<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 20-F

( )   REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                                       or

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

                  For the fiscal year ended September 30, 1998

                                       or

( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For the transition period from ______ to _____ .

COMMISSION FILE NUMBER 1-14840

                                 AMDOCS LIMITED

             (Exact name of registrant as specified in its charter
               and translation of Registrant's name into English)

                               Island of Guernsey

                (Jurisdiction of incorporation or organization)

                      Tower Hill House Le Bordage GY1 3QT
              St. Peter Port, Island of Guernsey, Channel Islands

                                  Amdocs, Inc.
                 1610 Des Peres Road, St. Louis, Missouri 63131

                    (Address of principal executive offices)
<PAGE>   2
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT.

<TABLE>
<CAPTION>
Title of each class                                 Name of exchange on which registered
-------------------                                 ------------------------------------
<S>                                                 <C>
Ordinary Shares, par value pound sterling 0.01      New York Stock Exchange
</TABLE>


SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT.

                                      None
                                (Title of class)

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT.

                                      None
                                (Title of class)

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.

<TABLE>
<S>                                                           <C>
Ordinary Shares, par value pound sterling 0.01                 166,565,324(1)
Non-Voting Ordinary Shares, par value pound sterling 0.01       30,234,700
(Title of class)                                             (Number of shares)
</TABLE>

(1) Not including 4,100,000 Ordinary Shares available for grant under the
Company's 1998 Stock Option and Incentive Plan. As of December 1, 1998, options
to purchase an aggregate of 3,539,600 Ordinary Shares had been granted and
560,400 Ordinary Shares remain available for future grants.

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS (1) FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                             YES [X]      NO [ ]

INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW.

                         ITEM 17 [ ]      ITEM 18 [X]
<PAGE>   3
                                 AMDOCS LIMITED

                                   FORM 20-F

           ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998

                                     INDEX

PART I

Item 1.       Description of Business
Item 2.       Description of Property
Item 3.       Legal Proceedings
Item 4.       Control of the Registrant
Item 5.       Nature of Trading Market
Item 6.       Exchange Controls and Other Limitations Affecting Security Holders
Item 7.       Taxation
Item 8.       Selected Financial Data
Item 9.       Management's Discussion and Analysis of Results of Operations and 
              Financial Condition
Item 9A.      Quantitative and Qualitative Disclosure About Market Risk
Item 10.      Directors and Officers of Registrant
Item 11.      Compensation of Directors and Officers
Item 12.      Options to Purchase Securities from Registrant or Subsidiaries
Item 13.      Interest of Management in Certain Transactions

PART II

Item 14.      Description of Securities to be Registered - Not applicable

PART III

Item 15.      Defaults Upon Senior Securities - Not applicable
Item 16.      Changes in Securities and Changes in Security
              for Registered Securities

PART IV

Item 17.      Financial Statements - Not applicable
Item 18.      Financial Statements
Item 19.      Financial Statements and Exhibits
<PAGE>   4
SIGNATURE

EXHIBIT INDEX

21.1 Subsidiaries of Amdocs Limited

23.1 Consent of Ernst & Young LLP

99.1 Amdocs Limited Press Release dated November 11, 1998
<PAGE>   5
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

         Amdocs Limited is a holding company incorporated under the laws of the
Island of Guernsey. The Company's global business, conducted through
subsidiaries, is to provide product-driven information system solutions to major
telecommunication companies in the United States and around the world.

         Unless the context otherwise requires, all references in this report to
Amdocs or the Company include Amdocs Limited and its subsidiaries and their
respective predecessors.

         The Company's business was founded in 1982. Prior to 1995, the Company
and its operating subsidiaries were operated as a group of companies owned by
common shareholders. In 1995, the companies underwent a reorganization as a
result of which Amdocs Limited became the holding company for all the affiliated
companies.

         The Company's Ordinary Shares are publicly traded on the New York Stock
Exchange under the symbol "DOX."

         In the United States, the Company's main sales and development center
is located in St. Louis, Missouri. The executive offices of the Company's
principal subsidiary in the United States are located at 1610 Des Peres Road,
St. Louis, Missouri 63131, and the telephone number at that location is (314)
821-3242.

Overview

         The Company's Business Support Systems ("BSS") consist of families of
customized software products and services designed to meet the mission-critical
needs of specific telecommunications market sectors. The Company provides
primarily Customer Care and Billing Systems ("CC&B Systems") for wireless
(cellular, PCS and paging), wireline (local, long distance, international and
Internet) network operators and service providers, as well as for companies that
offer multiple service packages, commonly referred to as convergent services
(combinations of local, long distance, international, mobile, cable television
(CATV) and Internet services). In addition, the Company provides a full-range of
Directory Sales and Publishing Systems ("Directory Systems") to publishers of
both traditional printed yellow page and white page directories and electronic
Internet directories. Due to the complexity of the process and the expertise
required for system support, the Company also provides extensive customization,
implementation, ongoing support, system enhancement and maintenance services.

         Since the inception of its business in 1982, the Company has
concentrated on providing software products and services to major
telecommunications companies. By focusing on this
<PAGE>   6
market, Amdocs believes that it has been able to develop the innovative products
and the industry expertise, project management skills and technological
competencies required for the advanced, large-scale, specifications-intensive
system projects typical of the telecommunications industry. The Company's
customer base includes the largest local exchange service providers in the
United States (including all the regional Bell operating companies), major
foreign network operators and service providers (including Deutsche Telekom
(Germany) and Telstra Corporation Ltd. (Australia)) and emerging market leaders.
The Company has been able to establish long-term working relationships with many
of its customers, due, in part, to its broad-based expertise and its ability to
address the evolving needs of a dynamic telecommunications industry. Of the
Company's current customer base of over 60 customers, fifteen have been
customers for five years or more.

         The telecommunications industry is undergoing rapid and fundamental
changes due to the increased demand for telecommunications services,
deregulation, privatization and technological advancements. These changes are
creating opportunities for new entrants (e.g., competitive local exchange
carriers) to provide both traditional and new types of services, including
Internet, VOIP telephony, Internet directories, satellite and convergent
services. In this environment, telecommunications service providers increasingly
need to compete for customers by providing service and product offerings that
are differentiated by factors such as service quality, advanced features, rapid
implementation of new services, technological innovation and price. This trend,
in turn, has created the need for sophisticated and flexible customer
information solutions to support these services.

         The Company's BSS products and related services are designed to manage
and improve key aspects of the business operations of telecommunications
companies, such as customer care, call rating, invoice calculation, bill
formatting, collections, fraud management and directory publishing services. The
BSS products are tailored to address the unique needs of each telecommunications
provider.

Industry Background

         Telecommunications Industry

         The global telecommunications industry is becoming increasingly more
competitive due to deregulation and the development of new service technologies.
Competition in the U.S. market began to increase in 1984 when AT&T was required
to divest its local telephone operations and many new entrants began to invade
the long distance market. The Telecommunications Act of 1996 has increased
competition in the United States even further by allowing new and existing local
(e.g., competitive local exchange carriers), long distance and cable companies
to offer competing services. Many companies are beginning to compete by
providing multiple or convergent services, offering combinations of local
exchange, long distance, wireless and data communications services to customers
in single geographic markets. Deregulation is also creating opportunities for
new ways of doing business, such as wholesaling and reselling telecommunications
services.

         Internationally, privatization and deregulation are resulting in
increased international
<PAGE>   7
competition and the emergence of newly-authorized telecommunications network
operators and service providers, especially in Europe, Latin America and the
Asia-Pacific region. As markets are opened to competition, new competitors
within these markets typically compete for market share with more established
carriers, initially by providing access to service and then by providing
competitive prices, by introducing new features and services and by being more
responsive to customer needs. In addition, global expansion by multinational
companies and concurrent technological advances are opening markets in less
developed countries to enhanced telecommunications services and competition.

         In recent years, there has also been an explosion of new communications
technologies, including the Internet, PCS, Direct Broadcast Satellites and
Enhanced Specialized Mobile Radio, and improvements to existing services such as
call-forwarding, caller ID and voice mail, as well as the introduction of
advanced intelligent networks that offer new services such as voice activated
dialing. Additionally, companies in the directory publishing industry, which is
currently dominated by telecommunications companies that are owned by or
affiliated with the public telecommunications carriers, generally employ a local
sales force numbering thousands of representatives, serve an advertiser customer
base of hundreds of thousands of businesses and publish hundreds of different
directories each year. With the introduction of new technologies and
distribution platforms, including Internet directories, the directory publishing
industry is also experiencing significant changes.

         Information Systems

         As a result of these developments, many telecommunications companies
are seeking a new generation of information systems to support their operations
and to be more competitive. Many are looking to offer single-contact,
single-invoice solutions with integrated pricing plans for all services
("one-stop shopping"). Traditional telecommunications information systems are
generally not able to support multiple services or convergent systems
efficiently. In addition, these legacy information systems generally utilize
antiquated technology, are costly to maintain, are oriented to supporting a
single-service approach and require significant time and effort to accommodate
new products or features, such as pricing changes. In this dynamic environment,
integrated, flexible and scalable information systems are increasingly a means
of differentiating competitors.

         Many new and existing telecommunications companies do not have the
financial or human resources or technological capability to internally develop
efficient, flexible, cost-effective information systems on a timely basis.
Moreover, as many telecommunications companies strive to become more consumer
oriented, they are concentrating their efforts and resources on marketing to
consumers and expanding their service offerings, and many are turning to third
party vendors for their information systems which creates significant
opportunities for the Company. Unlike the Company, however, many third-party
vendors generally provide only generic software packages and maintenance
services, while customization, implementation and other related and ongoing
tasks are performed by a separate systems integration company.

The Amdocs Solution
<PAGE>   8
         The Company believes that its total solutions orientation,
product-driven approach and commitment to and support of quality personnel
permit the Company to offer effective solutions to its customers that are both
highly innovative and reliable, thus creating significant competitive advantages
in the market for information systems solutions. The Company believes that its
success derives from a combination of the following factors that differentiate
it from most of its competitors.

         Total Solutions Orientation. Amdocs offers its customers total
         solutions that include BSS product-driven software tailored to the
         customer's specific requirements, implementation capability, systems
         integration, maintenance and ongoing support. By providing solutions
         support services directly to the customer, rather than through
         intermediaries and system integrators, the Company is able to utilize
         effectively its intensive technical knowledge of its BSS products in
         the overall execution of the project, significantly reducing project
         risk.

                  Amdocs product-driven software solutions approach is
         distinctly different from the project-based strategy that has
         traditionally characterized many of the telecommunications information
         systems providers over the past twenty years. The Company's
         product-driven software solutions use the Company's BSS products as the
         starting point for each project. This approach enhances the Company's
         ability to provide its customers with timely, cost-effective, low-risk
         solutions at a consistent level of quality.

         Functional and Flexible BSS Products. The Company's BSS products are
         based on an open, multi-tier, client-server, rule-based architecture
         that provides the functionality, scalability, modularity and
         adaptability required in today's deregulated, highly competitive
         telecommunications industry. Using BSS products, the Company's
         customers have achieved significant time-to-market advantages and
         reduced their dependence on technical and other staff, as a result of
         the open systems approach adopted by the Company.

         Highly Skilled Personnel. Amdocs is able to offer its customers
         superior products and services on a worldwide basis in large part due
         to its highly qualified and trained technical, sales, marketing and
         managerial personnel. The Company invests significantly in the ongoing
         training of its personnel, in key areas such as industry knowledge,
         software technologies and management capabilities. Primarily based on
         the skills and knowledge of its employees, the Company believes that it
         has developed a reputation for the reliable delivery of quality
         solutions within agreed time frames and budgets. The Company has a
         global recruitment capability and has development centers in Israel,
         the United States and Cyprus.

Business Strategy

         The Company's goal is to provide advanced information technology
software products
<PAGE>   9
and related customer service and support to the world's leading
telecommunications companies. The Company seeks to accomplish its goal by
pursuing the strategies described below.

     *        Continued Focus on the Telecommunications Industry. The Company
              intends to continue to concentrate its resources and efforts on
              providing strategic information systems to the growing number of
              telecommunications industry participants. This strategy has
              enabled the Company to develop the specialized industry know-how
              and capability necessary to deliver the technologically advanced,
              large-scale, specifications-intensive information systems
              solutions required by the leading telecommunications companies in
              the wireless, wireline and convergent service sectors.

     *        Target Industry Leaders and Promising New Entrants. The Company
              intends to continue to direct its marketing efforts principally
              towards the major telecommunications companies and new entrants
              that are believed to have the potential to be market leaders. The
              Company's customer base includes the largest local exchange
              service providers in the United States (including all the regional
              Bell operating companies), major foreign network operators and
              service providers (including Deutsche Telekom (Germany) and
              Telstra Corporation Ltd. (Australia)) and emerging market leaders.
              The Company believes that the development of this premier customer
              base has helped position the Company as a market leader, while
              contributing to the stability of the Company's business. By
              targeting industry leaders and promising new entrants that require
              the most sophisticated information systems solutions, the Company
              believes that it is best able to ensure that it remains at the
              forefront of developments in the industry.

     *        Deliver and Support Total Solutions. The Company's strategy is to
              use its BSS products as the basis for providing customers with
              total systems solutions. Using this product-driven solutions
              strategy, the Company strives to tailor its core software modules
              to the specific, individualized requirements of its customers.
              Working directly with the customer, the Company's development
              personnel develop the detailed functional specifications of the
              system required by the customer. In accordance with such
              specifications, the Company's system modules are then adapted or
              customized to meet the customer's specific business requirements.
              The Company believes that this approach minimizes risks and
              increases efficiencies by drawing on field-proven BSS products and
              techniques, and also helps to create for its customers significant
              time-to-market and other competitive advantages. By leveraging its
              specialized product knowledge, the Company believes that it can
              provide more effective system integration and implementation
              support services to its customers.

     *        Maintain and Develop Long-Term Customer Relationships. The Company
              seeks to maintain and develop long-term, mutually beneficial
              relationships with its customers. As a result of this strategy,
              the Company has been able to establish long-term working
              relationships with many of its customers. Of the Company's current
              base of over 60 customers, fifteen have been customers for five
              years or
<PAGE>   10
              more. These relationships have generally involved additional
              product sales, as well as ongoing support, system enhancement and
              maintenance services. The Company believes that such relationships
              are facilitated in many cases by the mission-critical strategic
              nature of the systems provided by the Company and by the
              customer's reliance on the Company's specialized skills and
              knowledge. In addition, the Company's strategy is to solidify its
              existing customer relationships by means of long-term support and
              maintenance contracts.

     *        Further Enhance Global Capabilities. The Company intends to
              continue to develop and enhance its global business strategy by
              targeting advanced telecommunications markets around the world.
              The worldwide demand for telecommunications services is increasing
              rapidly, due, in part, to the needs of many underserved national
              markets and, in part, to increased competition among established
              and new network operators and service providers in more mature
              markets. The Company believes it has developed the human and other
              resources required to conduct business on a global basis and is
              well positioned to respond to the demands of a worldwide industry,
              including the increasing trend for the major telecommunications
              companies to invest in new national markets, often in partnership
              with local companies. The Company has also developed the
              capability for the rapid global deployment of appropriately
              skilled personnel, when and where required, to support customer
              projects.

Technology

     The Company has developed core competencies in various advanced
technologies that are used in the Company's BSS products. By utilizing
technologies such as rule-based techniques, intelligent agents, Internet
technology, object-oriented design and programming and data mining, the Company
is able to provide telecommunication companies with the flexibility required in
a highly competitive, dynamic environment. For example, the use of rule and
table-based technologies allows telecommunications companies to implement
changes to the key elements of their marketing and customer service activities
simply and rapidly, such as the introduction of new services, price plans,
discount schemes and bill formats, eliminating the need to modify system code.
Similarly, by drawing on Web-enabled and Internet technologies, the Company has
been able to improve access to information for remote users, both internally
within a telecommunication company's organization and between the organization
and its subscribers.

     These technologies are integrated in an open, multi-tier, client-server,
service-oriented architecture. In order to support the ability of its customers
to operate all of their distributed and mainframe applications, the Company's
BSS products are designed to work in a number of network and operating system
environments, including UNIX, MVS and Windows NT.

     The architecture of the BSS products includes the following key
characteristics:

     *        Scalability. The BSS products are designed to take full advantage
              of the proven scalability of the UNIX platform, allowing
              progressive system expansion, proportional with the customer's
              growth in business volumes. Using the same
<PAGE>   11
              software, the Company's BSS products can support operations for
              small as well as very large service providers.

     *        Modularity. The BSS products are comprised of sets of functional
              modules. Each module can be installed on an individual standalone
              basis, interfacing with the customer's existing systems, or as
              part of an integrated BSS environment. This modularity provides
              the Company's customers with a highly flexible and cost effective
              solution that is able to incrementally expand with the customer's
              growing needs and capabilities. The modular approach also
              preserves the customers' initial investments in BSS products,
              while minimizing future disruptions and the overall cost of system
              implementation.

     *        Portability. The architecture of the BSS products, by utilizing a
              UNIX platform, ensures that the Company's customers are able to
              choose from a variety of hardware vendors, including Digital,
              Hewlett-Packard, IBM and Sun Microsystems. In implementing
              solutions for wireline companies, the Company is also able to
              employ MVS and hybrid UNIX/MVS platforms. The BSS products
              utilize, where applicable, Java-based design and programming to
              augment cross-platform portability.

     *        Open Systems. The BSS products accommodate well-defined
              application program interfaces with legacy systems and with other
              third party modules or packages. The systems are not dependent on
              any single hardware vendor or specific relational database
              management system, enabling the Company's customers to select
              among multiple hardware platforms and a variety of network and
              operating system environments. Similarly, the Company's BSS
              products utilize standard programming languages, such as C++, to
              ensure compatibility with the operating environments employed in
              most telecommunications companies. It is also the general policy
              of the Company to deliver to its customers complete copies of all
              source code, system documentation and other product information,
              which permits the customer to maintain and further customize the
              BSS products.

Products

     Amdocs has developed an extensive library of BSS software products,
providing comprehensive information systems functionality for wireless
(cellular, PCS and paging), wireline (local, long distance, international and
Internet) and directory publishing operations. Core elements include customer
care, call rating, invoice calculation, bill formatting, collections, fraud
management and directory publishing services.

     Specialized modules are provided to support specific functionalities
required in the different network environments (roaming functionality for
wireless carriers, SIM-card functionality for GSM networks, value added services
introduced by Advanced Intelligent Network (AIN) and preferred interexchange
carrier functionality for long distance carriers). In addition, the Company has
developed systems to support resellers and wholesalers of
<PAGE>   12
telecommunication services. The Company's systems also support
telecommunications providers that offer multiple service packages, commonly
referred to as convergent services (combinations of local, long distance,
international, mobile, cable television and Internet services).

     The Company configures individual BSS modules into families of products,
which serve as marketing packages oriented to the needs of specific customer
segments. The Company offers Ensemble, its Customer Care and Billing System, in
a number of versions to serve the different needs of telecommunications
operators in the various network and business segments, such as wholesale and
retail operations, and local, cellular, long distance, international and
convergent operations. With the recent introduction of Ensemble, the Company is
also able to provide enhanced support for convergent customer care and billing
activities in fixed-line and mobile multi-service environments. The Company also
offers its new generation ("NG") line of "ADSNG/Family of Products" which
provides comprehensive support for directory publishing operations. Each
individual module from the product families can be installed as an independent
standalone application, interfacing with the customer's legacy and third party
systems, or as part of an integrated Amdocs solution. The Company has also
recently introduced a number of new products for Internet and electronic
commerce applications, such as Internet-based bill viewing. The Company
anticipates that over the next several years products developed or to be
developed for such applications will make a modest but increasing contribution
to revenue.

     Customer Care and Billing

     Both the "Customer Care and Billing Platform" and the "Convergence/Family
of Products" offered by the Company encompass the following key application
areas:

     *        Customer Care--provides customer account information management
              and service support, including account initiation, handling of
              service orders, on-line assistance in choosing a price plan,
              installation scheduling and complaint handling.

     *        Message Processing--calculates charges for usage (i.e., call
              rating) of telecommunications services, such as telephone calls
              and data transfer. Usage of the telecommunications network creates
              "messages" or call data records, which contain information such as
              the origin and destination of the call and its duration. In
              addition, this module provides for acquisition and formatting of
              the raw message data received from a switch, as well as calculates
              the charges for each call based on the service packages and price
              plans applicable to each individual user.

     *        Invoicing--provides comprehensive functionality for bill
              preparation (totaling of usage and other charges, application of
              discounts, taxes and credits) and bill production, as well as the
              ability to offer so-called "hot billing" (or real-time billing).

     *        Bill Formatter--enables the flexible definition and modification
              of bill formats, according to user requests (e.g., to combine
              charges from multiple services onto a
<PAGE>   13
              single bill or to permit certain types of charges to be
              highlighted).

     *        Revenue Management--provides comprehensive functionality for
              accounts receivable and collections, including invoice receipt,
              payment receipt, payment posting, financial reporting and
              automated handling of customers with outstanding debts.

     *        Network Resource Mediation--manages the carrier's inventory of
              telephone numbers and SIM cards. This module also manages the
              interface between a telecommunications carrier's customer care and
              billing system and the network, transferring instructions
              regarding the provision or discontinuation of network services to
              specified users.

     *        Dealer Compensation--manages the financial relationship between a
              wireless carrier and its authorized dealers, including commission
              calculation, chargebacks and residual compensation.

     *        Retail--provides complete point of sale support, by managing sales
              and installation, supporting equipment rental, repairs and
              returns, cash register functions, inventory control and
              installation scheduling.

     *        Fraud Management--employs sophisticated data analysis tools and
              makes use of the integrated user database to detect the fraudulent
              use of wireless phones and phone numbers.

     *        Internet-based Bill Viewing--enables user interaction and bill
              view capabilities over the Internet through www.self.service.

     Directory Publishing

     The "ADS(NG)/Family of Products" provides comprehensive support for yellow
page and white page directory sales and publishing operations, as well as for
Internet directories and catalogs, including fully integrated electronic
commerce capabilities. The directory line of products comprises a series of
modules, including:

     *        Sales--addresses all aspects of managing sales to advertisers,
              including preparation and management of the overall sales
              campaign, which encompasses selecting the advertisers to be
              targeted, allocating the advertisers to various sales channels
              (such as field sales or telemarketing sales), assigning the
              advertisers to sales representatives, tracking advertising sales
              results and calculating sales commissions. These modules also
              provide automated support for the advertising sales
              representative, including laptop-based applications for use by
              members of the sales force in the field.

     *        Publishing--supports the process of entering, proofing and
              extracting the telephone listing and advertising information that
              is to be published in a directory.
<PAGE>   14
              These modules encompass contract processing, service order
              processing, listing information management and directory extract
              in preparation for the actual production of the directory.

     *        Marketing and Information Analysis--includes corporate data
              warehousing techniques, online analytical processing and data
              mining capabilities, oriented to the specific marketing needs of
              the directory publisher. For example, these modules can be used to
              identify changed patterns of advertisement buying behavior in
              certain groups of customers, or to perform "what if" analyses on
              marketing policy parameters. These modules are also used by
              management to analyze the directory market and customer behavior,
              assisting in the planning of corporate strategy and marketing
              tactics.

     *        Prepress--manages the production of advertisements that are to be
              published in a directory and also supports the fully automated
              pagination of yellow page and white page directories, including
              the generation of the final typesetting file so that printed
              copies of the documents can be produced.

     *        Customer Service--permits online support for handling customer
              inquiries and resolving customer complaints, including online
              correction of advertising data and billing adjustments.

     *        Financial Management--specifically designed for the directory
              publisher's billing, accounts receivable and collections
              functions.

Services

     The Company believes that the methodology it employs to deliver its BSS
products is one of the key factors that enable the Company to achieve the
time-frame, budget and quality objectives of its customers' projects. The
Company's methodology emphasizes rigorous project management, software
development, solutions implementation and integration planning, as well as
active customer participation at all stages to help prioritize and implement
time-critical information system solutions that address the customer's
individual needs.

     This process of customizing a system involves creating a tailored BSS
product to address a customer's specific technical and business requirements.
Following detailed functional design sessions with the customer, the Company
modifies its BSS software modules to provide the complete functionality needed
by the customer. The process permits both the Company and the customer to
identify and jointly plan for ongoing resource requirements, as well as jointly
to create specific guidelines for the types of organizational and other changes
that may be required for implementation and integration.

     System implementation and integration activities are conducted by joint
teams from the Company and the customer in parallel with the customization
effort. Implementation and
<PAGE>   15
integration activities include, for example, project management, development of
training, methods and procedures, design of work flows, hardware planning and
installation, network and system design and installation, system conversion and
documentation. In most cases, the role of Amdocs personnel is to provide support
services to the customer's own implementation and integration team which has
primary responsibility for the task. Customers sometimes require turn-key
solutions, in which case the Company is able to provide full system
implementation and integration services.

     Once the system becomes operational, the Company is generally retained by
the customer to provide on-going services such as maintenance, enhancement
design and development, and operational support. For substantially all of the
Company's customers, the implementation and integration of an initial BSS
product has been followed by the sale of additional systems and modules. In
recent years, the Company has established long-term maintenance and support
contracts with a number of its customers. These contracts have generally
involved an expansion in the scope of support provided, while also ensuring a
recurring source of revenue to the Company.

     The Company's business is conducted on a global basis. Amdocs maintains
three development facilities located in Israel, the United States and Cyprus,
operates a support center located in Brazil and has operations in Europe, North
America, Latin America and the Asia-Pacific region. Support for implementation
and integration activities is performed typically at the customer site. Once the
system is operational or in production, ongoing support and maintenance are
provided by a combination of remote support from the development centers with
local support at the customer site.

     As part of the Company's effort to provide comprehensive solutions to its
customers, it is actively considering entering into long-term agreements with
certain of its existing and potential customers to provide a full range of
services in connection with those operations of the customer that involve the
Company's BSS products. These functions would include full responsibility for
the ongoing development and enhancement of the customer's BSS products, the
purchase and management of all related hardware assets and overall management of
the customer's associated data centers. The Company concluded its first major
multi-year services agreement in May 1998, entering into a six-year agreement
with an affiliate of Telstra Corporation Ltd. of Australia. Under the agreement
the Company will be responsible for software development, maintenance, support
and facility management for Telstra's directory publishing activities.

Sales and Marketing

     The Company's sales and marketing activities are primarily directed at
major telecommunications companies and at emerging network operators or services
providers that are potential market leaders. As a result of the strategic
importance of the Company's information systems to the operations of such
companies, a number of constituencies within a customer's organization are
typically involved in purchase decisions, including senior management,
information systems personnel and user groups, such as the finance and marketing
departments. Due to the comprehensiveness and large scale of the Company's
systems, the time between the making of an initial proposal to a prospective
customer and the signing of a sales contract is typically between six and twelve
months.
<PAGE>   16
     The Company employs a relatively small dedicated sales force and maintains
sales offices in the United States, the United Kingdom, and several other
countries. The Company's sales activities are supported by a marketing group,
which is responsible for advertising, preparation of sales proposals and market
research and analysis of industry trends and developments. The Company's sales
efforts are dependent upon a close cooperation between the Company's sales
representatives and development personnel. Development personnel are intensively
involved from the early stages of the sales cycle. This approach enables the
Company to demonstrate its technical and professional skills to potential
customers, while creating the opportunity to discuss with the customer its
system needs. To ensure that the Company has a clear understanding of customer
needs and expectations, it is the Company's policy to have development personnel
involved in a particular sales proposal continue to work with the customer. This
approach creates continuity from the initial sales proposal through project
development and beyond, into the on-going production phase.

     The management of the Company's operating subsidiaries is closely involved
in establishing sales policies and overseeing sales activities. Management's
role includes the setting of priorities among the multiple sales opportunities
available at any point in time. Management is also responsible for allocating
sufficient resources to each project to meet the Company's quality standards
while also adhering to the project's cost and schedule parameters.

     The Company also interacts with various third parties in its sales
activities, including independent sales agents, information systems consultants
engaged by the Company's customers or prospective customers and systems
integrators that provide complementary products and services to such customers.
The Company also has value-added reseller agreements with certain hardware and
database vendors.

Customers

     The Company's target market is comprised of telecommunications companies
that require information systems with advanced functionality and technology. The
companies in this market segment are typically industry leaders or innovative,
well-backed new entrants. By working with such companies, the Company helps
ensure that it remains at the forefront of developments in the
telecommunications industry and that its product offerings continue to address
the market's most sophisticated needs. The Company has an international
orientation, focusing on potential customers in the developed, industrialized
countries in North America, Europe, Latin America and the Asia-Pacific region.

     The Company has a world-class customer base comprising over 60
telecommunications companies. The Company's customers include global
telecommunications leaders, as well as other leading network operators and
service providers and directory publishers in the United States and around the
world. The Company's customers include SBC Communications Inc. ("SBC") and a
number of its operating subsidiaries, such as Southwestern Bell Mobile Systems,
Southwestern Bell Yellow Pages and Southwestern Bell Communications Services
(SBC's long distance provider) and Southwestern Bell Telephone Company.
Additional customers of the Company include Bell Atlantic, BellSouth, US West,
GTE, Sprint, Deutsche Telekom (Germany), SEAT (Italy), Telstra Corporation Ltd.
(Australia), Telus (Canada), Telecom Eireann
<PAGE>   17
(Ireland), Korean Telecom (South Korea), Vodac (United Kingdom), Bezeq (Israel),
BCP (Brazil) and New Zealand Telecom (New Zealand). The Company has been able to
establish long-term working relationships with many of its customers. Of the
Company's total customer base, fifteen have been customers for five or more
years. These long-term relationships are due, in part, to the Company's
broad-based expertise and its ability to address the evolving needs of a dynamic
telecommunications industry.

     The Company's single largest group of customers is SBC and its operating
subsidiaries identified above, which accounted for in the aggregate 20.9%, 34.5%
and 38.0% of the Company's revenue in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively. The Company's next largest customer is BellSouth, which accounted
for 15.8%, 4.5% and 1.5% of the Company's revenue in fiscal 1998, fiscal 1997
and fiscal 1996, respectively. The third largest customer is Telstra, which
accounted for 8.2%, 13.0% and 16.0% of the Company's revenue in fiscal years
1998, 1997 and 1996, respectively.

     Revenue derived from the Company's five largest customers, excluding SBC
and its operating subsidiaries, accounted for approximately 27.1%, 33.2% and
42.7% of the Company's revenue in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively.

     The following is a summary of revenue by geographic area. Revenue is 
attributed to geographic region based on the location of the customers:

<TABLE>
<CAPTION>
                            1998           1997           1996
                            ----           ----           ----
<S>                        <C>            <C>            <C>
North America              52.2%          63.7%          67.5%

Europe                     27.2%          11.3%          14.5%

Rest of the World          20.6%          25.0%          18.0%
</TABLE>

Competition

     The market for telecommunications information systems is highly competitive
and fragmented, and the Company expects competition to increase. The Company
competes with many independent providers of information systems and services,
including Alltel Corporation, American Management Systems, Convergys, Kenan
Systems, LHS Group Inc. and Saville Systems, with system integrators, such as
Andersen Consulting and EDS, and internal information systems departments of
larger telecommunications carriers. The Company expects continued growth and
competition in the telecommunications industry and the entrance of new
competitors into the software information systems market in the future.

     The Company believes that the principal competitive factors in its market
include responsiveness to carrier needs, timeliness of implementation, quality
and reliability of products, price, project management capability and technical
expertise. The Company also believes that its ability to compete depends in part
on a number of competitive factors, including the development by others of
software that is competitive with the Company's products and services, the price
at
<PAGE>   18
which others offer competitive software and services, the extent of competitors'
responsiveness to customer needs and the ability of the Company's competitors to
hire, retain and motivate key personnel. The Company competes with a number of
companies that have longer operating histories, larger customer bases,
substantially greater financial, technical, sales, marketing and other
resources, and greater name recognition than the Company. Current and potential
competitors have established, and may establish in the future, cooperative
relationships among themselves or with third parties to increase their ability
to address the needs of the Company's prospective customers. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. As a result, the Company's competitors may be able to
adapt more quickly than the Company to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the promotion and
sale of their products. There can be no assurance that the Company will be able
to compete successfully with existing or new competitors. Failure by the Company
to adapt to changing market conditions and to compete successfully with
established or new competitors may have a material adverse effect on the
Company's results of operations and financial condition.

Proprietary Rights

     The Company regards significant portions of its software products and
systems as proprietary and relies on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
its proprietary rights. The Company generally enters into confidentiality
agreements with its employees, consultants, customers and potential customers
and limits access to, and distribution of, its proprietary information. The
Company believes that the sophistication and complexity of its systems make it
very difficult to copy such information or to subject such information to
unauthorized use.

     The Company has developed a unique methodology for product development.
Initially, the Company develops a core idea and the initial modules in-house.
Thereafter, the Company approaches a customer and introduces the initial
developments to a customer and further develops the product in conjunction with
a project conducted for such a customer, thus allowing the Company to resolve
and develop specific, novel information technology solutions addressing actual
needs of the market. The Company maintains sole ownership of its products.

     As a result of certain strategic development projects conducted with SBC
and certain of its subsidiaries, some of the Company's products were jointly
developed and owned in the past by the Company and SBC subsidiaries. In
September 1997, the Company entered into a series of agreements with such SBC
subsidiaries pursuant to which the Company purchased certain rights from these
SBC subsidiaries and terminated related future royalty payment obligations for a
total consideration of $40.0 million.

     The Company does not include in its software any mechanisms to prevent or
inhibit unauthorized use, but generally enters into confidentiality agreements
with its employees, consultants, customers and potential customers and limits
access to, and distribution of, its proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's technology without authorization, or to develop similar
<PAGE>   19
technology independently. Furthermore, the laws of certain countries in which
the Company sells its products do not protect the Company's software and
intellectual property rights to the same extent as do the laws of the United
States. If unauthorized copying or misuse of the Company's products were to
occur to any substantial degree, the Company's business and results of
operations could be materially adversely affected. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology.

     Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that third parties will
not claim that the Company's current or future products infringe the proprietary
rights of others. The Company expects that software developers will increasingly
be subject to such claims as the number of products and competitors providing
software and services to the telecommunications industry increases and overlaps
occur. Any such claim, with or without merit, could result in costly litigation
or might require the Company to enter into royalty or licensing agreements, any
of which could have a material adverse effect on the Company's business, results
of operations and financial condition. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all.

Employees

     As of September 30, 1998, the Company and its subsidiaries employed on a
full-time basis 2,900 software and information technology specialists, engaged
in research, development, maintenance and support activities, and approximately
375 managers and administrative professionals. The Company employs over 2,100
software and information specialists in Israel, with the remaining 800 located
in the United States, Canada, Europe and the Asia-Pacific region. The Company
often maintains teams of employees at a customer's premises to work on specific
projects.

     The Company invests significant resources in recruitment, training and
retention of quality personnel. Training programs cover areas such as
technology, applications, development methodology, project methodology,
programming standards, industry background and management development. The
Company's management development scheme is reinforced by a divisional structure,
which provides opportunities for talented managers to gain experience in general
management roles at the division level. The Company also invests considerable
resources in personnel motivation, including providing various incentive plans
for senior employees. The Company's future success depends in large part upon
its continuing ability to attract and retain highly qualified managerial,
technical, sales and marketing personnel.

     The Company has to comply with various labor and immigration laws
throughout the world, including laws and regulations in Australia, Europe,
Israel, Japan and the United States. To date, compliance with such laws has not
been a material burden for the Company. As the number of the Company's employees
increases over time, the Company's compliance with such regulations could become
more burdensome.

     The Company's operating subsidiaries are not party to any collective
bargaining
<PAGE>   20
agreements. However, the Company's Israeli subsidiary is subject to certain
labor related statutes and to certain provisions of collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the
Coordinating Bureau of Economic Organizations (including the Industrialists'
Association), which are applicable to the Company's Israeli employees by virtue
of expansion orders of the Israeli Ministry of Labor and Welfare. A significant
provision applicable to all employees in Israel under collective bargaining
agreements and expansion orders is the automatic adjustment of wages in relation
to increases in the CPI. The amount and frequency of these adjustments are
modified from time to time. The Company considers its relationship with its
employees to be good and has never experienced a labor dispute, strike or work
stoppage.

Research and Development

     The goals of the Company's research and development staff are to be
responsive to customer needs, to keep abreast of industry developments, to apply
technology selectively to the Company's systems, to build transition plans for
adopting new technologies and to build a system architecture that is capable of
absorbing such technologies. The Company has historically developed new modules
and product offerings in response to an identified market demand. The Company's
product development strategy is to fund the research and development of an
advanced prototype, typically based on the Company's existing products or
modules. Products are usually developed in conjunction with a customer project.
By adopting this strategy, Amdocs seeks to remain at the forefront of
technological development by working on technologically advanced solutions with
its customers. Close cooperation with customers helps to ensure the relevance
and timeliness of the products developed.

     The Company believes that its ability to identify innovative applications
for emerging technologies has yielded the Company considerable competitive
advantages. Examples of such innovations include the application of rule and
table-based techniques to network mediation systems, intelligent agent systems
in directory pagination, Web-enabled technology for Internet-based customer care
and data mining technology for fraud management and churn control.

     The estimated amounts spent by the Company on research and development
activities were $25.6, $17.4 and $14.7 million in fiscal 1998, fiscal 1997 and
fiscal 1996, respectively, or 6.3%, 6.0% and 6.9%, respectively, of total
revenue in each such year.

RISK FACTORS

     Dependence on the Telecommunications Industry

     The Company provides customized software products and services to
telecommunications and directory publishing companies exclusively and,
accordingly, is highly dependent upon the condition of the telecommunications
industry. Although the markets for local exchange, long distance and wireless
service have experienced significant growth and have been characterized by
increased deregulation and competition in recent years, there can be no
assurance that such trends will continue at similar rates, if at all, or that
the Company will be able to market and sell effectively its information systems
to potential customers in those markets. Developments in the telecommunications
industry, such as industry consolidation, the formation
<PAGE>   21
of alliances among network operators and service providers and changes in the
regulatory environment, could adversely affect the Company's existing or
potential customers and, in turn, could have a material adverse effect on the
operating results and financial condition of the Company.

     The Company believes that its future success depends to a significant
extent on its ability to develop new customer relationships with successful
network operators and service providers. Many new entrants into the
telecommunications market lack significant financial and other resources. There
can be no assurance that the Company will be able to develop new customer
relationships or that the Company's new customers will be successful. Failure by
the Company to attract new customer relationships or the failure of new
customers to be successful could have a material adverse effect on the Company's
business, results of operations and financial condition.

     Rapid Technological Change

     The market for the Company's products and services is characterized by
rapidly developing technology, evolving industry standards and changing customer
needs. Therefore, the Company believes that its future success will depend, to a
significant extent, upon its ability to enhance its existing products and to
introduce new products and features to meet the requirements of its customers.
The Company is currently devoting significant resources to refining and
expanding its base software modules and to developing BSS products that operate
on state-of-the-art operating systems. There can be no assurance that the
Company's present or future products will satisfy the evolving needs of the
telecommunications market. If the Company is unable, due to resource,
technological or other constraints, to anticipate or respond adequately to such
demands, the Company's business and results of operations could be materially
adversely affected.

     Dependence on SBC Communications Inc.

     The Company's single largest group of customers are SBC and its operating
subsidiaries. SBC International Inc. ("SBCI"), a wholly-owned subsidiary of SBC,
is also a significant shareholder of the Company, which holds approximately
22.7% of the Company's outstanding Ordinary Shares, including 100% of the
Company's non-voting Ordinary Shares. The Company has had a strategic
relationship with SBC and its operating subsidiaries since 1984, which has
included the development of certain software products by the Company for several
SBC operating subsidiaries. In September 1997, the Company acquired certain
rights related to such software products from the SBC subsidiaries and
terminated related future royalty payment obligations for a total consideration
of $40.0 million.

     Substantially all the Company's work for SBC is conducted directly with
SBC's operating subsidiaries, such as Southwestern Bell Mobile Systems,
Southwestern Bell Yellow Pages, Southwestern Bell Communications Services (SBC's
long distance provider) and Southwestern Bell Telephone Company. These SBC
relationships accounted for in the aggregate 20.9%, 34.5% and 38.0% of the
Company's revenue in fiscal 1998, fiscal 1997 and fiscal 1996, respectively.
<PAGE>   22
The absolute amount of revenue attributable to SBC and such subsidiaries
amounted to $84.4 million in fiscal 1998, $99.9 million in fiscal 1997 and $80.5
million in fiscal 1996.

     Although the Company has received a substantial portion of its revenue from
business with SBC and its operating subsidiaries, neither SBC nor any of its
operating subsidiaries has any long-term contractual obligation to purchase
additional products or services, and these customers generally have acquired
fully-paid licenses to their installed systems. Additionally, all previous
agreements entered into between the Company and SBC or its subsidiaries were
entered into on an individual ad-hoc basis and not as part of any overall
long-term commitment. Any future strategic agreements between the Company and
SBC or its subsidiaries would be subject to negotiation between the parties. A
significant decrease in the sale of products and services to SBC or its
subsidiaries may materially adversely affect the Company's results of operations
and financial condition.

     Reliance on Significant Customers

     The Company's business is highly dependent on a limited number of
significant customers. The Company has approximately 60 customers, and revenue
derived from the Company's five largest customers, excluding SBC and its
operating subsidiaries, accounted for approximately 27.1%, 33.2% and 42.7% of
total revenue in fiscal 1998, fiscal 1997 and fiscal 1996, respectively.

     Although the Company has received a substantial portion of its revenue from
repeat business with established customers, most of the Company's major
customers do not have any obligation to purchase additional products or services
and generally have already acquired fully-paid licenses to their installed
systems. Therefore, there can be no assurance that the Company's customers will
continue to purchase new systems, system enhancements and services in amounts
similar to previous years. The loss of any significant customer or a significant
decrease in business from any such customer could have a material adverse effect
on the Company's results of operations and financial condition.

     Fluctuations in Quarterly Operating Results

     The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations may continue and could intensify. There
can be no assurance that the Company will be profitable in the future or that
the levels of profitability will not vary significantly among quarterly periods.
The Company's operating results may fluctuate as a result of many factors,
including the size and timing of significant customer projects and license fees,
increased competition, cancellations of significant projects by customers,
changes in operating expenses, changes in Company strategy, personnel changes,
foreign currency exchange rates and general economic and political factors. Most
of the Company's license fee revenue and all of its service fee revenue are
recognized as work is performed, using percentage of completion accounting.
Given the Company's reliance on a limited number of significant customers, the
Company's quarterly results may be significantly affected by the size and timing
of customer projects and the Company's progress in completing such projects.
<PAGE>   23
     The Company believes that the placement of customer orders may be
concentrated in specific quarterly periods due to customers' buying patterns and
budgeting cycles in the telecommunications industry. Although the Company
recognizes revenue as projects progress, which progress may vary significantly
from project to project, the Company believes that variations in quarterly
revenue are sometimes attributable to the timing of initial order placements.
Due to the relatively fixed nature of certain of the Company's costs, a decline
of revenue in any quarter would result in lower profitability for that quarter
and, in such event, the price of the Company's Ordinary Shares could be
materially adversely affected. See "Management's Discussion and Analysis of
Results of Operation and Financial Condition".

     Length of Sales Cycle

     Information systems for telecommunications companies are relatively complex
and their purchase generally involves a significant commitment of capital, with
attendant delays frequently associated with large capital expenditures and
implementation procedures within an organization. Moreover, the purchase of such
products typically requires coordination and agreement across a potential
customer's entire organization. For these and other reasons, the sales cycle
associated with the purchase of the Company's information systems is lengthy,
with the time between the making of an initial proposal to a prospective
customer and the signing of a sales contract typically being between six and
twelve months. There can be no assurance that delays associated with such timing
factors will not have a material adverse effect on the Company's results of
operations and financial condition.

     Risks Associated with International Markets

     The Company's business is conducted on a global basis. Amdocs maintains
three development facilities located in Israel, the United States and Cyprus,
operates a support center located in Brazil and has operations in Europe, North
America, Latin America and the Asia-Pacific region. Although a majority of the
Company's revenue in fiscal 1998 was derived from customers in North America,
the Company obtains significant revenue from customers in Germany, Australia,
the United Kingdom and Brazil. The Company's strategy is to continue to broaden
its U.S. and European customer base and to expand into new international
markets, the most significant of which are located in Latin America and the
Asia-Pacific region.

     The Company is subject to certain risks inherent in doing business in
international markets, including lack of acceptance of non-localized products,
legal and cultural differences in the conduct of business, difficulties in
staffing and managing foreign operations, longer payment cycles, difficulties in
collecting accounts receivable and withholding taxes that limit the repatriation
of earnings, trade barriers, immigration regulations that limit the ability of
the Company to deploy its employees, and political instability. To the extent
profit is generated or losses are incurred in particular foreign countries,
there may also be material differences in the Company's effective income tax
rate. There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's international operations.

     Companies operating internationally are also subject to the risks of
fluctuations in foreign currency exchange rates. The effects of such
fluctuations on the Company are mitigated by the
<PAGE>   24
fact that a significant portion of the Company's revenue is in U.S. dollars and
the Company generally hedges its currency exposure on both a short-term and
long-term basis with respect to the balance of its revenue. However, a
significant portion of the Company's operating costs are incurred outside the
United States, and therefore fluctuations in exchange rates between the
currencies in which such costs are incurred and the U.S. dollar may have a
material adverse effect on the Company's results of operations and financial
condition. The cost of the Company's operations in Israel, as expressed in
dollars, is influenced by the extent to which any increase in the rate of
inflation in Israel is not offset (or is offset on a lagging basis) by a
devaluation of the Israeli currency in relation to the dollar. As a result of
this differential, the Company from time to time experiences increases in the
costs of its operations in Israel, as expressed in dollars, which could in the
future have a material adverse effect on its results of operations and financial
condition.

     The imposition of exchange or price controls or other restrictions on the
conversion of foreign currencies could also have a material adverse effect on
the Company's business, results of operations and financial condition.

     Failure to Attract and Retain Skilled Professionals

     The Company's success depends in large part on its ability to attract,
train, motivate and retain highly skilled information technology professionals,
software programmers and telecommunication engineers. These types of qualified
personnel are in great demand and are likely to remain a limited resource for
the foreseeable future. There can be no assurance that the Company will be able
to continue to attract and retain the skilled employees it requires and any
inability to do so could adversely impact the Company's ability to manage and
complete its existing projects and to compete for new customer contracts. In
addition, the resources required to attract and retain such personnel may
adversely affect the Company's operating margins. The failure to attract and
retain qualified personnel may have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's success
also depends, to a certain extent, upon the continued active participation of a
relatively small group of senior management personnel who have been with the
Company for many years. The loss of the services of all or some of such
employees could have a material adverse effect on the Company's business.

     Loss of Government Programs and Tax Benefits

     The Company benefits from certain government programs and tax benefits,
including programs and benefits in Israel, Cyprus and the United Kingdom. To be
eligible for these programs and tax benefits, the Company must continue to meet
certain conditions. If the Company fails to meet such conditions in the future,
it could be required to refund tax benefits already received. Additionally,
certain of these programs and the related tax benefits are available to the
Company for a limited number of years, and such benefits expire from time to
time. There can be no assurance that such programs will be continued, that the
Company will be able to meet the requirements for continuing to qualify for such
programs or that such programs and tax benefits will be available at their
current levels or that, upon expiration of a particular benefit, the Company
will become eligible to participate in a new program or qualify for a new
<PAGE>   25
tax benefit that would offset the loss of the expiring tax benefit. The
termination or reduction of certain programs and tax benefits, or the
requirement to refund previously accredited tax benefits if the Company is found
to be in violation of the stipulated conditions, could have a material adverse
effect on the Company's overall effective tax rate.

     Product Defects; Project Risk

     The Company's software products are highly complex and may, from time to
time, contain design defects or software errors that may be difficult to detect
and correct. There can be no assurance that such defects or errors will not
cause delays in product introductions or damage customer satisfaction or that
such events, were they to occur, would not have a material adverse effect on the
Company's business, results of operations and financial condition.

     Since the Company's products are generally used by its customers to perform
mission-critical functions, design defects, software errors, misuse of the
Company's products, incorrect data from external sources or other potential
problems within or out of the Company's control may arise from the use of the
Company's products, and may result in financial or other damages to the
Company's customers. Completion of the development and implementation phases of
a project requires between six and twelve months of additional work. During this
period, a customer's budgeting constraints and internal reviews, over which the
Company has little or no control, can impact operating results. The Company's
failure or inability to meet a customer's expectations in the provision of its
products or the performance of its services may result in the termination of the
Company's relationship with such customer or could give rise to claims against
the Company. Although the Company has license agreements with its customers that
contain provisions designed to limit the Company's exposure to potential claims
and liabilities arising from customer problems, these provisions may not
effectively protect the Company against such claims in all cases. Such an event
could damage the Company's reputation, adversely affecting its business, results
of operations and financial condition.

     Year 2000 Compliance

     Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential consequences of the Year 2000 phenomenon.
Although the Company currently offers software products that are designed or
have been modified to comply with the Year 2000 requirements, there can be no
assurance that the Company's current software contains all necessary date code
changes. The Company believes that a small number of its computer products
marketed by the Company or currently used by its customers are not Year 2000
compliant. In addition, certain products and services provided to the Company's
customers by other software vendors may not be Year 2000 compliant, thereby
disrupting the ability of the Company's customers to use the Company's software.
The Company has accrued $3.6 million as an expense to address such Year 2000
issues. See "Management's Discussion and Analysis of
<PAGE>   26
Results of Operation and Financial Condition -- Year 2000 Issues". There can be
no assurances that the costs to the Company to address the Year 2000 issues will
not exceed such costs and will not have a material adverse effect on the
Company's results of operations and business and financial condition. Moreover,
due to the Company's dependence on a limited number of significant customers,
any material adverse impact on such customers due to Year 2000 issues could also
have a material adverse effect on the results of operations and business and
financial condition of the Company.

     European Monetary Union Currency

     The European Monetary Union currency, or the euro, will be phased in over a
three-year period commencing January 1, 1999, when participating European
countries will begin using the euro currency for non-cash transactions. The
Company intends to offer software products that are capable of accepting the
euro currency and converting from local currencies to the euro. There can be no
assurance that the Company's software or software provided to the Company's
customers by other vendors will ensure an errorless transition to the euro
currency. The Company has accrued $2.5 million representing the estimated amount
of costs to modify its software products to accept the euro currency under
existing agreements with customers relating to previously sold products. The
Company does not currently anticipate recovering these expenditures from the
customers, as they relate to warranty agreements. See "Management's Discussion
and Analysis of Results of Operation and Financial Condition -- European
Monetary Union Currency". There can be no assurances that such costs will not
significantly exceed such estimate, in which case such costs could have a
material adverse effect on the Company's results of operations and financial
condition.

     Location of Certain Facilities

     The Company's business is conducted on a global basis. Amdocs maintains
three development facilities located in Israel, the United States and Cyprus,
operates a support center in Brazil and has operations in Europe, North America,
Latin America and the Asia-Pacific region. The Company's Israeli subsidiary
employs on a full-time basis over 2,100 software and information specialists and
operates the Company's largest development facility. The Company's development
facility in Cyprus has approximately 100 employees, and the Company is in the
process of significantly expanding such facility. Any major hostilities
involving Israel or Cypress or the interruption or curtailment of trade between
Israel or Cypress and their current trading partners could have a material
adverse effect on the Company. Accordingly, the Company may be significantly
affected by conditions in Israel and Cyprus, including those described below.

     Conditions in Israel

     The Company's largest development center is located in the State of Israel.
Although a substantial majority of the Company's sales are made to customers
outside Israel and the Company maintains significant service teams on site with
its customers, the Company is nonetheless directly influenced by the political,
economic and military conditions affecting Israel. The Company has developed
certain contingency plans to move certain development operations to various
sites both within and outside of Israel in the event political or military
conditions disrupt the Company's normal operations.
<PAGE>   27
     Political Conditions. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between Israel and its Arab
neighbors and a state of hostility, varying from time to time in intensity and
degree, has led to security and economic problems for Israel. However, a peace
agreement between Israel and Egypt was signed in 1979, a peace agreement between
Israel and Jordan was signed in 1994 and, since 1993, several agreements between
Israel and Palestinian representatives have been signed, including most recently
the Wye accords signed in October 1998. In addition, Israel and several other
Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. However, as of the date hereof,
Israel has not entered into any peace agreement with Syria or Lebanon and, in
recent months, there has been increased tension between Israel and the
Palestinian community. Consequently, there can be no assurance as to how the
peace process will develop or what effect it may have upon the Company.

     Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. The Company does not believe that the
boycott has had a material adverse effect on the Company, but there can be no
assurance that restrictive laws, policies or practices directed towards Israel
or Israeli businesses will not have an adverse impact on the Company's business
or financial condition in the future.

     Economic Conditions. Israel's economy has been subject to numerous
destabilizing factors, including periods of inflation, low foreign exchange
reserves, fluctuations in world commodity prices, military conflicts and civil
unrest. The Israeli Government has, for these and other reasons, intervened in
the economy by utilizing, among other means, fiscal and monetary policies,
import duties, foreign currency restrictions and control of wages, prices and
exchange rates. The Israeli Government has periodically changed its policies in
all these areas. Although the Company derives most of its revenue outside of
Israel, a substantial portion of its expenses are incurred in Israel and are
affected by economic conditions in the country.

     Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development, and the International
Finance Corporation. Israel is a signatory to the General Agreement on Tariffs
and Trade, which provides for the reciprocal lowering of trade barriers among
its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Canada and Japan.
These preferences allow Israel to export the products covered by such program
either duty-free or at reduced tariffs. Israel became associated with the
European Economic Community (now known as the European Union) in a Free Trade
Agreement concluded in 1975, which confers certain advantages with respect to
Israeli exports to most European countries and obligates Israel to lower its
tariffs with respect to imports from those countries over a number of years.

     Israel and the United States entered into a Free Trade Agreement ("FTA") in
1985. Under the FTA, most products receive immediate duty-free status. The FTA
eliminated all tariff and certain non-tariff barriers on most trade between the
two countries in 1995. In September 1992, Israel signed a free trade agreement
with the European Free Trade Association ("EFTA"),
<PAGE>   28
whose members include Switzerland, Norway, Iceland and Liechtenstein. The
agreement became effective January 1, 1993, and entitles the exporting countries
of EFTA trading with Israel to conditions similar to those that Israel enjoys
trading with the United States. In recent years, Israel has established
commercial and trade relations with a number of other nations (including China,
Russia, India and other nations in Asia and Eastern Europe) with which Israel
had not previously had such relations.

     Labor Relations. Although the Company's Israeli subsidiary is not party to
any collective bargaining agreements, it is subject to certain labor related
statutes and to certain provisions of the collective bargaining agreements
between the Histadrut (General Federation of Labor in Israel) and the
Coordination Bureau of Economic Organizations (including the Industrialists
Association of Israel) which are applicable to the Company's Israeli employees
by order of the Israeli Ministry of Labor and Welfare.

     Israeli law generally requires the payment by employers of severance pay
upon the retirement or death of an employee or upon termination of employment by
the employer with due cause. The Company currently funds its ongoing severance
obligations by making monthly payments to approved severance funds or insurance
policies. The majority of the permanent employees of the Company are covered by
life and pension insurance policies providing customary benefits to employees,
including retirement and severance benefits. The Company contributes generally
up to 15.83% (depending on the employee) of base wages to such plans and the
permanent employees contribute 5% of base wages. In addition, according to the
National Insurance Law, Israeli employees and employers are required to pay
specified sums to the National Insurance Institute, which is similar to the U.S.
Social Security Administration. Since January 1, 1995, such amounts also include
payments for national health insurance. The payments to the National Insurance
Institute are approximately 14.5% of wages (up to a specified amount), of which
the employee contributes approximately 66% and the employer contributes
approximately 34%.

     Army Service. Generally, all male adult citizens and permanent residents of
Israel under the age of 51 are, unless exempt, required to perform up to 39 days
of military reserve duty annually. Additionally, all such residents are subject
to being called to active duty at any time under emergency circumstances. Some
of the Company's officers and employees are currently obligated to perform
annual reserve duty. Although the Company has operated effectively under these
requirements since it began operations, there can be no assurance that such will
be the case in the future.

     Conditions in Cyprus

     Political Conditions. Cyprus was established as an independent republic in
1960. Intercommunal strife between the Greek and Turkish communities brought a
Turkish invasion in 1974 that resulted in the occupation of about 40% of the
Island. Efforts have been made over the last twenty years, by the United States,
Great Britain, the European Union and other countries or organizations, to solve
the problem through negotiations. Up to now these negotiations have not resulted
in a solution agreeable to both communities. The Government of Cyprus, which is
the only one recognized internationally, does not have control over or access to
the northern part of
<PAGE>   29
the island which is occupied by the Turkish army. Recent efforts to resume
United Nations sponsored peace talks aimed at unifying Cyprus have apparently
failed. Tensions between Greek and Turkish Cypriots and between the Greek and
Turkish Governments have increased during the last several months over the
potential admission of Cyprus to the European Union and certain military defense
issues.

     Economic Conditions. The economy of Cyprus is based on a free enterprise
system. The Government has generally pursued an economic policy aimed at
promoting and maintaining favorable investment conditions and supplementing,
where considered necessary, private initiatives. In recent years the economy of
Cyprus has been growing at an average rate of 4%. At the same time the economy
is operating at near full employment with an unemployment rate of 3.1% in 1996.
Inflation has also been relatively modest, with an increase in the retail price
index of 3% in 1996.

     Cyprus is a member of the United Nations and the International Monetary
Fund, and is a signatory to the General Agreement on Tariffs and Trade. Since
1972 Cyprus has had an association agreement with the European Union ("EU"). A
Customers Union has been established and today there is free movement of goods
between the two parties. Cyprus has applied for full membership of the EU and
entry negotiations commenced in March 1998.

     Labor Relations. Cypriot law provides that both employees and employers
contribute to the Social Insurance Fund and other related funds. Employers
contribute 11.0% and employees 9.3% of gross salary, up to a maximum monthly
amount. Non-Cypriot employees of the Company's Cypriot subsidiary are not
covered by these provisions.

Certain Forward-Looking Statements

     This report contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and information
relating to the Company that are based on the beliefs of the management of the
Company as well as assumptions made by and information currently available to
the management of the Company. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or the management of the Company identify forward-looking
statements. Such statements, which include, without limitation, the matters set
forth herein under the captions "Description of Business" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
reflect the current views of the Company with respect to future events, the
outcome of which is subject to certain risks, including among others the
Company's ability to develop and introduce new products in the
telecommunications market, any significant deterioration in the Company's
relationship with its key customers, changes in the political and economic
conditions in Israel and Cyprus, and other factors which may be outside of the
Company's control including those discussed in this section. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
<PAGE>   30
ITEM 2.  DESCRIPTION OF PROPERTY

     The Company leases space in numerous facilities in Israel, aggregating
approximately 530,000 square feet, pursuant to leases expiring on various dates
between December 1998 and December 2003, and has various options to extend the
terms of such leases. Approximately 69,000 square feet of such facilities are
owned by related companies which lease such facilities to the Company. The
Company currently pays in Israel total yearly rental fees of approximately $9.5
million which are linked, in most cases, to the U.S. dollar.

     In September 1996, the Company's Israeli subsidiary entered into a ten year
lease for 297,000 square feet in Ra'anana, Israel. In June 1998, the Israeli
subsidiary relocated its main offices and most of its operations to this
location. The annual rent for the Ra'anana facility is approximately $5.4
million. Subject to the modification of certain tax rules, the subsidiary will
also have the option to extend the lease term for an additional eight years. In
addition, the Israeli subsidiary holds, subject to certain terms and conditions,
an option to acquire certain parts of the Ra'anana facility. In November 1998,
the Israeli subsidiary rented an additional 18,300 square feet in Ra'anana.

     In August 1998, the Company entered into a 7 year lease (commencing
December 1998) for 79,900 square feet in Chesterfield, Missouri. The Company
intends to relocate its development center and all of its administrative
personnel, now principally centered around St. Louis, Missouri, to such
location. The annual rent for the facility will be approximately $1.7 million.
In the beginning of 1999, the Company intends to terminate its current lease for
approximately $300,000 annually. The Company also holds a number of other leases
in the United States with an aggregate annual rent of approximately $75,000.

     The Company also leases 26,750 square feet for its development facility in
Cyprus at an annual rent of approximately $330,000.

     The Company leases additional office space in the United Kingdom,
Australia, Germany, Japan, Korea and Brazil.

ITEM 3. LEGAL PROCEEDINGS

     The Company is not involved in any material legal proceedings.

ITEM 4. CONTROL OF THE REGISTRANT

     The Company's voting Ordinary Shares are owned 34.4% by Welsh, Carson,
Anderson & Stowe ("WCAS"), a private investment firm, and its affiliates, 8.7%
by SBCI, 27.7% by Amdocs International Limited ("AIL"), a private
company ultimately controlled by Morris S. Kahn, and 12.4% by entities in which
certain members of management (including one who is a director) have a
beneficial interest. In addition, an entity in which such members of management
have a beneficial interest holds in the aggregate an 18.7% non-voting interest
in AIL. SBCI also owns non-voting Ordinary Shares, which together with its
voting Ordinary Shares, represent
<PAGE>   31
22.7% of the voting Ordinary Shares and non-voting Ordinary Shares outstanding
as of September 30, 1998. In connection with the recapitalization of the Company
that preceded its initial public offering in June 1998, WCAS and certain
entities in which members of management have a beneficial interest granted
irrevocable proxies with respect to a portion of the Ordinary Shares held by
them to a company beneficially owned by Morris S. Kahn. After giving effect to
such proxies, such company and AIL will together have the right to vote 46.1% of
the Company's voting Ordinary Shares, and WCAS and its affiliates will have the
right to vote 23.4% of such shares.

     As a result of the concentration of the ownership of the Company's Ordinary
Shares, WCAS, SBCI and AIL may be able to exercise control over matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. Such control may have the effect of
delaying or preventing a change in control of the Company. The Company's Board
of Directors is currently comprised of five affiliates of WCAS, one affiliate of
SBCI and five affiliates of AIL.

     The following table sets forth certain information with respect to the
beneficial ownership as of September 30, 1998 of (i) any person known by the
Company to be the beneficial owner of more than 10% of the outstanding Ordinary
Shares and (ii) all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                  Shares
                                                Beneficially         Percentage
            Name and Address                       Owned(1)         Ownership(2)
            ----------------                      --------          ------------
<S>                                             <C>                 <C>
Welsh, Carson, Anderson & Stowe(3)(6)
  320 Park Avenue, Suite 2500
  New York, New York 10022                        57,372,796              29.2%

SBC International Inc.(4)
  175 E. Houston Street
  San Antonio, Texas 78205-2233                   44,734,700              22.7

Amdocs International Limited(5)(6)
  Suite 5, Tower Hill House
  Le Bordage, St. Peter Port
  Guernsey GY1 3QT
  The Channel Islands                             46,078,500              23.4

All directors and executive officers
  as a group (19 persons)(5)(6)                  172,518,824              87.2
</TABLE>

(1)  Unless otherwise indicated, the entities and individuals identified in this
     table have sole voting and investment power with respect to all Ordinary
     Shares and sole investment power with respect to all non-voting Ordinary
     Shares shown as beneficially owned by them, subject to community property
     laws, where applicable.

(2)  The percentages shown are based on 166,565,324 Ordinary Shares and
     30,234,700 non-voting Ordinary Shares outstanding on September 30, 1998,
     plus, as to each entity or group listed unless otherwise noted, the number
     of Ordinary Shares and non-voting Ordinary Shares deemed to be owned by
     such holder pursuant to Rule 13d-3 under the Securities Exchange Act of
     1934, as amended, as of
<PAGE>   32
     such date, assuming exercise of options held by such holder which are
     exercisable within 60 days of the date of this report.

(3)  Includes 36,761,712 Ordinary Shares held by Welsh, Carson, Anderson & Stowe
     VII, L.P., 10,542,844 Ordinary Shares held by Welsh, Carson, Anderson &
     Stowe VI, L.P., 7,354,932 Ordinary Shares held by WCAS Capital Partners
     III, L.P., 226,512 Ordinary Shares held by WCAS Information Partners, L.P.
     and 2,486,796 Ordinary Shares held by partners and others affiliated with
     WCAS. Such partners are also partners of the sole general partner of each
     of the foregoing limited partnerships. The partners of WCAS who are also
     directors of the Company are Bruce K. Anderson (Chairman of the Board and
     Chief Executive Officer of the Company) and Robert A. Minicucci (Chief
     Financial Officer of the Company), and each may be deemed to be beneficial
     owners of the Company's Ordinary Shares held by WCAS.

(4)  SBCI is a wholly-owned subsidiary of SBC, a company whose shares are
     publicly traded on the New York Stock Exchange. The number of shares shown
     as beneficially owned by SBCI is comprised of 14,500,000 Ordinary Shares
     and 30,234,700 non-voting Ordinary Shares. SBCI is the only shareholder of
     the Company that holds non-voting Ordinary Shares.

(5)  In connection with the recapitalization of the Company effected as of May
     20, 1998, in advance of the Company's initial public offering in June 1998,
     investment partnerships affiliated with WCAS and certain entities in which
     certain members of management have a beneficial interest granted
     irrevocable proxies with respect to a total of 23,521,899 and 7,226,440
     Ordinary Shares, respectively, to a company which is the principal
     shareholder of AIL and which is beneficially owned by Morris S. Kahn. The
     proxies granted by the WCAS partnerships expire in ten years, or sooner if
     at any time the WCAS entities collectively own less than 10.0% of the
     Company's outstanding capital shares. The proxies granted by management
     expire ratably over the next two to three years. After giving effect to
     such proxies, AIL and its principal shareholder will together have the
     right to vote 46.1% of the Company's voting Ordinary Shares and WCAS will
     have the right to vote 23.4% of such shares.

(6)  Affiliates of WCAS, SBCI and AIL serve on the Company's Board of Directors
     and, accordingly, such affiliates may be deemed to be the beneficial owners
     of the shares held by such entities.
<PAGE>   33
     Call Option Agreement

     In September 1997, in connection with a Share Subscription Agreement and a
Conditional Investment Agreement (described below), investment partnerships
affiliated with WCAS and certain other investors, including certain entities in
which certain directors and executive officers of the Company's subsidiaries
have a beneficial interest (collectively, the "WCAS Investors"), granted to the
Company's existing shareholders, SBCI, AIL, certain entities in which directors
and executive officers of the Company have a beneficial interest and an
irrevocable secular trust (the "Trust") for the benefit of certain employees
(such entities and the Trust being referred to collectively as the "Other
Investors"), a call option on up to 15,198,040 Ordinary Shares. The call option
may be exercised, without the payment of any consideration to the WCAS
Investors, if certain revenue and cash flow targets are met in fiscal years 1998
and 1999. The targets in fiscal year 1998 have been satisfied in full. If
exercised, the call option would increase the relative ownership of SBCI, AIL
and the Other Investors and decrease the relative ownership of the WCAS
Investors with no change in the aggregate number of Ordinary Shares outstanding.

              The following table illustrates the Ordinary Share ownership of
the entities party to the call option agreement (i) if the conditions under the
call option agreement are not satisfied, and (ii) if all of the revenue and cash
flow tests under such agreement were to be achieved in full.

<TABLE>
<CAPTION>
                                                                  Beneficial Ownership if:
                                                                  ------------------------
                                                        Conditions of                      Conditions of
                                                         Call Option                        Call Option
                                                          Agreement                          Agreement
                                                       Are All Not Met                 Are All Met in Full
                                                       ---------------                 -------------------
Beneficial Owner                                   Number           Percent          Number             Percent
----------------                                   ------           -------          ------             -------
<S>                                                <C>              <C>              <C>                <C>
WCAS Investors                                      62,580,024       31.8%            47,381,984         24.1%
SBCI                                                44,734,700       22.7             50,888,838         25.9
AIL                                                 46,078,500       23.4             52,232,638         26.5
Other Investors                                     24,063,000       12.2             26,952,764         13.7
</TABLE>

ITEM 5.  NATURE OF TRADING MARKET

         The Company's Ordinary Shares have been quoted on the New York Stock
Exchange since June 19, 1998, under the symbol "DOX." Through September 30,
1998, the high and low reported sale prices for the Ordinary Shares were as
follows:

<TABLE>
<CAPTION>
                                     High          Low
<S>                                 <C>          <C>
Third Quarter 1998                   $16.5        $14.0
(since June 19, 1998)

Fourth Quarter 1998                  15.5         8.4
(through September 30, 1998)
</TABLE>
<PAGE>   34
         As of December 1, 1998, the last reported price of the Ordinary Shares
was $15.125 and Ordinary Shares were held by 137 record holders. Based on a 
review of the addresses of such holders, 69 record holders, holding 65% of the
outstanding Ordinary Shares, were residents of the United States of America.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

         Not applicable.

ITEM 7. TAXATION

         Taxation of the Company

         The following is a summary of certain material tax considerations
relating to the Company and its subsidiaries. To the extent that the discussion
is based on tax legislation that has not been subject to judicial or
administrative interpretation, there can be no assurance that the views
expressed in the discussion will be accepted by the tax authorities in question.
The discussion is not intended, and should not be construed, as legal or
professional tax advice and is not exhaustive of all possible tax
considerations.

         General. The Company's overall effective tax rate has historically been
approximately 30% due to the various corporate income tax rates of the countries
in which the Company operates and the relative magnitude of the activities of
the Company in those countries. The Company's consolidated effective tax rate
for fiscal year 1998 was approximately 50% due to significant interest expense
incurred in a tax jurisdiction in which the Company is tax exempt which resulted
in no tax benefit to offset the tax expense incurred in other jurisdictions.
There can be no assurance that the Company's effective tax rate will not change
over time as a result of a change in corporate income tax rates or other changes
in the tax laws of the various countries in which the Company operates.
Moreover, the Company's effective tax rate in future years may be adversely
affected in the event that a tax authority challenged the manner in which items
of income and expense are allocated among the Company and its subsidiaries. In
addition, the Company and certain of its subsidiaries have been granted certain
special tax benefits, discussed below, in Cyprus, the United Kingdom and Israel.
The loss of any such tax benefits could have an adverse effect on the Company's
effective tax rate.

         Certain Guernsey Tax Considerations. The Company qualifies as an exempt
company (i.e., it does not carry on business in Guernsey) so it generally is not
subject to taxation in Guernsey.

         Certain Cyprus Tax Considerations. The Company's Cyprus subsidiary,
Amdocs Development Limited, provides certain computer development services,
primarily to certain of the Company's other subsidiaries. Corporations resident
in Cyprus currently are subject to a
<PAGE>   35
maximum 25% income tax rate. The Government of Cyprus has issued a permit to the
Cyprus subsidiary pursuant to which the activities to be conducted by it will be
deemed to be offshore activities for the purpose of Cyprus taxation. As a
result, the Cyprus subsidiary will be subject to an effective tax rate in Cyprus
of 4.25%. In order for the subsidiary to remain entitled to this reduced rate of
taxation pursuant to the permit, it must continue to satisfy certain
requirements concerning its operations in Cyprus and it must undertake certain
information reporting obligations to the Government of Cyprus.

         Certain United Kingdom Tax Considerations. The Company's United Kingdom
subsidiary, Amdocs (UK) Limited ("Amdocs UK"), performs contracting and
marketing functions for the Company's business, provides customers with
development services, and acts as a holding company for certain of the Company's
subsidiaries, including the Company's principal U.S. operating subsidiary.

         General Corporate Taxation in the United Kingdom. The statutory United
Kingdom corporation tax rate currently is 31%. The corporation tax rate will
decrease to 30% commencing on April 1, 1999. Amdocs UK pays UK corporation tax
on its worldwide income, with a credit or deduction for non-UK income taxes
paid. Amdocs UK pays tax on dividends received from its subsidiaries, with a
credit for underlying non-UK taxes paid by such subsidiaries and withholding
taxes paid on such dividends.

         International Headquarters Company Regime. The United Kingdom currently
has a partial imputation system. Under the imputation system, when it
distributes dividends, Amdocs UK must pay to the Inland Revenue an amount of
advance corporation tax ("ACT"). That amount is currently equal to 25% of the
dividend. The ACT amount may be offset against tax otherwise payable by Amdocs
UK but a full offset may not be achieved in certain situations, such as when the
UK tax is offset instead by credits for non-UK taxes paid by Amdocs UK on its
foreign operations or with respect to dividends received from the Company's
principal U.S. operating subsidiary. Surplus ACT may be carried forward.

         ACT is relieved under UK tax rules for foreign income dividends and
international headquarters companies. These rules allow companies, such as
Amdocs UK, that meet foreign ownership requirements to identify certain
dividends as foreign income dividends, and pay them without accounting for ACT.

         The UK government has announced that ACT will be abolished for
dividends paid on or after April 6, 1999.

         Certain Israeli Tax Considerations. The Company's Israeli subsidiary,
Amdocs (Israel) Limited, operates the Company's largest development center.
Discussed below are certain Israeli tax considerations relating to the Israeli
subsidiary:

         General Corporate Taxation in Israel. Effective January 1, 1996, and
thereafter, in general, Israeli companies are subject to "Company Tax" at the
rate of 36% of taxable income.
<PAGE>   36
However, the effective tax rate payable by an Israeli company that derives
income from an Approved Enterprise (as further discussed below) may be
considerably less.

         Law for the Encouragement of Capital Investments, 1959. Certain
production and development facilities of the Company's Israeli subsidiary have
been granted "Approved Enterprise" status pursuant to the Law for the
Encouragement of Capital Investments, 1959 (the "Investment Law"), which
provides certain tax and financial benefits to investment programs that have
been granted such status.

         The Investment Law provides that capital investments in production
facilities (or other eligible assets) may, upon application to the Israeli
Investment Center, be designated as an Approved Enterprise. Each instrument of
approval for an Approved Enterprise relates to a specific investment program
delineated both by the financial scope of the investment, including source of
funds, and by the physical characteristics of the facility or other assets. The
tax benefits available under any instrument of approval relate only to taxable
profits attributable to the specific investment program and are contingent upon
compliance with the conditions set out in the instrument of approval.

         Tax Benefits. Taxable income derived from an Approved Enterprise is
subject to a reduced corporate tax rate of 25% until the earlier of (i) seven
consecutive years (or ten in the case of an FIC (as defined below)) commencing
in the year in which the Approved Enterprise first generates taxable income,
(ii) twelve years from the year of commencement of production or (iii) fourteen
years from the year of the approval of the Approved Enterprise status. Such
income is eligible for further reductions in tax rates if the company qualifies
as a Foreign Investors' Company ("FIC"), depending on the percentage of the
foreign ownership. Subject to certain conditions, an FIC is a company more than
25% of whose share capital (in terms of shares, rights of profits, voting and
appointment of directors) and more than 25% of whose combined share and loan
capital is owned by non-Israeli residents. The tax rate is 20% if the foreign
investment is 49% or more but less than 74%; 15% if the foreign investment is
74% or more but less than 90%; and 10% if the foreign investment is 90% or more.
The determination of foreign ownership is made on the basis of the lowest level
of foreign ownership during the tax year. A company that owns an Approved
Enterprise, approved after April 1, 1986 may elect to forego the entitlement to
grants and apply for an alternative package of tax benefits ("Alternative
Benefits"). In addition, a company (like the Company's Israeli subsidiary) with
an enterprise outside the National Priority Regions (which is not entitled to
grants) may also apply for the Alternative Benefits. Under the Alternative
Benefits, undistributed income from the Approved Enterprise operations is fully
tax exempt (a tax holiday) for a defined period. The tax holiday ranges between
two to ten years from the first year of taxable income subject to the
limitations as described above, depending principally upon the geographic
location within Israel. On expiration of the tax holiday, the Approved
Enterprise is eligible for a beneficial tax rate (25% or lower in the case of an
FIC, as described above) for the remainder of the otherwise applicable period of
benefits.

         The Company's Israeli subsidiary has elected the Alternative Benefits
with respect to its current Approved Enterprise and enlargements thereof,
pursuant to which the Israeli subsidiary enjoys, in relation to its Approved
Enterprise operations, certain tax holidays for a period of two years (and in
some cases for a period of four years) and reduced tax rates for an additional
period
<PAGE>   37
of up to eight years. In case the Company's Israeli subsidiary pays a dividend,
at any time, out of income earned during the tax holiday period in respect of
its Approved Enterprise, it will be subject, assuming that the current level of
foreign investment in the Company is not reduced, to corporate tax at the
otherwise applicable rate of 10% of the income from which such dividend has been
paid and up to 25% if such foreign investments are reduced (as detailed above).
This tax is in addition to the withholding tax on dividends as described below.
Under a new instrument of approval issued recently and relating to the current
investment program of the Company's Israeli subsidiary and to the income derived
therefrom, the Company's Israeli subsidiary is entitled to a reduced tax rate
period of thirteen years (instead of the eight year period referred to above).
The tax benefits, available with respect to an Approved Enterprise only to
taxable income attributable to that specific enterprise, are given according to
an allocation formula provided for in the Investment Law or in the instrument of
approval, and are contingent upon the fulfillment of the conditions stipulated
by the Investment Law, the regulations published thereunder and the instruments
of approval for the specific investments in the Approved Enterprises. In the
event the Company's Israeli subsidiary fails to comply with these conditions,
the tax and other benefits could be canceled, in whole or in part, and the
subsidiary might be required to refund the amount of the canceled benefits, with
the addition of CPI linkage differences and interest. The Company believes that
the Approved Enterprise of the Company's Israeli subsidiary substantially
complies with all such conditions currently, but there can be no assurance that
it will continue to do so.

         From time to time, the Government of Israel has discussed reducing the
benefits available to companies under the Investment Law. The termination or
substantial reduction of any of the benefits available under the Investment Law
could have a material adverse effect on future investments by the Company in
Israel (although such termination or reduction would not affect the Israeli
subsidiary's existing Approved Enterprise or the benefits derived therefrom).

         Dividends

         Dividends paid out of income derived by an Approved Enterprise during
the benefit periods (or out of dividends received from a company whose income is
derived by an Approved Enterprise) are subject to withholding tax at a reduced
rate of 15% (deductible at source). In the case of companies that do not qualify
as a FIC, the reduced rate of 15% is limited to dividends paid at any time up to
twelve years thereafter.

Taxation of Holders of Ordinary Shares

         Certain United States Federal Income Tax Considerations. The following
discussion describes the material United States federal income tax consequences
to a holder of Ordinary Shares that is (i) a citizen or resident of the United
States, (ii) a corporation created or organized in, or under the laws of, the
United States or of any state thereof, (iii) an estate, the income of which is
includable in gross income for United States federal income tax purposes
regardless of its source, or (iv) a trust, if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more U.S. trustees have the authority to control all substantial
decisions of the trust (a "U.S. Holder"). This summary generally considers only
U.S. Holders that will own Ordinary Shares as capital assets. This summary does
not
<PAGE>   38
discuss the United States federal income tax consequences to a holder of
Ordinary Shares that is not a U.S. Holder.

         This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated thereunder, and administrative and judicial decisions as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
This discussion does not address all aspects of United States federal income
taxation that may be relevant to a holder of Ordinary Shares based on such
holder's particular circumstances (including potential application of the
alternative minimum tax), United States federal income tax consequences to
certain holders that are subject to special treatment (such as taxpayers who are
broker-dealers, insurance companies, tax-exempt organizations, financial
institutions, holders of securities held as part of a "straddle", "hedge" or
"conversion transaction" with other investments, or holders owning directly,
indirectly or by attribution at least 10% of the Ordinary Shares), or any aspect
of state, local or non-United States tax laws. Additionally, the discussion does
not consider the tax treatment of persons who hold Ordinary Shares through a
partnership or other pass-through entity or the possible application of United
States federal gift or estate taxes.

         Dividends. In general, a U.S. Holder receiving a distribution with
respect to the Ordinary Shares will be required to include such distribution
(including the amount of foreign taxes, if any, withheld therefrom) in gross
income as a taxable dividend to the extent such distribution is paid from the
current or accumulated earnings and profits of the Company as determined under
United States federal income tax principles. Any distributions in excess of such
earnings and profits will first be treated, for United States federal income tax
purposes, as a nontaxable return of capital to the extent of the U.S. Holder's
tax basis in the Ordinary Shares, and then, to the extent in excess of such tax
basis, as gain from the sale or exchange of a capital asset. United States
corporate shareholders will not be entitled to any deduction for distributions
received as dividends on the Ordinary Shares.

         The amount of foreign income taxes that may be claimed as a credit
against United States federal income tax in any year is subject to certain
complex limitations and restrictions, which must be determined on an individual
basis by each U.S. Holder. The limitations set out in the Code include, among
others, rules that may limit foreign tax credits allowable with respect to
specific classes of income to the United States federal income taxes otherwise
payable with respect to each such class of income. Dividends paid by the Company
generally will be foreign source "passive income" for United States foreign tax
credit purposes.

         Disposition of Ordinary Shares. Upon the sale, exchange or other
disposition of Ordinary Shares, a U.S. Holder generally will recognize capital
gain or loss in an amount equal to the difference between the amount realized on
the disposition by such U.S. Holder and its tax basis in the Ordinary Shares.
Such capital gain or loss will be long-term capital gain or loss if the U.S.
Holder has held the Ordinary Shares for more than one year at the time of the
disposition. In the case of a U.S. Holder that is an individual, trust or
estate, capital gains realized upon a disposition of the Ordinary Shares
generally will be subject to a maximum tax rate of 20% where
<PAGE>   39
the Ordinary Shares have been held for more than one year. Gains realized by a
U.S. Holder on a sale, exchange or other disposition of Ordinary Shares
generally will be treated as United States source income for United States
foreign tax credit purposes.

         Information Reporting and Backup Withholding. Dividend payments with
respect to the Ordinary Shares and proceeds from the sale, exchange or
redemption of Ordinary Shares may be subject to information reporting to the
Internal Revenue Service ("IRS") and possible U.S. backup withholding at a 31%
rate. Backup withholding will not apply, however, to a U.S. Holder who furnishes
a correct taxpayer identification number and makes any other required
certification or who is otherwise exempt from backup withholding. Generally, a
U.S. Holder will provide such certification on IRS Form W-9 (Request for
Taxpayer Identification Number and Certification).

         Amounts withheld under the backup withholding rules may be credited
against a U.S. Holder's tax liability, and a U.S. Holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for a refund with the IRS.

         Certain Guernsey Tax Considerations. Under the laws of Guernsey as
currently in effect, a holder of Ordinary Shares who is not a resident of
Guernsey and who does not carry on business in Guernsey through a permanent
establishment situated there is (i) exempt from Guernsey income tax on dividends
paid with respect to the Ordinary Shares and (ii) is not liable for Guernsey
income tax on gains realized on sale or disposition of such Ordinary Shares. In
addition, Guernsey does not impose a withholding tax on dividends paid by the
Company to holders of Ordinary Shares.

         There are no capital gains, gift or inheritance taxes levied by
Guernsey, and the Ordinary Shares generally are not subject to any transfer
taxes, stamp duties or similar charges on issuance or transfer.

ITEM 8. SELECTED FINANCIAL DATA

         The Company's financial statements are prepared in accordance with
generally accepted accounting principles in the United States. The selected
consolidated financial information set forth below has been derived from the
combined or consolidated financial statements of the Company and its
subsidiaries for the fiscal periods presented. During the year ended September
30, 1994, the Company's operating subsidiaries were operated as a group of
companies owned by common shareholders and financial statements for such period
were prepared on a combined basis and were not audited. Information as of and
for the four years ended September 30, 1998 is derived from the consolidated
financial statements of the Company and its subsidiaries which have been audited
by Ernst & Young LLP, the Company's independent auditors.

         The selected consolidated financial information set forth below should
be read in conjunction with "Item 9 - Management's Discussion and Analysis of
Results of Operations and Financial Condition"

<PAGE>   40
and the consolidated financial statements and notes thereto included herein.

Statement of Operations Data -
In thousands (except per share data)

Year ended September 30,

<TABLE>
<CAPTION>

                                                  1998             1997             1996             1995            1994
                                                  ----             ----             ----             ----            ----
<S>                                            <C>              <C>              <C>              <C>             <C>
Statement of Operations Data:
Revenue:

  License                                      $  42,891        $  25,995        $  16,298        $  10,898       $   9,720
  Service                                        360,876          264,107          195,422          156,414         111,590
                                               ---------        ---------        ---------        ---------       ---------
                                                 403,767          290,102          211,720          167,312         121,310

Operating expenses:

  Cost of license                                 10,732            3,711            4,011            2,904           1,979
  Cost of service                                231,360          173,704          129,177           93,516          65,146
  Research and development                        25,612           17,386           14,695           23,305           9,993
  Selling, general and administrative             51,168           40,769           28,347           32,210          22,145
  Nonrecurring charge(1)                              --           27,563               --               --              --
                                               ---------        ---------        ---------        ---------       ---------
                                                 318,872          263,133          176,230          151,935          99,263
                                               ---------        ---------        ---------        ---------       ---------
Operating income                                  84,895           26,969           35,490           15,377          22,047
Other income (expense), net(2)                   (24,126)          (3,266)            (476)             658             907
                                               ---------        ---------        ---------        ---------       ---------

Income before taxes                               60,769           23,703           35,014           16,035          22,954
Income tax expense                                30,385           17,827           10,506            4,811           6,886
                                               ---------        ---------        ---------        ---------       ---------
Income, before cumulative effect                  30,384            5,876           24,508           11,224          16,068
Cumulative effect, net                               277               --               --               --              --
                                               ---------        ---------        ---------        ---------       ---------
Net income                                     $  30,107        $   5,876        $  24,508        $  11,224       $  16,068
                                               =========        =========        =========        =========       =========

Basic earnings per voting and non-
  voting Ordinary Share                        $    0.19        $    0.05        $    0.23        $    0.11       $    0.17

Diluted earnings per voting and non-
  voting Ordinary Share                        $    0.19        $    0.05        $    0.22        $    0.11       $    0.17

Weighted average voting and
  non-voting Ordinary Shares outstanding
  for basic earnings per share                   158,528          108,330          107,920          100,076          92,176

Weighted average voting and non-
  voting Ordinary Shares outstanding for
  diluted earnings per share                     159,442          110,915          110,505          100,288          92,176

Dividends declared per share                   $    3.76        $    0.18        $    0.35        $    0.17       $    0.15
</TABLE>
<PAGE>   41
(1)  In the fourth quarter of fiscal 1997, the Company recorded nonrecurring
     charges of $27.6 million. Of such amount, $25.8 million is attributable to
     the funding of a contribution to an irrevocable secular trust and the
     balance, $1.8 million, is due to the write-off of in-process technology
     related to certain software rights acquired from several operating
     subsidiaries of SBC.

(2)  Information for the fiscal year ended September 30, 1998 includes $25
     million of interest expense and amortization of debt issuance costs
     relating to outstanding senior bank term debt and subordinated debt.

Balance Sheet Data -
(In thousands)

As of September 30,

<TABLE>
<CAPTION>

                                          1998             1997            1996            1995            1994
<S>                                    <C>              <C>             <C>             <C>             <C>
Balance Sheet Data:

  Cash and cash equivalents            $  25,389        $  53,732       $  16,083       $  20,214       $  17,819

  Working capital                        (84,278)          37,931           9,392          19,130          22,436
    Total assets                         239,966          220,582         104,531         101,483          77,106
  Long-term obligations (net of
  current portion)                         9,215            7,370           1,663              --              --
  Shareholders' equity (deficit)(1)      (21,889)          94,253          15,988          29,429          21,872
</TABLE>

(1) The decrease in shareholders' equity from September 30, 1997 to September 
    30, 1998 reflects the payment of dividends totalling $478.7 million 
    partially offsets by net income for the period and the issuance of Ordinary 
    Shares.
<PAGE>   42
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

         This report contains certain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results reflected in those forward-looking statements, as they are
subject to a variety of risk factors. See "Risk Factors". THE COMPANY DISCLAIMS
ANY OBLIGATION TO UPDATE ITS FORWARD-LOOKING STATEMENTS.

         OVERVIEW

         The Company provides customized software products and services to the
telecommunications industry, primarily CC&B Systems for wireless, wireline and
multiple-service or convergent network operators and service providers. Amdocs
also supplies Directory Systems to publishers of both traditional printed yellow
page and white page directories and electronic Internet directories. The
Company's products are mission-critical for a customer's operations. Due to the
complexity of the process and the expertise required for system support, the
Company also provides extensive customization, implementation, ongoing support,
system enhancement and maintenance services.

         The Company derives its revenue principally from (i) the initial sale
of the Company's products and related services, including license fees and
customization and implementation services, and (ii) recurring revenue from
ongoing maintenance, support and related services provided to the Company's
customers and, to a lesser degree, from incremental license fees resulting from
increases in a customer's subscribers.

         License revenue is recognized concurrently as work is performed, using
percentage of completion accounting. Service revenue that involves significant
ongoing obligations, including fees for customization, implementation and
support services, is also recognized as work is performed, under the percentage
of completion method. Revenue related to ongoing support is recognized as work
is performed. Revenue from third party hardware and software sales is recognized
upon delivery. Maintenance revenue is recognized ratably over the term of the
maintenance agreement. As a result of its percentage of completion accounting
policies, the Company's annual and quarterly operating results may be
significantly affected by the size and timing of customer projects and the
Company's progress in completing such projects.

         Since 1992, the Company has invested substantial resources to develop
its information technology and to expand its range of products. As a result of
significant information technology expenditures, the Company was able to offer a
full range of integrated applications for its CC&B Systems at the same time
factors such as increased demand for services, deregulation, privatization and
technological advancements began to transform the telecommunications industry.
License and service fees from the sale of CC&B Systems amounted to $251.8
million, $166.3 million and $102.5 million in fiscal years 1998, 1997 and 1996,
respectively, representing 62.4%, 57.3% and 48.4%, respectively, of the
Company's revenue for such periods.
<PAGE>   43
The Company believes that the demand for CC&B Systems will continue to increase
as the size and complexity of the telecommunications industry increases and that
CC&B Systems will account for a larger share of the Company's total revenue in
fiscal year 1999.

         Although the business of publishing traditional yellow page and white
page directories is a mature business in the United States, it continues to be a
significant source of revenue for the Company worldwide. The Company believes
that it is a leading provider of Directory Systems in most of the markets it
serves. License and service fee revenue from the sale of Directory Systems
totaled $151.9 million, $123.8 million and $109.2 million in fiscal years 1998,
1997 and 1996, respectively, accounting for 37.6%, 42.7% and 51.6%,
respectively, of the Company's revenue for such periods. The Company believes
that the demand for Directory Systems will be favorably impacted by increased
competition among international directory publishers, as well as by a broader
introduction of electronic directories. However, the Company anticipates that
the relative contribution of license and service fees for Directory Systems to
total revenue will decrease over time. The Company has also recently introduced
a number of new products for Directory-related Internet and electronic commerce
applications. The Company anticipates that over the next several years products
developed or to be developed for such applications will make a modest but
increasing contribution to revenue.

         The Company's research and development activities have historically
involved the development of new software modules and product offerings in
response to an identified market demand, usually in conjunction with a customer
project. The Company also expends additional amounts on applied research and
software development activities to keep abreast of new technologies in the
telecommunications market. Research and development expenditures amounted to
$25.6 million, $17.4 million and $14.7 million in fiscal year 1998, 1997 and
1996, respectively, representing 6.3%, 6.0% and 6.9%, respectively, of the
Company's revenue in such fiscal years. In the next several years, the Company
intends to continue to make significant investments in its research and
development activities both for CC&B Systems and Directory Systems.

         In September 1997, the Company purchased certain computer software
programs and intellectual property rights from operating subsidiaries of SBC, a
significant shareholder of the Company, for an aggregate amount of $40.0
million. The effect of these transactions is that the Company no longer pays
royalties related to the purchased computer software. In process research and
development related to these transactions resulted in a nonrecurring charge in
fiscal year 1997 of $1.8 million. The remainder has been capitalized - $12.0
million as computer software, which is amortized over its estimated useful life
of three years, and $26.2 million as intellectual property rights, which are
amortized over their estimated useful life of ten years.

         CORPORATE REORGANIZATIONS AND INVESTMENTS

         The Company's business was founded in 1982. In 1985, SBCI, a
wholly-owned subsidiary of SBC, acquired a 50% interest in such business. Prior
to 1995, the Company and its operating subsidiaries were operated as a group of
companies owned by common shareholders. In December 1995, the companies
underwent a reorganization, as a result of which Amdocs Limited became the
holding company for all the affiliated companies. At the same time, the
<PAGE>   44
Company issued shares for an aggregate $16.6 million to certain entities in
which certain officers and directors of the Company have a beneficial interest.

See "Interest of Management in Certain Transactions".

         In September 1997, the Company and the WCAS Investors entered into a
Share Subscription Agreement pursuant to which the WCAS Investors acquired from
the Company on September 22, 1997 $3.27 million in principal amount of the
Company's junior promissory notes and shares representing 8.7% of the then
outstanding equity of the Company for $61.2 million. On such date, the Company
and the WCAS Investors also entered into a Conditional Investment Agreement,
pursuant to which the WCAS Investors agreed, subject to the satisfaction of
certain revenue and cash flow targets through November 30, 1997, to acquire
additional shares of the Company which, when added to the shares acquired
pursuant to the Share Subscription Agreement, would constitute 35.0% of the
Company's outstanding equity as of September 22, 1997. Concurrently with the
signing of the Conditional Investment Agreement, a subsidiary of the Company,
European Software Marketing Ltd. ("ESM"), entered into a Note Purchase Agreement
with WCAS Capital Partners III, L.P., an investment partnership affiliated with
WCAS, and certain other investors, providing for the issuance of up to $125.0
million principal amount of 10% subordinated notes of ESM, subject to the
satisfaction of the same financial targets set forth in the Conditional
Investment Agreement. In January 1998, with such financial targets having been
met, ESM sold $123.5 million principal amount of subordinated notes under the
Note Purchase Agreement for a purchase price equal to their principal amount. On
March 30, 1998, the Company completed the transactions contemplated by the
Conditional Investment Agreement by issuing and selling to the WCAS Investors an
aggregate 51,507,716 Ordinary Shares for $95.83 million in cash and the
surrender of the $3.27 million principal amount of junior promissory notes
issued by the Company in September 1997.

         The proceeds of the equity and subordinated debt investments made under
the Share Subscription Agreement, the Conditional Investment Agreement and the
Note Purchase Agreement were used, together with the proceeds of $315.0 million
in term loans made to ESM in December 1997 under a senior bank credit facility
(of which $90.0 million was prepaid with a portion of the equity investment) and
internally generated funds, (i) to acquire for $40.0 million certain
intellectual property rights from operating subsidiaries of SBC and (ii) to fund
an internal corporate reorganization. In the reorganization, ESM acquired from
the Company the outstanding capital stock of Amdocs (UK) Limited, the Company's
operating subsidiary in the United Kingdom. ESM applied the proceeds of the
senior and subordinated debt financings to pay a portion of the purchase price
of such acquisition to the Company. Following the reorganization, $478.7 million
in dividends were paid by the Company to its shareholders, including an
aggregate $39.9 million to the WCAS Investors.

         In September 1997, the WCAS Investors also granted a call option on
certain Ordinary Shares acquired under the Share Subscription Agreement and the
Conditional Investment Agreement to the then existing shareholders of the
Company, AIL, SBCI, certain entities in which directors and executive officers
of the Company have a beneficial interest and the Trust. The call option may be
exercised, without the payment of any consideration to the WCAS
<PAGE>   45
Investors, if certain revenue and cash flow targets are met in fiscal years 1998
and 1999. The cash flow targets in fiscal year 1998 have been satisfied in full.
If such targets are met in fiscal year 1999, the number of Ordinary Shares held
by the WCAS Investors as a result of their net $120.4 million investment in the
Company will be reduced from 62,580,024 to 47,381,984 Ordinary Shares. See
"Control of the Registrant -- Call Option Agreement".

         On June 19, 1998, the Company commenced an initial public offering of
18,000,000 Ordinary Shares at an offering price of $14 per share. Total net
proceeds, after deduction of offering expenses and underwriting commissions,
amounted to $234.2 million. The Company used these funds to repay $183.8 million
in outstanding term loans and its related interest and $49.0 million out of the
$123.5 million in subordinated debt issued in January 1998.

         YEAR 2000 ISSUES

         BACKGROUND. The term "year 2000 issues" is a general term used to
describe the various problems that may result from the improper processing of
dates and faulty date calculations by computers and other machinery in the
upcoming millennium. These problems generally arise from the fact that most of
the world's legacy computer hardware and software have historically used only
two digits to identify the year in a date, often meaning that the computer will
fail to distinguish dates in the "2000's" from dates in the "1900's". These
problems may also arise from other sources such as the use of special codes and
conventions in software that make use of the date field. This could result in a
system failure or miscalculation causing disruptions of operations, including,
among other things, total failure of mass systems that depend on computers such
as electricity, telephone networks, and banking systems.

         Year 2000 issues, which potentially impact the Company, include the
Company's own internal systems, its customized software products sold and the
compliance efforts of third parties. See "Risk Factors -- Year 2000 Compliance".

         THE COMPANY'S STATE OF READINESS. The Company has identified the
information technology ("IT") and non-IT systems, software and products which
could be affected by the year 2000 issue, and has assessed the efforts required
to remediate or replace them. The Company has also identified versions of its
products that will not be made compliant and is assisting customers in upgrading
or migrating to year 2000 compliant versions. By the end of 1999, it is the
Company's intention that all of the major or key systems, software and products
will be remediated or replaced.

         The Company began evaluating year 2000 compliancy issues in mid 1996.
Since then the following functions have been performed: thorough examination and
study of year 2000 compliance status, process methodology adaptation, analysis
of solution alternatives and determination of Amdocs' technical and business
year 2000 policies. New systems, of recent years, have been developed as year
2000 compliant; older generations of applications are being migrated to year
2000 compliance in cooperation with our customers (using Amdocs year 2000
methodology and toolkit). None of these systems need mass data conversion, which
is usually the most sensitive portion of the year 2000 migration. Recognizing
the importance of year 2000 support in the IT industry and to provide an
additional level of assurance to our customers,
<PAGE>   46
Amdocs has decided to conduct a thorough and systematic verification process.
This effort is based on the application of industry-wide standards for year 2000
compliance. This verification process utilizes a specialized tool kit developed
by Amdocs including a powerful search utility (as a result of an analysis for
cost-effectiveness). For many customers we offer to conduct the verification
process, since the ultimate verification for year 2000 compliance should be
executed in their own working environment. This subject is crucial in view of
the technical and functional interaction with third party systems and those
developed by the customers locally.

         The Company anticipates completing the majority of the testing,
implementation of changes and necessary refinements by mid 1999. Management
expects that systems, software and products for which the Company has
responsibility currently are year 2000 compliant or will be compliant on a
timely basis. The Company is currently not aware of any year 2000 issues with
its customers that cannot be remedied.

         The Company has contacted all of its customers, and several of its
vendors and other third parties with whom it deals to identify potential issues
the Company might encounter concerning year 2000 compliancy. These
communications are also used to elicit the status of year 2000 readiness, and to
clarify which year 2000 issues are the responsibility of the Company and which
are the responsibility of the third party. The Company does not anticipate that
the year 2000 issues it will encounter with third parties will be different than
those encountered by other providers of information services, including the
Company's competitors. At this time, the Company is not aware of any year 2000
issues or problems relating to third parties with which the Company has a
material relationship.

         COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. A significant portion
of the Company's year 2000 compliance efforts have occurred or are occurring in
connection with system upgrades or replacements that were otherwise planned (but
perhaps accelerated due to the year 2000 issue) or which have significant
improvements and benefits unrelated to year 2000 issues. The remainder of the
costs that are incremental and directly related to year 2000 issues are not
expected to be material to the financial position or results of operations of
the Company.

         The Company has accrued approximately $3.6 million representing the
estimated amount of costs to modify previously sold customized software
products. The Company does not anticipate capitalizing any of these costs as
they relate to warranties related to products developed for customers.

         The Company has not yet estimated year 2000 costs for periods after
1999. Some post-1999 costs might be anticipated due to extra customer service
efforts created by the failure of third parties to be year 2000 compliant.
Neither the costs incurred for year 2000 compliance efforts, nor the delay or
deferral of certain development projects that might have otherwise been
undertaken in the absence of year 2000 compliance efforts, are expected to have
a material effect on the Company's financial position or results of operations.
Such costs generally have been funded by the re-deployment of both IT and non-IT
personnel resources. In addition, the Company's philosophy is to address many
year 2000 issues as part of re-engineering or replacement efforts. There were
several situations in which customers funded a special effort for the year 2000,
but those projects were usually treated by Amdocs as a part of ongoing support
of the customer.
<PAGE>   47
         THE COMPANY'S CONTINGENCY PLANS. Detailed contingency plans are being
prepared and will be refined as appropriate. Those plans will focus on matters
which appear to be the Company's most likely year 2000 risks, such as possible
additional customer support efforts by the Company that would be necessary if
customers or vendors are not year 2000 compliant, or if a year 2000 issue should
not be timely detected in the Company's own compliance efforts.

         RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company does not
anticipate that the year 2000 issues and risks, including the most reasonably
likely worst case year 2000 scenario, it will encounter will be significantly
different than those encountered by other providers of information services.
Although the Company believes its remediation, replacement and testing efforts
will address all of the year 2000 issues for which the Company is responsible,
to the extent these efforts are not successful, additional compliance efforts
would be necessary together with additional customer service efforts and
expenditures. If third parties fail in their compliance efforts, the Company
could also be impacted and required to provide additional customer service
efforts. In such an event, the Company could incur additional costs and
experience a negative impact on revenue and operating income.

         The Company's cost and timetable estimates for its year 2000 efforts
are subject to potentially significant estimation uncertainties that could cause
actual results to differ materially. These estimates are based on management's
current best estimates and reflect certain assumptions. Factors which could
impact these estimates include: the availability of appropriate technology
personnel; the rate and magnitude of related labor costs; the successful
identification of all aspects of the Company's systems, the success of third
parties in their year 2000 compliance efforts; software and products that
require remediation or replacement; the extent of testing required; the costs of
the Company's efforts to assist certain customers in the remediation of their
customized code; and the amount of cost recoveries from those efforts. Due to
the complexity and pervasiveness of the year 2000 issue, and in particular the
uncertainty regarding the compliance efforts of third parties, no assurance can
be given that these estimates will be achieved, and actual results could differ
materially.

         EUROPEAN MONETARY UNION CURRENCY

         The European Monetary Union currency, or the euro, will be phased in
over a three-year period commencing January 1, 1999, when participating European
countries will begin using the euro currency for non-cash transactions. The
Company intends to offer software products that are capable of handling the euro
currency and converting from local currencies to the euro. There can be no
assurance that the Company's software or software provided to the Company's
customers by other vendors will ensure an errorless transition to the euro
currency. The Company has accrued approximately $2.5 million representing the
estimated amount of costs to modify its software products to accept the euro
currency under existing agreements with customers relating to previously sold
products. The Company does not currently anticipate recovering these
expenditures from the customers, as they relate to warranty agreements. There
can be no assurance that such costs will not significantly exceed such estimate,
in which case such costs could have a material adverse effect on the Company's
results of operations and financial condition. See "Risk Factors -- European
Monetary Union Currency".
<PAGE>   48
         EFFECTIVE TAX RATE

         The Company's overall effective tax rate has historically been
approximately 30% due to the various corporate income tax rates of the countries
in which the Company operates and the relative magnitude of the activities of
the Company in those countries. The Company's subsidiaries' effective tax rates
for fiscal year 1998 were approximately 41% in the United States, 32% in the
United Kingdom, 26% in Israel, 4.25% in Cyprus and 35% on average for the other
countries in which the Company operates. See "Risk Factors -- Loss of Government
Programs and Tax Benefits". The Company's consolidated effective tax rate for
fiscal year 1998 was 50%, due to significant interest expense in a tax
jurisdiction in which the Company is tax exempt, which resulted in no tax
benefit to offset the tax expense incurred in other jurisdictions. The Company
anticipates that its effective tax rate in future years will be positively
impacted by substantial decreases in interest expenses in the tax jurisdiction
in which the Company is tax exempt. See "Taxation of the Company".

         CURRENCY FLUCTUATIONS

         Approximately 80% of the Company's revenue and 60% of its operating
expenses are paid in U.S. dollars or are paid in other currencies with the
exchange rate linked to U.S. dollars. Other significant currencies in which the
Company receives revenue or pays expenses are Australian dollars, Austrian
shillings, British pounds, Canadian dollars, Israeli shekels and Japanese yen.
Historically, the effect of fluctuations in currency exchange rates has had a
minimal impact on the operations of the Company. As the Company expands its
operations outside of the United States, its exposure to fluctuations in
currency exchange rates could increase. The Company enters into various foreign
exchange contracts in managing its foreign exchange risks. At September 30,
1998, the Company had no significant unhedged monetary assets, liabilities or
commitments denominated in currencies other than the U.S. dollar.

         EMPLOYEE ARRANGEMENTS

         In September 1997, the Company contributed $25.8 million to the Trust
for the benefit of certain employees, in recognition of past services rendered
to the Company. The beneficiaries are primarily software and information
technology specialists who have played an important role in the Company's
success. The trust agreement provides that the beneficiaries will be entitled to
receive amounts contributed by the Company on their behalf, subject to certain
conditions, over the next five years. In September 1997, the Trust used the
contribution from the Company and other resources to purchase from the Company
5,720,000 Ordinary Shares for an aggregate consideration of approximately $31.6
million. The Trust is required to liquidate any investments held in respect of
any beneficiary and distribute only cash payments.

         The Company recorded the $25.8 million contribution as compensation
expense in 1997, the year in which such contribution was made. The Trust will
distribute on certain dates within the next five years cash amounts to those
beneficiaries employed by the Company on such dates. The amounts to be
distributed to the beneficiaries employed by the Company on the relevant dates
will include an appreciation in the value of the Trust's assets and are
dependent upon
<PAGE>   49
certain conditions, such as the amount of cash available and the Trust's ability
to realize the value of the assets it holds. Termination of a beneficiary's
employment with the Company will not affect entitlement to a beneficiary's
minimum interest in the Trust and any terminated employee will receive such
interest in September 2007. See "Interest of Management in Certain Transactions
- Employee Trust Agreement".

         In January 1998, the Company granted options to purchase 1,651,000
Ordinary Shares to employees under the Company's 1998 Stock Option and Incentive
Plan (the "Plan") at an exercise price of $1.92 per share, with vesting over
four years and a term of 10 years. Compensation expense was not recorded for
these stock options as they were granted at an exercise price equal to the fair
market value of the Ordinary Shares at the time of the grant.

         In June 1998, following the Company's initial public offering, the
Company issued additional options under the Plan, granting options to purchase
855,400 shares with the same exercise price, expiration date and vesting dates
as the options granted in January 1998. The Company recorded unearned
compensation expense totaling $10.3 million as a separate component of
shareholders' equity for the difference between the fair market value per share
at the date of grant and the exercise price of $1.92. Additional paid in capital
was increased by the same amount. The unearned compensation expense will be
amortized ratably over the vesting period of 3.5 years.

         In September 1998, under the Plan, options to purchase 1,000,000 shares
were granted at an exercise price of $8.75 per share, which was equal to the
market price of the Ordinary Shares on the grant date, with vesting over four
and eight years and a term of 10 years. See "Options to Purchase Securities from
Registrant or Subsidiaries -- Employee Stock Options".

         The Company's success depends in large part on its ability to attract,
train, motivate and retain highly skilled information technology professionals,
software programmers and telecommunication engineers. These types of qualified
personnel are in great demand and are likely to remain a limited resource for
the foreseeable future. There can be no assurance that the Company will be able
to continue to attract and retain the skilled employees it requires and any
inability to do so could adversely impact the Company's ability to manage and
complete its existing projects and to compete for new customer contracts.
<PAGE>   50
         RESULTS OF OPERATIONS

                  The following table sets forth, for the periods indicated,
certain items in the Company's consolidated statements of operations reflected
as a percentage of total revenue:

<TABLE>
<CAPTION>
                                                   Year Ended September 30,
                                              --------------------------------
                                              1998          1997          1996
                                              ----          ----          ----
<S>                                         <C>            <C>           <C>
Revenue:
  License                                     10.6%          9.0%          7.7%
  Service                                     89.4          91.0          92.3
                                             -----         -----         -----
                                             100.0         100.0         100.0
                                             -----         -----         -----
Operating expenses:
  Cost of license                              2.7           1.3           1.9
  Cost of service                             57.3          59.9          61.0
  Research and development                     6.3           6.0           6.9
  Selling, general and administrative         12.7          14.0          13.4
  Nonrecurring charges                          --           9.5            --
                                             -----         -----         -----
                                              79.0          90.7          83.2
                                             -----         -----         -----

Operating income                              21.0           9.3          16.8
  Other expenses, net                          6.0           1.1           0.2
  Income taxes                                 7.5           6.2           5.0
                                             -----         -----         -----
Income before cumulative effect                7.5           2.0          11.6
Cumulative effect of change in
   accounting principle, net                     *            --            --
                                             -----         -----         -----
Net income                                     7.5%          2.0%         11.6%
                                             =====         =====         =====
</TABLE>


*  Less than 0.1%

         Years ended September 30, 1998 and 1997

         Revenue. Revenue for the year ended September 30, 1998 was $403.8
million, an increase of $113.7 million, or 39.2%, compared to the prior year.
License revenue increased from $26.0 million in fiscal year 1997 to $42.9
million in fiscal year 1998, an increase of 65.0%, and service revenue increased
36.6% or $96.8 million in fiscal year 1998. Total CC&B Systems revenue for the
year ended September 30, 1998 was $251.8 million, an increase of $85.5 million,
or 51.4%, compared to the prior fiscal year. Revenue attributable to Directory
Systems was $151.9 million for the year ended September 30, 1998, an increase of
$28.2 million, or 22.8%, from fiscal year 1997. The growth in revenue is
attributable to sales to new customers as well as to sales of additional
products and services to existing customers.

         In the year ended September 30, 1998, revenue from customers in North
America, Europe and the rest of the world accounted for 52.2%, 27.2% and 20.6%
respectively.

         Cost of License. Cost of license for the year ended September 30, 1998
was $10.7 million, an increase of $7.0 million, or 189.2%, from cost of license
for the year ended
<PAGE>   51
September 30, 1997. Cost of license in fiscal year 1998 includes amortization of
purchased computer software and intellectual property rights, and in 1997
included royalty expense paid to certain subsidiaries of SBC in connection with
the grant to the Company of licenses to use certain software jointly developed
with such subsidiaries.

         Cost of Service. Cost of service for fiscal year 1998 was $231.4
million, an increase of $57.7 million, or 33.2%, from cost of service of $173.7
million for fiscal year 1997. As a percentage of revenue, cost of service
decreased to 57.3% in the year ended September 30, 1998 from 59.9% in fiscal
year 1997. The absolute increase in cost of service is consistent with the
increase in revenue for the period, as these costs are predominately for
compensation and reflect increased employment levels needed to support the
growth in revenue.

         Research and Development. Research and development expense is primarily
comprised of compensation expense for employees engaged in research and
development activities, usually in conjunction with customer contracts. In the
year ended September 30, 1998, research and development expense was $25.6
million, or 6.3% of revenue, compared with $17.4 million, or 6.0% of revenue, in
the year ended September 30, 1997. The increase in research and development
expense in fiscal year 1998 represents ongoing expenditures for both CC&B
Systems and Directory Systems.

         Selling, General and Administrative. Compensation is the largest
component of selling, general and administrative expense. Selling, general and
administrative expense increased by 25.5% to $51.2 million, or 12.7% of revenue,
in the year ended September 30, 1998 from $40.8 million, or 14.1% of revenue, in
the prior fiscal year.

         Operating Income. Operating income in the year ended September 30, 1998
was $84.9 million, as compared with $54.5 million in fiscal year 1997, excluding
the effect of the nonrecurring charges in that fiscal year, an increase of
55.8%. As a percentage of revenue, operating income was 21.0% in fiscal year
1998 as compared to 18.8% in fiscal year 1997 (excluding the effect of the
nonrecurring charges in fiscal year 1997).

         Other Expense, Net. Other expense, net is primarily interest expense
incurred by the Company related to senior bank debt and subordinated debt, which
debt was substantially repaid from the proceeds of the Company's initial public
offering. In the year ended September 30, 1998, other expense, net was an
expense of $24.1 million, an increase of $20.8 million from fiscal year 1997.

         Income Taxes. Income taxes in the year ended September 30, 1998 were
$30.4 million on income before taxes of $60.8 million. In the prior year, income
taxes were $17.8 million on income before taxes of $23.7 million. See previous
discussion of "Effective Tax Rate".

         Net Income. The Company's net income was $30.1 million in the year
ended September 30, 1998 compared with net income of $5.9 million in fiscal year
1997. The increase was primarily the result of an increase in operating income.
In addition, in fiscal year 1998 the
<PAGE>   52
Company incurred $24.1 million in interest expense related to its outstanding
debt; while in fiscal year 1997 the Company had a nonrecurring charge of $27.6
million.

         Years Ended September 30, 1997 and 1996

         Revenue. Revenue for fiscal year 1997 was $290.1 million, an increase
of $78.4 million, or 37.0%, from fiscal year 1996. License revenue increased
from $16.3 million in fiscal year 1996 to $26.0 million in fiscal year 1997, an
increase of 59.5%, and service revenue increased 35.1% or $68.7 million in
fiscal year 1997. The majority of the increase in total revenue was due to the
expansion of the CC&B Systems business. Total CC&B Systems revenue for fiscal
year 1997 was $166.3 million, an increase of $63.9 million, or 62.3%, from the
prior year. Revenue attributable to Directory Systems was $123.8 million for
fiscal year 1997, an increase of $14.5 million, or 13.3%, from fiscal year 1996.

         In fiscal year 1997, revenue from customers in North America, Europe
and the rest of the world accounted for 63.7%, 11.3% and 25.0% respectively.

         Cost of License. Cost of license for fiscal year 1997 was $3.7 million,
a decrease of $0.3 million, or 7.5%, from fiscal year 1996 cost of license of
$4.0 million. The decrease was due to the acquisition of certain software rights
from several operating subsidiaries of SBC, which eliminated the requirement to
pay royalties.

         Cost of Service. Cost of service for the year ended September 30, 1997
was $173.7 million, an increase of $44.5 million, or 34.4%, from fiscal year
1996 cost of service of $129.2 million. As a percentage of revenue, cost of
service decreased to 59.9% in fiscal year 1997 from 61.0% in fiscal year 1996.
The absolute increase in cost of service was consistent with the increase in
revenue for the period, and reflected increased compensation attributable to
higher employment levels needed to support the growth in revenue.

         Research and Development. In fiscal year 1997, research and development
expense was $17.4 million, or 6.0% of revenue, compared with $14.7 million, or
6.9% of revenue, in fiscal year 1996. The absolute increase in research and
development expense in fiscal year 1997 represented ongoing expenditures for
both CC&B Systems and Directory Systems, while the decrease as a percentage of
revenue was attributable to the overall increase in revenue for the period.

         Selling, General and Administrative. Selling, general and
administrative expense increased to $40.8 million, or 14.1% of revenue, in
fiscal year 1997 from $28.3 million, or 13.4% of revenue, in the prior year, an
increase of 43.8%. The increase was primarily attributable to increased
marketing efforts for the Company's CC&B Systems.

         Nonrecurring Charges. In the fourth quarter of fiscal year 1997, the
Company recorded nonrecurring charges of $27.6 million. Of such amount, $1.8
million was due to the write-off of in-process research and development for
technology related to certain software rights (which rights include the
termination of related future royalty payment obligations) acquired from several
operating subsidiaries of SBC and the balance, $25.8 million, was attributable
to the funding of a contribution to the Trust for the benefit of certain
officers and employees.
<PAGE>   53
         Operating Income. As a result of the $27.6 million of nonrecurring
charges recognized in fiscal year 1997, operating income in fiscal year 1997 was
$27.0 million, as compared with $35.5 million in fiscal year 1996. As a
percentage of revenue, operating income was 9.3% in fiscal year 1997 as compared
to 16.8% in fiscal year 1996. Excluding the effect of the nonrecurring charges,
operating income would have been $54.5 million in fiscal year 1997, or 18.8% of
revenue, an increase of $19.0 million, or 53.4%, between fiscal years 1997 and
1996. The increase in operating income as a percentage of revenue (excluding the
effect of the nonrecurring charges) was primarily attributable to increased
license revenue.

         Other Expense, Net. Other expense, net was an expense of $0.5 million
in fiscal year 1996 and an expense of $3.3 million in fiscal year 1997. The
increase in fiscal year 1997 was attributable to the settlement of the claims of
various taxing authorities for additional taxes for years prior to such fiscal
year. Approximately $3.0 million of expense was included in the 1997 period for
interest on the tax assessments.

         Income Taxes. Income taxes in fiscal year 1997 were $17.8 million on
income before taxes of $23.7 million. In fiscal year 1997, income taxes were
$10.5 million on income before taxes of $35.0 million. In fiscal year 1997, the
Company paid income taxes for the operations of its subsidiaries, principally in
the United States, the United Kingdom and Israel, and recorded a loss in
Guernsey, a jurisdiction in which the Company is tax-exempt.

         Net Income. The Company had net income of $5.9 million in fiscal year
1997 compared with net income of $24.5 million in fiscal year 1996, primarily as
a result of the $27.6 million for the nonrecurring charges incurred in 1997.
<PAGE>   54
         Selected Quarterly Financial Results

         The following table sets forth certain quarterly financial data for the
Company in fiscal year 1998:

<TABLE>
<CAPTION>
                                         Quarter Ended
                                          September 30,    June 30,       March 31,     December 31,
                                              1998           1998           1998           1997
                                            --------       --------       --------       --------
                                                               (in thousands)
<S>                                       <C>              <C>            <C>           <C>
Revenue:

  License                                   $ 13,150       $ 11,322       $  9,698       $  8,721
  Service                                    103,554         95,175         84,310         77,837
                                            --------       --------       --------       --------
                                             116,704        106,497         94,008         86,558

Operating expenses:
  Cost of license                              2,211          2,654          2,655          3,212
  Cost of service                             66,092         60,518         54,617         50,133
  Research and development                     7,485          7,172          5,634          5,321
  Selling, general and administrative         14,812         13,332         11,977         11,047
                                            --------       --------       --------       --------
Operating income                              26,104         22,821         19,125         16,845
Other expense, net                             2,354          9,935         10,839            998
Income taxes                                  11,875          6,443          4,181          7,886
                                            --------       --------       --------       --------
Income before cumulative effect               11,875          6,443          4,105          7,961
Cumulative effect of change in
  accounting principle, net                      277             --             --             --
                                            --------       --------       --------       --------
Net income                                  $ 11,598       $  6,443       $  4,105       $  7,961
                                            ========       ========       ========       ========
</TABLE>

         The Company believes that the placement of customer orders may be
concentrated in specific quarterly periods due to customers' buying patterns and
budgeting cycles in the telecommunications industry. Although the Company
recognizes revenue as projects progress, which progress may vary significantly
from project to project, the Company believes that variations in quarterly
revenue are sometimes attributable to the timing of initial order placements.
Due to the relatively fixed nature of certain of the Company's costs, a decline
in revenue in any quarter would result in lower profitability for that quarter.
See "Risk Factors -Fluctuations in Quarterly Operating Results".

         LIQUIDITY AND CAPITAL RESOURCES

         Financing Transactions

         The Company has primarily financed its operations through cash
generated from operations, sales of equity securities and borrowing from banks
and other lenders. Cash and cash equivalents totaled $25.4 million at September
30, 1998. Net cash provided by operating
<PAGE>   55
activities amounted to $66.5 million, $26.1 million and $33.9 million for fiscal
years 1998, 1997 and 1996, respectively.

         The Company has declared dividends to its shareholders totaling $478.7
million, $19.3 million and $37.9 million during fiscal years 1998, 1997 and
1996, respectively. The Company does not anticipate paying cash dividends on its
Ordinary Shares in the foreseeable future. The Company currently intends to
retain its earnings to repay its outstanding loans and to finance the
development of its business. The terms of the July 1998 agreement discussed
below incurred by a subsidiary effectively restrict the payment of cash
dividends by the Company.

         At September 30, 1998, the Company had a shareholders' deficit of $21.9
million as a result of the internal corporate reorganization effected prior to
the Company's initial public offering in June 1998, the $478.7 million in
dividends distributed to shareholders in January 1998, and the net proceeds of
$234.2 million from the initial public offering. The Company believes that cash
generated from operations and the Company's current lines of credit will provide
sufficient resources to meet the Company's capital needs over the next several
years.

         At September 30, 1998, the Company had short term lines of credit
totaling $147.0 million from various banks or bank groups, of which $91.6
million was outstanding as of September 30, 1998. As of such date, the Company
had also used $4.5 million of its revolving credit facility to support
outstanding letters of credit. In addition, as of September 30, 1998, the
Company had long-term obligations outstanding of $12.2 million in connection
with vehicle leasing arrangements. As of September 30, 1998, the Company had
negative working capital of $84.3 million as compared to positive working
capital of $37.9 million at September 30, 1997. However, the Company does not
believe this will have a negative impact on its liquidity as this temporary
situation is a result of the short-term financing arrangements.

         Pursuant to a July 1998 agreement (which is an amendment and
restatement of the December 1997 agreement discussed below) with a syndicate of
banks, the Company may borrow up to $100.0 million under a revolving line of
credit. This agreement expires in June 2001. The Company borrowed $66.0 million
under the line of credit to refinance a facility from a commercial bank and to
repay $46.0 million of the subordinated debt held by the WCAS Investors as
described below. The revolving line of credit bears a London Interbank Offered
Rate (LIBOR) based interest rate (6.5 % at September 30, 1998). The credit
agreement has various covenants that limit the Company's ability to make
investments, incur debt, pay dividends and dispose of property. The Company is
also required to maintain certain financial ratios as defined in the agreement.
Except for vehicles, substantially all of the Company's assets have been pledged
as security under the terms of the agreement. At September 30, 1998, the
outstanding balance under this credit facility was $59.0 million, which is part
of the total outstanding balance discussed above and, as of such date, the
Company was in compliance with the covenants contained in the agreement.

         Under a credit agreement with the First International Bank of Israel,
the Company's subsidiary in the State of Israel may borrow up to $40.0 million
under a short term credit line. At September 30, 1998, the outstanding balance
under this line was $32.6 million, which is part of the total outstanding
balance discussed above. The credit line bears a LIBOR based interest rate
<PAGE>   56
(6.7 % at September 30, 1998).

         The Company anticipates that all of its outstanding debt will be repaid
with cash flows from operations.

         On September 22, 1997, the Company issued junior subordinated notes
payable in the aggregate amount of $3.27 million to the WCAS Investors, as
discussed earlier. The notes bore an interest rate of 5.75% per annum, and were
due September 22, 1998. The notes were paid in March 1998.

         In December 1997, certain direct and indirect subsidiaries of the
Company entered into a credit agreement (the "1997 Credit Agreement") with
several commercial banks, which provided for three separate term loans and a
revolving credit facility. The 1997 Credit Agreement provided for term loans of
$125.0 million and $100.0 million with variable interest rates and quarterly
principal payments due in December 2002 and June 2004, respectively, and a $90.0
million term loan with a variable interest rate and principal due in May 1998.
In December 1997, certain subsidiaries of the Company borrowed $315.0 million
under the term loans and placed such proceeds in a cash collateral account
maintained by one of the commercial banks party to the 1997 Credit Agreement.
The release of the cash held in the cash collateral account was subject to the
occurrence of certain events. The events were met in January 1998, and the cash
held in the cash collateral account was released to the Company.

         In March 1998, the Company received the proceeds of the additional
equity investment by the WCAS Investors totaling approximately $99.0 million and
used the proceeds to repay the term loan maturing in May 1998 and the short-term
junior subordinated notes.

         In January 1998, the Company borrowed $20.0 million under the revolving
credit portion of the 1997 Credit Agreement and used the proceeds to prepay
certain of the remaining term loans. Under the terms of the revolver, this
amount was due December 5, 2002. The balance due under the revolving line of
credit was repaid in July 1998 with the proceeds of the Company's amended and
restated $100.0 million revolving credit facility discussed earlier.

         The occurrence of certain qualifying events, as defined in the
Conditional Investment Agreement, also resulted in the issuance of subordinated
notes to the WCAS Investors totaling $123.5 million, and a requirement to make
an equity investment in the Company of approximately $99.0 million, subject to
possible adjustment, as provided in the Conditional Investment Agreement. The
subordinated notes carried an interest rate of 10%, payable quarterly with
principal due September 2004. The proceeds of the subordinated notes were
received in January 1998.

         In June 1998 the Company used the proceeds from its initial public
offering to repay $183.8 million in outstanding term loans under the 1997 Credit
Agreement and $49.0 million out of the $123.5 million in subordinated debt
issued in January 1998.

         Effective July 1998, the remaining $74.5 million of the subordinated
debt was extinguished with cash flows from operations and with proceeds from the
Company's revolving
<PAGE>   57
credit facility.

         Currently, capital expenditures of the Company are funded primarily by
operating cash flows and capital leasing arrangements. The Company does not
anticipate a change to this policy in the foreseeable future.

         Net Deferred Tax Assets

         Based on management's assessment, it is more likely than not that all
the net deferred tax assets at September 30, 1998 will be realized through
future taxable earnings. No significant increase in future taxable earnings
would be required to fully realize the net deferred tax assets.


ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Market risks relating to the Company's operations result primarily from
changes in interest rates and exchange rates or weak economic conditions in the
markets in which the Company sells its products. To address these risks the
Company enters into various hedging transactions as described below. The Company
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives.

         Foreign Currency Risk

         The Company enters into foreign exchange forward contracts to hedge
some of its foreign currency exposure. The Company uses such contracts to hedge
exposure to changes in foreign currency exchange rates associated with revenue
denominated in a foreign currency and anticipated costs to be incurred in a
foreign currency. The Company seeks to minimize the risk that the fair value of
sales of its products and services and cash flow required for the Company's
expenses denominated in a currency other than their functional currency, the US
dollar, will be affected by changes in exchange rates. See Note 18 to the
consolidated financial statements.

         The following table summarizes the Company's foreign currency forward
exchange agreements. The table presents the notional amounts (dollars in
millions), weighted average exchange rates by expected (contractual) maturity
dates, and fair value of the total derivative instruments. Notional values and
average contract rates are calculated based on forward rates at September 30,
1998, US dollar translated.
<PAGE>   58
<TABLE>
<CAPTION>
                                                                    Year Ending September 30,
                                     --------------------------------------------------------------------------------
                                         1999         2000        2001        2002        After      FV of forwards
                                     --------------------------------------------------------------------------------
<S>                                  <C>           <C>          <C>          <C>         <C>           <C>
Forward contracts to sell
 foreign currencies for US dollars:
Great Britain Pounds
         Notional value              $    31.0     $    1.7         -           -            -         $ (1.6)
         Average contract rate             1.67         1.66        -           -            -

Austrian Schillings
         Notional value              $    14.80    $    0.9         -           -            -         $ (0.5)
         Average contract rate            11.64        11.52        -           -            -

Canadian Dollars
         Notional value              $    10.0          -           -           -            -              *
         Average contract rate             1.5          -           -           -            -

Japanese Yen
         Notional value              $     3.2          -           -           -            -              *
         Average contract rate           133.8          -           -           -            -

Forward contracts to buy
 foreign currencies for US dollars:

Australian Dollars
         Notional value              $    15.6     $    9.1     $   4.9      $  5.5      $  4.3        $ (3.1)
         Average contract rate             0.6          0.6         0.59        0.59        0.59

Israeli Shekels
         Notional value              $    80.4          -           -            -           -         $  0.5
         Average contract rate             3.94         -           -            -           -
</TABLE>
* Less than $100,000.

         Interest Rate Risk

         The Company's interest expenses are most sensitive to changes in the
London InterBank Offered Rate (LIBOR) as all of its short term borrowings bear a
LIBOR based interest rate. Excess liquidity invested in short term investments
bears minimal interest rate risk.

         At September 30, 1998, the Company had approximately $91.6 million
outstanding on its revolving line of credit and short term credit agreements and
$12.2 million recorded as long term lease obligations. The potential loss to the
Company over one year that would result from a hypothetical, instantaneous, and
unfavorable change of 100 basis points in the interest rates of all applicable
financial assets and liabilities on September 30, 1998 would be approximately $1
million. The above sensitivity analysis is based on the assumption of an
unfavorable 100 basis point movement of the interest rates applicable to each
homogenous category of financial assets and liabilities and sustained over a
period of one year. A homogenous category is defined according to the currency
in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogenous category. As a result, the
Company's interest rate risk sensitivity model may overstate the impact of
interest rate fluctuations for such financial instruments as consistently
unfavorable movements of all interest rates are unlikely. See Notes 2 and 8 to
the consolidated financial statements.

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
<PAGE>   59
General

         Amdocs Limited is organized under the laws of Guernsey and, as set
forth in its Articles of Association, is a holding company for the various
subsidiaries that conduct the Company's business on a worldwide basis. The
Company's principal operating subsidiaries are Amdocs (Israel) Limited (Israel),
Amdocs, Inc. (the United States) and Amdocs (UK) Limited (the United Kingdom).
The Company relies on the executive officers of its operating subsidiaries to
manage its business. In addition, Amdocs Management Limited, a management
subsidiary of the Company, performs certain executive coordination functions for
all of the Company's operating subsidiaries.

         Executive Officers and Directors and Other Key Employees

         The Board of Directors of the Company and the executive officers of the
Company and its subsidiaries and their ages as of September 30, 1998, are as
follows:

<TABLE>
<CAPTION>
          Name                           Age                           Position
          ----                           ---                           --------
<S>                                      <C>              <C>
Bruce K. Anderson(2)(3)                   58              Chairman of the Board and Chief Executive
                                                          Officer, Amdocs Limited

Robert A. Minicucci(2)(3)                 46              Director and Chief Financial Officer, Amdocs
                                                          Limited

Boaz Dotan(2)(3)                          56              Director and Vice Chairman of the Board,
                                                          Amdocs Limited

Avinoam Naor                              50              Chief Executive Officer, Amdocs Management
                                                          Limited

Dov Baharav                               48              Senior Vice President and Chief Financial
                                                          Officer, Amdocs Management Limited

Thomas G. O'Brien                         38              Treasurer and Secretary, Amdocs Limited

Nehemia Lemelbaum                         56              Senior Vice President, Amdocs Management
                                                          Limited

Mario Segal                               51              Senior Vice President, Amdocs Management
                                                          Limited

Joshua Ehrlich                            49              Senior Vice President, Amdocs Management
                                                          Limited

Simon Cassif                              56              Senior Vice President, Amdocs (UK) Limited

James W. Andrews                          34              General Manager, Amdocs (UK) Limited

Adrian Gardner(1)(2)(3)                   36              Director

Stephen Hermer                            37              Director

James Kahan                               51              Director

Paz Littman(2)(3)                         42              Director
</TABLE>
<PAGE>   60
<TABLE>
<CAPTION>
<S>                                                              <C>                   <C>
Shmuel Meitar                                                    55                    Director

Revital Naveh                                                    31                    Director

Lawrence Perlman(1)                                              60                    Director

Michael J. Price                                                 40                    Director
</TABLE>

(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee
(3)  Member of the Executive Committee
<PAGE>   61
     Bruce K. Anderson has been Chief Executive Officer and Chairman of the
Board of the Company since September 1997. Since August 1978, he has been a
general partner of WCAS, an investment firm which specializes in the acquisition
of companies in the information services and health care industries. Investment
partnerships affiliated with WCAS are collectively the Company's largest
stockholder. Mr. Anderson served for nine years with Automated Data
Processing, Inc. ("ADP") until his resignation as Executive Vice President and a
director of ADP, and President of ADP International, effective August 1978. Mr.
Anderson serves on the Board of Directors of Medquist, Inc. and several private
companies.

     Robert A. Minicucci has been Chief Financial Officer and a director of the
Company since September 1997. He has been a general partner of WCAS since 1993.
From 1992 to 1993, Mr. Minicucci served as Senior Vice President and Chief
Financial Officer of First Data Corporation, a provider of information
processing and related services for credit card and other payment transactions.
From 1991 to 1992, he served as Senior Vice President and Treasurer of the
American Express Company. Mr. Minicucci served for twelve years with Lehman
Brothers (and its predecessors) until his resignation as a Managing Director in
1991. He is also a director of several private companies.

     Boaz Dotan has served as Vice Chairman of the Board of Directors since
September 1997 and as a director of the Company since 1995. Mr. Dotan joined
Amdocs in 1982 and held the position of President and Chief Executive Officer
until 1995, at which time he was appointed Chairman of the Board of Directors
and served in that capacity until September 1997. Mr. Dotan has been involved in
software systems for over 30 years. Prior to joining Amdocs he worked for Bezeq,
the Israel Telecommunication Corp. Ltd., as Manager of the Information Systems
Division. Mr. Dotan holds a BSc in mathematics and statistics from Tel Aviv
University, Israel.

     Avinoam Naor is Chief Executive Officer of Amdocs Management Limited, and
has overall coordination responsibility for the operations and activities of the
Company's operating subsidiaries. Mr. Naor joined the Company in 1982 and
initially served as a Senior Vice President. He has been involved with software
development for 27 years, working on projects for the development of
infrastructure software for communications systems and developing and marketing
directory assistance systems. Mr. Naor was a member of the team that established
the computerized system for Golden Pages, the Israel Yellow Pages company.

     Dov Baharav is a Senior Vice President and the Chief Financial Officer of
Amdocs Management Limited, and has overall coordination responsibility for the
financial reporting of the Company's operating subsidiaries. Mr. Baharav joined
the Company in 1991 in St. Louis, Missouri and until 1995 he served as Vice
President and President of Amdocs, Inc., the Company's principal U.S.
subsidiary. Prior to joining the Company, Mr. Baharav served as Chief
Operating Officer of Oprotech Ltd., a publicly-held company that develops,
manufactures and markets electro-optical devices.

     Thomas G. O'Brien is Treasurer and Secretary of Amdocs Limited and since
July 1995
<PAGE>   62
has held other financial management positions within the Company. From July 1993
to July 1995, Mr. O'Brien was Controller of Big River Mineral Corporation, a
diversified natural resources company. From 1989 to 1993, Mr. O'Brien was the
Assistant Controller for Big River Minerals Corporation. From 1983 to 1989, Mr.
O'Brien was a certified public accountant with Arthur Young and Company (now
Ernst & Young LLP). Mr. O'Brien is a member of the American Institute of
Certified Public Accountants and the Missouri Society of Certified Public
Accountants.

     Nehemia Lemelbaum is a Senior Vice President and the Chief Technology
Officer of Amdocs Management Limited. He joined the Company in 1985, with
initial responsibility for the Company's U.S. operations. Mr. Lemelbaum led the
Company's development of graphic products for the Yellow Pages industry and
directed the Company's development of customer care and billing systems. He
served for nine years with Contahal Ltd., a leading Israeli software house,
first as a senior consultant, and later as Managing Director. From 1967 to 1976,
Mr. Lemelbaum was employed by the Ministry of Communications of Israel (in
effect the organization that is currently Bezeq, the Israel Telecommunication
Corp. Ltd.), with responsibility for computer technology in the area of business
data processing.

     Mario Segal is a Senior Vice President and the Chief Operating Officer of
Amdocs Management Limited. He joined the Company in 1984 as Senior Vice
President and was a leading member of the team that developed the
"ADS(NG)/Family of Products" directory automation systems and the "Customer Care
and Billing Platform." Mr. Segal was also an account manager for a major North
American Yellow Pages publisher and prior thereto managed the computer
department of a major Israeli insurance company, leading large-scale software
development projects and strategic planning of automation systems.

     Joshua Ehrlich is Senior Vice President, Business Development of Amdocs
Management Limited. Mr. Ehrlich has overall responsibility for coordinating new
business development. He joined the Company in 1985. Mr. Ehrlich served as the
Account Manager for one of the Company's major North American installations, and
subsequently had responsibility for major product development efforts. Following
that, he assumed the responsibility for coordinating the sales support
activities of the Company. Prior to joining Amdocs, Mr. Ehrlich managed the
industrial application division of a leading Israeli software company, with
responsibility for business development, overall project control and
coordination of sales support.

     Simon Cassif is a Senior Vice President of Amdocs (UK) Limited. In this
capacity, his principal responsibility is to develop the Company's relationships
with strategic customers in Europe. Mr. Cassif joined Amdocs in January 1994 and
has since been devoting most of his efforts to business development in the area
of customer care and billing. Prior to joining Amdocs, Mr. Cassif was Chief
Information Officer & Vice President, Systems and Computers at Bezeq, the Israel
Telecommunication Corp. Ltd. Mr. Cassif held this position for twelve years,
with full responsibility for Bezeq's technology strategy, information systems
development and maintenance.

     James W. Andrews is General Manager of Amdocs (UK) Limited, with
responsibility for supervising financial reporting and control, insurance,
administration and human resources.
<PAGE>   63
Mr. Andrews joined the Company in 1991 and has served in a number of financial
management positions, including Financial Controller. Prior to joining the
Company, Mr. Andrews was the Accounting Supervisor at Arch Mineral Corporation.
He also served Arthur Andersen & Co. as a certified public accountant. Mr.
Andrews is a member of the American Institute of Certified Public Accountants
and the Missouri Society of Certified Public Accountants.

     Adrian Gardner has been a director of the Company since April 1998. Mr.
Gardner is an Executive Director of Lazard Brothers & Co., Limited, based in
London and working with technology and telecommunications-related companies.
Prior to joining Lazard Brothers in 1989, Mr. Gardner qualified as a chartered
accountant with Price Waterhouse. Mr. Gardner is a member of the Institute of
Chartered Accountants in England and Wales and a member of The Securities
Institute.

     Stephen Hermer has been a director of the Company since April 1998. In
1998, Mr. Hermer joined the law firm Olswang, based in London, where he
practices corporate and securities law. Prior to that, he was a partner with the
London law firm of Frere Cholmeley Bischoff.

     James S. Kahan has been a director of the Company since April 1998. Mr.
Kahan has worked at SBC since 1983, and currently serves as its Senior Vice
President-Corporate Development, a position he has held since 1992. Prior to
that Mr. Kahan held positions at several telecommunications companies, including
Western Electric, Bell Laboratories, South Central Bell and AT&T.

     Paz Littman has been a director of the Company since September 1997. Since
October 1996, he has served as President of Aurum Management and Consulting
Ltd., a privately-held company, which makes and manages investments for
shareholders of the Aurec Group. From 1991 to 1996, Mr. Littman was an active
partner with the law firm of Meitar, Littman & Co.

     Shmuel Meitar has been a director of the Company since 1989. Since 1991, he
has been Vice Chairman of Aurec Ltd., a leading provider of communications,
media and information services. Prior to 1991, Mr. Meitar served as President of
the Aurec Group, which includes Golden Channels, the largest cable television
franchise in Israel, and Golden Pages, the Israeli Yellow Pages. Mr. Meitar is
also a director of Hollinger International Inc.

     Revital Naveh has been a director of the Company since April 1998. In July
1997, Ms. Naveh joined Aurum Management and Consulting Ltd., a privately held
company, which makes and manages investments for shareholders of the Aurec
Group. Prior to that, Ms. Naveh was an associate at the New York law firm of
Skadden, Arps, Slate, Meagher & Flom LLP.

     Lawrence Perlman has been a director of the Company since April 1998. He
has been Chairman of Ceridian Corporation since 1992, and its Chief Executive
Officer since 1990. Ceridian Corporation is a provider of information services
to employers to administer various human resource functions, as well as
information services for the transportation and electronic media markets. Mr.
Perlman is a director and Chairman of Seagate Technology, Inc., and a
<PAGE>   64
director of The Valspar Corporation and Computer Network Technology Corporation.
Mr. Perlman has been a director of Ceridian since 1985.

     Michael J. Price has been a director of the Company since January 1998. He
is co-Chief Executive Officer of FirstMark Communications LLC, a broadband
wireless telecommunications company. Prior to that, he worked at Lazard Freres &
Co. L.L.C., starting in 1987, serving first as a Vice President and then as a
Managing Director, where he led their technology and telecommunications group.
At Lazard Freres, Mr. Price also served on the firm's Banking, Venture Capital
and Principal Oversight Committees.

Directors

     All directors hold office until the next annual meeting of the Company's
shareholders or until their respective successors are duly elected and qualified
or their positions are earlier vacated by resignation or otherwise.

Executive Officers

     Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors or until their respective successors have been duly elected or
qualified or their positions are earlier vacated by resignation or otherwise.
The executive officers of each of the Company's subsidiaries are elected by the
Board of Directors of such subsidiary on an annual basis and serve until the
next annual meeting of such Board of Directors or until their respective
successors have been duly elected or qualified or their positions are earlier
vacated by resignation or otherwise.

Board Committees

     The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company.

     The Compensation Committee of the Board of Directors determines the
salaries and incentive compensation of the officers of the Company and its
subsidiaries and provides recommendations for the salaries and incentive
compensation of the other employees and the consultants of the Company. The
Compensation Committee also administers the Company's various compensation,
stock and benefit plans.

     The Company has also established an Executive Committee which may act from
time to time instead of the full Board of Directors and has such
responsibilities as may be delegated to it by the Board.

Compensation Committee Interlocks and Insider Participation
<PAGE>   65
     The Company's Compensation Committee consists of Messrs. Anderson,
Minicucci, Dotan, Gardner and Littman. Of the members of the Committee, only Mr.
Dotan was, at any time during fiscal 1998, an employee of the Company.

ITEM 11.      COMPENSATION OF DIRECTORS AND OFFICERS

Compensation of Directors and Executive Officers

     The Company pays its non-employee directors who are not associated with any
of the principal shareholders of the Company (i) $10,000 per annum and (ii)
$1,500 per meeting of the Board of Directors and $500 per meeting of a committee
of the Board. The Company reimburses all of its directors for their reasonable
travel expenses incurred in connection with attending meetings of the Board of
Directors or committees thereof. Under certain circumstances, directors are also
eligible to receive stock options. During fiscal year 1998, the Company granted
options to two directors to purchase an aggregate of 21,000 Ordinary Shares at a
price of $14 per share, vesting over four years.

     A total of nine persons who served either as an executive officer or
director of the Company during fiscal year 1998 received remuneration from the
Company. The aggregate remuneration paid by the Company to such persons was
approximately $4 million, which includes amounts set aside or accrued to provide
pension, retirement or similar benefits, but does not include amounts expended
by the Company for automobiles made available to its officers, expenses
(including business travel, professional and business association dues) or other
fringe benefits.

     During fiscal year 1998, the Company granted options to six executive
officers and directors to purchase an aggregate of 448,000 Ordinary Shares at an
average price of $8.20 per share, with vesting over three to eight year terms.

ITEM 12.      OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

Employee Stock Options

     In January 1998, the Company adopted the Option Plan which provides for the
grant by the Company of restricted shares or options to officers, directors,
employees or consultants of the Company or any of its subsidiaries. In June
1998, the Company increased the number of Ordinary Shares available under the
Option Plan from 2,600,000 to 4,100,000 Ordinary Shares. In November 1998, the
Board of Directors authorized a further increase to the number of Ordinary
Shares available under the Option Plan from 4,100,000 Ordinary Shares to
6,600,000 Ordinary Shares, subject to shareholder approval. The purpose of the
Option Plan is to enable the Company to attract and retain qualified personnel
and to motivate such persons by providing them with an equity participation in
the Company. The Option Plan is administered by a committee appointed by the
Board and expires ten years after the date of its adoption.

     The Ordinary Shares acquired upon exercise of an option and the restricted
shares that
<PAGE>   66
may be granted under the Option Plan will be subject to certain restrictions on
transfer, sale or hypothecation. Options will be exercisable and restrictions on
disposition of shares will lapse pursuant to the term of the individual
agreements under which such options were granted or shares issued.

     In January 1998, the Company granted options to purchase 1,651,000 Ordinary
Shares to employees under the Company's 1998 Stock Option and Incentive Plan
(the "Plan") at an exercise price of $1.92 per share, with vesting over four
years and a term of 10 years. Compensation expense was not recorded for these
stock options as they were granted at an exercise price equal to the fair market
value of the Ordinary Shares at the time of the grant.

     In June 1998, following the Company's initial public offering, the Company
issued additional options under the Plan, granting options to purchase 855,400
shares with the same exercise price, expiration date and vesting dates as the
options granted in January 1998. The Company recorded unearned compensation
expense totaling $10.3 million as a separate component of shareholders' equity
for the difference between the fair market value per share at the date of grant
and the exercise price of $1.92. Additional paid in capital was increased by the
same amount. The unearned compensation expense will be amortized ratably over
the vesting period of 3.5 years.

     In September 1998, under the Plan, options to purchase 1,000,000 shares
were granted at an exercise price of $8.75 per share, the market price of the
Ordinary Shares on the grant date, with vesting over four and eight years and a
term of 10 years.

     Of the options referred to above, options to purchase an aggregate 448,000
Ordinary Shares at an average price of $8.20 per share were granted to six
executive officers and directors, with vesting over three to eight year terms.

ITEM 13.      INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Employee Trust Agreement. In September 1997, the Company contributed $25.8
million to the Trust in recognition of past services rendered to the Company.
The beneficiaries are primarily software and information technology specialists
who have played an important role in the Company's success. The Trust will
distribute on certain dates within the next five years cash amounts to those
beneficiaries employed by the Company on such dates. The amounts to be
distributed to the beneficiaries employed by the Company on the relevant dates
will include any appreciation in the value of the Trust's assets and are
dependent upon certain conditions, such as the amount of cash available and the
Trust's ability to realize the value of the assets it holds. Termination of a
beneficiary's employment with the Company will not affect entitlement to a
beneficiary's minimum interest in the Trust which was fixed at the time of the
Company's contribution to the Trust, and any terminated employee will receive
such interest in September 2007. In September 1997, the Trust used the
contribution from the Company and other resources to purchase from the Company
5,720,000 Ordinary Shares for an aggregate consideration of approximately $31.6
million. The Trust is required to liquidate any investments held in respect
<PAGE>   67
of any beneficiary and distribute only a cash payment.

     Investment Agreements. In September 1997, the Company and the WCAS
Investors entered into a Share Subscription Agreement pursuant to which the WCAS
Investors acquired from the Company on September 22, 1997 $3.27 million in
principal amount of the Company's junior promissory notes and shares
representing 8.7% of the then outstanding equity of the Company for $61.2
million. On such date, the Company and the WCAS Investors also entered into a
Conditional Investment Agreement, pursuant to which the WCAS Investors agreed,
subject to the satisfaction of certain revenue and cash flow targets through
November 30, 1997, to acquire additional shares of the Company which, when added
to the shares acquired pursuant to the Share Subscription Agreement, would
constitute 35.0% of the Company's outstanding equity as of September 22, 1997.
Concurrently with the signing of the Conditional Investment Agreement, a
subsidiary of the Company, ESM, entered into a Note Purchase Agreement with WCAS
Capital Partners III, L.P., an investment partnership affiliated with WCAS, and
certain other investors, providing for the issuance of up to $125 million
principal amount of 10% subordinated notes of ESM, subject to the satisfaction
of the same financial targets set forth in the Conditional Investment Agreement.
In January 1998, with such financial targets having been met, ESM sold $123.5
million principal amount of subordinated notes under the Note Purchase Agreement
for a purchase price equal to their principal amount. On March 30, 1998, the
Company completed the transactions contemplated by the Conditional Investment
Agreement by issuing and selling to the WCAS Investors an aggregate 51,507,716
Ordinary Shares for $95.83 million in cash and the surrender of the $3.27
million principal amount of junior promissory notes issued by the Company in
September 1997.

     Certain entities in which certain directors and executive officers of the
Company and its subsidiaries have a beneficial interest participated in the
investments made pursuant to the Share Subscription Agreement and the
Conditional Investment Agreement and acquired beneficial ownership of an
aggregate 2,078,336 Ordinary Shares for a total investment of $4.0 million.

     The proceeds of the equity and subordinated debt investments made under the
Share Subscription Agreement, the Conditional Investment Agreement and the Note
Purchase Agreement were used, together with the proceeds of a senior bank debt
financing and internally generated funds, (i) to acquire for $40.0 million
certain intellectual property rights from operating subsidiaries of SBC and (ii)
to fund an internal corporate reorganization. Following the reorganization,
$478.7 million in dividends were paid to the Company's shareholders, including
an aggregate $39.9 million to the WCAS Investors.

     In September 1997, the WCAS Investors also granted a call option on certain
Ordinary Shares acquired under the Share Subscription Agreement and the
Conditional Investment Agreement to the then existing shareholders of the
Company, AIL, SBCI, certain entities in which executive officers of the Company
have a beneficial interest and the Trust. The call option may be exercised,
without the payment of any consideration to the WCAS Investors, if certain
revenue and cash flow targets are met in fiscal 1998 and fiscal 1999. The
targets in fiscal year 1998 have been satisfied in full. If such targets are met
in full, the number of Ordinary Shares held by the WCAS Investors as a result of
their net $120.4 million investment in the Company will be reduced from
62,580,024 to 47,381,984 Ordinary Shares.
<PAGE>   68
     Shareholders Agreement. In connection with the Share Subscription Agreement
and Conditional Investment Agreement, SBCI, WCAS (on behalf of the WCAS
Investors), AIL (together with SBCI and the WCAS Investors, the "Significant
Shareholders") and the Company, entered into a shareholders agreement, pursuant
to which the Significant Shareholders have certain rights to have their shares
registered for sale to the public under the Securities Act of 1933, as amended.

     Relationship with SBC. Until September 1997, SBC and certain of its
operating subsidiaries had certain ownership and marketing rights with respect
to certain of the Company's software products that were developed and owned
jointly by the Company and such SBC subsidiaries.

     On September 22, 1997, the Company entered into a series of agreements with
certain SBC subsidiaries regarding the transfer of such ownership and marketing
rights to the Company. Pursuant to such agreements:

              (a) Southwestern Bell Yellow Pages, Inc. transferred to the
     Company all right, title and interest it held in certain modules of the
     Company's directory publishing system, in consideration for $2.0 million in
     cash and a royalty-free, perpetual, irrevocable right to use such modules.

              (b) Southwestern Bell Communication Services, Inc. ("SBCS")
     granted the Company the ownership interest and the right to license certain
     long distance systems under development and previously held by SBCS, in
     consideration for $10.4 million in cash and a royalty-free, perpetual,
     irrevocable right to use such systems.

              (c) Southwestern Bell Mobile Systems transferred to the Company,
     in consideration for $15.6 million in cash and a royalty-free, perpetual,
     irrevocable right to use the system, any and all right, title and interest
     it had in a mobile system which the Company developed as part of its
     customer care and billing systems.

              (d) Southwestern Bell Telephone Company ("SWBT") granted the
     Company an exclusive, royalty-free, irrevocable, perpetual and worldwide
     right to copy, distribute and sell licenses, display, present, modify,
     disseminate, reverse engineer and create derivatives on certain of the
     Company's "Billing Products" developed by the Company and SWBT, in
     consideration for the prepayment of royalties of $12.0 million in cash.

     SBC and certain of its operating subsidiaries are also significant
customers of the Company. During fiscal 1996, fiscal 1997 and fiscal 1998, SBC
and such subsidiaries accounted for approximately 38.0%, 34.5% and 20.9%,
respectively, of the Company's revenue in such years.

     The 1995 Reorganization. Prior to 1995, the Company and its operating
subsidiaries were operated as a group of companies owned by common shareholders.
In 1995, the companies underwent a reorganization (the "1995 Reorganization"),
as a result of which Amdocs Limited
<PAGE>   69
became the holding company for all the affiliated companies. Subsequent to such
reorganization, the Company issued shares for an aggregate $16.6 million to
certain entities in which certain officers, including one who is a director, of
the Company have a beneficial interest. In connection with the 1995
Reorganization, such entities entered into shareholders agreements with SBCI and
AIL (the "1995 Shareholders Agreements") in March and September of 1995.
Pursuant to the 1995 Shareholders Agreements, the parties thereto have, subject
to the occurrence of certain events, call and put rights with respect to the
shares issued in connection with the 1995 Reorganization, which may be exercised
at a price less than the original purchase price. These rights expire ratably
over time and fully expire in 1999, in the case of one such entity, and 2002, in
all other cases. The exercise of such rights will not affect the number of
outstanding Ordinary Shares.

     Other Relationships. Since fiscal 1997, the Company has provided a CC&B
System and related customization and implementation services to GoldenLines
Limited, a provider of international telephone service for calls to and from
Israel. SBC and a certain beneficial owner of AIL have a significant beneficial
interest in GoldenLines.

     SBC and a beneficial owner of AIL also are the owners of a company that
leases certain office facilities and provide certain miscellaneous support
services to the Company in Israel.
<PAGE>   70
                                    PART II

ITEM 14.      DESCRIPTION OF SECURITIES TO BE REGISTERED

     Not applicable.

                                    PART III

ITEM 15.      DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 16.      CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
              SECURITIES

     Item 2 of Part II of the Company's Form 6-K for the quarter ending June 30,
1998 is hereby incorporated by reference.

                                    PART IV

ITEM 17.      FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.      FINANCIAL STATEMENTS

     See item 19.

ITEM 19.      FINANCIAL STATEMENTS AND EXHIBITS

Item 19A      Financial Statements

1.   Report of Independent Auditors

2.   Consolidated Balance Sheets as of September 30, 1998 and 1997

3.   Consolidated Statements of Operations for the years ended September 30,
     1998, 1997 and 1996

4.   Consolidated Statements of Changes in Shareholders' Equity (Deficit) for
     the years ended September 30, 1998, 1997 and 1996

5.   Consolidated Statements of Cash Flows for the years ended September 30,
     1998, 1997 and 1996

6.   Notes to Consolidated Financial Statements

Item 19B      Exhibits
<PAGE>   71
21.1 Subsidiaries of Amdocs Limited

23.1 Consent of Ernst & Young LLP

99.1 Amdocs Limited Press Release dated November 11, 1998
<PAGE>   72
                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                      Amdocs Limited


                                                  /s/ Thomas G. O'Brien
                                                  ------------------------------
Date: January 15, 1999                            Thomas G. O'Brien
                                                  Treasurer and Secretary
                                                  Authorized U.S. Representative
<PAGE>   73
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Audited Consolidated Financial Statements

<TABLE>
<S>                                                                             <C>
         Report of Independent Auditors                                         F-1

         Consolidated Balance Sheets as of September 30, 1998 and 1997          F-2

         Consolidated Statements of Operations for the years ended
         September 30, 1998, 1997 and 1996                                      F-4

         Consolidated Statements of Changes in Shareholders' Equity (Deficit)
         for the years ended September 30, 1998, 1997 and 1996                  F-6

         Consolidated Statements of Cash Flows for the years ended
         September 30, 1998, 1997 and 1996                                      F-7

         Notes to Consolidated Financial Statements
</TABLE>
<PAGE>   74
REPORT OF INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS

AMDOCS LIMITED

     We have audited the accompanying consolidated balance sheets of Amdocs
Limited as of September 30, 1998 and 1997, and the related statements of
operations, changes in shareholders' equity (deficit) and cash flows for each of
the three years in the period ended September 30, 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 conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amdocs Limited
at September 30, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended September 30,
1998, in conformity with accounting principles generally accepted in the United
States.



/s/ Ernst & Young LLP




St. Louis, Missouri
November 8, 1998
<PAGE>   75
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                         As of September 30,
                                                                       -----------------------
                                                                         1998          1997
                                                                       ---------     ---------
<S>                                                                    <C>           <C>
ASSETS

Current Assets:
     Cash and cash equivalents                                         $  25,389     $  53,732
     Accounts receivable, including unbilled of
         $10,331 in 1998 and $2,031 in 1997                               79,723        48,565
     Accounts receivable from related parties,
         including unbilled of $537 in 1998
         and $0 in 1997                                                   10,235        15,393
     Deferred income taxes                                                14,534        12,532
     Prepaid expenses and other current assets                            11,991         6,161
                                                                       ---------     ---------
         Total current assets                                            141,872       136,383

Equipment, vehicles and leasehold
  improvements, net                                                       46,404        28,287
Deferred income taxes                                                      7,773         4,587
Intellectual property rights                                              23,362        25,982
Other noncurrent assets                                                   20,555        25,343
                                                                       ---------     ---------
                                                                       $ 239,966     $ 220,582
                                                                       =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities:

     Accounts payable and accrued expenses                             $  47,599     $  30,543
     Accrued personnel costs                                              29,948        23,098
     Short-term financing arrangements                                    91,565         1,998
     Unearned revenue                                                     29,241        17,440
     Notes payable to related parties                                         --         3,268
     Short-term portion of capital lease
         obligations                                                       2,952         1,954
     Forward exchange contracts                                            2,926            --
     Income taxes payable and deferred
         income taxes                                                     21,919        20,151
                                                                       ---------     ---------
         Total current liabilities                                       226,150        98,452

Long-term forward exchange contracts                                       2,222            --
Long-term portion of capital lease obligations                             9,215         7,370
Other noncurrent liabilities                                              24,268        20,507

Shareholders' equity (deficit):
     Preferred Shares - Authorized 25,000 shares;
     pound sterling 0.01 par value;  0 shares issued and outstanding           --            --
Ordinary Shares - Authorized 550,000 shares;
     pound sterling 0.01 par value;
     196,800 and 124,708 outstanding, respectively
</TABLE>
<PAGE>   76
<TABLE>
<S>                                                                    <C>           <C>
     (1998 - 30,235 Non Voting Ordinary Shares and
     166,565 Voting Ordinary Shares)                                       3,149         1,996
Additional paid-in capital                                               447,503       105,779
Unrealized loss on derivative instruments                                 (1,495)           --
Unearned compensation                                                     (8,947)           --
Accumulated deficit                                                     (462,099)      (13,522)
         Total shareholders' equity (deficit)                            (21,889)       94,253
                                                                       ---------     ---------
                                                                       $ 239,966     $ 220,582
                                                                       =========     =========
</TABLE>


See accompanying notes
<PAGE>   77
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                     Year ended September 30,
                                                 --------------------------------
                                                   1998        1997        1996
                                                 --------    --------    --------
<S>                                              <C>         <C>         <C>
Revenue:

      License (*)                                $ 42,891    $ 25,995    $ 16,298
      Service (*)                                 360,876     264,107     195,422
                                                 --------    --------    --------
                                                  403,767     290,102     211,720
                                                 --------    --------    --------
Operating expenses:

      Cost of license (*)                          10,732       3,711       4,011
      Cost of service (*)                         231,360     173,704     129,177
      Research and development                     25,612      17,386      14,695
      Selling, general and administrative (*)      51,168      40,769      28,347
      Nonrecurring charges (*)                         --      27,563          --
                                                 --------    --------    --------
                                                  318,872     263,133     176,230
                                                 --------    --------    --------
Operating income                                   84,895      26,969      35,490
Other expense, net (*)                             24,126       3,266         476
                                                 --------    --------    --------
Income before income taxes and
      cumulative effect                            60,769      23,703      35,014
Income taxes                                       30,385      17,827      10,506
                                                 --------    --------    --------
Income before cumulative effect                    30,384       5,876      24,508
Cumulative effect of change in
      accounting principle, net of $277 tax           277          --          --
                                                 --------    --------    --------
Net income                                       $ 30,107    $  5,876    $ 24,508
                                                 ========    ========    ========


Basic earnings per share
      Income before cumulative effect            $   0.19    $   0.05    $   0.23
      Cumulative effect of a change in
      accounting principle (less than $0.01)           --          --          --
                                                 --------    --------    --------
      Net income                                 $   0.19    $   0.05    $   0.23
                                                 ========    ========    ========

Diluted earnings per share
      Income before cumulative effect            $   0.19    $   0.05    $   0.22
      Cumulative effect of a change in
      accounting principle (less than $0.01)           --          --          --
                                                 --------    --------    --------
      Net income                                 $   0.19    $   0.05    $   0.22
                                                 ========    ========    ========
</TABLE>


(*)  Includes the following income (expense) resulting from transactions with
     related parties for the year ended
<PAGE>   78

     September 30, 1998, 1997 and 1996, respectively: License revenue - $2,300,
     $0, and $2,000; service revenue - $82,100, $100,500 and $76,500; cost of
     license - $0, $(3,382) and $(4,011); cost of service - $(2,325), $(2,523)
     and $(1,966); selling, general and administrative - $(510), $(377) and
     $(294); other expense, net - $(6,268), $0 and $0 (Note 3); nonrecurring
     charges - $0, $(1,800) and $0 (Note 3).

See accompanying notes
<PAGE>   79
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          Unrealized                       Retained          Total
                                           Ordinary Shares   Additional      loss on                       Earnings  Shareholders'
                                          -----------------     Paid-in   derivative       Unearned    (Accumulated         Equity
                                           Shares    Amount     Capital  instruments   Compensation        Deficit)      (Deficit)
                                          -------   -------  ----------  -----------   ------------   ------------   -------------
<S>                                       <C>       <C>      <C>         <C>           <C>            <C>            <C>
Balance at September 30, 1995             107,934   $ 1,727  $   14,348  $        --   $         --   $     13,354   $      29,429
Conversion to Voting Shares                   (18)       --          --           --             --             --              --
Net income                                     --        --          --           --             --         24,508          24,508
Dividends declared, $0.35 per share            --        --          --           --             --        (37,949)        (37,949)
                                          -------   -------  ----------  -----------   ------------   ------------   -------------
Balance at September 30, 1996             107,916     1,727      14,348           --             --            (87)         15,988
Net income                                     --        --          --           --             --          5,876           5,876
Dividends declared, $0.18 per share            --        --          --           --             --        (19,311)        (19,311)
Issuance of Ordinary Shares, net           16,792       269      91,431           --             --             --          91,700
                                          -------   -------  ----------  -----------   ------------   ------------   -------------
Balance at September 30, 1997             124,708     1,996     105,779           --             --        (13,522)         94,253
Net income                                     --        --          --           --             --         30,107          30,107
Unrealized loss on derivative
 instruments, net of $640 tax                  --        --          --       (1,495)            --             --          (1,495)
Dividends declared, $3.76 per share            --        --          --           --             --       (478,684)       (478,684)
Issuance of Ordinary Shares, net           54,092       865      97,583           --             --             --          98,448
Initial public offering of
 Ordinary Shares, net                      18,000       288     233,902           --             --             --         234,190
Stock options granted to employees,
 net of forfeitures                            --        --      10,239           --        (10,239)            --              --
Amortization of unearned compensation          --        --          --           --          1,292             --           1,292
                                          -------   -------  ----------  -----------   ------------   ------------   -------------
Balance at September 30, 1998             196,800   $ 3,149  $  447,503  $    (1,495)  $     (8,947)  $   (462,099)  $     (21,889)
                                          =======   =======  ==========  ===========   ============   ============   =============
</TABLE>
<PAGE>   80
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
                                                                           Year ended September 30,
                                                         ----------------------------------------------------------
                                                            1998                      1997                   1996
                                                         ---------                 ---------              ---------
<S>                                                      <C>                       <C>                    <C>
Cash Flow From Operating Activities:
Net Income                                               $  30,107                 $   5,876              $  24,508
Reconciliation of net income to
 net cash provided by operating
 activities:
  Depreciation                                              12,611                     8,066                  5,223
  Amortization                                              16,485                       328                     --
  Loss on sale of equipment                                    149                       137                     11
  Deferred income taxes                                     (1,991)                  (11,868)                 4,861
  Write-off of purchased
    computer software                                           --                     1,800                     --
Net changes in operating assets
 and liabilities:
  Accounts receivable                                      (26,000)                  (19,357)                (8,211)
  Prepaid expenses and other current assets                 (5,244)                    1,258                   (681)
  Other noncurrent assets                                   (3,324)                   (3,958)                (3,181)
  Accounts payable and accrued expenses                     23,906                    20,971                 (1,896)
  Forward exchange contracts                                 5,148                        --                     --
  Unearned revenue                                          11,800                     6,730                  5,697
  Income taxes payable                                      (1,429)                   11,225                  3,979
  Other noncurrent liabilities                               5,760                     4,843                  3,598
  Unrealized loss on derivative instruments                 (1,495)                       --                     --
                                                         ---------                 ---------              ---------
                                                             9,122                    21,712                   (695)
                                                         ---------                 ---------              ---------
Net cash provided by operating activities                   66,483                    26,051                 33,908

Cash Flow from Investing Activities:
Proceeds from sale of equipment, vehicles and
   leasehold improvements                                      889                       959                    253
Payments for purchase of equipment, vehicles
   and leasehold improvements                              (26,566)                  (10,213)                (5,526)
Purchase of computer software and intellectual
   property rights                                              --                   (40,000)                    --
                                                         ---------                 ---------              ---------
Net cash used in investing activities                      (25,677)                  (49,254)                (5,273)
Cash Flow from Financing Activities:
Dividends paid                                            (478,684)                  (18,000)               (40,013)
Net proceeds from issuance of Ordinary Shares              330,638                    91,700                     --
Payments under short-term finance arrangements            (269,946)                 (155,190)              (130,358)
Borrowings under short-term finance arrangements           358,862                   140,360                137,872
Net proceeds from issuance of long term debt               364,127                        --                     --
Principal payments on long term debt                      (368,521)                       --                     --
Principal payments on capital lease obligations             (2,357)                   (1,286)                  (267)
Proceeds from (payments on) issuance of notes payable       (3,268)                    3,268                     --
                                                         ---------                 ---------              ---------
Net cash provided by (used in) financing activities        (69,149)                   60,852                (32,766)
                                                         ---------                 ---------              ---------
Net increase (decrease) in cash and cash equivalents       (28,343)                   37,649                 (4,131)
Cash and cash equivalents at beginning of year              53,732                    16,083                 20,214
                                                         ---------                 ---------              ---------
Cash and cash equivalents at end of year                 $  25,389                 $  53,732              $  16,083
                                                         =========                 =========              =========
</TABLE>


See accompanying notes
<PAGE>   81
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


<TABLE>
<CAPTION>
                                                                      Year ended September 30,
                                                            --------------------------------------------
                                                              1998               1997              1996
                                                            -------            -------            ------
<S>                                                         <C>                <C>                <C>
Supplementary Cash Flow Information
Interest and Income Taxes Paid
Cash paid for:
  Income taxes, net of refunds                              $32,472            $18,352            $1,475
  Interest                                                   25,150              1,036             1,199
</TABLE>

Non Cash Investing and Financing Activities

         Capital lease obligations of $5,200, $8,516 and $2,361 were incurred
during the years ended September 30, 1998, 1997 and 1996 respectively, when the
Company entered into lease agreements for vehicles.

         The Company declared a dividend to its shareholders as of June 30, 1997
of certain assets, consisting principally of the net assets and liabilities of a
dormant entity, totaling approximately $1,311. The estimated value of the net
assets distributed, based on internally prepared estimates, approximates the net
book value at the date of distribution. The dividend is aggregated in the
Statement of Changes in Shareholders' Equity (Deficit) with cash dividends paid
of $18,000.






See accompanying notes
<PAGE>   82
                                                                  AMDOCS LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (in thousands, except per share data)

          SEPTEMBER 30, 1998


NOTE 1    NATURE OF ENTITY

          Amdocs Limited (the "Company") is a leading provider of product-driven
          information system solutions to the telecommunications industry. The
          Company and its subsidiaries operate in one business segment,
          providing computer systems integration and related services for the
          telecommunications industry. The Company designs, develops, markets,
          and supports computer software products and related services to
          telecommunications companies throughout the world.

          The Company is a Guernsey corporation, which holds directly or
          indirectly several wholly owned subsidiaries in the United States,
          Europe, Canada, Israel, Japan, Cyprus and Australia. The Company's
          customers are mainly in the North America, Europe, South America,
          Australia, and the Asia-Pacific region. The Company derives
          approximately 55 percent of its revenue from outside the United
          States. The majority of the Company's production facilities are
          located in the State of Israel. Additional development and support
          centers are located in the U.S., Brazil and Cyprus.


NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


          BASIS OF PRESENTATION

          The consolidated financial statements of the Company have been
          prepared in accordance with accounting principles generally accepted
          in the U.S.


          CONSOLIDATION

          The financial statements include the accounts of the Company and all
          its subsidiaries, which are wholly owned. All significant intercompany
          transactions and balances have been eliminated in consolidation.


          FUNCTIONAL CURRENCY

          The U.S. dollar is the functional currency for the Company and its
          subsidiaries, as the U.S. dollar is the predominant currency of the
          Company's revenue.
<PAGE>   83
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

          CASH AND CASH EQUIVALENTS

          Cash and cash equivalents consist of cash and short-term investments
          with insignificant interest rate risk and original maturities of 90
          days or less.


          EQUIPMENT AND LEASEHOLD IMPROVEMENTS

          Computers, office furniture and equipment, vehicles and leasehold
          improvements are stated at cost. Assets under capital leases are
          recorded at the present value of the future minimum lease payments at
          the date of acquisition. Depreciation is computed using the
          straight-line method over the estimated useful life of the asset,
          which ranges from two to twelve years and includes the amortization of
          assets under capitalized leases. Leasehold improvements are amortized
          over the shorter of the estimated useful lives or the term of the
          lease. Management reviews property and equipment and other long-lived
          assets on a periodic basis to determine whether the events or changes
          in circumstances indicate that the carrying amount of such assets may
          not be recoverable.

          RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE

          Research and development expenditures consist of costs incurred during
          the development of new software modules and product offerings, usually
          in conjunction with a customer project. Such costs are charged to
          operations as incurred. Certain computer software costs are
          capitalized in accordance with Statement of Financial Accounting
          Standards (SFAS) No. 86, "Accounting for the Costs of Computer
          Software to be Sold, Leased or Otherwise Marketed," which requires
          capitalization of software development costs subsequent to the
          establishment of technological feasibility.

          Based on the Company's product development process, technological
          feasibility is established upon completion of a detailed program
          design or, in the absence thereof, completion of a working model.
          Costs incurred by the Company after achieving technological
          feasibility and before the product is ready for customer release have
          been insignificant.

          Purchased computer software, which is reported at the lower of
          amortized cost or net realizable value, is amortized over its
          estimated useful life of three years based on the ratio of the current
          gross revenue for each product to the total current and anticipated
          future gross revenue for each product. This accounting policy results
          in amortization of purchased computer software on a basis faster than
          the straight-line method.

          Periodically, the Company considers whether there are indicators of
          impairment that would require the evaluation of the net realizable
          value of the capitalized computer software in comparison to its
          carrying value.

          In September 1997 the Company acquired certain intellectual properties
          rights. These rights are
<PAGE>   84
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          amortized over their estimated useful life of 10 years, on a straight
          line basis.

          Accumulated amortization of intellectual properties rights and
          computer software is $11,060 and $328 at September 30, 1998 and 1997.


          STOCK SPLIT

          In September 1997 and May 1998, the Board of Directors of the Company
          authorized stock splits effected as dividends of Ordinary Shares. All
          references in the consolidated financial statements referring to
          shares, per share amounts, and contingently issuable shares have been
          adjusted retroactively for the stock splits.


          INCOME TAXES

          The Company records deferred income taxes to reflect the net tax
          effects of temporary differences between the carrying amounts of
          assets and liabilities for financial reporting purposes and for tax
          purposes. Deferred taxes are computed based on tax rates anticipated
          to be in effect (under applicable law at the time the financial
          statements are prepared) when the deferred taxes are expected to be
          paid or realized.

          Deferred tax liabilities and assets are classified as current or
          noncurrent based on the classification of the related asset or
          liability for financial reporting, or according to the expected
          reversal dates of the specific temporary differences, if not related
          to an asset or liability for financial reporting, and also include
          anticipated withholding taxes due on subsidiaries' earnings when paid
          as dividends to their parents.

          REVENUE RECOGNITION

          The Company's software products require significant customization and
          therefore the development projects are recognized as long term
          contracts in conformity with Accounting Research Bulletin (ARB) No. 45
          "Long Term Construction Type Contracts" and Statement of Position
          (SOP) 81-1 "Accounting for Performance of Construction Type and
          Certain Production Type Contracts" and SOP 97-2 "Software Revenue
          Recognition". License revenue is recognized as work is performed,
          using percentage of completion accounting. Service revenue that
          involves significant ongoing obligations, including fees for
          customization, implementation and support services, is recognized as
          work is performed, under the percentage of completion method. Revenue
          related to ongoing support is recognized as work is performed. Revenue
          from third party hardware and software sales is recognized when
          products are delivered. Maintenance revenue is recognized ratably over
          the term of the maintenance agreement, which in most cases is one year
          or less. As a result of its percentage of completion accounting
          policies,
<PAGE>   85
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          the Company's annual and quarterly operating results may be
          significantly affected by the size and timing of customer projects and
          the Company's progress in completing such projects.

          Losses are recognized on contracts in the period in which the
          liability is identified. Unearned revenue represents advance billings
          to customers for services and third-party products and generally is
          recognized within one year of receipt.

          Included in service revenue are sales of third-party products totaling
          $27,016 in 1996. Revenue from sales of such products in 1998 and 1997
          are less than 10 percent of total revenue and are expected to continue
          to be below 10 percent in the future. Such products include
          third-party computer hardware and computer software products.


          COST OF LICENSE AND COST OF SERVICE

          Cost of license and service consists of all costs associated with
          providing services to customers, including warranty expense. Estimated
          costs related to warranty obligations are initially provided at the
          time the product is delivered and are revised to reflect subsequent
          changes in circumstances and estimates. Cost of license includes
          amortization of purchased computer software and intellectual property
          rights and, in 1997 and 1996 royalty expense.

          Included in cost of service are costs of third-party products
          associated with reselling third-party computer hardware and computer
          software products to customers. In 1996, such costs totaled $22,124.
          Customers purchasing third-party products from the Company generally
          do so in conjunction with the purchase of services.


          NONRECURRING CHARGES

          Amounts reflected as nonrecurring charges in the consolidated
          statements of operations of the year ended September 30, 1997
          represent two items: (a) the payment of a one-time special bonus of
          $25,763 paid to a trust for the benefit of certain officers and
          employees related to past services and (b) a write-off of $1,800 in
          connection with the acquisition of certain software rights related to
          in-process research and development.


          MODIFICATION OF ACCOUNTING FOR INTELLECTUAL PROPERTY RIGHTS

          In 1998, the Company revised its accounting for certain intellectual
          property rights acquired in 1997. The cost of such rights, $26,200,
          was previously reported as a nonrecurring charge in 1997. Effective
          September 30, 1997, the rights were capitalized and are amortized over
          their estimated useful life of 10 years.


          STOCK-BASED COMPENSATION
<PAGE>   86
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          The Company accounts for stock-based compensation in accordance with
          Accounting Principles Board Opinion No. 25, "Accounting for Stock
          Issued to Employees." Pursuant to this accounting standard, the
          Company records deferred compensation for share options granted to
          employees at the date of grant based on the difference between the
          exercise price of the options and the market value of the underlying
          shares at that date. Deferred compensation is amortized to
          compensation expense over the vesting period of the underlying
          options. See Note 14 for pro forma disclosures required in accordance
          with Statement No. 123, "Accounting for Stock-Based Compensation,"
          ("SFAS 123") of the Financial Accounting Standards Board.

          FAIR VALUE OF FINANCIAL INSTRUMENTS

          The financial instruments of the Company consist mainly of cash and
          cash equivalents, accounts receivable, short-term financing
          arrangements, forward exchange contracts, and lease obligations. In
          view of their nature, the fair value of the financial instruments
          included in the accounts of the Company does not significantly vary
          from their carrying amount.


          CONCENTRATION OF CREDIT RISK

          Financial instruments that potentially subject the Company to
          concentration of credit risk consist principally of trade receivables.
          The Company invests its excess cash primarily in highly liquid U.S.
          dollar-denominated deposits with major U.S. and U.K. banks. The
          Company does not expect any credit losses in respect of these items.
          The Company's revenue is generated primarily in North America, Europe,
          Australia, Brazil and the Asia-Pacific region, and most of its
          customers are among the largest telecommunications and directory
          publishing companies in the world (or owned by them). The Company
          performs ongoing analysis of its customer base and generally does not
          require collateral.


          RECLASSIFICATIONS

          Certain amounts in the 1997 and 1996 financial information have been
          reclassified to conform to the current year presentation.


          ADOPTION OF NEW ACCOUNTING STANDARDS

          In February 1997, the Financial Accounting Standards Board (FASB)
          issued SFAS No. 128, "Earnings per Share" which was adopted on
          December 31, 1997. SFAS No. 128 replaced previously reported primary
          and fully diluted earnings per share with basic and diluted earnings
          per share. Unlike primary earnings per share, basic earnings per share
          exclude the dilutive effects of options, warrants and
<PAGE>   87
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          convertible securities. Diluted earnings per share are very similar to
          previously reported fully diluted earnings per share. All earnings per
          share amounts for all periods have been presented, and where necessary
          restated to conform to the SFAS No. 128 requirements.

          In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
          Income" which was adopted on October 1, 1997. This new Statement
          establishes standards for reporting and displaying comprehensive
          income exclusive of net income and its components in a company's
          financial statements. At the present time, the only component of
          comprehensive income which must be included in the Company's financial
          statements is unrealized gains and losses on derivative instruments
          designated as cash flow hedges.

          ln June 1997, the FASB issued SFAS No. 131, "Disclosures about
          Segments of an Enterprise and Related Information" which was adopted
          on December 31, 1997. SFAS No. 131 requires companies to provide
          financial and descriptive information about their operating segments.
          All operating segment information for all periods has been presented.

          In October 1997, the AICPA issued SOP 97-2, "Software Revenue
          Recognition," which updates the requirements of revenue recognition
          effective for transactions that the Company has entered into beginning
          January 1, 1998. The adoption of SOP 97-2 did not have a material
          impact on the Company's financial position or results of operations.

          In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
          Instruments and Hedging Activities," which is required to be adopted
          in years beginning after June 15, 1999. The Statement permits early
          adoption as of the beginning of any fiscal quarter after its issuance.
          The Company adopted the new Statement effective July 1, 1998. The
          Statement requires the Company to recognize all derivatives on the
          balance sheet at fair value. If the derivative meets the definition of
          a hedge and is so designated, depending on the nature of the hedge,
          changes in the fair value of derivatives will either be offset against
          the change in fair value of the hedged assets, liabilities, or firm
          commitments through earnings or recognized in other comprehensive
          income until the hedged item is recognized in earnings. The
          ineffective portion of a derivative's change in fair value will be
          immediately recognized in earnings.

          In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
          Computer Software Developed For or Obtained For Internal-Use". The
          provisions of the SOP must be applied in financial statements for
          fiscal years beginning after December 15, 1998. The SOP will require
          the capitalization of certain costs incurred after the date of
          adoption in connection with developing or obtaining software for
          internal-use. The company currently expenses such costs as incurred.
          The Company has not yet assessed what the impact of the SOP will be on
          the Company's future earnings or financial position.


          USE OF 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 and disclosure of contingent assets and liabilities at the
          dates of the financial statements and the reported amounts of revenue
          and expenses during the reporting period. The Company's most
<PAGE>   88
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          significant estimates are related to contract accounting estimates
          used to recognize revenue under percentage of completion contracts.
          Actual results could differ from those estimates.


NOTE 3    RELATED-PARTY TRANSACTIONS

          The Company licenses software and provides computer systems
          integration and related services to several affiliates of a
          significant shareholder of the Company (the "affiliates"). Revenue
          from the affiliates totaled approximately $84,400, $100,500 and
          $78,500 in 1998, 1997 and 1996, respectively. Through September 1997
          the Company also paid royalties to the affiliates for the licensing of
          computer software. Royalty expense totaled approximately $3,400 and
          $4,000 in 1997 and 1996, respectively. Amounts due to the affiliates
          related to these royalties were $0 and $436 at September 30, 1998 and
          1997, respectively, and were included in accounts payable and accrued
          expenses.

          On September 22, 1997, the Company purchased certain computer software
          and intellectual property rights from the affiliates for an aggregate
          amount of $40,000. As a result, the Company no longer pays royalties
          to the affiliates related to the purchased computer software. In
          process research and development, related to this transaction resulted
          in a nonrecurring charge of $1,800. The remainder has been capitalized
          as computer software and intellectual property rights.

          On September 22, 1997, the Company issued junior subordinated notes
          payable in the aggregate amount of $3,268 to certain persons
          affiliated with the investors party to the Share Subscription
          Agreement referred to in Note 13. The notes bore an interest rate of
          5.75 percent per annum and were originally due September 22, 1998. The
          notes were paid in March 1998.

          In January 1998, the Company issued $123,500 in principal amount of 10
          percent subordinated notes to affiliates of certain shareholders which
          were party to the Conditional Investment Agreement referred to in Note
          13. This amount was paid as described in Note 8.

          The Company leases office space in Israel on a month-to-month basis
          and purchases other miscellaneous support services from affiliates of
          certain shareholders. Amounts paid for rent and related maintenance
          and other miscellaneous support services were approximately $2,835,
          $2,900 and $2,260 for 1998, 1997 and 1996, respectively.


NOTE 4    COMPENSATING BALANCES

          The Company was required to maintain compensating cash balances of
          $574 at September 30, 1998 and 1997, relating to foreign currency
          contracts.


N0TE 5    EQUIPMENT, VEHICLES AND LEASEHOLD IMPROVEMENTS

          Components of equipment, vehicles and leasehold improvements, net are
          as follows:
<PAGE>   89
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  1998       1997
                                                -------    -------
<S>                                             <C>        <C>
     Furniture and fixtures                     $ 6,852    $ 2,900
     Computer equipment                          37,534     24,688
     Vehicles furnished to employees             20,500     16,708
     Leasehold improvements                      12,353      3,481
                                                -------    -------
                                                 77,239     47,777
     Less accumulated depreciation               30,835     19,490
                                                -------    -------
                                                $46,404    $28,287
                                                =======    =======
</TABLE>

          A subsidiary of the Company has entered into various leasing
          arrangements with a commercial bank of vehicles for periods of five
          years, carrying interest rates of LIBOR plus a varying interest rate
          of 0.7 percent to 1 percent (6.5 percent at September 30, 1998). The
          Company has accounted for these as capital leases. Capital lease
          payments, excluding interest, due over the next five years are as
          follows: $2,952 in 1999, $3,148 in 2000, $3,005 in 2001, $2,200 in
          2002 and $862 in 2003.


NOTE 6    OTHER NONCURRENT ASSETS

          Other noncurrent assets consist of the following:

<TABLE>
<CAPTION>
                   
                                                        1998              1997
                                                      -------------------------
<S>                                                   <C>               <C>
Funded personnel benefit costs                        $13,622           $10,660
Computer software, net of amortization of
$8,222 in 1998, and $110 in 1997                        3,778            11,890
Other                                                   3,155             2,793
                                                      -------------------------
                                                      $20,555           $25,343
                                                      =========================
</TABLE>



NOTE 7    INCOME TAXES

          The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                              Year ended September 30,
                            ---------------------------
                              1998      1997     1996
                            ---------------------------
<S>                         <C>       <C>       <C>
          Current           $32,376   $29,695   $ 5,645
          Deferred           (1,991)  (11,868)    4,861
                            ---------------------------
                            $30,385   $17,827   $10,506
                            ===========================
</TABLE>
<PAGE>   90
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

              All income taxes are from continuing operations reported by the
              Company in the applicable taxing jurisdiction. Income taxes also
              include anticipated withholding taxes due on subsidiaries'
              earnings when paid as dividends to their parent company.
<PAGE>   91
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

Deferred income taxes are comprised of the following components:

<TABLE>
<CAPTION>
                                                         1998         1997
                                                      ---------------------
<S>                                                   <C>          <C>
DEFERRED ASSETS:                                      ---------------------
Unearned revenue                                      $  5,849     $  5,900
Accrued personnel costs                                  7,027        6,621
Computer software and intellectual property              1,735        3,339
Warranty and maintenance accruals                        2,184           --
Other                                                    5,512        1,259
                                                      ---------------------
Total deferred assets                                   22,307       17,119
                                                      ---------------------
DEFERRED LIABILITIES:
Anticipated withholdings on subsidiaries' earnings      (7,945)      (4,748)
                                                      ---------------------
Total deferred liabilities                              (7,945)      (4,748)
                                                      ---------------------
Net deferred assets                                   $ 14,362     $ 12,371
                                                      =====================
</TABLE>


The effective income tax rate varied from the statutory Guernsey tax rate as
follows:

<TABLE>
<CAPTION>
                              1998    1997    1996
                              ---------------------
<S>                           <C>     <C>     <C>
Statutory Guernsey tax rate     20%     20%     20%
Guernsey tax-exempt status     (20)    (20)    (20)
Foreign taxes                   50*     75*     30
                              ---------------------
Effective income tax rate       50%     75%     30%
                              =====================
</TABLE>

     *    In 1998 and 1997 the Company incurred tax expense on the income of its
          operations in various countries and sustained a loss in a tax
          jurisdiction in which the Company is tax exempt, which resulted in no
          tax benefit to offset the expense incurred. As a result, the Company's
          effective income tax rate is significantly greater than the 1996
          effective rate.

          The Company's Israeli subsidiary, which accounts for approximately 31
          percent of the Company's income before income taxes, enjoys tax
          benefits from Approved Enterprise status, as established under Israeli
          law. The benefits from this status begin phasing out in 1999.

          During 1997, the Company settled claims from various taxing
          authorities resulting in an increase in taxes paid and deferred tax
          assets. Included in other income (expense), net for the year ended
          September 30, 1997 is approximately $3,000, representing interest on
          tax assessments relating to years prior to fiscal 1997.
<PAGE>   92
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          The Company's assumption is that it is more likely than not that all
          the net deferred tax assets will be realized through future taxable
          earnings.


NOTE 8    SHORT-TERM FINANCING ARRANGEMENTS

          Pursuant to a July 1998 agreement (which is an amendment to the
          December 1997 agreement discussed below) with a syndicate of banks,
          the Company may borrow up to $100,000 under a revolving line of
          credit. This agreement expires in June 2001. The Company borrowed
          $66,000 under the line of credit to refinance a facility from a
          commercial bank, and to repay $46,000 of the subordinated debt to
          affiliates of the shareholders as described below. The revolving line
          of credit bears a variable interest rate (6.5 percent at September 30,
          1998). The credit agreement has various covenants which limit the
          Company's ability to make investments, incur debt, pay dividends and
          dispose of property. The Company is also required to maintain certain
          financial ratios as defined in the agreement. Except for vehicles,
          substantially all of the Company's assets have been pledged as
          security under the terms of the agreement. At September 30, 1998, the
          outstanding balance under this credit facility was $59,000.

          Under a credit agreement with the First International Bank of Israel,
          the Company's subsidiary in the State of Israel may borrow up to
          $40,000 under a short term credit line. At September 30, 1998, the
          outstanding balance was $32,565. The short term credit line bears a
          variable interest rate (6.7 percent at September 30, 1998).

          In addition, the Company has short term revolving credit line totaling
          $7,000 from the FIBI BANK (UK) plc. As of September 30, 1998, the
          Company used approximately $4,500 of this revolving credit facility to
          support outstanding letters of credit.

          The Company's financing transactions for the year are described below:

          On September 22, 1997, the Company issued junior subordinated notes
          payable in the aggregate amount of $3,268 to certain entities
          affiliated with the investors party to the Share Subscription
          Agreement referred to in Note 13. The notes bore an interest rate of
          5.75 percent per annum, and were due September 22, 1998. The notes
          were paid in March 1998.

          In December 1997, certain direct and indirect subsidiaries entered
          into a credit agreement (the 1997 Credit Agreement) with several
          commercial banks, which provided for three separate term loans and a
          revolving credit facility. Term loans of $125,000 and $100,000 with
          variable interest rates and quarterly principal payments due through
          December 2002 and June 2004, respectively, and a $90,000 term loan
          with a variable interest rate and principal due in May 1998. In
          December 1997, the Company borrowed $315,000 under the term loans
<PAGE>   93
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

          and placed such proceeds in a cash collateral account maintained by
          one of the commercial banks subject to the 1997 Credit Agreement. The
          release of the cash held in the cash collateral account was subject to
          the occurrence of certain events, as defined. The events were met in
          January 1998, and the cash held in the cash collateral account was
          released to the Company.

          In March 1998, the Company received the proceeds of the additional
          equity investment discussed in Note 13 totaling approximately $99,000
          and used the proceeds to repay the term loan maturing in May 1998 and
          the short-term notes payable to related parties.

          In January 1998, the Company borrowed $20,000 under the revolving
          credit portion of the 1997 Credit Agreement and used the proceeds to
          prepay certain of the term loans. Amounts borrowed under the revolving
          credit facility bore a variable interest rate and were due December 5,
          2002. This amount was repaid in July 1998 with the proceeds of the
          Company's $100,000 revolving credit facility.

          The occurrence of certain qualifying events, as defined in the
          Conditional Investment Agreement as discussed in Note 13, also
          resulted in the issuance of unsecured long-term notes to affiliates of
          certain shareholders of the Company totaling $123,500, and a
          requirement for affiliates of certain shareholders to make an equity
          investment in the Company of approximately $99,000, subject to
          possible adjustment, as provided in the Conditional Investment
          Agreement. The long-term subordinated notes to affiliates carried an
          interest rate of 10 percent, payable quarterly with principal due
          September 2004. The proceeds of the long-term subordinated notes to
          affiliates were received in January 1998.

          On June 24, 1998 the Company used the proceeds from the initial public
          offering that was conducted on June 19, 1998 to repay $183,750 in
          outstanding term loans made in December 1997 and $49,000 out of the
          $123,500, 10 percent subordinated debt issued in January 1998.

          Subordinated debt to affiliates of the shareholders in the amount of
          $46,000 was repaid in July 1998 from the proceeds of the Company's
          revolving credit facility.

          Effective July 31, 1998, the Company extinguished the subordinated
          debt with cash flows from operations.

NOTE 9    OTHER NONCURRENT LIABILITIES

          Other noncurrent liabilities consist of the following:


<TABLE>
<CAPTION>
                                               1998      1997
                                             -------   -------
<S>                                          <C>       <C>
Accrued personnel costs                      $24,268   $18,507
Ordinary Shares subscription deposit              --     2,000
                                             -------   -------
                                             $24,268   $20,507
                                             =======   =======
</TABLE>
<PAGE>   94
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      (in thousands except per share data)

NOTE 10   OTHER EXPENSE, NET

          Other expense, net consists of the following:

<TABLE>
<CAPTION>
                                                   Year ended September 30,
                                             -----------------------------------
                                                1998         1997         1996
                                             -----------------------------------
<S>                                          <C>          <C>          <C>
Interest income                              $  3,445     $    873     $    964
Interest expense                              (24,947)        (981)      (1,291)
Interest expense related to settlement of
  tax claims                                       --       (3,000)          --
Other, net                                     (2,624)        (158)        (149)
                                             -----------------------------------
                                             $(24,126)    $ (3,266)    $   (476)
                                             ===================================
</TABLE>

NOTE 11   COMMITMENTS

          The Company leases office space in various countries in which it does
          business under non-cancelable operating leases. Future minimum lease
          payments required for the five-year period beginning October 1, 1998
          are as follows:

<TABLE>
<CAPTION>
          FOR THE YEAR ENDED SEPTEMBER 30,
          --------------------------------
<S>                                                                     <C>
          1999                                                          $  9,700
          2000                                                            10,600
          2001                                                            10,300
          2002                                                             8,400
          2003                                                             7,400
                                                                        --------
                                                                        $ 46,400
                                                                        ========
</TABLE>

          Rent expense was approximately $8,000, $5,400 and $4,900 for 1998,
          1997 and 1996, respectively. The lease agreement related to the
          Company's principal facilities in Israel, for which the Company has
          provided a $2,000 guarantee, includes a purchase option.


NOTE 12   EMPLOYEE BENEFITS

          The Company accrues severance pay for the employees of its Israeli
          operations in accordance with Israeli law and certain employment
          procedures on the basis of the latest monthly salary paid to these
          employees and the length of time that they have worked for the Israeli
          subsidiary. The severance pay liability, which is included in other
          noncurrent liabilities, is
<PAGE>   95
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)


          partially funded by amounts on deposit with insurance companies, which
          are included in other noncurrent assets. Most of the deposits were
          funded by the Israeli subsidiary. Severance pay expenses were
          approximately $7,100, $5,500 and $4,200 for 1998, 1997 and 1996,
          respectively.

          The Company sponsors a defined contribution benefit plan covering
          substantially all employees in the U.S., U.K., and Canada. The plan
          provides for Company matching contributions based upon a percentage of
          the employees' voluntary contributions. The Company's 1998, 1997 and
          1996 plan contributions were not significant.


NOTE 13 CAPITAL TRANSACTIONS

         On June 19, 1998, the Company commenced an initial public offering of
         18,000 Ordinary Shares at an offering price of $14 per share. Total net
         proceeds, after deduction of offering expenses and underwriting
         commissions, amounted to $234,190. The Company used these funds to
         repay interest and principal relating to $183,750 outstanding term
         loans made in December 1997 and $49,000 out of the $123,500 10 percent
         subordinated debt issued in January 1998.

         On July 17, 1998, pursuant to an over-allotment option granted by an
         existing shareholder of the Company to the underwriters involved with
         the Company's initial public offering, the underwriters elected to
         exercise their over-allotment option with respect to 1,344 nonvoting
         Ordinary Shares held by this shareholder. In accordance with the
         Company's Articles of Association, such nonvoting Ordinary Shares
         converted automatically into voting Ordinary Shares, upon their
         transfer.

         In May 1998, in contemplation of the Company's initial public offering,
         the Board of Directors took the following actions: (i) redeemed the
         outstanding Voting Shares at the par value thereof, (ii) amended the
         terms of the Ordinary Shares to create two classes: voting and
         non-voting; (iii) authorized 25,000 Preferred Shares, 500,000 Ordinary
         Shares and 50,000 non-voting Ordinary Shares; and (iv) declared a stock
         split of 52-for-1 for each Ordinary Share outstanding. The rights of
         the two classes of Ordinary Shares are identical except as to voting
         rights and all of the outstanding non-voting Ordinary Shares are held
         by a principal shareholder of the Company. All references to the number
         of shares and earnings per share have been restated to reflect the
         stock split and the redemption of Voting Shares has been given
         retroactive effect.

         In March 1998, the Company issued 51,508 Ordinary Shares according to
         the September 1997 Conditional Investment Agreement discussed below.
         Total proceeds (net of $2,600 fees) amounted to approximately $96,448.
<PAGE>   96
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)


         In January 1998, the Company's Board of Directors declared dividends of
         $478,684 which were paid at that time. The dividends were financed by
         the proceeds of the long term loans, long term notes of affiliates of
         certain shareholders, and surplus working capital.

         In January 1998, the Company issued 36 additional Voting Shares at par
         value which were redeemed in May 1998 as discussed above and issued the
         contingently issuable 2,584 Ordinary Shares which were paid in advance
         in the amount of $2,000 in the 1995 Stock Subscription Agreements.

         On September 22, 1997, the Company entered into a Share Subscription
         Agreement, under which 11,072 Ordinary Shares and 990 Voting Shares and
         $3,268 principal amount of junior promissory notes were issued to
         certain investors. Also, on September 22, 1997, the Company entered
         into a Conditional Investment Agreement whereby such investors were
         obligated to purchase 51,508 Ordinary Shares of the Company in the
         second quarter 1998 for approximately $99,000, if the Company achieved
         certain financial performance targets. In addition, the Company entered
         into a note purchase agreement with certain affiliates of the investors
         to issue, at its election, up to $125,000 of long-term notes, with
         interest at 10 percent and payable in 2004 subject to the same
         financial targets in the Conditional Investment Agreement. In addition,
         the ownership percentages between shareholders will change if the
         Company attains certain financial performance targets through September
         30, 1999.

NOTE 14 STOCK OPTION AND INCENTIVE PLAN

         In January 1998, the Company adopted the Amdocs Limited 1998 Stock
         Option and Incentive Plan ("the Plan"). Under the provisions of the
         Plan, 4,100 Ordinary Shares are available to be granted to officers,
         directors, employees and consultants. Subsequent to year end, the
         Company increased the number of Ordinary Shares available to be granted
         to 6,600 Ordinary Shares. Under the Plan, in January 1998, 1,651
         options were granted to purchase Ordinary Shares at an exercise price
         of $1.92 per share, with vesting over four years and a term of 10
         years. No compensation expense is recorded for these stock options as
         they were granted at an exercise price equal to the fair market value
         of the Ordinary Shares at the time of the grant.

         On June 19, 1998, under the plan, the Company granted an additional
         855.4 options with the same exercise price, expiration date and vesting
         dates as the options granted in January 1998. The Company recorded
         unearned compensation expense totaling $10,333 as a separate component
         of shareholders' equity for the difference between the fair market
         value per share at the date of grant and the exercise price of $1.92.
         Additional Paid in Capital was increased by the same amount. The
         unearned compensation expense will be amortized ratably over the
         vesting period of 3.5 years.
<PAGE>   97
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

         On June 19, 1998, options for 21 shares were granted to two
         non-employee directors at an exercise price equal to the market price
         of the Ordinary Shares on the grant date, with vesting over three years
         and a term of 10 years.

         On September 14, 1998, options for 1,000 shares were granted to
         employees at an exercise price of $8.75 which was equal to the market
         price of the Ordinary Shares on the grant date, with vesting over four
         and eight years and a term of 10 years.

         A summary of the Plan as of September 30, 1998, as well as changes
         during the year then ended, is presented below:


<TABLE>
<CAPTION>
                                                       Weighted
                                        Number of       average
                                            Share      exercise
                                          options         price
                                          -------         -----
<S>                                       <C>              <C> 
Outstanding as of beginning of year           ---      $    ---

Granted                                   3,527.4          3.93
Exercised                                     ---           --- 
Forfeited                                    (7.8)         1.92
                                          -------   
Outstanding as of end of year             3,519.6      $   3.93
                                          =======        
</TABLE>

The following table summarizes information about share options outstanding as of
September 30, 1998:



<TABLE>
<CAPTION>
                                                     Exercisable as of  
  Outstanding as of September 30, 1998               September 30, 1998 
                                             
                                Weighted
                                 average    Weighted                     Weighted
                               remaining     average                      average
Exercise           Number    contractual    exercise          Number     exercise
  prices      Outstanding           life       price     exercisable        price
  ------      -----------           ----       -----     -----------        -----
<S>           <C>            <C>            <C>          <C>             <C>   
$  1.92           2,498.6           9.25    $  1.92              ---       $  ---

  14.00              21.0           9.75      14.00              5.3        14.00

   8.75           1,000.0             10       8.75              ---          ---
</TABLE>


         The weighted average grant-date fair value of the 3,527.4 options
         granted during the year amounted to $6.12 per option. The Company
         utilized the Black-Scholes option pricing model to estimate fair value,
         utilizing the following assumptions for the year (all in weighted
         averages):


<TABLE>
<CAPTION>
<S>                                                                                            <C>  
              Risk-free interest rate                                                          5.24%
              Expected life of options (in years)                                                7.1
</TABLE>
<PAGE>   98
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
<S>                                                                                            <C>  
              Expected annual volatility                                                       0.945
              Expected dividend yield                                                           None
</TABLE>

         Had compensation cost for the Company's share option plans been
         determined based on fair value at the grant dates for awards made in
         1998 under such plans in accordance with SFAS No. 123, the Company's
         pro forma net income and earnings per share for the year ended
         September 30, 1998 would have been as follows:

<TABLE>
<CAPTION>
<S>                                                                                          <C>     
              Pro forma net income                                                           $ 29,455
              Pro forma basic earnings per share                                                 0.19
              Pro forma diluted earnings per share                                               0.18
</TABLE>

         All of the Company's stock options were granted during the year ended
         September 30, 1998. Accordingly, the impact of the stock options on pro
         forma net income and earnings per share does not reflect the annualized
         impact of such option grants.

NOTE 15 EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
         earnings per share:


<TABLE>
<CAPTION>
                                                   Year ended September 30,
                                                   ------------------------
                                             1998            1997            1996
                                             ----            ----            ----
<S>                                         <C>             <C>             <C>     
Numerator:
Income before cumulative effect             $ 30,384        $  5,876        $ 24,508
                                            ========        ========        ========

Denominator:
  Denominator for basic earnings per share 
    weighted average number of shares
     outstanding                             158,528         108,330         107,920

  Effect of dilutive contingently issuable  
    shares                                       ---           2,585           2,585

  Effect of dilutive stock options granted       914             ---             ---
                                            --------        --------        --------

Denominator for dilutive earnings per 
share -- adjusted weighted average shares 
and assumed conversions                      159,442         110,915         110,505
                                            ========        ========        ========

Basic earnings per share                    $   0.19        $   0.05        $   0.23
                                            ========        ========        ========
</TABLE>
<PAGE>   99
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
<S>                                         <C>             <C>             <C>     
Diluted earnings per share                  $   0.19        $   0.05        $   0.22
                                            ========        ========        ========
</TABLE>


NOTE 16       SEGMENT INFORMATION AND SALES TO SIGNIFICANT CUSTOMERS

              GEOGRAPHIC INFORMATION

              The following is a summary of revenue and long-lived assets by
              geographic area. Revenue is attributed to geographic region based
              on the location of the customers.


<TABLE>
<CAPTION>
                                             Year ended September 30,
                                             ------------------------
                                        1998           1997           1996
                                        ----           ----           ----
<S>                                   <C>            <C>            <C>     
REVENUE
North America                         $210,867       $185,119       $142,921

Australia                               33,215         37,362         36,553
Europe                                 109,752         32,642         30,763

Other                                   49,933         34,979          1,483
                                      --------       --------       --------
Total                                 $403,767       $290,102       $211,720
                                      ========       ========       ========

LONG-LIVED ASSETS
Israel*                               $ 38,917       $ 26,779       $ 18,346

North America**                         30,441         39,771            ***

Other                                    7,378          2,402          1,794
                                      --------       --------       --------
                                      $ 76,736       $ 68,952       $ 20,140
                                      ========       ========       ========
</TABLE>

*    Primarily computers and vehicles.

**   Primarily computer software and intellectual property rights.

***  Less than 10 percent of total long-lived assets.

REVENUE AND CUSTOMER INFORMATION

Customer care and billing systems (CC&B) include systems for wireless, wireline
and multiple-service or convergent network operators and service providers.
Directory includes directory sales and publishing systems for publishers of both
traditional printed yellow pages and white pages directories and electronic
directories, such as Internet, kiosk and CD-ROM directories.


<PAGE>   100
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                        Year ended September 30,
                 -------------------------------------
                  1998           1997           1996    
                --------       --------       --------
<S>             <C>            <C>            <C>     
CC&B            $251,829       $166,335       $102,481
Directory        151,938        123,767        109,239
                --------       --------       --------
Total           $403,767       $290,102       $211,720
                ========       ========       ========
</TABLE>

SALES TO SIGNIFICANT CUSTOMERS

The following table summarizes the percentage of sales to significant customers 
(when they exceed 10 percent of total revenue for the year).

<TABLE>
<CAPTION>
                                                       Year Ended September 30,
                                                       ------------------------
                                                       1998      1997      1996
                                                       ----      ----      ----

<S>                                                   <C>       <C>       <C>
Southwestern Bell Communications Services              
Inc. and affiliates                                    21%       35%       38%
BellSouth Telecommunications, Inc., and
affiliates                                             16        *         *
Telstra Corporation Ltd.                                *        13        16
* less than 10 percent of total revenue
</TABLE>

NOTE 17       SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                             Quarter ended
                         Sept 30,       June 30,       March 31,         Dec 31,
                         --------       --------       ---------         -------
<S>                      <C>            <C>            <C>              <C>     
1998
Revenue                  $116,704       $106,497        $ 94,008        $ 86,558
Operating income           26,104         22,821          19,125          16,845
Net income                 11,598          6,443           4,105           7,961
Basic earnings per
share                        0.06           0.04            0.03            0.06
Diluted earnings
per share                    0.06           0.04            0.03            0.06
</TABLE>
<PAGE>   101
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                             Quarter ended
                         Sept 30,       June 30,       March 31,         Dec 31,
                         --------       --------       ---------         -------
<S>                     <C>             <C>             <C>             <C>     
1997
Revenue                 $ 87,987        $ 77,089        $ 62,489        $ 62,537
Operating income
(loss)                   (10,586)         13,363          12,179          12,013
Net income (loss)        (18,307)          7,378           8,236           8,569
Basic earnings
(loss) per share           (0.17)           0.07            0.08            0.08
Diluted earnings
(loss) per share           (0.17)           0.07            0.07            0.08
</TABLE>

The fiscal quarter ended September 30, 1997 includes nonrecurring charges of
$27,563.

NOTE 18       FINANCIAL INSTRUMENTS

         Most of the Company's revenue and expenses are denominated in U.S.
         dollars. However, as the Company does business world-wide, the Company
         enters into various foreign exchange contracts in managing its foreign
         exchange risks. The derivative financial instruments are afforded hedge
         accounting treatment because they are effective in managing foreign
         exchange risks and are appropriately designated to the underlying
         exposures. The Company does not enter into derivative contracts for
         speculative purposes, not is it a party to any leveraged derivative
         instrument. Through its foreign currency hedging activities, the
         Company seeks to minimize the risk that fair value of the sales of
         products and services and cash flow required for the Company's expenses
         denominated in a currency different from the functional currency will
         be affected by changes in exchange rates. Cash flow hedges protect the
         Company from fluctuations in expenses expected to be incurred in
         subsidiaries that operate in non U.S. dollar-based environments. Fair
         value hedges protect cash flows generated by firm commitments from
         customers who purchase services in non U.S. dollar-based currencies.

         For its qualifying fair value hedges, the fair value of the derivative
         instrument and firm commitment are recorded as assets and liabilities
         on the balance sheet. The change in the fair value of the forward
         contract related to the ineffective portion of the hedging contracts is
         recorded in Other expense, net. For the year ended September 30, 1998,
         this amounted to an expense of $98.

         For its qualifying cash flow hedges, the fair value of the derivative
         instrument is recorded as an asset or liability on the balance sheet.
         The change in fair value of the derivative instrument related to the
         ineffective portion of the hedging contracts is recorded in Other
         expense, net. For the year ended September 30, 1998, this amounted to
         income of $300. The remaining change in fair value is reported in Other
<PAGE>   102
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     (in thousands, except per share data)

         comprehensive income and will be recorded into earnings, as a component
         of the line item which contains the hedged item in the same period the
         forecasted transactions affect earnings. It is expected that $634 of
         net unrealized losses included in Other comprehensive income at
         September 30, 1998 will be recognized during the period ended September
         30, 1999. At September 30, 1998 the maximum length of time over which
         the Company is hedging its exposure to the variability of future cash
         flows is 4 years.

         At September 30, 1998, the Company had forward exchange contracts to
         exchange various foreign currencies for U.S. dollars. The value of New
         Israeli shekels and Australian dollars to be purchased was $121,868
         and the value of Great Britain pounds, Austrian shillings, Japanese
         yen, and Canadian dollars to be sold is $60,599. The fair value of
         forward derivatives as of September 30, 1998 is $(4,671).
<PAGE>   103
                                  EXHIBIT INDEX

EXHIBIT NO.           DESCRIPTION

21.1                  Subsidiaries of Amdocs Limited

23.1                  Consent of Ernst & Young LLP

99.1                  Amdocs Limited Press Release dated November 11, 1998