =======
August 31, 1997......... $12,164 $-- $ 7,676 $ 465 $ 6,120 $(444) $13,741
======= ==== ======= ====== ======= ===== =======
</TABLE>

55
<PAGE>

SIGNATURES

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

Applied Power Inc.
(Registrant)

Dated: December 6, 1999
/s/ Robert C. Arzbaecher
By: _________________________________
Robert C. Arzbaecher
Senior 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.*

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ Richard G. Sim Chairman of the Board, President and Chief
___________________________________________ Executive Officer; Director
Richard G. Sim

/s/ Robert C. Arzbaecher Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial and
Robert C. Arzbaecher Accounting Officer)

/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
</TABLE>
- --------
*Each of the above signatures is affixed as of December 6, 1999.

56
<PAGE>

APPLIED POWER INC.
(the "Registrant")
(Commission File No. 1-11288)

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
------- ------------------------------------ ------------------------------------------ --------
<C> <S> <C> <C>
2.1 Agreement and Plan of Merger, dated Exhibit (c)(1) to the Registrant's
as of September 2, 1997, among Tender Offer Statement on Schedule
Applied Power Inc., TVPA Corp. and 14D-1 filed on September 5, 1997 (File No.
Versa Technologies, Inc. 5-13342)

2.2 (a) Agreement and Plan of Merger, Appendix A to the Joint Proxy
dated as of April 6, 1998, by and Statement/Prospectus contained in
among Applied Power Inc., ZERO the Registrant's Registration Statement
Corporation and STB Acquisition on Form S-4 (File No. 333-58267)
Corporation

(b) Certified copy of Certificate of Exhibit 2.2 to the Registrant's
Merger of STB Acquisition Form 8-K dated July 31, 1998
Corporation with and into ZERO
Corporation, dated July 31, 1998

3.1 Restated Articles of Incorporation Exhibit 4.1 to the Registrant's
of the Registrant (dated as of Registration Statement on Form S-8
February 13, 1998) (File No. 333-46469)

3.2 Amended and Restated Bylaws of the Exhibit 3.2 to the Registrant's Form 10-K
Registrant (effective as of January for the fiscal year
8, 1997) ended August 31, 1997
("1997 10-K")

4 +

4.1 Articles III, IV and V the Restated See Exhibit 3.1 above
Articles of Incorporation

4.2 Agreement for Purchase and Sale, Exhibit 19.2(a)-(g) to the Registrant's
dated August 29, 1990, between Form 10-Q for quarter ended May 31, 1991
Minnesota Mining and 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
</TABLE>

- --------
+ 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.

57
<PAGE>

<TABLE>
<CAPTION>
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- ------------------------------------ -------------------------------------------- --------
<S> <C> <C> <C>
4.3 (a) Indenture for Debt Securities of Exhibit 4.1 to the Registrant's Current
Applied Power Inc. dated as of April Report on Form 8-K dated as of April 1, 1999
1, 1999 (the "Indenture"). ("4/1/99 8-K")

(b) Securities Resolution No. 1 Exhibit 4.2 to the 4/1/99 8-K
pursuant to the Indenture relating
to the 8.75% Senior Subordinated
Notes due 2009.

4.4 (a) Multicurrency Credit Agreement, Exhibit 4.4 to the Registrant's Form 10-K
dated as of October 14, 1998, among for the fiscal year ended August 31, 1998
Applied Power Inc. and Enerpac B.V., ("1998 10-K")
as Borrowers, various financial
institutions from time to time party
thereto, as Lenders, The First
National Bank of Chicago, as
Syndication Agent, Societe Generale,
as Documentation Agent, and Bank of
America National Trust and Savings
Association, as Administrative
Agent, arranged by NationsBanc
Montgomery Securities LLC

(b) Form of Consent to Multicurrency Exhibit 4.1(b) to the Registrant's Form 10-Q
Credit Agreement, dated as of for the quarter ended February 28, 1999
October 14, 1998, effective February
3, 1999

4.5 (a) Receivables Purchase Agreement, Exhibit 4.1 to the Registrant's Form 10-Q
dated as of November 20, 1997, among for quarter ended November 30, 1997
Applied Power Credit Corporation as
Seller, Applied Power Inc.
individually and as Servicer and
Barton Capital Corporation as
Purchaser and Societe Generale as
Agent

(b) First Amendment to Receivables Exhibit 4.5(b) to 1998 10-K
Purchase Agreement dated as of
August 28, 1998

(c) Second Amendment to Receivables Exhibit 4.2(c) to the Registrant's Form 10-Q
Purchase Agreement dated as of for quarter ended November 30, 1998
December 18, 1998

10.1* Employment Agreement dated May 9, Exhibit 10.1 to the Registrant's Form
1994 between Applied Power Inc. and 10-K for fiscal year ended August 31, 1994
Richard G. Sim (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 Form
Option Plan adopted by Board of 10-K for fiscal year ended August 31, 1989
Directors on August 1, 1985 and ("1989 10-K")
approved by shareholders on January
6, 1986, as amended ("1985 Plan")
</TABLE>

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

58
<PAGE>

<TABLE>
<CAPTION>
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- ------------------------------------ ------------------------------------------ --------
<S> <C> <C> <C>
(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 Registrant's
by Board of Directors on August 9, Form 10-K for fiscal year
1990 ended August 31, 1990
("1990 10-K")

(d) Amendment to 1985 Plan adopted Exhibit 10.2(d) to 1997 10-K
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
adopted by Board of Directors on ended August 31, 1987
November 3, 1987 and approved by
shareholders on January 7, 1988
("1987 Plan")

(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

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,
Directors on August 9, 1990 and 1990 for 1991 Annual Meeting of
approved by shareholders on January Shareholders
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
1992 and approved by shareholders on ended August 31, 1992
January 7, 1993

10.5* Description of Fiscal 1999 Exhibit 10.1 to the Registrant's Form 10-Q
Management Bonus Arrangements for the quarter ended November 30, 1998

10.6* Description of Fiscal 1998 Exhibit 10.6 to 1997 10-K
Management Bonus Arrangements

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

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

59
<PAGE>

<TABLE>
<CAPTION>
Filed
Exhibit Description Incorporated Herein By Reference To Herewith
- ------- ------------------------------------ ----------------------------------- --------
<S> <C> <C> <C>
(b) Amendment to 1989 Plan adopted Exhibit 10.7(b) to 1990 10-K
by Board of Directors on November 9,
1990 and approved by shareholders on
January 7, 1991

(c) Amendment to 1989 Plan adopted Exhibit 10.7(c) to the Registrant's
by Board of Directors on October 31, Form 10-K for fiscal year
1996 ended August 31, 1996
("1996 10-K")

10.8* Outside Directors' Deferred Exhibit 10.8 to the Registrant's
Compensation Plan adopted by Board Form 10-K for fiscal year
of Directors on May 4, 1995 ended August 31, 1995

10.9* (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,
proposed for shareholder approval on 1996 for 1997 Annual Meeting
January 8, 1997 of Shareholders

(b) Amendment to 1996 Stock Plan Exhibit 10.10(b) to 1997 10-K
adopted by Board of Directors on May
8, 1997

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

21 Subsidiaries of the Registrant X

23.1 Consent of Deloitte & Touche LLP X

23.2 Consent of PricewaterhouseCoopers
LLP X

24 Power of Attorney See Signature Page of this report

27.1 Financial Data Schedule X
</TABLE>

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

<PAGE>

Exhibit 21
EXISTING SUBSIDIARIES
---------------------

The following table sets forth the name and jurisdiction of incorporation of the
Registrant's subsidiaries. All subsidiaries are 100% owned except as noted.
<TABLE>
<CAPTION>

Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
UNITED STATES:

Air Cargo Equipment Corporation Delaware
Airspeed LLC North Carolina
Ancor Products, Inc. California
Applied Power Credit Corporation Nevada
Applied Power International Ltd. Nevada
Applied Power Investments II Inc. Nevada
APW Enclosure Systems, Inc. Delaware
APW Enclosure Systems, LLC Delaware
APW Enclosure Systems, LP Delaware
APW Investments, Inc. Nevada
APW Tools and Supplies, Inc. Wisconsin
Aspen Motion Technologies, Inc. North Carolina
Barry Controls Corporation Delaware
Barry Wright Corporation Massachusetts
Calterm Taiwan, Inc. Nevada
Cambridge Aeroflo, Inc. Massachusetts
Columbus Manufacturing Company L.L.C. Wisconsin
DCW Holding, Inc. Oklahoma
Del City Wire, Inc. Oklahoma
Eder Industries, Inc. Wisconsin
Electronic Solutions Nevada
HSP USA Inc. North Carolina
Innovative Metal Fabrication California
McLean Midwest Corporation Minnesota
McLean West Inc. California
Milwaukee Cylinder Company Wisconsin
Mox-Med, Inc. Wisconsin
New England Controls, Inc. Connecticut
Nielsen Hardware Corporation Connecticut
Precision Fabrication Technologies, Inc. Indiana
Rubicon USA Inc. Delaware
VERO Electronics Inc. New York
Versa Technologies, Inc. Delaware
WL International, Inc. Delaware
Wright Line Inc. Massachusetts
ZERO Corporation Delaware
ZERO Enclosures, Inc. California
ZERO International, Inc. California
ZERO-East Division, ZERO Corporation Massachusets
</TABLE>
<PAGE>

OUTSIDE THE UNITED STATES:
<TABLE>
<CAPTION>

<S> <C>
AIC (Hong Kong) Ltd. (49%) Hong Kong
Air Cargo Equipment United Kingdom
AP International Corporation Barbados
Applied Power Distribution GmbH Germany
Applied Power Asia Pte, Ltd. Singapore
Applied Power Australia Limited Australia
Applied Power Canada Ltd. Ontario, Canada
Applied Power do Brasil Equipamente Ltda. Brazil
Applied Power Europa B.V. Netherlands
Applied Power Europe S.A. France
Applied Power Export Corp. U.S. Virgin Islands
Applied Power (Far East) Ltd. Japan
Applied Power Finance B.V. Netherlands
Applied Power GmbH Germany
Applied Power Holding GmbH Germany
Applied Power Hytec (M) Sdn. Bhd. Malaysia
Applied Power International, S.A. France
Applied Power International, S.A. Switzerland
Applied Power Italiana S.p.A. Italy
Applied Power Japan Ltd. Japan
Applied Power Korea Ltd. South Korea
Applied Power Limited United Kingdom
Applied Power (Mexico) S. de R.L. de C.V. Mexico
Applied Power Moscow CIS
Applied Power New Zealand Limited New Zealand
APW Enclosures Ltd. Ireland
APW Finance Limited United Kingdom
APW Enclosure Products and Systems Limited (was APW Enclosures Limited) United Kingdom
APW Enclosure Systems Holdings Limited (was APW Enclosure Systems Limited) United Kingdom
APW Enclosure Systems Limited (Rubicon) United Kingdom
Barry Controls GmbH Germany
Barry Controls U.K. Ltd. United Kingdom
C-Fab Manufacturing Ltd. Ireland
C-Fab Developments Ltd. Ireland
Danica Supply A/S Denmark
Danica Supply UK Limited England
Enerpac Asia Pte. Ltd. Singapore
Enerpac Canada Ltd. Canada
Enerpac Nederland B.V. Netherlands
Enerpac Hydraulic Technology (India) Pte. Ltd. India
Enerpac Ltd. United Kingdom
Enerpac S.A. France
Hormann Electronics Ltd. Ireland
Norelem S.A. France
Power-Packer do Brasil Ltd. Brazil
Power-Packer Espana, S.A. Spain
Power-Packer Europa B.V. Netherlands
Power-Packer France S.A. France
Productos Aereos, S.A. Mexico
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Samuel Groves & Co. Limited United Kingdom
Shanghai Blackhawk Machinery Co. Ltd. China
VERO Electronics AB Sweden
VERO Electronics GmbH Germany
VERO Electronics Limited England
VERO Electronics Overseas Investments Limited England
VERO Electronics SA France
VERO Electronics SrL Italy
Wright Line Europe, B.V. Netherlands
ZERO FSC Corp. U.S. Virgin Islands
ZERO McLean Europe Ltd. United Kingdom
</TABLE>

<PAGE>

INDEPENDENT AUDITORS' CONSENT Exhibit 23.1
(1999 10-K)

We consent to the incorporation by reference in the following Registration
Statements of Applied Power Inc. of our report dated September 25, 1997
(November 24, 1999 as to the restatement for the 1998 pooling of interests
described in Notes A and B), appearing in the Annual Report on Form 10-K of
Applied Power Inc. for the year ended August 31, 1999: Form S-8 Nos. 33-18140,
33-21250, 33-24197, 33-38719, 33-38720, 33-62658, 333-42353, 333-46469,
333-61279, 333-61281, 333-61389 and Form S-3 No. 333-47493.

DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
December 6, 1999

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.2
(1999 10-K)

We consent to the incorporation by reference in Registration Statements of
Applied Power Inc. on Form S-3 No. 333-47493, Form S-8 Nos. 33-18140, 33-21250,
33-24197, 33-38719, 33-38720, 33-62658, 333-42353, 333-46469, 333-61279, 333-
61281 and 333-61389 of our report dated September 29, 1999, appearing in this
Annual Report on Form 10-K of Applied Power Inc. for the year ended August 31,
1999.

PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
December 6, 1999

<PAGE>

<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the audited financial statements of Applied Power Inc. for the year ended August
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 22,258
<SECURITIES> 0
<RECEIVABLES> 157,132
<ALLOWANCES> 7,607
<INVENTORY> 207,518
<CURRENT-ASSETS> 409,036
<PP&E> 549,112
<DEPRECIATION> 275,210
<TOTAL-ASSETS> 1,624,846
<CURRENT-LIABILITIES> 323,665
<BONDS> 808,438
0
0
<COMMON> 7,796
<OTHER-SE> 410,033
<TOTAL-LIABILITY-AND-EQUITY> 1,624,846
<SALES> 1,751,042
<TOTAL-REVENUES> 1,751,042
<CGS> 1,206,605
<TOTAL-COSTS> 1,206,605
<OTHER-EXPENSES> 7,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,888
<INCOME-PRETAX> 126,751
<INCOME-TAX> 47,354
<INCOME-CONTINUING> 79,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,397
<EPS-BASIC> 2.04
<EPS-DILUTED> 1.98

</TABLE>