FIVE-YEAR FINANCIAL HISTORY
For the Years Ended on the Friday Nearest December 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>


                                                                     1996        1995         1994        1993        1992
                                                               ----------- ----------- ------------ ----------- -----------
RESULTS OF OPERATIONS
<S>                                                              <C>         <C>          <C>         <C>         <C>
Sales                                                            $222,485    $191,378     $154,800    $123,790    $114,799
Income from continuing operations                                  19,578      14,117        6,059         597       2,002
     Per share                                                       0.80        0.61         0.29        0.03        0.10
Net income                                                         19,578      13,720        6,059       2,867       2,676
     Per share                                                       0.80        0.59         0.29        0.14        0.13

FINANCIAL POSITION

Working capital                                                  $ 61,085    $ 51,992     $ 40,346    $ 31,122    $ 29,524
Property, plant & equipment, net                                   30,204      27,715       26,238      24,017      23,949
Total assets                                                      153,841     136,491      114,396     101,436     102,662
Total debt                                                         27,563      32,568       42,571      39,713      42,900
Shareholders' equity                                               84,019      61,522       39,958      32,802      30,806
Total capital                                                     111,582      94,090       82,529      72,515      73,706

FINANCIAL STATISTICS

Selling, general and administrative expenses                     $ 35,728    $ 34,197     $ 33,687    $ 32,030    $ 35,093
   - as a % of sales                                                16.1%       17.9%        21.8%       25.9%       30.6%
Research and development expenses                                  17,714      16,125       10,905       9,412       8,959
   - as a % of sales                                                 8.0%        8.4%         7.0%        7.6%        7.8%
Operating income                                                   28,937      21,757       12,478       3,900       6,908
   - as a % of sales                                                13.0%       11.4%         8.1%        3.2%        6.0%
Total debt as a % of total capital                                    25%         35%          52%         55%         58%
Debt to equity ratio                                                  33%         53%         107%        121%        139%
Interest coverage ratio                                              10.7        7.03         3.44        1.27        1.81

OTHER DATA

Capital expenditures                                             $  7,016    $  7,381     $  5,608    $  3,411    $  8,055
Provision for depreciation and amortization                      $  6,649    $  5,252     $  5,057    $  4,817    $  4,375
Common shares outstanding (000's)                                  23,850      23,053       20,303      20,141      19,973
Common shareholders                                                10,676       6,700        5,900       7,300       7,500
Employees                                                           1,557       1,629        1,600       1,547       1,470
Temporary employees and contractors                                 1,375       1,273          779         532         459
</TABLE>




<PAGE>



--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
-------------------------------------------------------------------------------

BUSINESS ENVIRONMENT AND RISK FACTORS

The following  discussion  should be read in conjunction  with the  consolidated
financial  statements and related notes as well as the section under the heading
"Risk Factors that May Affect Future  Results." With the exception of historical
information,   the  matters   discussed   below  may  include   "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995 that  involve  risks and  uncertainties.  The Company  wishes to caution
readers that a number of important  factors,  including those  identified in the
section  entitled  "Risk  Factors  that May Affect  Future  Results"  as well as
factors  discussed in the Company's  other reports filed with the Securities and
Exchange Commission, could affect the Company's actual results and cause them to
differ materially from those in the forward-looking statements.

RESULTS OF OPERATIONS

Operating  performance in 1996 showed  consistent growth as record net income of
$19.6  million,  or $0.80 per share,  exceeded the $13.7  million,  or $0.59 per
share,  achieved in 1995 as a result of increased  sales and  operating  expense
efficiencies.  Operating  income  increased to $28.9  million,  or 13% of sales,
compared to $21.8 million, or 11% a year ago, with total operating expenses as a
percentage  of  sales  decreasing  from  26%  to  24%.   Selling,   general  and
administrative  expenses  decreased  from  18% a year  ago  to  16%,  while  the
Company's  research and  development  spending  increased 10% in dollar terms to
support new products for the communications industry.

The following  table  summarizes  the  Company's  sales  performance  by product
category ($000s):
<TABLE>

<CAPTION>
                                    1996          1995          1994
                            ------------- ------------- -------------
<S>                             <C>           <C>           <C>
Power Conversion                $188,610      $155,426      $117,995
Computer Systems                  18,953        19,026        18,198
Industrial Automation             14,922        16,926        18,607
                            ------------- ------------- -------------

Total                           $222,485      $191,378      $154,800
                            ============= ============= =============
</TABLE>

During 1996,  the Company  acquired all of the  outstanding  stock of Jeta Power
Systems, Inc. ("Jeta"), a California-based  manufacturer of medium-to-high power
systems   in  the   400-watt   to   4-kilowatt   range   for   applications   in
telecommunications,   networking,  computing  and  instrumentation  markets.  In
addition to using current distribution  channels to offer Jeta's products to the
existing customer base, the Company believes the acquisition  provides it with a
new  opportunity  to  participate in the high power  communications  market.  In
addition,  the acquisition  expands the Company's  North American  manufacturing
capacity and adds high power technology to its engineering capabilities.

During 1996, a subsidiary of the Company  entered into a long term private label
agreement  with Alcatel  Telecom,  a division of France's  Alcatel  Alsthom.  In
addition,  the Company  entered  into a technology  transfer and patent  license
agreement with Yamabishi Electric Company of Japan.

Under the  terms of the  Alcatel  agreement,  the  Company  will  provide  power
products  which allow Alcatel  Converters  to use the  Company's  modules in the
design of communication systems based on both Distributed Power Architecture and
Modular  Centralized  Systems.  Based on discussions  with Alcatel,  the Company
anticipates  that its sales  volume  associated  with the  agreement  will range
between $10 million and $20 million  beginning in 1997.  The  agreement  further
provides for the granting of a  manufacturing  license by the Company to Alcatel
Converters and the possible exchange of technology between the two companies.

Under the terms of the Yamabishi agreement, Yamabishi will license the Company's
patented Zero Voltage Switching and Power Factor  Correction  technology for use
in designing  and  manufacturing  its own range of AC to DC power  supplies,  AC
stabilizers  and AC to AC converters.  The Company  believes that this agreement
will provide an important new entry into the Japanese market.

1996 COMPARED TO 1995

Sales  increased  from $191.4 million in 1995 to $222.5 million in 1996. The 16%
growth  resulted  primarily  from  a  $33.2  million  (21%)  increase  in  Power
Conversion sales,  including sales  attributable to Jeta,  partially offset by a
decrease of $2.0 million (12%) in Industrial  Automation sales. Computer Systems
sales  remained  level with 1995 as this division  continues to  transition  its
focus to the  communications  industry.  At January 3, 1997,  order  backlog was
$46.5  million  compared  to  $52.1  million  at the end of  fiscal  1995 due to
customers'  realignment  of  inventory  levels  and  reduced  lead  times as the
component shortages experienced in 1995 in the electronics industry eased during
1996.

Power  Conversion  sales  increased  over 1995 as a result  of new OEM  customer
programs  in  networking  and  telecommunications  product  applications.  Sales
attributable to Jeta were  approximately  $4.0 million.  The Company's  European
Power Conversion business recorded a 23% increase in sales from $46.4 million in
1995 to $57.1  million in 1996.  Likewise,  sales to  customers  in Asia and the
Pacific Rim  increased  275% from $5.7 million in 1995 to $21.3  million in 1996
mainly  due  to  the  award  of a  significant  OEM  program.  The  increase  in
international  sales was the result of the wide range of the  Company's  product
offerings,  its continued  international expansion and the increase of worldwide
service and support  programs.  In 1997, the Company expects continued growth in
Power Conversion and may consider  acquisition and partnership  opportunities to
increase market share and expand product range.

Although  Computer Systems sales remained level with 1995,  inroads were made in
the  communications  market as this division  continues to  transition  from the
computer industry to the communications  sector. Similar to the Power Conversion
division,   Computer  System  has   concentrated  its  marketing  focus  on  the
high-growth    communications    industry,   where   it   provides   networking,
telecommunications  and  video-on-demand  solutions  for a variety of customers,
including  OEMs.  With its initiative to develop new products aimed at customers
in the communications  industry,  this division is expected to gradually improve
its performance.

Industrial  Automation  sales  decreased  12% from  1995  due to lower  sales to
nuclear utility customers and slower than expected penetration of the industrial
market.  With a shift in focus from the utility to the industrial  market,  this
division  has  been  concentrating  on  developing  new  products,   outsourcing
sub-assembly production to reduce manufacturing costs, and hiring and training a
new sales  force  targeted  at the  industrial  sector.  All these  factors  are
expected to contribute to improved performance in 1997.

Gross profit in 1996 increased by $10.3 million compared to 1995 on higher sales
volume while gross margin  decreased to 37% of sales in 1996 from 37.7% in 1995.
Gross margin was affected  primarily by the continued  shift in sales mix to the
Company's high-volume,  lower-margin OEM customers.  Margins were also adversely
impacted by start-up costs for a significant number of new product introductions
and  weakened  demand  from  the  higher-margin   distribution  channel,   which
experienced  slow  inventory  turnover  during the year.  Although  the  Company
continues  to  focus on  reducing  manufacturing  costs  and  improving  overall
processes,  the Company does not  anticipate  that gross  margins will  increase
significantly from 1996 levels due to continuing  competitive  pricing pressures
and changes in product mix, especially as more OEM programs are awarded.

Operating  expenses  declined to approximately 24% of sales in 1996 from the 26%
reported  a year ago.  Operating  income  rose to 13% of sales from 11% in 1995,
despite the increase in research and development expenses.

Selling,  general and  administrative  expenses in 1996 declined to 16% of sales
versus 18% a year ago due to higher sales volume and  efficiencies  generated by
information  systems  implementation  and by continued  management focus on cost
reduction.  Sales and  marketing  expenses  increased  $1.5 million or 7% due to
commission  expense  resulting  from higher sales levels,  additional  marketing
programs to support the launch of new products, entry into new markets worldwide
and expansion of  distribution  channels.  General and  administrative  spending
remained  level  compared  to 1995 as the  Company  continues  to  focus on cost
reduction activities.  As a percentage of sales, such expenses decreased to 5.7%
from 6.6% in 1995.  The  Company  intends  to  continue  to  invest  significant
resources  to expand its  presence  in Asia  Pacific  and  Europe;  accordingly,
selling  expenses  are  expected to  increase in absolute  dollars in 1997 while
general and  administrative  expenses should continue to decline as a percentage
of sales.

Research and  development  (R&D)  expenses in 1996 increased $1.6 million or 10%
from the prior year. The higher expense level was primarily  attributable to the
cost of developing new products consistent with the Company's ongoing commitment
to  develop  and  produce  high-quality,  innovative  products  targeted  at the
communications  industry. As a percentage of sales, R&D expenses were 8% in 1996
versus 8.4% in 1995. The Company  believes that the timely  introduction  of new
technology and products is an important  component of its  competitive  strategy
and  anticipates  future R&D  spending  will not  significantly  differ from the
historical trend as a percentage of sales of approximately 8%.

Fiscal 1996 net income was  unfavorably  impacted by foreign  currency  exchange
losses of  $825,000  compared  to  $13,000 in fiscal  1995.  The  exchange  loss
resulted  from the  unexpected  strengthening  of the Irish punt  against  other
European currencies and the US dollar. The Company maintains  significant assets
and  operations in Europe and Asia and, as a result,  its financial  performance
could be  significantly  affected by foreign  currency  gains and  losses.  As a
result of its  procurement  of  products  and sales in foreign  currencies,  the
Company  may be exposed  to cost  increases  relative  to local  currencies.  To
mitigate potential adverse trends, the Company's  operating strategy and pricing
take into account changes in exchange rates over time. The Company also utilizes
foreign  currency  forward  contracts to minimize  its  exposure to  potentially
adverse changes in foreign currency exchange rates on anticipated but not firmly
committed purchases or sales made by its international subsidiaries.

Provision for income taxes decreased to 26% of pretax income in 1996 from 28% in
1995.  The  effective  tax rate for 1996  decreased  primarily  as a result of a
reduction in the valuation  allowance  from  utilization of deferred tax assets.
For additional  information  regarding income taxes, refer to pages 26 and 27 of
the Notes to Consolidated Financial Statements.

1995 COMPARED TO 1994

Sales  increased  by 24% in 1995 and order  backlog  increased by 41% from $37.0
million at December 30, 1994 to $52.1  million at December 29, 1995.  The growth
resulted  from a $37.4 million (32%) sales  increase in Power  Conversion  and a
$0.8  million  (5%)  increase in Computer  Systems  offset by a decrease of $1.7
million (9%) in Industrial Automation.

Power  Conversion  sales  increased over 1994 primarily due to continued  strong
worldwide  growth in both direct and  indirect  sales  channels.  The  Company's
European Power  Conversion  business  recorded a 33% increase in sales over 1994
while North American sales increased 28% over the prior year. These improvements
resulted from the  Company's  efforts in  developing  new and existing  customer
partnerships   in  high-growth   market   sectors   within  the   communications
marketplace,  introducing new products and expanding its distribution  channels.
Sales to  customers in Asia and the Pacific Rim  increased  110% to $5.7 million
due to increased  demand from  customers in China,  the Company's  largest Asian
marketplace.

Computer Systems sales increased by 5% over 1994 on increased demand for several
newly released  products from both new and  established OEM customers in product
applications such as video-on-demand, machine vision and voice messaging.

Industrial Automation sales decreased 9% from 1994 due to lower sales to nuclear
utility  customers.  The business has been adversely affected in recent years by
the cyclical nature of utility customer demand.

The  strong  growth in the  Power  Conversion  business  required  expansion  of
production capabilities and, to address this requirement,  the Company increased
its  manufacturing  presence in China by  contracting  additional  workforce and
investing in plant and equipment.  Likewise,  to service the  increasing  demand
from European customers, the Company completed a $7.0 million capital investment
program to acquire  manufacturing plant and equipment in the Republic of Ireland
providing the European business with advanced surface mount technology.

Gross profit in 1995 increased by $15.0 million compared to 1994 on higher sales
volume  while  gross  margin  increased  to 37.7% of sales in 1995 from 36.9% in
1994.  This  performance   improvement   resulted  from  the  Company's  ongoing
commitment  to  reduce   manufacturing   costs  and  implement  overall  process
improvements  and the favorable effect of higher volumes on fixed cost per unit.
These  factors were  sufficient  to overcome  price  increases  paid for certain
components that were in short supply industry wide and an increasing  proportion
of sales to OEM customers at lower overall margins.

Operating  expenses  declined to approximately 26% of sales in 1995 from the 29%
reported  in 1994.  Operating  income  rose to 11.4% of sales from 8.0% in 1994,
despite the increase in research and development expenses.

Selling,  general and  administrative  expenses in 1995 declined to 18% of sales
versus 22% in 1994,  resulting  from the  significantly  higher sales volume and
efficiencies  generated by information systems investment and greater management
focus on reducing total enterprise cost-per-product.

Research and development  expenses increased $5.2 million (48%) compared to 1994
as the Company invested in new product  platforms to service the  communications
marketplace.  As  a  result  of  the  Company's  increased  product  development
activities, six new families of products were introduced in 1995.

Net  interest  cost  decreased  to $2.1  million  from $3.2 million in 1994 as a
result of higher cash balances and interest  rates and from lower debt after the
redemption of the Company's debentures.

Provision for income taxes decreased to 28% of pretax income in 1995 from 34% in
1994.  The  effective  tax rate for 1995  decreased  primarily  as a result of a
reduction in the valuation  allowance  resulting  from  utilization  of tax loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

At January 3, 1997, the Company's cash position remained strong at $26.1 million
despite  significant  uses of  cash  for an  acquisition  and  accelerated  debt
repayments. These transactions included the acquisition of Jeta for $9.6 million
(net of cash  acquired - see Note 5), the  repayment of  long-term  debt of $5.2
million --  including  the early  repayment  of $3.1  million  remaining  on the
mortgage on the Asia-Pacific  facility--and  repurchases of the Company's common
stock for $2.0 million.  These  activities were funded with cash from operations
and proceeds from exercises of stock options.

Cash  provided from  operations  increased to $19.9 million in 1996 versus $17.3
million in 1995 and $12.7  million in 1994.  The  increase in 1996 is mainly the
result of higher net income partially offset by increases in accounts receivable
and inventory.

Accounts  receivable  increased  34%  from  1995 to 1996  due to  sales  growth,
including the continued  expansion in  international  operations  that typically
have longer  collections  cycles.  Days sales outstanding in receivables were 58
days at January 3, 1997  compared to 51 days at December 29, 1995.  The increase
in inventory  levels was primarily  attributable to production  planning to meet
manufacturing lead times and anticipated demand for new product introductions.

The Company  has a $20 million  revolving  line of credit that  extends  through
April 1, 1998. As of January 3, 1997,  the Company had made no borrowings  under
the line of credit and was in compliance with the agreement's covenants.

The Company  used $16.5  million,  $4.8  million and $5.1  million in  investing
activities  in  fiscal  1996,  1995 and 1994,  respectively.  The use of cash in
fiscal 1996 was due mainly to the  acquisition  of Jeta for $9.6 million (net of
cash  acquired)  and to purchases of property,  plant and equipment in line with
the continued upgrading of the Company's overseas manufacturing facilities.  The
Company  expects to fund  additional  capital  expenditures  consistent with the
expansion  of  manufacturing  capacity in the European  and  Asia-Pacific  Power
Conversion  divisions.  The major investing  activities for fiscal 1995 and 1994
were attributable to capital additions to support business operations.

The Company used $4.0 million and $6.2 million in financing activities in fiscal
1996 and 1995,  respectively.  In 1996,  cash was used for the repurchase of the
Company's  common stock and for the  repayment of long-term  debt.  Cash used in
1995 related to the repurchase of $24.3 million of the Company's Debentures, the
repurchase of 1,138,000  shares of the Company's common stock and long-term debt
principal  payments  partially  offset  by  the  issuance  of  the  $25  million
seven-year  term  loan,  net of  debt  issuance  costs,  and the  proceeds  from
exercises of stock options.  Financing  activities provided $2.1 million in 1994
from the  issuance of a $3.6  million  mortgage  loan  partially  reduced by the
repurchase of $520,000 of Debentures and by long-term debt principal payments.

During the first quarter of 1996, the Company repurchased and retired a total of
197,000  shares of its common stock  pursuant to a share buy-back plan announced
in May 1995. No additional  repurchases  have been made since then. To date, the
Company has  repurchased  and retired a total of 1,335,000  shares of its common
stock of the 2,000,000 originally authorized in the buy-back plan.

Based on current plans and business  conditions,  the Company  believes that its
cash and equivalents, its available credit line, cash generated from operations,
and other  financing  activities  are  expected to be  adequate to meet  capital
expenditures,  working capital  requirements,  debt obligations  outstanding and
operating lease commitments through fiscal 1997.

<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands Except Per Share Data)
<TABLE>

<CAPTION>
                                                                                            1996            1995           1994
                                                                                     ------------    ------------    -----------
<S>                                                                                   <C>             <C>             <C>
Sales                                                                                 $222,485        $191,378        $154,800

Cost of Sales                                                                          140,106         119,299          97,730
                                                                                     ------------    ------------    -----------
Gross Profit                                                                            82,379          72,079          57,070
                                                                                     ------------    ------------    -----------

Expenses
   Selling, general and administrative                                                  35,728          34,197          33,687
   Research and development                                                             17,714          16,125          10,905
                                                                                     ------------    ------------    -----------
                                                                                        53,442          50,322          44,592
                                                                                     ------------    ------------    -----------
Operating Income                                                                        28,937          21,757          12,478
                                                                                     ------------    ------------    -----------
Other Income (Expense)
   Interest expense                                                                     (2,734)         (3,253)         (3,760)
   Interest income                                                                       1,079           1,116             522
   Foreign exchange loss                                                                  (825)            (13)            (60)
                                                                                     ------------    ------------    -----------
                                                                                        (2,480)         (2,150)         (3,298)
                                                                                     ------------    ------------    -----------
Income before Income Taxes and Extraordinary Item                                       26,457          19,607           9,180

Provision for Income Taxes                                                               6,879           5,490           3,121
                                                                                     ------------    ------------    -----------
Income before Extraordinary Item                                                        19,578          14,117           6,059

Extraordinary Item                                                                                        (397)
                                                                                     ------------    ------------    -----------
Net Income                                                                           $  19,578       $  13,720       $   6,059
                                                                                     ============    ============    ===========
Earnings per Common and Common Equivalent Share
Primary-
   Income before extraordinary item                                                  $    0.80       $    0.61       $    0.29
   Extraordinary item                                                                                    (0.02)
                                                                                     ------------    ------------    -----------
   Net income                                                                        $    0.80       $     0.59      $    0.29
                                                                                     ============    ============    ===========
Assuming Full Dilution-
   Income before extraordinary item                                                  $    0.78       $    0.61       $    0.29
   Extraordinary item                                                                                    (0.02)
                                                                                     ------------    ------------    -----------

   Net income                                                                        $    0.78       $    0.59       $    0.29
                                                                                     ============    ============    ===========
Common and Common Equivalent Shares Outstanding
   Primary                                                                              24,517          23,078          20,929
   Fully Diluted                                                                        25,026          24,552          28,584
</TABLE>

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


<PAGE>

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
As of the Friday Nearest December 31 
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
                                                                                           1996               1995
                                                                                     ------------      -------------
ASSETS
Current Assets
<S>                                                                                    <C>               <C>
   Cash and equivalents                                                                $  26,141         $  26,650
   Accounts receivable, net of allowance for doubtful accounts of $1,438 at
    January 3, 1997 and $1,490 at December 29, 1995                                       40,118            29,933
   Inventories                                                                            32,220            31,236
   Prepaid expenses and other                                                              2,061             2,575
   Deferred income taxes, net                                                                965               517
                                                                                      ------------      -------------
     Total current assets                                                                101,505            90,911
                                                                                      ------------      -------------
Property, Plant & Equipment, Net                                                          30,204            27,715
                                                                                      ------------      -------------
Other Assets
   Goodwill, net                                                                          20,022            13,532
   Deferred income taxes, net                                                                863             2,521
   Other assets                                                                            1,247             1,812
                                                                                      ------------      -------------
     Total other assets                                                                   22,132            17,865
                                                                                      ------------      -------------
                                                                                        $153,841          $136,491
                                                                                      ============      =============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
   Current maturities of long-term debt                                                $   4,155         $   2,719
   Accounts payable and accrued liabilities                                               36,265            36,200
                                                                                      ------------      -------------
     Total current liabilities                                                            40,420            38,919
                                                                                      ------------      -------------
Long-Term Liabilities
   Long-term debt                                                                         23,408            29,849
   Lease liabilities                                                                       5,994             6,201
                                                                                      ------------      -------------
     Total long-term liabilities                                                          29,402            36,050
                                                                                      ------------      -------------
     Total liabilities                                                                    69,822            74,969
                                                                                      ------------      -------------
Commitments and Contingencies (see Notes 7, 9 and 11)

Shareholders' Equity
   Preferred stock, par value $.01; 1,000,000 shares authorized;
      none issued
   Common stock, par value $.01; 80,000,000 shares authorized; 23,849,759 shares
     issued and outstanding at January 3, 1997
     (23,052,781 at December 29, 1995)                                                       239               231
   Additional paid-in capital                                                             44,724            40,633
   Retained earnings                                                                      38,783            20,886
   Foreign currency translation adjustment                                                   273              (228)
                                                                                      ------------      -------------
     Total shareholders' equity                                                           84,019            61,522
                                                                                      ------------      -------------
                                                                                        $153,841          $136,491
                                                                                      ============      =============
</TABLE>

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

<PAGE>

<TABLE>

CONSOLIDATED  STATEMENTS OF CASH FLOWS 
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
                                                                                     1996            1995            1994
                                                                              ------------     -----------     -----------
<CAPTION>
OPERATING ACTIVITIES
<S>                                                                               <C>              <C>            <C>
   Net income                                                                     $19,578          $13,720        $  6,059
   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
    activities:
     Depreciation and amortization                                                  6,649            5,252           5,057
     Deferred income taxes                                                            724            2,533           1,872
     Provision for inventory losses                                                 1,542            3,877           3,043
     Other noncash charges                                                           (617)             627             375
   Changes in operating assets and liabilities:
     Increase in accounts receivable                                               (8,350)          (5,302)         (1,423)
     Increase in inventories and prepaid expenses and other, net                     (704)         (15,421)         (4,964)
     Increase in accounts payable and accrued liabilities                           1,077           11,972           2,679
                                                                              ------------     -----------     -----------
Net Cash Provided by Operating Activities                                          19,899           17,258          12,698
                                                                              ------------     -----------     -----------

INVESTING ACTIVITIES
   Purchases of property, plant & equipment                                        (6,922)          (7,381)         (4,686)
   Proceeds from sale of building                                                                    1,524
   Purchase of Jeta Power Systems, Inc., net of cash acquired                      (9,577)
   (Increase) decrease in other assets                                                 (6)           1,103            (433)
                                                                              ------------     -----------     -----------
Net Cash Used in Investing Activities                                             (16,505)          (4,754)         (5,119)
                                                                              ------------     -----------     -----------

FINANCING ACTIVITIES
   Principal payments on debt and leases                                           (5,235)          (1,947)         (1,259)
   Proceeds from exercises of stock options                                         3,284            4,209             253
   Repurchases of common stock                                                     (2,032)          (8,305)
   Issuance of long-term debt                                                                       24,375           3,600
    Repurchase of convertible subordinated debentures                                              (24,505)           (520)
                                                                              ------------     -----------     -----------
Net Cash Provided by (Used in) Financing Activities                                (3,983)          (6,173)          2,074
                                                                              ------------     -----------     -----------
Effect of Exchange Rate Changes on Cash and Equivalents                                80              108             412
                                                                              ------------     -----------     -----------
Increase (Decrease) in Cash and Equivalents                                          (509)           6,439          10,065
Cash and Equivalents, Beginning of Year                                            26,650           20,211          10,146
                                                                              ============     ===========     ===========
Cash and Equivalents, End of Year                                                 $26,141          $26,650         $20,211
                                                                              ============     ===========     ===========

SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for:
     Interest                                                                     $ 2,783          $ 3,274         $ 3,877
     Income taxes                                                                   1,271              878             534

   Noncash investing and financing activities:
     Fair value of assets acquired in connection with Jeta's
       acquisition                                                                 14,055
     Liabilities assumed in connection with Jeta's acquisition                      1,916
     Goodwill reduction from utilization of loss carryforwards                        606              646             795
     Common stock issued from conversion of debentures                                               9,402
     Tax benefit from exercises of stock options                                    1,066            1,945
     Long-term debt incurred to purchase fixed assets                                                                  857

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

<PAGE>

<TABLE>

====================================================================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
====================================================================================================================================
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
<CAPTION>
                                                                                                                         Foreign
                                                                                     Additional                          Currency
                                                            Common Stock              Paid-in            Retained       Translation
                                                      Shares            Amount        Capital            Earnings        Adjustment
                                                    -----------       -----------  -------------       -----------    --------------

<S>                                                    <C>                 <C>       <C>                 <C>              <C>
Balance, December 31, 1993                              20,141              $201       $26,840            $7,462           $(1,701)
   Issuance of common stock                                 42                 1            98
   Issuance of common stock under stock option
    and employee purchase plans                            120                 1           252
   Foreign currency translation adjustment                                                                                     745
   Net income                                                                                              6,059
                                                    -----------       -----------  -------------       -----------    --------------
Balance, December 30, 1994                              20,303               203        27,190            13,521              (956)
   Issuance of common stock                                 33                             100
   Issuance of common stock under stock option
    and employee purchase plans                          1,883                19         3,955
   Tax benefit from exercises of stock options                                           1,945
   Repurchases and retirement of  common stock          (1,138)              (11)       (1,939)           (6,355)
   Conversion of convertible subordinated
     debentures                                          1,972                20         9,382
   Foreign currency translation adjustment                                                                                     728
   Net income                                                                                             13,720
                                                    -----------       ----------- -------------       -----------    --------------
Balance, December 29, 1995                              23,053               231        40,633            20,886              (228)
   Issuance of common stock                                  8                             100
   Issuance of common stock under stock option
     and employee purchase plans                           986                10         3,274
   Tax benefit from exercises of stock options                                           1,066
   Repurchases and retirement of common stock             (197)               (2)         (349)           (1,681)
   Foreign currency translation adjustment                                                                                     501
   Net income                                                                                             19,578
                                                    -----------       -----------  -------------       -----------    --------------
Balance, January 3, 1997                                23,850              $239       $44,724           $38,783            $  273
                                                    ===========       ===========  =============       ===========    ==============
</TABLE>

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


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS  OF  CONSOLIDATION  The  consolidated  financial  statements  include  the
accounts  of Computer  Products,  Inc.  (the  "Company")  and its  subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.

FISCAL YEAR The Company's  fiscal year ends on the Friday  nearest  December 31,
which results in a 52- or 53-week year.  The fiscal years ended January 3, 1997,
December  29,  1995  and  December  31,  1994  comprise  53,  52 and  52  weeks,
respectively.

CASH AND EQUIVALENTS Only highly liquid investments with original  maturities of
90 days or less are classified as cash and  equivalents.  These  investments are
carried at cost, which approximates market value.

INVENTORIES  Inventories  are  stated  at the  lower  of  cost,  on a  first-in,
first-out basis, or market.

PROPERTY,  PLANT & EQUIPMENT  Property,  plant and equipment are stated at cost.
Depreciation  is provided  for on the  straight-line  method over the  estimated
useful  lives  of  the  assets  ranging  from  three  to  30  years.   Leasehold
improvements  are  recorded at cost and are  amortized  using the  straight-line
method over the remaining lease term or the economic  useful life,  whichever is
shorter.  Major renewals and betterments  are  capitalized,  while  maintenance,
repairs and minor renewals are expensed as incurred.

GOODWILL  The excess of  purchase  price over net assets of  acquired  companies
(goodwill) is capitalized  and amortized on a  straight-line  basis over periods
ranging from 20 to 40 years. Related accumulated amortization was $5,779,000 and
$4,943,000 at January 3, 1997 and December 29, 1995, respectively. On a periodic
basis, the Company  estimates the future  undiscounted  cash flows and operating
income of the businesses to which  goodwill  relates in order to ensure that the
carrying value of such goodwill has not been impaired.

STOCK-BASED COMPENSATION PLANS In 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a
fair  value  based  method  of  accounting  for   stock-based   compensation  or
continuation of accounting under Accounting  Principles Board Opinion No. 25, "A
counting for Stock Issued to Employees"  ("APB 25") and related  Interpretations
with supplemental disclosures. The Company has chosen to continue to account for
its stock option and its employee stock purchase plans using the intrinsic value
based  method  prescribed  in APB 25.  Pro forma  disclosures  of net income and
earnings per share as if the fair value  method had been  adopted are  presented
below (see Note 13).

FOREIGN CURRENCY  TRANSLATION The functional  currency of the Company's European
subsidiaries is the foreign subsidiary's local currency.  Assets and liabilities
are translated from their  functional  currency into U.S. dollars using exchange
rates in  effect  at the  balance  sheet  date.  Income  and  expense  items are
translated using average  exchange rates for the period.  The effect of exchange
rate  fluctuations on translating  foreign  currency assets and liabilities into
U.S. dollars is included in shareholders'  equity.  Foreign exchange transaction
gains and losses are  included  in the  results of  operations.  The  functional
currency  of the  Company's  Asian  subsidiaries  is the U.S.  dollar,  as their
transactions are substantially  denominated in U.S. dollars.  Financial exposure
may result from the timing of transactions and the movement of exchange rates.

REVENUE  RECOGNITION The Company  recognizes  revenue as products are shipped or
services are rendered.

<PAGE>
PRODUCT  WARRANTY The Company records  estimated  product  warranty costs in the
period in which the related sales are recognized.

INCOME  TAXES  Income  taxes  provided  reflect  the current  and  deferred  tax
consequences  of events that have been  recognized  in the  Company's  financial
statements or tax returns.  The  realization  of deferred tax assets is based on
historical tax positions and expectations about future taxable income.

EARNINGS PER SHARE Earnings per share is calculated  using the weighted  average
number of common shares outstanding during each period,  adjusted for the impact
of  dilutive  common  stock  equivalents  using  the  treasury  stock  method of
accounting.

USE OF ESTIMATES IN THE  PREPARATION OF FINANCIAL  STATEMENTS The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and  assumptions  that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

RECLASSIFICATIONS Certain amounts in the 1995 and 1994 financial statements have
been  reclassified to be consistent with the method of presentation  used in the
1996 financial statements.

2.   INVENTORIES

The components of inventories are as follows ($000s):
<TABLE>
<CAPTION>
                                                                                      1996              1995
                                                                                -----------       -----------
        <S>                                                                       <C>               <C>
         Raw materials                                                             $16,689           $15,350
         Work in process                                                             5,471             4,215
         Finished goods                                                             10,060            11,671
                                                                                -----------       -----------
         Inventories                                                               $32,220           $31,236
                                                                                ===========       ===========
</TABLE>

3.   PROPERTY, PLANT & EQUIPMENT

Property, plant & equipment is comprised of ($000s):
<TABLE>
<CAPTION>
                                                                                      1996              1995
                                                                                -----------       -----------
         <S>                                                                      <C>               <C>
         Land                                                                     $    764          $    762
         Buildings                                                                  19,061            18,428
         Equipment                                                                  35,852            32,897
         Leasehold improvements                                                      2,066             1,348
                                                                                -----------       -----------
                                                                                    57,743            53,435
         Less accumulated depreciation and amortization                             27,539            25,720
                                                                                -----------       -----------
         Property, plant & equipment, net                                          $30,204           $27,715
                                                                                ===========       ===========
</TABLE>

Depreciation  and  amortization  expense  was  $5,144,000,  $3,931,000  and
$3,483,000 in fiscal years 1996, 1995 and 1994, respectively.
<PAGE>

4.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The  components  of  accounts  payable and  accrued  liabilities  are as follows
($000s):
<TABLE>
<CAPTION>
                                                                                      1996              1995
                                                                                -----------       -----------
<S>                                                                                <C>               <C>
         Accounts payable                                                          $16,935           $17,041
         Accrued liabilities:
                  Compensation and benefits                                          6,674             8,948
                  Income taxes payable                                               5,080             2,272
                  Other                                                              7,576             7,939
                                                                                -----------       -----------
                                                                                   $36,265           $36,200
                                                                                ===========       ===========
</TABLE>

At January 3, 1997 and December 29, 1995,  other accrued  liabilities  primarily
consists  of accruals  for product  warranty  costs,  commissions,  advertising,
accounting and legal fees, and other taxes.


5.   ACQUISITION

Effective  August 23,  1996,  the  Company  acquired  the  remaining  90% of the
outstanding capital stock of Jeta Power Systems, Inc. ("Jeta") for approximately
$11.25 million in cash. Jeta designs,  manufactures  and markets  medium-to-high
power  systems  in  the  400  watt  to 4  kilowatt  range  for  applications  in
telecommunications,  networking,  computing  and  instrumentation  markets.  The
Company had  purchased  an initial 10% of Jeta's  capital  stock during 1984 for
approximately   $433,000.  The  Company  used  cash  on  hand  to  pay  for  the
acquisition.

The  acquisition  was  accounted  for under the purchase  method of  accounting.
Accordingly,  $7.9 million,  representing  the excess of the purchase price over
the  estimated  fair  value of the net assets  acquired,  has been  recorded  as
goodwill  and is being  amortized on a  straight-line  basis over a period of 20
years.  Jeta's  results  of  operations  have  been  included  in the  Company's
consolidated  financial  statements  from  the date of  acquisition  and are not
significant  in relation to the  Company's  consolidated  financial  statements;
accordingly, pro forma financial disclosures have not been presented.


6.   LINE OF CREDIT

On April 4, 1995, the Company entered into an unsecured  credit agreement with a
bank,  which  provided for a $20 million  revolving  line of credit that extends
through  April 1, 1998.  The  agreement  provides for interest at the  Company's
option of either .75% above the London  Interbank  Offered Rate  ("LIBOR") or at
the prime rate minus .50%, and includes a fee of .25% on the unused balance. The
agreement  contains certain  restrictive  covenants  which,  among other things,
require the Company to maintain certain financial ratios and limit the purchase,
redemption or  retirement  of capital  stock and other assets.  As of January 3,
1997,  the  Company had made no  borrowings  under the line of credit and was in
compliance with the agreement's covenants.


7.   LONG-TERM DEBT

Long-term debt is comprised of the following:
 <TABLE>
<CAPTION>
                                                                                          1996            1995
                                                                                       ----------      ----------
<S>                                                                                      <C>             <C>
                                                                                         ($000s)         ($000s)

8.25% interest-bearing note, due in bi-annual installments, maturing
 April 1, 2002 (a)                                                                       $23,500         $25,000

6.9% mortgage note due in monthly installments of $27,700,
 including interest, through June 28, 2001 (b)(d)                                          3,385           3,477

7.5% mortgage note, paid in full in 1996                                                   3,065

Non-interest-bearing  note, due 1997, net of unamortized discount of $80,000 and
 $155,000, respectively, based on an imputed interest rate
 of 10% (c)(d)                                                                               354             618

Non-interest-bearing Senior Subordinated Note due
 in common stock of the Company on January 3, 1996                                           100

Other                                                                                        324             308
                                                                                       ----------      ----------
                                                                                          27,563          32,568
     Less current maturities                                                               4,155           2,719
                                                                                       ----------      ----------
     Long-term debt                                                                      $23,408         $29,849
                                                                                       ==========      ==========
</TABLE>

          (a)  On April 4, 1995,  the Company  entered into an unsecured  credit
               agreement with a bank which provided for a $25 million seven-year
               term loan.  Remaining payments are as follows:  $1,500,000 due on
               April 1, 1997,  and  $2,200,000  due on April 1 and  October 1 of
               each year beginning October 1, 1997 until maturity, with interest
               payable monthly.  Proceeds from the term loan were used to redeem
               the Company's  Debentures  (see Note 8). The  agreement  contains
               certain  restrictive  covenants  which  are  the  same  as  those
               discussed  in Note 6. In May 1995,  the Company  entered  into an
               Interest  Rate  Collar   Agreement  with  the  bank,   which  set
               boundaries for the interest payment terms on its $25 million term
               loan.  The  agreement  placed a ceiling of 9.75% on the Company's
               floating rate option in exchange for the bank's  ability to elect
               a fixed rate option of 8.25%.  In June 1995,  the bank  exercised
               its  option  to  receive  interest  at the  fixed  rate  for  the
               remaining  term of the loan.

          (b)  On June 28, 1994,  the Company  obtained a $3,600,000  seven-year
               commercial  mortgage loan from a bank at a fixed interest rate of
               6.9% for the first three years,  repriced thereafter at 250 basis
               points over the then  prevailing  four-year U.S.  Treasury Index.
               The  loan  is  secured  by a  first  mortgage  on a  subsidiary's
               facility in Wisconsin  and by the  Company's  guaranty.  The loan
               proceeds were used to provide additional working capital.

         (c)  On  December  30,  1994,  the  Company  purchased  a building  for
              approximately  $922,000 from the Industrial  Development Authority
              ("IDA")   of   Ireland    in    exchange    for   a   three   year
              non-interest-bearing  note. The note specifies  repayment in three
              yearly installments due on September 30, 1995, 1996 and 1997.

          (d) Collateralized  by properties  with an aggregate net book value of
              approximately $4,906,000 at January 3, 1997.

Maturities of long-term debt are as follows:  $4,235,000 in 1997,  $4,533,000 in
1998,  $4,541,000 in 1999, $4,550,000 in 2000, $7,356,000 in 2001 and $2,428,000
thereafter.


8.   CONVERTIBLE SUBORDINATED DEBENTURES

The Company's 9.5% Convertible  Subordinated  Debentures (the  "Debentures") due
1997 were issued pursuant to an  underwritten  public  offering.  The Debentures
were subordinated to all existing and future Senior  Indebtedness of the Company
(as defined in the indenture),  and were convertible into shares of common stock
at a conversion price of $4.625 per share, subject to adjustment as set forth in
the indenture.

In 1992, the Company repurchased $4.0 million in principal of the Debentures for
a purchase price of $3,874,000.  Additionally,  in 1994 the Company  repurchased
$512,000 in principal of the Debentures  for a purchase  price of $520,000.  The
respective gain and loss on repurchase,  net of unamortized  issuance costs, was
not material to the Company.

In  May  1995,  the  Company  called  for  redemption  all  of  its  outstanding
Debentures, which amounted to $33.4 million. The Debentures were redeemed for an
aggregate  amount of $1,054.86 per $1,000 of principal  amount  (consisting of a
redemption  payment of $1,010 plus accrued and unpaid interest of $44.86).  As a
result of the redemption,  holders of Debentures representing a principal amount
of $9.1 million elected to convert the Debentures  into 1,972,085  shares of the
Company's  common  stock,  pursuant  to the terms of the  Debentures,  while the
balance of $24.3 million was redeemed.  This transaction resulted in an increase
in shareholders'  equity of approximately $9.4 million.  The redemption resulted
in an extraordinary  loss of approximately  $397,000 (net of taxes of $187,000),
consisting of a 1% redemption premium of $165,000 and a write-off of unamortized
financing costs of $232,000.


<PAGE>

9.   LEASE COMMITMENTS

The Company is obligated under noncancelable operating leases for facilities and
equipment that expire at various dates through 2005 and contain  renewal options
at favorable terms.  Future minimum annual rental  obligations and noncancelable
sublease income are as follows ($000s): 
<TABLE>
<CAPTION>

                                                              Rental             Sublease
         Year                                            Obligations               Income
                                                      ---------------      ---------------
    <S>                                                    <C>                   <C>
         1997                                                $ 3,839               $2,398
         1998                                                  3,215                  399
         1999                                                  2,954
         2000                                                  2,893
         2001                                                  2,578
         Thereafter                                           11,166
                                                      ---------------      ---------------
         Total                                               $26,645               $2,797
                                                      ===============      ===============
</TABLE>

Rental expense under  operating  leases  amounted to $2,879,000,  $2,512,000 and
$2,142,000  in fiscal 1996,  1995 and 1994,  respectively.  Sublease  income was
$1,886,000,   $1,655,000  and  $1,611,000  for  fiscal  1996,   1995  and  1994,
respectively.

Lease liabilities have been recorded for certain leased manufacturing facilities
no longer  deployed in the Company's  operations.  Although the  facilities  are
being  subleased,  the future lease  obligations  exceed future sublease income,
thereby creating loss contracts. The aggregate minimum annual rental obligations
and  sublease  income  under  these  leases  have  been  included  in the  lease
commitments  table  presented  above.  Lease  liabilities are estimated based on
contract provisions and historical and current market rates. These estimates can
be materially affected by changes in market conditions.


10.  INCOME TAXES

The  components  of the  provision  for income  taxes  consist of the  following
($000s):
<TABLE>
<CAPTION>
                                                          1996            1995            1994
                                                      ---------       ---------      ----------
         <S>                                            <C>             <C>            <C>
         Currently payable:
              Federal                                   $1,742          $  299         $  170
              State                                      1,961           1,253            596
              Foreign                                    2,452           1,405            483
                                                      ---------       ---------      ----------
         Total current                                   6,155           2,957          1,249
                                                      ---------       ---------      ----------
         Deferred provision:
              Federal                                      435           2,280          1,660
              State                                        134             186            212
              Foreign                                      155              67
                                                      ---------       ---------      ----------
         Total deferred                                    724           2,533          1,872
                                                      ---------       ---------      ----------
         Total provision for income taxes               $6,879          $5,490         $3,121
                                                      =========       =========      ==========
</TABLE>

The exercise of nonqualified  stock options resulted in state and federal income
tax benefits to the Company  related to the  difference  between the fair market
price of the stock at the date of exercise  and the  exercise  price.  In fiscal
1996 and 1995, the provision for income taxes  excludes  current tax benefits of
$1,066,000  and  $1,945,000,  respectively,  related  to the  exercise  of stock
options credited directly to additional paid-in capital.

During fiscal 1996, 1995 and 1994, the Company  utilized tax loss  carryforwards
obtained  in a  prior  business  combination.  The  effect  of  utilizing  these
carryforwards  was to reduce goodwill by  approximately  $606,000,  $646,000 and
$795,000 in 1996, 1995 and 1994, respectively.

Income  taxes  have not  been  provided  on the  undistributed  earnings  of the
Company's foreign  subsidiaries,  which approximated $32.1 million as of January
3, 1997, as the Company does not intend to repatriate such earnings.

The components of the Company's  total income before  provision for income taxes
consist of the following ($000s):
<TABLE>
<CAPTION>
                                                          1996            1995            1994
                                                      ---------       ---------      ----------
<S>                                                    <C>             <C>             <C>
         U.S.                                          $17,095         $13,903         $7,018
         Foreign                                         9,362           5,704          2,162
                                                      ---------       ---------      ----------

         Total income before income taxes              $26,457         $19,607         $9,180
                                                      =========       =========      ==========
</TABLE>

The Company's  effective tax rate differs from the U.S. statutory federal income
tax rate due to the following:
<TABLE>
<CAPTION>
                                                          1996            1995            1994
                                                      ---------       ---------      ----------
<S>                                                      <C>             <C>            <C>
         U.S. federal statutory tax rate                 35.0%           35.0%          34.0%
         Foreign tax effects                             (2.5)           (2.7)          (2.8)
         Amortization of goodwill                         0.4             0.3            0.7
         Change in the valuation allowance              (15.4)          (11.7)          (8.4)
         Effect of AMT and state income taxes             8.3             7.3            7.7
         Other                                            0.2            (0.2)           2.8
                                                      ---------       ---------      ----------
         Effective income tax rate                       26.0%           28.0%          34.0%
                                                      =========       =========      ==========
</TABLE>

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the  Company's  net  deferred  tax assets as of January 3, 1997 and December 29,
1995 are as follows ($000s):
 <TABLE>   
                                                                                           1996              1995
                                                                                      ----------       ----------
<S>                                                                                    <C>               <C>
         Net operating loss carryforwards (expiring 2003 through 2010)                 $  2,807          $  2,725
         Tax credit carryforwards (expiring 1998 through 2001)                            2,080             2,034
         Acquired net operating loss carryforwards                                            -             1,211
         Lease liabilities                                                                2,395             2,474
         Inventory reserves                                                               2,137             2,007
         Other accrued liabilities                                                        1,851             2,133
         Allowance for bad debt                                                             778               622
         Other                                                                           (1,294)             (278)
                                                                                     ------------      ------------
         Total deferred tax assets                                                       10,754            12,928
         Valuation allowance                                                             (8,926)           (9,890)
                                                                                     ------------      ------------
         Deferred income tax assets, net                                               $  1,828          $  3,038
                                                                                     ============      ============
</TABLE>


The valuation  allowance at January 3, 1997 includes  approximately $4.9 million
related  to the  exercise  of stock  options  which,  when  recognized,  will be
credited directly to additional  paid-in capital.  During the year ended January
3, 1997, the valuation  allowance decreased by approximately $1.0 million mainly
due to the utilization of tax loss carryforwards. In assessing the likelihood of
utilization  of existing  deferred tax assets,  management  has  considered  the
historical  results  of  operations  and  the  current  operating   environment.
Management  believes,  more likely than not, that future  taxable income will be
sufficient to utilize deferred tax assets of $1.8 million.



<PAGE>


11.  CONTINGENCIES

In current and prior years, the Company received grant  assistance,  under grant
agreements,  from the IDA in connection with the Company's  establishment of its
Irish  manufacturing  operations.  The funds  received  reduced  the cost of the
facility and equipment and operating expenses.  On October 26, 1994, the Company
entered  into  a new  Grant  Agreement  whereby  the  IDA  granted  the  sum  of
approximately  $2.0  million to the  Company in  consideration  for the  Company
providing  employment  for a given number of Irish  citizens,  over a three-year
period.  As of January 3, 1997,  the Company  had  received  approximately  $1.9
million of the $2.0 million grant. The funds received reduced operating expenses
incurred  in  connection  with the  expansion  of the  Company's  operations  in
Ireland.  In the event of noncompliance with certain terms and conditions of the
above-mentioned  grant  agreements,   the  Company  may  be  required  to  repay
approximately $2.5 million of funds received to date.  Management  believes that
noncompliance with the agreements is unlikely.


12.  STOCK REPURCHASES

During  fiscal  1996 and 1995,  the Company  repurchased  and retired a total of
197,000 and 1,138,000  shares,  respectively,  of its common stock pursuant to a
share  buy-back plan  announced in May 1995.  According to the plan, the Company
intends  to  repurchase  and  retire  from  time to time up to an  aggregate  of
2,000,000  shares  through  open market  transactions  to minimize  the dilutive
effect of the shares issued to converting  debenture holders.  The excess of the
cost of shares  repurchased  over par value was allocated to additional  paid-in
capital based on the pro rata share amount of additional paid-in capital for all
shares with the difference charged to retained earnings.


13.  STOCK-BASED COMPENSATION PLANS

EMPLOYEE  STOCK OPTION PLANS Under the  Company's  1981  Incentive  Stock Option
Plan,  options were granted to purchase up to 2,000,000  shares of the Company's
common stock at prices not less than the fair market value at date of grant. The
options  generally  vest at the rate of 25% per year beginning one year from the
date of grant.  The options  expire 10 years from the date of the grant or three
months after  termination of employment,  if earlier.  This plan was replaced by
the 1990 Performance Equity Plan ("PEP").

The  Company  established  the PEP  plan in 1990  under  which  it had  reserved
3,000,000   shares  of  common  stock  for  granting  of  either   incentive  or
nonqualified stock options to key employees and officers.  The Company increased
authorized  shares to 4,450,000 in 1996.  Both incentive or  nonqualified  stock
options  have been  granted at prices not less than the fair market value on the
date of grant as determined by the Board of Directors.  The options maximum term
is 10 years,  although some options were granted with a five-year  term in 1995.
Beginning  with  grants  made  in  1995,  the  majority  of the  options  become
exercisable  after the price of the  Company's  common  stock  achieves  certain
levels for specified  periods of time or upon the passage of a certain number of
years from the date of grant. For grants made prior to 1995, options vest at the
rate of 25% per year beginning one year from the date of grant. As of January 3,
1997, 972,785 shares of common stock were reserved for future grants.

OUTSIDE  DIRECTORS  STOCK  OPTION  PLANS  The  Company  established  an  Outside
Directors  Stock  Option Plan in 1986 under  which it  authorized  and  reserved
250,000  shares of common stock for granting of  nonqualified  stock  options to
directors of the Company who are not employees of the Company at exercise prices
not less than the fair market value on the date of grant.  The plan was replaced
by the 1990  Outside  Directors  Stock  Option  Plan  under  which  the  Company
initially   authorized  and  reserved  250,000  shares.  The  Company  increased
authorized  shares to 500,000 in 1996.  Effective in 1996, upon initial election
or appointment  and each year  thereafter,  outside  directors  shall receive an
option to purchase  10,000 shares of common stock provided that they own a given
number of shares of common stock of the Company based on a formula as defined in
the plan. The options  granted under both Outside  Directors plans fully vest on
the one-year  anniversary of the date of grant.  As of January 3, 1997,  190,000
shares of common stock were reserved for future grants.

In accordance  with APB 25, as the exercise price of the Company's stock options
equals  the  market  price of the  underlying  stock on the  date of  grant,  no
compensation  cost has been  recognized  for its fixed stock option  plans.  Pro
forma  information  regarding  net income and  earnings per share is required by
SFAS  123 and has  been  determined  as if the  Company  had  accounted  for its
stock-based  compensation  plans under the fair value method.  The fair value of
each option  grant was  estimated  at the date of grant using the  Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
grants in 1996 and 1995,  respectively:  risk-free  interest  rates of 5.95% and
6.41%,  dividend yield of 0% for both years, expected volatility of 52% and 56%,
and expected life of 2.50 and 1.70 years.  The  Company's pro forma  information
follows (in thousands except for earnings per share information):

<TABLE>
<CAPTION>
                                                              1996                 1995
                                                       ------------        -------------
<S>                                                        <C>                  <C>
     Net Income             As reported                    $19,578              $13,720
                                                       ============        =============
                            Pro forma                      $17,340              $12,896
                                                       ============        =============

     Primary earnings
       per share            As reported                      $0.80                $0.59
                                                       ============        =============
                            Pro forma                        $0.71                $0.55
                                                       ============        =============

     Fully diluted
       earnings per share   As reported                      $0.78                $0.59
                                                       ============        =============
                            Pro forma                        $0.69                $0.55
                                                       ============        =============
</TABLE>


The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future  amounts.  SFAS 123 does not apply to awards  prior to 1995. 
<PAGE> 

 A summary of the  Company's  stock  option  activity  under the  various  plans
 described above is as follows:

<TABLE>
<CAPTION>
                                                                1996                           1995                            1994
                                              ---------------------------    ---------------------------     -----------------------
                                                             Weighted-                       Weighted-                     Weighted-
                                                             average                         average                       average
                                                             exercise                        exercise                      exercise
                                                Options       price            Options        price            Options      price
                                              ------------- -------------    ------------- -------------     ------------- ---------
<S>                                            <C>         <C>                <C>           <C>               <C>           <C>
     Options outstanding, beginning of year     2,272,726   $  3.36            3,578,279     $2.47             3,589,629     $2.44
        Options granted                           821,323     15.22              782,400      4.93               592,000      2.68
        Options exercised                        (963,161)     3.35           (1,895,870)     2.30              (102,850)     2.04
        Options canceled                          (60,488)     9.52             (192,083)     3.63              (500,500)     2.61
                                             ------------- -------------    ------------- -------------     ------------- ----------
     Options outstanding, end of year           2,070,400   $  7.89            2,272,726     $3.36             3,578,279     $2.47
                                             =============                  =============                   =============

     Options exercisable, end of year           1,368,961                      2,038,518                       2,005,111
                                             =============                  =============                   =============

       Weighted-average fair value of
         options granted during the year           $5.59                          $1.57                             N/A
                                             =============                  =============                   =============
</TABLE>

The following table summarizes  information  about stock options  outstanding at
January 3, 1997:
<TABLE>
<CAPTION>

                                        Options Outstanding                                  Options Exercisable
                      ---------------------------------------------------------       ----------------------------------
                                               Weighted-
                                               Average            Weighted-                                 Weighted-
    Range of              Number              Remaining            Average               Number              Average
    Exercise            Outstanding        Contractual Life     Exercise Price         Exercisable        Exercise Price
     Prices              at 1/3/97             (Years)                                  at 1/3/97
------------------    ----------------     -----------------    ---------------       --------------      ---------------
<S>          <C>              <C>                <C>                    <C>                 <C>                  <C>
 $  1.75 -   2.69             660,947            5.77                   $ 2.47              611,656              $  2.48
    2.75 -   4.88             597,905            4.19                     4.17              572,405                 4.21
     7.18 - 12.81             200,273            8.93                    11.29              184,900                11.26
    16.00 - 16.00             532,275            9.33                    16.00                    0                    0
    16.75 - 19.88              79,000            9.75                    18.14                    0                    0
                      ----------------                                                --------------
  $  1.75 - 19.88           2,070,400            6.69                     7.89            1,368,961                 4.39
                      ================                                                ==============

</TABLE>


<PAGE>


EMPLOYEE  STOCK  PURCHASE  PLANS In May 1996,  the Company's  Board of Directors
established  an employee  stock purchase plan effective July 1, 1996 that allows
substantially  all employees to purchase  shares of the Company's  common stock.
Under the terms of the plan,  eligible  employees may purchase  shares of common
stock through the accumulation of payroll deductions of at least 2% and up to 6%
of their base salary. The purchase price is an amount equal to 85% of the market
price  determined on the tenth trading day following each  three-month  offering
period.  The Company's  policy is to purchase  these shares on the market rather
than issue them from treasury; therefore, the 15% employee discount is currently
being  recognized as  compensation  expense.  Such amount was not significant in
fiscal 1996. Employees purchased 8,707 shares in 1996.

The 1989 Qualified Employee Stock Option Plan provided for employees to purchase
common stock of the Company at a purchase price equal to the lower of 85% of the
common  stock  market  value as of the  beginning  of an  offering  period or at
various  purchase dates  extending over a two-year  period.  The plan expired in
1995 and was replaced by the 1996 Employee Stock Purchase Plan described  above.
Employees  purchased  22,475,  102,570 and 19,528 shares in 1996, 1995 and 1994,
respectively,  at purchase  prices ranging from $1.97 to $2.76.  Under SFAS 123,
compensation  cost is recognized for the fair value of the  employees'  purchase
rights,  which was estimated  using the  Black-Scholes  model with the following
weighted-average  assumptions  for  1995:  risk-free  interest  rate  of  6.48%,
dividend yield of 0%, expected  volatility of 52% and expected life of .84 year.
The weighted-average fair value of the purchase rights granted in 1995 was $.57.


14.  EMPLOYEE BENEFIT PLAN

The Company provides  retirement  benefits to its employees through the Computer
Products Inc.  Employees' Thrift and Savings Plan (the "Plan"). As allowed under
Section  401(k) of the Internal  Revenue  Code,  the Plan  provides tax deferred
salary  deductions for eligible  employees.  The Plan permits  substantially all
United States  employees to contribute up to 15% of their base  compensation (as
defined) to the Plan, limited to a maximum amount as set by the Internal Revenue
Service.  The Company may, at the  discretion of the Board of Directors,  make a
matching  contribution to the Plan. The Board of Directors  authorized  matching
contributions of $520,000, $400,000 and $218,000, respectively, for fiscal 1996,
1995 and 1994.


15.  FINANCIAL INSTRUMENTS

DERIVATIVE  FINANCIAL  INSTRUMENTS  AND FAIR VALUE OF FINANCIAL  INSTRUMENTS The
Company utilizes foreign currency forward  contracts to minimize its exposure to
potentially  adverse changes in foreign  currency  exchange rates on anticipated
but  not  firmly  committed   purchases  or  sales  made  by  its  international
subsidiaries.  No forward  contracts were outstanding at January 3, 1997 and the
amount of any gain or loss on these contracts  during the year was not material.
The Company does not hold or issue financial instruments for trading purposes.

The Company  enters into  various  other types of financial  instruments  in the
normal course of business.  Fair values for certain  financial  instruments  are
based on quoted market prices. For other financial instruments,  fair values are
based on the appropriate pricing models,  using current market information.  The
amounts ultimately realized upon settlement of these financial  instruments will
depend on actual market conditions during the remaining life of the instruments.
Fair values of cash and  equivalents,  accounts  receivable,  accounts  payable,
other current liabilities and debt reflected in the January 3, 1997 statement of
financial condition approximate carrying value at that date.

CONCENTRATION OF CREDIT RISK Financial  instruments that potentially subject the
Company  to  concentrations  of  credit  risk  consist  principally  of cash and
equivalents  and  accounts   receivable.   The  Company's  cash  management  and
investment policies restrict investments to low-risk,  highly liquid securities,
and the Company  performs  periodic  evaluations  of the credit  standing of the
financial  institutions  with which it deals.  The Company sells its products to
customers in various  geographical  areas.  The Company  performs ongoing credit
evaluations of its customers' financial condition and generally does not require
collateral. The Company maintains reserves for potential credit losses, and such
losses have been within management's  expectations and have not been material in
any year. As of January 3, 1997 and December 29, 1995,  management  believes the
Company had no significant concentrations of credit risk.


16.  GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

The  Company  operates in a single  industry  segment  encompassing  the design,
development,  manufacture  and sale of electronic  products and  subsystems  for
power   conversion,   industrial   automation   and  other   real-time   systems
applications.  The  Company's  sales are made  through  both direct and indirect
sales  channels  to  a  wide  customer  base  in  North   America,   Europe  and
Asia-Pacific.  The principal markets served are telecommunications,  networking,
wireless  communications  and computing.  In recent years, the Company's primary
focus  has  been  to  grow  its  presence  in  the  communications  marketplace,
particularly in the networking and telecommunications sectors.

Approximately  80%  of  the  Company's  products  are  manufactured  in  foreign
locations.  Specifically,  58% of the  Company's  1996 sales were from  products
manufactured  in Hong Kong and  China,  22% from  products  manufactured  in the
Republic of Ireland and the remaining 20% from domestic operations.  Included in
the Company's  consolidated  statement of financial condition at January 3, 1997
are the net assets of the Company's European and Asian subsidiaries, which total
approximately $21.7 million and $21.3 million, respectively.

Sales  and  marketing   operations  outside  the  United  States  are  conducted
principally through Company sales  representatives,  independent  manufacturer's
representatives and distributors in Canada,  Europe and Asia-Pacific.  Sales are
in U.S. dollars and certain European currencies.  Intercompany sales are in U.S.
dollars and are based on cost plus a reasonable  profit.  There were no material
amounts of United States export sales.

Sales to one customer amounted to $22.4 million and $20.7 million in fiscal 1996
and 1995, respectively.

A summary of the  Company's  operations by  geographic  area is presented  below
($000s):
<TABLE>
<CAPTION>
                                                                   1996                 1995                 1994
                                                           -------------        -------------        -------------
    SALES
       To unaffiliated customers:
        <S>                                                   <C>                  <C>                  <C>
         United States                                        $144,115             $139,274             $117,300
         Europe                                                 57,089               46,428               34,794
         Asia-Pacific                                           21,281                5,676                2,706
       Intercompany sales:
         United States                                           4,020                2,937                3,897
         Europe                                                  5,554                4,219                2,225
         Asia-Pacific                                           92,275               79,191               50,701
         Eliminations                                         (101,849)             (86,347)             (56,823)
                                                           -------------        -------------        -------------
         Total sales                                          $222,485             $191,378             $154,800
                                                           =============        =============        =============

    INCOME BEFORE INCOME TAXES
         United States                                         $17,693              $18,197              $12,686
         Europe                                                  5,937                5,362                2,169
         Asia-Pacific                                            5,859                3,560                1,799
         Other (a)                                              (4,027)              (6,075)              (7,437)
         Eliminations                                              995               (1,437)                 (37)
                                                           -------------        -------------        -------------
         Income before income taxes                            $26,457              $19,607             $  9,180
                                                           =============        =============        =============

    IDENTIFIABLE ASSETS
         United States                                       $  66,784            $  61,967            $  55,720
         Europe                                                 27,925               21,657               17,112
         Asia-Pacific                                           37,675               33,058               23,784
         Other (a)                                              23,024               22,262               18,062
         Eliminations                                           (1,567)              (2,453)                (282)
                                                           -------------        -------------        -------------
         Total assets                                         $153,841             $136,491             $114,396
                                                           =============        =============        =============
</TABLE>

(a)  Other included in the table above represents  interest,  corporate  general
     and  administrative  expenses,  and certain  assets not  allocable to other
     geographic segments.


17.  SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED)
     (Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
                                                                    FIRST           SECOND             THIRD            FOURTH
                                                                  QUARTER          QUARTER           QUARTER           QUARTER
                                                             -------------    -------------     -------------     -------------
FISCAL 1996
<S>                                                               <C>              <C>               <C>               <C>
Sales                                                             $50,435          $51,673           $57,760           $62,617
Gross profit                                                       18,378           19,550            20,459            23,992
Net Income                                                          3,911            4,382             5,131             6,154
Earnings per share                                                   0.16             0.18              0.21              0.25

Stock price per common share:
     High                                                           14.50            23.00             21.75             21.88
     Low                                                             9.25            13.25             12.81             17.88

FISCAL 1995

Sales                                                             $44,297          $47,316           $46,905           $52,860
Gross profit                                                       16,152           17,524            18,390            20,012
Income before extraordinary item                                    2,019            2,866             4,358             4,874
Net Income                                                          2,019            2,469             4,358             4,874
Earnings per share before extraordinary item                         0.09             0.12              0.18              0.20
Earnings per share                                                   0.09             0.10              0.18              0.20

Stock price per common share:
     High                                                            5.00             6.25              8.94             13.25
     Low                                                             3.13             4.81              5.88              7.50

</TABLE>

The Company recorded an after-tax  extraordinary  item of $397,000 in the second
quarter of 1995.  Data in the above  tables are  presented  on a 13-week  period
basis except for the fourth quarter of 1996,  which includes 14 weeks, as fiscal
1996 consisted of 53 weeks.

The sum of the quarterly earnings per share amounts differs from those reflected
in the Consolidated  Statements of Operations due to the weighting of common and
common equivalent shares outstanding during each of the respective periods.

The Company's  common stock is traded on the Nasdaq  National Stock Market under
the  symbol  CPRD.  As of  January 3,  1997,  there  were  approximately  10,676
shareholders  consisting  of  record  holders  and  individual  participants  in
security position listings. To date, the Company has not paid any cash dividends
on its capital  stock.  The Board of Directors  presently  intends to retain all
earnings for use in the Company's  business and does not anticipate  paying cash
dividends in the foreseeable future.



<PAGE>


RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

As noted above,  the foregoing  discussion  and the letter to  shareholders  may
include  forward-looking  statements  that involve risks and  uncertainties.  In
addition,  Computer Products,  Inc.  identifies the following risk factors which
could affect the Company's  actual  results and cause them to differ  materially
from those in the forward-looking statements.

RISKS  RELATED TO NEW PRODUCTS The  Company's  future sales are dependent on its
ability to successfully  develop,  manufacture and market products for customers
worldwide.  In this regard,  future growth is dependent on the Company's ability
to timely and  successfully  develop and introduce  new products,  establish new
distribution  channels,  develop  affiliations with leading market  participants
which facilitate product  development and distribution,  and market existing and
new products  with service  providers,  resellers  and channel  partners.  Also,
future sales may be affected in part by factors which  influence the business of
the Company's direct and indirect resellers, such as the resellers' organization
structure, purchasing patterns and inventory levels.

The Company  believes  that the markets for its  products are  characterized  by
rapid rates of  technological  innovation.  There can be no  assurance  that the
Company's   research  and  development   efforts  will  result  in  commercially
successful  new  technology  and  products in the future.  In  addition,  as the
technical  complexity  of new  products  increases,  it may become  increasingly
difficult to introduce new products quickly and according to schedule.

DEPENDENCE  ON  PERSONNEL  The  Company's  success  depends  upon the  continued
contributions  of its personnel and on the ability of the Company to attract and
retain  skilled  employees.  Changes in personnel,  therefore,  could  adversely
affect operating results.

RISKS  RELATED TO GROSS  MARGIN  The  Company's  gross  margin  percentage  is a
function  of the  product mix sold in any  period.  Other  factors  such as unit
volumes,  obsolescence of inventory,  heightened price  competition,  changes in
channels of  distribution,  shortages in  components  due to timely  supplies of
parts  from  vendors  or  ability  to obtain  items at  reasonable  prices,  and
availability of skilled labor, also may continue to affect the cost of sales and
the fluctuation in gross margin percentages in future periods.  In the past, the
Company has paid  premiums to secure  adequate  supplies of  components,  and it
could become necessary to make such payments again in the future.

RISKS  RELATED  TO  TIMING OF  PRODUCT  SHIPMENTS  One of the risks  potentially
affecting  the  Company's  operating  results  is the fact that  historically  a
substantial  portion of the  Company's  sales in any period  has  resulted  from
shipments  during the latter part of a period.  Because the Company  establishes
its operating expense level based on such timing, if sales in any period were to
change from such historical pattern, net profits may be adversely affected.

RISKS  RELATED  TO BACKLOG  The  Company  has  attempted  to reduce its  product
manufacturing  lead times and its backlog of orders.  To the extent that backlog
is reduced during any particular period, it could result in more variability and
less  predictability  in the  Company's  quarter-to-quarter  sales and operating
results.  If manufacturing lead times are not reduced,  the Company's  customers
may cancel, or not place,  orders if shorter lead times are available from other
manufacturers.  In addition,  the Company's  ability to meet customer demand may
also be dependent on the ability of the Company to increase manufacturing levels
for new products to volumes required based on anticipated orders by the market.

RISKS RELATED TO INTELLECTUAL  PROPERTY RIGHTS The Company currently relies upon
a  combination  of  patents,  copyrights,  trademarks  and trade  secret laws to
establish and protect its  proprietary  rights in its products.  There can be no
assurance that the steps taken by the Company in this regard will be adequate to
prevent  misappropriation  of its  technology or that the Company's  competitors
will not independently develop technologies that are substantially equivalent or
superior to the  Company's  technology.  In  addition,  the laws of some foreign
countries do not protect the Company's  proprietary rights to the same extent as
do the laws of the United  States.  The  Company has a number of patents and may
apply for  additional  patents.  There can be no assurance  that patents will be
issued  from any  applications  filed by the  Company or that,  if  patents  are
issued, the claims will be sufficiently broad to protect the technology invented
by the Company.  In addition,  no assurance can be given that any patents issued
to the Company will not be challenged,  invalidated or  circumvented or that the
rights granted thereunder will provide competitive advantages.

SALES  FLUCTUATIONS  AND  COMPETITION  There is no assurance  that the Company's
historical sales growth rates will continue.  Pressure from competitors offering
lower-priced  products could result in future price reductions for the Company's
products.

RISKS RELATED TO ACQUISITIONS  To implement its business plans,  the Company may
make  further  acquisitions  in the  future.  Acquisitions  require  significant
financial  and  management  resources  both at the time of the  transaction  and
during the process of integrating the newly acquired business into the Company's
operations. The Company's operating results could be adversely affected if it is
unable to successfully integrate such new companies into its operations. Certain
acquisitions or strategic  transactions  may be subject to approval by the other
party's board or shareholders,  domestic or foreign  governmental  agencies,  or
other third parties. Accordingly, there is a risk that important acquisitions or
transactions could fail to be concluded as planned.  Future  acquisitions by the
Company  could  also  result in  issuances  of equity  securities  or the rights
associated with the equity  securities,  which could potentially dilute earnings
per share. In addition,  future  acquisitions  could result in the incurrence of
additional debt,  taxes, or contingent  liabilities,  and amortization  expenses
related to goodwill and other intangible  assets.  These factors could adversely
affect the Company's future operating results and financial position.

RELIANCE ON  DISTRIBUTORS  AND  MANUFACTURER'S  REPRESENTATIVES  Distributor and
manufacturer's  representative networks have continued to represent an important
part of the Company's overall sales and distribution strategy. While the Company
is not dependent on any single distributor or manufacturer's representative, the
loss  of,  or  changes  in the  relationship  with or  performance  by,  several
distributors or manufacturer's representative nevertheless could have a material
adverse effect on the Company's sales and operating results.

RISKS RELATED TO INTERNATIONAL  SALES International sales may be an increasingly
important  contributor  to the  Company's  sales and net  profits.  As a result,
operating  results are  increasingly  affected by the risks of such  activities,
including economic conditions in the international  markets in which the Company
sells its  products and  political  and economic  instability,  fluctuations  in
currency  exchange  rates,  changes in  international  regulatory  requirements,
international  staffing and employment issues, tariffs and other trade barriers,
import and export controls and the burden of complying with foreign laws.  Sales
in developing  nations may fluctuate to a greater extent than sales to customers
in  developed  nations,  as those  markets  are  only  beginning  to  adopt  new
technologies  and  establish  purchasing  practices.  These risks may  adversely
affect the Company's future operating results and financial position.

RISKS RELATED TO GOVERNMENT  REGULATIONS AND PRODUCT CERTIFICATION The Company's
operations  are also  subject  to laws,  regulations,  government  policies  and
product certification requirements worldwide. Changes in such laws, regulations,
policies or requirements  could affect the demand for the Company's  products or
result in the need to modify products,  which may involve  substantial  costs or
delays  in sales and  could  have an  adverse  effect  on the  Company's  future
operating results.

RISKS  RELATED  TO FOREIGN  MANUFACTURING  OPERATIONS  Approximately  80% of the
Company's products are manufactured in foreign locations.  Specifically,  58% of
the Company's 1996 sales were from products manufactured in Hong Kong and China,
22% from products  manufactured in the Republic of Ireland and the remaining 20%
from domestic operations.

The supply and cost of these  products  can be adversely  affected,  among other
reasons, by changes in foreign currency exchange rates, increased import duties,
imposition of tariffs, imposition of import quotas,  interruptions in sea or air
transportation and political or economic changes. From time to time, the Company
explores  opportunities  to diversify its sourcing and/or  production of certain
products to other low cost  locations or with other third  parties to reduce its
dependence on production in any one location. In addition, the Company has taken
necessary  measures,  including  insuring against certain risks, to mitigate its
exposure to potential  political and economic changes in Hong Kong and China. In
the  event of  confiscation,  expropriation,  nationalization,  or  governmental
restrictions  in the  above  mentioned  foreign  locations,  earnings  could  be
adversely  affected from business  disruption  resulting in delays in production
and delivery of the Company's products.

RISKS OF STOCK  VOLATILITY  AND ABSENCE OF DIVIDENDS In recent years,  the stock
market in general and the market for technology stocks in particular,  including
the Company's common stock, have experienced extreme price  fluctuations.  There
is a risk that stock price  fluctuation  could impact the Company's  operations.
Changes in the price of the  Company's  common stock could affect the  Company's
ability to  successfully  attract  and retain  qualified  personnel  or complete
necessary business combinations or other transactions in the future. The Company
has never paid any cash  dividends  on its  capital  stock,  and there can be no
assurances that the Company will do so.

In  addition  to the  foregoing,  the  Company  wishes to refer  readers  to the
Company's  other  reports  filed with the  Securities  and Exchange  Commission,
including its recent reports on Forms 10-K and 10-Q, for a further discussion of
risks and  uncertainties  that could cause actual  results to differ  materially
from those in forward-looking statements.

<PAGE>



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Computer Products, Inc. :

We have audited the accompanying  consolidated statements of financial condition
of  Computer  Products,  Inc. (a Florida  corporation)  and  subsidiaries  as of
January 3, 1997 and December 29, 1995, and the related  consolidated  statements
of  operations,  shareholders'  equity and cash flows for the three fiscal years
ended January 3, 1997. These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Computer  Products,  Inc. and
subsidiaries  as of January 3, 1997 and December  29,  1995,  and the results of
their  operations  and their cash flows for the three fiscal years ended January
3, 1997 in conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
  January 17, 1997.


STATEMENT OF MANAGEMENT RESPONSIBILITY

The  Company's  management is  responsible  for the  preparation,  integrity and
objectivity  of  the  consolidated  financial  statements  and  other  financial
information presented in this report. The accompanying financial statements have
been prepared in conformity with generally  accepted  accounting  principles and
reflect the effects of certain estimates and judgments made by management.

The Company's  management maintains an effective system of internal control that
is designed to provide  reasonable  assurance  that assets are  safeguarded  and
transactions are properly  recorded and executed in accordance with management's
authorization.  The system is continuously monitored by direct management review
and by internal  auditors who conduct an extensive  program of audits throughout
the company.  The Company selects and trains  qualified  people who are provided
with and  expected to adhere to the  Company's  standards  of business  conduct.
These standards,  which set forth the highest  principles of business ethics and
conduct,  are a key element of the Company's control system.  Additionally,  our
independent  certified  public  accountants,   Arthur  Andersen  LLP,  obtain  a
sufficient  understanding of the internal control structure in order to plan and
complete the annual audit of the Company's financial statements.

The Audit  Committee of the Board of Directors,  which  consists of five outside
directors,  meets  regularly  with  management,  the  internal  auditors and the
independent  certified  public  accountants  to  review  accounting,  reporting,
auditing and internal  control  matters.  The  Committee  has direct and private
access to both internal and external auditors.


JOSEPH M. O'DONNELL

Chairman of the Board, President and Chief Executive Officer


RICHARD J. THOMPSON

Vice President, Finance and Chief Financial Officer