Exhibit 13

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

Words  such  as  "anticipates,"  "expects"  and  "believes"  in  the  Letter  to
Stockholders and the following discussion identify  forward-looking  statements.
These statements, and the Company's future results, are subject to certain risks
and  uncertainties  that could cause actual  results to differ  materially  from
those expected. These risks and uncertainties are discussed in the section below
entitled "Factors That May Affect Future Operating Results" and in the Company's
reports filed with the Securities and Exchange Commission,  including its Report
on Form 10-K for the  fiscal  year ended  December  27,  1996 under the  caption
"Business".

RESULTS OF OPERATIONS
1996 COMPARED TO 1995

Revenues

Total  revenues  increased 8% or $115 million from 1995 to 1996, as increases in
services revenues more than offset declines in equipment sales.  Equipment sales
decreased  33% or $265  million  from 1995 to 1996 and were 33% and 53% of total
revenues in 1996 and 1995,  respectively.  This decrease reflected the Company's
transition  to new  products  in  its  principal  hardware  lines  during  1996.
Processor  equipment  sales  decreased 44% due to  significant  declines in both
pricing and volumes for the ECL-technology  5995M processor as it approached the
end of its product life cycle.  This decrease was  partially  offset by revenues
from the Company's new CMOS-technology  Millennium mainframe system, which first
went into volume production in the fourth quarter of 1996. Revenues from storage
equipment  sales  decreased  5% in 1996  compared  to 1995  due to  year-to-year
pricing declines, which more than offset increased volumes in the second half of
1996 from a new  generation of Amdahl storage  products for the IBM  System/390-
compatible  and  open  systems  markets.  Equipment  sales  of  high-performance
servers, most of which were acquired under original equipment manufacturer (OEM)
arrangements with Sun Microsystems, increased 26% or $20 million year-to-year.

         Service, software and other revenues increased 53% or $380 million from
1995  to 1996  and  were  67%  and 47% of  total  revenues  in  1996  and  1995,
respectively.  Professional services revenues increased $418 million principally
due to the  acquisitions  of DMR Group Inc.  (DMR) in the fourth quarter of 1995
and Trecom  Business  Systems,  Inc.  (Trecom)  in the  second  quarter of 1996.
Maintenance  revenues  decreased $40 million or 8% from a  combination  of price
declines  and the  gradual  reduction  of the  installed  base of certain  older
technology  mainframe  systems.  Software and  implementation  services revenues
declined $3 million reflecting nonrecurring sales of certain software to Fujitsu
in 1995 (see Note 2 to the Consolidated Financial Statements).

         Approximately  51% of the  Company's  revenues  came from  outside  the
United  States in 1996 and was  recorded  in local  currency  (see Note 9 to the
Consolidated  Financial  Statements).  1996 revenues were favorably  impacted by
approximately $13 million from a weaker U.S. dollar,  as international  revenues
denominated in foreign  currencies  translated  into more dollars in 1996,  when
compared to 1995. The Company uses a variety of financial hedging instruments to
minimize currency risk from  international  revenue  transactions (see Note 5 to
the Consolidated Financial Statements).


Gross Margins

Total gross margin as a percentage of revenues decreased from 37% in 1995 to 16%
in 1996.  Gross margin on equipment  sales as a  percentage  of equipment  sales
revenues decreased from 33% in 1995 to a negative 4% in 1996 due to severe 5995M
price declines,  which resulted in a charge of $130 million to cost of equipment
sales in the  second  quarter  of 1996 to reduce  5995M  inventories  and leased
systems to estimated  market  values.  The Company took a similar  charge of $26
million in the fourth  quarter of 1995.  Gross margins on storage  product sales
improved by $3 million in 1996 over 1995 despite  lower  revenues  year-to-year,
largely  because the new  generation of storage  products  shipped in the second
half of 1996 had  significantly  lower unit costs than the  previous  generation
products. Gross margins on service,  software and other revenues as a percentage
of related  revenues  decreased from 41% in 1995 to 25% in 1996,  reflecting the
shift to  professional  services which generate lower gross margins as a percent
of sales than maintenance services.

                              24 Amdahl Corporation


<PAGE>



Operating Expenses

In the second  quarter of 1996,  related to the  acquisition  of Trecom,  Amdahl
recorded a charge to  operating  expenses of $21 million to write off  purchased
in-process  engineering and development expenses (see Note 3 to the Consolidated
Financial  Statements).  A similar  charge of $27  million  was  recorded in the
fourth  quarter of 1995  relating to the  acquisition  of DMR (see Note 3 to the
Consolidated  Financial  Statements).  In the fourth quarter of 1996 the Company
also recorded a $40-million  restructuring  charge to cover the planned costs of
reducing certain sectors of its workforce and facilities.  Operating expenses in
1996  and  1995,  excluding  these  charges,  were  32%  and  34%  of  revenues,
respectively.

         Excluding  the  charges  for  purchased   in-process   engineering  and
development  expenses  associated  with  the  acquisitions  of  Trecom  and DMR,
engineering and development  expenses decreased $24 million or 16% when compared
to 1995,  primarily due to agreements with Fujitsu for the joint  development of
the next generation of IBM-compatible  processor and storage systems (see Note 2
to  the  Consolidated  Financial  Statements).   1996  marketing,   general  and
administrative  expenses  increased $32 million or 9% when compared to 1995. The
increase  resulted  primarily  from  the  acquisitions  of DMR and  Trecom,  and
included $8 million for amortization of excess costs over net assets (goodwill).


Interest Income/Expense and Income Taxes

Net interest  income  decreased $23 million or 55% from 1995,  reflecting  lower
average cash balances in 1996 compared to 1995.  This decline was largely caused
by the cash payments  made to acquire DMR and Trecom,  plus the net cash outflow
needed to fund 1996 operations.

         The  effective  annual  income  tax  rate  was a  negative  4% in 1996,
compared  to 43% in 1995.  The 1996 tax rate  included  a  provision  for  taxes
currently payable in foreign,  state and local jurisdictions.  The tax provision
did not reflect a tax benefit for the loss incurred during the year. A valuation
allowance  was recorded in 1996 to reduce the deferred tax assets of the Company
to an amount  realizable  based on taxes paid for prior years without relying on
future income.


RESULTS OF OPERATIONS
1995 COMPARED TO 1994

Revenues

Total revenues decreased 7% from 1994 to 1995, and equipment sales decreased 23%
or $247 million from 1994 to 1995 and were 53% and 64% of total revenues in 1995
and 1994, respectively.  Processor equipment sales decreased 22% due to a higher
percentage of sales of 5995M  processor  upgrades than in 1994 and a significant
decline in pricing  experienced  in the fourth quarter of 1995.  Overall,  5995M
prices  declined  32% in 1995.  Equipment  sales of the older lines of mainframe
computers  also  decreased.   Revenues  from  storage  product  equipment  sales
decreased  59% in 1995 when  compared  to 1994 as a result of pricing and volume
declines  associated with delays in the  introduction  of new storage  products.
Equipment sales of high-performance servers acquired under OEM arrangements with
Sun  Microsystems,  which were 10% and 3% of total  equipment  sales revenues in
1995 and 1994, respectively, increased 186% or $50 million from 1994 to 1995.

         Service, software and other revenues increased 21% or $124 million from
1994  to 1995  and  were  47%  and 36% of  total  revenues  in  1995  and  1994,
respectively.  The  increase in revenues  consisted  of  increased  professional
services revenues of $77 million,  increased maintenance revenues of $26 million
from a larger customer installed base, and increased software and implementation
services  revenues of $33  million,  of which $15 million was of a  nonrecurring
nature (see Note 2 to the Consolidated Financial Statements). This was offset by
a decrease in operating  lease  revenues of $12 million.  DMR, which the Company
acquired in November  1995,  contributed  $35 million to services  revenues (see
Note 3 to the Consolidated Financial Statements).

         1995 revenues were favorably impacted by approximately $36 million by a
weakened  U.S.  dollar,  as  international   revenues   denominated  in  foreign
currencies translated into more dollars in 1995, when compared to 1994.

                              25 Amdahl Corporation


<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

Gross Margins

Gross margin as a percentage  of revenues  increased  from 36% in 1994 to 37% in
1995.  Gross  margin on  equipment  sales as a  percentage  of  equipment  sales
revenues  increased  from  32% in 1994  to 33% in  1995,  due in  part to  lower
manufacturing  costs  and a  higher  percentage  of  sales  of  5995M  processor
upgrades,  which yield better gross  margins than sales of complete new systems.
However,  as a result of the severe  5995M  price  declines  experienced  in the
fourth  quarter of 1995,  the Company  charged cost of  equipment  sales for $26
million to reduce 5995M inventories to market value. In addition,  gross margins
on  storage  product  sales  were  adversely  affected  by  significant  pricing
declines. Gross margins on service,  software and other revenues as a percentage
of revenues  decreased  from 44% in 1994 to 41% in 1995,  due primarily to lower
gross  margins  on  services  revenues  and  revenues  from the new  MultiVendor
Enterprise Services business.


Operating Expenses

In the  fourth  quarter  of 1995 the  Company  recorded  a charge  to  operating
expenses  of $27 million to write off  purchased  in-process  engineering  and
development  expenses  associated  with  the  acquisition  of  DMR  that  had no
alternative  future use (see Note 3 to the Consolidated  Financial  Statements).
Operating expenses in 1995 and 1994,  excluding these charges,  were 34% and 32%
of revenues, respectively.

         Excluding  the  charge  for  purchased   engineering   and  development
expenses, engineering and development expenses decreased $54 million or 26% when
compared to 1994,  primarily  due to the  agreement  with  Fujitsu for the joint
development of the next generation of  IBM-compatible  systems.  1995 marketing,
general and  administrative  expenses increased $43 million or 13% when compared
to 1994 due to increased  marketing  efforts directed toward the Company's newer
lines of business.


Interest Income/Expense and Income Taxes

Net  interest  income  increased  $24  million  or 150% from 1994 to 1995 due to
increased interest income from higher average cash and investment levels.

         The effective  annual income tax rate  increased from 7% in 1994 to 43%
in 1995, due to the write off of purchased engineering and development discussed
above and the current mix of international  and domestic  income,  which limited
the Company's  utilization of net operating loss  carryforwards and deferred tax
assets in 1995 when compared to 1994.


FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

During  the  latter  part of  1996  Amdahl  completed  the  introduction  of its
principal new hardware products, the Millennium CMOS-based mainframe systems and
Spectris storage systems,  for the IBM  System/390-compatible  market.  Although
based on limited experience,  since the Millennium systems did not begin to ship
in volume until late in the fourth quarter of 1996, many initial  shipments were
of smaller  configurations  as  customers  tended to add  incremental  computing
capacity rather than replace entire older bipolar mainframes. These systems were
also  subject  to  the  competitive  pricing  pressures  characteristic  of  the
System/390 market. A continuation of these factors, coupled with IBM's announced
intention to deliver more  powerful CMOS systems in mid-1997,  could  adversely
affect the level of growth in this segment of the  Company's  business  over the
near term.  Moreover,  the Company no longer has  available  for  marketing  any
significant  number of its older  5995M  mainframe  systems,  which  contributed
significantly  to  fourth-quarter  results  in  1996.  Also,  in  light  of  the
transition from older technology systems to CMOS-based  mainframes,  the Company
expects traditional  hardware  maintenance  revenues to continue to decline from
historic levels.

         Sales of the  Spectris  storage  systems  have been  subject to extreme
pricing  pressures  since their  introduction  in volume in the third quarter of
1996. As a consequence, the Company is required to offer product enhancements on
an ongoing basis in order to remain  competitive  in this market.  Any delays in
its current  development  schedules would adversely impact Amdahl's  competitive
position.

         While the  Company's  consulting  and  professional  services  business
exhibited  strong  growth  during  1996,  its  continued  growth  will depend in
considerable part on the ability to recruit and retain sufficient skilled

                              26 Amdahl Corporation


<PAGE>



personnel to meet  ongoing  customer  demand for  applications  development  and
maintenance   projects,   particularly  those  related  to  the  year-2000  date
conversion problem.  Significant  competition exists in the marketplace for such
personnel  and failure by the Company to achieve its planned  hiring goals would
adversely  affect  future  rates of growth.  Also,  while Amdahl  believes  that
year-2000 projects represent a significant business opportunity for the Company,
it will be difficult to ascertain  their level of success  until the Company has
gained a greater level of experience in this area.

         Amdahl has a  continuing  requirement  to improve the  performance  and
profitability of its other product lines, and to review and consider adjustments
to its overall  business  model.  At the  present  time the Company is unable to
assess the impact of such adjustments, if any, on future operating results.

         In  general,  Amdahl's  business is subject to the  inherent  risks and
uncertainties characteristic of high-technology industries. The introduction of
new hardware products is always subject to technological  risks which can have a
significant  impact on product  reliability and  performance,  as well as on the
timing  of when such  products  become  available,  notwithstanding  planned  or
announced introduction dates. Moreover, the ability to deliver new products with
their  attendant  functional  capabilities  can also impact product  acceptance.
Development  of major  software  systems is quite  commonly  subject to schedule
delays and it is not uncommon for product  deficiencies and reliability problems
to be recognized  after product delivery to a number of  installations.  Product
reliability  problems,  in the case of both hardware and software  systems,  can
place added burdens on existing  support staff and can also adversely impact the
completion of follow-on projects. Consulting and professional services are often
performed under fixed-price  contracts which demand a high degree of accuracy in
assessing  the scope of  customer  projects.  Organizations  which grow  through
acquisitions or joint venturing  arrangements with other companies may be unable
to realize  expected  synergies  which can adversely  affect  planned  financial
performance.  Finally, the market for the Company's products and services can be
subject  to sudden  and  unexpected  changes  in demand  due to  actions  of the
Company's  competitors as well as changes in general  economic  conditions which
can often cause  customers  to defer or cancel  major  product  acquisitions  or
project expenditures.


FINANCIAL CONDITION

December 27, 1996 Compared to December 29, 1995

The  Company's  net  cash  position  (cash  and  short-term  investments  net of
short-term  and  long-term  debt,   excluding   capitalized  lease  obligations)
decreased  by $252 million  from  December 29, 1995 to December 27, 1996.  Cash,
cash equivalents and short-term  investments decreased $235 million,  reflecting
$102  million  used to fund  1996  operating  activities,  $72  million  used to
purchase capital assets (net of $32 million in proceeds from the sale of retired
assets),  and $68 million used for the initial  payment for the  acquisition  of
Trecom (see Note 3 to the Consolidated Financial Statements).

         Receivables increased $179 million, primarily due to higher revenues in
the fourth quarter of 1996 plus a slower overall collection period due to higher
levels of  professional  services  revenues,  which  have an  inherently  slower
collection cycle than the Company's traditional hardware businesses. Inventories
decreased  $146  million,   reflecting   significant   reductions  in  processor
inventories  from  end-of-life  5995M sales  activity  and a writedown  of 5995M
assets to market value in the second  quarter of 1996.  The  reductions in 5995M
inventories  were partially  offset by $34 million in Millennium  inventories at
year-end 1996.

         The cost of  property  and  equipment  decreased  $80  million  because
retirements of buildings,  leasehold  improvements,  and  capitalized  equipment
exceeded  the  purchase  of new  property  and  equipment  in 1996.  New capital
spending for leased systems, capitalized spares and other property and equipment
was  approximately  equal to  depreciation in 1996 except for the acquisition of
Trecom.  The  acquisition  of Trecom added $8 million in property and  equipment
cost and $2 million in accumulated  depreciation at December 27, 1996.  Overall,
the net value of property  and  equipment  decreased  $28 million in 1996 due to
asset disposals and a $25-million charge in the second quarter of 1996 to reduce
certain leased systems to market value.

         At  December  27,  1996 the  excess  of cost over net  assets  acquired
(goodwill), net of accumulated amortization, was $201 million, which included an
increase of $95 million from the  acquisition of Trecom in the second quarter of
1996 (see Note 3 to the Consolidated Financial Statements).

                              27 Amdahl Corporation


<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

         The cash, cash  equivalents and short-term  investments  balances as of
December 27, 1996 included approximately $171 million currently invested outside
the United States. Repatriation of these investments and cash would give rise to
federal  taxable  income for the year of transfer  (the accrued  taxes for which
have  been  provided).  See  Note 12 to the  Consolidated  Financial  Statements
regarding foreign subsidiaries' earnings on which taxes have not been provided.

         The Company's  valuation  allowance against worldwide operating losses,
deferred  tax assets and tax credit  carryforwards  which may expire  before the
Company can utilize them increased from $89 million at December 29, 1995 to $208
million at December 27, 1996. The Company believes sufficient uncertainty exists
regarding  the  realizability  of these items and  accordingly  has continued to
provide a valuation allowance for them.

         Accounts  payable to vendors other than Fujitsu  increased $30 million,
due in part to accounts  payable  assumed  upon the  acquisition  of Trecom ($19
million at  December  27,  1996).  Accounts  payable to  Fujitsu  increased  $39
million, primarily due to increased purchases associated with the new Millennium
processor and Spectris storage products.

         Accrued liabilities increased $110 million due in part to a $64 million
liability for the  acquisition  of Trecom which is payable in the second quarter
of  1997  (see  Note  3  to  the  Consolidated  Financial  Statements).  Accrued
restructuring  costs  decreased  from $55  million at  December  29, 1995 to $43
million at December  27,  1996,  as current  year  charges of $52  million  were
partially offset by an additional  $40-million reserve established in the fourth
quarter of 1996 (see Note 8 to the Consolidated Financial Statements).

         Excluding  capitalized lease obligations,  Amdahl had no long-term debt
at December 27, 1996 compared to $80 million at December 29, 1995.  The decrease
resulted  from a  reclassification  to current  debt of $80 million  outstanding
under a Fujitsu  loan  agreement,  since the debt  amount was payable in January
1997.  Subsequent to December 27, 1996,  Amdahl  renegotiated  the terms of this
loan and it is now  payable  in  January  1998 (see  Note 2 to the  Consolidated
Financial Statements).


Liquidity

The nature of the  information-technology  industry,  combined  with the current
economic environment,  makes it very difficult for the Company to predict future
liquidity  requirements  with  certainty.  However,  the Company  believes  that
existing cash will be adequate to finance continuing operations,  investments in
property  and  equipment,  inventories  and spare  parts,  expenditures  for the
development  of new products and  repayment of the  remaining  liability for the
acquisition of Trecom,  at least through 1997. Over the longer term, Amdahl must
successfully execute its plans to generate significant positive cash flows if it
is to sustain  adequate  liquidity  without  impairing  growth or requiring  the
infusion of additional  funds,  either from external sources of cash or from the
sale of business assets. Additionally, a major expansion of the business such as
would occur with the  acquisition of a major new  subsidiary  might also require
recourse to external  funding,  which could  include  additional  debt or equity
capital.

         In the first  quarter  of 1996 the Board of  Directors  authorized  the
Company to buy back up to $100  million of the  Company's  common  stock.  As of
December 27, 1996, no common shares had been repurchased  under this program and
Amdahl  will  not  consider  a  repurchase   of  stock  until  the  Company  has
demonstrated sustained positive cash flows.

         The Company has no  significant  commitments  with  vendors  other than
Fujitsu (see Note 2 to the Consolidated Financial Statements).

                              28 Amdahl Corporation


<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO AMDAHL CORPORATION:


We  have  audited  the  accompanying   consolidated  balance  sheets  of  Amdahl
Corporation (a Delaware  corporation)  and  subsidiaries as of December 27, 1996
and December 29, 1995,  and the related  consolidated  statements of operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 27, 1996. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of  Amdahl  Corporation  and
subsidiaries  as of December 27, 1996 and December 29, 1995,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  27,  1996 in  conformity  with  generally  accepted  accounting
principles.





                                                             ARTHUR ANDERSEN LLP

San Jose, California
January 28, 1997



                              29 Amdahl Corporation



<PAGE>
<TABLE>
<CAPTION>



                                                     CONSOLIDATED BALANCE SHEETS

December 27, 1996 and December 29, 1995                                                                 1996                    1995
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                                                                              <C>                      <C>    

ASSETS
Current assets:
     Cash and cash equivalents                                                                   $   134,646              $  192,980
     Restricted cash                                                                                  57,126                      --
     Short-term investments                                                                          210,671                 444,006
     Receivables, net of allowances of $10,185 in 1996
         and $5,964 in 1995                                                                          498,851                 319,777
     Inventories                                                                                     128,755                 274,813
     Prepaid expenses and deferred tax assets                                                         86,360                  69,115
------------------------------------------------------------------------------------------------------------------------------------
         Total current assets                                                                      1,116,409               1,300,691
------------------------------------------------------------------------------------------------------------------------------------
Long-term receivables and other assets                                                                33,647                  28,083
------------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
     Leased systems                                                                                   41,582                  37,937
     System spares                                                                                   368,209                 379,797
     Production and data processing equipment                                                        318,527                 327,051
     Office furniture, equipment and improvements                                                    140,050                 173,691
     Land and buildings                                                                               82,318                 111,715
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     950,686               1,030,191
     Less - accumulated depreciation and amortization                                                705,723                 757,523
------------------------------------------------------------------------------------------------------------------------------------
         Property and equipment, net                                                                 244,963                 272,668
------------------------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets acquired,
     net of accumulated amortization of $8,368 in 1996
     and $692 in 1995                                                                                201,385                 106,756
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 $ 1,596,404              $1,708,198
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Notes payable and short-term debt                                                           $    45,053              $   22,026
     Short-term debt - stockholder (Fujitsu Limited)                                                  80,000                      --
     Accounts payable                                                                                141,697                 111,871
     Accounts payable - stockholder (Fujitsu Limited)                                                 68,625                  29,152
     Accrued liabilities                                                                             541,743                 431,600
------------------------------------------------------------------------------------------------------------------------------------
         Total current liabilities                                                                   877,118                 594,649
------------------------------------------------------------------------------------------------------------------------------------
Long-term debt - stockholder (Fujitsu Limited)                                                            --                  80,000
Long-term debt and liabilities                                                                        43,663                  51,152
------------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes                                                                                 62,375                  48,573
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
     Common stock, $.05 par value
         Authorized - 200,000,000 shares
         Outstanding - 121,753,000 shares in 1996
          and 119,259,000 shares in 1995                                                               6,088                   5,963
     Additional paid-in capital                                                                      555,690                 542,269
     Retained earnings                                                                                44,313                 370,995
     Cumulative translation adjustments                                                                9,300                  10,932
     Unrealized holding gains (losses) on
         available-for-sale securities                                                                (2,143)                  3,665
------------------------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity                                                                  613,248                 933,824
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 $ 1,596,404              $1,708,198
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>


                                               30 Amdahl Corporation



<PAGE>

<TABLE>
<CAPTION>


                                               CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Years Ended December 27, 1996                                  1996                     1995                     1994
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
  except per common share amounts)
<S>                                                                 <C>                     <C>                      <C>  

REVENUES
Equipment sales                                                     $     538,934            $     803,567            $   1,050,236
Service, software and other                                             1,092,615                  712,821                  588,377
------------------------------------------------------------------------------------------------------------------------------------
                                                                        1,631,549                1,516,388                1,638,613
------------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES
Equipment sales                                                           559,229                  540,541                  716,144
Service, software and other                                               815,257                  419,046                  327,420
------------------------------------------------------------------------------------------------------------------------------------
                                                                        1,374,486                  959,587                1,043,564
------------------------------------------------------------------------------------------------------------------------------------
     Gross margin                                                         257,063                  556,801                  595,049
------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Engineering and development                                               125,825                  149,610                  203,241
Marketing, general and administrative                                     402,484                  370,771                  327,917
Purchased in-process engineering
     and development                                                       20,700                   27,296                       --
Restructuring costs                                                        40,000                       --                       --
------------------------------------------------------------------------------------------------------------------------------------
                                                                          589,009                  547,677                  531,158
------------------------------------------------------------------------------------------------------------------------------------
     Income (loss) from operations                                       (331,946)                   9,124                   63,891
------------------------------------------------------------------------------------------------------------------------------------
INTEREST
Income                                                                     28,996                   51,334                   26,305
Expense                                                                   (10,732)                 (10,481)                  (9,942)
------------------------------------------------------------------------------------------------------------------------------------
                                                                           18,264                   40,853                   16,363
------------------------------------------------------------------------------------------------------------------------------------
     Income (loss) before provision
         for income taxes                                                (313,682)                  49,977                   80,254

PROVISION FOR INCOME TAXES                                                 13,000                   21,450                    5,450
------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                   $    (326,682)           $      28,527            $      74,804
====================================================================================================================================

EARNINGS (LOSS) PER COMMON SHARE                                    $       (2.71)           $         .24            $         .63
Average outstanding shares
     and equivalents                                                  120,510,000              120,383,000              118,909,000
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                               31 Amdahl Corporation


<PAGE>

<TABLE>
<CAPTION>

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Years Ended December 27, 1996                                                    1996            1995            1994
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except note data)
<S>                                                                                       <C>             <C>             <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                            $ 192,980       $ 358,006       $ 149,484
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                                          (326,682)         28,527          74,804
Adjustments to reconcile net income
         (loss) to net cash provided by
         (used for) operating activities:
     Depreciation and amortization                                                          104,980         108,552         132,864
     Write-down of inventories and
         leased systems to market                                                           130,000          26,000              --
     Purchased in-process engineering
         and development                                                                     20,700          27,296              --
     Restructuring charges                                                                   40,000              --              --
     Deferred income tax provision                                                           13,816          (3,201)         (7,083)
     Gain on sales of assets                                                                   (559)           (343)         (8,524)
Change in assets and liabilities net of effects of business acquisitions:
     (Increase) decrease in receivables                                                    (141,335)         33,771          (2,384)
     Decrease in inventories                                                                 22,211           4,391         271,872
     Increase in prepaid expenses and
         deferred tax assets                                                                (11,059)        (12,157)         (1,781)
     (Increase) decrease in long-term
         receivables and other assets                                                        (9,065)         10,981           9,992
     Increase (decrease) in accounts payable                                                 66,776         (13,407)         68,964
     Decrease in accrued liabilities                                                        (11,834)       (113,955)        (49,774)
     Increase (decrease) in long-term
         liabilities                                                                            283         (11,853)         (2,287)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating
     activities                                                                            (101,768)         84,602         486,663
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale
     short-term investments                                                                (178,664)       (376,503)        (47,016)
Purchases of held-to-maturity
     short-term investments                                                                      --        (287,067)       (519,684)
Proceeds from sales of available-for-sale
     short-term investments                                                                  60,440         107,411          40,677
Proceeds from maturities of short-term
     investments                                                                            287,917         458,116         286,075
Payments for business acquisitions,
     net of cash acquired                                                                   (68,204)       (136,692)             --
Capital expenditures:
     Leased systems                                                                         (38,222)        (27,156)        (18,200)
     System spares                                                                          (20,464)        (16,559)         (8,584)
     Other property and equipment                                                           (44,627)        (38,159)        (40,841)
     Proceeds from property and
         equipment sales                                                                     31,716          30,158          62,352
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
     investing activities                                                                    29,892        (286,451)       (245,221)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable and
     short-term borrowings                                                                    3,669          11,070           2,521
Long-term borrowings                                                                             --              --          80,000
Repayments of borrowings under
     revolving credit agreement                                                              (1,665)             --        (130,000)
Sale of common stock and exercise of options                                                 13,546          22,544          12,064
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
     financing activities                                                                    15,550          33,614         (35,415)
------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                                      (2,008)          3,209           2,495
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
     cash equivalents                                                                       (58,334)       (165,026)        208,522
------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                  $ 134,646       $ 192,980       $ 358,006
====================================================================================================================================
<FN>
Non-cash investing and financing activities: transfers of Amdahl-manufactured systems from net property and equipment to inventories
were $16,290,000 in 1996, $17,423,000 in 1995, and $46,225,000 in 1994.

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

                                               32 Amdahl Corporation

<PAGE>

<TABLE>
<CAPTION>

                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three Years Ended December 27, 1996
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
                                                                                                            Unrealized
                                                                      Additional              Cumulative       Holding
                                                              Common     Paid-in   Retained  Translation         Gains
                                                               Stock     Capital   Earnings  Adjustments      (Losses)        Total
<S>                                                       <C>         <C>         <C>        <C>            <C>          <C>

BALANCE AT
     DECEMBER 31, 1993                                    $   5,729   $ 507,895   $ 267,664    $   8,918    $      --    $ 790,206
Sale of 2,057,964 shares,
     net of repurchases,
     of common stock under
     employee stock
     benefit plans                                              103       9,513          --           --           --        9,616
Income tax benefit
     arising from employee
     stock option plans                                          --       2,448          --           --           --        2,448
Net income                                                       --          --      74,804           --           --       74,804
Translation adjustments                                          --          --          --          (57)          --          (57)
Unrealized holding
     losses on available
     -for-sale securities                                        --          --          --           --         (762)        (762)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
     DECEMBER 30, 1994                                        5,832     519,856     342,468        8,861         (762)     876,255
Sale of 2,622,920 shares,
     net of repurchases,
     of common stock under
     employee stock
     benefit plans                                              131      17,513          --           --           --       17,644
Income tax benefit
     arising from employee
     stock option plans                                          --       4,900          --           --           --        4,900
Net income                                                       --          --      28,527           --           --       28,527
Translation adjustments                                          --          --          --        2,071           --        2,071
Unrealized holding
     gains on available
     -for-sale securities                                        --          --          --           --        4,427        4,427
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
     DECEMBER 29, 1995                                        5,963     542,269     370,995       10,932        3,665      933,824
Sale of 2,494,398 shares,
     net of repurchases,
     of common stock under
     employee stock
     benefit plans                                              125      13,421          --           --           --       13,546
Net loss                                                         --          --    (326,682)          --           --     (326,682)
Translation adjustments                                          --          --          --       (1,632)          --       (1,632)
Unrealized holding
     losses on available
     -for-sale securities                                        --          --          --           --       (5,808)      (5,808)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
     DECEMBER 27, 1996                                    $   6,088   $ 555,690   $  44,313    $   9,300    $  (2,143)   $ 613,248
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                               33 Amdahl Corporation



<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF ACCOUNTING PRACTICES

Amdahl  Corporation and subsidiaries  (the Company or Amdahl) is a multinational
company that provides large-scale,  high-performance,  general-purpose  computer
systems,  storage,  software  and  communications  products,  and  client-server
hardware  systems for the open systems  marketplace.  The Company also  provides
equipment  maintenance,  consulting and  professional  services.  See Note 9 for
information  on revenues by classes of products and  services and by  geographic
area.  The  Company's  markets are  worldwide  and  include the  communications,
banking, finance and insurance, services and government industries.

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 date of the financial  statements and
the reported  components of results of operations  during the reporting  period.
These  estimates   include,   but  are  not  limited  to,  inventory   reserves,
amortization of intangible assets,  restructuring reserves and income tax assets
and liabilities. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned and  majority-owned  subsidiaries.  Intercompany  accounts and
transactions have been eliminated.

Fiscal Year

The Company's fiscal year ends on the last Friday in December.

Translation of Foreign Currencies

The  financial  position and results of  operations  of the  Company's  non-U.S.
subsidiaries  are  measured  using local  currency as the  functional  currency.
Accordingly,  all assets and  liabilities  are translated  into U.S.  dollars at
current  exchange  rates as of the  respective  balance sheet date.  Revenue and
expense items are translated at the average exchange rates prevailing during the
period.  Cumulative  translation  gains and  losses are  reported  as a separate
component of stockholders' equity.

         Gains from foreign exchange  transactions  were $348,000,  $247,000 and
$81,000 in 1996,  1995 and 1994,  respectively,  and were included in marketing,
general and administrative expenses.

Revenues

Revenues from  equipment  sales and sales-type  leases are generally  recognized
when the equipment has been shipped,  installed and financing  arrangements have
been completed.  Revenues from operating  leases are recognized over the term of
the respective contracts.

         Service  for  Amdahl  products  is  provided  under  service  and parts
warranty or separate  maintenance  agreements.  The large-scale computer systems
normally carry a one-year service and parts warranty,  and the storage and other
products usually have shorter  warranty  periods.  Where material,  a portion of
equipment  sales revenue is deferred and recognized  over the warranty period as
service is provided.  Following the warranty period, Amdahl provides maintenance
service  under  separate  contracts  which  typically  can be  terminated by the
customer  on  ninety  days  notice.  Revenues  from  maintenance  contracts  are
recognized over the term of the respective contracts as service is provided.

         Revenues  from  consulting  and  professional  services  are  generally
recognized as the service is performed or on the percentage-of-completion method
of accounting, depending on the nature of the project.

         The Company  accounts  for  software  revenues in  accordance  with the
American Institute of Certified Public Accountants'  Statement of Position 91-1,
Software Revenue Recognition.  Revenues earned under software license agreements
with end users are  generally  recognized  when the software  has been  shipped,
payment is due within one year,  collectibility  is  probable,  and there are no
significant obligations remaining.


                              34 Amdahl Corporation



<PAGE>
Inventories

Inventories  are stated at the lower of cost  (first-in,  first-out)  or market.
Systems in process and finished goods include material,  labor and manufacturing
overhead. Year-end inventories consisted of the following:
<TABLE>
<CAPTION>
                                                         1996              1995
--------------------------------------------------------------------------------
(In thousands)
<S>                                                  <C>                <C> 
Purchased materials                                  $ 30,766           $ 18,879
Systems in process                                     26,407            168,322
Finished goods                                         71,582             87,612
--------------------------------------------------------------------------------
                                                     $128,755           $274,813
================================================================================
</TABLE>

         Inventories  contained  components  and  assemblies  in  excess  of the
Company's current estimated requirements and were fully reserved at December 27,
1996 and  December  29, 1995.  Also as a result of severe  price  declines,  the
Company charged cost of equipment sales for $105 million in 1996 and $26 million
in  1995  to  reduce  5995M  inventories  to  estimated  market  value.  Due  to
competitive  pressures,  it is reasonably  possible that these  estimates  could
change in the near term.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
computed using the  straight-line  method over  estimated  useful lives (or, for
leasehold improvements and assets recorded under capital lease obligations, over
the remaining  lease terms or estimated  useful lives,  whichever is shorter) as
follows:
<TABLE>
<CAPTION>
                                                                          Years
--------------------------------------------------------------------------------
<S>                                                                     <C>  

System spares                                                                 5
Production and data processing equipment                                   3-15
Office furniture, equipment and improvements                               3-20
Buildings                                                                 20-40
</TABLE>

Intangible Assets

Excess  of  cost  over  net  assets  acquired  (goodwill)  is  amortized  by the
straight-line  method over twenty-five  years. The  realizability of goodwill is
evaluated  periodically as events or circumstances indicate a possible inability
to recover its carrying  amount.  Such evaluation is based on various  analyses,
including  cash  flow  and  profitability   projections  that  incorporate,   as
applicable,  the impact on existing  lines of business.  The analyses  involve a
significant level of management  judgment in order to evaluate the ability of an
acquired business to perform within projections.

         Certain software  development costs have been capitalized and amortized
over the life of the  product.  At  December  27,  1996 and  December  29,  1995
software development costs that had been capitalized were immaterial.

Long-Lived Assets

Effective  December  1995 the Company  adopted the  provisions  of  Statement of
Financial  Accounting  Standards  No.  121,  Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of. This statement
requires that long-lived assets and certain identifiable  intangibles to be held
and used or disposed of by an entity be reviewed for impairment  whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  During 1996 the Company  determined that no impairment loss
needed to be recognized for applicable assets of continuing operations.

Earnings (Loss) Per Common Share

Earnings  (loss)  per  common  share have been  computed  based on the  weighted
average  number of common  and  common  equivalent  shares  outstanding.  Common
equivalent  shares result from the assumed exercise of stock options which would
have a dilutive  effect in years  where  there are  earnings.  Primary and fully
diluted earnings per common share amounts are substantially the same.


                              35 Amdahl Corporation



<PAGE>



                  NOTES TO CONSOLIDATED STATEMENTS (continued)

NOTE 2  RELATIONSHIP WITH FUJITSU LIMITED

At December 27, 1996 Fujitsu Limited  (Fujitsu) owned  approximately  43% of the
Company's  outstanding stock. The Company has entered into various  transactions
with Fujitsu, as follows:

         A. Amdahl  purchases  under  contracts  with Fujitsu  certain  finished
products,  certain  subassemblies  and  substantially  all  of  its  large-scale
integrated semiconductor components and high-density printed circuit boards. The
Company's primary products are manufactured by Fujitsu to Amdahl specifications.
The cost of computer  equipment,  subassemblies  and spare parts  purchased from
Fujitsu and the amount  included in cost of revenues for equipment sales were as
follows:
<TABLE>
<CAPTION>

                                                                        Cost of
                                               Purchases               Revenues
--------------------------------------------------------------------------------
(In thousands)
<S>                                            <C>                     <C>

1996                                            $160,092               $326,380
1995                                            $282,913               $275,707
1994                                            $218,925               $374,224
</TABLE>

         Amdahl was  committed  to  purchase  manufacturing  material  and other
equipment from Fujitsu totaling approximately  $34,000,000 at December 27, 1996.
Prices for these  manufacturing  materials  and other  equipment  are subject to
adjustment if the U.S. dollar-Japanese yen exchange rate fluctuates  outside of
specified ranges. The Company has entered into hedging arrangements  designed to
protect against  currency  exchange risks  associated with  anticipated  product
purchases from Fujitsu in 1997.

         B. Under  joint  development  efforts,  Fujitsu  supplies  Amdahl  with
services and material related to the Company's development of current and future
products,  which resulted in charges to engineering and  development  expense of
$7,371,000 in 1996, $2,399,000 in 1995, and $6,443,000 in 1994.

         In 1996 Fujitsu  entered  into an  agreement  to  reimburse  Amdahl for
certain specific  engineering  development  activities  performed by Amdahl from
time to time related to products which are being jointly developed by Amdahl and
Fujitsu.  In  connection  with  these  development   efforts,   Amdahl  recorded
$24,000,000 as an offset to engineering and development expense in 1996. No such
reimbursements occurred in 1995 and 1994.

         Amdahl and  Fujitsu  have an  agreement  pursuant  to which  Amdahl and
Fujitsu participate in the joint development of the Company's next generation of
IBM-compatible systems. Under the agreement,  Fujitsu has primary responsibility
for the design and manufacture of these systems.

     C. Fujitsu markets Amdahl's computer equipment in Brazil,  Japan,  Malaysia
and Spain under  distributorship  arrangements.  Sales in 1996, 1995 and 1994 by
the Company of computer  systems and  complementary  storage products to Fujitsu
contributed  $23,325,000,  $37,290,000  and  $38,682,000 to equipment  sales and
$4,793,000, $17,190,000 and $14,405,000 to gross margin, respectively.

         In 1995 the Company  entered  into a  contract-manufacturing  agreement
with HaL Computer  Systems,  Inc.  (HaL), a wholly-owned  subsidiary of Fujitsu,
whereby Amdahl agreed to manufacture high-end open system workstations for HaL.
The Company also performed  circuit board assembly for Ross Technology,  Inc., a
majority-owned  subsidiary  of  Fujitsu.  In  1996  and  1995  these  agreements
contributed  $5,629,000 and $9,375,000 to equipment sales and  ($2,210,000)  and
$1,035,000  to  gross  margin,  respectively.  Both  of  these  agreements  were
completed by the end of 1996.

         In the fourth quarter of 1995 Fujitsu agreed to pay Amdahl  $14,800,000
for the right and license to use certain software  diagnostic tools developed by
Amdahl and $1,000,000 for the right to market certain storage products in Japan.
These amounts were recognized in the fourth quarter of 1995 as software  revenue
and  equipment  sales  revenue,  respectively.  In 1996 Fujitsu paid the company
$2,000,000 for the right to market  Millennium  processors in Japan. This amount
was recognized in the third quarter of 1996 as equipment sales revenue.


                              36 Amdahl Corporation



<PAGE>



         At  December  27,  1996 and  December  29,  1995  receivables  included
$43,906,000 and $35,795,000, respectively, from Fujitsu.

         D. In January 1994 the Company  entered into an agreement  with Fujitsu
under  which  Fujitsu  agreed to provide  loans to the  Company in an  aggregate
amount not to exceed $100,000,000. Such loans bear interest at a rate based upon
the London  Interbank  Offered  Rate  (6.78% as of  December  27,  1996).  As of
December  27,  1996  and  December  29,  1995,   $80,000,000  in  principal  was
outstanding  under this agreement (see Note 7).  Subsequent to December 27, 1996
Amdahl renegotiated the terms of this loan and it is now payable in January 1998
and cannot exceed  $80,000,000.  Interest  expense  associated with the loan was
$5,680,000 in 1996, $5,745,000 in 1995 and $4,238,000 in 1994, of which $919,000
and $958,000 was payable and was included in accrued liabilities at December 27,
1996 and December 29, 1995, respectively.


NOTE 3  ACQUISITIONS

Trecom Business Systems, Inc.

On April 22, 1996 the Company  acquired all of the outstanding  shares of Trecom
Business Systems, Inc. (Trecom), a provider of information  technology services.
Under the merger  agreement  between the Company and Trecom,  approximately  $66
million  of the  purchase  price was paid in April  1996 and  approximately  $65
million is payable without  interest in April 1997. The Company has pledged cash
with a custodian  as security  for  approximately  $57 million of the April 1997
payment.  This amount was classified as restricted cash on the Company's balance
sheet at December  27, 1996.  Additionally,  up to $2 million was payable in the
event that Trecom  achieves  certain  financial goals during the one year period
ending  March 31,  1997  (the  contingent  payment).  The  present  value of the
aggregate  purchase price at the acquisition date,  including  acquisition costs
and payment to the  shareholders,  and excluding  the  contingent  payment,  was
approximately  $130  million.  In April  1996,  the  Company  also paid down $15
million of Trecom's debt. The Company funded the April 1996 payments and intends
to fund the April 1997 payment with existing cash.

     The  acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Trecom's operations have been combined with those of
the  Company  since the date of  acquisition.  In  addition,  a  portion  of the
purchase price was allocated to the net assets acquired based on their estimated
fair values. The fair value of tangible assets acquired and liabilities  assumed
was $49 million and $34 million,  respectively. In addition,  $20,700,000 of the
purchase price was allocated to in-process  engineering and development projects
that had not reached  technological  feasibility and had no probable alternative
future uses, which the Company expensed at the date of acquisition.  The balance
of the  purchase  price,  $94  million,  was recorded as excess of cost over net
assets acquired  (goodwill) and is being amortized over  twenty-five  years on a
straight-line basis.

         During the third  quarter of 1996  Trecom  achieved  certain  financial
goals resulting in an additional  payment of $1,200,000 to Trecom  shareholders.
These  payments have been  allocated to costs in excess of net assets  acquired.
Due to the  uncertainty  of  meeting  the  remaining  performance  targets,  the
remaining   $800,000  was  not  recorded  as  a  liability  in  these  financial
statements.

         The following  table reflects  unaudited pro forma combined  results of
operations of the Company and Trecom on the basis that the acquisition had taken
place at the beginning of the fiscal year for each of the periods presented:
<TABLE>
<CAPTION>

                                                                                1996                  1995
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per common share amounts)
<S>                                                                       <C>                   <C>

Revenues                                                                  $1,668,896            $1,655,723
Net income (loss)                                                          $(333,378)              $26,967
Net income (loss) per common share                                            $(2.77)                 $.22
Shares used in computation                                               120,510,000           120,383,000
</TABLE>


                                               37 Amdahl Corporation



<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DMR Group Inc.

On November 15, 1995 the Company  acquired all of the outstanding  shares of DMR
Group Inc. (DMR), a multinational information technology consulting company, for
$140 million. The acquisition was funded with existing cash.

         The  acquisition  was  accounted  for  using  the  purchase  method  of
accounting.  Accordingly,  results of DMR's  operations  have been combined with
those of the Company since the date of  acquisition.  In addition,  a portion of
the  purchase  price was  allocated  to the net assets  acquired  based on their
estimated  fair  values.   The  fair  value  of  tangible  assets  acquired  and
liabilities assumed was $60 million and $55 million,  respectively. In addition,
$27,296,000  of the purchase price was allocated to in-process  engineering  and
development projects that had not reached  technological  feasibility and had no
probable  alternative  future  uses,  which the Company  expensed at the date of
acquisition.  The balance of the purchase price,  $108 million,  was recorded as
excess of cost over net assets  acquired  (goodwill) and is being amortized over
twenty-five years on a straight-line basis.

         During 1996 the DMR opening  balance sheet  reserves were  increased by
$5,395,000 and additional  acquisition  costs of $2,145,000 were incurred.  As a
result, the goodwill was increased by $7,540,000.

         The following  table reflects  unaudited pro forma combined  results of
operations  of the Company and DMR on the basis that the  acquisition  had taken
place and the related charge,  noted above, was recorded at the beginning of the
fiscal year for each of the periods presented:
<TABLE>
<CAPTION>

                                                         1995               1994
--------------------------------------------------------------------------------
(Dollars in thousands, except per common share amounts)
<S>                                              <C>                <C>
Revenues                                         $  1,693,912       $  1,857,880
Net income                                       $     20,783       $     38,777
Net income per common share                      $        .17       $        .33
Shares used in computation                        120,383,000        118,909,000
</TABLE>

         In management's  opinion,  the unaudited pro forma combined  results of
operations are not indicative of the actual results that would have occurred had
the acquisitions  been consummated at the beginning of the years presented or of
future  operations of the combined  companies under the ownership and management
of the Company.


NOTE 4  EQUIPMENT LEASING AND THIRD PARTY TRANSACTIONS

The  Company is the  lessor of  equipment  under  operating  leases for  periods
generally less than four years.  Certain operating leases contain provisions for
early termination with a penalty or with conversion to another system.  The cost
of leased systems is depreciated to a zero value on a  straight-line  basis over
two to four years. Accumulated depreciation on leased systems was $21,629,000 at
December 27, 1996 and  $12,462,000  at December  29,  1995.  In 1996 the Company
charged  leased  systems  cost of sales for  $24,700,000  to reduce  the cost of
certain 5995M leased systems to market value.  The Company also leases equipment
to  customers  under  sales-type  leases as defined in  Statement  of  Financial
Accounting  Standards No. 13, Accounting for Leases.  The current portion of the
net investment in sales-type leases is included in receivables and the long-term
portion is included in long-term receivables and other assets. The components of
the net investment in sales-type leases were as follows:
<TABLE>
<CAPTION>

                                                         1996              1995
--------------------------------------------------------------------------------
(In thousands)
<S>                                                     <C>            <C>

Minimum rentals receivable                              $ 16,577        $ 8,020
Estimated residual values of
   leased equipment (unguaranteed)                           839          2,500
Less unearned interest income                             (3,975)        (1,116)
--------------------------------------------------------------------------------
Net investment in sales-type leases                     $ 13,441        $ 9,404
================================================================================
</TABLE>


                              38 Amdahl Corporation


<PAGE>



         Minimum  rentals  receivable  under existing  leases as of December 27,
1996 were as follows:
<TABLE>
<CAPTION>

                                                Sales-Type             Operating
--------------------------------------------------------------------------------
(In thousands)
<S>                                             <C>                    <C>

 1997                                              $ 6,585               $14,217
 1998                                                5,488                 9,519
 1999                                                2,382                 1,062
 2000                                                1,769                    --
 2001                                                  353                    --
 Thereafter                                             --                    --
--------------------------------------------------------------------------------
                                                   $16,577               $24,798
================================================================================
</TABLE>

         In  addition,  during the periods  presented,  the Company sold certain
equipment subject to operating leases and financed certain sales-type  equipment
leases and installment  contracts with financing  institutions  (Third Parties).
The Company  sometimes  agrees to perform certain  services and obligations with
respect  to  the   equipment   and  related   leases,   such  as  general  lease
administration,  invoicing and  collection of rentals,  payment of insurance and
personal property taxes,  maintenance  services and non-priority  remarketing of
equipment that comes off lease. For these services and obligations,  the Company
generally  receives  its  normal  maintenance  charges  and  a  remarketing  and
administration  fee.  Many of the  agreements  with Third  Parties  provide  the
Company with  residual  rights in revenues,  if any,  derived from the equipment
after the Third  Parties have  received a  designated  return.  Equipment  sales
revenues arising from these  transactions with Third Parties were  approximately
$42,000,000, $48,000,000 and $71,000,000 in 1996, 1995 and 1994, respectively.


NOTE 5  FINANCIAL INSTRUMENTS

The Company  invests in a variety of financial  instruments but does not hold or
issue financial instruments for trading purposes.

Off-Balance Sheet Financial Instruments

The  Company  hedges  certain  portions  of its  exposure  to  foreign  currency
fluctuations  through  a  variety  of  strategies  and  financial   instruments,
including  the use of forward  foreign  exchange  contracts  and  currency  swap
agreements.  These  contracts and swaps  generally have  maturities  that do not
exceed  three  months and two years,  respectively.  At  December  27,  1996 and
December 29, 1995 the Company had  approximately  $187,000,000  and $57,000,000,
respectively,  in  notional  principal  of forward  foreign  exchange  contracts
outstanding. The Company had $20,000,000 of currency swap agreements outstanding
at December 27, 1996 and December 29, 1995. The gains and losses associated with
currency rate changes on forward  foreign  exchange  contracts and currency swap
agreements are recorded currently in income as they offset  corresponding  gains
and losses on the  foreign  currency-denominated  assets and  liabilities  being
hedged.  Therefore, the carrying value of forward foreign exchange contracts and
currency swap agreements  approximates their fair value, which was immaterial at
December 27, 1996 and December 29, 1995.

         The Company  enters into foreign  currency  options to protect  against
currency exchange risks associated with its probable anticipated, but not firmly
committed,   non-U.S.  intercompany  sales  and  with  both  inventory  purchase
commitments and probable anticipated inventory purchases from Fujitsu.  Realized
and unrealized  gains and losses on such contracts and the associated cash flows
that qualify as hedges are reported as components  of the related  transactions.
These option contracts generally have maturities that do not exceed one year. At
December  27,  1996  and  December  29,  1995  the  Company  had   approximately
$129,000,000 and $80,000,000 in notional principal of purchased option contracts
outstanding,  respectively.  The net income effect deferred on foreign  currency
option contracts represents the amount by which the carrying value of the option
contracts  exceeded  their fair value and was immaterial as of December 27, 1996
and December 29, 1995.


                              39 Amdahl Corporation



<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         The Company  enters into  interest  rate swap  agreements to extend the
effective   duration   of  a   portion   of   the   Company's   investments   in
available-for-sale  debt  securities and accrues the  differential to be paid or
received  under the  agreements  as interest  rates  change over the life of the
contracts.  These agreements  generally have maturities that do not exceed three
years.  Notional  principal  outstanding  under these  agreements was zero as of
December 27, 1996 and  approximately  $12,000,000  as of December 29, 1995.  The
fair value of interest rate swaps is the estimated amount that the Company would
receive or pay to terminate the swap  agreements at the reporting  date,  taking
into account current  interest  rates.  The fair value of interest rate swaps at
December 27, 1996 and December 29, 1995 was immaterial.

Balance Sheet Financial Instruments

Substantially  all cash  equivalents  consist of  investments in major bank time
deposits,  certificates of deposit and commercial paper with initial  maturities
of three months or less.  Substantially  all short-term  investments  consist of
major bank time deposits,  certificates  of deposit,  commercial  paper and U.S.
government securities which the Company intends to hold between three and twelve
months.

         In November  1995 the  Financial  Accounting  Standards  Board issued a
Special  Report,  A Guide to  Implementation  of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities  (Special Report).  Concurrent
with the issue of the Special Report the Company reassessed the  appropriateness
of the classifications of its securities investments and reclassified all of its
held-to-maturity securities to the available-for-sale  category.  Amortized cost
of the securities  transferred was $161,033,000 and the related  unrealized gain
was $225,000.

         At December 27, 1996 the Company's  available-for-sale  securities  had
contractual  maturities of overnight to fifteen  years and the average  maturity
was one year.  The fair value of  available-for-sale  securities  was determined
based on quoted market prices at the reporting  date for those  instruments.  At
December 27, 1996 and December 29, 1995 the amortized cost basis, aggregate fair
value and gross unrealized  holding gains and losses by major security type were
as follows:
<TABLE>
<CAPTION>

                                 Amortized         Aggregate          Unrealized
1996                                  Cost        Fair Value      Gains (Losses)
--------------------------------------------------------------------------------
(In thousands)
<S>                               <C>               <C>                 <C>

Available-for-Sale Securities
Equity securities                 $  2,152          $    985            $(1,167)
Debt securities issued
     by U.S. Treasury and
     other U.S. government
     agencies                      195,134           194,402               (732)
Debt securities issued
     by foreign governments         71,718            71,888                170
Corporate debt securities           50,899            50,562               (337)
Mortgage-backed securities          15,706            15,629                (77)
--------------------------------------------------------------------------------
Total investments in debt
     and equity securities        $335,609          $333,466            $(2,143)
================================================================================
</TABLE>

                              40 Amdahl Corporation


<PAGE>

<TABLE>
<CAPTION>


                                 Amortized         Aggregate          Unrealized
1995                                  Cost        Fair Value               Gains
--------------------------------------------------------------------------------
(In thousands)
<S>                               <C>             <C>                 <C> 

Available-for-Sale Securities
Equity securities                 $  2,582          $  2,894              $  312
Debt securities issued
     by U.S. Treasury and
     other U.S. government
     agencies                      222,036           223,553               1,517
Debt securities issued
     by foreign governments          1,821             2,020                 199
Corporate debt securities          283,877           285,285               1,408
Mortgage-backed securities          17,096            17,325                 229
--------------------------------------------------------------------------------
Total investments in debt
     and equity securities        $527,412          $531,077              $3,665
================================================================================
</TABLE>

         In 1996,  1995 and 1994  proceeds  from  sales of  available-for-sale
securities were $60,440,000,  $107,411,000 and $40,677,000,  respectively. Gross
realized  gains of $3,264,000 and $832,000 in 1996 and 1995,  respectively,  and
gross realized  losses of $2,171,000 in 1994 were  recognized on those sales and
were included in marketing,  general and  administrative  expenses.  The Company
used specific  identification as the cost basis in computing  realized gains and
losses.

         At December 27, 1996 and December 29, 1995 the carrying  value of notes
payable,  short-term debt and long-term debt  approximated fair value because of
the variable interest rate nature of these instruments.

Concentrations of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  principally  of  temporary  cash  investments  and  trade
receivables.  The Company has cash investment  policies that limit the amount of
credit exposure to any one financial institution and restrict placement of these
investments  to  financial   institutions   evaluated  as  highly  creditworthy.
Concentrations  of credit risk with respect to trade receivables are limited due
to the large number of customers  comprising  the  Company's  customer  base and
their dispersion across many different industries and geographies.


NOTE 6            ACCRUED LIABILITIES

Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>

                                                           1996             1995
--------------------------------------------------------------------------------
(In thousands)
<S>                                                     <C>             <C>

Payroll and vacation                                    $138,472        $125,482
Restructuring costs (Note 8)                              43,311          55,110
Income taxes                                              54,986          38,085
Deferred income                                          106,778          95,968
Acquisition price payable (Note 3)                        64,174              --
Other                                                    134,022         116,955
--------------------------------------------------------------------------------
                                                        $541,743        $431,600
================================================================================
</TABLE>

                              41 Amdahl Corporation


<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7            LONG-TERM DEBT AND LIABILITIES AND BANK CREDIT
                  AGREEMENTS

Long-term debt and liabilities consisted of the following:
<TABLE>
<CAPTION>

                                                             1996           1995
--------------------------------------------------------------------------------
(In thousands)
<S>                                                      <C>            <C>

Long-term debt - stockholder
     (Fujitsu) (Note 2)                                  $ 80,000       $ 80,000
Bank loans at DMR                                             749          7,444
Capitalized lease obligations (Note 13)                    17,988         19,856
Long-term liabilities                                      27,252         26,970
--------------------------------------------------------------------------------
                                                          125,989        134,270
Less current maturities                                    82,326          3,118
--------------------------------------------------------------------------------
Long-term debt and liabilities                           $ 43,663       $131,152
================================================================================
</TABLE>

         Bank  loans at DMR  primarily  consist  of  installment  loans and have
maturity dates ranging from 1997 to 1999. Bank loans at DMR on December 29, 1995
primarily consisted of the outstanding  balance on a $14,700,000  revolving term
line of credit having an original maturity of five years and bearing interest at
a rate based upon the Canadian  Bankers'  Acceptance Rate. In 1996 the revolving
term line of credit was refinanced to short-term  borrowings and was included in
the short-term debt balance.

         The Company has credit  agreements with a number of banks providing for
short-term  borrowings in U.S. dollars and various foreign currencies at varying
interest  rates.  At December 27, 1996 and December  29, 1995,  $42,727,000  and
$18,908,000, respectively, were outstanding under these agreements.

         Interest  paid  on all  borrowings  was  $10,731,000,  $10,460,000  and
$9,098,000 in 1996, 1995 and 1994, respectively.

         Long-term  liabilities included deferred equipment maintenance revenues
and long-term amounts accrued under the Executive Incentive Performance Plan.


NOTE 8            RESTRUCTURING OF OPERATIONS

In the fourth quarter of 1996, the Company recorded a restructuring charge based
on an evaluation of the  competitive  conditions in the markets for  large-scale
computing  systems,  consulting  services and  software.  The Company  looked at
future costs in line with anticipated levels of business in 1997 and beyond, and
determined that a restructuring  charge of $40 million was required to cover the
costs of reducing certain sectors of its workforce and facilities to levels more
appropriate to current business requirements.

     At December 27, 1996,  $43.3 million of  restructuring  charges remained in
accrued  liabilities.  The  balance  was  comprised  of  $34.4  million  for the
reduction of  approximately  300 employees to be completed in 1997, $7.5 million
for closing excess facilities and $1.4 million for other non-cash write-downs of
recorded  assets,  of which  $41.9  million  represents  estimated  future  cash
outflows. A summary of the restructuring activity is presented below:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
(In thousands)
<S>                                                                   <C>

Balance at December 31, 1993*                                         $ 180,743
1994 activity:
     Non-cash write-downs of property,
         equipment and inventories                                      (11,113)
     Reduction in workforce and
         other cash outflows                                            (53,460)
--------------------------------------------------------------------------------
Balance at December 30, 1994                                            116,170
1995 activity:
     Restructuring reserve associated
         with the acquisition of DMR                                      2,272
     Non-cash write-downs of property,
         equipment and inventories                                      (17,004)
     Reduction in workforce and
         other cash outflows                                            (22,170)
--------------------------------------------------------------------------------
Balance at December 29, 1995                                             79,268
1996 provision                                                           40,000
1996 activity:
     Non-cash write-downs of property,
         equipment and inventories                                      (43,191)
     Reduction in workforce and
         other cash outflows                                            (32,766)
--------------------------------------------------------------------------------
Balance at December 27, 1996                                          $  43,311
================================================================================
<FN>
     * Balance of restructuring accrual recorded in 1993.
</FN>
</TABLE>


                              42 Amdahl Corporation



<PAGE>



NOTE 9             MAJOR CUSTOMER, GEOGRAPHIC AREA AND PRODUCT LINE DATA

No single customer  accounted for 10% or more of total revenues in 1996, 1995 or
1994. The Company's  operations by  geographical  area for the three years ended
December 27, 1996 were as follows:
<TABLE>
<CAPTION>

                                          United                                     Asia Pacific       Adjustments
1996                                      States           Canada          Europe         & Other    & Eliminations    Consolidated
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                  <C>              <C>             <C>             <C>             <C>              <C>

Revenues:
     Customers                       $   797,766      $   166,680     $   488,474     $   178,629      $        --      $ 1,631,549
     Intercompany                        280,686            5,971          22,978              --         (309,635)              --
------------------------------------------------------------------------------------------------------------------------------------
Total revenues                       $ 1,078,452      $   172,651     $   511,452     $   178,629      $  (309,635)     $ 1,631,549
====================================================================================================================================
Income (loss)
     from
     operations                      $  (319,121)     $     2,733     $    18,853     $    (2,172)     $   (32,239)     $  (331,946)
Interest
     income, net                                                                                                             18,264
                                                                                                                        -----------
Loss before
     income taxes                                                                                                       $  (313,682)
                                                                                                                        =========== 
Identifiable
     assets                          $   969,039      $   402,670     $ 1,123,018     $    73,989      $(1,344,809)     $ 1,223,907
Corporate
     assets                                                                                                                 372,497
                                                                                                                        -----------
Total assets                                                                                                            $ 1,596,404
                                                                                                                        ===========
</TABLE>

<TABLE>
<CAPTION>

                                      United                                         Asia Pacific       Adjustments
1995                                  States           Canada             Europe          & Other    & Eliminations    Consolidated
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                              <C>               <C>               <C>              <C>            <C>               <C>

Revenues:
     Customers                   $   872,153       $    52,731       $   455,216      $   136,288      $        --       $ 1,516,388
     Intercompany                    236,477             1,016            10,998               --         (248,491)               --
------------------------------------------------------------------------------------------------------------------------------------
Total revenues                   $ 1,108,630       $    53,747       $   466,214      $   136,288      $  (248,491)      $ 1,516,388
====================================================================================================================================
Income (loss)
     from
     operations                  $   (24,390)      $   (23,563)      $    40,309      $     1,641      $    15,127       $     9,124
Interest
     income, net                                                                                                              40,853
                                                                                                                         -----------
Income before
     income taxes                                                                                                        $    49,977
                                                                                                                         ===========
Identifiable
     assets                      $   666,019       $   202,484       $   945,553      $    56,118      $  (738,903)      $ 1,131,271
Corporate
     assets                                                                                                                  576,927
                                                                                                                         -----------
Total assets                                                                                                             $ 1,708,198
                                                                                                                         ===========
</TABLE>

<TABLE>
<CAPTION>

                                       United                                        Asia Pacific       Adjustments
1994                                   States           Canada            Europe          & Other    & Eliminations     Consolidated
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                <C>              <C>               <C>            <C>             <C>                <C>

Revenues:
     Customers                     $  955,090       $   62,433        $  506,526       $  114,564       $       --        $1,638,613
     Intercompany                     241,468              (88)            7,428               --         (248,808)               --
------------------------------------------------------------------------------------------------------------------------------------
Total revenues                     $1,196,558       $   62,345        $  513,954       $  114,564       $ (248,808)       $1,638,613
====================================================================================================================================
Income from
     operations                    $   49,908       $    4,444        $    3,256       $    3,672       $    2,611        $   63,891
Interest
     income, net                                                                                                             16,363
                                                                                                                          ----------
Income before
     income taxes                                                                                                         $  80,254
                                                                                                                          =========
Identifiable
     assets                        $  663,205       $   23,051        $  681,193       $   32,128       $ (354,320)       $1,045,257
Corporate
     assets                                                                                                                  673,778
                                                                                                                          ----------
Total assets                                                                                                              $1,719,035
                                                                                                                          ==========
</TABLE>



                                               43 Amdahl Corporation


<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         The  Company's   operations  are  structured  to  achieve  consolidated
objectives. As a result, significant  interdependencies and overlaps exist among
the Company's operating units. Accordingly, the revenue, operating income (loss)
and identifiable  assets shown for each geographic area may not be indicative of
the  amounts  that  would  have  been  reported  if  the  operating  units  were
independent of one another.

         Intercompany  sales  and  transfers  of  manufacturing   materials  and
finished   systems   between  areas  are  accounted  for  based  on  established
intercompany sales prices.

         Operating  income  (loss) is revenue less related  costs and direct and
allocated operating  expenses,  excluding interest and, for all areas except the
United States,  the  unallocated  portion of corporate  expenses.  United States
operating  income (loss) is net of corporate  engineering  and  development  and
administrative  expenses.  The United  States' 1996  operating loss includes the
write-off of purchased in-process  engineering and development recorded upon the
acquisition of Trecom (see Note 3) and the corporate  restructuring  charge (see
Note 8). The United States' 1996 identifiable assets included the excess of cost
over new assets  acquired  related to the  acquisition of Trecom.  Canada's 1995
loss from operations includes the write-off of purchased in-process engineering
and development.  Canada's 1995 and 1996 identifiable  assets include the excess
of cost over net assets acquired related to the acquisition of DMR (see Note 3).

         Corporate  assets  include  assets  maintained  for  general  purposes,
principally cash equivalents and short-term investments.

         The Company  operates in the  large-scale  computer  system and related
storage and communications products segment of the data processing industry. The
Company  also  continues  to make the  transition  to being a more  service  and
solutions  oriented  business.  Revenues  for  similar  classes of  products  or
services  within this one  business  segment for the most recent three years are
presented below:
<TABLE>
<CAPTION>

                                                    1996        1995*      1994*
--------------------------------------------------------------------------------
(In millions)
<S>                                               <C>         <C>         <C>

Processor equipment sales**                       $  363      $  643      $  820
Storage product equipment sales                       79          83         203
Server equipment sales                                97          77          27
--------------------------------------------------------------------------------
     Total equipment sales                           539         803       1,050
--------------------------------------------------------------------------------
Maintenance services revenues                        435         475         449
Consulting and
     professional services revenues                  559         141          64
Lease revenues                                        23          18          30
Software and implementation
     services revenues ***                            76          79          46
--------------------------------------------------------------------------------
     Total service, software
         and other revenues                        1,093         713         589
--------------------------------------------------------------------------------
                                                  $1,632      $1,516      $1,639
================================================================================
<FN>
*        Reclassified to conform to 1996 presentation.
**       Includes Systems/390-compatible mainframe processors and
certain related hardware products.
***  Includes  all software  revenue and  services  performed  to implement  the
software  environment at customer sites (excludes  application  services).  1995
included $15 million of nonrecurring software sales to Fujitsu (see Note 2).
</FN>
</TABLE>

                              44 Amdahl Corporation

<PAGE>



NOTE 10  CAPITAL STOCK

There are 200,000,000  authorized  shares of common stock, par value of $.05 per
share,  of which  121,753,000  shares were issued and outstanding as of December
27, 1996. As of December 27, 1996 the Company had reserved  shares of its common
stock for the following purposes:
<TABLE>
<CAPTION>

Description                                                      Shares Reserved
--------------------------------------------------------------------------------
<S>                                                              <C>

Stock Option Plans -
     Stock options outstanding                                         8,279,873
     Stock options and restricted stock
         available for grant                                           2,031,114
Employee Stock Purchase Plan                                           6,069,960
--------------------------------------------------------------------------------
                                                                      16,380,947
================================================================================
</TABLE>

         On  November  1, 1996 the Board of  Directors  authorized,  subject  to
stockholder  approval at the annual  meeting on May 1, 1997,  an increase to the
shares  available  for grant  under the 1994 Stock  Incentive  Plan by 2% of the
shares of common stock  outstanding  on May 1, 1997. The Board of Directors also
authorized,  subject to stockholder  approval,  ongoing annual  increases to the
shares  available  for  grant on the first  trading  day of each  calendar  year
beginning  with 1998.  The annual  increases  will be 3% of the shares of common
stock  outstanding on December 31 of the  immediately  preceding  calendar year,
provided that each annual increase will be limited so that the shares  available
for future option grants and share issuances will not exceed 6,000,000 shares at
the time of each annual increase.

         On May 2, 1996 the  stockholders  approved  an  increase  of  5,000,000
shares in the number of shares issuable under the Employee Stock Purchase Plan.

         On February 8, 1996 the Board of  Directors  authorized  the Company to
buy back up to $100  million  of the  Company's  common  stock.  No shares  were
repurchased under this authorization in 1996.

         There are 5,000,000  authorized shares of Preferred Stock, par value of
$1 per share.  This stock,  if issued,  will carry  liquidation  preferences and
other rights,  as determined by the Board of Directors.  As of December 27, 1996
no Preferred Stock had been issued.


NOTE 11  EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS

Under the Company's stock option plans,  options generally become exercisable in
cumulative annual  installments  beginning one year after the date of grant, are
fully  exercisable  after  four or five  years and  expire  after ten or fifteen
years. Options are granted to non-employee  directors under the Automatic Option
Grant  Program.  The Company  accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized.  Had compensation cost for
these plans been determined  consistent  with Statement of Financial  Accounting
Standards No. 123,  Accounting for Stock-Based  Compensation (SFAS No. 123), the
Company's  net income  (loss)  and  earnings  (loss)  per share  would have been
adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>

                                                          1996              1995
--------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S>                                                <C>                   <C>

Net income (loss):           As Reported            $(326,682)           $28,527
                             Pro Forma              $(331,997)           $28,165
Earnings (loss) per share:   As Reported            $   (2.71)           $   .24
                             Pro Forma              $   (2.75)           $   .23
</TABLE>


         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995,  respectively:  risk-free interest
rates of 5.6 and 6.7  percent;  expected  dividend  yields  of 0 and 0  percent;
expected  lives of 4.4 and 4.5 years;  and expected  volatility of 37.6 and 37.6
percent.

         Because the SFAS No. 123 method of  accounting  has not been applied to
options granted prior to fiscal 1995, the resulting pro forma  compensation cost
may not be representative of that to be expected in future years.


                              45 Amdahl Corporation



<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         Under the  Employee  Stock  Purchase  Plan,  the  Company's  employees,
subject to certain restrictions,  may purchase shares of common stock at a price
per share that is the lesser of 85% of the fair market value as of the first day
or the last day of each three-month  purchase  period.  The Company sold 755,000
shares,   619,000  shares,   and  1,031,000  shares  in  1996,  1995  and  1994,
respectively. The weighted average fair value of shares sold in 1996 was $10.08.

         Activity in the Company's  option plans excluding  restricted  stock is
summarized as follows:
<TABLE>
<CAPTION>

                                                       1996                     1995                     1994
-------------------------------------------------------------------------------------------------------------------------
                                                            Wtd Avg                   Wtd Avg                   Wtd Avg
                                                Shares      Ex Price*    Shares       Ex Price*    Shares       Ex Price*
-------------------------------------------------------------------------------------------------------------------------
(Shares in thousands)
<S>                                          <C>            <C>         <C>           <C>          <C>          <C>

Options outstanding at
     Beginning of year                          6,875        $  6.13      8,996        $  5.77     10,736        $  5.57
     Granted                                    3,576           8.05        377          11.07        391           7.24
     Exercised                                 (1,464)          5.34     (2,032)          5.49       (935)          4.94
     Expired or canceled                         (707)          7.43       (466)          6.01     (1,196)          5.13
------------------------------------------------------------------------------------------------------------------------
Options outstanding at
     end of year                                8,280        $  6.98      6,875        $  6.13      8,996        $  5.77
------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year                      3,716                     3,114                     3,262
     Weighted average
         fair value of
         options granted                      $  3.51                   $  4.58
------------------------------------------------------------------------------------------------------------------------
<FN>
*Weighted Average Exercise Price
</FN>
</TABLE>

         The following  summarizes the stock options outstanding at December 27,
1996:
<TABLE>
<CAPTION>
                                    Options Outstanding                                                       Options Exercisable
                          --------------------------------------------------------------           --------------------------------
Actual
Range of                   Number              Weighted-Average                                       Number
Exercise Prices          Outstanding              Remaining              Weighted-Average          Exercisable      Weighted-Average
($5 increments)           12/27/96             Contractual Life           Exercise Price             12/27/96        Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                   <C>                       <C>                       <C>             <C>

$ 2.57 - 4.81             3,760,003                  6.1                     $  4.65                2,481,377           $  4.72
$ 5.31 - 9.91             3,460,186                 12.4                     $  7.80                  724,825           $  7.13
$10.06 -14.72               970,684                 10.1                     $ 12.14                  425,829           $ 12.82
$15.00 -18.88                89,000                  3.6                     $ 17.18                   84,200           $ 17.21
------------------------------------------------------------------------------------------------------------------------------------
$ 2.57 -18.88             8,279,873                  9.2                     $  6.98                3,716,231           $  6.40
====================================================================================================================================
</TABLE>

         As of December  27, 1996 the Company had 356,701  shares of  restricted
common stock  outstanding with certain officers and key employees under the 1994
Stock   Incentive   Plan.   These   shares   carry   certain   restrictions   on
transferability,  which will lapse over  periods as  determined  by the Board of
Directors at the time of award. The difference  between the fair market value at
the date of grant and the  purchase  price of the  shares  (generally,  $.05 per
share) is recorded as compensation expense ratably over the period from the date
of grant to the date the restrictions lapse.

         The Company has a Capital  Accumulation Plan available to all its North
American  employees to which it  contributes  based on its profits.  The Company
also has a  savings  plan for  domestic  employees  whereby  it  matches  25% of
employee contributions up to specified limits. In addition,  under the Executive
Incentive  Performance Plan, amounts up to 2% of income before taxes are accrued
for  selected  key  employees  instead  of their  participation  in the  Capital
Accumulation Plan. Approximately half of the award vests over the following four
years and the remainder  vests over a service period of up to twenty years.  The
total  cost of  these  plans  charged  to  operations  was  $1,322,000  in 1996,
$10,303,000 in 1995 and $9,025,000 in 1994.


                              46 Amdahl Corporation



<PAGE>



NOTE 12  INCOME TAXES

Income (loss)  before taxes and the  provision  for (benefit  from) income taxes
were comprised of the following:
<TABLE>
<CAPTION>

                                                                                     1996                 1995                 1994
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                                             <C>                 <C>                   <C>  

Income (loss) before provision for income taxes:
     Domestic                                                                   $(268,098)           $  18,104            $  65,941
     Foreign                                                                      (45,584)              31,873               14,313
------------------------------------------------------------------------------------------------------------------------------------
                                                                                $(313,682)           $  49,977            $  80,254
====================================================================================================================================
Provision for (benefit from) income taxes:
Federal-
         Current                                                                $  (6,244)           $  25,804            $  20,531
         Deferred, net                                                              6,244              (12,918)              (4,895)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                       --               12,886               15,636
------------------------------------------------------------------------------------------------------------------------------------
State-
         Current                                                                    5,390                4,328               (7,284)
         Deferred, net                                                             (1,890)              (2,328)               8,484
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    3,500                2,000                1,200
------------------------------------------------------------------------------------------------------------------------------------
Foreign-
         Current                                                                   11,659                6,291                 (744)
         Deferred, net                                                             (2,159)                 273              (10,642)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    9,500                6,564              (11,386)
------------------------------------------------------------------------------------------------------------------------------------
         Net tax provision                                                      $  13,000            $  21,450            $   5,450
====================================================================================================================================
</TABLE>

The effective income tax provision differed from the statutory federal provision
due to the following  (prior year amounts have been  reclassified  to conform to
current-year presentation):
<TABLE>
<CAPTION>

                                                                                         1996               1995               1994
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                                                 <C>                <C>                <C>

Statutory federal tax provision (benefit)                                           $(109,789)         $  17,492          $  28,089
State tax provisions, net of federal tax benefit                                        2,275              1,300                780
Foreign losses in excess of available benefits                                         27,163             13,132              4,199
Unutilized (utilized) deductible temporary differences                                 82,427            (20,055)           (40,484)
Foreign subsidiaries' earnings taxed at rates in
     excess of the statutory federal rate                                                 169                235              8,750
Write-off of purchased in-process engineering
     and development                                                                    7,245              9,554                 --
Goodwill amortization                                                                   2,693                 --                 --
Other                                                                                     817               (208)             4,116
------------------------------------------------------------------------------------------------------------------------------------
Net tax provision                                                                   $  13,000          $  21,450          $   5,450
====================================================================================================================================
Net effective tax rate                                                                    (4%)               43%                  7%
====================================================================================================================================
</TABLE>

                                               47 Amdahl Corporation



<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         Net income tax refunds of $6,104,000 and  $12,340,000  were received by
the Company in 1996 and 1994, respectively,  and net income taxes of $26,050,000
were paid by the Company in 1995.

         The  components  of the net deferred tax liability at December 27, 1996
and December 29, 1995 were as follows:
<TABLE>
<CAPTION>

                                                          1996             1995
--------------------------------------------------------------------------------
(In thousands)
<S>                                                  <C>              <C>

Deferred tax liabilities:
     Taxes on foreign income                         $ (35,174)       $ (18,520)
     Depreciation                                      (44,975)         (26,173)
     Revenue timing                                     (3,149)         (12,450)
--------------------------------------------------------------------------------
     Total deferred tax liability                      (83,298)         (57,143)
--------------------------------------------------------------------------------
Deferred tax assets:
     Reserves                                          137,916           84,594
     Net operating loss and credit
         carryforwards                                 142,762           40,423
     Other                                               7,493           20,860
--------------------------------------------------------------------------------
                                                       288,171          145,877
     Valuation allowance                              (207,700)         (89,367)
--------------------------------------------------------------------------------
     Total deferred tax assets                          80,471           56,510
--------------------------------------------------------------------------------
Net deferred tax liability                           $  (2,827)       $    (633)
================================================================================
</TABLE>

         No tax benefit was recorded for losses other than recoverable  taxes or
future taxable income from the reversal of deferred items.

         The  valuation  allowance  at December  27, 1996 and  December 29, 1995
provided reserves against worldwide  operating losses,  deferred tax assets, and
tax credit  carryforwards  which may expire before the Company can utilize them.
The Company believes  sufficient  uncertainty exists regarding the realizability
of these items and  accordingly  has continued to provide a valuation  allowance
for them.

         Cumulative  undistributed earnings of foreign subsidiaries for which no
United States income or foreign  withholding  taxes have been recorded,  because
such  earnings  are  expected  to  be  reinvested   indefinitely,   amounted  to
$105,200,000  at December  27,  1996.  The  Company  provides in full for United
States  income  taxes on the  earnings of foreign  subsidiaries  not  considered
indefinitely invested outside the United States.

         At December 27, 1996 the Company had U.S.  federal net  operating  loss
carryforwards of $136,900,000 which expire in the year 2011. State net operating
loss  carryforwards  approximate  $347,200,000  which  expire in the years  1997
through 2011.  Foreign net operating loss carryforwards of $71,900,000 expire at
various  dates from 1997 through  2006 and  $70,700,000  can be carried  forward
indefinitely.

     In 1994 the Internal Revenue Service (IRS) issued a notice of deficiency to
the Company for disputed  items related to the 1983 through 1986 tax years,  the
most  significant  of which  related to the treatment of system  spares.  In the
fourth  quarter  of 1996 the  Company  was  notified  that the IRS was no longer
contesting  the Company's  treatment of system  spares.  The remaining  disputed
items are immaterial.

         The IRS field audit of the Company's  1987 through 1990 tax years is in
process.  In the  opinion of  management,  the final  resolution  of the matters
raised by the IRS field audit will not result in any material  adverse impact to
the  Company's  results of operations  or financial  position.  It is reasonably
possible that the  Company's  estimate of the final impact of these matters will
change in the near term upon the completion of the IRS field audit.


                              48 Amdahl Corporation



<PAGE>




NOTE 13  LEASE COMMITMENTS

The Company  leases a  substantial  portion of its  principal  facilities  under
capital lease agreements extending through the year 2008. Capitalized facilities
leases totaling  $18,571,000 and $32,995,000  with  accumulated  amortization of
$17,408,000   and   $24,176,000   were   included  in  the  land  and  buildings
classification on the balance sheets at December 27, 1996 and December 29, 1995,
respectively.  The lease  agreements  provide for renewal options  extending the
lease terms beyond the initial terms in five-year  increments.  The Company also
leases  certain  equipment  and sales and  service  facilities  under  operating
leases. The minimum lease commitments as of December 27, 1996 were as follows:
<TABLE>
<CAPTION>

                                                  Capital             Operating
                                                   Leases                Leases
--------------------------------------------------------------------------------
(In thousands)
<S>                                               <C>                <C> 

1997                                              $ 3,717             $  38,547
1998                                                3,390                30,742
1999                                                2,624                23,539
2000                                                2,626                16,864
2001                                                2,626                12,935
After 2001                                         15,760                19,539
--------------------------------------------------------------------------------
Total minimum lease commitments                    30,743              $142,166
                                                                       ========
Less imputed interest (9.25% to 13.74%)           (12,755)
----------------------------------------------------------
Present value of minimum lease
     commitments (Note 7)                         $17,988
=========================================================
</TABLE>

         Minimum  obligations  have not  been  reduced  by  minimum  rentals  of
$6,020,000  and $  20,691,000  receivable  in  the  future  under  noncancelable
subleases of capital leases and operating leases,  respectively,  as of December
27, 1996.

         Rental expense charged to income was as follows:
<TABLE>
<CAPTION>

                                           1996            1995             1994
--------------------------------------------------------------------------------
(In thousands)
<S>                                    <C>             <C>             <C>

Minimum rent                           $ 46,108        $ 37,701        $ 38,768
Less sublease rent                         (463)         (6,276)         (4,073)
--------------------------------------------------------------------------------
Total                                  $ 45,645        $ 31,425        $ 34,695
================================================================================
</TABLE>

                              49 Amdahl Corporation



<PAGE>



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14  SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>

                                                      First            Second            Third            Fourth               Year
------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per common share 
     amounts and note data)
<S>                                             <C>               <C>               <C>               <C>               <C>

FISCAL QUARTER AND YEAR 1996
     Revenues                                   $   317,028       $   382,854       $   439,819       $   491,848       $ 1,631,549
     Gross margin                               $    72,582       $   (76,894)      $   123,449       $   137,926       $   257,063
     (Loss) before taxes                        $   (48,153)      $  (228,436)      $    (4,201)      $   (32,892)      $  (313,682)
     Net (loss)                                 $   (38,523)      $  (249,436)      $    (4,833)      $   (33,890)      $  (326,682)
     Net (loss) per common share                $      (.32)      $     (2.07)      $      (.04)      $      (.28)      $     (2.71)
FISCAL QUARTER AND YEAR 1995
     Revenues                                   $   371,526       $   378,666       $   350,016       $   416,180       $ 1,516,388
     Gross margin                               $   145,315       $   148,271       $   142,469       $   120,746       $   556,801
     Income (loss) before taxes                 $    26,394       $    33,642       $    25,707       $   (35,766)      $    49,977
     Net income (loss)                          $    20,594       $    26,242       $    20,057       $   (38,366)      $    28,527
     Net income (loss)
         per common share                       $       .17       $       .22       $       .17       $      (.32)      $       .24
<FN>

Notes:  Second-quarter  1996  results of  operations  included  charges  of  $20,700,000  or $.17 per share to write off  in-process
engineering  and  development  at Trecom  Business  Systems,  Inc.,  and  $130,000,000  or $1.08 per share to reduce 5995M assets to
estimated market value.  Fourth-quarter 1996 results of operations included a restructuring charge of $40,000,000 or $.33 per share.
Fourth-quarter 1995 results of operations included charges of $27,296,000 or $.23 per share to write off in-process  engineering and
development at DMR Group Inc. and $26,000,000 or $.22 per share to reduce inventories to estimated market value.
</FN>
</TABLE>

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

COMMON STOCK DIVIDENDS AND PRICE RANGE (UNAUDITED)

Dividends

Dividends  declared  per share for the most  recent five years were $.05 in 1993
and $.10 in 1992.  No  dividends  were  declared or paid in 1996,  1995 or 1994.
Payment of future  dividends  will be  dependent  upon the  Company's  earnings,
capital requirements, financial condition and other factors.

Market Price

The common stock is listed on both the American and London Stock Exchanges.  The
following table sets forth, for the periods indicated, the range of high and low
sale prices on the American Stock Exchange Composite  Transactions,  as reported
by The Wall Street Journal:
<TABLE>
<CAPTION>

1996                                                   High                 Low
--------------------------------------------------------------------------------
<S>                                                 <C>                 <C>

First Quarter                                       $ 9 3/8             $6 3/4
Second Quarter                                      $13 1/2             $8 7/16
Third Quarter                                       $10 7/8             $8 1/8
Fourth Quarter                                      $14                 $8 11/16

1995                                                    High                Low
--------------------------------------------------------------------------------
First Quarter                                        $12 1/4            $ 9 7/8
Second Quarter                                       $13 5/8            $10 1/2
Third Quarters                                       $11 3/4            $ 8 5/8
Fourth Quarter                                       $10 3/4            $ 8 1/8
</TABLE>

     At December 27, 1996 there were  approximately  15,000 holders of record of
Amdahl common stock.



-------------------------------------------------------
Amdahl and UTS are registered trademarks and Millennium, Spectris, LVS 4000, LVS
4500, LVS 4100, EnVista, A+ Software,  A+Edition,  and A+FailSafe are trademarks
of Amdahl  Corporation.  ObjectStar and CrossView are registered  trademarks and
Antares Alliance and EdgeworX are trademarks of Antares Alliance Group. Sun, Sun
Microsystems,  Solaris,  and  Ultra  Enterprise  are  trademarks  or  registered
trademarks   of  Sun   Microsystems.   UltraSPARC   is  a  trademark   of  SPARC
International,  licensed  exclusively  to  Sun  Microsystems,  Inc.  SPARC  is a
registered trademark of SPARC  International.  Products bearing SPARC trademarks
are based upon an architecture  developed by Sun Microsystems,  Inc.  Microsoft,
Windows  NT,  and  Visual  Basic are  trademarks  or  registered  trademarks  of
Microsoft  Corporation.  IBM, System/390,  ESCON, CICS, and Parallel Sysplex are
trademarks  or registered  trademarks of IBM. UNIX is a registered  trademark in
the U.S.  and other  countries,  licensed  exclusively  through  X/Open  Company
Limited.  Intel and Pentium are registered trademarks of Intel Corporation.  All
other trademarks and product names are the property of their respective owners.

                              50 Amdahl Corporation