UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    Form 10-K

      FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


            |x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                   For the Fiscal Year Ended December 31, 1997

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

        FOR THE TRANSITION PERIOD FROM _________________ TO _____________


                           Commission File No. 0-57495


                               SAVILLE SYSTEMS PLC
             (Exact Name of Registrant as Specified in its Charter)

                               Republic of Ireland
         (State or other jurisdiction of incorporation or organization)

                                 Not Applicable
                      (I.R.S. Employer Identification No.)


                   IDA Business Park, Dangan, Galway, Ireland
                        (Address of principal executive
                          offices, including zip code)

                               011-353-9-152-6611
   (Registrant's telephone number, including area code from the United States)

        Securities registered pursuant to Section 12(b) of the Act: NONE

                    Securities registered pursuant to Section
                               12(g) of the Act:


   American Depository Shares, Representing Ordinary Shares, $0.0025 par value
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |x| No | |

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. |x|

The aggregate market value of voting Common Stock held by  non-affiliates of the
registrant  was  $1,814,679,772  based on the last  reported  sale  price of the
Common Stock on the Nasdaq  consolidated  transaction  reporting system on March
16, 1998.

Number of shares  outstanding  of the  registrant's  class of Common Stock as of
March 16, 1998 was 35,322,234.

Documents incorporated by reference:
Proxy Statement for the 1998 Annual Meeting of Shareholders - Part III





<PAGE>



                                                                PART I

ITEM 1.           BUSINESS



GENERAL

Saville Systems PLC (together with its subsidiaries, "Saville" or the "Company")
provides  innovative,  convergent customer care and billing solutions to service
providers in the global telecommunications industry. Saville's customer care and
billing solution,  Convergent Billing Platform ("CBP")(TM), is available on both
DB2/400 and Oracle/UNIX  platforms,  and is designed to enable service providers
to bring new service offerings to the market quickly, and to bill accurately and
reliably for multiple services on one integrated invoice.

Saville  offers its  customers a full range of  professional  services.  Saville
assists each customer in defining their requirements and then designs,  develops
and implements a cost-effective customer care and billing solution. The customer
can either license the solution from Saville or have the solution  operated in a
Company  operated  service bureau.  In 1997, the Company  introduced  facilities
management  services  for  customers  who  contract  with  Saville to manage the
operation  of the  licensed  solution on  customer-owned  hardware.  The Company
usually  serves as a billing  partner  for its  customers  by  implementing  new
systems as the customer enters new service categories or geographic markets, and
by further developing and enhancing the customer's installed systems in response
to changes in the customer's service offerings, marketing strategies and network
technology.  During  1997,  the Company  established  direct  sales  offices for
Western and  Central  Europe,  Latin  America  and the Asia  Pacific  region and
created   several   strategic   marketing   alliances,   including  with  Lucent
Technologies, Cap Gemini and Coopers & Lybrand.

Saville has developed, and continuously refines, its sophisticated base software
applications,  which it customizes to meet the current and evolving requirements
of its customers.  During 1997,  the Company had two major platform  releases of
CBP.  The first was in July 1997 for CBP on the DB2/400  platform and the second
was the release of the Company's  UNIX-based product, CBP for Oracle in December
1997.

The Company's solutions are designed to operate in a multi-service  environment,
capable of billing local exchange,  long distance,  wireless (cellular,  paging,
satellite   and   Personal    Communications    Services   ("PCS"))   and   data
telecommunications  services. These systems are designed to support the discrete
service offerings of large telecommunications  service providers, or to serve as
and billing systems of emerging and medium-sized service providers. In addition,
during  1997 the Company  executed  its first  contract to provide a  convergent
billing system to a customer in the energy industry.

In February  1998,  the Company signed a letter of intent to purchase the assets
of BHA Computer Pty Ltd., an Australian telecommunications software company, for
approximately $20 million.  The transaction will be accomplished in part through
the payment of cash and in part  through the  issuance of Ordinary  Shares.  The
Company also purchased an interconnect  telecommunications software product from
Cap  Gemini  Sverige  A.B.,  a  Swedish  company  ("Cap  Gemini   Sverige")  for
approximately  $2.0 million in cash and a commitment of at least $2.0 million in
royalties to be paid over the next two years.

The Company was  incorporated in the Republic of Ireland in June 1993 as Saville
Systems Ireland  Limited,  a private limited  company.  On November 9, 1995, the
Company was  re-registered  as a public limited  company and changed its name to
Saville Systems PLC. Unless the context  otherwise  requires,  references to the
"Company"  or  "Saville"  are to  Saville  Systems  PLC  and  it's  consolidated
subsidiaries.  The  Company's  principal  executive  office  is  located  at IDA
Business Park, Dangan, Galway, Ireland, and its telephone number from the United
States is (011)  353-9-152-6611.  The address of the  Company's  North  American
headquarters is 1 Van de Graaff Drive,  Burlington,  MA 01803, and its telephone
number is (781) 270-6500.



INDUSTRY BACKGROUND

The Telecommunications Industry

The Telecommunciations Act of 1996 (the "Telecommunications  Act") has increased
competition in the U.S.  telecommunications  services  market by allowing local,
long distance and cable  companies to offer  competing  services,  provided they
meet specified  regulatory  benchmarks.  Many service providers are competing by
offering  multiple  services,  including  combinations of local  exchange,  long
distance, wireless (cellular, paging, satellite and PCS) and data communications
services,  to  customers  in  a  single  geographic  market.  New  service-based
technologies  have  substantially   increased  the  complexity  and  variety  of
telecommunications  services,  as  providers  seek to compete and  differentiate
themselves with enhanced telecommunications service offerings.

Internationally,   privatization  and   telecommunications   liberalization  are
resulting  in increased  international  competition  and the  emergence of newly
authorized  telecommunications service providers. When new markets are opened to
competition, local and emerging service providers within these markets typically
compete for market share with more established carriers,  initially by providing
access to service and then by providing  competitive  prices and introducing new
features and services. In addition,  technological advances and global expansion
by  multinational  service  providers  are  opening  markets  in less  developed
countries to enhanced telecommunications services and increased competition.

These trends have created the need for  sophisticated and flexible customer care
and billing solutions.  Telecommunications service providers can compete only if
they are able to efficiently  and accurately bill their customers for the varied
services and features they provide.


Telecommunications Customer Care and Billing

Telecommunications  customer  care  and  billing  involves  end to end  customer
management including customer acquisition, service initiation and collecting and
pricing customer  telecommunications  usage in order to generate residential and
business  telephone  invoices for local,  long  distance  and wireless  service.
Customer care and billing  systems  typically  interact with most aspects of the
telecommunications network and generally incorporate data collection, processing
and invoice generation.  The billing function continues to evolve from primarily
a service support  function to a revenue  enhancement tool used to differentiate
services.  Within the regulated local exchange market, customer care and billing
systems support  features made available by new switching  technologies  such as
caller ID, call waiting and voice mail. The rapid pace of  technological  change
coupled with the emphasis on time to market for new services and features places
a significant burden on the  telecommunications  service provider to install and
to modify its customer care and billing system quickly to adapt to technological
advances.  This has created  significant  demand for software that can perform a
variety of functions in a timely, accurate, cost-effective manner for a multiple
of services.

Established  telecommunications service providers have existing billing systems,
many of which are maintained in-house.  Frequently,  however, these systems were
designed prior to deregulation  to provide a  single-service  billing  function.
These older systems  generally are difficult to maintain and modify and often do
not meet the  multiple  and  evolving  needs of the  telecommunications  service
provider.  Many of these service  providers are therefore  seeking to replace or
augment their in-house  billing  systems  through  outsourced  customer care and
billing solutions.

Many emerging and  telecommunications  service  providers lack customer care and
billing  systems.  One  of the  primary  challenges  that  these  newer  service
providers face is to bring new services to market quickly.  They typically focus
their capital resources on developing networking and switching  technologies and
on  creating  marketable  services  rather than on  creating  customer  care and
billing  systems.  These  providers  typically  seek external  customer care and
billing  solutions  because  efficient,   flexible  customer  care  and  billing
solutions are often too costly and time consuming to develop internally.


THE SAVILLE SOLUTION

Saville  provides  advanced  customer care and billing  solutions that address a
spectrum of billing and customer care functions,  ranging from sales support and
order  processing,   through  actual  invoice   calculation  and  production  to
management  reporting and marketing  analysis.  The Company's  customer care and
billing systems are designed to enable  telecommunications  service providers to
meet their primary competitive objectives, including:

     Reducing costs of development, implementation, operation and enhancement of
          core systems
     Reducing time to market for new services and features  
     Improving marketing  and planning  through  better  customer  information
     Enhancing customer retention by providing accurate and useful information
          to customers

Saville has developed, and continuously refines, its sophisticated base software
applications,  which it combines and customizes to meet the current and evolving
requirements of its customers. The Company develops close, ongoing relationships
with its customers to identify customer needs, and then designs and implements a
customized  customer care and billing solution that can operate on a stand-alone
basis or interface with a provider's existing billing system.  Saville typically
continues to work  closely  with its  customers  after  initial  implementation,
particularly  as  customers  require  additional  customized  customer  care and
billing applications that enable them to offer new features and services, expand
into additional  geographic markets or operate with new network technologies and
protocols.  In addition,  the Company provides ongoing support,  maintenance and
training  related to the customer's  customer care and billing  system.  Saville
also offers its  customers the option of retaining the Company to operate all or
part of the customized customer care and billing system at a  Company-maintained
service bureau.

In  order  to meet  the  significant  technological  challenges  in  developing,
implementing,  and  supporting  telecommunications  customer  care  and  billing
software,  as of December  31,  1997,  893 of  Saville's  1,024  employees  were
involved  primarily  with these  activities.  The  experience  and  expertise of
Saville's  personnel  enable  Saville  to  provide  customer  care  and  billing
solutions for the varied requirements of the Company's global client base, which
includes local exchange,  long distance and wireless service providers,  as well
as providers of other specialty  applications,  such as data  communications and
audio- and videoconferencing  services. The Company has developed  relationships
with customers  ranging from small service providers to industry leaders such as
AT&T,  Sprint,  Ameritech and GTE. Based on its experience with these customers,
the Company believes that it is a leader in providing  customer care and billing
software systems for medium-sized  telecommunications  service providers as well
as to large  telecommunications  service  providers  that utilize the  Company's
software  and  services  to support  new  market  expansions  or as an  integral
component of a larger customer care and billing system.


STRATEGY

The Company's  objective is to be a market leader in providing customer care and
billing  solutions  to the  global  telecommunications  industry.  The  critical
elements of the Company's strategy include:

Develop  and  Maintain  Long-Term  Customer  Relationships.   Saville  seeks  to
establish and maintain long-term working relationships with its customers, which
enable the  Company to gain an ongoing  understanding  of  customer  needs.  The
implementation  of features that meet these needs makes the  Company's  customer
care and  billing  soltuion  a  critical  component  of the  customer's  service
offering.  This  customer-driven  focus is key to creating a loyal customer base
and  providing  product  direction.  Approximately  54% of the services  revenue
recognized  during the year ended December 31, 1997 was derived from services to
customers  existing  in the  previous  year  compared  to 69% in the year  ended
December 31, 1996.

Focus on  Growth-Oriented  Telecommunications  Service  Providers  and  Leverage
Existing  Multi-Market  Experience.  The Company's  marketing emphasis is on two
types of  telecommunications  service  providers.  First, the Company focuses on
existing  providers  who are either  replacing  their  older  customer  care and
billing  systems,  augmenting their existing systems to support new features and
services  or adding new  customer  care and  billing  systems to enable  them to
expand into new  geographic  markets.  Second,  the Company  focuses on emerging
providers  that  offer new types of  services  such as PCS or that are  entering
existing service markets newly opened to competition.  These emerging  providers
require  sophisticated and flexible customer care and billing solutions like the
Company's  that  can be  deployed  on a  timely  and  cost-effective  basis.  In
addition,  as  the   telecommunications   industry  continues  to  evolve,  with
individual  providers  offering more diverse  services,  these providers require
increasingly  flexible  customer care and billing systems.  The Company believes
that its experience in providing  customer care and billing services to multiple
markets within the telecommunications  industry,  including local exchange, long
distance and wireless, provides it with a significant competitive advantage. The
Company also believes  that this  experience  will allow it to offer  convergent
billing and customer care systems in the energy  industry,  having  executed its
first contract with an energy company in 1997.

Expand Direct Sales and Develop Strategic  Relationships.  The Company continues
to invest  significantly  in the  development  of a direct sales force and sales
support  organization to focus on new customer  opportunities  around the world.
During  1997,  the  Company  established  direct  sales  offices for Western and
Central Europe,  Latin America and the Asia Pacific  region. The Company is also
seeking to create additional strategic distribution and marketing alliances as a
means of expanding new business  opportunities and entering new markets.  During
1997, the Company entered into several strategic marketing alliances with Lucent
Technologies, Cap Gemini and Coopers & Lybrand.

Support Leading Hardware  Platforms.  Saville intends to continue to develop and
support  software for the IBM AS/400 platform and also hardware  platforms using
vendor  variants of this operating  system which are widely used  throughout the
telecommunications  industry and which the Company  believes will continue to be
leading  platforms for  telecommunications  billing  systems.  During 1997,  the
Company had two major  platform  releases of CBP. The first was in July 1997 for
CBP on the  DB2/400  platform  and the second was the  release of the  Company's
UNIX-based product, CBP for Oracle, in December 1997.

Develop or Acquire Complementary Customer Applications.  The Company's long-term
strategy  includes the  expansion of its product  offerings to include  software
applications  complementary to the customer care and billing system. The Company
intends to use internal  research and development and strategic  acquisitions of
complementary  technologies and skill sets to meet these goals. For example, the
Company  continues  to modify its  software  to expand  the  number of  features
available in its products. The Company expects that this effort will continue to
reduce the amount of customization  required to meet specific customer needs and
enable  customers to initiate  services more rapidly.  In addition,  in February
1998,  the  Company  signed a letter  of intent to  purchase  the  assets of BHA
Computer Pty Ltd., an Australian company that develops and markets customer care
and  billing  systems.   Also  in  February  1998,  the  Company   purchased  an
interconnect telecommunications software product from Cap Gemini Sverige. To the
extent the Company  successfully  expands its suite of  software  products,  the
Company  believes that it can take advantage of its established  position in the
customer  care and billing  systems  market and leverage  its existing  customer
accounts and distribution channels to promote the sale of new product offerings.


PRODUCTS AND SERVICES

The Company's  primary  business is the development and subsequent  delivery and
support  or  operation  of  customer  care  and  billing  solutions  to meet its
customers'  specific  needs.  Due to the  flexibility  inherent in the Company's
software and the expertise of its software development personnel, the Company is
able to develop  solutions that allow service  providers to offer a wide variety
of  services as well as collect,  process  and bill for  multiple  services on a
single invoice.

The Company's customer relationships typically begin with the Company providing,
primarily  on  a  time  and  materials   basis,   system  analysis  and  design,
customization and installation services.  After the system is in operation,  the
Company  continues  the  relationship  by providing  upgrading,  ongoing  system
management and system enhancement to accommodate new telecommunications services
and  technologies.  The customer can choose  either to operate the customer care
and billing system  directly,  resulting in a license fee to the Company,  or to
retain the  Company  to  perform  all or a  substantial  part of the  customer's
customer care and billing  operations in a  Company-maintained  service  bureau,
resulting in ongoing  processing fees. The customer can also choose a facilities
management  option,  whereby Saville manages the operations of the customer care
and billing solution on customer-owned hardware, on Company premises.


Software Products
In order to satisfy the evolving challenges of the converging telecommunications
market,  Saville has refined its CBP solution into six  integrated  modules that
offer integrated sales & marketing, customer care, service delivery, billing and
receivables  management.  The integrated  modules support the key customer asset
management  process from end to end. The Company's  software  makes use of table
and  parameter  driven  software,  which allow many key  functions to be changed
without reprogramming the software code. In February 1998, the Company purchased
an interconnect telecommunications software product from Cap Gemini Sverige. The
interconnect  product  allows  telecommunications  service  providers to perform
carrier-to-carrier billing and verification.


Services
Saville provides development and enhancement services to its customers primarily
on a time and materials  basis.  The Company  typically  begins its relationship
with a customer by assisting the customer to develop a business case  definition
and needs  analysis and then  working  with the customer to design,  develop and
implement  customizations  to the core software to meet those specific  customer
needs. The Company  continues its relationship with the customer through ongoing
development, maintenance, training, systems analysis and further enhancements of
installed systems to accommodate new products and technologies.


Service Bureaus
Customers may elect to contract with the Company to operate their  customer care
and  billing  solution  in a  Company-maintained  service  bureau.  In a typical
service bureau  arrangement,  the Company develops the customer's  customer care
and billing  solution and  installs it in one of the  Company's  technical  data
centers.  The customer then transmits its customer usage data to the Company, or
the Company  obtains the information  directly from the switch.  In either case,
the Company  processes  and rates the  information  using the customer  care and
billing  system  developed  for the customer and then either (i)  transmits  the
processed  and rated  information  to a third party or the customer for printing
and mailing or, less frequently, (ii) prints and mails the invoice.

Customers  are charged a negotiated  fee for  utilizing  the  Company's  service
bureaus.  This fee is typically comprised of a charge per invoice produced and a
charge per call based on the amount  and type of  information  contained  in the
bill's call detail record.

Customer Support
The Company  has  technical  support  facilities  in Canada and the  Republic of
Ireland.  The Company is expanding its customer service and support capabilities
to provide  technical  support to its customers on a 24-hour per day,  7-day per
week basis. The Company believes that it is essential to provide a high level of
reliable service to customers in order to solidify customer relationships and to
be the vendor of choice when new services or system expansions are sought by its
customers.


CUSTOMERS

The Company provides its software and services to a range of  telecommunications
service  providers,  including those  providing  local exchange,  long distance,
wireless,  and audio- and  video-conferencing  services.  The Company's  typical
customers are  medium-sized  telecommunications  service  providers that require
complete  customer  care and billing  systems and large service  providers  that
require the Company's  software and services to support new market expansions or
as integral components of larger customer care and billing systems. In 1997, the
Company entered into its first agreement with a customer in the energy industry.

During 1997, AT&T and GTE  Communications  represented  approximately  22.7% and
13.3%,  respectively,  of the Company's total revenues.  This  concentration  of
customers  can cause the  Company's  revenues  and  earnings to  fluctuate  from
quarter to quarter,  based on these  customers'  requirements  and the timing of
their orders.  Although the Company believes it has good  relationships with its
largest  customers  and has in the past  received a  substantial  portion of its
revenues from repeat business with established customers,  none of the Company's
major customers has a significant  obligation to purchase additional products or
services.  Therefore,  there can be no assurance that any of the Company's major
customers  will  continue to purchase  new  systems,  systems  enhancements  and
services  in amounts  similar to  previous  years.  A  significant  decrease  in
business from any of its major customers could have a material adverse effect on
the Company's results of operations and financial condition.  Additionally,  the
acquisition  by a third  party of one of the  Company's  major  customers  could
result in the loss of that  customer and have a material  adverse  effect on the
Company's results of operations and financial condition.

COMPETITION

The market for  telecommunications  customer care and billing  systems is highly
competitive,  and the Company expects this competition to increase.  The Company
competes with both  independent  providers of customer care and billing  systems
and services and with the internal  billing  departments  of  telecommunications
service  providers.  The  Company  expects  that  the  continued  growth  of the
telecommunications   industry  will  encourage  new  competitors  to  enter  the
telecommunications customer care and billing market in the future.

The  Company  believes  that the  principal  competitive  factors  in its market
include responsiveness to client needs, timeliness of implementation, quality of
service,  price,  project  management  capability and technical  expertise.  The
Company also believes that its ability to compete depends in part on a number of
competitive factors outside its control,  including the development by others of
software that is competitive with the Company's services and products, the price
at which  competitors  offer  comparable  services and  products,  the extent of
competitors'  responsiveness  to customer needs and the ability of the Company's
competitors to hire, retain and motivate key personnel.

In  addition,  the  Company  competes  with a  number  of  companies  that  have
substantially  greater  financial,   technical,   sales,   marketing  and  other
resources,  as well as greater name recognition  than the Company.  As a result,
the Company's  competitors  may be able to adapt more quickly to new or emerging
technologies  and  changes  in  customer  requirements,  or  to  devote  greater
resources to the promotion and sale of their products than can the Company.


PROPRIETARY RIGHTS AND LICENSES

The Company does not currently hold any patents and relies upon a combination of
statutory and common law copyright, trademark and trade secret laws to establish
and maintain its proprietary rights to its products.  The Company believes that,
because of the rapid pace of technological change in the  telecommunication  and
software industries, the legal protections for its products are less significant
factors in the Company's  success than the knowledge,  ability and experience of
the  Company's  employees,   the  frequency  of  product  enhancements  and  the
timeliness and quality of support services provided by the Company.

The Company generally enters into invention and  non-disclosure  agreements with
its employees,  consultants, clients and potential clients and limits access to,
and distribution of, its proprietary information.  Use of the Company's software
products is usually  restricted  to specified  locations and is subject to terms
and conditions prohibiting unauthorized reproduction or transfer of the software
products. The Company also seeks to protect the source code of its software as a
trade secret and as a copyrighted work.


RESEARCH AND DEVELOPMENT

Prior to 1994,  Company  software was developed for customer  applications,  and
related expenses were included as part of cost of services in those periods.  In
1994, the Company commenced  internally funded research and development efforts.
Research and  development  expenses  were $1.6  million,  $4.2 million and $10.1
million in 1995, 1996 and 1997,  respectively.  During 1997, the Company had two
major  platform  releases  of CBP.  The  first  was in July  1997 for CBP on the
DB2/400  platform  and the second was the  release of the  Company's  UNIX based
product,  CBP for Oracle TM in December 1997. The Company intends to continue to
increase its investment in research and development efforts in the future.

The Company is currently  reviewing  its products and  operations to ensure that
they will not be adversely  affected by year 2000 software  failures,  which can
arise in time-sensitive software applications that utilize a field of two digits
to define the applicable  year.  The Company's  released  software  products are
currently  year 2000 ready,  and  therefore the Company does not believe that it
will need to undertake material research and development efforts in this regard.

EMPLOYEES

As of  December  31,  1997,  the  Company  employed  a total of 1,024  employees
including  24  involved in sales and  marketing  and  related  services,  893 in
consulting,  implementation  and client support  services and 107 in management,
finance, human resources and administration.  None of the Company's employees is
represented by a labor union.  The Company has experienced no work stoppages and
believes that its employee relations are good.


EXECUTIVE OFFICERS OF THE COMPANY

The  following  table sets forth the names,  ages and  positions  of the current
executive officers of the Company.

<TABLE>

         Name                        Age     Position
         <S>                         <C>     <C>    

         Bruce A. Saville            53      Chairman of the Board of Directors
         John J. Boyle, III          51      President, Chief Executive Officer
                                               and Director
         Marc J. Venator             41      Chief Operating Officer
         John J. Kiley               42      Senior Vice President, Global
                                               Sales and Marketing
         Michael A. Shulist          42      Senior Vice President, Global
                                               Consulting Services
         Christopher A. Hanson       39      Chief Financial Officer
         Andrew Campbell             36      Senior Vice President Global
                                               Products
</TABLE>

Mr.Saville  founded the Company in 1982 and served as the Company's  President
and Chief Executive  Officer until becoming the Company's  Chairman of the Board
of Directors in August 1994.  Mr.Saville  will resign as the Company's  Chairman
effective April 1, 1998.

Mr. Boyle has served as the  Company's  President  and Chief  Executive  Officer
since August 1994 and will also serve as the Company's  Chairman of the Board of
Directors  commencing  April 1, 1998. From 1981 to August 1994, Mr. Boyle served
in  various  management  positions  with CSC  Intelicom,  a global  supplier  of
information  technology,   most  recently  as  Senior  Vice  President  of  Work
Process/Network Practice.

Mr. Venator served as Saville's  Chief  Financial  Officer from April 1995 until
becoming Chief  Operating  Officer in March 1997. From March 1992 to April 1995,
Mr. Venator was Corporate  Controller for Systems Software  Associates,  Inc., a
provider of applications software to industrial businesses worldwide.

Mr. Kiley has served as Senior Vice President, Global Sales and Marketing of the
Company  since  October  1995.  From January 1994 to September  1995,  Mr. Kiley
served as President and Chief Operating Officer of Performance Software, Inc., a
provider of commercial UNIX server based automated software testing products and
services.  From  November  1992 to  November  1993,  Mr.  Kiley  served  as Vice
President,  Consulting  of Oracle  Corp.,  a provider  of  systems  integration,
application development and consulting services.

Mr. Shulist has served as Senior Vice President,  Global Consulting  Services of
the Company since March 1995.  From June 1991 to March 1995,  Mr. Shulist served
in various  positions  with AT&T Canada Long  Distance  Services  Corp.,  a long
distance  provider in Canada,  most  recently as Vice  President of Customer and
Network Maintenance.

Mr.  Hanson has served as Saville's  Chief  Financial  Officer since March 1997.
From November  1991 to March 1997,  Mr. Hanson was in charge of tax and treasury
operations at System  Software  Associates,  Inc.  most recently  serving as its
Treasurer. 

Mr.  Campbell has served as Senior Vice President of Research and Development of
the Company  since  January  1997.  From  February  1990 to December  1996,  Mr.
Campbell  served in various  positions  with BHA Computer,  an  Australian-based
developer of customer  care and billing  software,  most recently as the General
Manager for the company's projects division.

Executive  officers of the Company are elected by and serve at the discretion of
the  Board of  Directors.  There are no  family  relationships  among any of the
executive officers or directors of the Company.



ITEM 2.           PROPERTIES

The  Company  leases  space at its office  locations:  The Galway  office is the
Company's corporate  headquarters and is used for sales and marketing,  software
development and customer  support.  The Burlington  office is the North American
headquarters   and  is  primarily  used  for  sales  and  marketing,   corporate
development and finance.  The Edmonton and Toronto  locations are primarily used
for software  development,  customer support and service bureau operations.  The
Company  and its  subsidiaries  also lease  additional  sales  offices in Miami,
Florida, Bracknell, UK, Wiesbaden, Germany and Singapore, Singapore.

The Company  believes that its facilities are adequate for its current needs and
that suitable additional space will be available as required.



<PAGE>




The following  shows  information  concerning the Company's  significant  leased
facilities:
<TABLE>

Location                      Square Footage             Lease Expiration
<S>                           <C>                        <C>    
Galway, Ireland                    4,000                    April 1, 2014
Galway, Ireland                   21,966                    April 1, 2017
Burlington, Massachusetts         12,417                    July 31, 2002
Edmonton, Alberta                 80,115                    June 30, 2001
Edmonton, Alberta                 34,374                December 31, 2002
Toronto, Ontario                  32,874                 January 31, 2005
Toronto, Ontario                  51,802                    June 30, 2005
Toronto, Ontario                  14,400                    June 30, 2006
</TABLE>

ITEM 3.           LEGAL PROCEEDINGS

The Company is not party to any material legal proceedings.



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The  Company  held an  Extraordinary  General  Meeting  of  Shareholders  ( "the
Meeting") on October 23, 1997. At the Meeting,  the following actions were taken
(the number of shares has been retroactively  adjusted for the two-for-one share
dividend in November, 1997):

         1.  By a vote of 32,207,648  shares for,  4,746,924  shares against and
             311,350  shares  abstaining,  the  shareholders  passed  a  special
             resolution to, among other things:

                  (a) authorize an increase in the Company's  authorized share 
                      capital by US $87,500 divided into 35,000,000  Ordinary
                      Shares of US$0.0025 each;

                  (b) authorize an amendment to the Articles of  Association  of
                      the Company to  document  the  increase  in share  capital
                      described above; and

                  (c) authorize the Directors of the Company to exercise all the
                      powers  of the  Company  to allot,  free of  shareholders'
                      preemptive  rights,  securities  of an  aggregate  nominal
                      amount of US  $140,900.36  during the period  expiring  on
                      October 22, 2002.

         2.  By a vote of  36,913,054  shares  for,  38,538  shares  against and
             314,330  shares  abstaining,  the  shareholders  passed  a  special
             resolution  to, among other  things,  authorize an amendment to the
             Articles of  Association  of the Company to authorize the Directors
             of  the  Company,   without  shareholder  approval,  to  capitalize
             reserves of the Company for the purpose of issuing paid up Ordinary
             Shares of the Company to the holders of the  Company's  outstanding
             Ordinary  Shares as the  Directors  of the Company  determine to be
             appropriate.

         3.  By a vote of 25,340,004  shares for  11,614,368  shares against and
             311,550 shares abstaining, the shareholders authorized an amendment
             to the Company's 1995 Share Option Plan  increasing  from 5,780,000
             to  10,000,000  the number of  Ordinary  Shares,  nominal  value US
             $0.0025 per share, reserved for issuance under the Plan.



<PAGE>




                                     PART II


 ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  SHAREHOLDER MATTERS


MARKET INFORMATION AND HOLDERS

American  Depositary  Shares  ("ADSs")  representing  the Ordinary Shares of the
Company have been traded on the Nasdaq  National Market under the symbol "SAVLY"
since November 16, 1995.  Each ADS represents one Ordinary Share of the Company.
Prior to November 16, 1995,  neither the ADSs nor the Company's  Ordinary Shares
were publicly  traded.  Neither the ADSs nor the Ordinary  Shares of the Company
are traded on any market,  foreign or domestic,  other than the Nasdaq  National
Market. The following table sets forth, for the periods indicated,  the high and
low  sales  prices  of the  ADSs as  reported  on the  Nasdaq  National  Market,
retroactively adjusted for a two-for-one stock split in the form of a 100% share
dividend in November 1997.

<TABLE>

                                                             1997
                                                      High           Low
<S>                                                   <C>            <C> 

First Quarter                                         $21.73        $14.06

Second Quarter                                         26.25         13.56

Third Quarter                                          37.88         25.63

Fourth Quarter                                         41.50         28.00

</TABLE>
<TABLE>

                                                             1996
                                                      High           Low
<S>                                                   <C>            <C> 
First Quarter                                         $ 9.50        $ 6.93

Second Quarter                                         17.37          9.31

Third Quarter                                          18.50          9.00

Fourth Quarter                                         23.93         16.50

</TABLE>


The depositary for the American  Depositary  Receipts ("ADRs")  representing the
ADSs is the Bank of New York (the  "Depositary"),  48 Wall Street, New York, New
York 10286. On March 2, 1998, the Company had  approximately 15 holders of
Ordinary Shares of record. The Bank of New York, as Depositary, is the holder of
record of the Ordinary  Shares  evidenced by ADSs. On March 2, 1998, the closing
price of the Company's ADSs on the Nasdaq National Market was $45.50.

DIVIDENDS

On September  25, 1995,  the Company paid a cash dividend of $3.0 million on its
Ordinary  Shares,  which it determined to pay primarily due to the incurrence of
certain  tax  liabilities  by its  majority  shareholders  as a result  of their
ownership interests in the Company and the Company's classification at that time
as a "Controlled  Foreign  Corporation."  Except for such  payment,  Saville has
never  declared or paid any cash dividends on its Ordinary  Shares.  The Company
currently intends to retain all future earnings to finance future operations and
therefore  does not  anticipate  paying any cash  dividends  in the  foreseeable
future. Moreover, under the Companies Acts of the Republic of Ireland, dividends
may  only be paid  out of the  profits  of the  Company  legally  available  for
distribution.

TAXATION

The statements of United  States,  Irish and Canadian tax laws set out below are
based on the laws,  regulations,  administrative  rulings and  practices  of the
United States Internal Revenue Service (the "IRS"), the Revenue Commissioners of
Ireland and Revenue Canada in force and as interpreted by the relevant  taxation
authorities  as of  December  31,  1997 and are subject to any changes in United
States, Irish or Canadian law, or in the interpretation  thereof by the relevant
taxation authorities, or in the double taxation conventions between the Republic
of Ireland  and the United  States (the  "Conventions")  (the  Conventions  were
ratified  in 1997 and 1951) and  between  the  Republic  of Ireland  and Canada,
occurring after such date.

The  following  is a general  summary of certain  Republic of Ireland and United
States  federal  income  tax   consequences  of  the  purchase,   ownership  and
disposition  of ADSs  evidenced  by ADRs to U.S.  Holders.  For purposes of this
discussion,  a "U.S.  Holder"  means an  individual  citizen or  resident of the
United States for United States  federal income tax purposes,  corporations,  or
partnerships  created or  organized  under the laws of the United  States or any
state  thereof or the  District  of  Columbia,  or  estates or trusts  which are
residents in the United States for United States federal income tax purposes, in
each  case who (i) is not also  resident  of, or  ordinarily  resident  in,  the
Republic  of Ireland  for Irish tax  purposes,  (ii) is not  engaged in trade or
business in the Republic of Ireland through a permanent  establishment and (iii)
does not own, directly,  indirectly or by attribution, 10% or more of the shares
of the Company (by vote or value).  This summary is of a general nature only and
does not  discuss all aspects of United  States and Irish  taxation  that may be
relevant to a  particular  investor.  The  summary  deals only with ADRs held as
capital  assets and does not  address  special  classes of  purchasers,  such as
dealers in securities,  U.S. Holders whose functional currency is not the United
States dollar and certain U.S. Holders (including, but not limited to, insurance
companies, tax-exempt organizations,  financial institutions and persons subject
to the  alternative  minimum  tax)  who may be  subject  to  special  rules  not
discussed  below.  In  particular  the  following  summary  does not address the
adverse tax treatment of U.S. Holders who own, directly, or by attribution,  10%
or more of the Company's  outstanding voting stock in the event that the Company
were to be classified as a "Controlled  Foreign  Corporation"  for United States
federal  income tax  purposes.  Although  the  Company was not  classified  as a
Controlled  Foreign  Corporation at December 31, 1997, there can be no assurance
that it will not be a Controlled Foreign Corporation in the future.

OWNERS OF ADSs ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, AS WELL AS WITH RESPECT
TO THE TAX CONSEQUENCES IN THE REPUBLIC OF IRELAND AND OTHER  JURISDICTIONS,  OF
THE OWNERSHIP OF ADSs AND THE ORDINARY SHARES REPRESENTED  THEREBY APPLICABLE IN
THEIR PARTICULAR TAX SITUATIONS.

For  purposes of the  Conventions  and the  Internal  Revenue  Code of 1986,  as
amended (the "Code"), U.S. Holders will be treated as the owners of the Ordinary
Shares represented by ADSs evidenced by ADRs.

TAXATION OF THE COMPANY

Republic of Ireland Taxation. For Irish tax purposes, the residence of a company
is in the jurisdiction  where the central  management and control of the company
is located.  Companies which are resident in the Republic of Ireland are subject
to  Irish  corporation  tax  on  their  total  profits  (wherever  arising  and,
generally,  whether or not remitted to the Republic of Ireland). The question of
residence  is  essentially  one of  fact.  It is the  present  intention  of the
Company's  management  to manage and control the  Company  from the  Republic of
Ireland,  so that the Company will be resident in the  Republic of Ireland.  The
standard rate of Irish  corporation tax on both trading and  non-trading  income
during 1997 was 36.5%. In 1980 the Irish government  enacted  legislation,  with
the approval of the European Union, enabling companies to pay a reduced 10% rate
of tax on profits from the  manufacture  of goods in the Republic of Ireland and
certain  other  activities  deemed  to be  the  manufacture  of  goods.  Current
legislation provides that the reduced rate will be available until 2010. Certain
activities of the Company in the Republic of Ireland  currently  qualify for the
10% rate.  To qualify for the 10% tax rate,  the Company  must  satisfy  certain
conditions,  including  rendering  computer services in the Republic of Ireland.
The Irish  Minister  of Finance  announced  in  December  1997 that the  present
trading  income  Irish tax rate will be reduced to 32% as of January 1, 1998 and
will be reduced  gradually to a tax rate of 12.5% on trading income for taxation
years ending after 2005. Under the announced plan, the tax rate on manufacturing
income would  remain at 10% until the tax relief  program is due to terminate in
2010, at which time the tax rate would  increase to be equal to the standard tax
rate of 12.5%.  Although the Company believes that it currently  satisfies these
conditions,  there can be no assurance  that the Company will continue to do so.
If the Company could no longer  qualify for this 10% tax rate or if the tax laws
were  rescinded  or  changed,  the  Company's  net  income  could be  materially
adversely affected.


United States  Taxation.  Under the Convention  relating to income taxation (the
"Income Tax  Convention"),  the Company will  generally not be subject to United
States federal income tax unless it engages in a trade or business in the United
States through a permanent establishment.  The Company currently operates in the
United States through Saville Systems,  Inc.  ("Saville U.S."),  its subsidiary.
The Company intends to conduct its business activities in a manner that will not
result in its being considered to be engaged in a trade or business or to have a
permanent  establishment  in the United  States,  even though  Saville U.S. is a
United  States  taxpayer.  Dividends  paid by Saville  U.S. to the Company  will
generally be subject to United States  withholding  tax at the rate of 5%, which
tax should generally be creditable by the Company against Irish corporation tax.
Saville  U.S. is  currently  subject to United  States  federal and state income
taxation at a rate of approximately 41%.

Canadian  Taxation.  The Company  carries on business in Canada through  Saville
Systems  Canada,Ltd.  ("Saville  Canada"),  its  subsidiary.  Saville  Canada is
currently  subject to  Canadian  federal  and  provincial  taxation at a rate of
approximately  45%.  Entities  other than Saville Canada are subject to Canadian
taxation only with respect to income  derived by them from Canada in the form of
royalties,  license fees,  interest,  dividends and similar  payments,  from the
disposition  of "taxable  Canadian  property"  (as defined in the Income Tax Act
(Canada))   or  from   business   activities   carried  on   through   permanent
establishments in Canada as determined under tax treaties entered into by Canada
with the Republic of Ireland and the United  States.  Dividends  paid by Saville
Canada to the Company will generally be subject to Canadian withholding tax at a
rate of 15%, which tax should generally be creditable  against Irish corporation
tax.

TAXATION OF DIVIDENDS

Republic of Ireland Taxation.  The Company does not expect to pay cash dividends
for the  foreseeable  future.  Persons who are neither  resident nor  ordinarily
resident in the Republic of Ireland do not have an Irish income tax liability on
dividends  received from Irish resident  companies.  Although a net Irish income
tax is imposed,  the income tax  liability of each such person is  restricted to
the amount of the Tax Credit attaching to the dividend and, as the Tax Credit is
allowed  against the  restricted  liability,  the Irish income tax  liability is
fully offset by the Tax Credit.  There is no Irish  withholding tax on dividends
paid by an Irish resident company.

United States Taxation. For United States federal income tax purposes, the gross
amount  (i.e.,  including the amount of Tax Credit) of any dividend paid (to the
extent of the current or  accumulated  earnings and profits of the Company) will
be included in gross income and treated as foreign source dividend income in the
year the shareholder becomes entitled to such dividend. The dividend will not be
eligible  for  the   dividends-received   deduction  allowed  to  United  States
corporations.  The amount  includable in income will be the United States dollar
value of the payment on the date of payment regardless of whether the payment is
in fact converted into United States dollars.  Generally,  gain or loss (if any)
resulting  from  currency  fluctuations  during  the  period  from  the date any
dividend  is paid to the date such  payment  is  converted  into  United  States
dollars will be treated as ordinary  income or loss. The IRS has ruled privately
that a U.S. Holder will be eligible for a United States foreign tax credit under
Article  XIII of the  Income  Tax  Convention  for the  Irish tax  imposed  on a
dividend  paid by an Irish  company.  The amount of the  allowable  foreign  tax
credit  will not  exceed the  amount of the Irish Tax  Credit  described  above.
Although private letter rulings are not binding  authority and are directed only
to the taxpayer who requests them, they are considered persuasive in determining
the  position of the IRS.  If the U.S.  Holder is a United  States  partnership,
trust or estate,  the foreign tax credit  will be  available  only to the extent
that the  income  derived  by such  partnership,  trust or estate is  subject to
United  States  tax as the  income of a  resident  either in its hands or in the
hands of its partners or beneficiaries, as the case may be.

TAXATION OF CAPITAL GAINS

A U.S.  Holder is not subject to Irish capital gains tax on the disposal of ADSs
quoted on the Nasdaq  National  Market.  It is the  intention  of the  Company's
management to continue the Company's quotation on the Nasdaq National Market.

Subject to the discussion below under the heading  "Passive  Foreign  Investment
Company  Considerations," a U.S. Holder will be liable for United States federal
income tax on such gains to the same  extent as on any other gains from sales or
dispositions of shares. A U.S. Holder that is liable for both Irish and U.S. tax
on a gain on the disposal of the ADSs will  generally  be  entitled,  subject to
certain  limitations  and pursuant to the Income Tax  Convention,  to credit the
amount of Irish  capital gains or  corporation  tax, as the case may be, paid in
respect of such gain against such U.S. Holder's United States federal income tax
liability.  Such gain is,  however,  likely to be  considered to be from sources
within the United States,  which may effectively limit the amount of foreign tax
credit allowed to the U.S. Holder.

PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS

The Company will be classified as a passive foreign investment company
("PFIC") for United States federal income tax purposes if either (i) 75% or
more of its gross income is passive income or (ii) on average for the
taxable year, 50% or more of its assets by value produce or are held for
the production of passive income. Based on an analysis of its income and
assets during 1997, the Company believes that it is not a PFIC. While there
can be no assurance, the Company expects, based on projections of its
income and assets and the manner in which the Company intends to manage its
business, that it will not be a PFIC. The Company will continue to monitor
its status and will, promptly following the end of each taxable year,
notify shareholders if it believes that it is properly classified as a PFIC
for that taxable year.

U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING

Generally,  the amount of dividends  paid to U.S.  Holders of ADSs, the name and
address  of the  recipient  and the  amount,  if any,  of tax  withheld  must be
reported  annually  to the IRS.  A similar  report  is sent to the U.S.  Holder.
Backup withholding tax at the rate of 31% will apply to certain payments made to
U.S.  Holders  who fail to furnish  certain  identifying  information  under the
United States information  reporting rules.  Amounts withheld from payments will
be allowed as a credit against such U.S.  Holders'  United States federal income
tax liability.

IRISH CAPITAL ACQUISITIONS TAX

Irish capital  acquisitions  tax ("CAT") applies to gifts and  inheritances  (i)
where the person making the gift or  inheritance is domiciled in the Republic of
Ireland at the date of the gift or  inheritance  or (ii) to the extent  that the
property of which the gift or  inheritance  consists is situated in the Republic
of  Ireland  at the date of the gift or  inheritance.  The person by whom CAT is
primarily  payable is the person who receives the gift or  inheritance.  Persons
who are secondarily liable include the donor, an agent, personal representative,
trustee or other  person in whose  care the  property  constituting  the gift or
inheritance  or  the  income   therefrom  is  placed.   All  taxable  gifts  and
inheritances  received by an individual  since June 2, 1982 are  aggregated  and
only the  excess  over a  certain  tax-free  threshold  is taxed.  The  tax-free
threshold  is  dependent  on the  relationship  between the  deceased/donor  and
successor/donee and the aggregation of all previous gifts and inheritances.  The
tax-free threshold amounts currently range from IR(pound) 12,560  (approximately
$17,860 at December  31, 1997) in the case of persons who are not related to one
another to IR(pound) 25,120 (approximately  $35,721 at December 31, 1997) in the
case of gifts and inheritances received from a brother, sister or from a brother
or sister of a parent or from a grandparent to IR(pound) 188,400  (approximately
$267,905 at December  31, 1997) in the case of gifts and  inheritances  received
from a parent.  Gifts and  inheritances  passing between spouses are exempt from
CAT. CAT is charged at  progressive  rates ranging in the case of gifts from 15%
to 30% and in the case of  inheritances  from 20% to 40%.  Although  ADSs may be
held by persons  who are  neither  domiciled  nor  resident  in the  Republic of
Ireland,  the  underlying  Ordinary  Shares  are  deemed to be  situated  in the
Republic of Ireland  because the  Company is required to maintain  its  Ordinary
Share register in the Republic of Ireland.  Accordingly,  ADSs may be subject to
CAT  notwithstanding  the fact that the holder may be domiciled  and/or resident
outside of the Republic of Ireland. The Convention between the United States and
the Republic of Ireland relating to estate taxes generally provides for CAT paid
on inheritances in the Republic of Ireland to be credited against tax payable in
the United States and for tax paid in the United  States to be credited  against
tax payable in the Republic of Ireland, based on priority rules set forth in the
Convention,  in a case where an ADS is subject to both Irish CAT with respect to
inheritance and U.S. federal estate tax. The Convention does not apply to gifts.
In addition to gift and  inheritance  taxes,  a probate tax of 2% applies to the
value of all assets  passing  under the will or intestacy of an  Irish-domiciled
person  other than to the spouse of the  deceased.  Where the  deceased  was not
domiciled in the Republic of Ireland, only assets situated in Ireland are liable
for this tax.

UNITED STATES GIFT AND ESTATE TAX

An individual U.S. Holder will be subject to United States gift and estate taxes
with  respect  to the ADRs in the same  manner  and to the same  extent  as with
respect to other types of personal property.

IRISH STAMP DUTY

Irish stamp duty, which is tax on certain documents, is payable on all transfers
of Ordinary Shares in companies incorporated in the Republic of Ireland wherever
the  instrument of transfer may be executed.  In the case of a sale,  stamp duty
will be charged at the rate of  IR(pound)1.00  for every  IR(pound)100  (or part
thereof) of the amount of value of the  consideration  (i.e.,  purchase  price).
Where the consideration for the sale is expressed in a currency other than Irish
pounds, the duty will be charged on the Irish pound equivalent calculated at the
rate of  exchange  prevailing  on the  date of the  transfer.  In the  case of a
transfer by way of gift (subject to certain  exceptions) or for a  consideration
less than the market value of the shares transferred, stamp duty will be charged
at the  above  rate on such  market  value.  A  transfer  to the  Depositary  or
custodian of Ordinary  Shares for deposit under the Deposit  Agreement in return
for ADRs will be  similarly  chargeable  with stamp  duty as will a transfer  of
Ordinary  Shares from the  Depositary or the custodian  upon surrender of an ADR
for  the  purpose  of  the  withdrawal  of the  underlying  Ordinary  Shares  in
accordance with the terms of the Deposit Agreement,  unless, in either case, the
transfer does not relate to a sale or  contemplated  sale or any other change in
the  beneficial  ownership of such Ordinary  Shares,  in which case the transfer
will be chargeable with nominal duty of IR(pound)10.

Transfers  of ADRs are  exempt  from  Irish  stamp  duty as long as the ADSs are
quoted on the Nasdaq  National  Market or any  recognized  stock exchange in the
United States.

The person  accountable  for payment of stamp duty is the  transferee or, in the
case of a transfer  by way of gift or for a  consideration  less than the market
value,  both parties to the transfer.  Stamp duty is normally  payable within 30
days after the date of execution of the transfer.  Late or inadequate payment of
stamp duty will result in liability to interest, penalties and fines.

IRISH EXCHANGE CONTROL REGULATIONS

Irish exchange control  regulations  ceased to apply from and after December 31,
1992.  Except as indicated below,  there are no restrictions on non-residents of
the Republic of Ireland dealing in domestic securities, which includes shares or
depositary  receipts of Irish  companies such as the Company,  and dividends and
redemption  proceeds are freely  transferable  to  non-resident  holders of such
securities.

The Financial Transfers Act, 1992 gives power to the Minister for Finance of the
Republic of Ireland to make provision for the restriction of financial transfers
between the Republic of Ireland and other  countries.  Financial  transfers  are
broadly  defined and include all transfers,  which would be movements of capital
or  payments  within  the  meaning  of  the  treaties   governing  the  European
Communities.  The  acquisition  or  disposal  of  American  Depositary  Receipts
representing  shares  issued by an Irish  incorporated  company  and  associated
payments may fall within this definition. In addition, dividend,  redemption and
liquidation payments in respect of shares in an Irish incorporated company would
fall within this  definition.  Currently,  orders  under this Act  prohibit  any
financial  transfer to or by the order of or on behalf of  residents  of Iraq or
Libya,  unless permission for the transfer has been given by the Central Bank of
Ireland.

The Company does not anticipate  that orders under the Financial  Transfers Act,
1992 will have a material effect on its business.

ITEM 6.           SELECTED FINANCIAL DATA

The information required by this Item is attached as Appendix A.

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is attached as Appendix B.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is attached as Appendix C.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements on accounting and financial disclosure matters.


                                    PART III

ITEMS 10-13.

The  information  required  for Part III in this  Annual  Report on Form 10-K is
incorporated by reference from the Company's  definitive proxy statement for the
Company's  1998 Annual  General  Meeting of  Shareholders.  Such  information is
contained in the sections of such proxy statement  captioned "Share Ownership of
Certain  Beneficial Owners and Management,"  "Election of Directors," "Board and
Committee  Meetings,"  "Determination  of Ordinary  Remuneration  of Directors,"
"Executive  Compensation"  and  "Compliance  with Section  16(a) of the Exchange
Act." Information  regarding executive officers of the Company is also furnished
in Part I of this  Annual  Report on Form  10-K  under  the  heading  "Executive
Officers of the Registrant."


<PAGE>




                                     PART IV

 ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                  REPORTS ON FORM 8-K

 (a) The following  documents are  incorporated by reference or included as part
of this Annual Report on Form 10-K.


1.       The following financial statements (and related notes) of the Company 
         filed as Appendix C hereto


                  Report of Independent Auditors on Financial
                  Statements.

                  Consolidated Balance Sheets at December 31, 1996
                  and 1997

                  Consolidated Statements of Income for the
                  Years Ended December 31, 1995, 1996 and 1997

                  Consolidated Statements of Changes in
                  Shareholders' Equity for the Years Ended
                  December 31, 1995, 1996 and 1997

                  Consolidated Statements of Cash Flows for the
                  Years Ended December 31, 1995, 1996 and 1997

                  Notes to the Consolidated Financial Statements

2.       Except for the schedules listed below, all schedules are omitted as the
         information required is inapplicable or the information is presented in
         the consolidated financial statements or the related notes.

                  Schedule II - Valuation and Qualifying Accounts

3.       The Exhibits  listed in the Exhibit  Index  immediately  preceding  the
         Exhibits are filed as a part of this Annual Report on Form 10-K.

(b) No Current  Reports on Form 8-K were  filed by the  Company  during the last
quarter of the period covered by this report.

The following trademarks of the Company are mentioned in this Annual Report on 
Form 10-K: "Saville Systems" and "CBP"


<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 23rd day of
March, 1998.

                                            SAVILLE SYSTEMS PLC

                                            By: /s/ John J. Boyle, III

                                            John J. Boyle, III, President
                                            and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


Signature                     Title                                  Date

/s/ John J. Boyle, III        President, Chief                    March 23, 1998
John J. Boyle, III            Executive Officer and Director
                              (Principal Executive Officer)       
                                      

/s/ Christopher A. Hanson     Chief Financial Officer             March 23, 1998
Christopher A. Hanson         (Principal Financial  and
                               Accounting Officer)

/s/ Bruce A. Saville          Chairman of  the Board              March 23, 1998
Bruce A. Saville              of Directors


/s/ John A. Blanchard, III    Director                            March 23, 1998
John A. Blanchard, III


/s/ Brian E. Boyle            Director                            March 23, 1998
Brian E. Boyle


/s/ William F. Cunningham     Director                            March 23, 1998
William F. Cunningham


/s/ Richard A. Licursi        Director                            March 23, 1998
Richard A. Licursi


/s/ Fergus G. McGovern        Director                            March 23, 1998
Fergus G. McGovern


/s/ David P. Mixer            Director                            March 23, 1998
David P. Mixer


/s/ James B. Murray, Jr.      Director                            March 23, 1998
James B. Murray, Jr.


/s/ John W. Sidgmore          Director                            March 23, 1998
John W. Sidgmore



<PAGE>

<TABLE>


                               SAVILLE SYSTEMS PLC

                 SCHEDULE II (VALUATION AND QUALIFYING ACCOUNTS)



        Col. A            Col. B                  Col. C                Col. D            Col. E
-------------------- ---------------- ------------------------------ ---------------- -----------------
<S>                  <C>              <C>                            <C>              <C>   
                                                Additions             Deductions
                        Balance at                      Charged to
                       beginning of    Charged costs       other                      Balance at end
     Description          period        & expenses       accounts                       of period
-------------------- ---------------- ---------------- ------------- ---------------- -----------------
                            $                $                                              $
Allowance for
doubtful accounts

  December 31, 1997        756            1,010                         (79)              1,687
  December 31, 1996        370              386                                             756
  December 31, 1995        nil              370                                             370

</TABLE>


<PAGE>


                                                                      Appendix A

                      SELECTED CONSOLIDATED FINANCIAL DATA
               (in thousands of US dollars, except per share data)



<TABLE>


Year ended December 31                              1997         1996         1995        1994         1993
--------------------------------------------- ------------ ------------ ----------- ------------ -----------
<S>                                           <C>          <C>          <C>         <C>          <C>   
Total revenues                                   $107,045      $53,920     $30,296      $20,073      $9,309
Net income                                         23,937       11,569       6,382        5,357          13
Diluted earnings per share                           0.61         0.31        0.20         0.17        0.00

</TABLE>
<TABLE>


At December 31                                   1997         1996         1995        1994         1993
--------------------------------------------- ------------ ------------ ----------- ------------ -----------
<S>                                           <C>          <C>          <C>         <C>          <C>
Total assets                                     $105,375      $56,489     $36,031       $9,857      $3,207
Long-term debt, excluding current portion             336            -          44          689           -

</TABLE>


<PAGE>

                                                                      Appendix B
                               SAVILLE SYSTEMS PLC
                     Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

                 
OVERVIEW

Saville is a leading provider of customer care and billing solutions for service
providers in the  telecommunications  market.  The Company  offers an innovative
convergent  billing  product called Saville CBP(TM) that operates on DB2/400 and
Oracle/UNIX  platforms.  The  Oracle/UNIX  based  platform of this  software was
introduced to the market in December  1997.  Saville offers its customers a full
range of  professional  services.  Saville assists a customer in analyzing their
requirements  and then  designs,  develops and  implements  a customer  care and
billing  solution.  The customer can either license the solution from Saville or
the solution can be operated on a Company operated service bureau.  Saville also
recently  introduced  facilities  management services for customers who contract
with  Saville to manage the  operation  of the  customized  billing  software on
customer  owned  hardware.  Saville  assists its customers in  addressing  their
changing  business needs through future  enhancements  and developments to their
customer care and billing solutions.

The  Company's  strategy  is to target  growth-oriented  telecommunications  and
energy service providers, leverage its multi-market experience and establish and
maintain   long-term   relationships   with  its   customers.   The   successful
implementation of the Company's strategy has resulted in revenue growth over the
preceding year of 50.9%,  78.0% and 98.5% in 1995, 1996 and 1997,  respectively.
The Company has been  strategically  expanding  its direct  sales force over the
past three years, which has successfully resulted in dramatic revenue growth and
expansion  of its  customer  base.  During  1997,  the Company  initiated 13 new
customer  associations.   In  1997,  AT&T  and  GTE  Communications  represented
approximately 22.7% and 13.3%, respectively, of total revenue.

The Company derives revenues from services and license fees. Services revenue is
comprised of two major  components:  (1)  consulting  services  and, to a lesser
extent, (2) service bureau operations.  Consulting services consist primarily of
development and installation of new systems,  enhancements to existing installed
systems,  software  maintenance  and  customer  training.  Services  revenue  is
recognized  as the services  are  provided,  primarily  on a time and  materials
basis.  Service  bureau  revenue is earned  when a customer  contracts  with the
Company to operate a customer designed billing system on the Company's premises.
Services  revenue  accounted  for 82.8%,  82.5% and 79.3% of total  revenues for
1995,  1996 and 1997,  respectively.  License fees comprise the remainder of the
Company's  revenues and are recognized at the time of delivery of the product to
the customer,  provided that the Company has no significant  related obligations
or collection uncertainties  remaining.  Where there are significant obligations
that  relate to the  development  and  enhancement  of the  software  installed,
license fees are recorded  over the expected  term of the initial  customization
period.

Cost of services is comprised  primarily of the salaries and related benefits of
software development, technical, service bureau and client service personnel. It
also  includes  operating  costs of  computer  equipment,  training  and  travel
expenses.

Cost of license  fees  consists of the  commission  expense on new license  fees
earned by the Company and, to a lesser  extent,  royalty  expense for use by the
Company of software that is incorporated into the Company's base software.

Sales and marketing  expenses  consist of the salaries,  sales  commissions  and
benefits of those  employees  involved  in this  function as well as the related
travel, marketing and promotional expenses.

Research  and  development  expenses  are  comprised of the salaries and related
benefits of the employees  involved in product software  development,  computer,
travel and related expenses.

General and  administrative  expenses consist mainly of the salaries and related
benefits  of  management  and   administrative   personnel  and  general  office
administration  expenses (rent and occupancy,  telephone and other office supply
costs) of the Company. It also includes recruitment expenses, professional fees,
depreciation, and provision for doubtful collections.

The Company earns a significant portion of its taxable income in the Republic of
Ireland of which the "manufacturing  income" qualifies for a reduced tax rate of
10% which is substantially lower than tax rates in the United States and Canada.
The  Company  anticipates  that  it will  continue  to  benefit  from  this  tax
treatment,  although the extent of the benefit could vary from period to period,
and there can be no assurance  that the Company's tax situation will not change.
The Irish  Minister  of Finance  announced  in  December  1997 that the  present
standard Irish tax rate will be reduced to 32% as of January 1, 1998 and will be
reduced  gradually to a tax rate of 12.5% for taxation  years ending after 2005.
Under the announced plan, the tax rate on  manufacturing  income would remain at
10% until the tax relief  program is due to terminate in 2010, at which time the
tax rate would  increase to be equal to the standard  tax rate of 12.5%.  If the
Company  should no longer  qualify  for this  lower tax rate or if tax laws were
rescinded or changed,  the Company's  net income would be  materially  adversely
affected

RESULTS OF OPERATIONS

The following  table sets forth,  for the periods  indicated,  the percentage of
total revenue  represented by the items  reported in the Company's  Consolidated
Statements of Income.

<TABLE>

                                            Percentage of Total Revenue

                                              Year Ended December 31,

                                         1997            1996         1995
------------------------------------- ---------- -------------- ------------
<S>                                   <C>        <C>            <C>    
Revenue:
Services                                  79.3%          82.5%        82.8%
License fees                              20.7%          17.5%        17.2%
------------------------------------- ---------- -------------- ------------
                                         100.0%         100.0%       100.0%
------------------------------------- ---------- -------------- ------------
Expenses:
Cost of services                          37.0%          40.9%        40.3%
Cost of license fees                       0.5%           0.6%         0.2%
Sales and marketing                        5.9%           6.3%         5.0%
Research and development                   9.5%           7.7%         5.3%
General and administrative                19.1%          19.9%        22.4%
------------------------------------- ---------- -------------- ------------
                                          72.0%          75.4%        73.2%
------------------------------------- ---------- -------------- ------------
Income from operations                    28.0%          24.6%        26.8%
Other income, net                          2.0%           2.8%         0.7%
------------------------------------- ---------- -------------- ------------
Income before income taxes                30.0%          27.4%        27.5%
Provision for income taxes                 7.5%           5.7%         6.2%
------------------------------------- ---------- -------------- ------------
Income before minority interest           22.5%          21.7%        21.3%
Minority interest share in                 0.2%           0.2%         0.2%
  subsidiaries' net income
------------------------------------- ---------- -------------- ------------
Net income                                22.3%          21.5%        21.1%
------------------------------------- ---------- -------------- ------------
</TABLE>


YEARS ENDED DECEMBER 31, 1996 AND 1997

         Revenue.  Total  revenue  increased  98.5% from $53.9  million in 1996 
to $107.0  million in 1997 due to overall  increases in services revenue and 
license fees, as discussed below.

         Services.  Services revenue  increased 90.8% from $44.5 million in 1996
to $84.9  million in 1997 due to expansion of the  Company's  customer  base and
increases in projects  for existing  customers.  Consulting  services  increased
97.8% from 1996 to 1997,  and service bureau  revenue  increased  25.1% over the
same period.  The increase in services  revenue in 1997 was primarily due to the
increase in consulting and  implementation  services  provided to new customers.
Approximately  54% of the  services  revenue  reported  during  the  year  ended
December  31,  1997 was  derived  from  services  to  customers  existing in the
previous year compared to 69% in the year ended December 31, 1996.

         License Fees.  License fees revenue  increased 135.0% from $9.4 million
in 1996 to $22.2  million  in 1997 due  primarily  to  additional  license  fees
arrangements  for CBP that were negotiated  during 1997. The Company  introduced
the concept of  convergent  customer  care and billing  products in 1996 and the
market acceptance of this concept created opportunities for the Company in 1997.

         Cost of Services. Cost of services expense increased $17.5 million from
$22.1  million in 1996 to $39.6 million in 1997 but decreased as a percentage of
services  revenue from 49.6% in 1996 to 46.7% in 1997.  To support the growth of
the  Company's  business,  increased  expenditures  were  required  in 1997  for
additional personnel and hardware  infrastructure.  The Company expects that the
costs related to attracting and retaining  qualified  personnel will continue to
increase as the market  demands for those skilled  employees  increases.  As the
Company  continues  to expand,  it expects  the costs of  services  to  increase
accordingly.

         Cost of License Fees. Cost of license fees expense increased 71.8% from
$337,000 in 1996 to $580,000 in 1997 due to an increase in  commission  expenses
resulting from the increase in the license fees earned by the Company.

         Sales and Marketing.  Sales and marketing expenses increased 85.4% from
$3.4  million in 1996 to $6.3 million in 1997 but  decreased as a percentage  of
total  revenues  from 6.3% in 1996 to 5.9% in 1997.  The  increase  in sales and
marketing  expense in 1997  resulted  from the  expansion of the North  American
sales force and the associated  expansion of  infrastructure.  In addition,  the
Company  established  new sales offices in 1997 to strengthen its sales presence
in Europe,  Latin  America and Asia Pacific and created new alliances to further
expand  the  Company's  market  coverage  in those  areas.  Sales and  marketing
expenses  are  expected to increase  in  absolute  dollars  during 1998 with the
anticipated  establishment  of new sales offices and the continued  focus of the
North American marketing  efforts,  but are expected to remain at similar levels
to 1997 as a percentage of total revenues.

         Research and Development.  Research and development  expenses increased
143.3% from $4.2  million in 1996 to $10.1  million in 1997 and  increased  as a
percentage  of revenue from 7.7% in 1996 to 9.5% in 1997.  This increase was due
to development  efforts by the Company in creating new and enhanced  billing and
customer  care  products.  During the year,  the Company had two major  platform
releases.  The first was in July 1997 for CBP on the  DB2/400  platform  and the
second was the release of the Company's UNIX based product,  CBP for Oracle(TM).
The Company  intends to continue  its research  and  development  efforts in the
future.  Therefore,  the Company expects that, research and development expenses
will  continue to increase in absolute  dollars but remain at similar  levels to
1997 as a percentage of total revenues.


YEARS ENDED DECEMBER 31, 1996 AND 1997 (CONTINUED)

         General  and  Administrative.   General  and  administrative   expenses
increased  91.0%  from  $10.7  million  in 1996 to  $20.4  million  in 1997  and
decreased  as a  percentage  of  revenues  from  19.9% in 1996 to 19.1% in 1997,
respectively.   The  increase  in  general  and   administrative   expenses  was
attributable to the additional costs of building  infrastructure  during 1997 to
support  the growth in the  Company's  employee  base and the  expansion  of the
Company's business.  Significant areas of increased spending included additional
senior and middle management, and recruiting and infrastructure costs related to
an increased number of employees.

         Other income, net. Other income, net of other expenses, increased 44.5%
from $1.5 million in 1996 to $2.2 million in 1997.  Increased interest income on
increased cash and short-term  investment balances accounted for the majority of
the increase in other income.

         Provision  for income  taxes.  The Company  recorded a tax provision of
$3.1 million in 1996  representing  an effective tax rate of 20.7% compared to a
provision of $8.0 million in 1997  representing  an effective tax rate of 24.8%.
The Company's  effective tax rate is largely  dependent on the proportion of the
Company's income earned in different tax jurisdictions. The Company is currently
eligible for a 10% tax rate on "manufacturing"  income earned in the Republic of
Ireland.  The  standard  rate of income tax that  applies  to  non-manufacturing
income,  such as income earned on the Company's cash  investments,  was 36% (38%
during 1996). The Company's  effective tax rate reflects the tax relief on Irish
manufacturing  income  subject to this reduced  rate of tax,  which is below the
statutory rates in Ireland,  Canada and the United States. The Irish Minister of
Finance announced in December 1997 that the present standard Irish tax rate will
be reduced to 32% as of January 1, 1998 and will be reduced  gradually  to a tax
rate of 12.5% for taxation  years ending after 2005.  Under the announced  plan,
the tax rate on  manufacturing  income  would remain at 10% until the tax relief
program is due to terminate in 2010,  at which time the tax rate would  increase
to be equal to the  standard tax rate of 12.5% There can be no  assurances  that
the  Company  will  continue  to be  eligible  for  the  reduced  tax  rate  for
manufacturing income in future periods.


YEARS ENDED DECEMBER 31, 1995 AND 1996

         Revenue.  Total  revenues  increased  78.0% from $30.3  million in 1995
to $53.9  million in 1996 due to overall  increases in services revenue and 
license fees, as discussed below.

         Services.  Services revenue  increased 77.3% from $25.1 million in 1995
to $44.5  million in 1996 due to  expansion  of the  Company's  client  base and
increases in projects for existing clients.  Consulting services increased 87.2%
from 1995 to 1996, and service  bureau  revenues  increased  22.3% over the same
period.  Approximately  69.3% of the services  revenue  reported during the year
ended December 31, 1996 was derived from services to customers  existing in 1995
compared to 84.2% in the year ended  December 31, 1995.  The Company  attributes
this change to its continued efforts to expand its customer base.

         License  Fees.  License  fees  revenue  increased  81.2% from $5.2  
million in 1995 to $9.4  million in 1996 due  primarily to license fees for the 
company's software, Saville CBP TM, that were negotiated during 1996.

         Cost of Services.  Cost of services expense increased $9.8 million from
$12.2  million in 1995 to $22.1 million in 1996 and increased as a percentage of
services  revenue from 48.7% to 49.6%,  respectively.  The overall  increase was
primarily due to expenditures  associated with additional personnel hired during
1996 to support the growth of the Company's business.



<PAGE>



YEARS ENDED DECEMBER 31, 1995 AND 1996 (CONTINUED)

         Cost of License  Fees.  Cost of license  fees  expense  increased  from
$65,000 in 1995 to $337,000 in 1996 due to an  increase in  commission  expenses
resulting from the increase in the license fees earned by the Company.

         Sales and Marketing.  Sales and marketing expense increased 122.4% from
$1.5  million in 1995 to $3.4 million in 1996 and  increased as a percentage  of
total  revenues  from 5.0% in 1995 to 6.3% in 1996.  During  1996,  the  Company
continued to develop its direct sales force within the United  States and Europe
to support the development of new business.

         Research and Development.  Research and development  expense  increased
162.2% from $1.6 million in 1995 to $4.2 million in 1996.  This increase was due
to  increased  development  efforts by the Company in creating  new and enhanced
billing and customer care products,  including the Company's  Convergent Billing
Platform  TM (CBP),  which was  released  on the  DB2/400  platform in the first
quarter of 1996.

         General  and   Administrative.   General  and  administrative   expense
increased 57.8% from $6.8 million in 1995 to $10.7 million in 1996 and decreased
as a percentage  of revenues  from 22.4% to 19.9%,  respectively.  The increased
expenditure was attributable to the additional costs of building  infrastructure
during  1996 to  support  the  growth  in the  Company's  employee  base and the
expansion of the Company's  business.  Significant  areas of increased  spending
included  additional senior and middle management,  and general expenses related
to an increased  number of  employees.  The Company  increased the allowance for
doubtful  accounts by $386,000 and recorded  compensation  expense of $73,000 in
connection  with  certain  options  that were  granted to  employees in 1995 and
having an exercise price below the then fair market value.

         Other income, net. Other income, net of other expenses,  increased from
$208,000 in 1995 to $1.5 million in 1996. This increase was primarily the result
of interest  earned on cash and cash  equivalents  on the net proceeds  from the
Company's public offerings in November 1995 and June 1996.

         Provision  for income  taxes.  The Company  recorded a tax provision of
$1.9 million in 1995  representing  an effective tax rate of 22.5% compared to a
provision of $3.1 million in 1996  representing  an effective tax rate of 20.7%.
The Company's  effective tax rate is largely  dependent on the proportion of the
Company's income earned in different tax jurisdictions. The Company is currently
eligible for a 10% tax rate on "manufacturing"  income earned in the Republic of
Ireland.  The rate is not  available  for other  types of income  such as income
earned by the Company on its cash  investments.  The eligibility for the 10% tax
rate is the  reason  that the  Company's  effective  tax rate is below the Irish
standard  rate of 38%,  and below the  statutory  rates of Canada and the United
States.


<PAGE>


QUARTERLY INFORMATION

The  following  tables  present  selected   unaudited   consolidated   financial
information for the Company's last eight quarters,  as well as the percentage of
the Company's  total  revenues  represented  by each item. In the opinion of the
Company's  management,  this  unaudited  information  reflects all  adjustments,
consisting  only of normal  recurring  adjustments,  necessary to present fairly
this  information  when  read in  conjunction  with the  Consolidated  Financial
Statements and Notes thereto appearing  elsewhere in this report.  The Company's
operating results for any quarter are not necessarily  indicative of results for
any future period.

<TABLE>

                                                                   Quarter Ended
------------------------------ ---------------------------------------------------------------------------------------
(in thousands of U.S.          March 31   June 30    Sept. 30   Dec. 31    March 31   June 30    Sept. 30   Dec. 31
dollars except per share         1996       1996       1996       1996       1997       1997       1997       1997
data)
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S>                           <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>

Revenue
 Services                         $9,032    $10,237    $12,051    $13,158    $16,515    $20,088    $22,575    $25,678
 License fees                      1,523      2,068      2,696      3,155      3,615      5,405      6,006      7,163
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
                                  10,555     12,305     14,747     16,313     20,130     25,493     28,581     32,841
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses
 Cost of services                  4,478      5,112      5,932      6,536      8,037      9,448     10,852     11,266
 Cost of license fees                 22         26        140        149         88        128        165        198
 Sales and marketing                 637        819        920      1,003      1,202      1,522      1,600      1,942
 Research and development            860      1,021      1,085      1,205      1,481      2,530      2,805      3,330
 General and administrative        2,321      2,476      2,830      3,078      3,909      4,913      5,325      6,297
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
                                   8,318      9,454     10,907     11,971     14,717     18,541     20,747     23,033
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  Income from operations           2,237      2,851      3,840      4,342      5,413      6,952      7,834      9,808
  Other income, net                  243        383        393        472        354        559        596        645
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  Income before income taxes       2,480      3,234      4,233      4,814      5,767      7,511      8,430     10,453
  Provision for income taxes         440        597        910      1,105      1,325      1,995      2,096      2,573
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
 Income before minority
  interest                         2,040      2,637      3,323      3,709      4,442      5,516      6,334      7,880
Minority interest share in
  subsidiaries' net income           (2)         75         12         55         40         75         50         70
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income                        $2,042     $2,562     $3,311     $3,654     $4,402     $5,441     $6,284     $7,810
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
     Basic earnings per share      $0.06      $0.07      $0.09      $0.10      $0.12      $0.15      $0.17      $0.21
     Diluted earnings per          $0.05      $0.07      $0.09      $0.10      $0.11      $0.14      $0.16      $0.20
       share
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
                                  35,153     35,183     35,542     35,952     36,209     36,449     36,965     37,356
Ordinary Shares
Ordinary Shares assuming          37,370     37,783     38,096     38,337     38,551     39,131     39,597     40,012
  dilution
------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>


<PAGE>


QUARTERLY INFORMATION (CONTINUED)

<TABLE>

                                                                  Quarter Ended
------------------------------ ------------------------------------------------------------------------------------
                               March 31   June 30    Sept. 30   Dec. 31   March 31   June 30    Sept.    Dec. 31
(percentage of total             1996       1996       1996       1996      1997       1997     30 1997    1997
revenues)
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
<S>                           <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenue
 Services                          85.6%      83.2%      81.7%     80.7%      82.0%      78.8%    79.0%      78.2%
 License fees                      14.4%      16.8%      18.3%     19.3%      18.0%      21.2%    21.0%      21.8%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
                                  100.0%     100.0%     100.0%    100.0%     100.0%     100.0%   100.0%     100.0%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
Expenses
 Cost of services                  42.4%      41.5%      40.2%     40.1%      39.9%      37.1%    38.0%      34.3%
 Cost of license fees               0.2%       0.2%       1.0%      0.9%       0.4%       0.5%     0.6%       0.6%
 Sales and marketing                6.0%       6.7%       6.2%      6.1%       6.0%       6.0%     5.6%       5.9%
 Research and development           8.2%       8.3%       7.4%      7.4%       7.4%       9.9%     9.8%      10.1%
 General and administrative        22.0%      20.1%      19.2%     18.9%      19.4%      19.3%    18.6%      19.2%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
                                   78.8%      76.8%      74.0%     73.4%      73.1%      72.8%    72.6%      70.1%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
 Income from operations            21.2%      23.2%      26.0%     26.6%      26.9%      27.2%    27.4%      29.9%
 Other income,  net                 2.3%       3.1%       2.7%      2.9%       1.8%       2.2%     2.1%       2.0%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
 Income before income taxes        23.5%      26.3%      28.7%     29.5%      28.7%      29.4%    29.5%      31.9%
 Provision for income taxes         4.2%       4.9%       6.2%      6.8%       6.6%       7.8%     7.3%       7.8%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
 Income before minority
   interest                        19.3%      21.4%      22.5%     22.7%      22.1%      21.6%    22.2%      24.1%
Minority interest share in
  subsidiaries' net income          0.0%       0.6%       0.1%      0.3%       0.2%       0.3%     0.2%       0.2%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
Net income                         19.3%      20.8%      22.4%     22.4%      21.9%      21.3%    22.0%      23.9%
------------------------------ ---------- ---------- ---------- --------- ---------- ---------- -------- ----------
</TABLE>



The Company's quarterly operating results have in the past and may in the future
vary  significantly.  Factors that may  influence  the  quarterly  results could
include items such as, but are not limited to, increased  competition,  the size
and timing of significant  client  projects and license fees,  cancellations  of
significant  projects by customers,  changes in operating  expenses,  changes in
Company  strategy,  personnel  changes,  foreign  currency  exchange rates,  and
general economic factors.

The  Company's  expense  levels are based,  in part, on its  expectations  as to
future revenues. If revenue levels are below expectations, operating results are
likely to be adversely affected.  Net income may be disproportionately  affected
by a  reduction  in revenues  because a  proportionately  smaller  amount of the
Company's  expenses varies with its revenues.  As a result, the Company believes
that  period-to-period   comparisons  of  its  results  of  operations  are  not
necessarily  meaningful  and should not be relied upon as  indicators  of future
performance.



<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $21.4 million from $34.4 million at December
31,  1996 to $55.8  million at  December  31,  1997.  The  increase  in cash was
primarily  from cash provided by operations  and, to a lesser  extent,  from net
proceeds  received from the issuance of Ordinary  Shares offset by a use of cash
in purchasing property and equipment and investing in short-term investments.

         Operating  activities.  During the year ended December 31, 1997,  $30.8
million of cash was provided by operating activities representing an increase of
$20.4 million over 1996 results. The increase was primarily due to the increased
net income during the year. Working capital components have generally  increased
in relation to the continued growth in total revenues.  At December 31, 1997 the
Company had deferred  revenue of $3.4  million  representing  funds  received in
advance of the completion of software customizations and installations.

         Investing activities.  The net cash used in investing activities during
the year ended  December  31,  1997 was  comprised  of $7.4  million to purchase
property and equipment and $12.0 million invested in short-term investments.  In
order to support the growth of the business, the Company has taken on additional
office space to house its operations. As a result, approximately $2.8 million of
leasehold improvements were purchased in 1997. As well, the Company is upgrading
its internal  computer  software  programs to support the growth of the business
and approximately $1.7 million was capitalized during 1997 for this purpose. The
Company  expects to continue  to make  property  and  equipment  investments  to
support its business growth.

         Financing  activities.  The net cash  provided by financing  activities
during the year ended December 31, 1997 was $10.1 million  consisting  primarily
of net proceeds  from  issuance of Ordinary  Shares.  During  1997,  the Company
issued Ordinary Shares pursuant to exercises of options under the employee stock
option plan for proceeds of approximately $9.0 million.  On November 7, 1997 the
Company  effected  a  100%  share  dividend  for  each  share   outstanding  for
shareholders of record on that date.

In February 1998 the Company signed a letter of intent to purchase the assets of
an Australian telecommunications software company for approximately $20 million.
The  purchase  price will be  comprised  of a  combination  of cash and Ordinary
Shares. The Company also purchased an interconnect  telecommunications  software
product  from a company in Sweden for  approximately  $2.0 million in cash and a
commitment  of at least $2.0  million in  royalties to be paid over the next two
years.  As of February 13, 1998, the Company had no other  material  commitments
for capital expenditures.

The Company and its subsidiaries  have available a $15.0 million  multi-currency
operating line of credit from a financial institution that expires on August 31,
1999 and bears  interest at rates  varying from 0.25% to 1% above the base rate.
This base rate  depends on the  currency of the funds drawn on the  facility and
includes the Canadian  U.S.  Dollar Base rate,  the Canadian Bank Prime rate and
LIBOR and DIBOR rates.  A standby fee of 0.25% per annum is payable on the daily
unused  portion of the  facility.  This fee  totaled  $13,000 for the year ended
December 31, 1997. The credit arrangement  contains financial covenants relating
to  minimum  net worth and  leverage  ratios.  The line of credit is  unsecured,
however,  if the Company does not maintain  compliance  with the covenants,  the
financial  institution  has the right to register  security over any outstanding
balances.  The Company was in  compliance  with these  covenants at December 31,
1997. No advances were outstanding on this facility at December 31, 1997.


<PAGE>



LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Company had capital lease  obligations in principal amount of $470,000 as of
December  31, 1997  ($43,000 as at December 31, 1996 and $97,000 at December 31,
1995) and  subsequent  to such date has  incurred no  additional  capital  lease
obligations.

As of  December  31,  1997  the  Company  had  $22.4  million  in  net  accounts
receivable.  The average days sales outstanding ("DSO") at December 31, 1997 was
approximately  62 days as compared to approximately 86 at December 31, 1996. DSO
is  calculated  based on the average  daily sales of the  immediately  preceding
three-month  period divided by the net trade accounts  receivable balance at the
end of the period. The Company established an allowance for doubtful accounts in
1995 and continues to maintain a balance because  increases in revenues that may
be caused by the  expansion of the Company's  customer  base  increases the risk
that such an allowance  will be necessary.  The Company  considers the allowance
for  doubtful  accounts of $1.7  million at December 31, 1997 to be adequate for
1998.

The  Company  believes  that  existing  cash  balances  and funds  generated  by
operations  will be  sufficient  to meet its  anticipated  liquidity and working
capital requirements for the next twelve months.

FOREIGN CURRENCY EXPOSURE

The Company's  international  sales are predominately  invoiced and paid in U.S.
currency  with the  exception of certain  clients who are invoiced  primarily in
Canadian  dollars,  Pounds  Sterling  and Swiss  Francs.  The  impact of foreign
currency translation has not been material to the Company's operations.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report  contains  forward-looking  statements that involve risks and
uncertainties.  The Company's actual results may differ  significantly  from the
results  discussed  in  the  forward-looking  statements,  including  statements
regarding the Company's  plans to expand its  international  and North  American
sales  presence,  the Company's  plans to continue its research and  development
efforts,  the Company's  expectation  that it will continue to make property and
equipment  investments in 1998, the Company's plans for strategic  acquisitions,
the  expectation  of value to be added by  alliances  with  third  parties,  the
Company's  intent to release  future  products and  enhancements,  the Company's
belief that its existing cash balance and funds  generated by operations will be
sufficient to meet its anticipated  liquidity and working  capital  requirements
for the next twelve  months,  the possible  adverse  foreign  currency  exposure
involved with international expansion, and the Company's general expectations of
growth. A number of  uncertainties  exist that could affect the Company's future
operating  results,  including,  without  limitation,  the Company's  ability to
retain existing  customers and attract new customers,  the Company's  ability to
attract and retain  qualified  employees,  the costs associated with significant
increases in number of employees,  the Company's  continuing  ability to develop
products that are responsive to the evolving  needs of its customers,  increased
competition, changes in operating expenses, foreign currency exchange rates, the
Company's  continued  ability  to take  advantage  of  favorable  tax  treatment
currently available to the Company, and general economic factors.

To date, a substantial  portion of the Company's total revenues has been derived
from a relatively small number of customers. This concentration of customers can
cause the Company's  revenues and earnings to fluctuate from quarter to quarter,
based on these  customers'  requirements  and the  timing  of  their  orders.  A
significant  decrease in business from any of its major  customers  would have a
material  adverse effect on the Company's  business,  financial  condition,  and
results of operations.


<PAGE>


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS(CONTINUED)

The Company  competes  with both  independent  providers of systems and services
like  the   Company  and  with   internal   billing   departments   of  existing
telecommunications  service providers,  many of which have substantially greater
financial,  technical,  sales, marketing and other resources, as well as greater
name recognition,  than the Company.  There can be no assurance that the Company
will be able to compete  successfully with its existing  competitors or with new
competitors.

The Company's future success depends in large part on its ability to develop new
customer  relationships  with successful  telecommunications  service providers.
There  can be no  assurance  that  the  Company  will be able  to  develop  such
relationships or that the service providers that become customers of the Company
will be  successful.  Historically,  the Company has been dependent on long-term
customer relationships and therefore,  the failure of the Company's customers to
compete  effectively  in the  telecommunications  market  could  have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Although  the Company has  introduced  its  UNIX-based  CBP for Oracle  product,
almost  all of the  Company's  billing  and  customer  care  customers  run  the
Company's software on the DB2/400 platform,  which represents a leading platform
for existing and new billing systems. If there should be a rapid shift away from
the current use of the DB2/400 platform by the  telecommunications  industry for
billing,  the Company would be required to expend substantial  capital resources
to develop new software  and enhance  existing  software  and likely  experience
delays or losses in customer orders.

The  Company's  success  will depend  upon its  ability to enhance its  existing
products  and to introduce  new  products  and  features  that meet the changing
requirements of new and existing  customers.  The Company is currently  devoting
significant  resources to develop,  refine and enhance its base software modules
for both its UNIX-based and DB2/400-based  products. If the Company were unable,
due to resource, technological or other constraints, to adequately anticipate or
respond to such changes,  or if the Company's  new  products,  developments  and
enhancements do not gain market acceptance,  the Company's  business,  financial
condition and results of operations would be materially adversely affected.

The Company's international business is subject to risks such as fluctuations in
exchange rates,  difficulties or delays in developing and supporting non-English
language versions of the Company's  products,  political and economic conditions
in various jurisdictions, unexpected changes in regulatory requirements, tariffs
and  other  trade  barriers,  difficulties  in  staffing  and  managing  foreign
operations and longer accounts receivable payment cycles. Specifically, the Asia
Pacific region has  experienced a recent  downturn in economic  conditions,  the
continuation  of which could  adversely  affect the Company's  ability to expand
into this region.

Recently,  the Company has expanded  its  operations  rapidly,  which has placed
significant demands on the Company's  administrative,  operational and financial
personnel and systems.  Additional  expansion by the Company may further  strain
the  Company's  management,  financial  and  other  resources.  There  can be no
assurance that the Company's  systems,  procedures,  controls and existing space
will be adequate to support expansion of the Company's operations. The Company's
future  operating  results  will  substantially  depend  on the  ability  of its
officers  and key  employees  to  manage  changing  business  conditions  and to
implement and improve its operational,  financial control and reporting systems.
If the Company is unable to respond to and manage changing business  conditions,
the quality of the Company's  services,  its ability to retain key personnel and
its results of operations could be materially adversely affected.

The Company's  strategy  includes the acquisition of businesses and technologies
that  complement or augment the  Company's  existing  business and products.  In
February  1998,  the Company signed a letter of intent to purchase the assets of
an  Australian   telecommunications  software  company  and  also  purchased  an
interconnect   telecommunications  software  product  from  a  Swedish  company.
Promising  acquisitions  are  difficult to identify and complete for a number of
reasons,  including  competition among prospective buyers and the need to obtain
regulatory approvals,  including antitrust approvals.  There can be no assurance
that  the  Company  will be able to  complete  future  acquisitions  or that the
Company will be able to successfully integrate any acquired businesses. In order
to finance  such  acquisitions,  it may be  necessary  for the  Company to raise
additional  funds  through  public  or  private  financing.  Any  equity or debt
financing,  if available  at all, may be on terms that are not  favorable to the
Company,  and in the case of equity  offerings,  may result in  dilution  to the
Company's shareholders.

Fluctuations  in  exchange  rates  may have a  material  adverse  effect  on the
Company's results of operations,  particularly its operating margins,  and could
also result in exchange losses.  The impact of future exchange rate fluctuations
on the Company's results of operations cannot be accurately predicted.  To date,
the Company has not sought to hedge the risks  associated  with  fluctuations in
exchange rates, but may undertake such transactions in the future.  There can be
no  assurance  that any hedging  techniques  implemented  by the Company will be
successful  or that the Company's  results of operations  will not be materially
adversely affected by exchange rate fluctuations.

From time to time,  the  Company may  receive  threats of or become  involved in
litigation  in the ordinary  course of its business.  In June 1997,  the Company
received a letter from a customer  purporting to terminate its relationship with
the  Company  and  alleging  certain  failures  to perform by the  Company.  The
customer  alleges  damages of $12  million.  The Company has denied all of these
allegations and believes that they are without merit. There can be no assurance,
however, as to the outcome of this or any other dispute that may arise.

The Company has  significant  operations and generates a substantial  portion of
its taxable  income in the  Republic of Ireland,  and,  under an  incentive  tax
program due to terminate in 2010,  is taxed on its  "manufacturing  income" at a
rate that is  substantially  lower than U.S. tax rates.  If the Company could no
longer  qualify  for this  lower tax rate or if the tax laws were  rescinded  or
changed,  the Company's net income could be materially  adversely  affected.  In
addition,  if U.S.,  Canadian or other foreign tax authorities were to challenge
successfully  the manner in which profits are  recognized  among the Company and
its subsidiaries,  the Company's effective tax rate could increase, and its cash
flow and results of operations could be materially adversely affected.

The Company is reviewing  its products and  operations  to ensure that they will
not be adversely  affected by year 2000  software  failures,  which can arise in
time-sensitive  software  applications  that  utilize  a field of two  digits to
define the applicable year. In such applications,  a date using "00" as the year
may be  recognized  as the year 1900  rather than the year 2000.  The  Company's
released  software  products are  currently  year 2000 ready,  and therefore the
Company does not believe that it will need to  undertake  material  research and
development  efforts in this  regard.  The  Company's  review,  correction,  and
upgrade of its internal  systems to ensure year 2000  readiness is ongoing.  The
Company believes that any correction or upgrade  necessary to make the Company's
major internal  systems year 2000 ready will be completed by early 1999 and that
the  cost of such  actions  will  not  have a  material  adverse  effect  on the
Company's  results  of  operations  or  financial  condition.  There  can  be no
assurances,  however,  that  there  will not be a delay in, or  increased  costs
associated with, the  implementation of such corrections or upgrades or that the
Company  will suffer no material  adverse  effects  from the year 2000  problem,
including  due to the lack of readiness on the part of third party  suppliers of
goods and services to the Company's operations.


<PAGE>


                                                                      Appendix C


                               SAVILLE SYSTEMS PLC

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




   Report of Independent Auditors    

   Consolidated Balance Sheets as of December 31, 1997 and 1996   
                                                              
   Consolidated Statements of Income for the years ended 
     December 31, 1997, 1996 and 1995          
                                                                             
   Consolidated Statements of Changes in Shareholders' Equity for the 
     years ended December 31, 1997, 1996 and 1995                               
                                                                 
   Consolidated Statements of Cash Flows for the years ended 
     December 31, 1997, 1996 and 1995      
                                                 
   Notes to Consolidated Financial Statements                                   



<PAGE>




                         REPORT OF INDEPENDENT AUDITORS





To the Directors of
Saville Systems PLC

We have audited the accompanying  consolidated balance sheets of Saville Systems
PLC and its  subsidiaries  as of  December  31,  1997 and  1996 and the  related
consolidated  statements  of income,  changes in  shareholders'  equity and cash
flows for each of the years in the three year period  ended  December  31, 1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Saville
Systems  PLC  and its  subsidiaries  at  December  31,  1997  and  1996  and the
consolidated  results of their  operations  and their cash flows for each of the
years in the three year  period  ended  December  31,  1997 in  conformity  with
accounting principles generally accepted in the United States.



Galway, Ireland                                        /s/ Ernst & Young
January 22, 1998                                       Chartered Accountants
(Except for note 13 which is as at February 13, 1998)


<PAGE>




Saville Systems PLC

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

<TABLE>
  
                                                       As of December 31
                                                   
                                                       1997            1996
--------------------------------------------------- ---------- ---------------
<S>                                                 <C>        <C>    
ASSETS

Current Assets:
  Cash and cash equivalents [note 3]                 $ 55,785         $34,395
  Short-term investments [note 3]                      13,015           1,000
  Accounts receivable, less allowance 
   for doubtful accounts of $1,687 and  $756,
   respectively                                        22,373          15,308
  Prepaid expenses and other assets                     3,581           1,511
--------------------------------------------------- ---------- ---------------
  Total current assets                                 94,754          52,214
Property and equipment, net [note 4]                   10,621           4,275
--------------------------------------------------- ---------- ---------------
Total assets                                         $105,375         $56,489
--------------------------------------------------- ---------- ---------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                      5,336           1,711
  Accrued compensation and related benefits             5,248           2,704
  Accrued expenses and other liabilities                3,084             770
  Income taxes payable                                  7,167           2,910
  Deferred revenue                                      3,402           1,420
  Current portion of long-term debt                       134              43
--------------------------------------------------- ---------- ---------------
  Total current liabilities                            24,371           9,558

Long-term debt [note 5]                                   336               -
Minority interest [note 7]                                366             320
--------------------------------------------------- ---------- ---------------
  Total liabilities                                    25,073           9,878
--------------------------------------------------- ---------- ---------------

Commitments and contingencies [note 6]

Shareholders' Equity: [note 7]
Ordinary Shares, nominal value $0.0025 per share
  Authorized:  75,000,000 and 40,000,000
  Issued and outstanding:  37,504,596 
   and 36,163,142                                           94              90

Deferred Ordinary Shares, nominal value 
    IR(pound)1.00 per share
  Authorized, issued and outstanding:  30,000               48              48
Additional paid-in capital [note 7]                     37,734          27,733
Retained earnings                                       42,750          18,813
Cumulative translation account  [note 7]                 (324)            (73)
--------------------------------------------------- ----------- ---------------
  Total shareholders' equity                            80,302          46,611
--------------------------------------------------- ----------- ---------------
Total liabilities and shareholders' equity            $105,375         $56,489
-------------------------------------------------------------- ---------------
</TABLE>

See accompanying notes


<PAGE>




Saville Systems PLC


CONSOLIDATED STATEMENTS OF INCOME


(In thousands of U.S. dollars, except share and per share data)

<TABLE>

                                              Years ended December 31
                                            1997       1996         1995
---------------------------------------- ---------- --------- ---------
<S>                                     <C>         <C>       <C>


REVENUE
Services                                  $ 84,856   $44,478   $25,084
License fees                                22,189     9,442     5,212
---------------------------------------- ---------- --------- ---------
Total revenue                              107,045    53,920    30,296
---------------------------------------- ---------- --------- ---------

EXPENSES
Cost of services                            39,603    22,058    12,221
Cost of license fees                           579       337        65
Sales and marketing                          6,266     3,379     1,519
Research and development                    10,146     4,171     1,591
General and administrative                  20,444    10,705     6,784
---------------------------------------- ---------- --------- ---------
Total expenses                              77,038    40,650    22,180
---------------------------------------- ---------- --------- ---------

Income from operations                      30,007    13,270     8,116
Other income, net [note 8]                   2,154     1,491       208
---------------------------------------- ---------- --------- ---------
Income before income taxes                  32,161    14,761     8,324
Provision for income taxes [note 9]          7,989     3,052     1,872
---------------------------------------- ---------- --------- ---------
Income before minority interest             24,172    11,709     6,452
Minority interest share in 
  subsidiaries' net income                     235       140        70
---------------------------------------- ---------- --------- ---------
Net income                                 $23,937   $11,569    $6,382
---------------------------------------- ---------- --------- ---------

Basic earnings per share                     $0.65     $0.32     $0.21
Diluted earnings per share                   $0.61     $0.31     $0.20
---------------------------------------- ---------- --------- ---------

(in thousands)
Ordinary shares                             36,745    35,458    30,631
Ordinary shares assuming dilution           39,323    37,897    32,302
---------------------------------------- ---------- --------- ---------
</TABLE>

See accompanying notes


<PAGE>


Saville Systems PLC


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands of U.S. dollars, except number of shares)


<TABLE>


                                                                   Years ended December 31
                                         ----------------------------------------------------------------------------
                                             Share Capital      Additional    Retained   Cumulative       Total
                                                                 paid-in      earnings   translation  shareholders'
                                           Shares      Amounts    capital                  account        equity
<S>                                      <C>           <C>       <C>          <C>        <C>           <C>

---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Balance at December 31, 1994              29,800,000       $ 47   $   1,625   $   3,862       $ (82)         $ 5,452
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Ordinary Shares issued                     5,352,812         41      25,765                                   25,806
Deferred Shares issued                        30,000         48        (48)
Shares issued by subsidiary companies                                   148                                      148
Public offering costs                                               (3,914)                                  (3,914)
Reduction in minority interest                                          116                                      116
Note receivable on sale of shares
  by subsidiary prior to reorganization                               (100)                                    (100)
Dividends paid                                                                  (3,000)                      (3,000)
Net income                                                                        6,382                        6,382
Foreign currency translation adjustment                                                          34               34
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Balance at December 31, 1995              35,182,812        136      23,592       7,244         (48)          30,924
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Ordinary Shares issued                     1,010,330          2       4,739                                    4,741
Reduction in minority interest                                           37                                       37
Repayment of note receivable                                            100                                      100
Public offering costs                                                 (735)                                    (735)
Net income                                                                       11,569                       11,569
Foreign currency translation adjustment                                                         (25)            (25)
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Balance at December 31, 1996              36,193,142        138      27,733      18,813         (73)          46,611
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Ordinary Shares issued                     1,311,454          4       9,069                                    9,073
Reduction in minority interest                                          189                                      189
Share issue costs                                                     (277)                                    (277)
Tax benefit of employee stock                                           873                                      873
  transactions
Restricted share issuance and
  related compensation                        30,000                  1,031                                    1,031
Unearned compensation on restricted
  share issuance                                                      (945)                                    (945)
Compensation related to stock options                                    61                                       61
Net income                                                                       23,937                       23,937
Foreign currency translation adjustment                                                        (251)           (251)
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
Balance at December 31, 1997              37,534,596       $142     $37,734     $42,750       $(324)         $80,302
---------------------------------------- ------------ ---------- ----------- ----------- ------------ ---------------
</TABLE>

See accompanying notes



<PAGE>


Saville Systems PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

<TABLE>
  
                                                     Years ended December 31

                                                   1997       1996       1995
---------------------------------------------------------- ---------- ----------
<S>                                             <C>        <C>        <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                        $23,937    $11,569     $ 6,382
Adjustments to reconcile net income to 
net cash provided by operating activities:
  Depreciation and amortization                     1,487        782         360
  Allowance for doubtful accounts                   1,010        386         370
  Minority interest in net income                     235        140          70
  Loss on sale of property and equipment               90          -           -
  Compensation related to stock transactions          147          -           -
Changes in operating assets and liabilities:
  Accounts receivable                             (8,072)    (7,521)     (2,936)
  Prepaid expenses and other assets               (2,075)      (461)       (886)
  Long term receivable                                  -        741       (741)
  Accounts payable                                  3,349        632         401
  Accrued compensation and related benefits         2,544      1,177         803
  Accrued royalties                                     -      (663)         348
  Income taxes payable                              4,257      1,682         127
  Deferred revenue                                  1,982      1,420           -
  Accrued expenses and other liabilities            1,897        474       (251)
---------------------------------------------------------- ---------- ----------
Net cash provided by operating activities          30,788     10,358       4,047
---------------------------------------------------------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of property and equipment            (7,401)    (2,723)     (2,178)
Purchase of short-term investments               (12,015)    (1,000)           -
---------------------------------------------------------- ---------- ----------
Net cash used in investing activities            (19,416)    (3,723)     (2,178)
---------------------------------------------------------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayments from an officer                         -          -          50
Repayment of long-term debt                          (43)       (54)       (703)
Increase in long-term debt                            470          -           -
Repayments to related parties                           -          -        (14)
Proceeds from share issuance                        9,073      4,841      25,880
Share issue costs                                   (277)      (735)     (3,914)
Tax benefit on employee stock transactions            873          -           -
Dividends                                               -          -     (3,000)
---------------------------------------------------------- ---------- ----------
Net cash provided by financing activities          10,096      4,052      18,299
---------------------------------------------------------- ---------- ----------
Effect of exchange rate changes on cash              (78)       (14)          45
---------------------------------------------------------- ---------- ----------

Net increase in cash and cash equivalents          21,390     10,673      20,213
Cash and cash equivalents, beginning of year       34,395     23,722       3,509
---------------------------------------------------------- ---------- ----------
Cash and cash equivalents, end of year            $55,785    $34,395     $23,722
---------------------------------------------------------- ---------- ----------
Short-term investments                             13,015      1,000           -
---------------------------------------------------------- ---------- ----------
Cash and short-term investments                   $68,800    $35,395     $23,722
---------------------------------------------------------- ---------- ----------

Supplementary disclosure of cash 
 flow information:
  Cash paid for interest                               48         15         182
  Cash paid for income taxes                        2,889      1,504       1,894
  Note receivable from sale (repayment) 
    of shares                                           -      (100)         100
</TABLE>

See accompanying notes


<PAGE>


                               SAVILLE SYSTEMS PLC
          Consolidated Notes to Financial Statements, December 31, 1997


1. ORGANIZATION

Saville Systems PLC (the "Company") is a company  incorporated under the laws of
the Republic of Ireland in 1993.

Prior to the  Restructuring  (as defined below),  Saville  Systems PLC,  Saville
Systems  Canada,  Ltd.  ("Saville  Canada") and Saville  Systems Inc.  ("Saville
U.S.") were companies  under common control and with identical  share  ownership
structures.

On  September  27, 1995,  Saville  Canada and Saville  U.S.  (collectively,  the
"Subsidiaries")   became   majority-owned   subsidiaries  of  the  Company  (the
"Restructuring"). The Restructuring was accomplished through the contribution of
shares of the  Subsidiaries to the Company by all but one of the shareholders of
the  Subsidiaries  who  previously  owned,  directly  or  indirectly,  identical
percentages of all three companies;  and through the contribution of 100% of the
shares of 2916746  Canada,  Inc.,  a  Canadian  holding  corporation  whose only
material asset was shares in Saville Canada.

The  Restructuring  has been  accounted for in a manner  similar to a pooling of
interests and accordingly the consolidated  financial  statements of the Company
include  the  results  of the  Company  and its  two  subsidiaries  since  their
inception,  which in the case of Saville  Canada was 1982 and Saville  U.S.  was
1991.  The share capital of the  Subsidiaries  has been  presented as additional
paid-in capital in these consolidated financial statements.

An  approximate  15%  interest  in  Saville  Canada  and  Saville  U.S.  was not
contributed by one of the shareholders as at the date of  Restructuring  and has
been presented as a minority  interest.  As of December 31, 1997,  this minority
interest has decreased to  approximately  4% (7% and 12% as of December 31, 1996
and 1995, respectively).

During 1997 the Company incorporated two wholly-owned subsidiaries, Saville C.I.
Limited and Saville Systems (UK) Limited.

The Company's principal line of business is the provision of convergent customer
care  and  billing  solutions  for  the  use of  its  customers  in  the  global
telecommunications  industry.  The Company  licenses  the use of its software to
customers  throughout the world and operates its software for certain  customers
under  a  service  bureau  arrangement.  The  Company's  principal  markets  are
currently located in the United States, Europe and Canada.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Principles
     The consolidated  financial  statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.

Principles of Consolidation
     These consolidated financial statements include the accounts of the Company
and its  subsidiaries.  All  intercompany  accounts and  transactions  have been
eliminated in consolidation.



<PAGE>



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                      (CONTINUED)

Estimates and Assumptions
     The  preparation  of  financial  statements  requires  management  to  make
estimates and  assumptions  that affect the reported  assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.

Revenue recognition
     Revenue from services consists of fees for systems requirements definition,
system design and analysis,  customization  and installation  services,  ongoing
system management, system enhancements, service bureau processing and facilities
management.  Services  revenue is  recognized  as the  services  are  performed,
primarily on a time and materials basis.  Revenue from maintenance  contracts is
recognized ratably over the term of the agreement, generally one year.

     Revenue from the licensing of software  rights is recognized at the time of
delivery  of the  product to the  customer,  provided  that the  Company  has no
significant related  obligations or collection  uncertainties  remaining.  Where
there are significant  obligations related to the development and enhancement of
the software delivered,  license fees are recorded over the expected term of the
initial customization period.

       Deferred revenue relates primarily to license fee revenue, which has been
paid by the customers prior to the recognition of revenue.

Foreign currency translation
     The Company uses the United States dollar as the unit of measurement of its
financial  statements,  as a significant  portion of the Company's operating and
financing  activities  are transacted in United States  dollars.  The functional
currencies of the Company's subsidiaries are their local currencies.

     Transactions  and  balances   denominated  in  currencies  other  than  the
functional  currencies of the Company or its  subsidiaries are remeasured in the
applicable  functional  currency.   Translation   adjustments  arising  on  such
remeasurement are included in the determination of net income.

     The balance sheets of the Company's foreign  subsidiaries are translated at
year-end  rates of exchange and results of operations are translated at weighted
average  rates  of  exchange  for  the  fiscal  period   reported.   Translation
adjustments  resulting from this process are recorded in shareholders' equity as
an adjustment to the cumulative translation account.

Property and equipment
     Property and equipment are recorded at cost less accumulated  depreciation.
Depreciation  is computed  using either the declining  balance or  straight-line
method over the  estimated  useful life of the asset or in the case of leasehold
improvements,  over the remaining  lease term.  Depreciation  commences when the
asset is available for use.

     Gains or  losses  resulting  from  sales or  retirements  are  recorded  as
incurred,  at which time related costs and accumulated  depreciation are removed
from the accounts. Maintenance and repairs are expensed as incurred.


<PAGE>



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                      (CONTINUED)

Leases
     Leases are  recorded  as  capital  or  operating  leases.  Any lease  where
substantially  all of the  benefits  and risks  related to the  ownership of the
leased asset are transferred to the lessee, as defined by Statement of Financial
Accounting Standards (SFAS) No.13 "Leases" is accounted for as if the asset were
acquired  and as if the  obligation  were  assumed as of the date of lease.  All
other  leases are  recorded as operating  leases  whereby the related  costs are
charged to income on a straight-line basis over the term of the lease.

Software development costs
     Software  development  costs,  principally  the design and  development  of
customer care and billing software, are expensed as incurred unless they qualify
for  capitalization,  as  defined by SFAS No.  86,  "Accounting  for the Cost of
Computer Software to be Sold, Leased or Otherwise  Marketed".  Capitalized costs
are  amortized  over  the  economic  life of the  software  release.  To date no
software  development  costs  have  been  capitalized  by  the  Company  as  the
development costs incurred subsequent to establishing  technological feasibility
of the related software have not been material.

Stock options
     The  Company  records   compensation   expense   relating  to  stock  based
compensation to employees in accordance with Accounting Principles Board Opinion
(APB)  No.  25   "Accounting   for  Stock  Issued  to  Employees"   and  related
interpretations.  Pro forma  footnote  disclosures,  which  comply with the SFAS
No.123 "Accounting for Stock Based Compensation", are provided in Note 7.

Income tax
          Income taxes are accounted for in accordance with the liability method
of SFAS No. 109,  "Accounting for Income Taxes." Under this method,  the Company
provides deferred and prepaid taxes for temporary differences in the recognition
of assets and liabilities for financial reporting and tax accounting purposes.

Earnings per share
     Basic and diluted  earnings per share are computed in accordance  with SFAS
No. 128  "Earnings per Share" which became  effective for the Company's  quarter
and year ended  December 31, 1997.  This statement  replaced the  calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share.  Unlike primary earnings per share,  basic earnings per share exclude any
dilutive effects of options. Diluted earnings per share is very similar to fully
diluted  earnings per share.  All prior period  earnings per share data in these
financial  statements  have been  restated to conform to the  provisions of this
statement.

     In the calculation of diluted earnings per share,  Ordinary Shares assuming
dilution  includes the effect of dilutive share  equivalents  from stock options
and no adjustments to net income.


<PAGE>



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                      (CONTINUED)

Cash and short-term investments
     Cash equivalents  include those investments that are readily convertible to
known amounts of cash,  with maturities at the date purchased of less than three
months.

     Cash  equivalents  and short-term  investments  held by the Company and its
subsidiaries  are classified as  held-to-maturity  and are recorded at amortized
cost. Gains and losses on these investments are not recorded until realized.

Recently issued accounting standards
     The Financial  Accounting Standards Board has issued Statement of Financial
Accounting  Standards No. 130  "Comprehensive  Income"  (`SFAS 130') and No. 131
"Disclosures  about  Segments of an Enterprise and Related  Information"  (`SFAS
131').  SFAS 130 and SFAS 131 will be effective for the  Company's  December 31,
1998 year end.  The Company  has not  determined  the  impact,  if any, of these
pronouncements on its consolidated financial statements.

     The  Accounting  Standards  Executive  Committee  has issued  statement  of
position 97-2 "Software Revenue Recognition" (`SOP 97-2'). SOP 97-2 is effective
for transactions entered into in fiscal years beginning after December 15, 1997.
The  Company's  current  revenue  recognition  policies  are  expected to remain
largely unaffected.


Comparative figures
     Certain  prior  year  figures  have been  reclassified  to  conform to 1997
financial statement presentation.


3. CASH AND SHORT-TERM INVESTMENTS

     Cash  and cash  equivalents  as of  December  31,  1997  and  1996  include
$33,606,000 and $27,458,000,  respectively, of money market funds and commercial
paper investments held by the Company.

     Short-term  investments  of  $13,015,000  and $1,000,000 as of December 31,
1997  and  1996,   respectively,   are  composed  of  corporate  notes  (1997  -
$11,015,000;  1996 - $1,000,000) and government notes (1997 - $2,000,000; 1996 -
Nil).  Interest  rates on these  deposits  range from 5% to 6% and total accrued
interest of $287,000 at December 31, 1997 is included in other assets.

     All cash  equivalents and  investments  held by the Company are recorded at
amortized cost,  which  approximates  fair value, and mature within three months
and one year, respectively.



<PAGE>



4. PROPERTY AND EQUIPMENT

<TABLE>
                                             As of December 31
                                  
                                         1997              1996
--------------------------------- -------------- -----------------
<S>                               <C>            <C>    
Furniture and equipment                $ 5,168            $2,877
Computer equipment and software          3,920             1,300
Leasehold improvements                   4,279             1,507
--------------------------------- ------------- -----------------
Total cost                              13,367             5,684
Less accumulated depreciation            2,746             1,409
--------------------------------- ------------- -----------------
Net book value                         $10,621            $4,275
--------------------------------- ------------- -----------------
</TABLE>

Computer equipment and software includes  $1,775,000 of assets under development
to be depreciated when put in use. Of this,  $470,000 is computer software under
capital lease.

5. LONG-TERM DEBT

Line of Credit

     On October 23, 1997, the Company obtained a  multi-currency  operating line
of credit of $15 million  from a financial  institution.  This line of credit is
available to the Company and its subsidiaries on a joint and several basis for a
period ending August 31, 1999 and bears  interest at rates varying from 0.25% to
1% above the base  rate.  This base rate  depends on the  currency  of the funds
drawn on the  facility and includes  the  Canadian  U.S.  Dollar Base rate,  the
Canadian Bank Prime rate and LIBOR and DIBOR rates.

     A standby fee of 0.25% per annum is payable on the daily unused  portion of
the facility. This fee totaled $13,000 for the year ended December 31, 1997.

     The credit arrangement contains financial covenants relating to minimum net
worth and leverage  ratios.  The line of credit is  unsecured,  however,  if the
Company  does  not  maintain  compliance  with  the  covenants,   the  financial
institution has the right to register  security over any  outstanding  balances.
The Company was in  compliance  with these  covenants at December  31, 1997.  No
advances were outstanding on this facility at December 31, 1997.

Capital Lease
     The Company has obligations under a capital lease for $470,000,  payable in
thirteen  quarterly  payments of $40,000.  The lease is  denominated in Canadian
dollars and bears interest at 5.4%.  Principal  payments of $134,000,  $144,000,
$152,000  and  $40,000  are  due  in  the  years  1998,  1999,  2000  and  2001,
respectively.  The  lease  obligation  at the end of 1996 of  $43,000  was fully
repaid during 1997.


<PAGE>



6. COMMITMENTS AND CONTINGENCIES

The Company is committed to make operating lease payments on premises,  computer
hardware and software,  and equipment  under  agreements,  which expire over the
next eight years as follows:
<TABLE>
<S>                        <C>                                   <C>    
                           1998                                  $ 7,395
                           1999                                    6,285
                           2000                                    3,935
                           2001                                    2,134
                           2002                                    1,751
                           Thereafter                              2,517
----------------------------------------------------------------------------
                                                                 $24,017

</TABLE>

Total rental expense was approximately  $6,032,000,  $3,582,000,  and $1,950,000
for the years ended December 31, 1997, 1996 and 1995, respectively.

From time to time,  the  Company may  receive  threats of or become  involved in
litigation in the ordinary  course of it business.  During the year, the Company
received a letter from a customer  purporting to terminate its relationship with
the  Company  and  alleging  certain  failures  to perform by the  Company.  The
customer  alleges  damages of $12  million.  The Company has denied all of these
allegations and believes that they are without merit.  Management  believes that
this matter will have no material adverse effect on the Company's  operations or
financial position and accordingly, no provision for any liability has been made
in these financial statements.


7. SHAREHOLDERS' EQUITY

Authorized share capital
     Upon  incorporation,  the  Company's  authorized  share  capital  comprised
100,000 Ordinary Shares.

     On January 20, 1995, the Company  redesignated  each of its Ordinary Shares
authorized and issued to be Class A voting,  convertible,  participating  shares
and  increased  its  authorized  share  capital by 100,000  Class B  non-voting,
convertible,  participating  shares which ranked pari passu in all respects with
the  Class  A  shares.   Each  fully  paid  Class  B  non-voting,   convertible,
participating  share  could  be  converted  at any time  into a Class A  voting,
convertible,  participating  share on the  basis of one to one.  Likewise,  each
fully paid Class A voting,  convertible,  participating share could be converted
at any time into a Class B non-voting,  convertible,  participating share on the
basis of one to one.

     In connection with the Restructuring,  authorized share capital was amended
by the  cancellation  of 100,000 Class B shares,  the  redesignation  of Class A
shares as  Ordinary  Shares  with a nominal  value of $0.0025  per share and the
authorization  of 30,000 Deferred  Shares with a nominal value of  IR(pound)1.00
per share. Authorized capital was then increased to 40,000,000 Ordinary Shares.

     During 1997 the  shareholders  authorized  an  amendment  to the  Company's
Memorandum  and Articles of  Association  to increase  the number of  authorized
Ordinary Shares from 40,000,000 to 75,000,000.


<PAGE>



7. SHAREHOLDERS' EQUITY (CONTINUED)

Issued share capital
     An  analysis  of the  number of shares  issued  and  outstanding,  adjusted
retroactively for each share dividend,  for the three-year period ended December
31, 1997 is as follows:

     In  connection  with  the   Restructuring  in  1995  Class  A  Shares  were
redesignated as Ordinary  Shares and the Company issued 30,000 Deferred  Shares.
On September  27,  1995,  the Company  completed  an  800-for-1  division of all
Ordinary Shares and subsequently  declared and allotted a share dividend of 5.45
Ordinary  Shares for each  post-division  share  outstanding.  The  division and
dividend  were  approved by the  shareholders  by unanimous  written  consent on
September 27, 1995.

     During the year  ended  December  31,  1995,  the  Company  issued  352,812
Ordinary Shares to officers and employees for cash consideration of $805,808 and
conducted a public offering  issuing  5,000,000  ordinary shares for total gross
proceeds to the Company of $25,000,000.

     During the year  ended  December  31,  1996,  the  Company  issued  810,330
Ordinary Shares to officers and employees for cash  consideration  of $2,140,816
and conducted a second public offering issuing 200,000 Ordinary Shares for total
gross proceeds to the Company of $2,600,000.

     On November 17, 1997 the Company  issued a two-for-one  share  dividend for
each share  outstanding to all  shareholders  of record on November 7, 1997. The
dividend  was approved by a vote of  shareholders  at an  Extraordinary  General
Meeting held on October 23, 1997.

     During the year ended  December  31,  1997,  the Company  issued  1,311,454
Ordinary Shares to officers and employees for cash  consideration  of $9,073,584
and 30,000 restricted Ordinary Shares to an officer at par value.

Additional paid-in capital
     During  1995 and  prior to the  Restructuring  described  in note 1,  70.04
shares of  Saville  Canada  and 6.135  shares of Saville  U.S.  were  issued for
aggregate cash consideration of $174,000 and a note receivable of $100,000 to an
officer  of the  Company.  The  aggregate  cash  consideration,  net of the note
receivable,  has been  reflected in these  financial  statements  as  additional
paid-in  capital in the amount of $148,000 and an increase in minority  interest
of $26,000.
                                
     During 1996, the note receivable  issued in 1995 was repaid in full and has
been reflected as additional paid-in capital in the amount of $100,000.

     During 1997, the Company recorded the effect of tax deductions available to
Saville U.S. for stock  options  exercised  by  employees.  The benefits of this
deduction  for tax of $873,000 are  recorded as  additional  paid-in  capital in
Saville U.S.


<PAGE>



7. SHAREHOLDERS' EQUITY (CONTINUED)

     During 1997, the Company  issued 30,000  restricted  Ordinary  Shares to an
officer  of the  Company  at par  value.  These  shares  are  subject to vesting
provisions,  which  restrict  the  holder's  ability to sell such  shares over a
five-year  period.  In  connection  with this  issuance,  the  Company  recorded
$1,031,000 as additional  paid-in capital,  based on the difference  between the
par value and fair value of the shares at the measurement  date. Of this amount,
the  Company  recorded  compensation  expense of $86,000 in 1997.  The  unearned
compensation of $945,000 is recorded as an offset to additional  paid-in capital
at December  31,  1997 and will be  recognized  over the  vesting  period of the
shares.

Dividends
     Shareholders are entitled to receive dividends as may be recommended by the
Board of Directors of the Company and approved by the  shareholders,  which will
be  declared  and paid in  United  States  dollars.  Under  Irish  Company  law,
dividends  are payable only out of profits  available  for  distribution,  where
profits are  determined  in  accordance  with  accounting  principles  generally
accepted in the Republic of Ireland.  The amount  available for  distribution to
shareholders includes only the retained earnings of the Company, and not that of
its subsidiaries,  calculated in accordance with accounting principles generally
accepted in the Republic of Ireland which amounted to approximately  $35,296,000
at December 31, 1997 ($16,427,000 at December 31, 1996).

Minority interest
     Concurrent  with the  Restructuring  of the Company in 1995,  the  minority
shareholder  entered into a share  restriction and contribution  agreement which
prohibits  the minority  shareholder  from  transferring  any  securities of the
Company,  unless a proportionate  number of Subsidiary shares are contributed to
the Company.  The minority  shareholder must contribute all of its shares in the
Subsidiaries no later than September 1, 2005.

Share options
     During  the  year  ended  December  31,  1995  prior  to the  Restructuring
described  in note 1, the  Company  granted  share  'option  units'  to  certain
officers, directors and employees of the Company. Each option unit was comprised
of 1 Class A share of the Company,  1 common  share of Saville  Canada and .0875
common shares of Saville U.S. upon exercise of the option unit.

     In connection with the Restructuring,  each option unit outstanding at that
date was exchanged for options  which  entitled the holder to 2 Ordinary  Shares
for each option exercised.

     On August 21, 1995,  the Board of Directors  approved the 1995 Share Option
Plan, which provides for the grant of stock to employees,  officers,  directors,
consultants  and advisors of the Company.  These  options  generally  expire ten
years from the date of grant and vest over periods of one to five years.


<PAGE>



7. SHAREHOLDERS' EQUITY (CONTINUED)

     During 1997, the shareholders authorized an amendment to the Company's 1995
Share  Option Plan to  increase  the number of shares  authorized  to be granted
under the plan from 5,960,000 to 10,000,000.

     On April 25, 1996, the Board of Directors  approved the 1996 Employee Share
Purchase  Plan,  which  provides for the grant of stock to certain  officers and
employees of the Company for purchase.

The  following  table  summarizes  the  activity in options to December 31, 1997
after giving effect to the Restructuring:

<TABLE>

                                           Number of Ordinary Shares

                                Available      Unexercised    Weighted average
                                for grant                      exercise price
                                                                  per share
----------------------------- ------------ --------------- -------------------
<S>                           <C>          <C>             <C>   
Balance at December 31, 1994            -         300,980              $ 0.84
Options granted                         -       1,081,916                1.20

Ordinary Shares authorized      5,960,000               -                   -
Options granted               (2,411,496)       2,411,496                4.54
Options exercised                       -       (144,210)                5.00
Options expired                         -         (2,060)                5.00
Options cancelled                  43,844        (43,844)                4.33


Balance at December 31, 1995    3,592,348       3,604,278              $ 3.22
----------------------------- ------------ --------------- -------------------
Ordinary Shares authorized        614,000

Options granted                 (257,174)         257,174               12.74
Options exercised                       -       (810,330)                2.65
Options cancelled                  49,290        (49,290)                4.33


Balance at December 31, 1996    3,998,464       3,001,832                4.17
----------------------------- ------------ --------------- -------------------
Ordinary Shares authorized      4,040,000

Options granted               (2,844,920)       2,844,920               20.59
Options exercised                       -     (1,311,453)                6.92
Options cancelled                 255,864       (255,864)               14.72

Balance at December 31, 1997    5,449,408       4,279,435              $13.61
----------------------------- ------------ --------------- -------------------
</TABLE>


<PAGE>



7. SHAREHOLDERS' EQUITY (CONTINUED)

The  300,980  options  having  an  exercise  price of $0.84  per  share  and the
1,081,916 options having an exercise price of $1.20 per share were granted below
estimated  fair market value at the date of grant and  compensation  expense was
recorded over their vesting periods. Compensation expense of $73,000 and $95,000
was recorded in the years ended December 31, 1996 and 1995 respectively.

During  1997,  20,000  options  having an exercise  price of $17.22 were granted
below  estimated  fair market  value at the date of grant.  These  options  were
vested upon grant and compensation expense of $61,000 was recorded in 1997.

A summary of options outstanding as of December 31, 1997 is as follows:

<TABLE>

------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Total outstanding      Range of          Weighted          Weighted       Exercisable at       Weighted
                   exercise prices       average           average         December 31,        average
                                      exercise price      remaining            1997         exercise price
                                                         contractual                        of exercisable
                                                       life (in years)                         options
------------------ ----------------- ----------------- ----------------- ----------------- -----------------
<S>                <C>               <C>               <C>               <C>               <C>   

          388,734            $ 1.20            $ 1.20        2.1                  388,734            $ 1.20
        1,374,957     4.33 -   5.00              4.48        7.7                  818,648              4.53
           53,924     7.50 -  13.32              8.64        8.1                   31,256              8.22
        2,047,320    14.06 -  21.50             18.48        8.6                  306,230             18.74
          209,000    21.75 -  32.56             29.44        9.7                        -                 -
          205,500    33.50 -  41.50             34.83        9.8                        -                 -
------------------ ----------------- ----------------- ----------------- ----------------- -----------------
        4,279,435    $1.20 - $41.50            $13.61        7.8                1,544,868            $ 6.58
------------------ ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

     During 1997 the vesting of certain outstanding options was accelerated such
that the options to purchase 600,000 shares became fully exercisable in 1997 and
the options to purchase  1,110,000  shares will vest over two years  rather than
over the original three year vesting period.

     In January 1998  approximately  1,680,000 options were granted to employees
and directors  that may vest earlier than the original three year vesting period
if the  market  price of the  Company's  American  Depository  Receipts  (ADR's)
increases in specified time frames.

     The Company has elected to follow APB No. 25,  "Accounting for Stock Issued
to Employees" and related  interpretations  in accounting for its employee share
options  because,  as discussed  below,  the alternative  fair value  accounting
provided under SFAS No. 123, "Accounting for Stock-Based Compensation," requires
the use of option  valuation  models that were not  developed for use in valuing
employee share options.  Under APB 25, where the exercise price of the Company's
employee share options  equals the market price of the  underlying  share on the
date of grant, no compensation  expense is recognized.  As noted above,  certain
options have been  granted with an exercise  price below the market price on the
date of grant and compensation expense has been recognized for these options.



<PAGE>



7. SHAREHOLDERS' EQUITY (CONTINUED)

       Pro forma  information  regarding  net income and  earnings  per share is
required by SFAS 123, and has been  determined  as if the Company had  accounted
for its employee  share options  under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes option pricing model with the following assumptions for 1997, 1996
and 1995,  respectively:  risk-free  weighted  average  interest rates of 6.10%,
5.98% and 6.30% and  volatility  factors  of the  expected  market  price of the
Company's  Ordinary  Shares  of .58,  .69 and  .84;  dividend  yield of 0% and a
weighted  average  expected life of the option of 5.2 years for grants issued in
1997 and 4 years for grants issued in 1996 and 1995.  The weighted  average fair
value of options granted during 1997 was $11.54 (1996 - $6.66, 1995 - $0.86).

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  share  price
volatility.  Because the Company's  employee share options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee share options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period, which includes
actual accelerated vesting entitlements during the year.

     The  Company's  pro forma  information  follows  (in  thousands  except for
earnings per share information):

<TABLE>

                                               Years ended December 31

                                            1997       1996            1995
------------------------------------- ------------- -------------- -----------
<S>                                   <C>           <C>            <C>    
Pro forma net income                      $9,623    $10,028           $5,573


Pro forma basic earnings per share         $0.26      $0.28            $0.18


Pro forma diluted earnings per share       $0.25      $0.27            $0.17

</TABLE>

Cumulative translation account
        Changes in the  Canadian  dollar  exchange  rate  relative to the United
States dollar has caused the adjustments to the cumulative translation account.

8. OTHER INCOME

<TABLE>

                                             Years ended December 31

                                           1997       1996      1995
--------------------------------------- -----------------------------------
<S>                                     <C>          <C>        <C>    
Interest income                           $2,541      $1,563     $369
Interest on long-term debt                  -             (5)     (61)
Other interest expense                       (61)        (10)     (15)
Foreign currency exchange losses, net       (206)       (107)     (70)
Other                                       (120)         50      (15)
--------------------------------------- -----------------------------------
                                          $2,154      $1,491     $208

</TABLE>


<PAGE>



9. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>

                               Years ended December 31

                            1997          1996         1995
-------------------------------------- ------------ -----------
<S>                      <C>            <C>         <C>    

Current:
    Ireland                    $3,579       $1,628      $1,165
    Foreign                     4,410        1,424         707
-------------------------------------- ------------ -----------
                               $7,989       $3,052      $1,872
-------------------------------------- ------------ -----------
</TABLE>

Pretax income from foreign operations  amounted to $8,720,000,  $3,105,000,  and
$1,677,000 for the years ended December 31, 1997, 1996 and 1995 respectively.

The effective  income tax rate differed  from the statutory  federal  income tax
rate due to:

<TABLE>

                                                  Years ended December 31

                                                1997      1996       1995
------------------------------------------------------------------------------
<S>                                          <C>       <C>          <C>    

Statutory Irish federal income tax rate           36.5%     38.0%       38.5%
Computed tax provision                          $11,739   $ 5,609     $ 3,205
Tax relief on Irish manufacturing operations     (4,830)   (2,833)    (1,750)
Foreign tax rate differences                        983       240          95
Change in valuation allowance in respect 
  of subsidiary losses                              -         120         152
Other                                                97       (84)        170
------------------------------------------------------------------------------
                                                $ 7,989   $ 3,052     $ 1,872

Per share effect of the tax relief on 
Irish manufacturing operations on a 
diluted basis                                    $ 0.12    $ 0.07      $ 0.05

</TABLE>

The Company has  significant  operations and generates a substantial  portion of
its  taxable  income in the  Republic  of Ireland,  and under an  incentive  tax
program due to terminate in 2010,  is taxed on its  "manufacturing  income" at a
10% rate. The Irish standard rate was reduced from 40% to 38% effective April 1,
1995 and was further reduced to 36% effective April 1, 1997.

As at December 31, 1997 and 1996,  the Company had no  significant  deferred tax
assets or liabilities.

Undistributed  earnings  of  the  Company's  foreign  subsidiaries  amounted  to
approximately  $6,692,000  at December 31, 1997 and  $2,131,000  at December 31,
1996.  Those  earnings  are  considered  to  be  indefinitely   reinvested  and,
accordingly,  no provision for withholding taxes has been provided thereon. Upon
distribution  of those  earnings  in the form of  dividends  or  otherwise,  the
Company would be subject to withholding taxes payable of approximately  $802,000
($304,000 at December 31, 1996) to various foreign governments. Determination of
the amount of the unrecognized  deferred income tax liability is not practicable
because  of the  complexities  associated  with  its  hypothetical  calculation;
however,  unrecognized  foreign tax credit  carryforwards  would be available to
reduce some portion of the liability.


<PAGE>



10. INDUSTRY AND GEOGRAPHIC INFORMATION

The Company and its subsidiaries  operate primarily in one industry segment, the
development  and marketing of proprietary  customer  administration  and billing
systems.  Transfers  between  geographic  areas are  accounted for using methods
designed to  approximate  comparable  arm's length  amounts.  Such transfers are
eliminated in the consolidated  financial  statements.  Identifiable  assets are
those assets that can be directly associated with a particular geographic area.

The following is a summary of operations by geographic area.
<TABLE>

                                                                                   Adjustments
                                                          United       Channel         and
                                     Ireland    Canada     States      Islands     eliminations    Consolidated

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

Year ended December 31, 1997

Sales to unaffiliated customers       $38,425    $ 6,344    $62,276       -                   -         $107,045
Transfers between geographic areas
                                       28,788     50,626          -       -             (79,414)               -
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------
Total revenues                         67,213     56,970     62,276       -             (79,414)         107,045
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Operating profit                       21,357      5,610      2,515       -                  525          30,007
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Identifiable assets                    66,028     13,397     25,818       40,354        (40,222)         105,375
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Year ended December 31, 1996

Sales to unaffiliated customers       $22,313    $ 7,009    $24,598       -                    -         $53,920
Transfers between geographic areas
                                       11,594     26,177          -       -             (37,771)               -
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------
Total revenues                         33,907     33,186     24,598       -             (37,771)          53,920
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Operating profit                       10,069      2,374        744       -                   83          13,270
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Identifiable assets                    39,350      8,041      9,320       -                (222)          56,489
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Year ended December 31, 1995

Sales to unaffiliated customers       $16,519    $ 9,098    $ 4,679       -                    -         $30,296
Transfers between geographic areas
                                        (210)     11,309        210       -             (11,309)               -
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------
Total revenues                         16,309     20,407      4,889       -             (11,309)          30,296
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Operating profit                        6,141      1,534        357       -                   84           8,116
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------

Identifiable assets                    27,737      5,598      2,995       -                (299)          36,031
------------------------------------ --------- ---------- ---------- ------------ --------------- ---------------
</TABLE>

All of the sales to unaffiliated  customers for Ireland are export sales for all
periods presented.


<PAGE>



11. SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF
     CREDIT RISK

Financial  instruments,  which potentially subject the Company to concentrations
of credit risk, consist primarily of trade accounts  receivables,  cash and cash
equivalents   and  short-term   investments.   Credit  risk  on  trade  accounts
receivables  is decreasing as a result of the  diversification  of the Company's
revenue and product base. The Company performs ongoing credit evaluations of its
customers and does not require collateral. The Company provides an allowance for
potential  credit  losses and such losses were not  material  during the periods
reported.

During  the  year  ended  December  31,  1997,  two  customers  of  the  Company
individually  represented  23% and 13% of the total revenue,  respectively.  The
aggregate  accounts  receivable  balance  as of  December  31,  1997  for  these
customers was $5,438,000.

During  the  year  ended  December  31,  1996,   three  customers   individually
represented 35%, 12% and 11% of the total revenue,  respectively.  The aggregate
accounts  receivable  balance as of December  31, 1996 for these  customers  was
$6,135,000.

During  the  year  ended  December  31,  1995,   three  customers   individually
represented 37%, 16% and 11% of the total revenue,  respectively.  The aggregate
accounts  receivable  balance as of December  31, 1995 for these  customers  was
$4,037,000.

The Company holds a significant  balance of its cash  equivalents and short-term
investments with a recognized financial institution.

12. GOVERNMENT ASSISTANCE

The Company is eligible for government  assistance in certain  jurisdictions for
certain  expenditures  incurred.  The Company accrues and offsets these eligible
grants  against  the  related  costs.   The  amounts  included  in  income  were
$1,045,000,  $390,000 and $346,000 for the years ended  December 31, 1997,  1996
and 1995 respectively.

The   conditions  of  these  grants   require  that  the  Company   maintain  in
shareholders'  equity an amount equal to the amount of the grants received.  The
cumulative  amount subject to this  restriction at December 31, 1997 is $891,000
($243,000 at December 31, 1996, Nil at December 31, 1995).

13. SUBSEQUENT EVENTS

In February 1998 the Company signed a letter of intent to purchase the assets of
an Australian telecommunications software company for approximately $20 million.
The  purchase  price will be  comprised  of a  combination  of cash and Ordinary
Shares.

Also in February,  the Company purchased a  telecommunications  billing software
product for  $2,000,000  in cash with a  commitment  of at least  $2,000,000  in
royalties to be paid over the next two years.





<PAGE>





                               SAVILLE SYSTEMS PLC
                                FORM 10-K REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 1997

                                INDEX TO EXHIBITS

Exhibit No.      Description

  *2.1     Contribution Agreement between the Registrant and certain 
           shareholders of the Registrant, dated as of September 27, 1995.

  *2.2     Stock Restriction and Contribution Agreement between Invoice Systems 
           (Canada), Inc. and the Registrant, dated as of September 27, 1995.

***2.3     Amended and Restated Contribution Agreement between the Registrant, 
           2916746 Canada, Inc. and Columbia Saville Ireland Investors, L.P., 
           dated as of November 22, 1995.

   3.1     Memorandum of Association of the Registrant

   3.2     Articles of Association of the Registrant

  *4.1     Specimen Certificate for Ordinary Shares, $0.0025 par value, of the 
           Registrant.

  *4.2     Deposit Agreement among the Registrant,  The Bank of
           New York, as  Depositary,  and the holders from time
           to  time  of  American   Depositary   Shares  issued
           thereunder  (including  as an  exhibit  the  form of
           American Depositary Receipt).

 *10.1     1995 Share Option Plan

++10.2     Amendment to the 1995 Share Option Plan

**10.3     1996 Employee Share Purchase Plan

  10.4     Employment Agreement between the Registrant and John J. Boyle, III, 
           dated as of August 1, 1997.

  10.5     Stock Restriction Agreement between the Registrant and John J. 
           Boyle, III, dated as of December 1, 1997.

  10.6     Employment Agreement between the Registrant and Bruce A. Saville, 
           dated as of November 1, 1997.

  10.7     Letter Agreement for credit facilities between The Bank of 
           Nova Scotia and Saville Systems PLC, Saville Systems Canada, Ltd. and
           Saville Systems, Inc. , dated as of September 4, 1997.


<PAGE>



 *10.8      Lease Agreement between Barbican Properties Inc. and Saville Systems
            Canada, Ltd. made as of May 1, 1995.

 *10.9      Letter Agreement between Barbican Properties Inc.and Saville Systems
            Canada,Ltd. dated July 19, 1995.

 *10.10     Indenture between Orfus Investments and Saville Systems Canada, Ltd.
            dated November 25, 1995.

 *10.11     Lease between Clybaun Construction Limited, Saville Systems Ireland 
            Limited, Saville Systems Canada, Ltd. and Anglo Irish Bank
            Corporation PLC, dated April 27, 1994.

 *10.12     Deed between Saville Systems Ireland Limited and Clybaun 
            Construction Limited, dated April 27, 1994.

 *10.13     Agreement between Saville Systems Ireland Limited, Saville Systems 
            Canada, Ltd. and Industrial Development Agency (Ireland), dated 
            June 9, 1995.

 *10.14+    Intellectual Property Purchase Agreement between the Registrant and 
            Saville Systems Canada, Ltd. made as of July 1, 1993.

 *10.15     Lease Agreement between Saville Systems Canada, Ltd. and Orfus 
            Investments, dated April 25, 1996.

 *10.16     Indemnity Agreement between the Company and Orfus Investments, 
            dated April 25, 1996.

+++10.17    Lease Agreement between Saville Systems PLC and Clybaun Construction
            Limited dated May 26, 1997.

  10.18     Lease Agreement between Mass Mutual and Saville Systems U.S., Inc. 
            dated as of May 15, 1997.

  10.19     Lease Agreement between Penreal Property Fund Ltd. and Saville
            Systems Canada, Ltd., dated as of June 13, 1997.

  10.20     Lease Agreement between 715864 Alberta Ltd. and Saville Systems 
            Canada, Ltd., dated as of July 17, 1997.

   21.1     List of Subsidiaries

   23.1     Consent of Ernst & Young

   27.1     Financial Data Schedule for the year ended December 31, 1997.

   27.2     Restated Financial Data Schedule, for the quarter ended 
            June 30, 1996.

   27.3     Restated Financial Data Schedule, for the quarter ended 
            September 30, 1996.

   27.4     Restated Financial Data Schedule, for the year ended 
            December 31, 1996.

   27.5     Restated Financial Data Schedule, for the quarter ended
            March 31, 1997.


<PAGE>




   27.6     Restated Financial Data Schedule, for the quarter ended 
            June 30, 1997.

   27.7     Restated Financial Data Schedule, for the quarter ended
            September 30, 1997.


-----------------------------------------------------
* Incorporated  herein by reference to the Company's  Registration  Statement on
Form S-1, as amended (File No. 33-97576).

**Incorporated  herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.

***Incorporated by reference to the Company's  Registration  Statement on Form
S-1, as amended (File No. 333-01499)

+  Confidential treatment granted as to certain portions, which are omitted and
filed separately with the Commission.

++ Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q 
for the quarterly period ended March 31, 1997.

+++Incorporated by reference to the Company's  Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997.