<PAGE>

                                 EXHIBIT 13.1
            Portions of the Company's Annual Report to Stockholders
                  for the fiscal year ended December 31, 1996

                           [BAR GRAPHS APPEAR HERE]

<TABLE> 
<CAPTION> 
Revenues in Millions of Dollars
<S>              <C> 
92 ............. 325
93 ............. 381
94 ............. 437        
95 ............. 533
96 ............. 670

<CAPTION> 

Pro Forma Net Income in Millions of Dollars/(1)/
<S>              <C> 
92 ............. 25.8
93 ............. 35.1
94 ............. 43.1       
95 ............. 52.9
96 ............. 68.4

<CAPTION> 

Pro Forma Fully Diluted Net Income per Share in Dollars/(1)/
<S>              <C> 
92 .............  .79
93 .............  .95
94 ............. 1.12       
95 ............. 1.33     
96 ............. 1.59
</TABLE> 


<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------------------------------
       Selected financial information

       (In thousands, except per share amounts)                1992         1993         1994         1995          1996
       <S>                                                <C>          <C>          <C>          <C>           <C> 
       INCOME STATEMENT DATA /(2)(3)/
         Revenues                                         $ 324,570    $ 381,372    $ 437,190    $ 532,628     $ 670,309
         Income from operations                              50,336       59,645       70,326       80,076        59,786
         Net income                                          25,808       38,474       43,087       48,672        34,901
         Fully diluted  net income per share                    .79         1.04         1.12         1.23          0.81
         Pro forma net income /(1)/                          25,808       35,103       43,087       52,910        68,369
         Pro forma fully diluted net income per share /(1)/     .79          .95         1.12         1.33          1.59
       BALANCE SHEET DATA
         Total assets                                     $ 365,580    $ 418,135    $ 485,740    $ 579,734     $ 679,318
         Total short-term and long-term debt                 89,790        6,523       10,567       10,002        39,346
         Stockholders' equity                               189,899      316,960      359,292      422,292       464,638

</TABLE> 
 
      (1) Excludes all items described in footnote 2.
      (2) 1993 includes after-tax gain on sale of product line of $3,371, or
          $0.09 per share on a fully diluted basis. 1995 includes merger costs
          of $4,238, or $0.10 per share on a fully diluted basis. 1996 includes
          charges for purchased in-process research and development and other
          charges of $51,083 ($33,468 after tax), or $0.78 per share on a fully
          diluted basis. See Note 2 of Notes to Consolidated Financial
          Statements.
      (3) All per share amounts have been adjusted for a July 1995 two-for-one
          stock split. See Note 10 of Notes to Consolidated Financial
          Statements.
--------------------------------------------------------------------------------


<PAGE>
 
          FINANCIAL TABLE OF CONTENTS









          26   Quarterly Financial Information

          26   Stock Information

          27   Management's Discussion and Analysis of Financial Condition and 
               Results of Operations

          31   Consolidated Statements of Income

          32   Consolidated Balance Sheets

          33   Consolidated Statements of Cash Flows

          34   Consolidated Statement of Stockholders' Equity

          36   Notes to Consolidated Financial Statements

          42   Report of Independent Accountants



                                      25.
                                      
<PAGE>
 
<TABLE> 
<CAPTION> 


QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


(In thousands, except per share amounts)        First       Second        Third      Fourth
                                              Quarter      Quarter      Quarter     Quarter
--------------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>         <C>  
1996: (1)
   Revenues...................................$149,798    $155,568     $171,646    $193,297
   Income (loss) before income taxes..........  24,592      27,258      (14,078)     25,797
   Net income (loss)..........................  14,632      16,219      (10,465)     14,515
   Fully diluted net income (loss)
      per common share(3).....................     .34         .38         (.24)        .34


1995: (2)
   Revenues...................................$121,490    $125,119     $132,114    $153,905
   Income before income taxes.................  18,850      20,707       21,292      24,263
   Net income.................................  11,121      12,218       12,008      13,325
   Fully diluted net income
      per common share(3).....................    .29          .32          .31         .31

</TABLE> 

(1) Includes third-quarter charges for purchased in-process research and
development and other charges of $44,032 ($28,287 after tax), or $0.66 per share
on a fully diluted basis, and fourth-quarter charges for purchased in-process
research and development of $7,051 ($5,181 after tax), or $0.12 per share on a
fully diluted basis.
(2) Includes third-quarter merger costs of $1,351, or $0.03 per share on a fully
diluted basis, and fourth-quarter merger costs of $2,887, or $0.07 per share on
a fully diluted basis.
(3) All per share amounts have been adjusted for a July 1995 two-for-one stock
split.



STOCK INFORMATION


The common stock of SunGard Data Systems Inc. trades on the National Market of
The Nasdaq Stock Market and the London Stock Exchange under the symbol SNDT. At
March 3, 1997, the Company had approximately 2,600 stockholders of record. No
dividends have ever been paid on the Company's common stock. The Company's
policy is to retain earnings for use in its business.
     The following table indicates high and low sales prices per share of the
Company's common stock, as reported on Nasdaq. All prices reflect the Company's
July 1995 two-for-one stock split.

<TABLE> 
<CAPTION> 

Calendar Year 1996
<S>                              <C>               <C> 
First Quarter .................. $38               $27-1/2 
Second Quarter .................  41                31-1/4 
Third Quarter ..................  46-3/4            35-3/8 
Fourth Quarter .................  47-1/2            38-1/4 

Calendar Year 1995
First Quarter .................. $24-3/8           $17-3/4 
Second Quarter .................  26-3/4            21-5/8 
Third Quarter ..................  31-3/4            26-1/8 
Fourth Quarter .................  32-1/2            25-1/4 
</TABLE> 

The last sale price of the Company's common stock on March 3, 1997, as reported
on Nasdaq, was $48-1/4 per share.


                                                            
                                      26.
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS


Statements about the Company's expectations and all other statements in this
Annual Report other than historical facts are forward-looking statements. Since
these statements involve risks and uncertainties and are subject to change at
any time, the Company's actual results could differ materially from expected
results. The Company derives most of its forward-looking statements from its
operating budgets and forecasts, which are based upon many detailed assumptions.
While the Company believes that its assumptions are reasonable, it cautions that
there are inherent difficulties in predicting certain important factors,
especially the timing and magnitude of software sales, the timing and scope of
technological advances, the performance of recently acquired businesses, the
prospects for future acquisitions, and the overall condition of the financial
services industry. These factors, as and when applicable, are discussed in the
Company's filings with the Securities and Exchange Commission, including its
Form 10-K for the year ended December 31, 1996, a copy of which may be obtained
from the Company without charge.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain amounts
included in the Consolidated Statements of Income of SunGard Data Systems Inc.,
the relative percentage that those amounts represent to consolidated revenues
(unless otherwise indicated), and the percentage change in those amounts from
period to period.

<TABLE> 
<CAPTION> 

         
                                            Year Ended December 31,       Percent of Revenues /(1)/        Percent Increase
                                                (in millions)              Year Ended December 31,         (Decrease) /(1)/
                                                                                                             1996     1995
                                            1996      1995     1994       1996       1995      1994       vs.1995  vs.1994
                                          -----------------------------------------------------------------------------------
Revenues                       
<S>                                       <C>       <C>       <C>     <C>            <C>       <C>         <C>        <C>          
   Investment support systems .......     $412.3    $330.6    $271.1       61%        62%        62%        25%        22%
   Disaster recovery services .......      193.8     162.3     138.7       29         31         32         19         17
   Computer services and other.......       64.2      39.7      27.4       10          7          6         62         45
                                          ----------------------------------------------------------
                                          $670.3    $532.6    $437.2      100%       100%       100%        26         22
                                          ==========================================================
Costs and Expenses             
   Cost of sales and           
      direct operating ..............     $291.6    $234.0    $194.8       43%        44%        45%        25%        20%
   Sales, marketing and        
      administration ................      135.4     109.2      89.6       20         21         20         24         22
   Product development ..............       61.5      50.4      36.8        9          9          8         22         37
   Depreciation .....................       37.3      30.8      24.3        6          6          6         21         27
   Amortization .....................       33.6      23.9      21.4        5          4          5         41         12
   Purchased in-process research
      and development and
      other charges .................       51.1       4.2        --        8          1         --         --         --
                                          ----------------------------------------------------------
                                          $610.5    $452.5    $366.9       91%        85%        84%        35         23
                                          ==========================================================
Operating Income
   Investment support
      systems/(2)/ ..................     $ 68.1    $ 51.7    $ 43.9       17%        16%        16%        32%        18%
   Disaster recovery services/(2)/...       42.6      34.9      29.2       22         22         21         22         20
   Computer services
      and other/(2)/ ................        9.5       5.1       4.8       15         13         18         86          6
   Corporate administration .........       (9.3)     (7.4)     (7.6)      (1)        (1)        (2)        26         (3)
                                          ----------------------------
                                           110.9      84.3      70.3       17         16         16         32         20
   Purchased in-process research
      and development and
      other charges .................      (51.1)     (4.2)       --       (8)        (1)        --         --         --
                                          ----------------------------
                                          $ 59.8    $ 80.1    $ 70.3        9         15         16        (25)        14
                                          ============================
</TABLE> 
(1) All percentages are calculated using actual amounts rounded to the nearest
    $1,000. 
(2) Percent of revenues is calculated as a percent of investment support
    systems, disaster recovery services, and computer services and other
    revenues, respectively.


                                      27.
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS  continued


INCOME FROM OPERATIONS

During 1996, the Company recorded $44.5 million of charges to operations ($0.64
per fully diluted share) for purchased in-process research and development
associated with the acquisitions of NCS Financial Systems, Inc. and two small
investment support systems businesses. The Company recorded $6.6 million of
other charges ($0.14 per fully diluted share) primarily associated with the
impairment of the remaining intangible assets related to a business acquired
more than ten years ago, the principal markets of which were state and municipal
governments and thrift institutions. The following discussion of income from
operations excludes these charges, as well as merger costs of $4.2 million
recorded during 1995.

   Investment Support Systems (ISS)

The Company's ISS business is comprised of more than thirty operating units of
various size and complexity. Historically, most operating units have met or
exceeded expectations, while some have not, yielding overall results for the
entire business at approximately the levels expected.

   The ISS operating margin was 17% in 1996 and 16% in both 1995 and 1994. The
Company expects that the full-year 1997 ISS operating margin will increase
slightly. The most important factors affecting the ISS operating margin continue
to be the timing and magnitude of software license revenues, the operating
margin of recently acquired businesses, and the level of product development
spending.

   Since overall ISS results reflect the sum of the diverse results of
individual operating units, there could be an adverse impact on ISS revenues and
margins if too many individual units are unable to meet expectations.

   Disaster Recovery Services (DRS)

The DRS operating margin was 22% in both 1996 and 1995, compared to 21% in 1994.
The improved margin in 1995 is primarily attributable to an increase in revenues
resulting from new contract signings and contract renewals and the results of
cost-containment efforts related to selling, marketing and administrative costs.

   The Company expects the full-year 1997 DRS operating margin to continue the
pattern of modest improvement experienced over the past three years. The most
important factors affecting the DRS operating margin continue to be the rate of
new contract signings and contract renewals, the timing and magnitude of
equipment and facilities expenditures, and the performance of recently acquired
businesses.

   Computer Services and Other (CS)

The increase in the CS operating margin in 1996 compared to 1995 is due
primarily to an increase in remote-access computer processing revenues and
improved performance by the Company's healthcare information systems (HIS)
businesses. The decline in the CS operating margin in 1995 compared to 1994 is
due to the poor performance of an HIS business that was acquired in 1995.

   The Company expects that the CS operating margin will continue to improve for
the full year 1997. The most important factors affecting the CS operating margin
are the timing and magnitude of software license revenues related to the HIS
businesses and revenue variability in both remote-access computer processing and
automated mailing services.

REVENUES

Total revenues increased $137.7 million and $95.4 million in 1996 and 1995,
respectively. Excluding acquired businesses, revenues increased $52.1 million
and $62.6 million, or 10% and 15%, in 1996 and 1995, respectively. Recurring
revenues derived from remote processing, disaster recovery, and software
maintenance and rentals are approximately $516.5 million, $425.6 million and
$367.3 million in 1996, 1995 and 1994, respectively, representing 77%, 80% and
84% of consolidated revenues, respectively, for those years. The declining
percentage of recurring revenues for the three years 1994 through 1996 is due
primarily to businesses acquired during that period having a larger percentage
of software license and professional services revenues. Accordingly, the
percentage of software license revenues to total revenues increased to 13% in
1996, compared to 12% and 8% in 1995 and 1994,

                                      28.
<PAGE>
 
respectively, and professional services revenues increased to 10% of total
revenues in 1996, compared to 8% in both 1995 and 1994. The Company expects that
the percentage of recurring revenues for the full year 1997 will not change
significantly from 1996.

   The Company sells a significant portion of its products and services to the
financial services industry and could be directly affected by the overall
condition of that industry. The Company expects that the consolidation trend in
the financial services industry will continue, but it is unable to predict what
effect, if any, this trend may have.

   Investment Support Systems

ISS revenues increased $81.7 million and $59.5 million in 1996 and 1995,
respectively. Excluding acquired businesses, revenues increased $24.0 million
and $39.7 million, or 7% and 15%, in 1996 and 1995, respectively. The 1996
increase is attributable to an $11.2 million, or 12%, increase in software
license and professional services revenues and a $12.8 million, or 5%, increase
in remote processing and software maintenance revenues. The 1995 increase is
attributable to a $23.6 million, or 37%, increase in software license and
professional services revenues and a $16.1 million, or 8%, increase in remote
processing and software maintenance revenues.

   Disaster Recovery Services

DRS revenues increased $31.5 million and $23.6 million in 1996 and 1995,
respectively. Excluding acquired businesses, revenues increased $24.3 million
and $20.3 million, or 15% each, in 1996 and 1995, respectively. The increases in
1996 and 1995 are due to $23.7 million and $18.7 million respective increases in
revenues primarily from new contract signings and contract renewals, continued
growth in midrange platforms, and $0.6 million and $1.6 million respective
increases in software license and professional services revenues.

   Computer Services and Other

CS revenues increased $24.5 million and $12.3 million in 1996 and 1995,
respectively. Excluding acquired businesses, 1996 and 1995 revenues increased
$3.8 and $2.5 million, or 10% and 9%, compared to 1995 and 1994, respectively.
The 1996 and 1995 increases are due to increased volume in the Company's remote-
access computer services business and, to a lesser extent, increased revenues in
the Company's HIS and mailing services businesses.

COSTS AND EXPENSES

Cost of sales and direct operating expenses increased $57.6 million and $39.2
million in 1996 and 1995, respectively. The increases are due primarily to
acquired businesses and computer and facilities improvements. The decrease in
cost of sales and direct operating expenses as a percentage of revenues from 45%
in 1994 to 44% and 43% in 1995 and 1996, respectively, is due primarily to
increased product development spending associated with the ISS and HIS
businesses.

   Sales, marketing and administration expenses increased $26.2 million and
$19.6 million in 1996 and 1995, respectively. The increases are due primarily to
acquired businesses and increased sales activity, particularly in DRS in 1996
and in the Company's trading systems business in 1995.

   Product development expenses increased $11.1 million and $13.6 million in
1996 and 1995, respectively. The increases are due primarily to acquired
businesses and increased development spending in connection with various ISS
products. Development costs capitalized were $3.6 million in both 1996 and 1995
and $1.9 million in 1994.

   Depreciation of property and equipment increased $6.5 million in both 1996
and 1995. The increases are due primarily to purchases of computer and
telecommunications equipment and acquired businesses.

   Amortization of intangible assets increased $9.7 million and $2.5 million in
1996 and 1995, respectively, due to acquired businesses.

   As explained above, purchased in-process research and development and other
charges of $51.1 million ($0.78 per fully diluted share) were incurred in 1996.
During 1995, merger costs of $4.2 million ($0.10 per fully diluted share) were
incurred in connection with three acquisitions accounted for as poolings-of-
interests (see Notes 1 and 2 of Notes to Consolidated Financial Statements).

                                      29.
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS  continued


   Net interest income decreased $1.3 million in 1996 compared to 1995 due to
lower cash and short-term investment balances. Net interest income increased
$2.8 million in 1995 compared to 1994 due primarily to a change in mix between
taxable and tax-exempt instruments and an increase in average cash and
investment balances.

   The Company's effective income tax rate was 45.1% and 42.8% in 1996 and 1995,
respectively. The higher rate in 1996 than in 1995 is due to nondeductible costs
associated with a portion of purchased in-process research and development and
other costs. The increase in the 1995 effective income tax rate compared to 1994
is due to merger costs associated with 1995 acquisitions accounted for as
poolings-of-interests. Excluding these charges, the 1996, 1995 and 1994
effective income tax rates were 40.4%, 40.8% and 40.6%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments as of December 31, 1996 decreased $69.1 million
from December 31, 1995, to $46.1 million. An increase in accounts receivable and
other current assets is due primarily to an increase in software license sales
in December 1996 and to acquired businesses. The Company expects that capital
spending for property and equipment during 1997 will approximate 1996 capital
spending.

   At December 31, 1996, the Company's remaining commitments consist primarily
of operating leases for computer equipment and facilities aggregating $160.3
million, of which $51.2 million will be paid in 1997. The Company expects that
its existing cash resources and cash generated from operations will be
sufficient for the foreseeable future to meet its operating requirements,
contingent payments in connection with business acquisitions, and ordinary
capital spending needs. Furthermore, the Company has a $150.0 million credit
agreement and believes that it has the capacity to secure additional credit or
issue equity to finance additional capital needs.


                                      30.
<PAGE>
 
CONSOLIDATED STATEMENTS OF INCOME
<TABLE> 
<CAPTION> 

(In thousands, except per share amounts)                    Year Ended December 31,
                                                         1996         1995         1994
                                                     -----------------------------------
<S>                                                  <C>          <C>          <C> 
Revenues ..........................................  $670,309     $532,628     $437,190
                                                     -----------------------------------

Costs and expenses:
  Cost of sales and direct operating ..............   291,580      234,011      194,838
  Sales, marketing and administration .............   135,403      109,226       89,579
  Product development .............................    61,474       50,338       36,741
  Depreciation of property and equipment ..........    37,356       30,807       24,268
  Amortization of intangible assets ...............    33,627       23,932       21,438
  Purchased in-process research and development 
    and other costs................................    51,083        4,238           --
                                                     -----------------------------------
                                                      610,523      452,552      366,864
                                                     -----------------------------------
Income from operations ............................    59,786       80,076       70,326
  Interest income, net ............................     3,783        5,036        2,202
                                                     -----------------------------------
Income before income taxes ........................    63,569       85,112       72,528
  Income taxes ....................................    28,668       36,440       29,441
                                                     -----------------------------------
Net income ........................................  $ 34,901     $ 48,672     $ 43,087
                                                     -----------------------------------
                                                                               

Fully diluted net income per common share .........  $   0.81     $   1.23     $   1.12
                                                     -----------------------------------    

Shares used to compute fully diluted net income
  per common share ................................    43,061       39,668       38,502
                                                     -----------------------------------
</TABLE> 


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

                                      31.
<PAGE>
 
CONSOLIDATED BALANCE SHEETS
<TABLE> 
<CAPTION> 

(In thousands, except per share amounts)                                              December 31,
                                                                                  1996              1995
                                                                             ----------------------------
<S>                                                                          <C>               <C> 
ASSETS
Current:
  Cash and equivalents ...................................................   $  46,072         $  79,091
  Short-term investments, at cost, which approximates market .............          --            36,066
  Trade receivables, less allowance for doubtful                    
    accounts of $10,391 and $6,426 .......................................     130,404           118,169
  Earned but unbilled receivables ........................................      27,842            25,090
  Prepaid expenses and other current assets ..............................      18,507            16,020
  Deferred income taxes ..................................................      13,632             6,727
                                                                             ----------------------------
    Total current assets .................................................     236,457           281,163
Property and equipment, less accumulated
  depreciation of $158,214 and $126,580 ..................................     109,523            95,745
Software products, less accumulated
  amortization of $68,780 and $59,033 ....................................      71,917            35,375
Goodwill, less accumulated amortization of $23,444 and $19,658 ...........     156,796           116,455
Other intangible assets, less accumulated
  amortization of $34,590 and $27,015 ....................................     104,625            50,996
                                                                             ----------------------------
                                                                             $ 679,318         $ 579,734
                                                                             ----------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
  Short-term and current portion of long-term debt .......................   $  34,932         $   6,761
  Accounts payable .......................................................      13,531            12,428
  Accrued compensation and benefits ......................................      41,581            29,330
  Other accrued expenses .................................................      24,004            15,773
  Accrued income taxes ...................................................       5,873            10,639
  Deferred revenues ......................................................      90,345            72,642
                                                                             ----------------------------
    Total current liabilities ............................................     210,266           147,573
                                                                             ----------------------------
Long-term debt ...........................................................       4,414             3,241
                                                                             ----------------------------
Deferred income taxes ....................................................          --             6,628
                                                                             ----------------------------
Commitments
Stockholders' equity:
  Preferred stock, par value $.01 per share; 5,000 shares authorized......          --                --
  Common stock, par value $.01 per share; 60,000 shares authorized;  
    42,300 and 42,111 shares issued ......................................         423               421
  Capital in excess of par value .........................................     175,937           171,558
  Notes receivable for common stock ......................................        (559)           (2,817)
  Restricted stock plans .................................................      (1,535)             (220)
  Retained earnings ......................................................     292,113           260,172
  Foreign currency translation adjustment ................................        (266)           (1,279)
                                                                             ----------------------------
                                                                               466,113           427,835
  Treasury stock, at cost, 43 and 189 shares .............................      (1,475)           (5,543)
                                                                             ----------------------------
   Total stockholders' equity ............................................     464,638           422,292
                                                                             ----------------------------
                                                                             $ 679,318         $ 579,734
                                                                             ----------------------------
</TABLE> 


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

                                      32.
<PAGE>
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> 
<CAPTION> 

(In thousands)                                                                  Year Ended December 31,
                                                                          1996              1995              1994
                                                                     ----------------------------------------------
<S>                                                                  <C>               <C>               <C> 
CASH FLOW FROM OPERATIONS
   Net income ...............................................        $  34,901         $  48,672         $  43,087
   Reconciliation of net income to cash flow from operations: 
     Depreciation and amortization ..........................           70,983            54,739            45,706
     Purchased in-process research and development
       and other charges ....................................           51,083                --                --
     Other noncash charges ..................................            2,529             1,886             1,286
     Deferred income tax benefit ............................          (21,921)           (1,374)           (3,668)
                                                                     ----------------------------------------------   
                                                                       137,575           103,923            86,411
   Cash provided by (used for) working capital, net of effect
       of acquired businesses:
   Accounts receivable and other current assets .............           (9,669)          (30,650)          (11,536)
   Accounts payable and accrued expenses.....................              863             9,729             4,594
   Deferred revenues ........................................            5,396             7,007            10,300
                                                                     ----------------------------------------------            
     Cash flow from operations ..............................          134,165            90,009            89,769
                                                                     ----------------------------------------------            
            
FINANCING ACTIVITIES
   Cash received under employee stock plans .................           12,246             5,999             3,687
   Cash paid for treasury stock .............................           (4,221)          (10,029)           (7,979)
   Borrowings under line of credit ..........................           18,000                --                --
   Repayments of debt .......................................           (9,274)           (8,594)           (2,121)
                                                                     ----------------------------------------------   
     Total financing activities .............................           16,751           (12,624)           (6,413)   
                                                                     ----------------------------------------------            
LONG-TERM INVESTMENT ACTIVITIES                                                                                       
   Cash paid for acquired businesses, net of cash acquired ..         (165,682)          (27,294)          (28,061)   
   Cash paid for property and equipment .....................          (41,347)          (31,652)          (34,286)   
   Cash paid for software and other assets ..................          (12,972)           (5,879)           (3,191)   
                                                                     ----------------------------------------------             
     Total long-term investment activities ..................         (220,001)          (64,825)          (65,538)   
                                                                     ----------------------------------------------            
Increase (decrease) in cash and equivalents                                                                           
   before short-term investment activities ..................          (69,085)           12,560            17,818    
SHORT-TERM INVESTMENT ACTIVITIES                                                                                      
   Purchase of short-term investments .......................           (2,660)          (56,188)          (48,775)   
   Maturities of short-term investments .....................           38,726            54,228            47,493    
                                                                     ----------------------------------------------   
Increase (decrease) in cash and equivalents .................          (33,019)           10,600            16,536    
Beginning cash and equivalents ..............................           79,091            68,491            51,955    
                                                                     ----------------------------------------------   
Ending cash and equivalents .................................        $  46,072         $  79,091         $  68,491    
                                                                     ----------------------------------------------   
SUPPLEMENTAL INFORMATION                                                                                              
   Interest paid ............................................        $   1,213         $     919         $     703    
                                                                     ----------------------------------------------   
   Income taxes paid ........................................        $  50,140         $  33,556         $  30,405    
                                                                     ----------------------------------------------            
   Acquired businesses:                                                                                               
     Property and equipment .................................        $  11,690         $   4,719         $   2,250    
     Software products ......................................           42,110            14,597             2,620    
     Purchased in-process research and development ..........           44,451                --                --    
     Goodwill and other intangible assets ...................           98,320            31,933            38,274    
     Deferred income taxes ..................................            9,447               379            (3,234)   
     Purchase price obligations and debt assumed ............          (20,217)           (7,796)           (5,184)   
     Net current liabilities assumed ........................          (20,119)           (1,117)           (6,665)   
     Common stock issued ....................................               --           (15,421)               --    
                                                                     ----------------------------------------------   
       Cash paid for acquired businesses, net of cash                                                                 
             acquired of $132, $8,077 and $12,777 in                                                                  
             1996, 1995 and 1994, respectively ..............        $ 165,682         $  27,294         $  28,061    
                                                                     ----------------------------------------------   
</TABLE> 

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

                                      33.
<PAGE>
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands)

<TABLE>
<CAPTION>
                                                                                  Common Stock     Capital in
                                                                             Number of       Par    Excess of
                                                                                Shares     Value    Par Value
                                                                             ------------------------------------
<S>                                                                          <C>           <C>     <C>
Balances, December 31, 1993 ...............................................     18,801      $188     $161,149
    Net income ............................................................          -         -            -
    Purchase of common stock ..............................................          -         -            -
    Shares issued under restricted stock plans, net .......................          5         -          164
    Shares issued under stock purchase, option and award plans ............         92         1          522
    Compensation expense related to restricted stock plans ................          -         -            -
    Income tax benefit arising from transactions in common stock options...          -         -          400
    Foreign currency translation adjustment ...............................          -         -            -
                                                                                ---------------------------------
Balances, December 31, 1994 ...............................................     18,898       189      162,235
    Poolings-of-interest ..................................................      4,253        43        8,878
    Net income ............................................................          -         -            -
    Two-for-one common stock split ........................................     18,898       189         (189)
    Purchase of common stock ..............................................          -         -            -
    Note repayments .......................................................          -         -            -
    Shares issued under stock purchase, option and award plans ............         62         -           84
    Compensation expense related to restricted stock plans ................          -         -            -
    Income tax benefit arising from transactions in common stock options...          -         -          550
    Foreign currency translation adjustment ...............................          -         -            -
                                                                                ---------------------------------
Balances, December 31, 1995 ...............................................     42,111       421      171,558
    Net income ............................................................          -         -            -
    Purchase of common stock ..............................................          -         -            -
    Note repayments .......................................................          -         -            -
    Shares issued under restricted stock plans ............................         50         -        1,687
    Shares issued under stock purchase, option and award plans ............        139         2        1,520
    Compensation expense related to restricted stock plans ................          -         -            -
    Income tax benefit arising from transactions in common stock options...          -         -        1,172
    Foreign currency translation adjustment ...............................          -         -            -
                                                                                ---------------------------------
Balances, December 31, 1996 ...............................................     42,300      $423     $175,937
                                                                                ---------------------------------
</TABLE>

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


                                      34.
<PAGE>
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY continued

(In thousands)

<TABLE> 
<CAPTION> 
                                                                                                                          Foreign
                                                                                    Notes   Restricted                   Currency
                                                                           Receivable for        Stock     Retained   Translation
                                                                             Common Stock        Plans     Earnings    Adjustment
                                                                           --------------------------------------------------------
<S>                                                                        <C>              <C>            <C>        <C> 
Balances, December 31, 1993 .............................................         $     -      $(2,156)    $162,034       $(4,041)
    Net income ..........................................................               -            -       43,087             - 
    Purchase of common stock ............................................               -            -            -             - 
    Shares issued under restricted stock plans, net .....................               -         (164)           -             - 
    Shares issued under stock purchase, option and award plans ..........               -            -            -             - 
    Compensation expense related to restricted stock plans ..............               -        1,462            -             - 
    Income tax benefit arising from transactions in common stock options.               -            -            -             - 
    Foreign currency translation adjustment .............................               -            -            -         1,675 
                                                                           --------------------------------------------------------
Balances, December 31, 1994 .............................................               -         (858)     205,121        (2,366)
    Poolings-of-interest ................................................          (3,332)           -        9,800            32 
    Net income ..........................................................               -            -       48,672             - 
    Two-for-one common stock split ......................................               -            -            -             - 
    Purchase of common stock ............................................               -            -            -             - 
    Note repayments .....................................................             515            -            -             - 
    Shares issued under stock purchase, option and award plans ..........               -            -       (3,421)            - 
    Compensation expense related to restricted stock plans ..............               -          638            -             - 
    Income tax benefit arising from transactions in common stock options.               -            -            -             - 
    Foreign currency translation adjustment .............................               -            -            -         1,055 
                                                                           --------------------------------------------------------
Balances, December 31, 1995 .............................................          (2,817)        (220)     260,172        (1,279)
    Net income ..........................................................               -            -       34,901             - 
    Purchase of common stock ............................................               -            -            -             - 
    Note repayments .....................................................           2,258            -            -             - 
    Shares issued under restricted stock plans ..........................               -       (1,687)           -             - 
    Shares issued under stock purchase, option and award plans ..........               -            -       (2,960)            - 
    Compensation expense related to restricted stock plans ..............               -          372            -             - 
    Income tax benefit arising from transactions in common stock options.               -            -            -             - 
    Foreign currency translation adjustment .............................               -            -            -         1,013 
                                                                           --------------------------------------------------------
Balances, December 31, 1996 .............................................         $  (559)      $(1,535)    $292,113      $  (266)
                                                                           --------------------------------------------------------
</TABLE> 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY continued

(In thousands)

<TABLE> 
<CAPTION> 
                                                                                     Treasury Stock                      
                                                                              Number of                                 
                                                                                 Shares          Cost         Total     
                                                                              -----------------------------------------
<S>                                                                           <C>            <C>           <C> 
Balances, December 31, 1993 .............................................            (6)     $   (214)     $316,960       
    Net income ..........................................................             -             -        43,087       
    Purchase of common stock ............................................          (212)       (7,979)       (7,979)      
    Shares issued under restricted stock plans, net .....................             -             -             -       
    Shares issued under stock purchase, option and award plans ..........            87         3,164         3,687       
    Compensation expense related to restricted stock plans ..............             -             -         1,462       
    Income tax benefit arising from transactions in common stock options.             -             -           400       
    Foreign currency translation adjustment .............................             -             -         1,675       
                                                                              -----------------------------------------
Balances, December 31, 1994 .............................................          (131)       (5,029)      359,292       
    Poolings-of-interest ................................................             -             -        15,421       
    Net income ..........................................................             -             -        48,672       
    Two-for-one common stock split ......................................           (91)            -             -       
    Purchase of common stock ............................................          (400)      (10,029)      (10,029)      
    Note repayments .....................................................             -             -           515       
    Shares issued under stock purchase, option and award plans ..........           433         9,515         6,178       
    Compensation expense related to restricted stock plans ..............             -             -           638       
    Income tax benefit arising from transactions in common stock options.             -             -           550       
    Foreign currency translation adjustment .............................             -             -         1,055       
                                                                              -----------------------------------------
Balances, December 31, 1995 .............................................          (189)       (5,543)      422,292       
    Net income ..........................................................             -             -        34,901       
    Purchase of common stock ............................................          (131)       (4,221)       (4,221)      
    Note repayments .....................................................             -             -         2,258       
    Shares issued under restricted stock plans ..........................             -             -             -       
    Shares issued under stock purchase, option and award plans ..........           277         8,289         6,851       
    Compensation expense related to restricted stock plans ..............             -             -           372       
    Income tax benefit arising from transactions in common stock options.             -             -         1,172       
    Foreign currency translation adjustment .............................             -             -         1,013       
                                                                              -----------------------------------------
Balances, December 31, 1996 .............................................           (43)     $ (1,475)     $464,638           
                                                                              -----------------------------------------
</TABLE> 

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

                                      35.
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation
SunGard Data Systems Inc. (the Company), through its wholly owned subsidiaries,
operates in a single industry segment, principally in the United States,
providing computer services, principally proprietary processing services and
software to the financial services industry, computer disaster recovery services
and healthcare information systems. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.

   Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Future events
could cause actual results to differ from those estimates.
   The Company amortizes intangible assets, including software product costs,
over periods that it believes approximate the related useful lives of those
assets based upon estimated future operating results and cash flows of the
underlying business operations. It is possible that the Company's estimates of
those lives could change based upon changes in numerous factors, including
product demand, market conditions, technological developments, economic
conditions and competitor activities.

   Revenue Recognition
Revenues from remote processing, disaster recovery and software maintenance
services are recognized over the terms of the related contracts or as the
related service is provided. License-fee revenues from proprietary products are
generally recognized upon the signing of a contract and delivery of the product,
except in those instances where the Company provides training, installation and
other significant post-delivery services. In those instances, a portion of the
contract price is deferred and recognized as the related services are provided.
   License-fee revenues from proprietary products that are paid for over an
extended period of time and are bundled together with computer equipment and
other post-delivery services, and for which significant credit, technology or
service risks exist, are recorded ratably over the contract period. Revenues
from fixed-fee contracts requiring a significant amount of program modification
or customization, installation, systems integration and/or related services are
recognized based upon the estimated percentage of completion. Changes in
estimated costs during the course of a contract are reflected in the period in
which the facts become known.

   Cash Equivalents and Short-Term Investments
Cash in excess of daily requirements is invested primarily in institutional
money-market funds, commercial paper, time deposits, certificates of deposit and
short-term bonds. Investments purchased with a maturity of three months or less
at the date of purchase are considered to be cash equivalents; those with
maturities greater than three months are considered to be short-term
investments.

   Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of temporary cash and short-term investments and
receivables. By policy the Company places its temporary cash and short-term
investments with institutions of high credit-quality and limits the amount of
credit exposure to any one issuer. The Company sells a significant portion of
its products and services to the financial services industry and could be
directly affected by the overall condition of that industry. The Company
believes that any credit risk associated with receivables is substantially
mitigated by a relatively large number of customer accounts and reasonably short
collection terms. Receivables are stated at estimated net realizable value,
which approximates fair value.

   Property and Equipment
Property and equipment are recorded at cost, and depreciation is provided on the
straight-line method over the estimated useful lives of the related assets (two
to eight years for equipment and ten to forty years for buildings and
improvements). Leasehold improvements are amortized ratably over their remaining
lease term or useful life, if shorter.

   Foreign Currency Translation
The functional currency of each of the Company's foreign operations is the local
currency of the country in which the operation is headquartered. Accordingly,
all assets and liabilities are translated into U.S. dollars using exchange rates
in effect at the balance sheet date. Revenues and expenses are translated using
average exchange rates during the period. Increases and decreases in net assets

                                      36.
<PAGE>
 
resulting from foreign currency translation are accumulated as a separate
component of stockholders' equity.

   Software Development and Product Costs
Product development costs are expensed as incurred and consist primarily of
design and development costs of new products and significant enhancements
incurred prior to the establishment of technological feasibility.
   Costs associated with purchased software, software obtained through business
acquisitions, and new products and enhancements to existing products that meet
technological feasibility and recoverability tests are capitalized and amortized
over the estimated useful lives of the related products, generally five to ten
years, using the straight-line method or the ratio of current revenues to
current and anticipated revenues from such software, whichever provides the
greater amortization. Amortization of all software products aggregated
$15,358,000, $9,601,000 and $9,778,000 during 1996, 1995 and 1994, respectively.

   Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over periods ranging
from twelve to forty years. The recoverability of goodwill is periodically
reviewed by the Company. In assessing recoverability, many factors are
considered, including operating results and cash flows of the acquired
businesses, as well as benefits that the acquired businesses contribute to
existing and related products, services and markets. After consideration of
these factors during 1996, the Company shortened the remaining life of goodwill
related to one acquisition and concluded that goodwill related to another
business that was acquired more than ten years ago, the principal markets of
which were state and municipal governments and thrift institutions, was
impaired. Therefore, during 1996, the Company wrote off the remaining amount of
goodwill associated with this acquisition, which totaled $5,157,000. The Company
believes that no further impairment of goodwill existed at December 31, 1996.

   Other Intangible Assets
Other intangible assets consist primarily of contract rights, customer bases and
noncompetition agreements obtained in business acquisitions. Contract rights and
customer bases are amortized using the straight-line method over their estimated
useful lives, ranging from five to thirty years. Noncompetition agreements are
amortized using the straight-line method over the term of such agreements,
ranging from three to seven years.

   Income Taxes
The Company recognizes deferred tax assets and liabilities based upon the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
calculated based on the difference between the financial and tax bases of assets
and liabilities using the currently enacted tax rates in effect during the years
in which the differences are expected to reverse.

   Fully Diluted Net Income Per Common Share
Fully diluted net income per common share is calculated using the weighted-
average number of common and common-equivalent shares outstanding during the
year. Common-equivalent shares are attributable to unexercised stock options.
Primary net income per common share approximates fully diluted net income per
common share.

2. ACQUISITIONS

   Purchase Transactions
During 1996, the Company completed eight business acquisitions accounted for as
purchase transactions. Five acquisitions were in the Company's investment
support systems business and three were in its disaster recovery services
business.
   Total cash paid in connection with these acquisitions was $158,080,000,
subject to certain adjustments. Goodwill recorded in connection with these
acquisitions was approximately $42,681,000. In addition, contingent payments of
up to $11,000,000 (including 9,500,000 Australian dollars, or approximately
$7,500,000 at December 31, 1996) may be paid in connection with three of these
acquisitions, depending upon each business achieving certain future financial
results.
   During 1996, the Company recorded a charge of $44,451,000 ($0.64 per fully
diluted share) for purchased in-process research and development associated with
the acquisitions of NCS Financial Systems, Inc.(NCS) and two small investment
support systems businesses.
   In connection with the acquisition of NCS, the Company engaged a nationally
recognized, independent appraisal firm to express an opinion on the fair market
value of the assets acquired to serve as the basis of allocation of the purchase
price to the various classes of assets acquired. While the allocation of the
purchase price is still preliminary (primarily since both the Company and
National

                                      37.
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  continued


Computer Systems, Inc., previously the parent company of NCS, have not yet
finalized the allocation of the purchase price for tax purposes), the Company
has recorded a charge against earnings for that portion of the purchase price
related to purchased in-process research and development. This charge
represents, as of the date of acquisition, the value of software products still
in development, but not considered to have reached technological feasibility or
to have any alternate future use.
   Also during 1996, the Company paid an additional 50,000,000 Swedish Kronor
(approximately $7,452,000) as the contingent portion of the purchase price
related to a 1992 acquisition. Goodwill was increased by the amount of that
payment.
   During 1995, the Company completed six business acquisitions accounted for as
purchase transactions. Four acquisitions were in the Company's investment
support systems business and two were in its disaster recovery services
business.
   Total cash paid in connection with these acquisitions was approximately
$23,962,000, subject to certain adjustments. Goodwill recorded in connection
with these acquisitions was approximately $13,838,000. In addition, contingent
payments of up to $10,500,000 may be paid in connection with two of these
acquisitions, depending upon each business achieving certain future financial
results.
   Also during 1995, the Company paid $11,179,000 as the contingent portion of
the purchase price in connection with a 1992 acquisition. Goodwill was increased
during 1995 by the amount of that payment.
   During 1994, the Company completed four business acquisitions. Two
acquisitions were in the Company's investment support systems business and two
were in its disaster recovery services business. Total cash paid in connection
with these acquisitions was approximately $28,307,000. Goodwill recorded in
connection with these acquisitions was approximately $12,956,000.
   The results of operations of these acquired businesses have been included in
the accompanying Consolidated Statements of Income from the date of acquisition.
Pro forma combined results of operations are not presented since the results of
operations as reported in the accompanying Consolidated Statements of Income
would not be materially different.

   Pooling-of-Interests Transactions
During 1995, the Company issued a total of 4,253,000 shares of common stock in
connection with three business combinations accounted for as poolings-of-
interests. Two of the combinations form the nucleus of a new operating group
that provides work-flow management and document-imaging systems primarily to the
healthcare industry. The remaining combination was in the Company's investment
support systems business and provides trading, risk management and accounting
systems primarily to the financial services industry.
   During 1995, the Company recorded merger costs of $4,238,000 ($0.10 per fully
diluted share) in connection with these transactions. These costs consist
primarily of investment banking, legal and accounting fees that are not
deductible for income tax purposes.
   The consolidated results of operations for the year ended December 31, 1995
include the operations of each of these businesses from the beginning of the
quarter in which the business combination was completed. The consolidated
financial statements for prior periods have not been restated since the impact
of such restatement would not be material.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31 (in thousands):
<TABLE> 
<CAPTION> 

                                  1996       1995
                            -----------------------
<S>                         <C>         <C> 
Computer and
  telecommunications
  equipment................ $ 166,934   $ 142,387
Leasehold improvements.....    38,403      32,082
Office furniture
  and equipment............    38,292      27,156
Buildings and
  improvements.............    18,490      16,059
Land.......................     2,285       2,229
Construction in progress...     3,333       2,412
                            -----------------------
                              267,737     222,325
Accumulated depreciation
  and amortization.........  (158,214)   (126,580)
                            -----------------------
                            $ 109,523   $  95,745
                            -----------------------
</TABLE> 

                                      38.
<PAGE>
 
4. LONG-TERM DEBT

Long-term debt consists of the following at December 31 (in thousands):
<TABLE> 
<CAPTION> 

                                      1996       1995
                                 ----------------------
<S>                              <C>         <C> 
Bank credit agreement
  (5.7% interest rate).......... $ 15,000    $     --
Other bank debt
  (8% interest rate)............   16,813          --
Purchase price obligations
  due former owners of
  acquired businesses...........    5,302       6,610
Other, primarily capital lease
  obligations for computer
  equipment and buildings.......    2,231       3,392
                                 ----------------------
                                   39,346      10,002
Less current maturities.........  (34,932)     (6,761)
                                 ----------------------
                                 $  4,414    $  3,241
                                 ----------------------
</TABLE> 

   The Company has an unsecured revolving credit agreement (Credit Agreement)
that provides for up to $150,000,000 of borrowings for an initial period ending
August 2001. Thereafter, the Credit Agreement may be extended for one year, on
an annual basis, at the lender's option. The Company may borrow at LIBOR plus a
margin, depending upon certain financial ratios at the time of the borrowing, or
a base rate, generally the Prime rate, at the Company's option. In order to
remain eligible to borrow under the Credit Agreement, the Company must, among
other requirements, maintain a defined minimum net worth, maintain a defined
minimum fixed-charge coverage ratio, and limit its total debt. Borrowings under
the Credit Agreement at December 31, 1996 were $15,000,000.
   Annual maturities of long-term debt during the next five years are as
follows: 1997- $34,932,000; 1998-$2,309,000; 1999-$491,000; 2000-$111,000; and
2001-$91,000.

5. STOCK OPTION AND AWARD PLANS

   Employee Stock Purchase Plans
Under the Company's Employee Stock Purchase Plans, a maximum of 2,200,000 shares
of common stock may be issued to substantially all full-time employees. Eligible
employees may purchase a limited number of shares of common stock each quarter
through payroll deductions, at a purchase price equal to 85% of the closing
price of the Company's common stock on the last business day of each calendar
quarter. During 1996, 1995 and 1994, employees purchased 152,000, 156,000 and
173,000 shares, respectively, at average purchase prices of $33.50, $22.49 and
$15.49 per share, respectively. At December 31, 1996, 1,057,000 shares of common
stock were reserved for issuance under these plans.

   Equity Incentive Plans
Under the Company's 1994 and 1996 Equity Incentive Plans, awards or options to
purchase up to 2,750,000 shares of common stock may be granted to key employees
of the Company, with an individual limit of 200,000 shares per participant per
year under each plan. Options may be either incentive stock options or
nonqualified stock options, and the option price generally must be at least
equal to the fair value of the Company's common stock on the date of award or
grant. Generally, options are granted for a ten-year term and become fully
exercisable one year from the date of grant, subject to a four- or five-year
vesting schedule.
   During 1996, 1995 and 1994, long-term incentive awards (LTIP awards) were
granted for future options of up to an aggregate of 294,000, 88,000 and 84,000
shares, respectively. The actual number of shares and the exercise price per
share are contingent upon achieving certain cumulative financial results over a
three-year period, beginning on January 1 of the year of each LTIP award. If and
when the option shares are earned, the exercise price per share will be $28.54,
$19.05 and $19.33, respectively, but could be reduced to a minimum of $16.48,
$12.09 and $12.37, respectively, if actual operating results during the three-
year period exceed targeted operating results. Compensation expense, if any, is
estimated initially at the time the achievement of the cumulative financial
results becomes probable and is recorded over the remaining three-year period of
each LTIP award, based upon the difference between the market value and exercise
price of the shares earned. During the years ended December 31, 1996 and 1995,
compensation expense of $1,875,000 and $631,000, respectively, was recorded in
connection with certain 1995 and 1994 LTIP awards. No compensation expense has
been recorded for the 1996 LTIP awards.
   Under the Company's 1986 and 1982 Stock Option Plans, options to purchase up
to 4,094,000 shares of the Company's common stock may be issued to officers and
key employees. These options may be either incentive stock options or
nonqualified stock options, and the option price must be at least equal to the
fair value of the Company's common stock on the date of grant. Generally,
options are granted for a ten-year term and become fully exercisable one

                                      39.
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued


year from the date of grant, subject to a four-or five-year vesting schedule.
   The table on page 41 summarizes transactions under these equity incentive and
stock option plans. All share and per share amounts have been restated to
reflect a July 1995 two-for-one stock split (see Note 10).
   At December 31, 1996, 4,061,000 shares of common stock were reserved for
issuance under the Company's equity incentive and stock option plans.

   Restricted Stock Plans
The Company's Restricted Stock Award Plan for Outside Directors (RSAP) provides
for awards of up to 200,000 shares of the Company's common stock. Each outside
director automatically receives an initial award of 10,000 shares of the
Company's common stock upon election to the Company's Board of Directors and,
upon re-election as an outside director every fifth year thereafter,
automatically receives another 10,000 shares. Shares awarded under the RSAP are
subject to certain transfer and forfeiture restrictions that lapse over a five-
year vesting period. RSAP awards for 50,000 shares were granted during 1996, and
an RSAP award for 10,000 shares was granted during 1994, at market values of
$33.75 and $17.31 per share, respectively. There were no awards during 1995. At
December 31, 1996, 71,000 shares of common stock were reserved for issuance
under this plan.
   The Company's Restricted Stock Incentive Plan (RSIP) provides for awards of
up to 800,000 shares of the Company's common stock to key management employees.
Shares awarded under the RSIP are subject to certain transfer and forfeiture
restrictions that lapse over a five-year vesting period. There have been no
awards granted since 1991. At December 31, 1996, 107,000 shares of common stock
were reserved for issuance under this plan.
   Unearned compensation expense related to the restricted stock plans is
reported as a reduction of stockholders' equity in the accompanying consolidated
financial statements. For accounting purposes, compensation expense is recorded
ratably over the five-year period during which the shares are subject to
transfer and forfeiture restrictions and is based on the market value on the
award date less the par value of the shares awarded. Compensation expense
related to the RSAP and RSIP aggregated $372,000, $638,000 and $1,462,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.

   Pro Forma Information
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option and award plans. Accordingly,
compensation expense has been recorded for its LTIP, RSAP and RSIP awards, and
no expense has been recorded for its other stock-based plans. FASB Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), changes the method
for recognition of cost on stock option and award plans that are similar to
those of the Company. Adoption of the cost recognition requirements under SFAS
123 is optional; however, pro forma information is presented in the following
paragraph.
   Had compensation cost for the Company's stock option and award plans been
determined based upon the fair value at the date of grant, as prescribed under
SFAS 123, the Company's net income and earnings per share would have been
reduced by approximately $5,110,000 and $1,185,000, or $0.12 and $0.03 per
share, in 1996 and 1995, respectively. The fair value of the options granted
during 1996 and 1995 is estimated to be $16.72 and $12.11 per share,
respectively, on the date of grant using the Black-Scholes pricing model with
the following assumptions: volatility of 37%; expected term of six years; risk-
free interest rate of 6.5%; and no dividend yield. The effects of applying SFAS
123 in this pro forma disclosure are not necessarily indicative of the impact on
future years, since SFAS 123 does not apply to grants and awards made prior to
1995 and the Company's options and awards generally vest over five years. The
Company also anticipates that additional options and awards will be made in
future years.

                                      40.
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                                  Shares
                                                               ------------------------------------------
                                                                                               Weighted
                                                                               Under LTIP       Average
                                                               Available  Award or Option         Price
                                                               ------------------------------------------
<S>                                                            <C>        <C>                  <C> 
Balances at December 31, 1993 ($2.50-$19.50 per share).......    636,000        1,394,000       $  7.18
    Authorized...............................................  1,000,000               --            --
    LTIP awards ($12.37-$19.33 per share)....................    (84,000)          84,000            --
    Canceled ($7.00-$11.69 per share)........................     10,000          (10,000)         8.49
    Granted ($19.25-$19.38 per share)........................   (102,000)         102,000         19.31
    Exercised ($2.50-$11.69 per share).......................         --         (184,000)         6.04
                                                               -----------------------------
Balances at December 31, 1994 ($2.50-$19.50 per share).......  1,460,000        1,386,000          8.36
    Poolings-of-interests ($0.38-$8.21 per share)............         --           89,000          5.40
    LTIP awards ($12.09-$19.05 per share)....................    (88,000)          88,000            --
    Canceled ($7.00-$19.50 per share)........................     56,000          (56,000)        10.75
    Granted ($20.63-$30.75 per share)........................   (729,000)         729,000         24.98
    Exercised ($2.50-$19.50 per share).......................         --         (339,000)         5.58
                                                               -----------------------------
Balances at December 31, 1995 ($0.38-$30.75 per share).......    699,000        1,897,000         15.58
    Authorized...............................................  1,750,000               --            --
    LTIP awards ($16.48-$28.54 per share)....................   (294,000)         294,000            --
    Canceled ($2.19-$40.87 per share)........................    153,000         (175,000)        26.56
    Granted ($29.00-$41.25 per share)........................ (1,554,000)       1,554,000         35.20
    Exercised ($0.38-$20.63 per share).......................         --         (263,000)        11.92
                                                               -----------------------------
Balances at December 31, 1996 ($0.38-$41.25 per share).......    754,000        3,307,000         26.21
                                                               -----------------------------
</TABLE> 

The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1996:
<TABLE> 
<CAPTION> 
                                 Options Outstanding                                           Options Exercisable
----------------------------------------------------------------------------         ------------------------------------------
                                                    Weighted average                                       
  Range of Exercise    Number of Options       Remaining                               Number of Options    Weighted average
  Prices                 and LTIP Awards    Life (years)    Exercise Price               and LTIP Awards      Exercise Price
----------------------------------------------------------------------------         ------------------------------------------
<S>                    <C>                  <C>             <C>                      <C>                    <C> 
  $0.38 to $10.00                488,000             3.9            $ 6.12                       482,000             $  6.11
  $10.00 to $20.00               223,000             6.4             15.32                       223,000               15.32
  $20.00 to $30.00               747,000             8.7             25.21                       607,000               24.33
  $30.00 to $40.00             1,102,000             9.1             34.23                        72,000               30.75
  Over $40.00                    281,000             9.7             40.96                            --                  --
</TABLE> 


6. SAVINGS PLANS

The Company and its subsidiaries maintain savings plans that cover substantially
all employees. These plans generally provide that the Company will contribute a
certain percentage of employee compensation or contributions up to a specified
level. Company contributions charged to income under these plans aggregated
$6,125,000, $5,338,000 and $3,800,000 for the years ended December 31, 1996,
1995 and 1994, respectively.

7. INCOME TAXES

The provisions for income taxes for the years ended December 31, 1996, 1995 and
1994 consist of the following (in thousands):
<TABLE> 
<CAPTION> 

                       1996      1995      1994
                   -------------------------------
Current:
<S>                <C>       <C>       <C> 
  Federal......... $ 37,460  $ 26,112  $ 22,251
  State...........    8,973     6,708     6,810
  Foreign.........    4,156     4,994     4,048
                   -------------------------------
                     50,589    37,814    33,109
                   -------------------------------
Deferred:          
  Federal.........  (19,639)   (1,376)   (2,579)
  State...........   (2,680)     (216)     (603)
  Foreign.........      398       218      (486)
                   -------------------------------
                    (21,921)   (1,374)   (3,668)
                   -------------------------------
                   $ 28,668  $ 36,440  $ 29,441
                   -------------------------------

</TABLE> 

   Differences between income tax expense at the United States federal statutory
income tax rate and the Company's effective income tax rate for the years ended
December 31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE> 
<CAPTION> 
                            1996          1995          1994
                        --------------------------------------
<S>                     <C>           <C>           <C> 
Tax at federal
  statutory rate....... $ 22,249      $ 29,789      $ 25,385
State income taxes,     
  net of federal        
  benefit..............    4,090         4,393         4,034
Purchased in-process    
  research and          
  development and       
  other costs..........    2,656            --            --
Merger costs...........       --         1,524            --
Intangible              
  amortization.........    1,365         1,039         1,142
Tax-exempt interest     
  income...............     (234)         (648)         (859)
Foreign taxes..........     (444)         (120)          196
Other, net.............   (1,014)          463          (457)
                        --------------------------------------
                        $ 28,668      $ 36,440      $ 29,441
                        --------------------------------------
Effective income
  tax rate..............    45.1%         42.8%         40.6%
                        --------------------------------------
</TABLE> 

   Deferred taxes are recorded based upon differences between financial
statement and tax bases of assets and liabilities. The following deferred taxes

                                      41.
<PAGE>
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued


were recorded as of December 31, 1996 and 1995 (in thousands):
<TABLE> 
<CAPTION> 
                                         1996           1995
                                     -------------------------
Current:
<S>                                  <C>            <C> 
  Accounts receivable............... $  3,799       $  2,483
  Accrued compensation               
    and benefits....................    5,692          2,810
  Other accrued expenses............    2,554          1,434
  Deferred revenues.................    1,587             --
                                     -------------------------
                                     $ 13,632       $  6,727
                                     -------------------------
Long-Term:*                          
  Property and equipment............ $  1,334       $  1,759
  Intangible assets.................   (9,807)        (8,387)
  Purchased in-process research      
    and development and other        
    acquisition-related items.......   23,360             --
                                     -------------------------
                                     $ 14,887       $ (6,628)
                                     -------------------------  
</TABLE> 
* Included in other intangible assets.

8. EXPORT SALES

The Company's domestic operations recorded revenues primarily from international
software licenses and maintenance and professional services of approximately
$58,019,000, $51,273,000 and $33,505,000 for the years ended December 31, 1996,
1995 and 1994, respectively.

9. COMMITMENTS

The Company leases a substantial portion of its computer equipment and
facilities under operating leases. Future minimum rentals under operating leases
with initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1996 follow (in thousands):
<TABLE> 
<CAPTION> 

       <S>                   <C> 
       1997.................   $ 51,225
       1998.................     45,389
       1999.................     25,074
       2000.................     14,990
       2001.................      8,623
       Thereafter...........     15,013
                               --------  
                               $160,314
                               --------  
</TABLE> 

   Rent expense aggregated $56,451,000, $52,359,000 and $45,923,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.

10. STOCKHOLDERS' EQUITY

   Common Stock Split
On June 2, 1995, the Company's Board of Directors authorized a two-for-one stock
split of the Company's common stock. The stock split was effective for
stockholders of record on June 15, 1995, and shares were issued on July 7, 1995.
The number of shares used for purposes of calculating net income per common
share and all per share data have been adjusted for all periods presented to
reflect this stock split.


REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and Stockholders
SunGard Data Systems Inc.

We have audited the accompanying consolidated balance sheets of SunGard Data
Systems Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SunGard Data Systems Inc. and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.


/s/ Coopers & Lybrand LLP


2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 13, 1997

                                      42.