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

                                                                     1997        1996         1995        1994        1993
                                                               ----------- ----------- ------------ ----------- -----------
RESULTS OF OPERATIONS
<S>                                                              <C>         <C>          <C>         <C>         <C>
Sales                                                            $527,236    $435,731     $344,969    $264,334    $201,168
Income from continuing operations                                  31,882      29,555       16,483       7,658       3,636
     Per share - basic                                               0.87        0.84         0.50        0.24        0.13
     Per share - assuming dilution                                   0.80        0.78         0.49        0.23        0.12
Net income                                                         29,820      30,059       17,598       9,423       5,537
     Per share - basic                                               0.81        0.85         0.53        0.30        0.20
     Per share - assuming dilution                                   0.75        0.79         0.52        0.28        0.18

FINANCIAL POSITION
Working capital                                                  $115,822    $ 92,029     $ 66,449    $ 54,526    $ 41,597
Property, plant & equipment, net                                   61,581      48,671       38,491      32,567      28,960
Total assets                                                      322,177     239,487      202,858     159,871     134,303
Long-term debt and capital lease obligations                       52,949      43,945       33,590      45,296      41,453
Total debt                                                         68,547      57,097       50,251      53,928      47,436
Shareholders' equity                                              162,676     117,006       82,889      57,071      46,133
Total capital                                                     231,223     174,103      133,140     110,999      93,569


FINANCIAL STATISTICS
Selling, general and administrative expenses                     $ 52,058    $ 42,232      $36,353     $35,485    $ 31,344
   - as a % of sales                                                 9.9%        9.7%        10.5%       13.4%       15.6%
Research and development expenses                                  30,032      23,612       21,085      14,950      11,238
   - as a % of sales                                                 5.7%        5.4%         6.1%        5.7%        5.6%
Operating income                                                   52,443      41,077       26,776      15,865      10,211
   - as a % of sales                                                 9.9%        9.4%         7.8%        6.0%        5.1%
Total debt as a % of total capital                                    30%         33%          38%         49%         51%
Debt to equity ratio                                                  42%         49%          61%         94%        103%
Interest coverage ratio                                              11.0        9.21         6.48        3.64        2.21


OTHER DATA

Capital expenditures                                              $22,231    $  9,387      $10,046    $  7,300    $  3,752
Depreciation and amortization                                     $13,561     $10,287     $  7,606    $  6,768    $  6,240
Common shares outstanding (000's)                                  38,381      36,042       34,607      31,581      30,874
Employees                                                           4,219       3,519        2,870       2,628       2,365
Temporary employees and contractors                                 2,663       1,670        1,923         874         532

</TABLE>

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

BUSINESS COMBINATIONS

ZYTEC -- On December 29, 1997,  shareholders of Computer Products,  Inc. ("CPI")
and Zytec Corporation  ("Zytec") approved the merger of CPI Acquisition Corp., a
Minnesota corporation and a wholly-owned  subsidiary of CPI with and into Zytec,
pursuant to an Agreement and Plan of Merger,  with Zytec becoming a wholly-owned
subsidiary  of CPI.  As a result of the  merger,  each share of  Zytec's  common
stock, no par value,  outstanding  immediately prior to the merger was converted
into 1.33 shares of CPI's common stock,  $0.01 par value.  The Zytec shares were
exchanged for a total of approximately  14.1 million shares of CPI common stock.
The acquisition was accounted for as a  pooling-of-interests,  and  accordingly,
all prior period consolidated  financial statements presented have been restated
to include the combined results of operations, financial position and cash flows
of Zytec as though it had always been a part of Computer Products. Hereafter the
merged entity will be collectively referred to as the Company.

The  Company  has begun  doing  business  under the name  Artesyn  Technologies.
Management will request  shareholder  approval at its next annual  shareholders'
meeting in May 1998 to legally  change the Company's  corporate  name to Artesyn
Technologies,  Inc. Pending shareholder approval,  the Company's legal name will
remain Computer Products, Inc. and trade under the Nasdaq National Market symbol
CPRD.

The restatement of the consolidated financial information combines the financial
information of CPI and Zytec giving  retroactive  effect to the merger as if the
two  companies  had  operated as a single  company  for all  periods  presented.
However,  the two companies operated  independently prior to the merger, and the
historical  changes  and  trends  in the  financial  condition  and  results  of
operations  of  these  two  companies  resulted  from  independent   activities.
Nonetheless,  the following  management's  discussion  and analysis of financial
condition  and results of  operations  attempts to relate the  activities  which
resulted in the changes in financial  condition and results of operations of the
combined  company,  taking  into  consideration  that a trend or  change  in the
historical  results of the combined  entity was caused by many events related to
each individual  company operating  independently as competitors.  The financial
information  presented on a historical  restated  basis is not indicative of the
financial condition and results of operations that may have been achieved in the
past or will be  achieved in the future had the  companies  operated as a single
entity for the periods presented.  The following  discussion of the consolidated
operations and financial  condition of the Company should be read in conjunction
with the Company's  consolidated  financial statements and related notes thereto
included elsewhere herein.

THE ELBA  GROUP -- On July 22,  1997,  pursuant  to an  Agreement  on the  Sale,
Purchase  and  Transfer of Shares,  the  Company  acquired  all the  outstanding
capital stock of the following  affiliated  companies:  Elba Electric GmbH, Elba
Modul GmbH, Elba Elektronik AG, Elba Electronics Ltd., Elba  Electric-Produktion
s.r.o.,  Elba  Electronique  S.A.R.L.,  and KRP Power Source B.V.,  collectively
referred to as the Elba Group.

The Elba Group is engaged in the design,  manufacture  and  marketing  of a wide
range of both  AC/DC and DC/DC  power  conversion  products  in  Europe.  Elba's
fastest growing product  segment is its medium power AC/DC  converters  (150-750
watts) sold to OEM communications  customers under the Elba and KRP Power Source
labels. The Elba Group's customers include major multinational corporations such
as Ericsson, Kodak, Krone AG and Siemens among others.

The purchase price of 52 million  Deutsche marks  (approximately  $28.5 million)
was paid in cash with proceeds from two  seven-year  term loans from First Union
National Bank, London Branch. The loans bear interest at LIBOR plus .75%.

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  1997showed  consistent  growth  as net  income  from
continuing  operations of $31.9 million, or $0.80 per share,  exceeded the $29.6
million, or $0.78 per share,  achieved in 1996. Sales from continuing operations
increased 21% from $435.7 million in 1996 to $527.2  million in 1997.  Operating
income increased to $52.4 million,  or 9.9% of sales in 1997,  compared to $41.1
million, or 9.4% in 1996.

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

                                                  1997        1996       1995
                                             ---------- ----------- ----------
Power Conversion                              $474,116    $395,322   $314,422
Computer Systems                                26,771      18,953     19,026
Services and Logistics                          26,349      21,456     11,521
                                             ---------- ----------- ----------

Total                                         $527,236    $435,731   $344,969
                                             ========== =========== ==========

1997 COMPARED TO 1996

SALES  increased  from $435.7 million in 1996 to $527.2 million in 1997. The 21%
growth  primarily  resulted from a wider range of product  offerings,  continued
foreign  expansion  and the  increase  of service and  support  programs.  Power
Conversion sales increased $78.8 million (20%). Computer Systems sales increased
41% from $18.9 million to $26.8 million.  Services and Logistics sales increased
23% from $21.5 million to $26.3 million.

Computer   Systems  sales  were  41%  higher  than  in  1996  as  this  division
successfully  transitioned  from the  computer  industry  to the  communications
sector.  Similar to the Power Conversion division, the Computer Systems division
has  concentrated  its  marketing  efforts  on  the  high-growth  communications
industry,   where  it  provides  networking,   telecommunications  and  wireless
communications  solutions for a variety of customers,  including OEM's. With its
focus on  developing  new  products  aimed at  customers  in the  communications
industry and a high backlog level  entering 1998,  management  expects that this
division will continue to increase its sales volume in the upcoming year.

Services  and  Logistics  sales  increased  from $21.5  million in 1996 to $26.3
million in 1997.  Services and Logistics  provides repair services and logistics
for a variety of products primarily for Hewlett-Packard  Company. These products
include laser and ink jet printers,  facsimile machines,  computer, monitors and
other  products.  The 23% revenue  growth was due to continued  expansion of the
number of  products  repaired  for  Hewlett-Packard.  Management  anticipates  a
significant growth in Services and Logistics sales in 1998 primarily  consisting
of additional business from Hewlett-Packard as well as sales of similar services
to new OEMs.

GROSS PROFIT in 1997 increased by $30.6 million compared to 1996 on higher sales
volume and improved  margins.  The Company's gross margin  increased to 26.1% of
sales in 1997 from 24.5% in 1996 due to cost  reductions  in both  materials and
labor as well as higher overhead absorption due to increased production volume.

OPERATING  EXPENSES  increased to approximately  16.1% of sales in 1997 from the
15.1% reported in the prior year. In connection  with the merger,  in the fourth
quarter, the Company recorded a charge to operating expenses of $3.0 million for
direct merger  transaction  costs  consisting  primarily of fees for  investment
bankers, attorneys,  accountants,  financial printing and other related charges.
OPERATING  INCOME rose to 9.9% of sales from 9.4% in 1996, as a result of higher
gross profit partially offset by the increase in operating expenses.

SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES in 1997 increased to 9.9% of sales
versus 9.7% in the prior  year.  Sales and  marketing  expenses  increased  $5.4
million or 24% due to increased  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  ("G&A") expenses increased $4.4 million, or 22%, as a result
of the Company's business  development  activities and the inclusion of the Elba
Group acquired in July 1997. As a percentage of sales, G&A expenses increased to
4.6% from 4.5% in 1996.

RESEARCH AND DEVELOPMENT  (R&D) EXPENSES in 1997 increased $6.4 million or 27.2%
from the prior year.  As a percentage  of sales,  R&D expenses were 5.7% in 1997
versus 5.4% in 1996. 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  to the
communications industry.

PROVISION  FOR INCOME  TAXES  increased  to 35.5% of pretax  income in 1997 from
21.4% in 1996.  The  effective  tax rate was lower in 1996  primarily due to the
recognition  of an income tax benefit  related to the net  operating  loss (NOL)
carryforwards in the Company's Austrian operations.  For additional  information
regarding  income  taxes,  refer  to  pages  30  through  32  of  the  Notes  to
Consolidated Financial Statements.

DISCONTINUED  OPERATIONS On April 17, 1997, the Company  announced its intention
to sell its Industrial  Automation  division,  RTP Corp. ("RTP"),  pursuant to a
plan of disposal approved by the Company's Board of Directors.  Accordingly, the
Company  classified  RTP as a  discontinued  operation and recorded an after-tax
non-recurring charge of $2.1 million, or $0.05 per share, against 1997 earnings.
Effective  July 5, 1997,  the Company sold RTP Corp. to RT  Acquisition  Florida
Corp.  Proceeds  from  the sale  included  $2.0  million  cash,  a  subordinated
unsecured one-year note in the aggregate  principal amount of approximately $2.2
million  bearing  interest at the prime rate,  and the  assumption of certain of
RTP's liabilities.

1996 COMPARED TO 1995

SALES  increased  from $345 million in 1995 to $435.7  million in 1996.  The 26%
growth  resulted  primarily  from  a  $80.9  million  (26%)  increase  in  Power
Conversion sales,  including sales attributable to Jeta Power Systems (which was
acquired in July  1996),  and a $9.9  million  (86%)  increase  in Services  and
Logistics  sales.  Computer  Systems  sales  remained  level  with  1995 as this
division continued to transition its focus to the communications industry.

Although  Computer Systems sales remained level with 1995,  inroads were made in
the  communications  market as this division  continued to  transition  from the
computer industry to the communications sector.

Service  and  Logistics  sales  increased  from  $11.5  million in 1995 to $21.5
million in 1996.  The 86% revenue  growth was due almost  entirely to  continued
expansion of the number of products  repaired for  Hewlett-Packard  that made up
99% of the sales in this division in 1996.

GROSS PROFIT in 1996 increased by $22.7 million compared to 1995 on higher sales
volume while gross margin improved slightly from 24.4% in 1995 to 24.5% in 1996.
This performance  improvement  resulted from the Company's ongoing commitment to
reduce  manufacturing costs and the favorable effect of higher production volume
on unit cost. These improvements were partially offset by the continued shift in
sales mix to the Company's high-volume, lower-margin OEM customers.

OPERATING  EXPENSES  declined to approximately 15% of sales in 1996 from the 17%
reported in 1995.

OPERATING INCOME rose to 9.4% of sales from 7.8% in 1995.

SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES in 1996 declined to 9.7% of sales
versus  10.5% in the prior  year 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 $1.0 million or
5% due to increased  commission  expense  resulting  from higher  sales  levels.
General and administrative  spending  increased $4.9 million,  or 33%, primarily
due to the establishment of a separate  administration  function in the Services
and Logistics  operation.  As a percentage of sales, such expenses  increased to
4.5% from 4.3% in 1995.

RESEARCH AND DEVELOPMENT EXPENSES in 1996 increased $2.5 million or 12% compared
to  1995  as the  Company  invested  in  new  product  platforms  to  serve  the
communications industry.

PROVISION FOR INCOME TAXES decreased to 21% of pretax income in 1996 from 30% 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 and
the recognition of an income tax benefit related to the net operating loss (NOL)
carryforwards in the Company's Austrian operations.

LIQUIDITY AND CAPITAL RESOURCES

As of January 2, 1998,  the  Company's  cash balance  increased to $55.4 million
from  $34.7  million  on January  3, 1997  despite  significant  use of cash for
capital expenditures and principal debt repayments. These activities were funded
with cash from  operations,  proceeds from exercises of stock options,  proceeds
from the sale of the industrial  automation division in July 1997, proceeds from
the sale of the Company's Boston  facility,  and cash acquired in the Elba Group
acquisition.

Cash  provided from  operations  increased to $38.8 million in 1997 versus $30.2
million in 1996 and $18.3  million in 1995.  The  increase in 1997 is mainly the
result of a decrease in prepaid expenses and an increase in accounts payable and
accrued  liabilities  partially  offset by increases in accounts  receivable and
inventory.

Accounts  receivable  increased  36% in 1997  from  1996  due to  sales  growth,
including the continued  expansion in  international  operations  that typically
have longer collection  cycles.  Days sales outstanding in receivables  remained
level at 51 days for both 1997 and 1996.  The increase in  inventory  levels was
primarily  attributable to production  planning to meet manufacturing lead times
and anticipated demand for new product introductions.

Accounts  payable  increased  $9.2 million,  or 33%, from January 3, 1997 due to
increases in capital expenditures, operating expenses, and material purchases to
support the Company's growth in sales.

The Company  used $44.7  million,  $20.9  million and $8.1  million in investing
activities  in  fiscal  1997,  1996 and 1995,  respectively.  The use of cash in
fiscal  1997 was due  mainly  to the  acquisition  of the Elba  Group  for $26.2
million (net of cash  acquired) and increased  purchases of property,  plant and
equipment  in line  with  the  continued  upgrading  of the  Company's  overseas
manufacturing  facilities.  The major  investing  activities for fiscal 1996 and
1995 were capital  additions to support business  operations and the acquisition
of Jeta for 9.6 million (net of cash acquired) in 1996.

Cash provided by financing  activities in fiscal 1997 of $27.1 million  reflects
borrowings  under the 52 million  Deutsche Mark term loans, net of debt issuance
costs,  and $5.5 million  proceeds  from  exercises of stock  options  partially
offset by $14.2 million  long-term debt and capital lease  principal  repayments
including  $3.7  million  on  the  Company's  seven-year  term  loan.  Financing
activities  used  $1.5  million  and $3.7  million  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 partially  offset by proceeds from
issuance  of debt and  exercises  of options.  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 borrowings  under the $25 million  seven-year term
loan,  net of debt  issuance  costs,  and the proceeds  from  exercises of stock
options.

The Company and one of its  subsidiaries  entered  into two  separate  unsecured
seven-year term loans with a bank providing an aggregate of 52 million  Deutsche
marks.  The term loans bear interest at Libor plus .75%.  Proceeds from the term
loans were used to finance the acquisition of the Elba Group.  In addition,  the
Company  amended and restated its existing  revolving and term loan agreement to
reprice  its  outstanding  term  loan  and  to  provide  for a new  $20  million
three-year multi-currency revolving working capital line of credit.

The new multi-currency revolving facility, which expires in April 2000, replaces
the Company's previous $20 million credit line which would have expired on April
1, 1998.  The interest  rate on the revolver was reduced from Libor plus .75% to
Libor plus .50%. As of January 2, 1998, the Company had made no borrowings under
the  existing  line of  credit,  and  management  believes  the  Company  was in
compliance with the agreement's covenants.

Effective July 15, 1997, the Company's 1995 seven-year  term loan,  which has an
outstanding  balance of $19.8  million,  was repriced to bear  interest at Libor
plus .75% compared to the previous rate set at Libor plus 1.5%.

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 and capital lease obligations
and operating lease commitments through 1998.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive Income" ("SFAS
") and SFAS No. 131,  "Disclosures  about  Segments of an Enterprise and Related
Information."  SFAS 130  establishes  standards for the reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  Comprehensive  income is defined as the change in equity
during the financial  reporting period of a business  enterprise  resulting from
non-owner sources. SFAS 131 establishes standards for the reporting of operating
segment  information  in both annual  financial  reports  and interim  financial
reports issued to shareholders.  Operating  segments are components of an entity
for which separate financial information is available and is evaluated regularly
by the entity's chief operating management.  Both statements require adoption in
fiscal 1998.

YEAR 2000

The Company has several  information  system  improvement  initiatives under way
that will  require  increased  expenditures  during  the next few  years.  These
initiatives  include the conversion of certain  Company  computer  systems to be
Year 2000 compliant.

The Year 2000 issue  exists  because  many  computer  systems  and  applications
currently  use  two-digit  date fields to designate a year.  As the century date
change occurs,  date-sensitive  systems will recognize the year 2000 as 1900, or
not at all.  This  inability to  recognize  or properly  treat the Year 2000 may
cause  systems  to  process  critical  financial  and  operational   information
incorrectly.  Anticipated  spending  for this  modification  will be expensed as
incurred  and is not  expected  to have a  significant  impact on the  Company's
ongoing results of operations.

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

                                                                                    1997             1996           1995
                                                                                --------------    -----------    ------------

<S>                                                                                <C>             <C>            <C>
SALES                                                                              $527,236        $435,731       $344,969
COST OF SALES                                                                       389,703         328,810        260,755
                                                                                 --------------   -----------    ------------
GROSS PROFIT                                                                        137,533         106,921         84,214
                                                                                --------------    -----------    ------------
EXPENSES
   Selling, general and administrative                                               52,058          42,232         36,353
   Research and development                                                          30,032          23,612         21,085
   Merger-related charges                                                             3,000               -              -
                                                                                --------------    -----------    ------------
                                                                                     85,090          65,844         57,438
                                                                                --------------    -----------    ------------
OPERATING INCOME                                                                     52,443          41,077         26,776
                                                                                --------------    -----------    ------------
OTHER INCOME (EXPENSE)
   Interest expense                                                                  (4,945)         (4,576)        (4,306)
   Interest income                                                                    1,943           1,087          1,116
                                                                                --------------   ------------    ------------
                                                                                     (3,002)         (3,489)        (3,190)
                                                                                --------------    -----------    ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                49,441          37,588         23,586
PROVISION FOR INCOME TAXES                                                           17,559           8,033          7,103
                                                                                --------------    -----------    ------------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM                          31,882          29,555         16,483

DISCONTINUED OPERATIONS
   Profit (loss) from operations, net of income taxes of $(222),                                        504          1,512
     $177 and $588, respectively                                                       (333)
   Loss on disposal of RTP (including provision of $1,000 for
     operating losses during phase-out period) net of tax benefit of $1,152          (1,729)              -              -

EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT OF $187                                     -               -           (397)
                                                                                --------------    -----------    ------------
NET INCOME                                                                       $   29,820       $  30,059      $  17,598
                                                                                ==============    ===========    ============
EARNINGS PER SHARE
BASIC -
   Income from Continuing Operations                                             $     0.87       $    0.84      $    0.50
   Discontinued Operations                                                            (0.06)           0.01           0.04
   Extraordinary Item                                                                    -               -           (0.01)
                                                                                --------------    -----------    ------------
   Net Income                                                                    $     0.81       $    0.85      $    0.53
                                                                                ==============    ===========    ============
ASSUMING FULL DILUTION -
   Income from Continuing Operations                                             $     0.80       $    0.78      $    0.49
   Discontinued Operations                                                            (0.05)           0.01           0.04
   Extraordinary Item                                                                    -               -           (0.01)
                                                                                --------------    -----------     -----------
   Net Income                                                                    $     0.75       $    0.79       $   0.52
                                                                                ==============    ===========    ============
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
   Basic                                                                             36,650          35,375         33,267
   Assuming full dilution                                                            40,654          37,870         35,404
</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>

                                                                             1997             1996
                                                                         -------------    --------------
ASSETS
CURRENT ASSETS
<S>                                                                        <C>              <C>
   Cash and equivalents                                                    $  55,392        $  34,676
   Accounts receivable, net of allowance for doubtful accounts of                              62,202
     $1,736 at January 2, 1998 and $1,300 at January 3, 1997                  84,479
   Inventories                                                                59,663           49,502
   Prepaid expenses and other                                                  8,522            4,233
   Deferred income taxes, net                                                  5,293            1,952
   Current assets of discontinued operations                                       -            7,646
                                                                         -------------    --------------
     Total current assets                                                    213,349          160,211
                                                                         -------------    --------------
PROPERTY, PLANT & EQUIPMENT, NET                                              61,581           48,671
                                                                         -------------    --------------
OTHER ASSETS
   Goodwill, net                                                              40,704           20,022
   Deferred income taxes, net                                                  4,509            6,099
   Other assets, net                                                           2,034            2,890
   Non-current assets of discontinued operations                                   -            1,594
                                                                         -------------    --------------
     Total other assets                                                       47,247           30,605
                                                                         -------------    --------------
                                                                            $322,177         $239,487
                                                                         =============    ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Current maturities of long-term debt and capital leases                 $  15,598         $ 13,152
   Accounts payable and accrued liabilities                                   81,929           52,975
   Current liabilities of discontinued operations                                  -            2,055
                                                                         -------------    --------------
     Total current liabilities                                                97,527           68,182

LONG-TERM LIABILITIES
   Long-term debt and capital leases                                          52,949           31,945
   Convertible subordinated note                                                   -           12,000
   Other long-term liabilities                                                 5,785            6,772
   Deferred tax liabilities                                                    3,240            3,582
                                                                         -------------    --------------
     Total long-term liabilities                                              61,974           54,299
                                                                         -------------    --------------
     Total liabilities                                                       159,501          122,481
                                                                         -------------    --------------
COMMITMENTS AND CONTINGENCIES (see Notes 8, 10 and 13)

SHAREHOLDERS' EQUITY
   Preferred stock, par value $.01; 1,000,000 shares authorized;
      none issued                                                                  -                -
   Common stock, par value $.01; 80,000,000 shares authorized;
     38,380,964 shares issued and outstanding at January 2, 1998
     (36,042,007 at January 3, 1997)                                             384              360
   Additional paid-in capital                                                 78,056           57,874
   Retained earnings                                                          88,769           58,949
   Foreign currency translation adjustment                                    (4,533)            (177)
                                                                         -------------    -------------
     Total shareholders' equity                                              162,676          117,006
                                                                         -------------    --------------
                                                                            $322,177         $239,487
                                                                         =============    ==============
</TABLE>

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


<PAGE>


CONSOLIDATED  STATEMENTS OF CASH FLOWS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
<TABLE>
<CAPTION>
                                                                                  1997              1996            1995
                                                                              -------------      ------------    ------------
OPERATING ACTIVITIES
<S>                                                                              <C>                 <C>            <C>
   Net income                                                                    $29,820             $30,059        $17,598
   Adjustments to reconcile net income to net cash
    provided by operating activities:
     Depreciation and amortization                                                13,561              10,287          7,606
     Deferred income taxes                                                        (2,176)             (2,088)         2,529
     Provision for inventories                                                     4,963               1,988          4,422
     Other non-cash charges                                                        1,254                (383)           669
   Changes in operating assets and liabilities:
     Increase in accounts receivable                                             (22,264)             (8,730)       (13,172)
     (Increase) decrease in inventories                                          (14,489)              2,860        (21,836)
     (Increase) decrease in prepaid expenses and other                             8,683                  24           (281)
     Increase (decrease) in accounts payable and accrued liabilities              18,037              (2,617)        21,415
   Net cash provided by (used in) discontinued operations                          1,423              (1,220)          (676)
                                                                              -------------      ------------    ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                         38,812              30,180         18,274
                                                                              -------------      ------------    ------------
INVESTING ACTIVITIES
   Purchases of property, plant & equipment                                      (22,231)             (9,387)       (10,046)
   Proceeds from sale of building                                                  1,656                   -          1,524
   Purchase of the Elba Group, net of cash acquired                              (26,186)                  -              -
   Purchase of Jeta Power Systems, Inc., net of cash acquired                          -              (9,577)             -
   Purchase of Zytec Hungary Elektronikai Kft.                                         -                (830)             -
   Proceeds from sale of RTP Corp.                                                 2,000                   -              -
   (Increase) decrease in other assets                                                96                (206)           830
   Investing activities of discontinued operations                                   (32)               (897)          (397)
                                                                              -------------      ------------    ------------
NET CASH USED IN INVESTING ACTIVITIES                                            (44,697)            (20,897)        (8,089)
                                                                              -------------      ------------    ------------
FINANCING ACTIVITIES
   Proceeds from issuances of long-term debt                                      35,796              20,086         31,325
   Principal payments on debt and capital leases                                 (14,163)            (14,899)       (10,831)
   Proceeds from revolving credit loans                                           14,726             144,806        139,050
   Payments on revolving credit loans                                            (14,726)           (152,104)      (134,474)
   Decrease in bank overdrafts                                                         -              (1,220)          (307)
   Repurchase of convertible subordinated debentures                                   -                   -        (24,505)
   Proceeds from exercises of stock options                                        5,511               3,888          4,356
   Repurchases of common stock                                                         -              (2,032)        (8,305)
                                                                              -------------      ------------    ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                               27,144              (1,475)        (3,691)
                                                                              -------------      ------------    ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS                             (543)                216            (55)
                                                                              -------------      ------------    ------------
INCREASE IN CASH AND EQUIVALENTS                                                  20,716               8,024          6,439
CASH AND EQUIVALENTS, BEGINNING OF YEAR                                           34,676              26,652         20,213
                                                                              -------------      -------------   -------------
CASH AND EQUIVALENTS, END OF YEAR                                                $55,392             $34,676        $26,652
                                                                              =============      ============    ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
   CASH PAID DURING THE YEAR FOR:
   Interest                                                                      $  4,754            $ 4,627        $ 4,328
   Income taxes                                                                     9,213              5,139          2,080

   NONCASH INVESTING AND FINANCING ACTIVITIES:
   Fair value of assets acquired in connection with purchase acquisitions           35,000            14,055              -
   Liabilities assumed in connection with purchase acquisitions                      6,600             1,916              -
   Goodwill reduction from utilization of loss carryforwards                             -               606            646
   Common stock issued from conversion of note (including debt
    issuance costs written off)                                                     11,386                 -              -
   Common stock issued from conversion of debentures                                     -                 -          9,402
   Tax benefit from exercises of stock options                                       3,163             1,934          2,141
   Equipment acquired through issuance of debt                                         736             1,423            372
   Property and equipment acquired through capital lease obligations                 1,505             7,372          2,377
   Note receivable from sale of RTP Corp.                                            2,150                 -              -

</TABLE>

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


<PAGE>




CONSOLIDATED  STATEMENTS  OF  SHAREHOLDERS'EQUITY
For the Years  Ended on the Friday Nearest December 31
(Amounts in Thousands)
  <TABLE>
<CAPTION>
                                                                                                                           FOREIGN
                                                                                        ADDITIONAL                        CURRENCY
                                                            COMMON STOCK                 PAID-IN            RETAINED     TRANSLATION
                                                      SHARES            AMOUNT           CAPITAL            EARNINGS      ADJUSTMENT
                                                    -----------       -----------      -------------       -----------    ---------

<S>                                                   <C>                 <C>             <C>               <C>           <C>
BALANCE, DECEMBER 30, 1994                              25,942              $259            $38,590           $19,328       $(1,106)

   Issuance of common stock                                 33                                  100
   Issuance of common stock under stock option
    and employee purchase plans                          2,021                20              4,101
   Tax benefit from exercises of stock options                                                2,141
   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                                                                                      761
   Net income                                                                                                  17,598
                                                    -----------       -----------      -------------       -----------    ----------
BALANCE, DECEMBER 29, 1995                              28,830               288             52,375            30,571          (345)

   Additional shares issued in two-for-one stock
     split                                               5,982                60                (60)
   Issuance of common stock                                  8                                  100
   Issuance of common stock under stock option
     and employee purchase plans                         1,419                14              3,874
   Tax benefit from exercises of stock options                                                1,934
   Repurchases and retirement of common stock             (197)               (2)              (349)           (1,681)
   Foreign currency translation adjustment                                                                                      168
   Net income                                                                                                  30,059
                                                    -----------       -----------      -------------       -----------    ---------
BALANCE, JANUARY 3, 1997                                36,042               360             57,874            58,949          (177)

   Issuance of common stock                                 21                                  146
   Issuance of common stock under stock option
     and employee purchase plans                         1,151                12              5,499
   Tax benefit from exercises of stock options                                                3,163
   Conversion of convertible subordinated note
   (including debt issuance costs written off)           1,167                12             11,374
   Foreign currency translation adjustment                                                                                   (4,356)
   Net income                                                                                                  29,820
                                                    -----------       -----------      -------------       -----------    ----------
BALANCE, JANUARY 2, 1998                                38,381              $384            $78,056           $88,769     $  (4,533)
                                                    ===========       ===========      =============       ===========    ==========


</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 PRESENTATION On December 29, 1997, Computer Products, Inc.  completed a
merger with Zytec  Corporation  ("Zytec")  whereby  Zytec became a  wholly-owned
subsidiary of Computer Products.  The consolidated  financial statements include
the accounts of Computer Products and its subsidiaries (collectively referred to
as the "Company").  Intercompany  accounts and transactions have been eliminated
in  consolidation.   The  consolidated  financial  statements  for  all  periods
presented  prior to the merger have been restated as if the Company  operated as
one  entity  since   inception.   The  merger  has  been   accounted  for  as  a
pooling-of-interests as discussed in Note 5.

The merged company has begun doing business under the name Artesyn Technologies.
Management will request  shareholder  approval at its next annual  shareholders'
meeting in May 1998 to legally  change the Company's  corporate  name to Artesyn
Technologies,  Inc. Pending shareholder approval,  the Company's legal name will
remain Computer Products, Inc. and trade under The Nasdaq National Market symbol
CPRD.

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 2, 1998,
January  3,  1997  and  December  29,  1995   comprise  52,  53  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 is 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 or the lease terms, if
shorter. 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 improvements  are  capitalized,  while
maintenance,  repairs and minor  renewals  not expected to extend the life of an
asset  beyond its normal  useful lefe are  expensed as  incurred.  In 1996,  the
Company adopted Statement of Financial  Accounting  Standards  ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." In accordance with SFAS 121, the Company periodically evaluates
its long-lived assets to determine whether an impairment has occurred.  Adoption
did not have a material effect on the consolidated financial statements.

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 $7,322,000 and
$5,779,000  at January 2, 1998 and January 3, 1997,  respectively.  Amortization
expense was  $1,550,000,  $837,000 and  $733,000 in fiscal years 1997,  1996 and
1995,  respectively.  On a periodic  basis,  the  Company  estimates  the future
undiscounted cash flows and operating income of the businesses to which goodwill
relates to ensure that the carrying value of such goodwill has not been impaired
under the provisions of SFAS 121.

STOCK-BASED COMPENSATION PLANS In 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123,  "Accounting for Stock-Based  Compensation."  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,  "Accounting  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  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 15).

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.

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 In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share".  This  statement  simplifies  the standards for computing and presenting
earnings  per share  ("EPS")  and makes them  comparable  to  international  EPS
standards. SFAS 128 replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income  statement for all entities with complex capital  structures.
SFAS 128 became effective beginning with the fourth quarter of 1997 and requires
restatement  of all  prior  periods  presented.  As a result,  all  prior  years
presented  have been restated to conform with SFAS 128. Basic earnings per share
is  calculated  by  dividing  income  available  to common  shareholders  by the
weighted-average number of common shares outstanding during each period. Diluted
earnings per share includes the potential  impact of convertible  securities and
dilutive common stock equivalents using the treasury stock method of accounting.
The  reconciliation  of the numerator and  denominator of the EPS calculation is
presented below (see Note 12).

STOCK SPLIT In April 1996,  Zytec's board of directors  authorized a two-for-one
stock split in the form of a 100% stock dividend  distributed on June 3, 1996 to
shareholders of record on May 20, 1996. Applicable per share and number of share
data have been retroactively restated to reflect the stock split, except for the
Consolidated Statements of Shareholders' Equity.

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. The
more significant estimates made by management include the provision for doubtful
accounts  receivable,  inventory  write-downs for potentially excess or obsolete
inventory, warranty reserves, the valuation allowance for the gross deferred tax
assets, and the amortization period for intangible assets.  Actual results could
differ from those estimates. Management periodically evaluates estimates used in
the  preparation  of the  financial  statements  for  continued  reasonableness.
Appropriate  adjustments,  if any, to the estimates used are made  prospectively
based on such periodic evaluation.

ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive  Income"  which is  required  to be adopted in fiscal  1998.  This
statement  establishes  standards  for  reporting  and display of  comprehensive
income and its components in a full set of general-purpose financial statements.
This  statement  requires  that  an  enterprise  (a)  classify  items  of  other
comprehensive income by their nature in financial statements and (b) display the
accumulated  balance of other  comprehensive  income  separately  from  retained
earnings and additional  paid-in  capital in the equity section of statements of
financial  position.  Comprehensive  income is  defined  as the change in equity
during the financial  reporting period of a business  enterprise  resulting from
non-owner sources.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information"  which is required to be adopted in fiscal
1998. This statement requires that a public business enterprise report financial
and descriptive  information about its reportable  operating segments including,
among  other  things,  a measure of  segment  profit or loss,  certain  specific
revenue and expense items, and segment assets.

RECLASSIFICATIONS Certain prior years' amounts have been reclassified to conform
with the current year's presentation.


<PAGE>
2. INVENTORIES

   The components of inventories are as follows($000s):
                                                         1997        1996
                                                       --------    --------
      Raw materials                                    $31,181     $29,606
      Work in process                                   12,582       9,607
      Finished goods                                    15,900      10,289
                                                       --------    --------
      Inventories                                      $59,663     $49,502
                                                       ========    ========


3. PROPERTY, PLANT & EQUIPMENT

   Property, plant & equipment is comprised of the following ($000s):

                                                          1997        1996
                                                       --------    --------
    Land                                               $ 2,423     $   840
    Buildings                                           18,227      20,890
    Machinery and equipment                             77,812      57,785
    Leasehold improvements                               1,763       1,591
    Equipment, furniture and leasehold improvements
      under capital leases                              12,214      11,525
                                                       --------    --------
                                                       112,439      92,631
    Less accumulated depreciation and amortization      50,858      43,960
                                                       --------    --------
    Property, plant & equipment, net                   $61,581     $48,671
                                                       ========    ========

   Depreciation  and  amortization  expense  was  $11,525,000,   $8,840,000  and
   $6,285,000 in fiscal years 1997, 1996 and 1995, respectively.

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   The  components of accounts  payable and accrued  liabilities  are as follows
($000s):

                                                          1997        1996
                                                       --------    --------

      Accounts payable                                 $36,790     $27,621
      Accrued liabilities:
            Compensation and benefits                   14,875      11,195
            Income taxes payable                        14,071       5,104
            Warranty reserve                             3,457       1,609
            Other                                       12,736       7,446
                                                       --------    --------
                                                       $81,929     $52,975
                                                       ========    ========

At January 2, 1998 and  January 3, 1997,  other  accrued  liabilities  primarily
consisted of accruals for commissions,  advertising,  accounting and legal fees,
and other taxes.

<PAGE>

5. BUSINESS COMBINATIONS

ZYTEC -- On December 29, 1997, Computer Products completed the Merger with Zytec
Corporation by exchanging  approximately 14.1 million shares of its common stock
for all the outstanding common stock of Zytec. Each share of Zytec was exchanged
for 1.33 shares of the Company's  common stock. In addition,  outstanding  Zytec
employee stock options were  converted at the same exchange  factor into options
to purchase  approximately 3.9 million shares of the Company's common stock. All
applicable  share data  have been  retroactively  restated  in the  Consolidated
Financial Statements.  The merger constituted a tax-free  reorganization and has
been accounted for as a  pooling-of-interests  under Accounting Principles Board
Opinion No. 16. Accordingly,  all prior period consolidated financial statements
presented  have been  restated to include the  combined  results of  operations,
financial  position  and cash flows of Zytec as though it had always been a part
of the Company.

There were no  transactions  between  Computer  Products  and Zytec prior to the
combination  and  immaterial   adjustments  were  recorded  to  conform  Zytec's
accounting policies to the Company's accounting  policies.  Differences in these
practices in the past were deemed not to be material to the Company's  financial
statements  and  therefore  are being  conformed  only on a  prospective  basis.
Certain reclassifications were made to the Zytec financial statements to conform
to the Company's presentations.

Sales and earnings data for the separate  companies and the combined  amounts as
presented in the  consolidated  financial  statements are displayed in the table
below ($000s).  Since the merger was effective on December 29, 1997,  the table
reflects  sales and  earnings  data for the entire  year 1997.  Operations  from
December  29,  1997 to  year-end  would not have had a  material  impact on the
datapresented.

                             1997         1996          1995
                           ----------   ----------   -----------
SALES
   Computer Products        $262,774     $207,563      $174,451
   Zytec                     264,462      228,168       170,518
                           ----------   ----------   -----------
   Combined                 $527,236     $435,731      $344,969
                           ==========   ==========   ===========

NET INCOME
   Computer Products         $20,089      $19,578       $13,720
   Zytec                       9,731       10,481         3,878
                           ----------   ----------   -----------
   Combined                  $29,820      $30,059       $17,598
                           ==========   ==========   ===========

In connection  with the merger,  in the fourth quarter,  the Company  recorded a
charge to  operating  expenses  of $3.0  million  for direct  transaction  costs
consisting  primarily of fees for investment  bankers,  attorneys,  accountants,
financial  printing  and other  related  charges.  In  addition,  as  previously
disclosed  in the  Company's  Registration  Statement  on Form S-4,  the Company
expects to record a charge of  approximately  $8 million to $10  million  during
1998 to eliminate duplicate facilities, functions and excess capacity.

THE  ELBA  GROUP  -- On July 22,  1997,  the  Company  acquired  the Elba  Group
("Elba"), a European designer, manufacturer and marketer of a wide range of both
AC/DC and DC/DC  power  conversion  products.  The  Company  purchased  Elba for
approximately $28.5 million in cash provided by two seven-year term loans from a
financial institution. Elba has design, sales and manufacturing organizations in
Oberhausen  and Einsiedel,  Germany;  Chomutov,  Czech Republic and  Etten-Leur,
Netherlands.   Elba  also  has  sales   offices   in   Pfaffikon,   Switzerland;
Vaulx-Milieu, France; and Chesterfield, United Kingdom.

The  acquisition  was  accounted  for under the purchase  method of  accounting.
Accordingly,  the excess of the purchase  price over the estimated fair value of
the net assets  acquired,  or  approximately  $21.5  million,  was  recorded  as
goodwill which is being amortized on a  straight-line  basis over a period of 20
years.  Elba's  results  of  operations  have  been  included  in the  Company's
consolidated  financial  statements from the date of acquisition.  The following
unaudited pro forma information  combines the consolidated results of operations
of the Company and Elba as if the  acquisition  had occurred at the beginning of
the periods presented.

<PAGE>
                          UNAUDITED COMBINED PRO FORMA INFORMATION
                                ($000 EXCEPT PER SHARE DATA)

                                          1997           1996
                                      -------------  -------------

Sales                                    $540,545      $462,366
Income from continuing operations          32,556        31,312
   Per share - basic                         0.89          0.89
   Per share - assuming full dilution        0.81          0.83
Net Income                                 30,494        31,816
   Per share - basic                         0.83          0.90
   Per share - assuming full dilution        0.76          0.84

The unaudited pro forma results have been prepared for comparative purposes only
and include certain  adjustments,  such as additional  amortization expense as a
result of goodwill,  increased  interest  expense on the  acquisition  debt, and
related  income  tax  effects.  The  pro  forma  results  do not  purport  to be
indicative  of results  that would have  occurred  had the  combination  been in
effect for the periods  presented,  nor do they purport to be  indicative of the
results that will be obtained in the future.

JETA POWER  SYSTEMS --  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.

ZYTEC HUNGARY ELEKTRONIKAI KFT.-- In March 1996, Zytec completed the acquisition
of the  outstanding  stock of BHG Tatabanya  Alkatrezsgyarto  Kft. (now known as
Zytec Hungary Elektronikai Kft.) located in Hungary. The $830,000 purchase price
was paid in cash.  This  acquisition has been recorded using the purchase method
of accounting.  This  acquisition  was not significant to Zytec or the Company's
consolidated results of operations and financial position.

<PAGE>

6. DISCONTINUED OPERATIONS

On April 17, 1997,  the Company  announced its intention to sell its  Industrial
Automation division, RTP Corp. ("RTP"),  pursuant to a plan of disposal approved
by the Board of Directors.  Effective  July 5, 1997,  the Company sold RTP to RT
Acquisition  Florida Corp.  Proceeds from the sale included $2.0 million cash, a
subordinated  unsecured  one-year  note in the  aggregate  principal  amount  of
approximately  $2.2  million  bearing  interest  at  the  prime  rate,  and  the
assumption of certain of RTP's liabilities.  An estimated  after-tax loss on the
sale of $1.7 million (net of income tax benefit of  $1,152,000)  was recorded in
the first quarter of 1997  representing  the  estimated  loss on the disposal of
RTP's net assets and a pre-tax  provision of $1,000,000  for expected  operating
losses during the phase-out period. The actual loss on disposal approximated the
amount recorded in the first quarter.

RTP's sales from January 4, 1997 through its disposal date were $4,793,000.  RTP
sales  in  fiscal  years  1996  and  1995  were   $14,922,000  and  $16,926,000,
respectively.  RTP's  operating  results are shown  separately  as  discontinued
operations in the accompanying consolidated statements of operations.

Certain prior year amounts have been restated to give effect to the discontinued
operations treatment.

7. LINES OF CREDIT

Effective July 15, 1997, the Company amended and restated its existing revolving
and term loan agreement to reprice its outstanding  term loan and to provide for
a new $20 million three-year,  multi-currency  revolving working capital line of
credit. The new multi-currency  revolving facility, which expires in April 2000,
replaces the Company's previous $20 million credit line which would have expired
on April 1, 1998. The agreement provides for an interest rate on the revolver at
the London Interbank  Offering Rate "Libor" plus .50% and includes a fee of .25%
on the unused balance.  The agreement  contains  certain  restrictive  covenants
that,  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 2, 1998,  the Company had made no borrowings  under
the  revolving  credit  facility  and was in  compliance  with  the  agreement's
covenants.

In May 1996,  Zytec  replaced its revolving  credit  facility  with a bank.  The
agreement provided up to $23 million in borrowings through May 1999. Pursuant to
the merger with the Computer Products,  credit  availability under the revolving
facility  was reduced to $865,833 to cover the letter of credit  required  under
certain  Industrial  Development  Revenue  Bonds (see Note 8). At the  Company's
option,  advances  from the revolving  credit  agreement may be made at either a
floating  rate which is  approximately  equal to the  bank's  prime rate or at a
LIBOR rate which is based on the British Bankers Association LIBOR setting rate.
Zytec is obligated to pay a fee of .25% of the unused  portion of the revolving
credit  balance.  The agreement  requires  Zytec to maintain  certain  leverage,
interest  coverage,  current  and funded  debt  ratios.  At January 2, 1998,  no
amounts were outstanding under this facility.

<PAGE>

8. LONG-TERM DEBT AND CAPITAL LEASES

   Long-term obligations consist of the following ($000s):
<TABLE>
<CAPTION>
                                                                                            1997            1996
                                                                                       ----------      ----------
<S>                                                                                    <C>            <C>
     5.58% interest-bearing note maturing  July 1, 2004 (a)                             $28,921        $
                                                                                                              -

     8.25% interest-bearing note maturing April 1, 2002 (b)                              19,800          23,500

     3.50% revolving credit loan due March 1998 (c)                                       3,562           4,098

     6.9% mortgage note maturing July 1, 2001(d)                                          3,286           3,385

     3.875% notes payable due 1998 (e)                                                    2,414           2,260

     Loan payable to bank due 1998 (f)                                                    1,618           2,075

     Variable rate demand industrial development revenue bonds due March
     1998 (g)                                                                               820             980

     4.875% long-term investment loan due July 1, 2002 (h)                                  713               -

     Convertible subordinated promissory note (i)                                             -          12,000

     Non-interest-bearing note, due 1997, net of unamortized discount of
      $80,000 based on an imputed interest rate of 10% (j)                                    -             354

     Other                                                                                    -             101

     Capital lease obligations (see Note 10)                                              7,413           8,344
                                                                                       ----------      ----------
                                                                                         68,547          57,097
     Less current maturities                                                             15,598          13,152
                                                                                       ----------      ----------
     Long-term debt and capital leases                                                  $52,949         $43,945
                                                                                       ==========      ==========
</TABLE>

      (a)On July 15, 1997, the Company and one of its subsidiaries  entered into
         two separate  unsecured  seven-year term loans with a bank providing an
         aggregate of 52 million Deutsche marks. The term loans bear interest at
         LIBOR  plus  .75% (see Note 17).  Principal  payments  are as  follows:
         2,600,000  Deutsche  marks due  quarterly on January 1, April 1, July 1
         and October 1 of each year  beginning  October 1, 1999 until  maturity,
         with interest payable  monthly.  Proceeds from the term loans were used
         to finance  the Elba Group  acquisition  on July 22, 1997 (see Note 5).
         The agreements contain certain  restrictive  covenants similar to those
         discussed in Note 7.

      (b)On  April  4,  1995,  the  Company  entered  into an  unsecured  credit
         agreement with a bank that provided for a $25 million  seven-year  term
         loan. Remaining payments are as follows:  $2,200,000 due on April 1 and
         October 1 of each year until maturity,  with interest  payable monthly.
         Proceeds  from  the  term  loan  were  used  to  redeem  the  Company's
         Debentures  (see Note 9). The agreement  contains  certain  restrictive
         covenants  similar  to  those  discussed  in Note 7. In May  1995,  the
         Company  entered into an Interest Rate Collar  Agreement with a 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.  Effective  July 15, 1997,  the Company  amended and restated its
         credit  agreement to bear  interest at LIBOR plus .75%  compared to the
         previous rate set at LIBOR plus 1.5%.

      (c)Zytec's Austrian  subsidiary ("Zytec GmbH") has a revolving credit loan
         with a bank for  financing  export  sales.  The  agreement is renewable
         quarterly  and bears  interest  at 3.5%.  Zytec GmbH also has a line of
         credit agreement that provides $1,979,000 of overdraft financing, which
         bears  interest  ranging  from 4.0% to  7.875%.  These  borrowings  are
         collateralized by export receivables.

      (d)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 with a net
         book value of  approximately  $3,893,000  at January 2, 1998 and by the
         Company's  guaranty.  The loan proceeds were used to provide additional
         working capital. Effective July 1, 1997, the loan agreement was amended
         to extend the interest rate of 6.9% through June 30, 1998.  The note is
         due in monthly installments of $27,700, including interest.

      (e)Notes payable  include various notes which mature from January to April
         1998.  The interest  rate on each of the notes was 3.875% at January 2,
         1998. The notes are collateralized by accounts receivable of Zytec GmbH
         totaling  $6,134,000  and  $3,728,000 at January 2, 1998 and January 3,
         1997, respectively, which exclude the export receivables in (c) above.

      (f)Interest  is  payable  at rates  ranging  from 5% to 6.3%.  The loan is
         guaranteed by the Austrian  government and is collateralized by certain
         Austrian property,  plant and equipment. As part of the agreement,  the
         Company is obligated to make capital  contributions to Zytec GmbH up to
         a maximum of  $2,454,000,  if Zytec  GmbH's  cumulative  cash flow,  as
         defined in the loan agreement,  becomes negative.  Cumulative cash flow
         was $17,879,000 at January 2, 1998;  therefore no capital  contribution
         is required at January 2, 1998.

      (g)The interest rate is established  weekly according to market conditions
         such that the  market  value of the bonds  will  remain  equal to their
         principal  value;  the maximum interest rate payable under the bonds is
         10%.  The  interest  rate at  January 2, 1998 was 4.8%.  The  agreement
         requires  a  bank  letter  of  credit  to be  maintained  in an  amount
         approximately equal to the outstanding  principal balance of the bonds.
         The  letter  of  credit  is  collateralized  by  accounts   receivable,
         inventories and certain property, plant and equipment.

      (h)Interest is payable at 4.875% through June 30, 1999 after which it will
         be renegotiated.  The loan is guaranteed by the Austrian government and
         is collateralized by certain Austrian property, plant and equipment.

      (i)On December 23, 1996,  Zytec  entered into a  convertible  subordinated
         promissory  note with a bank for  $12,000,000.  Pursuant to the merger,
         the note  was  converted  into  shares  of  Zytec's  common  stock at a
         conversion  price of $13.68 per share for a total of 877,193  shares of
         Zytec common  stock which were  exchanged  for shares of the  Company's
         common stock in the merger at the 1.33 exchange ratio.

      (j)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 specified repayment in three yearly installments due on
         September 30, 1995, 1996 and 1997.

Maturities  of long-term  debt,  excluding  capital  lease  obligations,  are as
follows:   $13,064,000  in  1998,  $7,551,000  in  1999,  $10,454,000  in  2000,
$13,265,000 in 2001, $8,126,000 in 2002 and $8,674,000 thereafter.

The fair value of the debt and capital  leases,  based upon discounted cash flow
analysis using current market interest rates, approximates its carrying value at
January 2, 1998.

9. 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  of all  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.

10.   LEASE OBLIGATIONS

Equipment under capital leases includes certain production and office equipment.
The  Company  is  also  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):

                                      Capital      Operating    Sublease
                YEAR                   Leases        Leases       Income
              --------              ----------   -----------  -----------
   1998                                $ 3,104      $  5,802     $  1,776
   1999                                  2,589         5,426        2,322
   2000                                  1,627         4,993        2,346
   2001                                  1,165         4,539        2,617
   2002                                     36         4,292        2,617
   Thereafter                               30        13,607          427
                                     ----------   -----------  -----------
                                       $ 8,551       $38,659      $12,105
                                                  ===========  ===========
   Less amount representing interest   (1,138)
                                     ----------
   Present value of net minimum
    lease payments                    $ 7,413
                                     ==========

Rental expense under  operating  leases  amounted to $9,294,000,  $6,395,000 and
$4,632,000  in fiscal 1997,  1996 and 1995,  respectively.  Sublease  income was
$1,941,000   $1,941,000  and   $1,710,000  for  fiscal  1997,   1996  and  1995,
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.  These lease liabilities
are included in other  liabilities in the  Consolidated  Statements of Financial
Condition  and amounted to $4,377,000  and  $5,994,000 as of January 2, 1998 and
January 3, 1997.

<PAGE>

11.   INCOME TAXES

The  components of the income from  continuing  operations  provision for income
taxes consist of the following ($000s):

                                      1997        1996      1995
                                     --------    -------   -------
      Currently payable:
         Federal                     $12,979     $4,410    $2,205
         State                        2,129       2,424       964
         Foreign                      5,846       3,287     1,405
                                     --------    -------   -------
      Total current                  20,954      10,121     4,574
                                     --------    -------   -------
      Deferred provision:
         Federal                     (3,019)        612     2,276
         State                          140         134       186
         Foreign                       (516)     (2,834)       67
                                     --------    -------   -------
      Total deferred                 (3,395)     (2,088)    2,529
                                     --------    -------   -------
      Total provision for income
        taxes                       $17,559      $8,033    $7,103
                                    =========    =======   =======

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
1997,  1996 and 1995,  the  provision  for income  taxes  excludes  current  tax
benefits of $3,163,000, $1,934,000 and $2,141,000,  respectively, related to the
exercise of stock options credited directly to additional paid-in capital.

During  fiscal  1996 and  1995,  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 and $646,000 in
1996 and 1995, respectively.

Income  taxes  have not  been  provided  on the  undistributed  earnings  of the
Company's foreign  subsidiaries,  which approximated $45.4 million as of January
2, 1998, as the Company does not intend to repatriate such earnings.

The  components  of the  Company's  income  from  continuing  operations  before
provision for income taxes consist of the following ($000s):

                                      1997      1996       1995
                                     -------   --------   -------
      U.S.                           $28,626   $25,157    $16,922
      Foreign                         20,815    12,431      6,664
                                     -------   --------   -------
      Total income before income
        taxes                        $49,441   $37,588    $23,586
                                     =======   ========   =======

The Company's  effective tax rate differs from the U.S. statutory federal income
tax rate due to the following:

                                      1997      1996       1995
                                     -------   --------   -------

      U.S.federal statutory tax rate  35.0%     35.0%      35.0%
      Foreign tax effects             (2.3)     (1.8)      (2.6)
      Recognition  of  deferred  tax
      benefit of NOL carryforward      -        (8.4)        -
      Permanent items -non-deductible  2.7       0.3        1.6
      Change in the valuation
         allowance                    (5.2)    (10.8)      (9.8)
      Effect of AMT and state
         income taxes                  5.1       6.9        6.9
      Other                            0.2       0.2       (1.0)
                                     -------   --------   -------
      Effective income tax rate       35.5%     21.4%      30.1%
                                     =======   ========   =======

In May 1996, the Austrian  government changed the treatment of NOL carryforwards
by (a) suspending  the use of NOLs during the years 1996 and 1997  retroactively
to January 1, 1996 and (b) removing the time limitations on the use of the NOLs.
In light of this new  statute and  based on the  Company's  assessment  of the
strong  financial  results of the  Austrian  operations,  Zytec  recognized  the
deferred  income tax benefit  related to the  Austrian NOL  carryforwards.  This
resulted in a $2,626,000  net reduction of income taxes in the second quarter of
1996,  comprised of a tax benefit of $3,175,000  relating to  recognition of the
deferred tax benefit offset by $549,000 in income tax expense resulting from the
retroactive  application  of this tax law  change  to first and  second  quarter
Austrian operations.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax assets and deferred tax liabilities as of January 2,
1998 and January 3, 1997 are as follows ($000s):

                                                              1997        1996
                                                          ---------   ---------
      DEFERRED TAX ASSETS
      Net operating  loss  carryforwards
       (expiring 2003 through 2011)                        $1,118    $  2,807
      Tax credit  carryforwards (expiring 1998
        through 2001)                                       2,086       2,080
      Foreign net operating loss carryforwards              2,665       3,067
      Lease liabilities                                     1,799       2,395
      Inventory reserves                                    2,558       2,341
      Other accrued liabilities                             3,430       2,634
      Allowance for bad debt                                  595         778
      Other                                                   402         875
                                                          ---------   ---------
      Gross deferred tax assets                            14,653      16,977
      Valuation allowance                                  (4,851)     (8,926)
                                                          ---------   ---------
            Net deferred tax assets                         9,802       8,051
                                                          ---------   ---------
      DEFERRED TAX LIABILITIES
      Depreciation                                         (1,300)     (1,319)
      Amortization of goodwill                               (412)       (343)
      Other                                                (1,528)     (1,920)
                                                          ---------   ---------
            Deferred tax liabilities                       (3,240)     (3,582)
                                                          ---------   ---------
      Deferred income taxes, net                           $6,562     $  4,469
                                                          =========   =========

The valuation  allowance at January 2, 1998 includes  approximately $3.2 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
2, 1998, the valuation  allowance decreased by approximately $4.1 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 it is more likely than not, that future taxable income will
be sufficient to utilize deferred tax assets of $9.8 million.

<PAGE>

12. EARNINGS PER SHARE

The following data show the amounts used in computing earnings per share and the
effects  on income  and the  weighted-average  number  of  shares  of  potential
dilutive common stock.  The number of shares used in the  calculations  for 1996
and 1995 reflect a two-for-one  stock split occurring on June 3, 1996. Also, the
number of shares used in the calculation for all periods  presented was adjusted
to reflect the additional  shares issued  pursuant to the merger with Zytec at a
conversion ratio of 1.33. The reconciliation of the numerator and denominator of
the EPS calculation is presented below ($000s except per share data):
<TABLE>
<CAPTION>


                              1997                          1996                          1995
                   ===========================   ===========================   ===========================
                   Income      Shares            Income      Shares            Income      Shares
                   Numerator Denominator EPS     Numerator Denominator EPS     Numerator Denominator EPS
                   --------  ----------- -----   --------- ----------- -----   --------- ----------- -----

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

Income from
continuing
operations         $31,882                       $29,555                       $16,483
                   --------                      --------                      --------

BASIC EPS
Income available
to common
shareholders        31,882     36,650   $0.87     29,555     35,375   $0.84     16,483     33,267   $0.50
                                        ======                        ======                        ======

EFFECT OF
DILUTIVE
SECURITIES

Stock options                   2,837                         2,495                         1,454
Convertible Debt       548      1,167                  -          -                788        683
                   --------  ---------           --------  ---------           --------  ---------
DILUTED EPS
Income available
to common
shareholders       $32,430     40,654   $0.80    $29,555     37,870   $0.78    $17,271     35,404   $0.49
                   ========  =========  ======   ========  =========  ======   ========  =========  ======
</TABLE>

Options to purchase 167,123, 432,668 and 431,834 shares of common stock were not
included in computing diluted EPS for fiscal 1997, 1996 and 1995,  respectively,
because their effects were antidilutive for the respective periods.

13.   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.  In October of 1997, the Company
entered  into  a new  Grant  Agreement  whereby  the  IDA  granted  the  sum  of
approximately  $3.3  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 2, 1998, the Company had not yet received any of the $3.3
million grant. The funds will reduce 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 $2.6 million of
funds received to date from prior grants. Management believes that noncompliance
with the agreements is unlikely.

14.   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.  The Company did not repurchase any
shares during 1997. 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.   In  September  1997,  the  Company  terminated  the  stock
repurchase program.

<PAGE>

15.   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 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 under the PEP plan to 5,950,000  in 1997.  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  Company's  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 2, 1998,  1,899,149 shares of common stock were
reserved for future grants.

The Zytec stock options  outstanding at the date of the merger were converted to
the Company's  stock  options.  The Zytec option  activity and share prices have
been  restated,  for all years  presented,  to Company's  equivalents  using the
exchange  ratio of 1.33  shares of the  Company's  common  stock to one share of
Zytec common stock.  Zytec existing options  generally expire six years from the
date of grant,  or three months after  termination  of  employment,  if earlier.
Options  vest at the rate of 20% per year  beginning  one year  from the date of
grant. Of the converted stock options, 424,590 were exercisable as of January 2,
1998. No additional options will be granted from the Zytec plans.

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 under such plan to 500,000 in 1996.  Effective in 1996,  upon
initial  election  or  appointment  to the  Board of  Directors  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  2,  1998,  130,000  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
employee and outside  directors  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:

                                     1997           1996           1995
                               -----------     ----------    -----------
Risk-free interest rate              6.2%           6.0%           6.4%
Dividend yield                          -              -              -
Expected volatility                   63%            52%            56%
Expected life                   3.2 YEARS      3.4 years      2.7 years


<PAGE>

The Company's pro forma information follows ($000s except per share data):

                                          1997           1996          1995
                                      ---------     ----------    ----------

NET INCOME          As reported        $29,820        $30,059       $17,598
                                      =========     ==========    ==========
                    Pro forma          $24,028        $27,354       $16,733
                                      =========     ==========    ==========

EPS - BASIC         As reported        $  0.81        $  0.85       $  0.53
                                      =========     ==========    ==========
                    Pro forma          $  0.66        $  0.77       $  0.50
                                      =========     ==========    ==========

EPS-ASSUMING DILUTION
                    As reported        $  0.75        $  0.79       $  0.52
                                      =========     ==========    ==========
                    Pro forma          $  0.61        $  0.72       $  0.49
                                      =========     ==========    ==========


The  effects  of  applying  SFAS  123 in  this  pro  forma  disclosure  are  not
necessarily  indicative  of  future  results.  SFAS 123 does not apply to awards
prior to 1995.

The  following  table  summarizes  activity  under all plans for the years ended
1997, 1996 and 1995.
<TABLE>
<CAPTION>

                                              1997                      1996                      1995
                                         ----------------------    ----------------------    ----------------------
                                                     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  4,808,247    $ 6.50       4,163,603   $  2.77        5,175,758    $2.12

       Options granted                   2,876,493     14.99       2,345,771     10.81        1,440,750     4.15
       Options exercised                (1,055,662)     4.43      (1,403,047)     2.70       (2,158,731)    2.09
       Options canceled                   (450,274)    10.36        (298,080)     6.08         (294,174)    3.23
                                         ----------- ----------    ----------- ----------    ----------- ----------
 Options outstanding, end of year        6,178,804    $10.53       4,808,247   $  6.51        4,163,603    $2.77
                                         ==========               ==========                 ===========

 Options exercisable, end of year        1,947,762                 1,787,520                  2,536,281
                                         ==========               ===========               ===========

 Weighted-average fair value of
  options granted during the year            $6.87                     $4.42                      $1.51
                                         ===========              ===========               ===========


</TABLE>

The following table summarizes  information  about stock options  outstanding at
January 2, 1998:
<TABLE>
<CAPTION>

                                           OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                      ---------------------------------------------------------       ----------------------------------
                                               Weighted-
                                               Average
                                              Remaining           Weighted-                                 Weighted-
    Range of              Number           Contractual Life        Average               Number              Average
    Exercise            Outstanding            (Years)          Exercise Price         Exercisable        Exercise Price
     Prices              at 1/2/98                                                      at 1/2/98
------------------    ----------------     -----------------    ---------------       --------------      ---------------
<S>          <C>            <C>                  <C>                    <C>                 <C>                  <C>
 $  0.56 -   3.57           1,240,278            3.43                   $ 2.45              888,768              $  2.40
    3.62 -   9.30           1,258,792            3.99                     5.91              409,161                 5.33
     9.59 - 10.39           1,395,284            5.19                     9.80               18,620                 9.59
    11.25 - 18.00           1,649,462            7.81                    15.82              594,213                14.96
    18.25 - 29.56             634,988            6.38                    23.32               37,000                18.33
                      ----------------                                                --------------
  $  0.56 - 29.56           6,178,804            5.41                    10.53            1,947,762                 7.22
                      ================                                                ==============

</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 years 1997 and 1996.  Employees purchased 17,864 and 8,707 shares in 1997
and 1996, respectively.

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 and 102,570 shares in 1996 and 1995, respectively, at
a purchase price of $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.

On October 9, 1996, Zytec's shareholders approved a stock purchase plan allowing
substantially  all  employees to purchase,  through  payroll  deductions,  newly
issued shares of Zytec's  common  stock.  The plan allows  Zytec's  employees to
purchase  common  stock on a  quarterly  basis at the lower of 85% of the market
price at the  beginning or end of each  calendar  quarter.  Employees  purchased
71,742 shares in 1997 at purchase prices ranging from $9.03 to $22.41. No shares
were issued in 1996.  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 1997:
risk-free interest rate of 5.73%,  dividend yield of 0%, expected  volatility of
69% and  expected  life of .25  year.  The  weighted-average  fair  value of the
purchase rights granted in 1997 was
$5.03.

16.   EMPLOYEE BENEFIT PLANS

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.  Costs charged to  operations  for matching
contributions  were $444,000,  $400,000 and $489,000,  respectively,  for fiscal
1997, 1996 and 1995.

Zytec has a defined contribution 401(k) plan covering substantially all domestic
employees.   Contributions   to  the  plan  by  Zytec  are  based  on   employee
contributions to the plan.  Costs charged to operations were $657,000,  $424,000
and $370,000, respectively, for fiscal 1997, 1996 and 1995.

In  April  1996,  Zytec's  board  of  directors  established  a  noncontributory
profit-sharing  plan covering  substantially  all Zytec employees.  The plan was
effective July 1, 1996. Zytec  contributed to such plan $1.3 million in 1997. No
contributions were made to such plan in 1996.

Substantially all employees of Zytec GmbH are entitled to benefit payments under
a severance  plan.  The benefit  payments are based  primarily on the employees'
salaries  and the  number of years of service  and are paid upon the  employees'
voluntary retirement. At January 2, 1998 and January 3, 1997, Zytec had recorded
a liability of $681,000 and $543,000,  respectively,  related to this  severance
plan. Zytec recorded $260,000, $106,000 and $124,000 in severance expense during
1997,  1996 and 1995,  respectively.  Zytec has  invested in  Austrian  bonds of
$294,000 and $301,000 at January 2, 1998 and January 3, 1997,  respectively,  to
partially fund the severance plan as required by Austrian law.

17.  DERIVATIVE  FINANCIAL  INSTRUMENTS AND FAIR VALUE OF FINANCIAL  INSTRUMENTS
FOREIGN EXCHANGE  INSTRUMENTS --The Company enters into 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 denominated in foreign currencies made by its international  subsidiaries.
The foreign  exchange  contracts on receivables  require the Company to exchange
European  ECU for Irish  Punts and U.S.  dollars  for  Austrian  Shillings.  The
foreign exchange  contracts on payables require the Company to exchange Japanese
Yen to receive U.S.  dollars.  At January 2, 1998, the Company held $6.6 million
of forward currency exchange  contracts on receivables  maturing in one to three
months while no contracts on payables  were  outstanding.  The Company held $8.8
million of forward currency exchange contracts on receivables maturing in one to
three  months as of  January 3, 1997.  Gains and losses on these  contracts  are
included in the  consolidated  statement  of  operations  as they  arise.  Costs
associated  with entering into these  contracts are amortized  over the contract
lives, which typically mature within one year. The amount of any gain or loss on
these contracts during the period was not material. The Company does not hold or
issue financial instruments for trading purposes.

INTEREST  RATE  INSTRUMENTS  -- On July 14, 1997,  the Company  entered into two
interest rate swap  agreements  with First Union National Bank pursuant to which
it exchanged its floating rate interest  obligations on the aggregate 52 million
Deutsche  marks  notional  principal  loan  amount  for  a  fixed  rate  payment
obligation of 5.58% per annum for a seven-year  period beginning August 1, 1997.
The fixing of the  interest  rates for these  periods  minimizes  the  Company's
exposure to the  uncertainty of floating  interest rates during this  seven-year
period.  The  differential  paid or  received  on these  interest  rate swaps is
recognized as an adjustment to interest expense.

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 2, 1998 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  traditionally  have been within  management's  expectations and have not
been material in any year. As of January 2, 1998 and January 3, 1997, management
believes the Company had no significant concentrations of credit risk.

<PAGE>

18. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMER

The  Company  operates in a single  industry  segment  encompassing  the design,
development,  manufacture  and sale of electronic  products and  subsystems  for
power conversion 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.

Approximately  56%  of  the  Company's  products  are  manufactured  in  foreign
locations.  Specifically,  30% of the  Company's  1997 sales were from  products
manufactured  in Hong Kong and China,  26% from products  manufactured in Europe
and the  remaining  44% from  domestic  operations.  Included  in the  Company's
consolidated  statement  of  financial  condition at January 2, 1998 are the net
assets  of  the  Company's   European  and  Asian   subsidiaries,   which  total
approximately $58.2 million and $21.6 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 $79.2  million (15% of 1997 sales) and $62.8
million (14% of 1996 sales) in fiscal 1997 and 1996,  respectively.  No sales to
one customer accounted for 10% or more of 1995 sales.

Given the current  economic  situation in Asia, there is a risk that the current
pegging  of the  Hong  Kong  dollar  to the U.S.  dollar  will be  removed.  The
Company's management has assessed the potential exposure in the event the peg is
removed/changed  and there was a devaluation in the Hong Kong dollar.  Since the
Company's sales are in U.S.  dollars and purchases are either in U.S. dollars or
Hong Kong dollars,  the major impact would be to the carrying  value of the Hong
Kong fixed assets whose value currently approximates $7.0 million.

A summary of the  Company's  operations by  geographic  area is presented  below
($000s):

                                          1997           1996          1995
                                        ----------     ---------     ----------
   SALES

     TO UNAFFILIATED CUSTOMERS:
      United States                     $345,485       $299,122      $247,741
      Europe                             155,948        115,328        91,552
      Asia-Pacific                        25,803         21,281         5,676

     INTERCOMPANY SALES:
      United States                       12,283         10,278         7,992
      Europe                              10,267          5,554         4,219
      Asia-Pacific                       112,043         92,275        79,191
      Eliminations                      (134,593)      (108,107)      (91,402)
                                        ----------     ---------     ----------
      Total sales                       $527,236       $435,731      $344,969
                                        ==========     =========     ==========

   INCOME BEFORE INCOME TAXES

      United States                      $32,411        $25,755       $21,072
      Europe                              16,243          9,006         6,322
      Asia-Pacific                         7,056          5,859         3,560
      Other (a)                           (5,942)        (4,027)       (6,075)
      Eliminations                          (327)           995        (1,293)
                                        ----------     ---------     ----------
      Income before income taxes         $49,441        $37,588       $23,586
                                        ==========     =========     ==========

   IDENTIFIABLE ASSETS

      United States                     $145,004       $132,648      $106,627
      Europe                             105,816         49,929        38,490
      Asia-Pacific                        40,474         37,675        33,058
      Other (a)                           38,050         23,024        22,262
      Eliminations                        (7,167)        (3,789)        2,421
                                        ----------     ---------     ----------
      Total assets                      $322,177       $239,487      $202,858
                                        ==========     =========     ==========


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

19.   SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED)
   (Amounts in Thousands Except Per Share Data)

<TABLE>
<CAPTION>

                                             FIRST      SECOND       THIRD      FOURTH
                                           QUARTER     QUARTER     QUARTER     QUARTER

                                         ----------  ----------  ----------  ----------

FISCAL 1997

<S>                                       <C>         <C>         <C>         <C>
Sales                                     $114,463    $130,878    $133,744    $148,151
Gross profit                                29,556      35,798      36,292      35,887
Income from continuing operations            7,076      10,437      10,383       3,986
   Per share  - Basic                         0.20        0.29        0.28        0.11
              - Assuming dilution             0.19        0.26        0.25        0.10
Net Income                                   5,014      10,437      10,383       3,986
   Per share  - Basic                         0.14        0.29        0.28        0.11
              - Assuming dilution             0.13        0.26        0.25        0.10

Stock price per common share:

   High                                      18.75       25.25       33.44       30.88
   Low                                       13.75       13.75       23.25       14.56

FISCAL 1996

Sales                                     $108,452    $108,775    $107,630    $110,874
Gross profit                                25,047      26,606      26,228      29,040
Income from continuing operations            6,285       9,107       6,728       7,435
   Per share  - Basic                         0.18        0.26        0.19        0.21
              - Assuming dilution             0.17        0.24        0.18        0.20
Net Income                                   6,019       9,271       6,905       7,864
   Per share  - Basic                         0.17        0.26        0.19        0.22
              - Assuming dilution             0.16        0.24        0.18        0.21

Stock price per common share:

   High                                      14.50       23.00       21.75       21.88
   Low                                        9.25       13.25       12.81       17.88

</TABLE>

Net income for the fourth  quarter of 1997 includes  direct merger costs of $3.0
million.

Quarterly  sales and gross profit amounts exclude sales and gross profits of RTP
Corp.,  which the Company  classified  as  discontinued  operations in the first
quarter of 1997.

Data in the above table 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  Company'sconsolidated  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 2,  1998,  there  were  approximately  20,701
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 which involve risks and  uncertainties.  In
addition,  Computer  Products,  Inc.  identified the following risk factors that
could affect the Company's  actual  results and cause them to differ  materially
from those in the forward-looking statements.

POTENTIAL PROBLEMS WITH INTEGRATION OF OPERATIONS The success of the merger will
depend  in large  part  upon  whether  Computer  Products  ("CPI")  and  Zytec's
respective  businesses are integrated in an efficient and effective manner.  The
combination of the two companies will require,  among other things,  integration
of  the  companies'  respective  product  offerings,  technologies,   management
information  systems,  and the  coordination  of their sales and  marketing  and
research and development efforts. In addition,  the integration of CPI and Zytec
will require the  dedication  of  management  resources,  which may  temporarily
divert  attention  from the  day-to-day  business of the combined  company,  the
development  or  acquisition  of new  technologies,  and the  pursuit  of  other
business  acquisition  opportunities.  Failure  to  successfully  integrate  the
combined  Company's  operations  could  have a  material  adverse  effect on its
business, results of operations and financial condition.

NON-REALIZATION OF BENEFICIAL SYNERGIES Management of both CPI and Zytec pursued
the merger  with the  expectation  that the  merger  will  result in  beneficial
synergies,  including cost reductions from purchasing  efficiencies and improved
market  penetration.  Achieving these anticipated  synergies may be limited by a
number of factors  including,  without  limitation,  problems  and delays in the
integration of CPI's and Zytec's  operations  and general and  industry-specific
economic factors. No assurance can be given that the benefits expected from such
integration will be realized.

CUSTOMER  RELATIONSHIPS  There can be no assurance that the Company's  customers
will continue their current and/or  historical  buying  patterns in light of the
merger.  Certain  customers may defer purchasing  decisions as they evaluate the
combined company's future product strategy and consider the product offerings of
competitors.  If  substantial  numbers  of  customers  determine  to defer  such
purchases or purchase  products from  competitors,  such deferrals and purchases
could have a material adverse effect on the business,  results of operations and
financial condition of the Company. In addition, Zytec has historically depended
upon a limited  number of customers for a  significant  portion of its business.
Decisions  by a  relatively  small  number  of these  customers  to defer  their
purchasing  decisions or to purchase  products  elsewhere  could have a material
adverse effect on the business, results of operations and financial condition of
the Company.

MERGER  RELATED  OPERATING  CHARGE The Company  incurred  $3.0 million in direct
merger costs for the period ending  January 2, 1998. In addition,  as previously
disclosed  in the  Company's  Registration  Statement  on Form S-4,  the Company
expects to record a charge of  approximately  $8 million to $10  million  during
1998 to eliminate duplicate facilities,  functions and excess capacity. Although
the Company  expects that the  elimination  of  duplicate  expenses as well as
other efficiencies related to the integration of the operations of the combining
companies may offset  additional  expenses over time,  there can be no assurance
that such net benefits will be achieved.

RISKS  RELATED TO NEW  PRODUCTS  The  markets  for the  Company's  products  are
characterized by rapidly changing  technologies,  increasing  customer  demands,
evolving industry  standards,  frequent new product  introductions  and, in some
cases,  short  product  life cycles.  The  development  of new,  technologically
advanced  products is a complex and uncertain  process  requiring high levels of
innovation and cost, as well as the accurate  anticipation of technological  and
market  trends.  There can be no assurance  that the Company  will  successfully
develop,  introduce or manage the transition of new products.  The failure of or
the delay in  anticipating  technological  advances or developing  and marketing
product   enhancements   or  new  products  that  respond  to  any   significant
technological  change  could have a  material  adverse  effect on the  business,
operating results and financial condition of the Company.

FLUCTUATIONS IN QUARTERLY  OPERATING RESULTS The Company has experienced  recent
quarterly   growth  in  sales   principally   due  to  increased  sales  in  the
communications  market,  increased  market  acceptance  of its products and the
expansion of its product lines and sales channels.  Due to the rapidly  changing
nature of the markets for its products,  as well as the  likelihood of increased
competition,  there can be no assurance that the Company's  growth rate in sales
and positive operating results will continue. If sales are below expectations in
any given quarter,  the adverse impact of any shortfall on the operating results
of the  Company may be  magnified  to the extent the Company is unable to adjust
spending to compensate for the shortfall. Accordingly, there can be no assurance
that  the  Company  will  be  able  to  sustain  profitability  in  the  future,
particularly on a quarter-to-quarter basis.

COMPETITION;  INCREASED COMPETITION DUE TO INDUSTRY CONSOLIDATION The industries
in which the  Company  competes  are highly  competitive  and  characterized  by
increasing  customer  demands for  product  performance,  shorter  manufacturing
cycles and lower prices.  These trends result in frequent  introductions  of new
products with added capabilities and features and continuous improvements in the
relative  price/performance of the products.  Increased competition could result
in price  reductions,  reduced profit margins and loss of market share,  each of
which could adversely  affect the Company's  results of operations and financial
condition.  The Company's  principal  competitors  include Lucent  Technologies,
Delta Product and Astec (BSR) plc.  Certain of the Company's  major  competitors
have  also  been   engaged  in  merger  and   acquisition   transactions.   Such
consolidations  by  competitors  are likely to create  entities  with  increased
market share,  customer bases,  technology and marketing expertise,  sales force
size, and/or proprietary technology. These developments may adversely affect the
Company's ability to compete in such markets.

DEPENDENCE  ON PERSONNEL The success of the Company will depend in part upon the
efforts of its  employees  and the  retention  of key  employees of the Company.
Competition  for  qualified  personnel  in the  power  supply  industry  is very
intense.  The loss of services of any of the key employees could  materially and
adversely  affect the  combined  company's  business,  financial  condition  and
results of operations

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,  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.

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

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. Although the Company continues to evaluate and
implement protective measures, there can be no assurance that these efforts will
be  successful  or that  third  parties  will not assert  intellectual  property
infringement claims against the Company.

RISKS RELATED TO  ACQUISITIONS  Acquisitions  of  complementary  businesses  and
technologies,  including technologies and products under development,  have been
an important  part of the  Company's  business  strategy.  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.  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.

DEPENDENCE ON SOLE SOURCE  SUPPLIERS As a result of the custom nature of certain
of the Company's  manufactured  products,  components used in the manufacture of
these  products  are  currently  obtained  from a limited  number of  suppliers.
Although  there are a limited  number of  manufacturers  of certain  components,
management  believes that other suppliers  could provide  similar  components on
comparable  terms.  A  change  in  suppliers,  however,  could  cause a delay in
manufacturing  and a  possible  loss of sales that  could  adversely  affect the
Company's future operating results and financial position.

RISKS RELATED TO  INTERNATIONAL  SALES  International  sales have been,  and are
expected to continue to be, an  increasingly  important  contributor to sales of
the  Company.  International  sales  are  subject  to  certain  inherent  risks,
including   unexpected   changes  in   regulatory   requirements   and  tariffs,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems  in  collecting   accounts   receivable  and  potentially  adverse  tax
consequences.  Other risks of  international  sales include  changes in economic
conditions  in the  international  markets  in  which  the  products  are  sold,
political and economic  instability,  fluctuations  in currency  exchange rates,
import and export controls, and the burden and expense of complying with foreign
laws. In addition, 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 operating results and financial  condition of the
Company.

RISKS RELATED TO GOVERNMENT  REGULATIONS AND PRODUCT CERTIFICATION The Company's
operations  are 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  The Company  manufactures a
significant  amount of its products in foreign locations.  Specifically,  30% of
the Company's 1997 sales were from products manufactured in Hong Kong and China,
26% from  products  manufactured  in Europe and the  remaining 44% 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 or other locations,  earnings could
be adversely  affected  from  business  disruption  resulting  in delays  and/or
increased costs in the production and delivery of products.

VOLATILITY  OF STOCK PRICE The market  price of the  Company's  common stock has
been, and, may continue to be, relatively volatile.  Factors such as new product
announcements  by the  Company,  its  customers  or its  competitors,  quarterly
fluctuations in operating  results,  challenges  associated with  integration of
businesses and general  conditions in the markets in which the Company competes,
such as a decline in industry growth rates, may have a significant impact on the
market price of the Company's common stock. These conditions, as well as factors
which generally affect the market for stocks of technology companies could cause
the  price  of the  Company's  common  stock  to  significantly  fluctuate  over
relatively short periods.

In  addition  to the  foregoing,  the  Company  wishes to refer  readers  to the
Company's  other  reports  filed with the  Securities  and Exchange  Commission,
specifically the most recent reports on Form S-4, Form 10-K and Form 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 2, 1998 and January 3, 1997, and the related consolidated  statements of
operations,  shareholders'  equity and cash  flows for each of the three  fiscal
years in the fiscal period ended January 2, 1998. 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 did not audit
the  statement  of  financial  condition  as of January 3, 1997 and the  related
statements of  operations,  shareholders'  equity and cash flows for each of the
two fiscal years in the fiscal year ended January 3, 1997 of Zytec  Corporation,
a company acquired on December 29, 1997 in a transaction accounted for under the
pooling-of-interests  method  of  accounting,  as  discussed  in  Note  5.  Such
statements  are included in the  consolidated  financial  statements of Computer
Products,  Inc. and reflect  total assets of 35 % in 1996 and total sales of 52%
and 49% in 1996 and 1995,  respectively,  of the  related  consolidated  totals.
These  statements were audited by other auditors whose report has been furnished
to us and our  opinion,  insofar as it relates  to  amounts  included  for Zytec
Corporation, is based solely upon the report of the other auditors.

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  and the  report of the other  auditors  provide a
reasonable basis for our opinion.

In our opinion,  based on our audits and the report of the other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the  financial  position of  Computer  Products,  Inc.  and
subsidiaries as of January 2, 1998 and January 3, 1997, and the results of their
operations and their cash flows for each of the three fiscal years in the fiscal
period ended January 2, 1998 in conformity  with generally  accepted  accounting
principles.

ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
    January 23, 1998.

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 six 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
Co-Chairman of the Board, President and Chief Executive Officer

RICHARD J. THOMPSON
Vice President, Finance and Chief Financial Officer