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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(Mark
One)

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

                  For the fiscal year ended December 31, 1996

                                      OR
  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                      For the Transition period from to

                        COMMISSION FILE NUMBER 0-19058

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

                           PLATINUM TECHNOLOGY, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                              36-3509662
     (STATE OR OTHER JURISDICTION                 (I.R.S. EMPLOYER
   OF INCORPORATION OR ORGANIZATION)             IDENTIFICATION NO.)

           1815 SOUTH MEYERS ROAD, OAKBROOK TERRACE, ILLINOIS 60181
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

      Registrant's telephone number, including area code: (630) 620-5000

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

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

                    Common Stock, par value $.001 per share
                               (Title of Class)
                6 3/4% Convertible Subordinated Notes due 2001
                               (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 this Form 10-K. [X]

  As of March 25, 1997, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant (based upon the per share
closing sale price of $11 7/8 on March 25, 1997, and for the purpose of this
calculation only, the assumption that the registrant's directors and executive
officers are affiliates) was approximately $702,724,096.

  The number of shares outstanding of the registrant's Common Stock, par value
$.001, as of March 25, 1997 was 61,351,286.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement in connection with its
1997 Annual Meetingof Stockholders are incorporated by reference into Part III
                                    hereof.

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                                    PART I

ITEM 1. BUSINESS

  The discussion below contains certain forward-looking statements (as such
term is defined in the rules promulgated pursuant to the Securities Exchange
Act of 1934) that are based on the beliefs of the management of PLATINUM
technology, inc. and its subsidiaries (collectively, the "Company" or
"PLATINUM"), as well as assumptions made by, and information currently
available to, the Company's management. The Company's actual growth, results,
performance and business prospects and opportunities in 1997 and beyond could
differ materially from those expressed in, or implied by, any such forward-
looking statements. See "Safe Harbor Provision" on page 23 for a discussion of
risks and uncertainties that could cause or contribute to such material
differences.

  The Company develops, markets and supports software products, and provides
related professional services, that help chief information officers ("CIOs")
better manage their software infrastructures. The Company's products and
services increase the performance and interoperability of computing systems
and databases and provide users, primarily in large and data intensive
organizations, with more reliable and productive access to and use of critical
information. The Company's products typically perform fundamental functions
and mission-critical automation, such as maintenance of data integrity,
systems security, systems scheduling, project and process management, and end-
user specific analysis and reporting. The Company develops software products
under six business units: database management, systems management, application
lifecycle, data warehouse, business intelligence and applications solutions.
Addressing businesses' increasing demand for simplified vendor relationships
and complete solutions to information technology ("IT") problems, the
Company's goal is to become the leading provider of software infrastructure
solutions by offering a comprehensive set of "best of breed" point products,
product bundles and integrated product suites. The Company also offers a wide
array of professional services, including consulting, systems integration and
educational programs, often in conjunction with software product sales.

  To achieve its goal, the Company identified key technologies and skill sets
to better manage corporate software infrastructure. Through a combination of
an aggressive acquisition program and vigorous internal product development
efforts, the Company has assembled the competencies to create complete
infrastructure management solutions. Since mid-1994, the Company has acquired
37 businesses and 24 technologies. The Company is now leveraging the breadth
of its product lines and its professional service capabilities, and is
devoting substantial resources to integrating its products and technologies,
to provide complete, customized solutions for software infrastructure
problems. These solutions include single products; product suites, which are
sets of closely integrated products from multiple business units; and product
bundles, which are sets of software applications that are packaged together
but do not necessarily have the level of integration that defines a suite; as
well as design and implementation services provided by the Company's
professional services staff. These solutions also include ongoing product
upgrades, maintenance and support, sometimes pursuant to multi-year contracts.
Evidencing the increasing demand from the Company's customers for
comprehensive solutions, the Company executed 47 transactions of over $1
million during 1996, as compared to only two such transactions during 1995.

  Since the beginning of 1996, the Company's software developers have focused
on product integration and the bundling of products to satisfy critical
customer needs, along with continued expansion and enhancement of the
Company's product lines. The Company also is enabling its products and suites
for application with intranets, the Internet and the World Wide Web (the
"Web"). The cornerstone of the Company's integration efforts is the PLATINUM
Open Enterprise Management Solution ("POEMS"), an internally developed
integration tool set and method designed to give the Company's products a
common look and feel, common installation and distribution and common
communication, data and events handling. The Company is creating solutions for
general business needs, as well as the needs of specific industries. For
example, during 1996, the Company released PLATINUM RiskAdvisor, a data
warehouse decision support application developed specifically for the
insurance industry. The Company has also released its "Necessities" product
suite for building, testing and deploying intranet applications, and has
developed a comprehensive solution for the Year 2000 problem. In

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addition, the Company intends to use a number of its current products and
technologies as the foundation for a new, integrated product offering designed
to enable companies to simultaneously manage, maintain and deploy multiple Web
sites.

MARKET OVERVIEW

  The deployment, management, maintenance and productive use of IT has become
increasingly complex as organizations have moved from centralized host-based
computing systems to networked, open systems environments. These modern
computing environments frequently service multiple end-users spread across
numerous locations. These environments are heterogeneous and consist of
various computing applications, platforms (including mainframes,
minicomputers, workstations and desktop PCs/LANs), relational database
management systems ("RDBMS"), operating systems (including UNIX, Windows,
Windows NT, OS/400, OS/2, MVS and VMS) and media, including intranets, the
Internet and/or the Web. These open environments are also dynamic; users, as
well as hardware and software resources, are frequently added, removed or
changed and new, mission-critical applications are continually being developed
and deployed.

  The Internet, a global web linking thousands of computer networks, has
emerged as an important medium for communications in these complex IT
environments. Much of the recent growth in the use of the Internet is
attributable to the rapid expansion of the network of graphical servers and
information known as the Web. As organizations become familiar with the Web,
they are increasingly using Internet data formats and communications
protocols, Web client and server software and, in some cases, the Internet's
communication facilities as the backbone for private networks ("intranets")
that connect these organizations' various local area networks.

  While open computing environments can provide greater functionality than
host-based systems as well as price-performance advantages, organizations have
found that administration tools and utilities of traditional mainframe systems
are unable to address the complex requirements of these environments. As a
result, a market need has arisen for comprehensive, user-friendly, high-
performance and cost-effective infrastructure solutions that offer the
functionality traditionally associated with mainframe solutions, but are
designed for open systems environments. The Company believes that, due to the
complexities of these new computing environments, CIOs are increasingly
seeking to purchase IT products and services from a smaller number of vendors
that can offer, design and implement complete, integrated infrastructure
solutions.

PRODUCTS

  The Company provides software tools and technologies that help organizations
efficiently operate and manage their complex software infrastructure and
related environments, which contain multiple platforms and multiple operating
systems. These tools increase the efficiency of individual computing systems
and databases, as well as the interoperability of these systems and databases
in distributed environments of any size. The Company's solutions support
platforms and operating systems that span mainframe, midrange and PC/LAN
computing environments, including MVS, UNIX, OS/2, OS/400, Windows and Windows
NT. They also support multiple, heterogeneous databases, such as the DB2
family, Oracle, Sybase, Microsoft SQL Server and Informix.

  The Company now offers over 140 robust and adaptable point products through
six business units:

  Database Management Products--The Company provides a leading set of tools
and utilities for centralized or distributed administration, analysis and
monitoring of heterogeneous databases. The Company's solutions for DB2 give
users the power and flexibility that they require for application development,
database administration, performance analysis and utilities. By automating
administrative and maintenance tasks, these software solutions enable users to
achieve the highest performance levels possible, increase data availability,
automate arduous administrative tasks, dramatically reduce completion time,
and deliver new products or enhancements to end-users faster and with more
flexibility. Principal database management products include the following:

  . Database Analyzer--a DB2 DASD and database monitoring, analysis,
    validation, forecasting and tuning tool. It provides extensive
    statistical reporting capabilities, automated maintenance, auditing of
    internal structures, as well as a DB2 page editor.

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  . RC Migrator--a tool that automates DB2 object and data migrations and
    alterations, while maintaining object dependencies and preserving data
    security. Migrations may be performed on a one-to-one or one-to-many
    basis.

  . TS Reorg--a powerful tablespace reorganization tool for Oracle, Informix
    and Sybase databases of any size. TS Reorg delivers fast reorganizations
    of entire tablespaces, individual tables and indexes. It also provides
    efficient fragmentation of used and free space and automatic data
    partitioning. TS Reorg can run on UNIX, VMS or Windows NT-based server
    systems.

  Systems Management Products--The Company offers products that enable
organizations to manage resources and events to optimize and centralize
different platforms, whether local or remote, so that applications can scale to
large numbers of machines and reside where they are most cost-efficient; to
automate routine systems maintenance tasks and processes, thereby streamlining
enterprise management, enhancing system reliability and reducing costs; and to
simplify the management of disparate systems and enterprise-wide applications
and increase end-use productivity. Included in these product offerings are
solutions for systems management spanning several related disciplines,
including job and process management, enterprise automation, storage
management, output management, problem resolution, security management,
distribution management, asset management, change and configuration management,
performance management, finance and resource management, capacity planning, and
networking and connectivity. The Company offers over 20 products developed to
provide the functionality required by businesses, while scaling across multiple
platforms that include UNIX, Windows, Windows NT, OS/400, OS/2, MVS and VMS.
Principal systems management products include the following:

  . AutoSys--a reliable batch job scheduler which simplifies the task of
    managing and monitoring multiple jobs in distributed UNIX environments.
    It provides centralized control of job execution across heterogeneous
    platforms and offers flexible features, such as self-correcting job
    control and automated restart and recovery capabilities.

  . DBVision--a scalable, UNIX-based tool for continuous monitoring and
    centralized management of Oracle, Sybase, Microsoft SQL Server and
    Informix databases in any size network. DBVision collects and displays
    performance measurements in real time or retrospect. It automatically
    detects and corrects performance problems and predicts space shortages.

  . AutoSecure--a tool that provides mainframe-caliber security for UNIX
    hosts, which makes administration consistent across UNIX platforms. It
    protects LOGINs to the system, password quality, execution of privileged
    programs, file access, user ID substitutions and network connections.

  Application Lifecycle Products--The Company offers products that enable
organizations to streamline the entire application lifecycle, from estimation
to deployment and maintenance. These products also facilitate the development
of sophisticated, high-performance systems that can adapt to changes in
evolving, open environments. Business processes are automated through solutions
for project and process management, analysis and design, construction, testing,
distribution, change and configuration management, and help desk support.
Principal application lifecycle products include the following:

  . AionDS--a complete application development solution that combines rule-
    based technology and object-oriented programming. Developers can use its
    powerful language to build applications that automate complex business
    strategies and process logic.

  . CCC/Harvest--a tool that provides software change and configuration
    management, integrated problem tracking and software process automation
    in open, client/server environments through a consistent interface. It
    integrates with other tools and monitors the development process for
    individual developers, development teams and application managers.

  . Paradigm Plus--a powerful, object-oriented analysis and design tool that
    supports Enterprise Component Modeling (ECM), code generation and reverse
    engineering. Using ECM, companies can identify business requirements,
    model and build reusable application components and manage long-term
    information systems.

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  Data Warehouse Products--The Company offers an integrated set of solutions
for all major warehousing functions, including data extraction and refinement,
data distribution, and data access and analysis. This comprehensive solution
set helps organizations build, manage and maintain data warehouses. A data
warehouse is a data store that gives end-users full access to periodically
consolidated, historical data for making business decisions and analyzing
trends without jeopardizing the performance of mission-critical operations.
Warehousing tools can capture data in many forms on numerous platforms,
transfer it to multiple database platforms and provide users with the means to
access and manage such information. Repository tools play a key role in data
warehouses as places for centralized control and collection points for status
information concerning the warehouses and their activities. Principal data
warehouse products include the following:

  . InfoPump--a bi-directional client/server middleware tool, InfoPump
    automates the process of replicating, transferring and integrating data
    in heterogeneous environments on a scheduled or event-driven basis.

  . Repository--a metadata source that links warehouse resources, targets and
    end-user query tools, enterprise-wide. Repository stores the information
    necessary to define a migration environment and for the mapping of
    sources to targets, as well as translation requirements, business rules
    and selection criteria for building a warehouse.

  Business Intelligence Products--The Company offers an integrated tool set
that enables organizations to better leverage their corporate data
investments. These products allow end-users to derive value and insight from
corporate information by facilitating the access, analysis, reporting and
delivery of enterprise data. Powerful point products can be used separately to
meet specific needs, or as part of an integrated business intelligence
solution. By bringing database and warehouse information to enterprise
desktops, users can effectively identify business trends, analyze complex
information, create timely reports and make informed decisions. Principal
business intelligence products include the following:

  . Forest & Trees--a data analysis and reporting tool for sophisticated
    business intelligence and decision support systems. It enables end-users
    and developers to collect, combine, monitor and analyze information from
    a variety of sources, including PC spreadsheets and databases, database
    servers, mainframe systems and Lotus Notes.

  . InfoBeacon--a next-generation decision support solution that contains an
    analytical processing engine to handle user requests for multi-
    dimensional views of data stored in relational database management
    systems and to perform standard and custom calculations. Based on a
    three-tier client/server architecture, InfoBeacon brings rapid response
    and enterprise scalability to the data warehouse analysis environment.

  . InfoReports--an advanced reporting tool that lets end-users create ad hoc
    and production reports using a familiar Windows interface. Users can
    build multiple-query reports that combine data from different databases.
    These reports can be executed on any client or server while retaining
    identical formatting attributes.

  Applications Solutions Products--The Company also provides decision support
warehouses to suit the needs of specific industries. These prepackaged
solutions contain a data warehouse structure designed for optimal query
performance, combined with a decision support system that provides users with
timely access to value-added information. Applications are available now for
the insurance industry as well as sales and marketing support functions. The
Company expects to offer additional applications in 1997. The following is a
description of the Company's insurance industry applications solution:

  . RiskAdvisor--this product suite, which provides a comprehensive strategic
    solution for analyzing large amounts of stored business data, was
    designed specifically for the insurance industry. It provides multiple
    analytical facilities, all keyed to insurance business indicators. This
    allows companies to proactively manage their businesses by identifying
    loss activity trends, reducing operating costs in policy issuance and
    claims control and understanding claim caseload activity.

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  In the past, businesses licensed products on a stand-alone basis to address
each of their needs as they arose, including management performance, systems
security, object design and quality assurance. By combining tools and
technologies within and across its business units, the Company now provides
product suites that feature a variety of functions which present complete
solutions to businesses' software infrastructure problems. These integrated
product offerings allow businesses to experience comprehensive benefits
without having to deal with multiple products or multiple vendors. The Company
has designed product suites that address software infrastructure problems that
are shared by businesses from various industries, as well as product suites
that target software infrastructure problems that are unique to specific
industries. The following provides a brief description of some of the
Company's recent product suite offerings:

  . SystemVision 2000--this product suite, developed through a combination of
    tools and technologies made available through internal development,
    acquisitions and marketing agreements, provides an end-to-end solution to
    the problem created by the century date change, commonly known as the
    Year 2000 problem. It enables businesses to analyze, plan, implement and
    test century date changes in an integrated manner. As a result,
    businesses can minimize exposure, more effectively plan resources and
    reduce costs and time associated with the Year 2000 problem.

  . Netcessities--this product suite, which is the result of integration
    between, and enhancements to, the Company's application lifecycle
    solution products, enables professional developers to analyze, construct,
    test and deploy enterprise-wide intranet applications. It offers a
    complete solution for delivering mission-critical applications to
    businesses' intranets, emphasizing object-oriented technologies and
    sophisticated database access.

PRODUCT LICENSES

  The Company provides its software products to customers under non-exclusive,
non-transferable license agreements (including standard shrink-wrap licenses
for certain products). As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its software products to customers. Under the Company's
current standard license agreement, licensed software may be used solely for
the customers' internal operations and only on designated hardware at
specified sites, which may be comprised of a stand-alone computer, a single
network server with multiple terminals or multiple network servers with
multiple terminals.

  Licenses for the Company's software are almost exclusively perpetual,
although annual and monthly licenses are also offered. License fees may be due
upon execution by the customer of the applicable product agreement or may be
payable over time for contracts involving multi-year commitments for
maintenance and product upgrades. List prices are based upon the size of the
processor, number of servers and/or number of users, depending upon the type
of license and product being licensed. The Company's published list price
includes discounts for suite, enterprise and multi-site licenses. Licenses
generally include more than one product. Under the Company's current standard
license agreement, maintenance is renewed on an annual basis by the customer
paying the current maintenance fee. Customers may also commit for maintenance
and product support over extended periods of time. See "Technical Support and
Maintenance."

PRODUCT DEVELOPMENT

  The Company is pursuing its strategy by continuing its emphasis on
internally developing new software products and product enhancements,
acquiring products, technologies and businesses complementary to the Company's
existing product lines and forming alliances with leading technology
companies. The Company has formed separate in-house development teams to
efficiently integrate acquired products and technologies into existing product
lines. During 1996, 1995 and 1994, product development and support expenses of
the Company were $160,379,000, $94,027,000 and $51,781,000, respectively. As
of March 25, 1997, the Company employed approximately 1,665 persons in product
development and support.

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  Internal Development--The Company will continue to rely on the internal
development of products for expansion of its product lines. The Company
believes its RDBMS expertise and experience give it a competitive advantage in
developing products that address increasingly complex environments and that
meet evolving customer needs. In order to fully exploit acquired software
development personnel, and to access new sources of talent, the Company has
established approximately 34 independent development laboratories, generally at
the locations of newly-acquired companies. These development laboratories are
interconnected via video conferencing, e-mail, Lotus Notes and other
communication technologies, and use various hardware, operating systems and
database systems which give the Company the ability to simulate the
environments of its customers. Laboratories have responsibility for their
product lines and receive guidance from POEMS teams to foster interoperability.

  Acquisitions--The Company continually reviews acquisition candidates with
leading-edge products and technologies that could enhance the Company's product
portfolio. The Company has particularly emphasized this approach to accelerate
the Company's expansion beyond the relational database management market. The
technologies associated with the products of the acquired businesses are being
incorporated into the Company's existing internally developed products and are
being used in developing new products. In addition to providing the Company
with new products and technologies, these acquisitions have provided the
Company with experienced teams of product developers who now staff the
Company's independent development laboratories. The Company plans to continue
to pursue acquisition opportunities because it believes that acquisitions are
an essential part of the Company's strategy to compete effectively in its
rapidly evolving marketplace.

  Technology Relationships--To reinforce its commitment to providing solutions
for CIOs' software infrastructures, the Company has implemented its PLATINUM
Partner Program, whereby the Company has established strategic and technology
relationships with several hardware, software and database vendors. The Company
believes that in order to provide solutions for heterogeneous computing
environments, it will need to continue to establish and maintain key
relationships with leading technology companies, such as IBM/Tivoli, Hewlett-
Packard, Oracle, Sybase, Informix and Microsoft. These technical and marketing
alliances provide the Company early access to product information and pre-
release software.

PROFESSIONAL SERVICES

  As part of its strategy to provide complete solutions for CIOs, the Company
offers a range of professional services, including consulting services and
educational programs. These services help businesses construct and manage
infrastructures in which complex software products can be used. These services
can improve and accelerate customization, implementation and deployment of the
Company's software products. The Company believes that more rapid and effective
implementation of its software products will lead to increased customer
satisfaction and greater follow-on sales. For these reasons, the Company is
beginning to package its professional services as a standard feature of its
product sales. As of March 25, 1997, the Company employed approximately 750
persons in professional services.

  Consulting Services--The Company is focusing significant effort on developing
and expanding its consulting services group. Primarily developed through recent
acquisitions of consulting services companies, this group provides consulting
services to end-user customers of computer systems, including those that desire
to migrate from information systems that use proprietary environments to open
systems environments. Other services provided include (i) technology selection,
strategy and infrastructure, (ii) large scale systems design, implementation
and management, (iii) data warehouse design and implementation, (iv) systems
troubleshooting and (v) rapid prototyping of open systems to ascertain
feasibility. Customers for these services include original equipment
manufacturers, the Company's product customers, system integrators and business
end-users.

  Educational Programs--The Company believes that its education services play
an important role in increasing market awareness of its software products among
IT personnel, including application developers, database administrators and
end-users. Offering a comprehensive curriculum that supports leading
technologies, the Company conducts a set of training courses designed to deal
with the critical issue of skills management.

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These courses cover several key technology areas of software infrastructure
management and are held at various training centers in the U.S. and throughout
the Company's international operations. The Company also offers on-site
computer-based training courses and self-led Internet-based training courses
that users may complete in their own offices or homes. The Company believes
that this capability has further strengthened the Company's position in the
education market.

  The Company continually reviews acquisition candidates that are leading-edge
service providers that could enhance the Company's service offerings. The
Company is also expanding its professional services through internal growth.

SALES AND MARKETING

  The Company employs a multi-faceted sales strategy. For software products,
the Company utilizes telemarketers, an inside sales force, an outside sales
force, product seminars, user group participation, direct mail and print
advertising. The Company also utilizes certain indirect sales channels, such
as distributors, VARs and OEM relationships for selected products.

  Domestic (U.S.) Software Sales--Since January 1, 1997, the Company has
organized its domestic direct sales force by regions throughout the United
States. The Company formerly combined the domestic and Canadian sales forces
to represent the North American sales force. The Canadian sales team is now
part of the Company's international sales force. To support the rapid
expansion of its product line, the Company, during 1996 and 1995, accelerated
its sales force hiring and training process. The Company currently has
approximately 350 individuals in its domestic direct sales force.

  Generally, for domestic software product licenses, the Company's
telemarketing specialists call prospective customers to identify and qualify
leads. Once a lead has been qualified, the prospective client is turned over
to an inside sales person to arrange a short-term, free product evaluation of
the Company's products, to the extent appropriate. Once a product evaluation
has been arranged, a direct sales person and a technical field support person
call on the prospective customer to assist it with trials, demonstrate product
features and close sales. The evaluation process allows a user to test the
products' overall effectiveness, performance and competitive capabilities
before entering into a license agreement. The Company also licenses certain
software products, for which trials are not appropriate, through the use of
its telemarketing organization and shipment of such products under shrink-wrap
or other license. The Company employs sophisticated call center technology for
the Company's telemarketers and sales force automation tools for tracking,
forecasting and reporting across the various sales teams.

  International Software Sales--The Company generally markets its products
overseas through a network of wholly-owned subsidiaries. Generally, these
subsidiaries use an approach similar to that used by the Company domestically,
utilizing an international direct sales force of approximately 200
individuals. As of March 25, 1997, the Company had subsidiaries in Australia,
Austria, Belgium, Brazil, Denmark, Finland, France, Germany, Hong Kong,
Indonesia, Italy, Japan, Korea, Malaysia, the Netherlands, Norway, Singapore,
South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand and the United
Kingdom. The Company expects that it will establish other foreign subsidiaries
in the future to meet its strategic objectives. In a few countries, primarily
in South America and the Middle East, the Company markets its products through
independent distributors.

  Global Accounts--The Company now designates certain large, geographically
disbursed entities as "global accounts." Each of these accounts is managed, on
a worldwide basis, by a single executive who focuses his or her attention on
the diverse needs of the enterprise.

  Professional Services--The Company's consulting services and educational
programs are marketed by separate direct sales forces.

  User Group Leadership--The Company believes that its sales and marketing
efforts have also been greatly enhanced by participation in domestic and
international user groups. The Company plays a major role in the activities of
International DB2 Users Group, the International Oracle Users Group, the
International Sybase Users Group and other smaller user groups, and expects to
continue to do so in the future.

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TECHNICAL SUPPORT AND MAINTENANCE

  The Company's in-house technical support group, located at various sites
throughout the U.S., provides pre-sale, installation and post-sale support,
including toll-free telephone support during regular business hours, to
current users and potential customers evaluating the Company's products. The
technical support group also offers seven-day, 24-hour toll-free telephone
service for an additional fee. The Company believes that effective technical
support during product evaluation substantially contributes to product
acceptance, and that post-sale support has been, and will continue to be, a
substantial factor in customer satisfaction.

  The Company offers a maintenance program for its software products, which
consists of product enhancements, updated products and technical support.
Maintenance is typically provided without additional charge during the
warranty period defined in the license agreements. Under the Company's
standard license agreement, customers renew maintenance and support on an
annual basis by paying the current maintenance fee. Customers may also commit
for maintenance and product support over extended periods of time. Maintenance
revenue implicit in new product sales and recurring maintenance charges are
recognized ratably over the period the maintenance and support services are to
be provided.

COMPETITION

  The Company operates in highly competitive markets and expects competition
to increase. The Company has encountered substantially enhanced competition as
it has moved from the relational database tool market to the much larger
software infrastructure products market and as it has entered the consulting
services business. The Company has also experienced many new competitors,
including relational database vendors and systems software companies. Many of
the Company's current and prospective competitors have significantly greater
financial, technical and marketing resources than the Company. In addition,
many prospective customers may have the internal capability to implement
solutions to their problems.

  The competitive factors affecting the market for the Company's software
products include the following: product functionality, integration,
performance and reliability; demonstrable economic benefits for users relative
to cost; quality of customer support and user documentation and ease of
installation; vendor reputation, experience and financial stability; and
price.

  The Company believes that it has competed effectively to date. The Company's
ability to remain competitive will depend, to a great extent, upon its ongoing
performance in the areas of product development and customer support. To be
successful in the future, the Company must respond promptly and effectively to
the challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings. Performance in these areas
will, in turn, depend upon the Company's ability to attract and retain highly
qualified technical personnel in a competitive market for experienced and
talented software developers. The Company also expects to continue its
strategy of identifying and acquiring software infrastructure products and
technologies and businesses which have developed such products and
technologies.

  In addition, the Company encounters competition from a broader range of
firms in the market for professional services. Many of the Company's current
and prospective competitors in the professional services business have
significantly greater financial, technical and marketing resources than the
Company. The competitive factors affecting the market for the Company's
professional services include the following: breadth and quality of services
offered, vendor reputation and the ability to retain qualified technical
personnel.

INTELLECTUAL PROPERTY RIGHTS

  The Company has historically relied upon a combination of contractual
rights, trademarks, trade secrets, and copyright laws to establish and protect
its proprietary rights in its products. The Company also holds some patents
and believes that patents are becoming increasingly important to the software
industry. Consequently, the Company is taking actions to further protect its
proprietary rights through software patents. The Company's

                                       9
<PAGE>

license agreements restrict a customer's use of the Company's software and
prohibit disclosure to third persons. Notwithstanding those restrictions, it
may be possible for unauthorized persons to obtain copies of the Company's
software products. The Company believes that because of the rapid pace of
technological change in the computer software industry, 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 registers its product names and other
trademarks in the United States and certain foreign countries.

EMPLOYEES

  As of March 25, 1997, the Company employed approximately 4,070 persons,
including 1,345 in sales, marketing and related activities, 1,665 in product
development and support, 750 in professional services and 310 in management,
administration and finance. The Company's success is highly dependent on its
ability to attract and retain qualified employees. Competition for employees is
intense in the software industry. None of the Company's employees is
represented by a labor union or is the subject of a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are good.

ITEM 2. PROPERTIES

  The Company's principal administrative, marketing, training, and product
development and support facilities are located in Oakbrook Terrace, Illinois,
where the Company leases approximately 322,000 square feet under leases
terminating in December 2002, with plans to lease additional space in the near
future. The Company has recently leased an additional approximately 164,000
square feet of administrative, marketing, sales and product development space
in Lisle, Illinois, near the Company's headquarters, under leases terminating
in January and October 2003. In addition, the Company leases space for
approximately 100 sales offices and product development laboratories throughout
the United States and Canada, ranging in size from approximately 1,000 to
45,000 square feet. The Company plans to expand certain of these facilities and
believes that its existing space and planned expansions will be adequate to
meet its needs during 1997. The Company anticipates seeking additional space in
the future to accommodate its growth.

ITEM 3. LEGAL PROCEEDINGS

Computer Associates' International, Inc., and L'Agence pour la Protection des
Programmes v. La Societe Faster, S.A.R.L. (Commercial Court of Bobigny, Paris,
France).

  Altai, Inc., a wholly-owned subsidiary of the Company ("Altai"), is involved
in a suit in France which concerns copyright infringement claims identical to
those on which Altai previously prevailed against Computer Associates
International, Inc. ("CA") in the U.S. The French appellate court granted
Altai's request that the U.S. appellate courts copyright ruling should bind the
Commercial Court of Bobigny as a matter of law. In January 1995, the French
appellate court issued a decision rejecting CA's claim of copyright
infringement. CA's subsequent appeal is still pending as well as motions from
Altai that the U.S. court decisions are binding with respect to the French
case.

                                       10
<PAGE>

BeaconWare v. Reltech Group, Inc., PLATINUM technology, inc. and Software
Interfaces, Inc.

  BeaconWare, a Maine software developer, sued in the Maine Superior Court the
Company, Reltech Group, Inc. ("Reltech") and Software Interfaces, Inc.
("SII"), two wholly-owned subsidiaries, seeking compensatory and punitive
damages and equitable relief, on tort and contract theories, with respect to
Reltech's alleged failure to market SQLPro, a BeaconWare query tool. On
November 6, 1996, BeaconWare and the defendants settled the action and
dismissed the proceeding. The defendants paid to BeaconWare an amount which
the Company considers immaterial.

  The Company is also subject to certain other legal proceedings and claims
which have arisen in the ordinary course of business and which have not been
fully adjudicated. Management currently believes the ultimate outcome of such
matters and those described above will not have a material adverse effect on
the Company's results of operations or financial position.

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

  No matters were submitted to a vote of security holders during the fourth
quarter of 1996.

                                      11
<PAGE>

                                    PART II

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

  The Company's Common Stock, $.001 par value (the "Common Stock"), is traded
on the Nasdaq National Market under the symbol "PLAT." The following table
sets forth, for the quarters indicated, the range of high and low closing sale
prices for the Common Stock on the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                 PRICE RANGE OF
                                                                  COMMON STOCK
                                                                ----------------
                                                                  HIGH     LOW
                                                                -------- -------
      <S>                                                       <C>      <C>
      Year Ended December 31, 1995:
        First Quarter.......................................... $25      $19
        Second Quarter.........................................  20 1/4   15
        Third Quarter..........................................  25 1/4   18 1/8
        Fourth Quarter.........................................  20 5/8   14 1/2
      Year Ended December 31, 1996:
        First Quarter.......................................... $18 3/8  $11 7/8
        Second Quarter.........................................  18 3/16  12 7/8
        Third Quarter..........................................  15 1/4    9 3/4
        Fourth Quarter.........................................  14 3/4   11
</TABLE>

  As of March 25, 1997, the Company's stock was held by approximately 1,138
holders of record.

  The Company has never declared any cash dividends or distributions on its
capital stock. The Company currently intends to retain its earnings to finance
future growth and therefore does not anticipate paying any cash dividends in
the foreseeable future.

  On December 13, 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM") from the shareholders of VREAM, in exchange for
760,383 shares of Common Stock. The shares of Common Stock were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. There were no underwriters or other distributors.

  The Company did not sell any other unregistered securities during the fourth
quarter of 1996.

                                      12
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

  The selected consolidated financial data set forth below have been derived
from the historical financial statements of the Company. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes thereto contained
elsewhere herein.

<TABLE>
<CAPTION>
                           1996       1995(1)      1994(1)      1993(1)     1992(1)
                         --------     --------     --------     --------    --------
<S>                      <C>          <C>          <C>          <C>         <C>
STATEMENT OF OPERATIONS
 DATA
  Total revenues........ $439,190     $304,676     $225,439     $175,380    $141,964
  Operating income
   (loss)...............  (82,493)(2) (128,162)(3)   (2,223)(4)    3,336(5)    3,012 (6)
  Net income (loss).....  (67,962)(2) (111,933)(3)   (2,644)(4)      625(5)   (2,433)(6)
  Net income (loss) per
   share................    (1.22)(2)    (2.59)(3)    (0.07)(4)     0.02(5)    (0.06)(6)
  Shares used in per
   share calculation....   55,564       43,267       39,890       37,971      35,507
BALANCE SHEET DATA
  Cash, cash equivalents
   and investments...... $181,822     $132,775     $124,563     $ 69,554    $ 60,054
  Working capital.......  209,621      126,679       89,651       43,607      40,530
  Total assets..........  609,512      438,188      262,760      169,882     136,307
  Long-term obligations
   and acquisition-
   related payables,
   less current portion.  118,302       11,342        9,075        3,416         181
  Total stockholders'
   equity...............  291,201      288,452      158,837       92,944      82,963
</TABLE>
--------
(1) The selected consolidated financial data give retroactive effect to the
    acquisitions of Prodea Software Corporation ("Prodea") as of February 8,
    1996, Paradigm Systems Corporation ("Paradigm") as of March 26, 1996, and
    Axis Systems International, Inc. ("Axis") as of March 29, 1996, each of
    which has been accounted for under the pooling-of-interests method for
    financial reporting purposes. As a result, the financial position and
    results of operations are presented as if the combining companies had been
    consolidated for all periods presented.
(2) Reflects a pre-tax charge for acquired in-process technology of
    $48,456,000 relating to the Company's acquisitions of the outstanding
    capital stock of Advanced Systems Technologies, Inc. ("AST"), Software
    Alternatives, Inc. (d/b/a System Software Alternatives) ("Software
    Alternatives"), Grateful Data, Inc. (d/b/a TransCentury Data Systems)
    ("Grateful Data") and VREAM, Inc. ("VREAM"); substantially all of the
    assets of the Access Manager business unit of the High Performance Systems
    division of International Computers Limited ("Access Manager"); and
    certain product technologies. Also reflects a pre-tax charge for merger
    costs of $5,782,000 relating primarily to the Company's acquisitions of
    Prodea, Paradigm and Axis.
(3) Reflects a pre-tax charge for acquired in-process technology of
    $88,493,000 relating to the Company's acquisitions of the outstanding
    capital stock of SQL Software Corporation ("SQL"), Reltech, Advanced
    Software Concepts, Inc. ("ASC"), AIB Software Corporation ("AIB"),
    Protellicess Software, Inc. ("Protellicess") and BMS Computer, Inc.
    ("BMS"); the net assets of ViaTech Development, Inc. ("ViaTech"),
    BrownStone Solutions, Inc. ("BrownStone") and ProtoSoft, Inc.
    ("ProtoSoft"); and certain product technologies. Also reflects a pre-tax
    charge for merger costs of $30,819,000 relating to the Company's
    acquisitions of SII, Answer Systems, Inc. ("Answer"), Locus Computing
    Corporation ("Locus"), Altai, Trinzic Corporation ("Trinzic") and Softool
    Corporation ("Softool").
(4) Reflects a pre-tax charge for acquired in-process technology of
    $24,594,000 relating to the Company's acquisitions of the outstanding
    capital stock of Dimeric Development, Inc. ("Dimeric") and the net assets
    of Aston Brooke Corporation ("Aston Brooke") and AutoSystems Corporation
    ("AutoSystems").
(5) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
    relating to the Company's acquisition of the outstanding capital stock of
    Datura Corporation ("Datura") and a pre-tax charge of $4,659,000 relating
    to Trinzic and Locus restructuring costs.
(6) Reflects a pre-tax charge of $7,873,000 relating to Trinzic restructuring
    costs.

                                      13
<PAGE>

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


  The discussion below contains certain forward-looking statements (as such
term is defined in the rules promulgated pursuant to the Securities Exchange
Act of 1934) that are based on the beliefs of the Company's management, as
well as assumptions made by, and information currently available to, the
Company's management. The Company's actual growth, results, performance and
business prospects and opportunities in 1997 and beyond could differ
materially from those expressed in, or implied by, any such forward-looking
statements. See "Safe Harbor Provision" on page 23 for a discussion of risks
and uncertainties that could cause or contribute to such material differences.

GENERAL

  The Company develops, markets and supports software products, and provides
related professional services, that help CIOs better manage their software
infrastructures. The Company's products and services increase the performance
and interoperability of computing systems and databases and provide users,
primarily in large and data intensive organizations, with more reliable and
productive access to and use of critical information. As an integral part of
the Company's growth strategy, it has consummated a number of significant
business combinations, including acquisitions of SII, Answer, Locus, Altai,
Trinzic, Softool, Prodea, Paradigm and Axis, each of which has been accounted
for using the pooling-of-interests method. As a result, the Company's
consolidated financial statements are presented as if the Company and such
acquired companies had been consolidated for all periods presented.
Information regarding the Company in this Management's Discussion and Analysis
of Financial Condition and Results of Operations gives retroactive effect to
these acquisitions. See note 2 of the notes to the Company's consolidated
financial statements, included in this Form 10-K, for a more detailed
discussion of these acquisitions.

RESULTS OF OPERATIONS

  The following table sets forth for the years indicated (1) each line item
from the statement of operations expressed as a percentage of revenues, and
(2) the percentage change in each line item from the prior year.

<TABLE>
<CAPTION>
                                  PERCENTAGE OF
                                  TOTAL REVENUES
                                   YEARS ENDED                YEAR-TO-YEAR
                                   DECEMBER 31,             PERCENTAGE CHANGE
                                  ------------------   ---------------------------
                                                       1996 COMPARED 1996 COMPARED
                                  1996   1995   1994      TO 1995       TO 1995
                                  ----   ----   ----   ------------- -------------
<S>                               <C>    <C>    <C>    <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Software products..............  56%    52%    51%         54%           39%
  Maintenance....................  23     25     26          34            30
  Professional services..........  21     23     23          34            32
                                  ---    ---    ---
    Total revenues............... 100    100    100          44            35
                                  ---    ---    ---
Costs and expenses:
  Professional services..........  19     19     19          37            41
  Product development and
   support.......................  37     31     23          71            82
  Sales and marketing............  42     39     34          57            55
  General and administrative.....   9     14     14          (5)           27
  Merger costs...................   1     10    --          (81)            *
  Acquired in-process technology.  11     29     11         (45)          260
                                  ---    ---    ---
    Total costs and expenses..... 119    142    101          21            90
                                  ---    ---    ---
Operating loss................... (19)   (42)    (1)          *             *
Other income.....................   1      1      1          20            40
                                  ---    ---    ---
Income (loss) before income
 taxes........................... (18)   (41)   --            *             *
Income taxes.....................  (3)    (4)     1           *             *
                                  ---    ---    ---
Net loss......................... (15)%  (37)%   (1)%         *             *
                                  ===    ===    ===
</TABLE>
--------
*Not meaningful.

                                      14
<PAGE>

REVENUES

  The Company's revenues are currently derived from three sources: (i) license
fees for licensing the Company's proprietary software products; (ii)
maintenance fees for maintaining, supporting and providing current upgrades of
the Company's software products; and (iii) revenues from professional
services, which consist of consulting services and educational programs. Total
revenues from all sources for 1996 were $439,190,000, an increase of
$134,514,000, or 44%, over 1995 total revenues of $304,676,000. Total revenues
for fiscal 1995 increased $79,237,000, or 35%, over 1994 total revenues of
$225,439,000.

  Revenues from customers in North America (U.S. and Canada) represented 76%,
76% and 82% of the Company's total revenues in 1996, 1995 and 1994,
respectively. Revenues from international customers (non-North American)
represented 24%, 24% and 18% of the Company's total revenues in 1996, 1995 and
1994, respectively. The increased proportion of international revenues to
total revenues in 1996 and 1995 as compared to 1994 was the result of the
significant investment in the global marketplace. The Company's North American
and international revenues both grew 44% in 1996 as compared to 1995. As a
result, the proportion of international to worldwide revenues remained
constant between years. The Company anticipates that its international
business will continue to experience solid growth as the international sales
force gains tenure. International revenues are now generated almost entirely
by the Company's international subsidiaries. For 1996, approximately 4% of the
Company's international revenues were provided by the Company's international
affiliates, which are independent distributorships through which the Company
previously generated a substantial portion of its international product
revenues.

  Software Products. Software products revenues represented 56%, 52% and 51%
of total revenues in 1996, 1995 and 1994, respectively. In 1996, software
products revenues increased 54% to $243,938,000 over 1995 as a result of
increases of 64%, 50%, 66%, 20% and 63%, respectively, experienced by the
Company's database management, systems management, application lifecycle, data
warehouse and business intelligence business units. From 1994 to 1995,
software products revenues increased 39% from $113,749,000 to $158,597,000.
The Company believes the growth in software products revenues over the past
three years has resulted from the continued marketplace acceptance of the
Company's products across all business units and the Company's aggressive
expansion of its sales and marketing efforts, as well as new product
offerings. During 1996, the Company expanded its customer base, increased
sales of integrated product suites and executed larger sales transactions. The
Company's database management, systems management, application lifecycle, data
warehouse and business intelligence business units represented 40%, 29%, 11%,
10% and 10%, respectively, of total software products revenues in 1996; 38%,
29%, 11%, 13% and 9%, respectively, of total software products revenues in
1995; and 47%, 24%, 12%, 6% and 11%, respectively, of total software products
revenues in 1994.

  Near the end of 1996, the Company established a new business unit,
applications solutions, which provides data warehouse structures tailored to
fulfill the decision support requirements of specific industries. Revenues
derived from this business unit during 1996 were minimal. The Company
anticipates this new business unit will incur substantial growth during 1997
as its products are launched into the marketplace.

  Maintenance. Maintenance revenues in 1996 increased 34% over 1995 to
$102,364,000, and 1995 maintenance revenues of $76,498,000 represented an
increase of 30% over 1994 maintenance revenues of $58,837,000. Maintenance
revenues are derived from recurring fees charged to perpetual license
customers and the implicit first year maintenance fees bundled in certain
software product sales. The Company provides maintenance customers with
technical support and product enhancements. Maintenance revenues are deferred
and recognized ratably over the term of the agreement. The increases during
1996 and 1995 were primarily attributable to the expansion of the Company's
installed customer base, from which maintenance fees are derived. Maintenance
fees implicit in certain new software product sales also contributed to the
increase. Management believes that maintenance revenues should continue to
increase as the installed base of the Company's software products increases
and matures.

  Professional Services. Professional services revenues are associated with
the Company's consulting services business and educational programs. In 1996,
professional services revenues increased 34% over 1995 to

                                      15
<PAGE>

$92,888,000. From 1994 to 1995, professional services revenues increased 32%
from $52,853,000 to $69,581,000. The increases in professional services
revenues during 1996 and 1995 were primarily due to the addition of
established consulting practices through various acquisitions during these
years, as well as the growth experienced within these acquired businesses. The
Company expects its professional services business to continue to grow as it
focuses on offering consulting, systems integration and educational programs
as part of, and in conjunction with, its comprehensive software infrastructure
management solutions.

COSTS AND EXPENSES

  Total expenses for 1996 were $521,683,000, an increase of 21% over 1995
expenses of $432,838,000, which increased 90% over 1994 expenses of
$227,662,000. Total expenses for 1996, excluding merger costs and acquired in-
process technology charges, were $467,445,000, an increase of $153,919,000, or
49%, compared to $313,526,000 for 1995. Total expenses for 1995, excluding
merger costs and acquired in-process technology charges, increased 54% as
compared to 1994 total expenses, excluding acquired in-process technology
charges, of $203,068,000. During 1996 and 1995, the Company incurred
significant costs in supporting its development laboratories and in building
the infrastructure to support the significantly larger combined company that
is the result of recent acquisitions. These costs were primarily associated
with the expansion of the inside and outside sales forces; hiring of product
developers and support technicians plus key management personnel; training all
personnel in software infrastructure systems issues and new products;
providing additional financial and technical support to the international
subsidiaries established in recent years; translating product materials into
numerous foreign languages; and augmenting internal support systems.
Management believes that such investments have been, and continue to be,
necessary to fully exploit the market opportunity for the newly acquired
products and to adequately manage the significantly larger enterprise.

  Professional Services. Costs of professional services increased to
$82,657,000 in 1996 from $60,341,000 in 1995 and $42,858,000 in 1994. Costs of
professional services as a percentage of professional services revenue were
89%, 87% and 81% in 1996, 1995 and 1994, respectively. The increases in these
expenses during 1996 and 1995 were related to salaries and other direct
employment expenses as a result of the Company's continued hiring to support
this business, the increased use of external consultants and the addition of
established consulting practices through various acquisitions. The Company
anticipates professional services expenses will decrease as a percentage of
professional services revenue as the productivity of the professional services
workforce increases.

  Product Development and Support. Product development and support expenses
increased to $160,379,000 in 1996, from $94,027,000 in 1995 and $51,781,000 in
1994. Product development and support expenses as a percentage of total
revenues were 37%, 31% and 23% in 1996, 1995 and 1994, respectively. The
increases in these expenses in 1996 and 1995 were primarily attributable to
the hiring of additional product developers, in-house as well as field
technical support personnel and technical writers; increased allocated charges
for office space and overhead; and increased hardware and software costs
related to the product development effort. In addition, the Company's
expansion of its product line, growing customer base and focus on the global
marketplace resulted in higher travel expenses and increased product
documentation costs during 1996 and 1995. Higher bonus and royalty expenses
associated with increased software product revenues in 1996 and 1995 also
contributed to the increase in product development and support expenses.

  The Company has devoted substantial resources to the development and
integration of its products and technologies to provide complete, customized
management solutions for software infrastructure problems. As a result,
through the second quarter of 1996, the Company hired a significant number of
product development and support personnel. The Company believes that these
actions were required in order to strengthen its competitive position in the
software infrastructure marketplace, enhance existing products and
satisfactorily support the Company's growing customer base. However, as the
Company tempered hiring of product developers and support personnel in the
second half of 1996 and continued to focus on cost containment efforts,
product development and support expenses as a percentage of total revenues
decreased to 34% for the last six months of 1996. Although product development
and support expenses will remain a significant component of annual operating
expenses, the Company anticipates that these expenses will continue to
decrease as a percentage of total revenues.

                                      16
<PAGE>

  In 1996, 1995 and 1994, the Company capitalized $27,246,000, $13,591,000 and
$5,987,000, respectively, of internal software development costs, net of
related amortization expense, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product development and
support expenses plus capitalized internal software development costs, net of
related amortization expense, were $187,625,000 in 1996, $107,618,000 in 1995
and $57,768,000 in 1994, which amounted to 54%, 46% and 33%, respectively, of
software product and maintenance revenues during those periods.

  Sales and Marketing. Sales and marketing expenses increased to $185,185,000
in 1996 from $117,906,000 in 1995 and $75,885,000 in 1994. Sales and marketing
expenses as a percentage of total revenues were 42%, 39% and 34% in 1996, 1995
and 1994, respectively. The continuous increase in these expenses as a
percentage of total revenues from 1994 to 1996 was primarily attributable to
costs associated with the significant expansion of the domestic and
international outside and inside sales forces and telemarketing organization.
The Company also incurred higher commission expense associated with the
increase in software products revenues during 1996 and 1995. Also contributing
to the increase in sales and marketing expenses were greater marketing costs
associated with the Company's expanded product line. The Company believes the
large investment in sales and marketing made during 1996 and 1995 was
necessary in order to build the sales organization required to distribute the
Company's expanded product line and exploit new market opportunities. The
Company expects that sales and marketing expenses will decrease as a
percentage of revenues as the sales force gains tenure and as the Company
continues to focus on consolidating marketing resources for its global
marketing strategy.

  General and Administrative. General and administrative expenses decreased to
$39,224,000 in 1996 from $41,252,000 in 1995, which was an increase from
$32,544,000 in 1994. General and administrative expenses as a percentage of
total revenues were 9%, 14% and 14%, in 1996, 1995 and 1994, respectively. The
increase in these expenses from 1994 to 1995 was primarily related to salaries
and other direct employment expenses attributable to an expanded
administrative staff in both the U.S and international subsidiaries,
amortization of excess of cost over net assets acquired related to the
Company's acquisitions accounted for as purchases and increased professional
fees. During 1996, a concerted effort to consolidate redundant administrative
functions at the Company's various domestic locations resulted in a
significant reduction in these expenses as a percentage of total revenues.

  Merger Costs. Merger costs were $5,782,000 and $30,819,000 in 1996 and 1995,
respectively. The Company incurred no merger costs in 1994. Merger costs
relate to acquisitions accounted for as poolings of interests and include
investment banking and other professional fees, employee severance payments,
costs of closing excess office facilities and various other expenses. The
Company expects to incur merger costs in connection with future acquisitions
accounted for as poolings of interests. These costs will be expensed in the
periods in which the transactions are consummated.

  Acquired In-Process Technology. Acquired in-process technology charges were
$48,456,000, $88,493,000 and $24,594,000 in 1996, 1995 and 1994, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies. These acquisitions were accounted for
under the purchase method, and portions of the purchase prices were allocated
to acquired in-process technology. The 1996 acquisition volume decreased from
the level of activity in 1995. See note 2 of the notes to the Company's
consolidated financial statements for a more detailed discussion of these
acquisitions.

  Prior to completing these acquisitions, the Company conducted reviews in
order to determine the fair market value of the organizations and technologies
to be acquired. These reviews consisted of an evaluation of existing products,
research and development in process (projects that had not reached
technological feasibility and had no alternative future use), customers,
financial position and other matters. The acquired in-process research and
development represent unique and emerging technologies, the application of
which is limited to the Company's software infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use. The
Company believes it has budgeted adequate research and development resources
to complete the contemplated projects over time periods ranging from six to
eighteen months from the dates of acquisition. The Company

                                      17
<PAGE>

expects to continue to incur charges for acquired in-process technology in
connection with future acquisitions, which will reduce operating and net income
for the periods in which the acquisitions are consummated. The Company plans to
continue to pursue merger and acquisition opportunities, because it believes
that acquisitions are an essential part of the Company's strategy to compete
effectively in its rapidly evolving marketplace.

OTHER INCOME

  Other income was $5,156,000 in 1996 as compared to $4,281,000 in 1995 and
$3,052,000 in 1994. The increase in other income during 1996 as compared to
1995 was primarily attributable to realized gains on the sale of investments
securities classified as available-for-sale and unrealized holding gains on
trading securities. This increase was partially offset by interest expense on
the Company's convertible subordinated notes issued in November 1996 (see
"Liquidity and Capital Resources") and lower interest income earned on smaller
cash and investment balances in the first ten months of 1996 as compared to the
prior-year period. The increase in other income in 1995 over 1994 was primarily
attributable to interest earned on higher cash and investment balances
maintained during 1995 as compared to 1994.

INCOME TAXES

  The Company recognized an income tax benefit of $9,375,000 in 1996 and
$11,948,000 in 1995 and an income tax expense of $3,473,000 in 1994.

  The Company has available approximately $234,891,000 of net operating loss
carryforwards and $10,682,000 of tax credit carryforwards for Federal income
tax purposes, expiring through the year 2011. Some of the Company's tax
carryforwards are subject to limitations as to the amounts which may be used in
future years.

RECENT DEVELOPMENTS

  On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for 313,784
shares of Common Stock, which had a market value, based upon the trading price
of the Common Stock on the Nasdaq National Market ("Market Value"), of
approximately $5,000,000 at the time of the acquisition.

  On February 18, 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition. This
acquisition will be accounted for under the purchase method, and a significant
portion of the purchase price will be charged to acquired in-process technology
in the first quarter of 1997.

  On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867 shares
of Common Stock, which had a Market Value of approximately $17,200,000 at the
time of the acquisition.

  The acquisitions of ATR and I&S will be accounted for as poolings of
interest. Costs incurred in connection with these transactions will be expensed
in the first quarter of 1997.

INFLATION

  To date, inflation has not had a material impact on the Company's revenues or
income.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's cash, cash equivalents and investments were $181,822,000 as of
December 31, 1996 as compared to $132,775,000 as of December 31, 1995 and
$124,563,000 as of December 31, 1994. See "Cash Flows" below.

                                       18
<PAGE>

  The Company had trade and installment accounts receivable, net of allowances,
of $195,740,000 and $122,461,000 as of December 31, 1996 and 1995,
respectively. The Company sells software products and services to customers in
diversified industries and geographic regions and, therefore, has no
significant concentration of credit risk. Historically, a substantial amount of
the Company's revenues have been recorded in the third month of any given
quarter, with a concentration of such revenues in the last week of the third
month. This trend results in a high balance of accounts receivable relative to
reported revenues at the end of any quarterly reporting period.

  The Company's sources of liquidity have traditionally been cash generated
from operations and funds from capital markets, including bank facilities.
During 1996, the sale of receivables became a significant source of liquidity.
The Company believes the funding available to it from these sources will be
sufficient to satisfy its working capital requirements for the foreseeable
future. The Company's capital requirements are primarily dependent on
management's business plan regarding the levels and timing of investments in
existing and newly-acquired businesses and technologies. These plans and the
related capital requirements may change based upon various factors, such as the
Company's strategic opportunities, developments in the Company's markets, the
timing of closing and integrating acquisitions and the conditions of financial
markets.

  The Company sells a significant portion of its installment receivables to
third parties. Proceeds from the sale of receivables for 1996 were
$129,328,000, as compared to $2,903,000 for 1995. The Company did not sell
installment receivables prior to 1995. In 1996 and 1995, a portion of the
receivables were sold with recourse provisions. As of December 31, 1996, the
Company's maximum exposure under recourse provisions was approximately
$26,100,000. The Company has assessed the exposure related to these recourse
provisions and determined the potential liability to be minimal.

  The Company's installment receivables are recorded net of unamortized
discounts and deferred maintenance fees. When these receivables are sold, the
Company reduces the gross installment receivable balance. Additionally, the
Company reclassifies the deferred maintenance to an obligation, which was
previously reflected as a reduction of the related installment receivable
balance. The deferred maintenance is recognized into income ratably over the
term of the maintenance agreement.

  The Company had long-term acquisition-related payables of $2,502,000 and
$9,756,000 and other long-term obligations of $115,800,000 and $1,586,000 as of
December 31, 1996 and 1995, respectively. The significant increase in long-term
obligations at December 31, 1996 as compared to December 31, 1995 was
attributable to the $115,000,000 of convertible subordinated notes (the
"Notes") issued by the Company in November 1996. The Notes bear interest at
6.75% annually and mature on November 15, 2001. The holders of the Notes have
the option to convert them into shares of Common Stock, at any time prior to
maturity, at a conversion price of $13.95 per share. The Company received
proceeds, net of issuance costs, of $110,783,000 from the offering of these
Notes.

  The Company currently has an unsecured bank line of credit of $25,000,000,
under which borrowings bear interest at rates ranging from approximately LIBOR
plus 1% to the bank's prime rate. As of March 25, 1997, the Company had no
outstanding borrowings under this line of credit. The Company currently has
aggregate letters of credit outstanding for approximately $1,300,000, with
expiration dates ranging from March 1997 through March 1998. These letters of
credit reduce the available line of credit balance.

CASH FLOWS

  Cash used in operating activities was $139,467,000 in 1996 and $28,267,000 in
1995. Cash provided from operating activities was $33,021,000 in 1994. During
1996, the Company incurred a net loss of $67,962,000 after the deferred tax
benefit of $9,375,000. This net loss was offset by non-cash charges, including
depreciation and amortization of $38,321,000 and acquired in-process technology
of $48,456,000. A high concentration of sales in the fourth quarter of 1996 was
largely responsible for an increase of trade and installment receivables,
before sales to third parties, of $201,485,000. This increase in receivables
was partially offset by an increase in deferred

                                       19
<PAGE>

maintenance of $60,754,000 and proceeds from the sale of installment
receivables of $129,328,000 (see the discussion of financing activities below).
Deferred maintenance increased primarily because of the high sales volume near
the end of 1996, the emergence of multi-year maintenance contracts, as well as
heightened activity of installment receivable sales. See note 6 of the notes to
the Company's consolidated financial statements for a more detailed discussion
of installment receivables.

  The utilization of cash from operating activities in 1995 was primarily due
to a significant increase in trade and installment receivables (before sales to
third parties) of $55,425,000, partially offset by an increase in deferred
maintenance of $18,342,000. This increase in receivables was attributable to
the high concentration of sales near the end of 1995, plus a slowdown in
collections due to the transition process associated with the numerous
acquisitions consummated in the second half of 1995. In 1995, the Company
incurred a net loss of $111,933,000, after a deferred tax benefit of
$11,948,000, which was substantially offset by non-cash charges of $23,522,000
for depreciation and amortization as well as $88,493,000 for acquired in-
process technology. A net increase of $4,958,000 in working capital accounts
and a decrease of $16,074,000 in other non-current assets resulted in sources
of cash from operations during 1995.

  Cash provided by operating activities in 1994 was attributable to the net
effect of the following factors: a net loss of $2,644,000, after the effects of
depreciation and amortization of $12,908,000 and acquired in-process technology
of $24,594,000; an increase in trade and installment receivables of
$18,718,000, partially offset by an increase in deferred maintenance of
$9,492,000, which were both due to high year-end sales volume; a net increase
in working capital accounts of $590,000; and a decrease in other non-current
assets of $6,458,000.

  Cash used in investing activities was $80,652,000 in 1996 compared to
$138,301,000 in 1995 and $51,766,000 in 1994. Beginning in 1994, the Company
executed an aggressive acquisition program in order to assemble the core
competencies to create complete software infrastructure solutions. This
acquisition plan resulted in the investment of substantial resources during
1996, 1995 and 1994, including cash payments of $17,853,000, $103,085,000 and
$22,756,000, respectively. See note 2 of the notes to the Company's
consolidated financial statements for a more detailed discussion of the
acquisitions consummated in these years. The Company also invested resources
for property and equipment of $35,055,000, $38,780,000 and $13,492,000 in 1996,
1995 and 1994, respectively. The substantial increase in capital expenditures
in 1996 and 1995 as compared to 1994 related to the building of the
infrastructure to support the significantly larger combined company that is the
result of these acquisitions. In 1996, 1995 and 1994, the Company invested
$41,267,000, $20,742,000 and $10,898,000, respectively, for purchased and
developed software costs. During 1996, the Company invested heavily in the
development and integration of its product technologies, including
approximately $3,513,000 in payments for purchased software. The Company
expects to continue to actively invest in internally developed point products,
product bundles and integrated product suites, as well as strategic business
and technology acquisitions. Proceeds from the sales and maturities of
investment securities, net of purchases, were $17,272,000 and $24,788,000
during 1996 and 1995, respectively. Cash expended during 1994 for purchases of
investment securities, net of maturities, was $6,169,000.

  Cash flows from financing activities were $245,204,000 in 1996, $202,160,000
in 1995 and $67,506,000 in 1994. Sales of installment receivables became a
significant source of liquidity for the Company during 1996, providing funds of
$129,328,000. The Company also completed the offering of the Notes in November
1996 and received aggregate proceeds, net of issuance costs, of $110,783,000.
The proceeds from these two sources were used, and will continue to be used,
primarily for the operating and investing activities discussed above. In
October 1995, the Company completed a public offering of Common Stock, which
provided $194,420,000 in proceeds, net of issuance costs. The Company also
executed a public offering of Common Stock in December 1994, which provided
cash of $65,909,000, net of issuance costs.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

  In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Implementation of SFAS No. 125 is

                                       20
<PAGE>

required in the fiscal year commencing January 1, 1997. SFAS No. 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers of secured borrowings. SFAS No. 125 is not expected to
have a significant impact on the Company's consolidated financial statements.

QUARTERLY COMPARISONS

  The following tables set forth an unaudited summary of quarterly financial
data. This quarterly information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion, reflects
all adjustments necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

  The Company has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having the highest total revenues and operating
income. For example, 33% and 32% of the Company's total revenues in 1996 and
1995, respectively, were generated in the fourth quarter. Further, revenues for
the fourth quarter of 1995 were higher than revenues for the first quarter of
1996. Since operating expenses continued to increase in the first quarter, the
Company realized substantially lower operating margins and net income for this
period. The Company expects this pattern to continue for the foreseeable
future. The Company believes the seasonality of its revenues results primarily
from the budgeting cycles of its software product customers and the structure
of the Company's sales commission and bonus programs. In addition, the
Company's software product revenues may vary significantly from quarter to
quarter depending upon other factors such as the timing of new product
announcements and releases by the Company and its competitors. The Company
operates with relatively little backlog, and substantially all of its software
product revenues in each quarter result from sales made in that quarter.

                                       21
<PAGE>

        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND COMMON STOCK PRICES)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                           1996
                            -----------------------------------------------
                             FIRST        SECOND       THIRD        FOURTH
                            QUARTER      QUARTER      QUARTER      QUARTER
                            --------     --------     --------     --------
<S>                         <C>          <C>          <C>          <C>
Total revenues............. $ 82,471     $100,485     $113,430     $142,804
Operating loss.............  (32,374)(1)  (10,072)     (10,636)(2)  (29,411)(3)
Net loss...................  (24,504)(1)   (5,791)      (7,693)(2)  (29,974)(3)
Net loss per share......... $  (0.45)(1) $  (0.10)    $  (0.14)(2) $  (0.53)(3)
Shares used in computing
 net loss per share........   54,915       55,214       55,678       56,419
<CAPTION>
                                           1995
                            -----------------------------------------------
                             FIRST        SECOND       THIRD        FOURTH
                            QUARTER      QUARTER      QUARTER      QUARTER
                            --------     --------     --------     --------
<S>                         <C>          <C>          <C>          <C>
Total revenues, as
 previously reported....... $ 55,481     $ 64,573     $ 64,641     $ 91,226
Adjustments(4).............    7,579        7,223        7,146        6,807
Total revenues.............   63,060       71,796       71,787       98,033
Operating loss, as
 previously reported.......  (17,688)(5)   (4,002)(6)  (38,401)(7)  (68,865)(8)
Adjustments(4).............      370          398          267         (241)
Operating loss.............  (17,318)(5)   (3,604)(6)  (38,134)(7)  (69,106)(8)
Net loss, as previously
 reported..................  (14,438)(5)   (2,559)(6)  (28,900)(7)  (66,577)(8)
Adjustments(4).............      432          248          156         (295)
Net loss...................  (14,006)(5)   (2,311)(6)  (28,744)(7)  (66,872)(8)
Net loss per share, as
 previously reported....... $  (0.38)(5) $  (0.07)(6) $  (0.76)(7) $  (1.40)(8)
Net loss per share.........    (0.34)(5)    (0.06)(6)    (0.69)(7)    (1.31)(8)
Shares used in computing
 net loss per share, as
 previously reported.......   37,520       37,902       38,117       47,697
Shares used in computing
 net loss per share........   40,738       41,283       41,460       51,032
</TABLE>
--------
(1) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
    relating to the Company's acquisition of the outstanding capital stock of
    AST and the purchase of certain product technologies. Also reflects a pre-
    tax charge for merger costs of $5,782,000 relating primarily to the
    Company's acquisitions of Prodea, Paradigm and Axis.
(2) Reflects a pre-tax charge for acquired in-process technology of $4,090,000
    relating to the Company's acquisition of the outstanding capital stock of
    Software Alternatives and Grateful Data.
(3) Reflects a pre-tax charge for acquired in-process technology of $37,361,000
    relating to the Company's acquisition of the outstanding capital stock of
    VREAM and substantially all of the assets of Access Manager.
(4) Adjustments reflect the effects of the acquisitions of Prodea, Paradigm and
    Axis, each of which has been accounted for using the pooling-of-interests
    method, on the amounts previously reported under "Quarterly Comparisons" in
    the Company's Annual Report on Form 10-K for the year ended December 31,
    1995. See note 2 of the notes to the Company's consolidated financial
    statements for a more detailed discussion of these transactions.
(5) Reflects a pre-tax charge for acquired in-process technology of $18,799,000
    relating primarily to the Company's acquisition of the outstanding capital
    stock of SQL and Reltech, and the net assets of Viatech and Brownstone.
(6) Reflects a pre-tax charge for acquired in-process technology of $1,354,000
    relating to the purchase of certain product technologies. Also reflects a
    pre-tax charge for merger costs of $2,152,000 relating to the Company's
    acquisition of SII.

                                       22
<PAGE>

(7) Reflects a pre-tax charge for acquired in-process technology of $5,300,000
    relating to the acquisition of the outstanding capital stock of ASC. Also
    reflects a pre-tax charge for merger costs of $22,612,000 relating to the
    Company's acquisitions of Answer, Locus, Altai and Trinzic.
(8) Reflects a pre-tax charge for acquired in-process technology of
    $63,040,000 relating primarily to the acquisitions of the outstanding
    capital stock of AIB, Protellicess and BMS, and the net assets of
    ProtoSoft. Also reflects a pre-tax charge for merger costs of $6,055,000
    relating to the Company's acquisition of Softool.

SAFE HARBOR PROVISION

  This Form 10-K contains certain statements which reflect the Company's
expectations regarding its future growth, results of operations, performance
and business prospects and opportunities. Wherever possible, words such as
"anticipate," "believe," "plan," "expect" and similar expressions have been
used to identify these "forward-looking" statements. These statements reflect
the Company's current beliefs and are based on information currently available
to the Company. Accordingly, these statements are subject to risks and
uncertainties which could cause the Company's actual growth, results,
performance and business prospects and opportunities to differ from those
expressed in, or implied by, these statements. These risks and uncertainties
include the maturation and success of the Company's software infrastructure
system strategy, risks inherent in conducting international business, risks
associated with conducting a professional services business, general economic
and business conditions, charges and costs related to acquisitions, and the
Company's ability to: develop and market existing and acquired products for
the software infrastructure market; successfully integrate its acquired
products, services and businesses and continue its acquisition strategy;
adjust to changes in technology, customer preferences, enhanced competition
and new competitors in the software infrastructure and professional services
markets; protect its proprietary software rights from infringement or
misappropriation; maintain or enhance its relationships with relational
database vendors; and attract and retain key employees. The Company is not
obligated to update or revise these forward-looking statements to reflect new
events or circumstances.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The information in response to this item is included in the Company's
consolidated financial statements, together with the report thereon of KPMG
Peat Marwick LLP, appearing on pages F-1 through F-23 of this Form 10-K, and
in Item 7 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Comparisons."

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE

  None.

                                      23
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The information in response to this item is incorporated by reference from
the sections captioned "PROPOSAL NO. 1--ELECTION OF DIRECTORS" and "EXECUTIVE
OFFICERS" of the definitive Proxy Statement to be filed in connection with the
Company's 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

  The information in response to this item is incorporated by reference from
the section of the 1997 Proxy Statement captioned "EXECUTIVE COMPENSATION."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information in response to this item is incorporated by reference from
the section of the 1997 Proxy Statement captioned "SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information in response to this item is incorporated by reference from
the section of the 1997 Proxy Statement captioned "CERTAIN TRANSACTIONS."

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

  (a)  1. The following consolidated financial statements and notes thereto
       and the related independent auditors' report are included on pages F-1
       through F-23 of this Form 10-K:

    Consolidated Balance Sheets as of December 31, 1996 and 1995

    Consolidated Statements of Operations for the Years Ended December 31,
    1996, 1995 and 1994

    Consolidated Statements of Stockholders' Equity for the Years Ended
    December 31, 1996, 1995 and 1994

    Consolidated Statements of Cash Flows for the Years Ended December 31,
    1996, 1995 and 1994

    Notes to Consolidated Financial Statements

    Independent Auditors' Report

    2. The following financial statement schedule of the Company and the
    related report of independent auditors are included on pages S-1 and S-
    2 of this Form 10-K:

    Report of Independent Auditors

    Schedule II--Valuation and Qualifying Accounts

    All other financial statement schedules are omitted because such
    schedules are not required or the information required has been
    presented in the aforementioned financial statements.

    3. The following exhibits are filed with this Form 10-K or incorporated
    by reference as set forth below:

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                       DESCRIPTION
-------                                     -----------
<S>      <C>
 2.1     Agreement and Plan of Reorganization dated as of January 16, 1996, as amended by
         Amendment No. 1 thereto dated as of January 31, 1996, by and among the Company, PS
         Acquisition Corporation and Prodea Software Corporation, and the related Agreement
         of Merger, incorporated by reference to Exhibits 2.1 and 2.2, respectively, to the
         Company's Current Report on Form 8-K dated February 8, 1996.
</TABLE>

                                      24
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                       DESCRIPTION
-------                                     -----------
<S>      <C>
 3.1     Restated Certificate of Incorporation of the Company, as amended, incorporated by
         reference to Exhibit 3.1(d) to the Company's Registration Statement on Form S-1,
         Registration No. 333-07783.
 3.2     Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the Company's
         Registration Statement on Form S-1, Registration No. 33-39233 (the "IPO S-1
         Registration Statement").
 4.1     Specimen stock certificate representing Common Stock, incorporated by reference to
         Exhibit 4.1 to the IPO S-1 Registration Statement.
 4.2     Rights Agreement dated as of December 21, 1995 between the Company and Harris
         Trust and Savings Bank, incorporated by reference to Exhibit 1 to the Company's
         Registration Statement on Form 8-A, filed December 26, 1995 (the "1995 8-A").
 4.3     Certificate of Designations of the Class II Series A Junior Participating
         Preferred Stock, incorporated by reference to Exhibit 4.3 to the Company's Annual
         Report on Form 10-K for the year ended December 31, 1995 (the "1995 10-K").
 4.4     Form of Indenture between the Company and American National Bank and Trust
         Company, as Trustee, incorporated by reference to Exhibit 4.4 to the Company's
         Registration Statement on Form S-3, Registration No. 333-15421 (the "1996 S-3").
 4.5     Form of Note for the Company's convertible subordinated notes due 2001,
         incorporated by reference to Exhibit 4.2 to the 1996 S-3.
10.1     1989 Stock Option Plan, incorporated by reference to Exhibit 10.1 to the IPO S-1
         Registration Statement.*
10.2     Forms of Stock Option Agreements, incorporated by reference to Exhibit 10.2 to the
         IPO S-1 Registration Statement.*
10.3     Chief Executive Stock Option Plan, incorporated by reference to Exhibit 10.3 to
         the IPO S-1 Registration Statement.*
10.4     Chief Executive Stock Option Agreement, incorporated by reference to Exhibit 10.4
         to the IPO S-1 Registration Statement.*
10.5     1991 Stock Option Plan, incorporated by reference to Exhibit 10.5 to the IPO S-1
         Registration Statement.*
10.6     Employment Agreement between Andrew J. Filipowski and the Company, incorporated by
         reference to Exhibit 10.6 to the IPO S-1 Registration Statement.*
10.7     Employment Agreement between Paul L. Humenansky and the Company, as amended,
         incorporated by reference to Exhibit 10.7 to the Company's Registration Statement
         on Form S-1, Registration No. 33-43345 (the "Additional S-1 Registration
         Statement").*
10.8     Employment Agreement between Michael P. Cullinane and the Company, incorporated by
         reference to Exhibit 10.8 to the IPO S-1 Registration Statement.*
10.9     Form of Indemnification Agreement between the Company and each of Andrew J.
         Filipowski, Michael P. Cullinane, Paul L. Humenansky, Casey G. Cowell, James E.
         Cowie, Steven D. Devick and Gian Fulgoni, incorporated by reference to Exhibit
         10.10 to the IPO S-1 Registration Statement.*
10.10    Forms of Affiliate Agreements, incorporated by reference to Exhibit 10.11 to the
         IPO S-1 Registration Statement.
10.11    Form of Master Product License Agreement, incorporated by reference to Exhibit
         10.11 to the 1995 10-K.
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                       DESCRIPTION
-------                                     -----------
<S>      <C>
10.12    Office Lease, dated May 6, 1992, between the Company and LaSalle National Trust
         N.A. as Trustee (the "Oakbrook Terrace Lease"), incorporated by reference to
         Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended
         December 31, 1992.
10.13    PLATINUM technology, inc. 1993 Directors' Stock Option Plan, incorporated by
         reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the
         quarter ended June 30, 1994 (the "June 1994 10-Q").*
10.14    PLATINUM technology, inc. 1994 Stock Incentive Plan, incorporated by reference to
         Exhibit 10.19 to the June 1994 10-Q.*
10.15    Amendments to the PLATINUM technology, inc. 1994 Stock Incentive Plan,
         incorporated by reference to Exhibit 4.3 to the Company's Registration Statement
         on Form S-8, Registration No. 33-85798 (the "1994 S-8").*
10.16    Form of Option Agreement under the PLATINUM technology, inc. 1993 Director's Stock
         Option Plan, incorporated by reference to Exhibit 4.4 to the 1994 S-8.*
10.17    Form of Option Agreement under the PLATINUM technology, inc, 1994 Stock Incentive
         Plan, incorporated by reference to Exhibit 4.5 to the 1994 S-8.*
10.18    Amendment Number One, dated as of May 3, 1993, to the Oakbrook Terrace Lease,
         incorporated by reference to Exhibit 10.19 to the 1994 10-K.
10.19    Amendment Number Two, dated as of October 26, 1993, to the Oakbrook Terrace Lease,
         incorporated by reference to Exhibit 10.20 to the 1994 10-K.
10.20    Amendment Number Three, dated as of December 22, 1994, to the Oakbrook Terrace
         Lease, incorporated by reference to Exhibit 10.21 to the 1994 10-K.
10.21    Office Lease, dated August 8, 1994, between the Company and L.J. Sheridan & Co. as
         court appointed receiver, incorporated by reference to Exhibit 10.22 to the 1994
         10-K.
10.22    PLATINUM technology, inc. Employee Incentive Compensation Plan, incorporated by
         reference to Exhibit 10.23 to the 1995 S-4.*
10.23    Lease Agreement, dated as of March 30, 1995, between the Company and Lisle
         Property Venture, Inc, (the "March 1995 Lisle Lease"), incorporated by reference
         to Exhibit 10.24 to the 1995 S-4.
10.24    First Amendment, dated as of September 15, 1995, to the March 1995 Lisle Lease,
         incorporated by reference to Exhibit 10.25 to the 1995 10-K.
10.25    Second Amendment, dated as of September 15, 1995, to the March 1995 Lisle Lease,
         incorporated by reference to Exhibit 10.26 to the 1995 10-K.
10.26    Third Amendment, dated as of January 3, 1996, to the March 1995 Lisle Lease,
         incorporated by reference to Exhibit 10.27 to the 1995 10-K.
10.27    Lease Agreement, dated as of October 31, 1995, between Lisle Property Venture,
         Inc. and the Company (the "October 1995 Lisle Lease"), incorporated by reference
         to Exhibit 10.28 to the 1995 10-K.
10.28    Amendment Number Four, dated as of March 9, 1995, to the Oakbrook Terrace Lease,
         incorporated by reference to Exhibit 10.29 to the 1995 10-K.
10.29    Loan Agreement, dated as of December 31, 1995, between the Company and American
         National Bank and Trust Company of Chicago (the "Loan Agreement"), incorporated by
         reference to Exhibit 10.30 to the 1995 10-K.
10.30    First Amendment, dated as of December 31, 1996, to the Loan Agreement.
10.31    First Amendment, dated as of May 23, 1996, to the October 31, 1995 Lisle Lease.
10.32    Second Amendment, dated as of May 24, 1996, to the October 31, 1995 Lisle Lease.
</TABLE>


                                       26
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.                                       DESCRIPTION
-------                                     -----------
<S>      <C>
10.33    Lease Agreement, dated as of July 17, 1996, between the Company and Oakbrook Tower
         Limited Partnership.
10.34    PLATINUM technology, inc. 1996 Stock Purchase Plan, incorporated by reference to
         Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration No.
         333-03284 (the "April 1996 S-8").*
10.35    PLATINUM technology, inc. Amended and Restated 1993 Directors' Stock Option Plan,
         incorporated by reference to Exhibit 4.2 to the April 1996 S-8.*
10.36    Amendment to the PLATINUM technology, inc. 1994 Stock Incentive Plan, incorporated
         by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
         June 30, 1996 (the "June 1996 10-Q").*
10.37    Amendment to the PLATINUM technology, inc. Employee Incentive Compensation Plan,
         incorporated by reference to the June 1996 10-Q.*
21       Subsidiaries of the Company.
23.1     Consent of KPMG Peat Marwick LLP with respect to the Company's financial
         statements and financial statement schedule.
23.2     Consent of Deloitte & Touche LLP with respect to Trinzic's financial statements.
23.3     Consent of Arthur Andersen LLP with respect to Locus' financial statements.
23.4     Consent of Arthur Andersen LLP with respect to Softool's financial statements.
27       Financial Data Schedule.
99.1     Report of Deloitte & Touche LLP on Trinzic's financial statements.
99.2     Report of Arthur Andersen LLP on Locus' financial statements.
99.3     Report of Arthur Andersen LLP on Softool's financial statements.
</TABLE>
--------
*  Management contract or compensatory plan or arrangement required to be
   included as an exhibit to this Annual Report on Form 10-K.

(b)Reports on Form 8-K:

    The Company did not file any Reports on Form 8-K during the fourth
    quarter of 1996.

                                      27
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                           AS OF DECEMBER 31,
                                                           --------------------
                                                             1996       1995
                                                           ---------  ---------
                         ASSETS
                         ------
<S>                                                        <C>        <C>
Current assets:
  Cash and cash equivalents..............................  $ 136,932  $ 111,847
  Short-term investment securities.......................     42,755      7,802
  Trade accounts receivable, net of allowances of $2,503
   and $2,695............................................    160,472    115,876
  Installment accounts receivable, net of allowances of
   $395 and $103.........................................     13,603      6,058
  Accrued interest and other current assets..............     11,702     10,545
  Refundable income taxes................................        629        355
                                                           ---------  ---------
    Total current assets.................................    366,093    252,483
                                                           ---------  ---------
Non-current investment securities........................      2,135     13,126
Property and equipment, net..............................     72,343     51,004
Purchased and developed software, net....................     82,423     52,268
Excess of cost over net assets acquired, net of
 accumulated amortization of $9,458 and $5,100...........     37,352     35,494
Non-current installment receivables, net of allowances of
 $816 and $11............................................     21,665        527
Other assets.............................................     27,501     33,286
                                                           ---------  ---------
    Total assets.........................................  $ 609,512  $ 438,188
                                                           =========  =========
<CAPTION>
          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------
<S>                                                        <C>        <C>
Current liabilities:
  Acquisition-related payables...........................  $   7,872  $  12,518
  Income taxes payable...................................      2,420      1,068
  Accounts payable.......................................     14,680     16,001
  Accrued commissions and bonuses........................     10,622      8,598
  Accrued royalties......................................      3,913      1,637
  Other accrued liabilities..............................     30,174     27,700
  Current maturities of long-term obligations............      3,075      1,313
  Deferred maintenance...................................     83,716     56,969
                                                           ---------  ---------
    Total current liabilities............................    156,472    125,804
                                                           ---------  ---------
Acquisition-related payables.............................      2,502      9,756
Deferred maintenance.....................................     38,674      3,795
Deferred rent............................................      4,863      8,795
Long-term obligations, net of current maturities.........    115,800      1,586
                                                           ---------  ---------
    Total liabilities....................................    318,311    149,736
                                                           ---------  ---------
Stockholders' equity:
  Class II preferred stock, $.01 par value; authorized
   10,000, none issued and outstanding...................        --         --
  Common stock, $.001 par value; authorized 180,000,
   issued and outstanding 59,173 and 53,194..............         59         53
  Paid-in capital........................................    486,664    433,103
  Notes receivable.......................................        --        (515)
  Accumulated deficit....................................   (212,579)  (144,662)
  Unrealized holding gains on marketable securities......     17,805        --
  Foreign currency translation adjustment................       (748)       473
                                                           ---------  ---------
    Total stockholders' equity...........................    291,201    288,452
                                                           ---------  ---------
    Total liabilities and stockholders' equity...........  $ 609,512  $ 438,188
                                                           =========  =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-1
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                                 -----------------------------
                                                   1996      1995       1994
                                                 --------  ---------  --------
<S>                                              <C>       <C>        <C>
Revenues:
  Software products............................. $243,938  $ 158,597  $113,749
  Maintenance...................................  102,364     76,498    58,837
  Professional services.........................   92,888     69,581    52,853
                                                 --------  ---------  --------
    Total revenues..............................  439,190    304,676   225,439
Costs and expenses:
  Professional services.........................   82,657     60,341    42,858
  Product development and support...............  160,379     94,027    51,781
  Sales and marketing...........................  185,185    117,906    75,885
  General and administrative....................   39,224     41,252    32,544
  Merger costs..................................    5,782     30,819       --
  Acquired in-process technology................   48,456     88,493    24,594
                                                 --------  ---------  --------
    Total costs and expenses....................  521,683    432,838   227,662
                                                 --------  ---------  --------
Operating loss..................................  (82,493)  (128,162)   (2,223)
Other income....................................    5,156      4,281     3,052
                                                 --------  ---------  --------
Income (loss) before income taxes...............  (77,337)  (123,881)      829
Income taxes....................................   (9,375)   (11,948)    3,473
                                                 --------  ---------  --------
Net loss........................................ $(67,962) $(111,933) $ (2,644)
                                                 ========  =========  ========
Net loss per share.............................. $  (1.22) $   (2.59) $  (0.07)
                                                 ========  =========  ========
Shares used in computing per share amounts......   55,564     43,267    39,890
</TABLE>



          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                       YEARS ENDED DECEMBER 31,
                           ----------------------------------------------------
                                 1996              1995             1994
                           ----------------  ----------------  ----------------
                           SHARES  AMOUNT    SHARES  AMOUNT    SHARES   AMOUNT
                           ------ ---------  ------ ---------  ------  --------
<S>                        <C>    <C>        <C>    <C>        <C>     <C>
Common stock:
 Balance at beginning of
  year...................  53,194 $      53  38,266 $      38  33,552  $     33
 Exercise of stock
  options................     517         1     803         1   1,186         1
 Issuance of common stock
  under Stock Purchase
  Plan...................     197       --      --        --      --        --
 Issuance of common
  stock..................   5,265         5  14,125        14   3,629         4
 Repurchase of common
  stock..................     --        --      --        --     (100)      --
 Adjustment to conform
  fiscal years of pooled
  businesses.............     --        --      --        --       (1)      --
                           ------ ---------  ------ ---------  ------  --------
 Balance at end of year..  59,173        59  53,194        53  38,266        38
                           ====== =========  ====== =========  ======  ========
Paid in capital:
 Balance at beginning of
  year...................           433,103           190,441           121,729
 Exercise of stock
  options................             2,380             4,754             5,083
 Income tax benefit
  related to stock
  options................               --                --                108
 Issuance of common stock
  under Stock Purchase
  Plan...................             1,801               --                --
 Issuance of common
  stock..................            49,515           237,907            64,923
 Repurchase of common
  stock..................               --                --             (1,400)
 Amortization of shelf
  registration costs.....              (135)              --                --
 Adjustment to conform
  fiscal years of pooled
  businesses.............                                   1                (2)
                                  ---------         ---------          --------
 Balance at end of year..           486,664           433,103           190,441
                                  =========         =========          ========
Notes receivable:
 Balance at beginning of
  year...................              (515)             (333)             (247)
 Exercise of stock
  options................               --                --                 (7)
 Issuance of notes
  receivable.............               --               (200)              (79)
 Repayment of note
  receivable.............               --                 18               --
 Reclassification to non-
  current asset..........               515               --                --
                                  ---------         ---------          --------
 Balance at end of year..               --              (515)              (333)
                                  =========         =========          ========
Accumulated deficit:
 Balance at beginning of
  year...................          (144,662)          (31,523)          (28,255)
 Net loss................           (67,962)         (111,933)           (2,644)
 Other...................               --                 18                 1
 Adjustment for
  immaterial pooled
  business...............                45               --                --
 Adjustment to conform
  fiscal years of pooled
  businesses.............               --             (1,224)             (625)
                                  ---------         ---------          --------
 Balance at end of year..          (212,579)         (144,662)          (31,523)
                                  =========         =========          ========
Unrealized appreciation
 in marketable
 securities:
 Balance at beginning of
  year...................               --                --                --
 Net unrealized holding
  gains, net of income
  taxes..................            17,805               --                --
                                  ---------         ---------          --------
 Balance at end of year .            17,805               --                --
                                  =========         =========          ========
Foreign currency
 translation adjustment:
 Balance at beginning of
  year...................               473               214              (316)
 Translation adjustment..            (1,221)              259               507
 Adjustment to conform
  fiscal years of pooled
  businesses.............               --                --                 23
                                  ---------         ---------          --------
 Balance at end of year..              (748)              473               214
                                  ---------         ---------          --------
Total stockholders'
 equity..................         $ 291,201         $ 288,452          $158,837
                                  =========         =========          ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                 ------------------------------
                                                   1996       1995       1994
                                                 ---------  ---------  --------
<S>                                              <C>        <C>        <C>
Cash flows from operating activities:
  Net loss.....................................  $ (67,962) $(111,933) $ (2,644)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Depreciation and amortization..............     38,321     23,522    12,908
    Acquired in-process technology.............     48,456     88,493    24,594
    Unrealized holding gains on marketable
     equity securities.........................       (920)       --        --
    Realized net gain on sale of investment
     securities................................     (1,032)      (332)      --
    Write-off of capitalized software in
     connection with product stabilization and
     mergers...................................        654        942       --
    Noncash compensation.......................        --          78       186
    Changes in assets and liabilities, net of
     acquisitions:
      Trade and installment receivables........   (201,485)   (55,425)  (18,718)
      Deferred income taxes....................    (16,337)   (12,986)    1,335
      Income taxes refundable (payable)........        993      2,615    (2,234)
      Accrued interest and other current
       assets..................................     (1,166)    (3,313)   (1,641)
      Accounts payable and accrued liabilities.     (3,035)     5,656     3,285
      Deferred maintenance.....................     60,754     18,342     9,492
      Other....................................      3,292     16,074     6,458
                                                 ---------  ---------  --------
Net cash provided by (used in) operating
 activities....................................   (139,467)   (28,267)   33,021
                                                 ---------  ---------  --------
Cash flows from investing activities:
  Purchases of investment securities...........    (18,797)   (61,484)  (25,079)
  Sales of investment securities...............     30,223     75,519       --
  Maturities of investment securities..........      5,846     10,753    18,910
  Purchases of property and equipment..........    (35,055)   (38,780)  (13,492)
  Purchased and developed software costs.......    (41,267)   (20,742)  (10,898)
  Payments for acquisitions....................    (17,853)  (103,085)  (22,756)
  Other assets.................................     (3,749)      (482)    1,549
                                                 ---------  ---------  --------
Net cash used in investing activities..........    (80,652)  (138,301)  (51,766)
                                                 ---------  ---------  --------
Cash flows from financing activities:
  Proceeds from issuance of common stock, net
   of issuance costs...........................        --     194,420    65,909
  Proceeds from issuance of convertible notes,
   net of issuance costs.......................    110,783        --        --
  Repurchase of common stock...................        --          (2)   (1,400)
  Proceeds from exercise of stock options and
   Stock Purchase Plan.........................      4,182      4,144     3,826
  Income tax benefit from stock option
   exercises...................................        --         --        108
  Proceeds from the sale of receivables........    129,328      2,903       --
  Short-term borrowings........................      1,115      8,205     1,675
  Payments on borrowings.......................       (204)    (7,296)   (1,675)
  Other........................................        --        (214)     (937)
                                                 ---------  ---------  --------
Net cash provided by financing activities......    245,204    202,160    67,506
                                                 ---------  ---------  --------
Adjustment to conform fiscal years of pooled
 businesses....................................        --      (2,203)      276
                                                 ---------  ---------  --------
Net increase in cash and cash equivalents......     25,085     33,389    49,037
Cash and cash equivalents at beginning of year.    111,847     78,458    29,421
                                                 ---------  ---------  --------
Cash and cash equivalents at end of year.......  $ 136,932  $ 111,847  $ 78,458
                                                 =========  =========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Nature of Operations

  PLATINUM technology, inc. and its subsidiaries (collectively, the "Company"
or "PLATINUM") develop, market and support software products, and provide
related professional services, that help chief information officers ("CIOs")
better manage their software infrastructures. The Company's products and
services increase the performance and interoperability of computing systems
and databases and provide users, primarily in large and data intensive
organizations, with more reliable and productive access to and use of critical
information. The Company's products typically perform fundamental functions
and mission-critical automation, such as maintenance of data integrity,
systems security, systems scheduling, project and process management, and end-
user specific analysis and reporting. The Company develops software products
under six business units: database management, systems management, application
lifecycle, data warehouse, business intelligence and applications solutions.
The Company markets and supports its products and services principally through
its own sales organization, including an international network of wholly-owned
subsidiaries.

 Use of Estimates

  In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, the Company's management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.

 Principles of Consolidation

  The consolidated financial statements include the accounts of PLATINUM
technology, inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

 Revenue Recognition

  Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery, customer acceptance, and when
all significant contractual obligations have been satisfied and the collection
of the resulting receivables are reasonably assured. Software product sales
under extended payment terms are discounted to present value. Revenues from
maintenance fees implicit in software product sales or separately priced
maintenance agreements are recognized on a straight-line basis over the
maintenance period.

  Professional services revenues are derived from the Company's consulting
services business and educational programs. These revenues are comprised of
both time and material contracts and fixed-price contracts. Time and material
contract revenues are recognized as services are performed. Fixed-price
contract revenues are recognized based on the percentage-of-completion method.

 Cash Equivalents and Investment Securities

  Cash equivalents are comprised of certain highly liquid investments with
original maturities of three months or less. Investment securities consist
primarily of state and municipal bonds with original maturities generally
ranging from two to ten years, corporate bonds with original maturities
generally ranging from six months to one year and equity securities. The
Company adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994. Under SFAS No. 115, the Company classifies
its investment securities as either available-for-sale or trading and reports
them at fair value.

                                      F-5
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity and are not actively traded. For
available-for-sale securities, unrealized holding gains and losses, net of
income taxes, are reported as a separate component of stockholders' equity.
For trading securities, unrealized holding gains and losses are reflected in
pre-tax earnings.

 Property and Equipment

  Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on the estimated useful lives, generally five
years, of the various classes of property and equipment. Amortization of
leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset.

 Purchased and Developed Software

  Software development costs are accounted for in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." Costs associated with the planning and designing phase of
software development, including coding and testing activities necessary to
establish technological feasibility, are classified as product development and
expensed as incurred. Once technological feasibility has been determined,
additional costs incurred in development, including coding, testing and
documentation, are capitalized.

  Amortization of purchased and developed software is provided on a product-
by-product basis over the estimated economic life of the software, generally
four years, using the straight-line method. This method generally results in
greater amortization expense per year than the method based on the ratio of
current year gross product revenue to current and anticipated future gross
product revenue. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be
in excess of the net realizable value of a product are expensed at the date of
such determination.

 Excess of Cost Over Net Assets Acquired

  Excess of cost over net assets acquired is amortized on a straight-line
basis over the expected period to be benefited, generally seven to ten years.
Adjustments to the carrying value of excess of cost over net assets acquired
are made if the sum of expected future net cash flows from the business
acquired is less than book value.

 Income Taxes

  Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period of enactment.

 Fair Value of Financial Instruments and Long-Lived Assets

  Under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
the Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1996: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-
related payables; accounts payable and other accrued

                                      F-6
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
liabilities; and long-term obligations, excluding convertible subordinated
notes. Investment securities are discussed in note 3, and convertible
subordinated notes are discussed in note 11.

  On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
under which the Company has reviewed long-lived assets and certain intangible
assets and determined that their carrying values as of December 31, 1996 are
recoverable in future periods.

 Earnings Per Share

  Net income per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of unexercised stock options
using the treasury stock method. Net loss per share is based on the weighted
average number of shares outstanding and does not include the effect of
unexercised stock options.

 Foreign Currency Translation and Transactions

  The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.

 Stock-Based Compensation

  On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board (APB) Opinion 25, "Accounting for
Stock Issued to Employees," and provide pro forma net income and earnings per
share disclosures as if the fair value method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion 25 and
provide the pro forma disclosures of SFAS No. 123.

 Supplemental Cash Flow Disclosure

  Net income tax refunds received by the Company amounted to $307,000,
$933,000 and $72,000 in 1996, 1995 and 1994, respectively. Cash paid for
income taxes in 1996, 1995 and 1994 was $1,799,000, $615,000 and $3,914,000,
respectively. Cash paid for interest in 1996, 1995 and 1994 was $769,000,
$784,000 and $272,000, respectively.

 Reclassifications

  Certain prior year balance sheet items have been reclassified to conform to
the 1996 presentation. In addition, certain prior years' costs and expenses
have been reclassified to conform to the 1996 presentation.

2. ACQUISITIONS

  On June 15, 1995, the Company acquired all of the outstanding capital stock
of Software Interfaces, Inc. ("SII"), a leading provider of data access,
reporting and data conversion utilities for relational and non-relational
database management systems, in exchange for 1,085,450 shares of the Company's
Common Stock, $.001 par

                                      F-7
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value, (the "Common Stock"), which had a market value, based upon the trading
price of the Common Stock on the Nasdaq National Market ("Market Value"), of
approximately $20,000,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase 14,377
shares of Common Stock.

  On August 9, 1995, the Company acquired all of the outstanding capital stock
and warrants of Answer Systems, Inc. ("Answer"), a pioneer in client/server
help desk solutions, in exchange for 1,567,946 shares of Common Stock, which
had a Market Value of approximately $38,000,000 at the time of the acquisition.
In addition, the Company assumed stock options which converted into options to
purchase 42,176 shares of Common Stock.

  On August 16, 1995, the Company acquired all of the outstanding capital stock
of Locus Computing Corporation ("Locus"), a leading provider of consulting
services for information technology users and suppliers, in exchange for
1,452,445 shares of Common Stock, which had a Market Value of approximately
$33,000,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 231,905 shares of Common
Stock.

  On August 23, 1995, the Company acquired all of the outstanding capital stock
of Altai, Inc. ("Altai"), a vendor of integrated automated operations software
for open computing, in exchange for 1,098,295 shares of Common Stock, which had
a Market Value of approximately $23,000,000 at the time of the acquisition. In
addition, the Company assumed stock options which converted into options to
purchase 52,696 shares of Common Stock.

  On August 25, 1995, the Company acquired all of the outstanding capital stock
of Trinzic Corporation ("Trinzic"), a major provider of data warehousing and
open systems tools and services, in exchange for 6,654,484 shares of Common
Stock, which had a Market Value of approximately $150,000,000 at the time of
the acquisition. In addition, the Company assumed stock options which converted
into options to purchase 620,948 shares of Common Stock.

  On November 17, 1995, the Company acquired all of the outstanding capital
stock of Softool Corporation ("Softool"), a leading provider of software change
and configuration management technology, in exchange for 1,452,708 shares of
Common Stock, which had a Market Value of approximately $25,000,000 at the time
of the acquisition.

  On February 8, 1996, the Company acquired all of the outstanding capital
stock of Prodea Software Corporation ("Prodea"), a leading provider of data
warehousing and business intelligence tools, in exchange for 2,126,913 shares
of Common Stock, which had a Market Value of approximately $36,000,000 at the
time of the acquisition. In addition, the Company assumed stock options which
converted into options to purchase 212,427 shares of Common Stock.

  On March 26, 1996, the Company acquired all of the outstanding capital stock
of Paradigm Systems Corporation ("Paradigm"), a leading provider of information
technology consulting services, in exchange for 762,503 shares of Common Stock,
which had a Market Value of approximately $12,800,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 87,912 shares of Common Stock.

  On March 29, 1996, the Company acquired all of the outstanding capital stock
of Axis Systems International, Inc. ("Axis"), a leading provider of information
technology consulting services, in exchange for 319,926 shares of Common Stock,
which had a Market Value of approximately $6,300,000 at the time of the
acquisition. In addition, the Company assumed stock options which converted
into options to purchase 59,986 shares of Common Stock.

                                      F-8
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements have been
restated as if the combining companies had been combined for all periods
presented. Merger costs relating to the acquisitions consummated in 1996 and
1995 amounted to $5,782,000 and $30,819,000, respectively, of which $353,000
and $1,942,000, respectively, were included in other accrued liabilities at
December 31, 1996 and 1995. These costs included investment banking and other
professional fees, write downs of certain assets, employee severance payments,
costs of closing excess office facilities and various other expenses.

  The following information reconciles total revenues and net income (loss) of
PLATINUM technology, inc. as previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 with the amounts
presented in the accompanying consolidated statements of operations for the
years ended December 31, 1995 and 1994, as well as separate results of
operations for 1996 of Prodea, Paradigm and Axis during the periods preceding
their acquisition. The 1996 results presented for Prodea represent the one
month ended January 31, 1996. The 1996 results for Paradigm and Axis are for
the three months ended March 31, 1996.

<TABLE>
<CAPTION>
                           1996                1995                 1994
(IN THOUSANDS)      ------------------- -------------------  -------------------
                             NET INCOME          NET INCOME           NET INCOME
                    REVENUES   (LOSS)   REVENUES   (LOSS)    REVENUES   (LOSS)
                    -------- ---------- -------- ----------  -------- ----------
<S>                 <C>      <C>        <C>      <C>         <C>      <C>
PLATINUM (1).......                     $275,921 $(112,474)  $202,497  $   615
Prodea.............  $   40    $(264)      5,804       159      2,868   (3,657)
Paradigm...........   3,837      261      15,218         1     13,224       93
Axis...............   1,844      112       7,733       381      6,850      305
                                        -------- ---------   --------  -------
    Total..........                     $304,676 $(111,933)  $225,439  $(2,644)
                                        ======== =========   ========  =======
</TABLE>
--------
(1) Represents the historical results of PLATINUM technology, inc. without
    considering the effect of the poolings of interests consummated during
    1996. All merger costs and acquired in-process technology charges are
    reflected in the historical results of PLATINUM.

  The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of Trinzic's operating results for the quarter ended
March 31, 1995, which are also included in the year ended December 31, 1994
statement of operations due to differences in reporting periods relative to
PLATINUM. The revenues and net income of Trinzic included more than once were
$12,553,000 and $215,000, respectively.

  The consolidated statement of operations for the year ended December 31,
1995 reflects the impact of certain operating results included more than once,
due to the differences in reporting periods of Altai and Locus relative to
that of PLATINUM. The revenues and net income of Altai included more than once
were $2,514,000 and $441,100, respectively. The revenue and net income of
Locus included more than once were $3,197,000 and $568,000, respectively.

  The consolidated statement of operations for the year ended December 31,
1994 reflects the impact of certain operating results also included in the
year ended December 31, 1993 statement of operations due to the differences in
reporting periods of certain companies relative to that of PLATINUM. The
following summarizes each company, the period included more than once, and
revenues and net income included in the statements of operations for both the
years December 31, 1994 and 1993:

<TABLE>
<CAPTION>
                                            SIX MONTHS ENDED REVENUES NET INCOME
                                            ---------------- -------- ----------
                                                               (IN THOUSANDS)
<S>                                         <C>              <C>      <C>
Altai......................................  July 31, 1994   $ 7,143     $267
Answer.....................................  June 30, 1994     3,126      257
SII........................................  June 30, 1994     1,517      101
                                                             -------     ----
    Total..................................                  $11,786     $625
                                                             =======     ====
</TABLE>


                                      F-9
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interest. The Company did not restate the consolidated
financial statements to reflect the results of this entity for the periods
preceding the acquisition. As a result, the retained earnings of this entity
were recorded as of the acquisition date, causing a $45,000 adjustment to the
Company's accumulated deficit in 1996. This adjustment is reflected in the
consolidated statement of stockholders' equity.

  The Company has also made a number of acquisitions that have been accounted
for under the purchase method. Accordingly, purchase prices have been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. Amounts allocated to
acquired in-process technology have been expensed at the time of acquisition.
Excess of cost over net assets acquired is amortized on a straight-line basis
over the expected period to be benefited, generally seven to ten years. The
consolidated statements of operations reflect the results of operations of the
purchased companies since the dates the acquisitions were completed.

  To determine the fair market value of the acquired in-process technology,
the Company considered the three traditional approaches of value: the cost
approach, the market approach and the income approach. The Company relied
primarily on the income approach, whereupon fair market value is a function of
the future revenues expected to be generated by an asset, net of all allocable
expenses and charges for the use of contributory assets. The future net
revenue stream is discounted to present value based upon the specific level of
risk associated with achieving the forecasted asset earnings. The income
approach focuses on the income producing capability of the acquired assets and
best represents the present value of the future economic benefits expected to
be derived from these assets.

  The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and
development activities which required further refinement and testing. The
development activities required to complete the acquired in-process
technologies included additional coding, cross-platform porting and
validation, quality assurance procedures and customer beta testing.

  The acquired technologies represent unique and emerging technologies, the
application of which is limited to the Company's software infrastructure
strategy. Accordingly, these acquired technologies have no alternative future
use.

  Effective August 1994, the Company acquired all of the outstanding capital
stock of Dimeric Development, Inc. ("Dimeric"), a developer of database tools,
for approximately $7,600,000.

  Effective September 1994, the Company acquired the net assets of Aston
Brooke Corporation ("Aston Brooke"), a developer of performance management
tools, for approximately $6,500,000.

  Effective December 1994, the Company acquired the net assets of AutoSystems
Corporation ("AutoSystems"), a leading provider of job management tools for
commercial UNIX workstations and open systems, for approximately $10,000,000.

  During 1994, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $1,900,000.

  The Company also terminated its agreements with three of its former European
affiliates and established wholly-owned subsidiaries for these operations
during 1994. Prior to their termination, these affiliates were independent
organizations that contracted with the Company to support and promote the
Company's software products and educational services. The aggregate amount
paid in these transactions was approximately $10,000,000.


                                     F-10
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  Effective March 1995, the Company acquired all of the outstanding capital
stock of SQL Software Corporation ("SQL"), a provider of Windows-based
development tools for managing multiple relational databases, for
approximately $2,000,000; the assets of Viatech Development, Inc. ("Viatech"),
a provider of electronic distribution tools, for approximately $5,300,000; and
the assets of BrownStone Solutions, Inc. ("BrownStone"), a vendor of
repository technology, for approximately $6,300,000. Also effective March
1995, the Company acquired all of the outstanding capital stock of Reltech
Group, Inc. ("Reltech"), a vendor of repository technology, for approximately
$9,800,000 in cash plus 318,453 shares of Common Stock, which had a Market
Value of approximately $7,500,000 at the time of the acquisition.

  Effective July 1995, the Company acquired all of the outstanding capital
stock of Advanced Software Concepts, Inc. ("ASC"), a leading provider of
distributed storage network management solutions for heterogeneous
environments, for approximately $7,000,000.

  Effective November 1995, the Company acquired substantially all of the
assets of ProtoSoft, Inc. ("ProtoSoft"), a pioneer in portable, object-
oriented analysis and design software for building enterprise-wide
applications and the developer of Paradigm Plus, for approximately $30,000,000
in cash plus 582,121 shares of Common Stock, which had a Market Value of
approximately $10,000,000 at the time of the acquisition.

  Effective December 1995, the Company purchased all of the outstanding
capital stock of AIB Software Corporation ("AIB"), a leader in multi-platform
application development and testing tools, for approximately $2,200,000 in
cash plus 478,045 shares of Common Stock, which had a Market Value of
approximately $9,000,000 at the time of the acquisition; Protellicess
Software, Inc. ("Protellicess"), a leader in enterprise project and process
management software, in exchange for 822,077 shares of Common Stock, which had
a Market Value of approximately $15,000,000 at the time of the acquisition;
and BMS Computer, Inc. ("BMS"), a leader in integrated chargeback systems that
provide job accounting, chargeback, cost analysis and resource reporting for
heterogeneous environments, for approximately $6,900,000. In conjunction with
the acquisitions of AIB and Protellicess, the Company assumed stock options
which converted into options to purchase 116,144 and 128,320 shares of Common
Stock, respectively.

  During 1995, the Company also acquired certain software technologies with an
aggregate purchase price of approximately $10,227,000.

  Internationally, during 1995, the Company acquired Echo-Soft Technologies
Sarl, a software sales and consulting firm located in France, Krystal Software
SA, an international affiliate of the Company in France, and Sequel UK Ltd.,
an international affiliate of the Company in the United Kingdom. The Company
also terminated its agreements with four other international affiliates and
established wholly-owned subsidiaries for these operations. The aggregate
price for these transactions was approximately $11,563,000.

  Effective January 1996, the Company acquired all of the outstanding capital
stock of Advanced Systems Technologies, Inc. ("AST"), a leading developer of
performance management tools, in exchange for approximately $445,000 in cash
plus 344,640 shares of Common Stock, which had a Market Value of approximately
$5,800,000 at the time of the acquisition.

  Effective July 1996, the Company acquired all of the outstanding capital
stock of Software Alternatives, Inc. (d/b/a System Software Alternatives)
("Software Alternatives"), a leading provider of production scheduling
software, for approximately $1,900,000. Also effective July 1996, the Company
acquired all of the outstanding capital stock of Grateful Data, Inc. (d/b/a
TransCentury Data Systems) ("Grateful Data"), a Year 2000 solution provider,
for $100,000 in cash plus 333,333 shares of Common Stock, which had a Market
Value of approximately $4,000,000 at the time of the acquisition.


                                     F-11
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  Effective December 1996, the Company acquired all of the outstanding capital
stock of VREAM, Inc. ("VREAM"), a leading provider of virtual reality software
for the World Wide Web and other interactive environments, in exchange for
760,383 shares of Common Stock, which had a Market Value of approximately
$10,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 70,257 shares of Common
Stock.

  During 1996, the Company also acquired certain software technologies for an
aggregate purchase price of approximately $3,513,000.

  Internationally, effective December 1996, the Company acquired substantially
all of the assets of the Access Manager business unit of the High Performance
Systems division of International Computers Limited ("Access Manager"), a
leading provider of single-sign-on security computer software for enterprise
computing technology, in exchange for 2,286,222 shares of Common Stock, which
had a Market Value of approximately $30,000,000 at the time of the
acquisition.

  In conjunction with 1996 acquisitions accounted for as purchases, the
Company assumed liabilities of approximately $7,300,000. These liabilities
were primarily composed of costs for involuntary termination of employees,
legal expenses and other professional services expenses. The plan of
termination includes severance and related costs of employees of the acquired
companies and is planned to be completed in 1997. Any significant adjustments
to amounts provided for under the plan will be treated as adjustments to
excess of cost over net assets acquired.

  The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions accounted for as purchases had occurred at
the beginning of each period. This summary is provided for informational
purposes only. It does not necessarily reflect the actual results that would
have occurred had the acquisitions been made as of those dates or of results
that may occur in the future.

<TABLE>
<CAPTION>
                                                          1996      1995
                                                        --------  ---------
                                                        (IN THOUSANDS, EXCEPT
                                                           PER SHARE DATA)
      <S>                                               <C>       <C>        <C>
      Revenues......................................... $443,907  $ 333,257
      Net loss.........................................  (75,116)  (113,781)
      Net loss per share...............................    (1.35)     (2.63)
</TABLE>

  The Company estimates aggregate payments for acquisition-related payables,
in connection with the acquisitions described above, to be $7,872,000,
$1,892,000 and $610,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.

  The Company may be required to make payments in future years to various
former owners of acquired businesses based upon the attainment of certain
operating results by such businesses. The amounts of these payments cannot be
estimated. These additional payments will be charged to compensation expense
or recorded as an adjustment to the respective purchase price in the periods
in which such payments are made.

3. INVESTMENT SECURITIES

  At December 31, 1996, the Company classified its marketable debt and equity
securities as either available-for-sale or trading. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity and are not actively traded. For investment securities
classified as available-for-sale, net unrealized holding gains of
approximately $29,936,000, reduced by income taxes of approximately
$12,131,000, are recorded as a separate component of stockholders' equity. For
trading securities, unrealized holding gains of approximately $920,000 are
reflected in pre-tax earnings for the year ended December 31, 1996.

                                     F-12
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  During 1996, certain cost-basis equity investments became marketable equity
securities and were reclassified as either available-for-sale or trading. The
Company owns equity interests in certain technology companies which executed
initial public offerings during 1996. As a result, the Company reclassified
these investments based upon future trading intentions. The cost and
unrealized gain, net of income taxes, on the investment transferred to the
available-for-sale classification were approximately $8,383,000 and
$17,800,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.

  At December 31, 1995, all marketable securities were classified as
available-for-sale and were carried at amortized cost, which approximated the
fair market value.

  The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1996
were as follows:

<TABLE>
<CAPTION>
                                                          1996
                                         ---------------------------------------
                                                     GROSS      GROSS
                                                   UNREALIZED UNREALIZED
                                         AMORTIZED  HOLDING    HOLDING    FAIR
                                           COST      GAINS      LOSSES    VALUE
                                         --------- ---------- ---------- -------
                                                     (IN THOUSANDS)
<S>                                      <C>       <C>        <C>        <C>
Current:
  Available-for-sale:
    State and municipal bonds...........  $   402   $     1     $ --     $   403
    Corporate bonds.....................    2,002       --         (1)     2,001
    Marketable equity securities........    8,383    29,923       --      38,306
                                          -------   -------     -----    -------
                                           10,787    29,924        (1)    40,710
                                          -------   -------     -----    -------
  Trading securities:
    Marketable equity securities........    1,125       920       --       2,045
                                          -------   -------     -----    -------
                                          $11,912   $30,844     $  (1)   $42,755
                                          =======   =======     =====    =======
Non-current:
  Available-for-sale:
    State and municipal bonds...........  $ 2,122   $    51     $ (38)   $ 2,135
                                          =======   =======     =====    =======

  The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investments at December 31, 1995 were as
follows:

<CAPTION>
                                                          1995
                                         ---------------------------------------
                                                     GROSS      GROSS
                                                   UNREALIZED UNREALIZED
                                         AMORTIZED  HOLDING    HOLDING    FAIR
                                           COST      GAINS      LOSSES    VALUE
                                         --------- ---------- ---------- -------
                                                     (IN THOUSANDS)
<S>                                      <C>       <C>        <C>        <C>
Current:
  Available-for-sale:
    U.S. Government bonds...............  $ 2,015   $   --      $  (4)   $ 2,011
    State and municipal bonds...........    5,276         6       (16)     5,266
    Other...............................      511       --        --         511
                                          -------   -------     -----    -------
                                          $ 7,802   $     6     $ (20)   $ 7,788
                                          =======   =======     =====    =======
Non-current:
  Available-for-sale:
    U.S. Government bonds...............  $   116   $   --      $ --     $   116
    State and municipal bonds...........    7,110        65       (22)     7,153
    Other...............................    5,900        21       --       5,921
                                          -------   -------     -----    -------
                                          $13,126   $    86     $ (22)   $13,190
                                          =======   =======     =====    =======
</TABLE>

                                     F-13
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The contractual maturities of debt securities at December 31, 1996 were as
follows:

<TABLE>
<CAPTION>
                                                                    FAIR VALUE
                                                                  --------------
                                                                  (IN THOUSANDS)
      <S>                                                         <C>
      Due within one year........................................     $2,404
      Due after one year through five years......................      1,466
      Due after five years.......................................        669
                                                                      ------
                                                                      $4,539
                                                                      ======
</TABLE>

  Under the specific identification method, the gross realized gains and gross
realized losses on the sale
of available-for-sale securities were approximately $1,032,000 and $0,
respectively, for the year ended
December 31, 1996 and $467,000 and $(135,000), respectively, for the year
ended December 31, 1995.

4. PROPERTY AND EQUIPMENT

  Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                1996     1995
                                                              -------- --------
                                                               (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Furniture and fixtures................................. $ 26,328 $ 19,861
      Computers and software.................................   60,736   37,497
      Transportation.........................................    8,031    8,034
      Leasehold improvements.................................   20,771   13,899
                                                              -------- --------
                                                               115,866   79,291
      Less accumulated depreciation and amortization.........   43,523   28,287
                                                              -------- --------
                                                              $ 72,343 $ 51,004
                                                              ======== ========

5. PURCHASED AND DEVELOPED SOFTWARE

  Purchased and developed software consists of the following:

<CAPTION>
                                                                1996     1995
                                                              -------- --------
                                                               (IN THOUSANDS)
      <S>                                                     <C>      <C>
      Purchased software..................................... $ 34,603 $ 24,809
      Software development costs.............................   89,400   51,499
                                                              -------- --------
                                                               124,003   76,308
      Less accumulated amortization..........................   41,580   24,040
                                                              -------- --------
                                                              $ 82,423 $ 52,268
                                                              ======== ========
</TABLE>

  During the years ended December 31, 1996, 1995 and 1994, $38,555,000,
$19,867,000 and $10,898,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $11,309,000, $6,276,000 and
$4,911,000, during 1996, 1995 and 1994, respectively. The Company recognized
amortization expense applicable to purchased software of $6,231,000,
$3,081,000 and $859,000 during 1996, 1995 and 1994, respectively. During 1996,
the Company wrote-off $654,000 of capitalized software costs related to
certain AIB, SII and other product technologies. During 1995, the Company
wrote-off $942,000 of capitalized software costs related to certain Trinzic
product technologies.

  The increase in purchased software costs in 1996 as compared to 1995 is
primarily attributable to the Company's acquisitions and purchases of certain
product technologies.

                                     F-14
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6.INSTALLMENT ACCOUNTS RECEIVABLE

  Installment accounts receivable consist of the following:

<TABLE>
<CAPTION>
                                                                1996     1995
                                                              --------  -------
                                                               (IN THOUSANDS)
      <S>                                                     <C>       <C>
      Current installment receivables........................ $ 19,763  $ 8,682
      Allowance for uncollectible amounts....................     (395)    (103)
      Unamortized discount and maintenance fees..............   (5,765)  (2,521)
                                                              --------  -------
                                                              $ 13,603  $ 6,058
                                                              ========  =======
      Non-current installment receivables.................... $ 40,827  $ 1,777
      Allowance for uncollectible amounts....................     (816)     (11)
      Unamortized discount and maintenance fees..............  (18,346)  (1,239)
                                                              --------  -------
                                                              $ 21,665  $   527
                                                              ========  =======
</TABLE>

  The Company offers long-term license agreements, bundling perpetual license,
upgrade and maintenance fees, with financing terms typically ranging from
three to five years. The resulting installment receivables are recorded net of
unamortized discounts and deferred maintenance fees.

  The Company sells a significant portion of its installment receivables to
third parties. When these receivables are sold, the Company reduces the gross
installment receivable balance. Additionally, the Company reclassifies the
deferred maintenance to an obligation, which was previously reflected as a
reduction of the related installment receivable balance. The deferred
maintenance is recognized ratably into income over the term of the maintenance
agreement.

  Proceeds from the sale of installment receivables for 1996 and 1995 were
approximately $129,328,000
and $2,903,000, respectively. A portion of the receivables were sold with
recourse in 1996 and 1995. As of December 31, 1996, the Company's maximum
exposure under recourse provisions was approximately $26,100,000. The Company
assessed the exposure related to these recourse provisions and determined the
potential liability to be minimal. The fair market value of the recourse
obligation at December 31, 1996 was not determinable.

7. EMPLOYEE BENEFIT PLANS

  The Company has various defined contribution retirement plans (401(k) and
profit sharing) for qualified employees. Employer contributions made under the
plans totaled $1,071,000, $406,000 and $241,000, in 1996, 1995 and 1994,
respectively.

8. LINE OF CREDIT

  At December 31, 1996, the Company had an unsecured bank line of credit for
$25,000,000, under which borrowings bear interest ranging from LIBOR plus 1%
to the bank's prime rate. This line of credit is subject to limitations based
upon certain financial covenants. At December 31, 1996, there were no
borrowings outstanding under this line of credit.

  At December 31, 1996, the Company had aggregate letters of credit
outstanding for approximately $1,300,000, with expiration dates ranging from
March 1997 to March 1998. These letters of credit reduce the available line of
credit balance.

                                     F-15
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

  As of December 31, 1996, the Company had six stock option plans, which are
described below, as well as several plans that have been assumed pursuant to
acquisitions. The Company applies APB Opinion 25, "Accounting for Stock Issued
to Employees," in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its employee stock
purchase plan (the "Stock Purchase Plan"). Had compensation cost for the
Company's stock option plans and the Stock Purchase Plan been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per share would have been the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                               1996                1995
                                        ------------------  -------------------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
      <C>                <S>            <C>                 <C>
      Net loss           As reported..            $(67,962)           $(111,933)
                         Pro forma....             (74,062)            (115,388)
      Net loss per share As reported..  $            (1.22) $             (2.59)
                         Pro forma....               (1.33)               (2.67)
</TABLE>

  Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option and Stock Purchase Plan, before effects for income
taxes, was approximately $10,200,000 and $5,809,000 in 1996 and 1995,
respectively.

  Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The 1995 Employee Incentive
Plan, 1994 Stock Incentive Plan, 1991 Option Plan and 1989 Option Plan provide
for the granting of options to employees and non-employee directors for up to
an aggregate of 12,560,000 shares. Under the Chief Executive Option Plan, the
Company has authority to grant options for up to 1,600,000 shares to its Chief
Executive Officer and President. Under the Directors' Option Plan, the Company
may grant options for up to 500,000 shares to non-employee directors.

  In general, the options granted under the Company Plans during 1996 and
1995, excluding the Directors' Option Plan, have similar provisions. Under
these plans, the Company has granted both non-qualified and incentive stock
options. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant, have a legal life of ten
years, and typically vest in equal annual installments over a four-year period
beginning one year from the date of grant. Certain options granted prior to
1995 have a legal life of fifteen years. The specific provisions of any grant
are determined by the Compensation Committee of the Board of Directors or
another designated committee.

  Under the Directors' Option Plan, only non-qualified options have been
granted. These options have an exercise price equal to the closing market
price of the Company's stock on the date of grant and have a legal life of ten
years. The options granted in 1995 under this plan vested immediately, while
those granted in 1996 vest annually over a three-year period beginning one
year from the date of grant.

  As discussed in note 2, the Company has assumed various option grants
related to certain acquisitions in 1996 and 1995. The assumption of these
option grants resulted in the deemed issuance by the Company of options
totaling 430,582 and 1,206,566 shares in 1996 and 1995, respectively. The
options assumed reflect outstanding options at the time of acquisition. The
provisions of the assumed options are generally the same as those provided for
in the original option agreements.

  In 1996, the Company began offering the Stock Purchase Plan to its employees
who work a minimum of 20 hours per week. Under this plan, the Company is
authorized to issue up to 5,000,000 shares of Common Stock. Under terms of the
Stock Purchase Plan and current policies of the administrative committee,
employees may elect to withhold 1 to 20 percent of their cash compensation
through regular payroll deductions to purchase

                                     F-16
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock each year. The purchase price of the stock is 85 percent of the
lower of the price at the grant date, which is the beginning of the plan year
(March 1st) or the exercise date, which is the end of each plan quarter
(February 28, May 31, August 31 and November 30). Approximately 41% of
eligible employees have participated in the Stock Purchase Plan since
inception. Under the Stock Purchase Plan, the Company sold 197,165 shares to
employees in 1996.

  The fair value of the stock option grants is estimated using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for stock option grants in 1996 and 1995, respectively: option price,
which equals the fair market value at date of grant, of $12.39 and $18.97;
expected dividend yields of 0% for both years; expected volatility of 55% for
both years; risk-free interest rates of 6.37% and 6.12%; and expected life of
4.5 years for both years. The fair value of the employees' purchase rights
pursuant to the Stock Purchase Plan are estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
purchase rights granted in 1996: fair market value of $10.75; option price of
$9.14; expected dividend yield of 0%; expected volatility of 51%; risk-free
interest rate of 5.42%; and expected life of three months.

  Stock option plan activity during the years ended December 31, 1996, 1995
and 1994 was as follows:

<TABLE>
<CAPTION>
                                  1996                  1995                  1994
                          --------------------- --------------------- ---------------------
                                      WEIGHTED              WEIGHTED              WEIGHTED
                                       AVERAGE               AVERAGE               AVERAGE
                                      EXERCISE              EXERCISE              EXERCISE
FIXED OPTIONS               SHARES      PRICE     SHARES      PRICE     SHARES      PRICE
-------------             ----------  --------- ----------  --------- ----------  ---------
<S>                       <C>         <C>       <C>         <C>       <C>         <C>
Outstanding at beginning
 of year................   8,026,949  $   12.09  6,853,673  $    9.45  6,165,392  $    7.55
Granted.................   2,606,687      12.39  2,493,753      18.97  2,055,334      12.83
Exercised...............    (516,874)      4.60   (742,482)      6.29 (1,084,377)      4.21
Canceled................    (265,407)     14.61   (577,995)      7.60   (282,676)     12.59
                          ----------            ----------            ----------
Outstanding at end of
 year...................   9,851,355  $   12.41  8,026,949  $   12.09  6,853,673  $    9.45
                          ==========            ==========            ==========
Options exercisable at
 year-end...............   4,777,941             3,915,068             3,719,479
                          ==========            ==========            ==========
Weighted-average fair
 value of options
 granted during the
 year...................  $     6.41            $     9.76
</TABLE>

  The following table summarizes information about fixed stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                 ---------------------------------------- -----------------------
                            WEIGHTED-AVG.   WEIGHTED-AVG.           WEIGHTED-AVG.
   RANGE OF       NUMBER      REMAINING       EXERCISE     NUMBER     EXERCISE
EXERCISE PRICES  OF SHARES CONTRACTUAL LIFE     PRICE     OF SHARES     PRICE
---------------  --------- ---------------- ------------- --------- -------------
<S>              <C>       <C>              <C>           <C>       <C>           <C>
$.0025-
  9.75           1,689,672       5.71          $ 3.10     1,516,126    $ 3.04
 10.13-
 12.00           1,875,341       9.78           10.57       954,951     10.40
 12.38-
 14.00           2,597,393       9.39           12.68       951,890     12.83
 14.13-
 18.19           1,708,715      10.48           15.25       735,913     15.29
$18.25-
 57.30           1,980,234       8.56           19.28       619,061     19.58
                 ---------                                ---------               ---
                 9,851,355       8.86          $12.41     4,777,941    $10.49
                 =========                                =========
</TABLE>

                                     F-17
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

  Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994 consisted of the following:

<TABLE>
<CAPTION>
                                                        1996      1995     1994
                                                       -------  --------  ------
                                                           (IN THOUSANDS)
      <S>                                              <C>      <C>       <C>
      Current:
        Federal....................................... $   --   $    315  $1,084
        State.........................................     175       133     190
        Foreign.......................................   1,905       472     836
      Deferred:
        Federal.......................................  (7,838)   (7,899)    985
        State.........................................  (3,617)   (4,969)    378
                                                       -------  --------  ------
                                                       $(9,375) $(11,948) $3,473
                                                       =======  ========  ======
</TABLE>

  The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows:

<TABLE>
<CAPTION>
                                  1996      1995     1994
                                --------  --------  ------
                                     (IN THOUSANDS)
      <S>                       <C>       <C>       <C>
      Statutory tax...........  $(27,068) $(43,358) $  290
      State income tax, net of
       federal tax benefit....    (3,442)   (4,836)    568
      Research and
       experimentation
       credits................    (1,491)   (1,213)     (1)
      Foreign tax credit......       (59)     (239)    (60)
      Foreign taxes...........       751       240   1,423
      Foreign sales
       corporation............    (1,036)     (294)   (401)
      Municipal interest......      (289)     (554)   (431)
      Utilization of net
       operating losses.......       --        --     (302)
      Stock acquisitions......     6,281    11,450   2,626
      Change in valuation
       allowance..............    12,608    22,856  (2,293)
      Change in tax accounting
       method.................       --        176   1,596
      Nondeductible merger
       costs..................     1,440     4,625     --
      Other...................     2,930      (801)    458
                                --------  --------  ------
      Effective tax...........  $ (9,375) $(11,948) $3,473
                                ========  ========  ======
</TABLE>

                                      F-18
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

  The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1996 and 1995 were as
follows:

<TABLE>
<CAPTION>
                                                               1996      1995
                                                             --------  --------
                                                              (IN THOUSANDS)
      <S>                                                    <C>       <C>
      Deferred tax assets:
        Deferred revenue.................................... $  1,152  $  5,804
        Allowance for doubtful accounts.....................      749       964
        Net operating loss carryforwards....................   95,190    53,685
        Foreign net operating losses........................      --      3,006
        General business, AMT and state tax credits.........    9,544     6,365
        Foreign tax credits.................................    1,138     1,270
        Accrued expenses and reserves.......................      157       856
        Rent abatement......................................    1,957     2,143
        Other...............................................    5,084     1,153
                                                             --------  --------
          Total gross deferred tax assets...................  114,971    75,246
      Less valuation allowance..............................  (59,936)  (47,328)
                                                             --------  --------
          Net deferred tax assets...........................   55,035    27,918
                                                             --------  --------
      Deferred tax liabilities:
        Capitalized software, net...........................   23,908    12,566
        Installment sales...................................      826     1,175
        Acquired technology.................................    3,124     2,952
        Unrealized gain on marketable equity securities.....   12,499       --
        Other...............................................      --        766
                                                             --------  --------
          Total gross deferred liabilities..................   40,357    17,459
                                                             --------  --------
      Net deferred tax asset................................ $ 14,678  $ 10,459
                                                             ========  ========
</TABLE>

  The net change in the total valuation allowance during 1996, 1995 and 1994
was an increase of $12,608,000, an increase of $22,856,000 and a decrease of
$2,293,000, respectively. The Company has reduced the deferred tax assets by a
valuation allowance to reflect the estimated amount of deferred tax assets
which will, more likely than not, be realized. The net deferred tax asset at
December 31, 1996 reflects management's estimate of the amount which will be
realized as a result of future profitability. The amount of the deferred tax
asset considered realizable could be reduced if estimates of future taxable
income are reduced.

  The exercise of certain stock options results in state and Federal income
tax benefits to the Company. The benefit is equal to the difference between
the market price at the date of exercise and the option price at the
applicable tax rate. The current tax benefit does not flow through the
statement of operations, but is credited directly to paid-in capital. As a
result of stock option exercises during 1996, 1995 and 1994, $0, $0 and
$108,000, respectively, were credited to paid-in capital.

  At December 31, 1996, the Company had approximately $234,891,000 of net
operating loss carryforwards and $10,682,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2011. The Company's ability to utilize the net operating loss
carryforwards and available tax credits may be limited due to changes in
ownership as a result of business combinations.

11. CONVERTIBLE SUBORDINATED NOTES

  As of December 31, 1996, the Company had $115,000,000 in convertible
subordinated notes (the "Notes") outstanding, bearing interest at 6.75%
annually. The Notes mature on November 15, 2001. Interest is payable

                                     F-19
<PAGE>

                  PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
semi-annually on May 15 and November 15, commencing May 15, 1997. The holders
of the Notes have the option to convert them into shares of Common Stock, at
any time prior to maturity, at a conversion price of $13.95 per share. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time during the twelve-month period commencing November 15, 1999 at 102.7% of
their principal amount and during the twelve-month period commencing November
15, 2000 at 101.35% of their principal amount.

  The Company estimated the fair value of the Notes as of December 31, 1996 at
approximately $140,013,000, based upon their trading price on the Nasdaq
SmallCap Market on that date.

12. COMMITMENTS AND CONTINGENCIES

 Operating Leases

  The Company leases office space, computer and telecommunications equipment
under long-term lease agreements expiring through the year 2007. Total future
minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
                                                                      AMOUNT
                                                                  --------------
                                                                  (IN THOUSANDS)
      <S>                                                         <C>
      1997.......................................................    $ 33,196
      1998.......................................................      28,810
      1999.......................................................      22,931
      2000.......................................................      18,323
      2001 and thereafter........................................      41,270
                                                                     --------
                                                                     $144,530
                                                                     ========
</TABLE>

  Total rent expense under all operating leases amounted to $21,386,000,
$14,869,000 and $11,875,000 in 1996, 1995 and 1994, respectively.

 Litigation

  The Company is subject to certain legal proceedings and claims which have
arisen in the ordinary course of business and have not been fully adjudicated.
Management currently believes the ultimate outcome of these matters will not
have a material adverse effect on the Company's results of operations or
financial position.

13. OTHER INCOME (EXPENSE)

  Other income (expense) for the years ended December 31, 1996, 1995 and 1994
is comprised of the following:

<TABLE>
<CAPTION>
                                1996     1995    1994
                               -------  ------  ------
                                  (IN THOUSANDS)
      <S>                      <C>      <C>     <C>
      Interest income......... $ 4,978  $4,624  $2,843
      Interest expense........  (1,737)   (745)   (275)
      Foreign exchange gain
       (loss).................     (35)     66     282
      Net realized gain on
       sale of investments....   1,032     332     --
      Unrealized gain on
       marketable equity
       securities.............     920     --      --
      Other...................      (2)      4     202
                               -------  ------  ------
                               $ 5,156  $4,281  $3,052
                               =======  ======  ======
</TABLE>

                                     F-20
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

14. SEGMENT AND GEOGRAPHIC INFORMATION

  The Company operates in one industry segment. The Company markets and
services its products in the United States and in foreign countries through its
direct sales organization and affiliates (which are non-controlled product
representatives).

  The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the final sale is made rather than where the transaction
originates.
<TABLE>
<CAPTION>
                                          NORTH
                                         AMERICA     EUROPE    OTHER      TOTAL
                                        ---------   --------  --------  ---------
                                                   (IN THOUSANDS)
      <S>                               <C>         <C>       <C>       <C>
      1996
        Revenues....................... $ 335,528   $ 77,965  $ 25,697  $ 439,190
        Operating loss.................   (77,054)    (4,856)     (583)   (82,493)
        Identifiable assets............   513,918     77,518    18,076    609,512
      1995
        Revenues....................... $ 233,056   $ 55,663  $ 15,957  $ 304,676
        Operating income (loss)......... (141,930).    9,684     4,084   (128,162)
        Identifiable assets............   377,112     53,828     7,248    438,188
      1994
        Revenues....................... $ 186,075   $ 32,622  $  6,742  $ 225,439
        Operating income (loss)........   (12,656)     9,679       754     (2,223)
        Identifiable assets............   240,606     19,863     2,291    262,760
</TABLE>

  The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The North America operating losses in 1996, 1995 and
1994 include all merger costs, restructuring costs and acquired in-process
technology charges.

  No single customer accounted for 10% or more of total revenues in 1996, 1995
or 1994.

15. SUBSEQUENT EVENTS

  On January 31, 1997, the Company acquired all of the outstanding capital
stock of Australian Technology Resources Pty Limited ("ATR"), a leading
provider of information technology consulting services, in exchange for 313,784
shares of Common Stock, which had a Market Value of approximately $5,000,000 at
the time of the acquisition.

  On February 18, 1997, the Company acquired all of the outstanding capital
stock of GEJAC, Inc. ("GEJAC"), a leading provider of UNIX and NT charge-back
software, in exchange for 412,801 shares of Common Stock, which had a Market
Value of approximately $6,800,000 at the time of the acquisition. This
acquisition will be accounted for under the purchase method, and a significant
portion of the purchase price will be charged to acquired in-process technology
in the first quarter of 1997.

  On February 28, 1997, the Company acquired all of the outstanding capital
stock of I&S Informationstechnik and Services GmbH ("I&S"), a leading provider
of information technology consulting services, in exchange for 1,089,867 shares
of Common Stock, which had a Market Value of approximately $17,200,000 at the
time of the acquisition.

  The acquisitions of ATR and I&S will be accounted for as poolings of
interest. Costs incurred in connection with these transactions will be expensed
in the first quarter of 1997.


                                      F-21
<PAGE>

                   PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
  The following unaudited pro-forma information shows total revenues and net
income (loss) of PLATINUM, ATR and I&S during the three years ended December
31, 1996, 1995 and 1994, as if the transactions had been consummated on
December 31, 1996:

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT           1996                1995                 1994
PER SHARE DATA)          ------------------- -------------------  -------------------
                                  NET INCOME          NET INCOME           NET INCOME
                         REVENUES   (LOSS)   REVENUES   (LOSS)    REVENUES   (LOSS)
                         -------- ---------- -------- ----------  -------- ----------
<S>                      <C>      <C>        <C>      <C>         <C>      <C>
PLATINUM................ $439,190  $(67,962) $304,676 $(111,933)  $225,439  $(2,644)
ATR.....................    9,132       142     9,492       301     10,634    1,016
I&S.....................   19,743     2,898    12,243        65      7,534       66
                         --------  --------  -------- ---------   --------  -------
Total................... $468,065  $(64,922) $326,411 $(111,567)  $243,607  $(1,562)
                         ========  ========  ======== =========   ========  =======
Net loss per share......           $  (1.14)          $   (2.50)            $ (0.04)
                                   ========           =========             =======
</TABLE>

                                      F-22
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
PLATINUM technology, inc.:

  We have audited the accompanying consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Trinzic Corporation, Locus Computing Corporation, and
Softool Corporation, wholly-owned subsidiaries, which statements reflect total
revenues constituting 36 percent in 1994 of the related consolidated total.
Those statements were audited by other auditors whose reports have been
furnished to us and our opinion, in so far as it relates to the amounts for
Trinzic Corporation, Locus Computing Corporation, and Softool Corporation, is
based solely on the reports of the other auditors.

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

  In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of PLATINUM technology, inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

                             KPMG Peat Marwick LLP

Chicago, Illinois
February 19, 1997, except for Note 15,
which is as of February 28, 1997

                                     F-23
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors of
PLATINUM technology, inc.:

  Under date of February 19, 1997 (except as to Note 15, which is as of
February 28, 1997), we reported on the consolidated balance sheets of PLATINUM
technology, inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
as contained in the 1996 annual report to stockholders. Our report is based in
part on the reports of other auditors. These consolidated financial statements
and our report thereon are included in the annual report on Form 10-K for the
year ended December 31, 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule. The financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.

  In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

                             KPMG Peat Marwick LLP

Chicago, Illinois
February 19, 1997, except for Note 15,
 which is as of February 28, 1997

                                      S-1
<PAGE>

                                  SCHEDULE II

                           PLATINUM TECHNOLOGY, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
        ALLOWANCE FOR DOUBTFUL ACCOUNTS         BEGINNING   BAD DEBT    ENDING
    FOR TRADE AND INSTALLMENT  RECEIVABLES       BALANCE    EXPENSE    BALANCE
    --------------------------------------      ---------- ---------- ----------
<S>                                             <C>        <C>        <C>
Year ended December 31, 1996................... $2,809,000 $  905,000 $3,714,000
Year ended December 31, 1995...................  1,522,000  1,287,000  2,809,000
Year ended December 31, 1994...................  1,290,000    232,000  1,522,000
</TABLE>

                                      S-2
<PAGE>

                                  SIGNATURES

  PURSUANT TO THE REQUIREMENTS OF 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, THERE UNTO DULY AUTHORIZED, ON THE 28TH DAY
OF MARCH, 1997.

                                          Platinum technology, inc.

                                               /s/ Andrew J. Filipowski
                                          By___________________________________
                                                   Andrew J. Filipowski
                                               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.

<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
<S>                                  <C>                           <C>
    /s/ Andrew J. Filipowski         President, Chief Executive      March 28, 1997
____________________________________ Officer (principal executive
        Andrew J. Filipowski         officer) and Chairman of the
                                     Board of Directors

     /s/ Paul L. Humenansky          Executive Vice President,       March 28, 1997
____________________________________ Chief Operations Officer and
         Paul L. Humenansky          a Director

    /s/ Micahel P. Cullinane         Executive Vice President,       March 28, 1997
 ___________________________________ Chief Financial Officer
        Michael P. Cullinane         (principal financial and
                                     accounting officer),
                                     Treasurer and a Director

       /s/ James E. Cowie            Director                        March 28, 1997
____________________________________
           James E. Cowie

      /s/ Steven D. Devick           Director                        March 28, 1997
____________________________________
          Steven D. Devick

       /s/ Gian M. Fulgoni           Director                        March 28, 1997
____________________________________
          Gian M. Fulgoni

       /s/ Arthur P. Frigo           Director                        March 28, 1997
____________________________________
          Arthur P. Frigo
</TABLE>
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                             DESCRIPTION
  -------                            -----------
 <C>       <S>                                                              <C>
 10.30     First Amendment, dated as of December 31, 1996, to the Loan
           Agreement.
 10.31     First Amendment, dated as of May 23, 1996, to the October 31,
           1995 Lisle Lease.
 10.32     Second Amendment, dated as of May 24, 1996, to the October 31,
           1995 Lisle Lease.
 10.33     Lease Agreement, dated as of July 17, 1996, between the Com-
           pany and Oakbrook Tower Limited Partnership.
 21        Subsidiaries of the Company.
 23.1      Consent of KPMG Peat Marwick LLP with respect to the Company's
           financial statements and financial statement schedule.
 23.2      Consent of Deloitte & Touche LLP with respect to Trinzic's fi-
           nancial statements.
 23.3      Consent of Arthur Andersen LLP with respect to Locus' finan-
           cial statements.
 23.4      Consent of Arthur Andersen LLP with respect to Softool's fi-
           nancial statements.
 27        Financial Data Schedule.
 99.1      Report of Deloitte & Touche LLP on Trinzic's financial state-
           ments.
 99.2      Report of Arthur Andersen LLP on Locus' financial statements.
 99.3      Report of Arthur Andersen LLP on Softool's financial state-
           ments.
</TABLE>