PLATINUM TECHNOLOGY INC, 8-K, 1998-08-04

PLATINUM TECHNOLOGY INC
8-K, 1998-08-04
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 8-K

CURRENT REPORT

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

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 4, 1998

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

DELAWARE 0-19058 36-3509662
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)

1815 S. MEYERS ROAD, OAKBROOK TERRACE, IL 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (630) 620-5000

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ITEM 5. OTHER EVENTS.

During the second quarter of 1998, PLATINUM technology, inc. (the "Company")
consummated acquisitions (the "Acquisitions") of Mastering, Inc.
("Mastering"), Learmonth and Burchett Management Systems Plc ("LBMS") and
Logic Works, Inc. ("Logic Works"), each of which has been accounted for as a
pooling of interests. The Company believes that certain of the financial
information previously reported by the Company pursuant to the requirements of
the Securities Exchange Act of 1934, as amended, should be supplemented by
information which reflects the Acquisitions. Accordingly, the Company is
filing this Current Report on Form 8-K to include "Selected Supplemental
Consolidated Financial Data" (pages 3-4), "Supplemental Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(pages 5-17) and Supplemental Consolidated Financial Statements of the
Company, and related notes and schedules thereto (pages F-1 through F-29 and
S-1 through S-2) for the periods, and as of the dates, covered by the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
This supplemental financial information gives retroactive effect to the
Acquisitions, as if the Company, Mastering, LBMS and Logic Works had been
consolidated for all periods presented. The Supplemental Consolidated
Financial Statements included herein will become the historical consolidated
financial statements of the Company upon the filing of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998, which will
include financial statements covering the dates of consummation of the
Acquisitions. The information contained herein does not include certain recent
developments nor reflect the current financial condition of the Company and
should be read in conjunction with the Company's other filings with the
Securities and Exchange Commission.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

(a) The following Supplemental Consolidated Financial Statements, and
related notes thereto, and the independent auditors' report thereon, are
included on pages F-1 through F-29 hereof:

Supplemental Consolidated Balance Sheets as of December 31, 1997 and
1996

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

Supplemental Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995

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

Notes to Supplemental Consolidated Financial Statements

Independent Auditors' Report

(b) The following supplemental consolidated financial statement schedule,
and the independent auditors' report thereon, are included on pages S-1 and S-
2 hereof:

Report of Independent Auditors

Supplemental Schedule II--Valuation and Qualifying Accounts

23.1 Consent of KPMG Peat Marwick LLP with respect to the Company's
financial statements.

23.2 Consent of Arthur Andersen LLP with respect to Mastering's
financial statements.

23.3 Consent of Ernst & Young LLP with respect to Logic Works'
financial statements.

27 Financial Data Schedule.

99.1 Report of Arthur Andersen LLP on Mastering's financial statements.

99.2 Report of Ernst & Young LLP on Logic Works' financial statements.

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SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA

The selected supplemental consolidated financial data set forth below has
been derived from the Supplemental Consolidated Financial Statements of the
Company. The selected supplemental consolidated financial data should be read
in conjunction with "Supplemental Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Supplemental
Consolidated Financial Statements and related notes thereto contained
elsewhere herein. The selected supplemental consolidated financial data give
retroactive effect to the Company's acquisitions of Mastering as of April 21,
1998, LBMS as of May 12, 1998 and Logic Works as of May 28, 1998, each of
which has been accounted for as a pooling of interests 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.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND
RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........ $ 738,880 $ 553,484 $ 408,425 $304,182 $235,393
Operating income
(loss)............... (102,141)(1) (101,609)(2) (125,863)(3) (2,975)(4) 2,073 (5)
Net loss.............. (106,128)(1) (87,194)(2) (114,217)(3) (10,084)(4) (883)(5)
Net loss per share.... $ (1.36)(1) $ (1.21)(2) $ (2.10)(3) $ (0.21)(4) $ (0.02)(5)
Shares used in per
share calculation.... 78,072 71,919 54,349 48,832 46,835
Other Operating Data:
Ratio of Earnings to
Fixed Charges(6)..... --(1)(7) --(2)(7) --(3)(7) 0.94(4) 5.62(5)
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments...... $ 358,204 $ 256,623 $ 180,138 $133,084 $ 73,883
Working capital....... 352,663 282,549 171,443 95,375 49,461
Total assets.......... 972,907 736,668 529,615 301,892 198,122
Long-term obligations
and acquisition-
related payables,
less current portion. 285,559 119,700 13,418 12,277 3,884
Total stockholders'
equity............... $ 342,876 $ 375,744 $ 340,490 $163,574 $101,688
</TABLE>
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(1) Reflects a pre-tax charge for acquired in-process technology of
$67,904,000 relating to the Company's acquisitions of GEJAC, Inc.
("GEJAC") and ProMetrics Group Limited ("ProMetrics"), the purchase of
certain product technologies and other intangible assets from Intel and
the purchase of certain other product technologies. Also reflects a pre-
tax charge for merger costs of $8,927,000 relating to the Company's
acquisitions of Australian Technology Resources Pty Limited ("ATR"), I&S
Informationstechnik and Services GmbH ("I&S") and Vayda Consulting, Inc.
("Vayda"); a pre-tax charge of $55,829,000 for restructuring costs; and a
loss from discontinued operations of $1,025,000, net of taxes, relating to
Mastering.
(2) Reflects a pre-tax charge for acquired in-process technology of
$49,451,000 relating to the Company's acquisitions 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

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relating primarily to the Company's acquisitions of Prodea Software
Corporation ("Prodea"), Paradigm Systems Corporation ("Paradigm") and Axis
Systems International, Inc. ("Axis"); a pre-tax charge of $16,312,000
relating to LBMS and Logic Works restructuring costs; and a loss from
discontinued operations of $3,412,000, net of taxes, relating to Mastering.
(3) Reflects a pre-tax charge for acquired in-process technology of
$88,493,000 relating primarily to the Company's acquisitions of Advanced
Software Concepts, Inc. ("ASC"), SQL Software Corporation ("SQL"), RELTECH
Group, Inc. ("Reltech"), Protellicess Software, Inc. ("Protellicess"), AIB
Software Corporation ("AIB") and BMS Computer, Inc. ("BMS") and the net
assets of ViaTech Development, Inc. ("ViaTech"), BrownStone Solutions,
Inc. ("BrownStone") and ProtoSoft, Inc. ("ProtoSoft") and to certain
product acquisitions. Reflects a pre-tax charge for merger costs of
$31,287,000 relating to the Company's acquisitions of Software Interfaces,
Inc. ("SII"), Answer Systems, Inc. ("Answer"), Locus Computing Corporation
("Locus"), Altai, Inc. ("Altai"), Trinzic Corporation ("Trinzic") and
Softool Corporation ("Softool"). Also reflects a loss from discontinued
operations of $3,791,000, net of taxes, relating to Mastering.
(4) Reflects a pre-tax charge for acquired in-process technology of
$24,594,000 relating primarily to the Company's acquisitions of Dimeric
Development, Inc. ("Dimeric") and the net assets of Aston Brooke Software,
Inc. ("Aston Brooke") and AutoSystems Corporation ("AutoSystems"), and a
pre-tax charge of $4,418,000 for restructuring costs relating to LBMS.
Also reflects a loss from discontinued operations of $4,908,000, net of
taxes, relating to LBMS.
(5) Reflects a pre-tax charge for acquired in-process technology of $8,735,000
relating primarily to the Company's acquisition of Datura Corporation
("Datura") and a pre-tax charge of $4,659,000 relating to Trinzic and
Locus restructuring costs.
(6) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest
expense plus capitalized interest and the portion of rental expense which
represents interest).
(7) Earnings available for fixed charges of $(72,330,000), $(91,280,000) and
$(119,638,000) were inadequate to cover fixed charges of $9,314,000,
$2,254,000 and $1,602,000 for the years ended December 31, 1997, 1996 and
1995, respectively.

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SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussion and analysis below contains certain forward-looking
statements (as such term is defined in Section 21E of the Exchange Act) that
are based on the beliefs of the management of the Company, 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 1998 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements. See "--
Special Note Regarding Forward-Looking Statements" on page 17 for a discussion
of risks, uncertainties and other factors 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 organizations manage and improve
their IT infrastructures, which consist of data, systems and applications. The
Company's products and services help IT infrastructure departments, primarily
in large and data-intensive organizations, minimize risk, improve service
levels and leverage information to make better business decisions. 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, Axis, ATR, I&S, Mastering,
LBMS and Logic Works, each of which has been accounted for using the pooling-
of-interests method. As a result, the Company's supplemental 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 Supplemental Management's Discussion and
Analysis of Financial Condition and Results of Operations gives retroactive
effect to these acquisitions. In addition, the Company has consummated a
number of acquisitions accounted for as purchases, in which cases the acquired
businesses have been included in the Company's results of operations beginning
with the effective dates of the acquisitions.

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RESULTS OF OPERATIONS

The table below sets forth for the periods indicated: (1) line items from
the Company's supplemental consolidated statements of operations expressed as
a percentage of revenues, and (2) the percentage changes in these line items
from the prior period.

<TABLE>
<CAPTION>
PERCENTAGE OF YEAR-TO-YEAR
TOTAL REVENUES PERCENTAGE CHANGE
------------------ -----------------
YEARS ENDED
DECEMBER 31, 1997 1996
------------------ COMPARED COMPARED
1997 1996 1995 TO 1996 TO 1995
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software products........................ 56% 52% 51% 42% 38%
Maintenance.............................. 19 21 22 22 29
Professional services.................... 25 27 27 26 35
--- --- ---
Total revenues......................... 100 100 100 34 36
--- --- ---
Costs and expenses:
Professional services.................... 23 26 27 17 30
Product development and support.......... 28 31 26 20 58
Sales and marketing...................... 36 39 37 21 43
General and administrative............... 9 9 11 41 16
Restructuring charges.................... 8 3 -- 242 *
Merger costs............................. 1 1 8 54 (82)
Acquired in-process technology........... 9 9 22 37 (44)
--- --- ---
Total costs and expenses............... 114 118 131 28 23
--- --- ---
Operating loss............................. (14) (18) (31) ** (19)
Other income, net.......................... 3 1 1 154 75
--- --- ---
Loss from continuing operations before
income taxes.............................. (11) (17) (30) (13) (23)
Income taxes............................... 3 (2) (3) * (10)
--- --- ---
Net loss from continuing operations........ (14) (15) (27) 25 (24)
Loss from discontinued operations, net of
taxes..................................... ** (1) (1) (49) 5
Gain (loss) on disposal, net of taxes...... ** ** ** 321 *
--- --- ---
Net loss................................... (14)% (16)% (28)% 22% (24)%
=== === ===
</TABLE>
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* Not meaningful.
**Less than 1%.

Revenues

The Company's revenues are derived from three sources: (1) license and
upgrade fees for licensing the Company's proprietary and other parties'
software products and providing additional processing capacity on already-
licensed products, (2) maintenance fees for maintaining, supporting and
providing updates and enhancements to software products, and (3) revenues from
the Company's professional services business. Total revenues for 1997 were
$738,880,000, an increase of $185,396,000, or 34%, over 1996 total revenues of
$553,484,000. Total revenues in 1996 increased $145,059,000, or 36%, over 1995
revenues of $408,425,000.

The Company has a diversified customer base, with no single customer
representing greater than 10% of its total revenues generated in 1997, 1996 or
1995. The Company estimates that sales to repeat customers represented over
90% of its revenues generated in 1997.

Revenues from domestic (U.S.) customers represented 74%, 72% and 69% of the
Company's total revenues in 1997, 1996 and 1995, respectively. Domestic
revenues are generated primarily by the Company's direct sales

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force (which visits customer sites to assist with trials, demonstrate product
features and close sales transactions) and inside sales force (which
predominantly supports the direct sales force by developing sales leads and
arranging product evaluations), as well as a telemarketing organization. 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.

Revenues from international customers, principally in Western Europe,
represented 26%, 28% and 31% of the Company's total revenues in 1997, 1996 and
1995, respectively. The Company generates the majority of its international
revenues through a network of wholly-owned subsidiaries, primarily utilizing a
direct sales force. Over the past two years, the Company has invested
significantly in the global marketplace, increasing its focus on international
sales efforts and expanding its international operations.

The table below sets forth, for the periods indicated, the Company's primary
sources of revenues expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
---------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products:
Licenses.......................... 42% 41% 49%
Upgrades.......................... 14 11 2
--------- --------- ---------
Total software products......... 56 52 51
--------- --------- ---------
Maintenance......................... 19 21 22
Professional services............... 25 27 27
--------- --------- ---------
Total revenues.................. 100% 100% 100%
========= ========= =========
</TABLE>

Software Products. Software products revenues represented 56%, 52% and 51%
of total revenues in 1997, 1996 and 1995, respectively. In 1997, software
products revenues increased 42% to $410,369,000 from $289,125,000 in 1996, as
a result of increases of 56%, 51%, 13% and 45%, respectively, experienced by
the Company's database management, systems management, application
infrastructure management, and data warehousing and decision support business
units. From 1995 to 1996, software product revenues increased 38% from
$208,929,000. 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. The Company
has continuously increased its product offerings over the past three years, in
part through the acquisitions of businesses and technologies, which also
contributed to the growth in software products revenues. The substantial
majority of the increases in software products revenues in 1997 and 1996
resulted from increases in the volume of sales of existing products. A
smaller, but still significant, portion of the increases related to sales of
newly introduced products, while only a small percentage was attributable to
price increases. During 1996 and 1997, the Company expanded its customer base,
increased sales of product bundles and integrated product suites, and executed
increasingly larger sales transactions. Additionally, TransCentury, the
Company's Year 2000 product suite, which was first introduced in the third
quarter of 1996, contributed significantly to the growth in revenues of the
data warehousing and decision support business unit during 1997. The Company's
database management (principally products relating to IBM's DB2 relational
database management software), systems management, application infrastructure
management and data warehousing and decision support business units
represented 37%, 26%, 20% and 17%, respectively, of total software products
revenues in 1997; 34%, 24%, 25% and 17%, respectively, of total software
products revenues in 1996; and 29%, 22%, 32% and 17%, respectively, of total
software products revenues in 1995.

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Maintenance. Maintenance revenues in 1997 increased 22% over 1996 to
$139,912,000, and 1996 maintenance revenues of $114,579,000 represented an
increase of 29% over 1995 maintenance revenues of $88,602,000. 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
1997 and 1996 were primarily attributable to the expansion of the Company's
installed customer base, from which maintenance fees are derived. Because
maintenance fees are implicit in certain new software product licenses, the
increase in software licensing transactions also contributed to the increase
in maintenance revenues. In 1997, the Company's database management, systems
management, application infrastructure management, and data warehousing and
decision support business units represented 41%, 20%, 22% and 17%,
respectively, of total maintenance revenues.

Professional Services. Professional services revenues are associated with
the Company's consulting services business and educational programs. In 1997,
professional services revenues increased 26% over 1996 to $188,599,000 from
$149,780,000 in 1996. From 1995 to 1996, professional services revenues
increased 35% from $110,894,000. The growth in professional services revenues
during 1997 was primarily attributable to an increase in billable consultants,
as well as a higher ratio of billable hours to total hours worked. To a much
lesser extent, increases in rates charged per billable hour contributed to
this growth. Additionally, the revenues generated by the Company's new
specialty consulting services practices, established near the end of 1996,
contributed to the increase in professional services revenues during 1997. The
increase in professional services revenues during 1996 was primarily due to
the addition of established consulting practices through various acquisitions,
as well as the growth experienced within these acquired businesses.

Costs and Expenses

Total expenses for 1997 were $841,021,000, an increase of 28% over 1996
expenses of $655,093,000, which represented an increase of 23% over 1995
expenses of $534,288,000. Total expenses increased in 1997 due to greater
variable expenses related to higher revenue results, as well as increased
costs, including training and system-support expenses, associated with the
integration of recently acquired companies. Additionally, a restructuring
charge recorded in the second quarter of 1997 (as discussed below under "--
Restructuring Charges") contributed to the increase in total expenses.
Excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges in 1997 discussed under "--General
and Administrative" below, total expenses for 1997 were $694,848,000 an
increase of $111,300,000, or 19%, compared to $583,548,000 for 1996. Total
expenses, excluding merger costs and acquired in-process technology charges,
increased 41% in 1996 as compared to $414,508,000 in 1995. Total expenses,
excluding restructuring charges, merger costs, acquired in-process technology
charges and the integration-related charges, represented 94%, 105% and 101% of
total revenues for 1997, 1996 and 1995, respectively. As a percentage of total
revenues, total expenses, excluding restructuring charges, merger costs,
acquired in-process technology charges and the integration-related charges,
decreased in 1997, as compared to 1996, primarily due to overall cost
containment efforts and the savings realized from the restructuring plan.

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 resulted from the Company's
acquisitions in those years. 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 IT infrastructure systems issues and new products, providing additional
financial and technical support to the international subsidiaries established
in those years, translating product materials into numerous foreign languages,
and augmenting internal support systems. Greater commission and bonus expenses
associated with the increase in revenues during 1996, as compared to 1995,
also contributed to the increase in total expenses in 1996.

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Professional Services. Costs of professional services increased to
$170,851,000 in 1997, from $145,445,000 in 1996 and $111,658,000 in 1995. The
increases in these expenses during 1997 and 1996 were related to salaries and
other direct employment expenses resulting from the Company's continued hiring
to support this business, as well as the costs incurred to integrate the
numerous consulting practices acquired over the past three years. Greater
commission and bonus expenses associated with higher professional services
revenues in each year also contributed to the increases. Costs of professional
services represented 91%, 97% and 101% of professional services revenues in
1997, 1996 and 1995, respectively. During 1997, as part of the Company's
overall restructuring plan, the Company realigned its professional services
business through the consolidation of redundant functions. The savings
realized from the restructuring plan, as well as the increased productivity of
the consulting staff, contributed to the decrease in professional services
expenses as a percentage of professional services revenues in 1997.

Product Development and Support. Product development and support expenses
increased to $203,499,000 in 1997, from $170,153,000 in 1996 and $107,739,000
in 1995. The increases in these expenses in 1997 and 1996 were primarily
attributable to an increase in the number of product development and support
personnel (excluding acquisitions executed in 1998), from approximately 1,215
at December 31, 1995 to approximately 1,400 at December 31, 1996 and
approximately 1,625 at December 31, 1997, and to other higher employee-related
expenses associated with expanded product offerings in each year, as well as
continued product integration and internationalization efforts in 1997 and, to
a lesser extent, 1996; increased allocated charges for office space and
overhead; an increase in information technology costs to support the expanded
development efforts and product offerings; higher bonuses and royalty expenses
related to greater revenues; and higher travel expenses in 1997 and 1996
associated with the Company's product integration efforts and expanded product
offerings. Product development and support expenses represented 28%, 31% and
26%, of total revenues in 1997, 1996 and 1995, respectively. During 1997, the
Company began consolidating certain product development and support efforts to
coincide with its product integration focus. As a result of these
consolidation efforts, the Company reduced product development and support
expenses as a percentage of total revenues during 1997.

In 1997, 1996 and 1995, the Company capitalized $41,143,000, $27,246,000 and
$13,591,000, 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 $244,642,000 in 1997, $197,399,000 in 1996
and $121,330,000 in 1995, which amounted to 44%, 49% and 41%, respectively, of
software product and maintenance revenues for these years.

Sales and Marketing. Sales and marketing expenses increased to $263,989,000
in 1997, from $218,435,000 in 1996 and $152,384,000 in 1995. The increase in
sales and marketing expenses during 1997 was primarily attributable to the
significant expansion of the domestic and international outside sales force
and higher commission expenses relating to the increase in software products
revenues. During 1996, as compared to 1995, the Company incurred higher
commission expenses associated with the increase in software products revenues
and greater marketing costs associated with the Company's expanded product
line. Sales and marketing expenses represented 36%, 39% and 37% of total
revenues in 1997, 1996 and 1995, respectively. During the second quarter of
1997, the Company realigned its inside sales force to be more compatible with
its strategy of providing complete IT infrastructure solutions and to
correspond with the restructuring plan. This realignment resulted in a
significant reduction in the inside sales force. The Company also consolidated
certain remote sales facilities. Consequently, sales and marketing expenses as
a percentage of total revenues decreased during 1997. The increase in sales
and marketing expenses as a percentage of total revenues in 1996, as compared
to 1995, was primarily attributable to costs associated with the significant
expansion of the domestic and international outside and inside sales forces
and the telemarketing organization.

General and Administrative. General and administrative expenses increased to
$70,022,000 in 1997, from $49,515,000 in 1996 and $42,727,000 in 1995. General
and administrative expenses represented 9%, 9% and

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<PAGE>

11% of total revenues in 1997, 1996 and 1995, respectively. The increase in
general and administrative expenses during 1997 was primarily due to total
charges of $13,513,000 recorded during the second quarter of 1997 for write-
offs of certain assets, as well as severance and other employee-related
expenses, related to the integration procedures discussed below. In
conjunction with the restructuring plan executed during the second quarter of
1997, the Company performed additional integration procedures related to past
acquisition activity. The Company evaluated the fair value of assets recorded
through prior acquisitions and identified certain trade receivables, prepaid
expenses and intangible assets that had no future value. The respective
balances of these assets were written-off during the second quarter of 1997.
Additionally, the Company expensed severance and other employee benefits,
including guaranteed bonuses, for certain employees of acquired companies who
were terminated as a result of the integration efforts, but not specifically
as part of the restructuring plan. The increase in general and administrative
expenses in 1997 was also attributable to the costs associated with
integrating recently acquired businesses and maintaining the infrastructure to
support the restructured company, including administrative system upgrade
expenses and associated consulting fees, as well as the amortization of
intangible assets relating to the Company's convertible debt offerings (see
"--Liquidity and Capital Resources"). Total general and administrative
expenses in 1997, excluding the charges related to the integration efforts,
were $56,509,000, representing 8% of total revenues. The Company believes the
decrease in general and administrative expenses as a percentage of total
revenues, excluding the integration charges, was the result of the Company's
overall cost containment efforts, as well as the savings realized by the
restructuring plan.

The increase in general and administrative expenses in 1996 was primarily
related to salaries and other direct employment expenses attributable to an
expanded administrative staff both in the U.S. and in 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 reduction in these expenses as a percentage of total revenues.

Restructuring Charges. In August 1996, the Company's wholly-owned
subsidiary, LBMS (acquired as of May 12, 1998), executed a plan to restructure
its operations. During the second half of 1996, LBMS recorded a restructuring
charge of $14,109,000, net of $3,512,000 in sublease rentals and recoveries
from the sale of a product line. The restructuring charge consisted primarily
of abandoned lease costs, severance and other personnel costs and write-offs
of excess equipment and other assets. During 1997, LBMS recorded a
restructuring benefit of $1,490,000 related to sublease rental activity. This
benefit was offset against the Company's restructuring charge recorded in
1997, as discussed below. As of December 31, 1997, LBMS had $6,764,000 of
accrued restructuring costs recorded.

In the fourth quarter of 1996, the Company's wholly-owned subsidiary, Logic
Works (acquired as of May 28, 1998), implemented a restructuring plan to
streamline its operations by reducing its workforce, consolidating and
reorganizing certain operations and writing off certain fixed assets and other
impaired assets. The plan included the closing and moving of several offices
and the termination of approximately 25 employees across all departments.
Logic Works recorded a charge of $2,203,000 relating to this restructuring. As
of December 31, 1997, Logic Works had $247,000 of accrued restructuring costs
recorded.

During the second quarter of 1997, the Company executed a restructuring plan
to consolidate its sales, marketing, business development and product
development operations to achieve cost efficiencies through the elimination of
redundant functions. These redundancies resulted primarily from businesses
acquired over the previous three years. The Company also realigned its
business units and inside sales force to redirect focus on its strongest
product lines and better integrate the efforts of certain product development
teams. As part of the plan, the Company reduced its worldwide work force by
approximately 10%, eliminating approximately 400 positions, primarily in the
areas of product development and support, marketing and inside sales and, to a
lesser extent, professional services and administration.

The Company recorded a one-time charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: $24,032,000 for facility-related

10
<PAGE>

costs, including a reserve for estimated lease obligations associated with the
closing of office facilities; $3,510,000 for write-offs of excess equipment,
furniture and fixtures; $19,413,000 for write-offs of capitalized software
costs and other intangible assets related to the termination of development
efforts for certain discontinued products, as well as penalties for the
cancellation of distributorship agreements for such products; and $10,364,000
for severance and other employee-related costs of the terminated staff. Of the
$57,319,000 restructuring charge, the Company paid out approximately
$15,322,000 and wrote off $19,687,000 of non-cash charges during 1997.
Consequently, including the LBMS and Logic Works restructuring costs described
above, the Company had $29,321,000 of accrued restructuring costs recorded as
of December 31, 1997. The Company anticipates that approximately $7,000,000 of
these costs will be paid out during 1998. The Company estimates that annual
restructuring payments will be approximately $4,000,000 to $4,500,000 for the
years 1999 through 2002 and approximately $2,000,000 for the year 2003. The
Company expects to pay out approximately $300,000 annually in the years 2004
through 2014 related to the LBMS restructuring plan.

The Company currently expects to realize a reduction in annual operating
expenses of approximately $40,000,000 in 1998 and subsequent years as a result
of the restructuring, without an adverse impact on revenues. However, there
can be no assurance as to the ultimate effects of the restructuring on the
Company's operating results.

Merger Costs. Merger costs were $8,927,000, $5,782,000 and $31,287,000 in
1997, 1996 and 1995, respectively. 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 from time to time
engages in, and is currently engaged in, discussions relating to acquisitions
that may be material in size and/or scope and may involve issuances by the
Company of a significant number of shares of Common Stock. The Company
continues 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. 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
$67,904,000, $49,451,000 and $89,493,000 in 1997, 1996 and 1995, respectively.
Acquired in-process technology charges relate to acquisitions of software
companies and product technologies accounted for under the purchase method. In
these cases, portions of the purchase prices were allocated to acquired in-
process technology.

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 represents unique and emerging technologies, the application of
which is limited to the Company's IT 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 generally ranging from
six to 18 months from the dates of acquisition.

The Company has already devoted substantial resources to the development of
products from research and development purchased in 1997. The Company
estimates that up to an additional 12 months and approximately $9,000,000 in
cash expenditures will be required to develop commercially viable products
from this acquired research and development. With respect to research and
development acquired prior to 1997, the Company has either completed the
development of commercially viable products or discontinued the product
development efforts.

The Company 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.

11
<PAGE>

Operating Loss

For the reasons discussed above, the Company incurred an operating loss of
$102,141,000 in 1997, as compared to an operating loss of $101,609,000 in 1996
and an operating loss of $125,863,000 in 1995. The Company had operating
margins of (14)%, (18)% and (31)% in 1997, 1996 and 1995, respectively. The
significant restructuring charges, merger costs, acquired in-process
technology charges and integration-related charges incurred in these years
contributed significantly to the operating losses and negative operating
margins experienced by the Company. Excluding restructuring charges, merger
costs, acquired in-process technology charges and the integration-related
charges in 1997 discussed under "--General and Administrative" above, the
Company would have reported operating income of $44,032,000 in 1997, an
operating loss of $30,064,000 in 1996 and an operating loss of $6,083,000 in
1995. Excluding such charges, the Company would have reported operating
margins of 6%, (5)% and (1)% in 1997, 1996 and 1995, respectively. During
1997, the Company improved its operating margin, excluding restructuring
charges, merger costs, acquired in-process technology charges and the
integration-related charges, through cost containment efforts and the savings
realized from the restructuring plan. The Company's operating margin,
excluding merger costs and acquired in-process technology charges, decreased
in 1996, as compared to 1995, due primarily to the significant costs incurred
to integrate the numerous acquisitions consummated during 1996 and 1995.
Because acquisitions remain an important part of the Company's growth
strategy, the Company expects to continue to incur acquisition-related
charges, as well as expenses related to the integration of acquired
businesses, which could materially adversely affect operating results in the
periods in which such acquisitions are consummated and in subsequent periods.

Other Income

Other income was $20,497,000 in 1997 as compared to $8,075,000 in 1996 and
$4,623,000 in 1995. The increase in other income in 1997, as compared to 1996,
was primarily attributable to unrealized holding gains that resulted from the
reclassification of certain available-for-sale securities into the trading
classification; unrealized holding gains on trading securities, the market
values of which increased during 1997; and realized gains on the sales of
investment securities. The increase in other income during 1996, as compared
to 1995, was primarily attributable to greater interest income related to
higher cash and investment balances during 1996, realized gains on the sales
of investment securities and unrealized holding gains on trading securities.
Because unrealized holding gains and losses for trading securities are
reflected in pre-tax earnings, fluctuations in the market value of these
securities are continuously recorded as additions to, or deductions from,
other income until the securities are sold. The increase in other income
during 1997, as compared to 1996, was partially offset by interest expense on
the Company's convertible subordinated notes issued in November 1996 and
December 1997. To a lesser extent, the interest expense on the convertible
subordinated notes issued in November 1996 reduced the increase in other
income in 1996, as compared to 1995. See "--Liquidity and Capital Resources."

Income Taxes

The Company recognized income tax expense of $23,459,000 in 1997, and income
tax benefits of $9,752,000 in 1996 and $10,814,000 in 1995. The income tax
expense recorded in 1997 included an amount of $18,389,000 based on the
Company's 28% effective tax rate, plus an additional $5,070,000 recorded in
the second quarter of 1997 to reduce the Company's deferred tax asset balance.
The Company reduced its deferred tax asset balance so that it would reflect an
asset amount that will, more likely than not, be realized in future periods.

The Company has available approximately $308,900,000 of net operating loss
carryforwards and $14,600,000 of tax credit carryforwards, which are available
to reduce future Federal income taxes, if any, through the year 2012. Some of
the Company's tax carryforwards are subject to limitations as to the amounts
that may be used in any particular future year.

12
<PAGE>

Net Loss

For the reasons discussed above, the Company incurred a net loss of
$106,128,000 in 1997, as compared to $87,194,000 in 1996 and $114,217,000 in
1995. The significant restructuring charges, merger costs and acquired in-
process technology charges incurred in these years contributed significantly
to the net losses experienced by the Company. See "--Operating Loss" above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and investments were $358,204,000 and
$256,623,000 as of December 31, 1997 and 1996, respectively. For the year
ended December 31, 1997, cash and cash equivalents increased $54,363,000, from
$178,661,000 at the beginning of the year to $233,024,000 at the end of the
year. This increase was attributable primarily to net proceeds of $144,967,000
from the sale of $150,000,000 principal amount of 6.25% convertible
subordinated notes due 2002 (the "1997 Notes") and net cash provided by
operating activities of $49,242,000. The positive cash flow from operating
activities was reduced by an increase in trade and installment receivables,
net of proceeds from the sale of installment receivables. Previously, the
Company reported trade and installment receivables on a gross basis and the
sale of installment receivables as a financing activity. Of the $211,729,000
of cash provided by financing and operating activities, $156,292,000 was used
in investing activities. The principal components of investing activities were
purchases of marketable securities and the investment of resources in
purchased and developed software. For 1996, cash and cash equivalents
increased from $148,992,000 at the beginning of the year to $178,661,000 at
the end of the year, with the primary sources of cash being sales of
installment receivables and the net proceeds from the sale of $115,000,000
principal amount of 6.75% convertible subordinated notes due 2001 (the "1996
Notes"). For 1995, cash and cash equivalents increased from $86,979,000 at the
beginning of the year to $148,992,000 at the end of the year, with the
principal source of cash being the net proceeds from a public offering of
Common Stock.

In recent years, the Company's sources of liquidity have primarily been
funds from capital markets and sales of installment receivables. The Company
believes the funding available to it from these sources, as well as cash flows
from operations, will be sufficient to satisfy its working capital and debt
service requirements for the foreseeable future. The Company's capital
requirements are primarily dependent on management's business plans 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 had trade and installment accounts receivable, net of
allowances, of $279,919,000 and $216,069,000 as of December 31, 1997 and 1996,
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 sells a significant portion of its installment receivables to
third parties. Installment receivables represent amounts collectible on long-
term financing arrangements and include fees for product licenses, upgrades
and maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years, with
interest payable on the license and upgrade portions only. Over the past two
years, the Company executed an increasingly greater number and higher dollar
value of sales transactions having long-term financing arrangements, primarily
attributable to sales of product bundles and integrated product suites.
Consequently, the Company's volume of installment receivable sales increased
significantly over the past two years.

13
<PAGE>

The Company receives proceeds equal to the entire installment receivable
balance sold to a third party finance company, net of an amount representing
the interest to be earned by the finance company. The finance company collects
customer remittances over the term of the agreement. Proceeds from the sale of
receivables were $206,916,000, $129,328,000 and $2,903,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accounts receivable sold with
recourse were $19,373,000 for the year ended December 31, 1996. There were no
accounts receivable sold with recourse for the year ended December 31, 1997,
and as of December 31, 1997, there were no remaining potential recourse
obligations for accounts receivable sold with recourse. The Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Under the terms of that agreement, potential recourse
obligations at December 31, 1997 were $14,632,000. Based on the credit ratings
of the underlying obligors to the accounts receivable and the performance
history of the accounts receivable portfolio, the Company has assessed the
exposure related to these recourse obligations 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, which was previously reflected
as a reduction of the related installment receivable balance, to an
obligation. The deferred maintenance is recognized into income ratably over
the term of the maintenance agreement.

The Company had long-term acquisition-related payables of $18,320,000 and
$2,502,000 and other long-term obligations of $267,239,000 and $117,198,000 as
of December 31, 1997 and 1996, respectively. The significant increase in long-
term obligations from December 31, 1996 to December 31, 1997 was attributable
to the 1997 Notes issued by the Company in December 1997. The 1997 Notes bear
interest at 6.25% annually and mature on December 15, 2002. The holders of the
1997 Notes have the option to convert them into shares of Common Stock, at any
time prior to maturity, at a conversion price of $36.05 per share. The Company
received proceeds, net of issuance costs, of $144,967,000 from the offering of
the 1997 Notes. The Company completed an offering of convertible subordinated
notes due November 15, 2001 in November 1996 (the "1996 Notes"). The 1996
Notes bear interest at 6.75% annually and the holders of the 1996 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 the 1996
Notes. The Company currently has total debt service obligations of
approximately $35,000,000 for 1998, consisting primarily of obligations to pay
interest on the 1996 Notes and the 1997 Notes, as well as acquisition-related
payables. Based on current outstanding indebtedness, the Company estimates its
debt service requirements to be approximately $36,000,000, $18,000,000,
$132,000,000 and $160,000,000 for 1999, 2000, 2001 and 2002, respectively,
which amounts include the outstanding principal balance of the 1996 Notes in
2001 and the outstanding principal balance of the 1997 Notes in 2002.

The Company currently has unsecured bank lines of credit for an aggregate of
$57,500,000, under which borrowings bear interest at rates ranging from
approximately LIBOR plus 1% to the bank's prime rate plus 0.75%. As of June
30, 1998, the Company had no outstanding borrowings under these lines of
credit, but had aggregate letters of credit outstanding for approximately
$3,766,000, with expiration dates ranging from December 1998 to September
1999. These letters of credit reduce the balance available under its lines of
credit. Under the credit agreement, the Company has agreed: (i) to maintain a
ratio of current assets to current liabilities of at least 1.0 to 1.0; (ii) to
maintain a tangible net worth of not less than $100,000,000; and (iii) to
maintain a ratio of total liabilities to tangible net worth of not more than
1.0 to 1.0.

FOREIGN CURRENCY EXCHANGE RATES

To date, fluctuations in foreign currency exchange rates have not had a
material effect on the Company's results of operations or liquidity. However,
the Company closely monitors its foreign operations and net asset

14
<PAGE>

position to ascertain the need for hedging foreign currency exchange risk.
Since 1997, the only exposure related to foreign currency exchange for which
the Company has considered hedging appropriate has been related to short-term
intercompany balances. These non-functional currency balances are hedged by
purchases and sales of forward exchange contracts to reduce this exchange rate
exposure. At December 31, 1997, the Company held an aggregate of approximately
$26,800,000 in notional amount of forward exchange contracts. As the Company's
operations expand in international regions outside Western Europe, where the
Company's international operations are currently concentrated, the Company may
increasingly hedge foreign currency exchange risk.

YEAR 2000 CONSIDERATIONS

During 1997, the Company substantially completed the implementation of an
enterprise-wide financial accounting system which is Year 2000 compliant.
Further, the Company has evaluated its internal software and computer systems
and believes its costs associated with addressing, and risk of operational
disruption from internal software or systems failures relating to, the Year
2000 problem will be minimal.

The Company believes that some of its customers may allocate a substantial
portion of their 1998 and 1999 IT budgets to products and services addressing
the Year 2000 problem. The Company is unable to determine whether this trend
will negatively impact sales of its traditional product offerings, but
believes that it may lead to increased sales of its Year 2000 products and
services.

All of the software products which the Company currently sells or maintains
are Year 2000 compliant. However, certain of the Company's customers who have
discontinued maintenance may be running old product versions that are not Year
2000 compliant. Because the Company's products are typically used in high
volume information systems that are critical to customers' operations,
business interruptions, loss or corruption of data or other major problems
resulting from a failure of a product to process Year 2000 data correctly
could have significant adverse consequences to customers. Although the Company
believes that its software license agreements provide it with substantial
protection against liability, the Company cannot currently predict whether or
to what extent any legal claims will be brought against the Company, or
whether the Company will otherwise be adversely affected, as a result of any
such adverse consequences to its customers.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company is required to adopt SFAS No.
130 for periods beginning after December 15, 1997. This statement establishes
standards for reporting comprehensive income and its components in a full set
of general-purpose financial statements. The standard requires all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The standard does not
have a material impact on the Company's current presentation of income.

In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company is required to adopt the disclosures of SFAS No. 131 beginning
with its December 31, 1998 annual financial statements. This statement
establishes standards for the way companies are to report information about
operating segments. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
is currently evaluating the impact of this standard on its financial
statements.

In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." The
Company is required to adopt SOP 97-2 on January 1, 1998. SOP 97-2 is intended
to reduce diversity in current revenue recognition practices within the
software industry. The statement does not have a material effect on the
Company's operations.

15
<PAGE>

QUARTERLY COMPARISONS

The following tables set forth an unaudited summary of supplemental
quarterly financial data. This supplemental quarterly information has been
prepared on the same basis as the supplemental 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 in a given year. For example, 33% and 32% of the Company's
total revenues in 1997 and 1996, respectively, were generated in the fourth
quarter. Further, revenues for the fourth quarter of 1996 were higher than
revenues for the first quarter of 1997. The Company believes the seasonality
of its revenue 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 products 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 products revenues in each quarter result
from sales made in that quarter.
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues, as
previously reported(1). $ 115,623 $ 136,438 $ 160,201 $ 211,241
Adjustments(2).......... 25,567 27,744 30,609 31,457
Total revenues........ 141,190 164,182 190,810 242,698
Operating income (loss),
as previously
reported(1)............ (33,086) (77,336) 10,553 (15,923)
Adjustments(2).......... 1,874 3,512 3,973 4,292
Operating income
(loss)............... (31,212)(3) (73,824)(4) 14,526 (11,631)(5)
Net income (loss), as
previously reported(1). (25,269) (78,933) 10,160 (23,742)
Adjustments(2).......... 2,225 2,113 3,858 3,460
Net income (loss)..... (23,044)(3) (76,820)(4) 14,018 (20,282)(5)
Net income (loss) per
share, as previously
reported(1)............ $ (0.41) $ (1.28) $ 0.16 $ (0.37)
Net income (loss) per
share................ (0.30)(3) (0.99)(4) 0.17 (0.25)(5)
Shares used in computing
net income (loss) per
share, as previously
reported(1)............ 60,947 61,477 65,328 63,615
Shares used in
computing net income
(loss) per share..... 76,673 77,404 82,437 79,932
<CAPTION>
1996
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues, as
previously reported(1). $ 89,059 $ 107,197 $ 120,314 $ 151,495
Adjustments(2).......... 17,449 20,353 21,823 25,794
Total revenues........ 106,508 127,550 142,137 177,289
Operating loss, as
previously reported(1). (32,081) (9,801) (10,427) (27,095)
Adjustments(2).......... (4,325) (17,025) 1,396 (2,251)
Operating loss........ (36,406)(6) (26,826)(7) (9,031)(8) (29,346)(9)
Net loss, as previously
reported(1)............ (24,221) (5,556) (7,485) (27,660)
Adjustments(2).......... (4,085) (17,180) 190 (1,197)
Net loss.............. (28,306)(6) (22,736)(7) (7,295)(8) (28,857)(9)
Net loss per share, as
previously reported(1). $ (0.43) $ (0.10) $ (0.13) $ (0.48)
Net loss per share.... (0.41)(6) (0.32)(7) (0.10)(8) (0.39)(9)
Shares used in computing
net loss per share, as
previously reported(1). 56,341 56,625 57,070 57,823
Shares used in
computing net loss
per share............ 69,768 71,950 72,480 73,391
</TABLE>

16
<PAGE>

- --------
(1) As reported under "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Comparisons" in
the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
(2) Adjustments reflect the effect of acquisitions accounted for as poolings
of interests on the amounts previously reported in the Company's Annual
Report on Form 10-K. See Note 2 of the notes to the Supplemental
Consolidated Financial Statements included elsewhere herein for a more
detailed discussion of these transactions.
(3) Reflects a pre-tax charge for acquired in-process technology of
$10,417,000 relating to the Company's acquisition of GEJAC and the
purchase of certain product technologies. Also reflects a pre-tax charge
for merger costs of $3,706,000 relating to the Company's acquisitions of
ATR and I&S.
(4) Reflects a pre-tax charge for acquired in-process technology of $6,747,000
relating to the Company's acquisition of certain product technologies.
Reflects a pre-tax charge of $56,063,000 for restructuring costs. Also
reflects a loss from discontinued operations of $1,477,000, net of taxes,
relating to Mastering.
(5) Reflects a pre-tax charge for acquired in-process technology of
$50,740,000 relating to the Company's acquisition of ProMetrics, the
purchase of certain product technologies and other intangible assets from
Intel and the purchase of certain other product technologies. Also
reflects a pre-tax charge for merger costs of $5,221,000 relating
primarily to the Company's acquisition of Vayda.
(6) Reflects a pre-tax charge for acquired in-process technology of $7,005,000
relating to the Company's acquisition 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.
(7) Reflects a pre-tax charge of $17,621,000 relating to LBMS restructuring
costs.
(8) Reflects a pre-tax charge for acquired in-process technology of $5,085,000
relating to the Company's acquisitions of Software Alternatives, Grateful
Data and other product technologies. Also reflects a pre-tax recovery
credit of $3,512,000 relating to restructuring activities of LBMS.
(9) Reflects a pre-tax charge for acquired in-process technology of
$37,361,000 relating to the Company's acquisitions of VREAM and
substantially all of the assets of Access Manager. Also reflects a pre-tax
charge of $2,203,000 relating to Logic Works restructuring costs.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 8-K contains certain "forward-looking statements" (as defined in
Section 21E of the Exchange Act) that reflect the Company's expectations
regarding its future growth, results of operations, performance and business
prospects and opportunities. Words such as "anticipates," "believes," "plans,"
"expects," "estimates" and similar expressions have been used to identify
these forward-looking statements, but are not the exclusive means of
identifying these 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 known and unknown risks,
uncertainties and other factors that 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,
uncertainties and other factors include the Company's ability to develop and
market existing and acquired products for the IT infrastructure market; the
Company's ability to successfully integrate its acquired products, services
and businesses and continue its acquisition strategy; the Company's ability to
adjust to changes in technology, customer preferences, enhanced competition
and new competitors in the IT infrastructure and professional services
markets; currency exchange rate fluctuations, collection of receivables,
compliance with foreign laws and other risks inherent in conducting
international business; risks associated with conducting a consulting services
business; general economic and business conditions, which may reduce or delay
customers' purchases of the Company's products and services; charges and costs
related to acquisitions; and the Company's ability to protect its proprietary
software rights from infringement or misappropriation, to maintain or enhance
its relationships with relational database vendors, and to attract and retain
key employees. The Company is not obligated to update or revise these forward-
looking statements to reflect new events or circumstances or otherwise.

17
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
ASSETS 1997 1996
------ --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 233,024 $ 178,661
Short-term investment securities....................... 79,699 75,827
Trade accounts receivable, net of allowances of $4,788
and $5,415............................................ 227,964 180,801
Installment accounts receivable, net of allowances of
$878 and $395......................................... 30,043 13,603
Net current assets of discontinued operations.......... -- 4,268
Accrued interest and other current assets.............. 37,090 14,979
Refundable income taxes................................ 753 733
--------- ---------
Total current assets................................. 608,573 468,872
--------- ---------
Non-current investment securities........................ 45,481 2,135
Property and equipment, net.............................. 92,165 79,420
Purchased and developed software, net.................... 117,213 83,032
Excess of cost over net assets acquired, net of
accumulated amortization of $15,975 and $10,610......... 52,759 37,382
Non-current installment receivables, net of allowances of
$1,616 and $816......................................... 21,912 21,665
Net long-term assets of discontinued operations.......... -- 9,789
Other assets............................................. 34,804 34,373
--------- ---------
Total assets......................................... $ 972,907 $ 736,668
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Acquisition-related payables........................... $ 15,717 $ 7,872
Income taxes payable................................... 4,165 2,446
Accounts payable....................................... 23,294 19,214
Accrued commissions and bonuses........................ 16,237 13,395
Accrued royalties...................................... 7,215 3,913
Accrued restructuring costs............................ 7,391 3,096
Other accrued liabilities.............................. 51,946 38,270
Current maturities of long-term obligations............ 1,619 4,027
Deferred revenue....................................... 128,326 94,090
--------- ---------
Total current liabilities............................ 255,910 186,323
--------- ---------
Acquisition-related payables............................. 18,320 2,502
Deferred revenue......................................... 60,435 38,674
Deferred rent............................................ 6,197 8,360
Accrued restructuring costs.............................. 21,930 7,867
Long-term obligations, net of current maturities......... 267,239 117,198
--------- ---------
Total liabilities.................................... 630,031 360,924
--------- ---------
Stockholders' equity:
Class II preferred stock, $.01 par value; authorized
10,000 shares, none issued and outstanding............ -- --
Subscribed Class II preferred stock, $.01 par value;
1,768 shares subscribed in 1997....................... 18 --
Common stock, $.001 par value; authorized 180,000
shares, issued and outstanding 80,239 and 76,195...... 80 76
Paid-in capital........................................ 691,609 605,177
Accumulated deficit.................................... (352,450) (246,262)
Unrealized holding gains on marketable securities...... 8,466 17,814
Foreign currency translation adjustment................ (4,847) (1,061)
--------- ---------
Total stockholders' equity........................... 342,876 375,744
--------- ---------
Total liabilities and stockholders' equity........... $ 972,907 $ 736,668
========= =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.

F-1
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software products........................... $ 410,369 $ 289,125 $ 208,929
Maintenance................................. 139,912 114,579 88,602
Professional services....................... 188,599 149,780 110,894
--------- --------- ---------
Total revenues............................ 738,880 553,484 408,425
--------- --------- ---------
Costs and expenses:
Professional services....................... 170,851 145,445 111,658
Product development and support............. 203,499 170,153 107,739
Sales and marketing......................... 263,989 218,435 152,384
General and administrative.................. 70,022 49,515 42,727
Restructuring charges....................... 55,829 16,312 --
Merger costs................................ 8,927 5,782 31,287
Acquired in-process technology.............. 67,904 49,451 88,493
--------- --------- ---------
Total costs and expenses.................. 841,021 655,093 534,288
--------- --------- ---------
Operating loss................................ (102,141) (101,609) (125,863)
Other income, net............................. 20,497 8,075 4,623
--------- --------- ---------
Loss from continuing operations before income
taxes........................................ (81,644) (93,534) (121,240)
Income taxes.................................. 23,459 (9,752) (10,814)
--------- --------- ---------
Net loss from continuing operations........... (105,103) (83,782) (110,426)
Discontinued operations:
Loss from discontinued operations, net of
tax benefit of $1,196, $2,721 and $0....... (1,858) (3,610) (3,441)
Gain (loss) on disposal, net of tax expense
of $394, $40 and $0........................ 833 198 (350)
--------- --------- ---------
Total discontinued operations............. (1,025) (3,412) (3,791)
--------- --------- ---------
Net loss...................................... $(106,128) $ (87,194) $(114,217)
========= ========= =========
Net loss per share............................ $ (1.36) $ (1.21) $ (2.10)
========= ========= =========
Shares used in computing per share amounts.... 78,072 71,919 54,349
</TABLE>

See accompanying notes to supplemental consolidated financial statements.

F-2
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock:
Balance at beginning of
year................... -- $ -- -- $ -- -- $ --
Stock subscribed........ 1,768 18 -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 1,768 $ 18 -- $ -- -- $ --
====== ========= ====== ========= ====== =========
Common stock:
Balance at beginning of
year................... 76,195 $ 76 67,788 $ 68 47,189 $ 47
Exercise of stock
options................ 1,609 2 892 1 993 1
Issuance of common
stock under Stock
Purchase Plan.......... 973 1 282 -- -- --
Issuance of common
stock.................. 1,461 1 7,233 7 19,606 20
Conversion of
subordinated notes..... 1 -- -- -- -- --
------ --------- ------ --------- ------ ---------
Balance at end of
year................. 80,239 $ 80 76,195 $ 76 67,788 $ 68
====== ========= ====== ========= ====== =========
Paid-in capital:
Balance at beginning of
year................... $ 605,177 $ 497,865 $ 205,612
Exercise of stock
options................ 10,690 4,152 6,582
Income tax benefit
related to stock
options................ 3,233 1,297 352
Issuance of common
stock under Stock
Purchase Plan.......... 12,503 2,791 --
Issuance of common
stock.................. 18,173 99,207 285,318
Preferred stock
subscribed............. 41,848 -- --
Amortization of shelf
registration costs..... (25) (135) --
Conversion of
subordinated notes..... 10 -- --
Adjustment to conform
fiscal years of pooled
businesses............. -- -- 1
--------- --------- ---------
Balance at end of
year................. $ 691,609 $ 605,177 $ 497,865
========= ========= =========
Notes receivable:
Balance at beginning of
year................... $ -- $ (515) $ (333)
Issuance of notes
receivable............. -- -- (200)
Repayment of notes
receivable............. -- -- 18
Reclassification to
other assets........... -- 515 --
--------- --------- ---------
Balance at end of
year................. $ -- $ -- $ (515)
========= ========= =========
Accumulated deficit:
Balance at beginning of
year................... $(246,262) $(157,967) $ (42,139)
Net loss................ (106,128) (87,194) (114,217)
Adjustment for
immaterial pooled
businesses............. 1,014 45 --
Other................... -- (1,006) (387)
Adjustment to conform
fiscal years of pooled
businesses............. (1,074) (140) (1,224)
--------- --------- ---------
Balance at end of
year................. $(352,450) $(246,262) $(157,967)
========= ========= =========
Unrealized appreciation
in marketable
securities:
Balance at beginning of
year................... $ 17,814 $ 6 $ --
Change in unrealized
holding gains, net of
tax.................... (9,348) 17,808 6
--------- --------- ---------
Balance at end of
year................. $ 8,466 $ 17,814 $ 6
========= ========= =========
Foreign currency
translation adjustment:
Balance at beginning of
year................... $ (1,061) $ 1,033 $ 387
Translation adjustment.. (3,786) (2,094) 646
--------- --------- ---------
Balance at end of
year................. $ (4,847) $ (1,061) $ 1,033
========= ========= =========
Total stockholders'
equity................. $ 342,876 $ 375,744 $ 340,490
========= ========= =========
</TABLE>

See accompanying notes to supplemental consolidated financial statements.

F-3
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(106,128) $(87,194) $(114,217)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 62,288 43,549 26,393
Acquired in-process technology............. 67,904 49,451 88,493
Net write-off of fixed assets, capitalized
software and other intangible assets in
conjunction with the restructuring plan... 18,197 3,440 --
Gain on sale of discontinued operations.... (6,709) -- --
Unrealized holding gains on marketable
equity securities......................... (12,590) (923) (6)
Realized net gain on sales of investment
securities................................ (7,566) (1,032) (332)
Write-off of capitalized software in
connection with product stabilization and
mergers................................... -- 654 1,183
Noncash compensation....................... 100 421 716
Sales of trading securities.................. 9,489 -- --
Changes in assets and liabilities, net of
acquisitions:
Trade and installment receivables.......... (60,684) (68,614) (58,703)
Deferred income taxes...................... 15,649 (21,238) (13,748)
Accrued interest and other current assets.. (12,979) (2,619) (4,152)
Accounts payable and accrued liabilities... 34,668 2,638 7,136
Deferred revenue........................... 55,338 62,566 21,919
Income taxes payable....................... 3,573 1,390 3,540
Other...................................... (11,308) 4,906 16,071
--------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 49,242 (12,605) (25,707)
--------- -------- ---------
Cash flows from investing activities:
Purchases of investment securities........... (91,423) (55,188) (71,701)
Sales of investment securities............... 15,789 43,763 75,519
Maturities of investment securities.......... 24,383 5,846 10,753
Purchases of property and equipment, net..... (37,824) (45,172) (44,528)
Proceeds from the sale of discontinued
operations.................................. 17,500 -- --
Purchased and developed software............. (63,781) (42,354) (20,742)
Payments for acquisitions.................... (19,338) (18,095) (104,315)
Other assets................................. (1,598) (4,038) (891)
--------- -------- ---------
Net cash used in investing activities.... (156,292) (115,238) (155,905)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of issuance costs........................... -- 49,973 241,486
Proceeds from issuance of convertible notes,
net of issuance costs....................... 144,967 110,783 --
Proceeds from exercise of stock options and
Stock Purchase Plan......................... 23,196 6,944 6,583
Proceeds from borrowings..................... -- 1,465 10,624
Payments on borrowings....................... (5,189) (10,404) (9,386)
Other........................................ (487) (1,109) (3,479)
--------- -------- ---------
Net cash provided by financing
activities.............................. 162,487 157,652 245,828
--------- -------- ---------
Adjustment to conform fiscal years of pooled
businesses.................................... (1,074) (140) (2,203)
--------- -------- ---------
Net increase in cash and cash equivalents...... 54,363 29,669 62,013
Cash and cash equivalents at beginning of year. 178,661 148,992 86,979
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 233,024 $178,661 $ 148,992
========= ======== =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.

F-4
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL 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 organizations manage and improve
their information technology ("IT") infrastructures, which consist of data,
systems and applications. The Company's products and services help IT
departments, primarily in large and data-intensive organizations, minimize
risk, improve service levels and leverage information to make better business
decisions. The Company's products typically perform fundamental functions such
as automating operations, maintaining the operating efficiency of systems and
applications and ensuring data access and integrity. The Company currently
develops software products through its four business units: database
management, systems management, application infrastructure management and data
warehousing and decision support. 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 supplemental 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 supplemental consolidated financial statements include the accounts of
PLATINUM technology, inc. and its subsidiaries. All intercompany accounts and
transactions are eliminated in consolidation.

Revenue Recognition

Revenues from software product sales of perpetual and fixed-term license
agreements are recognized upon product delivery and customer acceptance, when
all significant contractual obligations are satisfied and the collection of
the resulting receivables is 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 service 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 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 four
to thirty years, corporate bonds with original maturities of less than one
year and marketable equity securities. The Company classifies its investment
securities as either available-for-sale or trading and reports them at fair
value. The supplemental consolidated financial statements reflect investment
securities classified as held-to-maturity which were acquired through the
Company's acquisition of Mastering, Inc. ("Mastering"), as discussed in Note
2.

F-5
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL 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. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. 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. For securities transferred from
available-for-sale to the trading classification, any unrealized holding gains
or losses at the date of transfer are recognized in pre-tax earnings
immediately.

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 three
to seven years, of the various classes of property and equipment. Amortization
of leasehold improvements is computed over the shorter of the lease term or
the estimated useful life of the asset.

Purchased and Developed Software

Software development costs are accounted for 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." 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 10 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

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. 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. 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

The Company has reviewed the following financial instruments and determined
that their fair values approximated their carrying values as of December 31,
1997: cash and cash equivalents; trade and installment receivables; accrued
interest and other current assets; refundable income taxes; acquisition-
related payables;

F-6
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

accounts payable and other accrued liabilities; and long-term obligations,
excluding convertible subordinated notes. Investment securities are discussed
in Note 3, and convertible subordinated notes are discussed in Note 12.

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, 1997 are
recoverable in future periods.

Earnings Per Share

In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which established new methods for computing and presenting
earnings per share ("EPS") and replaced the presentation of primary and fully-
diluted EPS with basic ("Basic") and diluted EPS. Basic earnings per share is
based on the weighted average number of shares outstanding and excludes the
dilutive effect of unexercised common stock equivalents. Diluted earnings per
share is based on the weighted average number of shares outstanding and
includes the dilutive effect of unexercised common stock equivalents. Because
the Company reported a net loss for the years ended December 31, 1997, 1996
and 1995, per share amounts have been presented under the Basic method only.

Had the Company reported net earnings for the years ended December 31, 1997,
1996 and 1995, the weighted average number of shares outstanding would have
potentially been diluted by the following common equivalent securities (not
assuming the effects of applying the treasury stock method to outstanding
stock options or the if-converted method to convertible securities):

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Stock options............................ 14,925,000 12,814,000 9,727,000
Convertible subordinated notes (November
1996)................................... 8,243,000 962,000 --
Convertible subordinated notes (December
1997)................................... 231,000 -- --
---------- ---------- ---------
23,399,000 13,776,000 9,727,000
========== ========== =========
</TABLE>

Additionally, net earnings applicable to common stockholders for the years
ended December 31, 1997 and 1996 would have been increased by adding back
interest expense, net of income taxes, related to the convertible subordinated
notes of $5,870,000 and $501,000, respectively.

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 supplemental consolidated
statement of operations.

Derivative Financial Instruments

In the ordinary course of business, the Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations
on assets and liabilities denominated in currencies other than the functional
currency of the reporting entity. All foreign exchange forward contracts
designated and effective as hedges of firm commitments are treated as hedges,
as required by generally accepted accounting principles.

F-7
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Forward exchange contracts are reported at fair value within short-term
investment securities. Fair values of forward exchange contracts are
determined using published rates. Gains and losses on the forward exchange
contracts are included in other income and expense and offset foreign exchange
gains and losses from the revaluation of intercompany balances denominated in
currencies other than the functional currency of the reporting entity.
Realized and unrealized holding gains and losses on the forward exchange
contracts are reported within operating activities in the statement of cash
flows.

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 No. 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
No. 25 and provide the pro forma disclosures of SFAS No. 123.

Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities

On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. The Company sells installment
receivables to third party finance companies in the normal course of business.
During 1997, all such transactions were accounted for as sales in accordance
with SFAS No. 125.

Supplemental Cash Flow Disclosure

Income tax refunds received by the Company amounted to $524,000, $307,000
and $933,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes
in 1997, 1996 and 1995 was $2,877,000, $3,642,000 and $1,403,000,
respectively. Cash paid for interest in 1997, 1996 and 1995 was $8,603,000,
$1,206,000 and $1,653,000, respectively.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 1997
presentation.

2. ACQUISITIONS

Poolings of Interests

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 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.

F-8
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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 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.

F-9
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On April 21, 1998, the Company acquired all of the outstanding capital stock
of Mastering, a leading provider of information technology training, in
exchange for 6,497,094 shares of Common Stock, which had a Market Value of
approximately $168,100,000 at the time of the acquisition. In addition, the
Company assumed stock options which converted into options to purchase
2,193,219 shares of Common Stock.

On May 12, 1998, the Company acquired all of the outstanding capital stock
of Learmonth and Burchett Management Systems Plc ("LBMS"), a leading provider
of process management solutions, in exchange for 2,775,897 shares of Common
Stock, which had a Market Value of approximately $71,900,000 at the time of
the acquisition. In addition, the Company exchanged options to purchase
430,736 shares of Common Stock for outstanding LBMS stock options.

On May 28, 1998, the Company acquired all of the outstanding capital stock
of Logic Works, Inc. ("Logic Works"), a leading provider of data modeling
tools, in exchange for 7,466,981 shares of Common Stock, which had a Market
Value of approximately $198,342,000 at the time of the acquisition. In
addition, the Company assumed stock options which converted into options to
purchase 1,159,591 shares of Common Stock.

Each of the aforementioned transactions was accounted for as a pooling of
interests and, accordingly, the supplemental 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
1997, 1996 and 1995 amounted to $8,927,000, $5,782,000 and $31,287,000,
respectively, of which $3,155,000 and $353,000 were included in other accrued
liabilities at December 31, 1997 and 1996, respectively. 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 loss of PLATINUM
technology, inc. as previously reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 with the amounts presented in the
accompanying supplemental consolidated statements of operations for the years
ended December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- -------------------
NET INCOME NET INCOME
REVENUES (LOSS) REVENUES NET LOSS REVENUES (LOSS)
-------- ---------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PLATINUM(1)............. $623,503 $(117,784) $468,065 $(64,922) $326,411 $(111,567)
Mastering............... 40,966 2,581 21,018 (2,892) 10,168 (3,273)
LBMS.................... 23,897 4,469 21,861 (16,318) 41,158 (784)
Logic Works............. 50,514 4,606 42,540 (3,062) 30,688 1,407(2)
-------- --------- -------- -------- -------- ---------
Total............... $738,880 $(106,128) $553,484 $(87,194) $408,425 $(114,217)
======== ========= ======== ======== ======== =========
</TABLE>
- --------
(1) Represents the historical results of PLATINUM technology, inc. without
considering the effect of the poolings of interests consummated during
1998. All merger costs and acquired in-process technology charges are
reflected in the historical results of PLATINUM.
(2) Represents historical Logic Works net income for the year ended December
31, 1995 before the effects of preferred stock cash dividends and the
accretion of a preferred stock redemption requirement.

The supplemental consolidated statement of operations for the year ended
December 31, 1997 reflects the impact of LBMS' operating results for the three
months ended April 30, 1997, which are also included in the year ended
December 31, 1996 statement of operations due to differences in reporting
periods relative to PLATINUM. The revenues and net income of LBMS included
more than once were $6,188,000 and $1,074,000, respectively.

F-10
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The supplemental consolidated statement of operations for the year ended
December 31, 1996 reflects the impact of ATR's operating results for the six
months ended June 30, 1996, which are also included in the year ended December
31, 1995 statement of operations due to differences in reporting periods
relative to PLATINUM. The revenues and net income of ATR included more than
once were $5,061,000 and $140,000, respectively.

The supplemental 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 supplemental 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.

During 1996, the Company consummated an immaterial acquisition accounted for
as a pooling of interests. 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
supplemental consolidated statement of stockholders' equity.

On November 26, 1997, the Company consummated an immaterial acquisition
accounted for as a pooling of interests. The Company acquired all of the
outstanding capital stock of Vayda Consulting, Inc. ("Vayda"), a leading
provider of information technology consulting services, in exchange for
580,231 shares of Common Stock, which had a Market Value of approximately
$15,300,000 at the time of the acquisition. In addition, the Company assumed
stock options which converted into options to purchase 67,937 shares of Common
Stock. The Company did not restate the supplemental consolidated financial
statements to reflect the results of Vayda for the periods preceding the
acquisition. As a result, the retained earnings of Vayda were recorded as of
the acquisition date, causing an adjustment of $1,014,000 to the Company's
accumulated deficit in 1997. This adjustment is reflected in the supplemental
consolidated statement of stockholders' equity.

PURCHASE TRANSACTIONS

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
supplemental consolidated statements of operations reflect the results of
operations of the purchased companies since the effective dates of the
acquisitions.

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.

F-11
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company determined that the acquired in-process technologies had not
reached technological feasibility based on the status of design and
development activities that 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 IT infrastructure strategy.
Accordingly, these acquired technologies have no alternative future use.

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.

F-12
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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.

Effective February 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.

Internationally, effective October 1997, the Company acquired all of the
outstanding capital stock of ProMetrics Group Limited ("ProMetrics"), a
leading provider of productivity management software, in exchange for
approximately $8,000,000 in cash plus 364,396 shares of Common Stock, which
had a Market Value of approximately $9,500,000 at the time of the acquisition,
plus contingent consideration of approximately $11,000,000, as specified in
the acquisition agreement. The Company's issuance of Common Stock was
substantially used to retire approximately $7,000,000 of assumed debt under
the acquisition agreement.

On December 23, 1997, the Company and Intel Corporation ("Intel") entered
into certain agreements providing for the sale and license to the Company by
Intel of certain product technologies and the payment to the Company by Intel
of certain cash consideration. In exchange, the Company agreed to issue to
Intel 1,768,421 shares of the Company's Class II Series B Preferred Stock
("Preferred Stock"), which had a Market Value of approximately $42,000,000 on
the date of the agreement, and to distribute certain products manufactured by
Intel. Additionally, the Company licensed certain product technologies to
Intel.

During 1997, the Company also acquired certain other software technologies
for an aggregate purchase price of approximately $6,800,000.

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

F-13
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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>
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues........................................ $ 747,527 $ 570,875
Net loss........................................ (108,775) (96,125)
Net loss per share.............................. (1.39) (1.34)
</TABLE>

The Company estimates aggregate payments for acquisition-related payables in
connection with the acquisitions described above to be $15,717,000,
$17,682,000 and $638,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.

The Company may be required to make additional payments in future years to
various former owners of acquired businesses based upon the attainment of
certain operating results by such businesses. The amount of these payments was
not determinable at December 31, 1997. 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 determinable.

3. INVESTMENT SECURITIES

At December 31, 1997, the Company classified its marketable debt and equity
securities as either available-for-sale, trading or held-to-maturity.
Available-for-sale securities represent those securities that do not meet the
classification of held-to-maturity and are not actively traded. Trading
securities represent those securities which the Company intends to buy or sell
in the near term for the purpose of generating profits on increases in market
values. Held-to-maturity securities represent those securities the Company has
the ability and intent to hold to maturity. At December 31, 1997, net
unrealized holding gains from available-for-sale securities of $14,159,000,
reduced by income taxes of approximately $5,693,000, were included as a
separate component of stockholders' equity. For the year ended December 31,
1997, available-for-sale securities amounting to $24,972,000 were reclassified
to trading securities. The Company reclassified its available-for-sale
securities to trading securities during 1997, because the Company intended to
sell the securities at various dates in the near future to benefit from
increases in the market price of those securities. Unrealized holding gains
from reclassified securities of approximately $19,829,000, previously reported
as a separate component of stockholders' equity in the amount of $11,897,000
(net of income taxes), were recognized in pre-tax earnings for the year ended
December 31, 1997. The Company sold a portion of its trading securities during
1997 and consequently reclassified the corresponding unrealized gains to
realized gains. For the year ended December 31, 1997, the Company reported
unrealized holding gains of approximately $12,590,000 in pre-tax earnings.

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 that 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
$17,805,000, respectively. The cost and unrealized gain on the investment
transferred to the trading classification were approximately $1,125,000 and
$920,000, respectively.

F-14
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1997
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities......... $ 9,395 $ 25 $ -- $ 9,420
State and municipal
bonds.............. 10,294 16 (36) 10,274
Corporate bonds..... 15,208 26 (7) 15,227
Marketable equity
securities......... 3,675 13,770 -- 17,445
------- ------- ----- -------
38,572 13,837 (43) 52,366
------- ------- ----- -------
Trading securities--
Marketable equity
securities......... 4,338 13,867 (351) 17,854
Held-to-maturity--
U.S. Government
securities......... 9,479 15 -- 9,494
------- ------- ----- -------
$52,389 $27,719 $(394) $79,714
======= ======= ===== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $25,498 $ 55 $ -- $25,553
Held-to-maturity--
U.S. Government
securities......... 19,928 33 -- 19,961
------- ------- ----- -------
$45,426 $ 88 $ -- $45,514
======= ======= ===== =======
</TABLE>

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>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------- ------------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Available-for-sale--
U.S. Government
securities......... $ 1,338 $ 22 $-- $ 1,360
State and municipal
bonds.............. 6,204 3 -- 6,207
Corporate bonds..... 2,950 -- (4) 2,946
Marketable equity
securities......... 8,383 29,923 -- 38,306
------- ------- ---- -------
18,875 29,948 (4) 48,819
------- ------- ---- -------
Trading securities--
Marketable equity
securities......... 1,125 920 -- 2,045
Held-to-maturity--
U.S. Government
securities......... 24,963 -- (3) 24,960
------- ------- ---- -------
$44,963 $30,868 $ (7) $75,824
======= ======= ==== =======
Non-current:
Available-for-sale--
State and municipal
bonds.............. $ 2,122 $ 51 $(38) $ 2,135
======= ======= ==== =======
</TABLE>

F-15
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The contractual maturities of debt securities at December 31, 1997 were as
follows:

<TABLE>
<CAPTION>
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due within one year........................................ $44,415
Due after one year through five years...................... 20,377
Due after five years....................................... 25,137
-------
$89,929
=======
</TABLE>

Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were
approximately $44,000 and $0, respectively, for the year ended December 31,
1997, $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. For the year ended December 31, 1997, the Company also sold investments
classified as trading securities. Gross realized gains and gross realized
losses related to these sales were $7,522,000 and $0, respectively.

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 1,450 $ --
Real Estate............................................ 98 98
Furniture and fixtures................................. 36,309 30,303
Computers and software................................. 75,171 68,106
Transportation......................................... 11,497 8,169
Leasehold improvements................................. 28,810 22,359
-------- --------
153,335 129,035
Less accumulated depreciation and amortization......... 61,170 49,615
-------- --------
$ 92,165 $ 79,420
======== ========
</TABLE>

5. PURCHASED AND DEVELOPED SOFTWARE

Purchased and developed software consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased software..................................... $ 48,301 $ 35,461
Software development costs............................. 141,690 89,400
-------- --------
189,991 124,861
Less accumulated amortization.......................... 72,778 41,829
-------- --------
$117,213 $ 83,032
======== ========
</TABLE>

During the years ended December 31, 1997, 1996 and 1995, $62,504,000,
$38,555,000 and $19,867,000, respectively, of software development costs were
capitalized. The Company recognized amortization expense applicable to
internally developed capitalized software of $21,361,000, $11,309,000 and
$6,276,000 during 1997, 1996 and 1995, respectively. The Company recognized
amortization expense applicable to purchased software of $9,588,000,
$6,497,000 and $3,200,000 during 1997, 1996 and 1995, respectively. During
1997, the Company wrote-off $10,214,000 of capitalized software development
costs and $1,450,000 of purchased software related to the restructuring plan
executed in May 1997. During 1996, the Company wrote off $654,000 of
capitalized software development costs related to certain AIB, SII and other
product technologies.

F-16
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. INSTALLMENT ACCOUNTS RECEIVABLE

Installment accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Current installment receivables........................ $ 42,753 $19,763
Allowance for uncollectible amounts.................... (878) (395)
Deferred maintenance fees.............................. (10,124) (5,058)
Unamortized discounts.................................. (1,708) (707)
-------- -------
$ 30,043 $13,603
======== =======
Non-current installment receivables.................... $ 58,889 $40,827
Allowance for uncollectible amounts.................... (1,616) (816)
Deferred maintenance fees.............................. (27,603) (16,347)
Unamortized discounts.................................. (7,758) (1,999)
-------- -------
$ 21,912 $21,665
======== =======
</TABLE>

Installment accounts receivable represent amounts collectible on long-term
financing arrangements and include fees for product licenses, upgrades and
maintenance, sometimes also bundled with professional services contracts.
Installment receivables are generally financed over three to five years and
are recorded net of unamortized discounts, deferred maintenance fees and
allowances for uncollectible amounts.

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 1997, 1996 and 1995
were approximately $206,916,000, $129,328,000 and $2,903,000, respectively.
There were no accounts receivable sold with recourse for the year ended
December 31, 1997. Accounts receivable sold with recourse were $19,373,000 for
the year ended December 31, 1996. As of December 31, 1997, there were no
potential recourse obligations for accounts receivable sold with recourse. In
addition to accounts receivable sold with recourse, the Company has an
agreement with a third party that provides for potential recourse obligations
in the form of a loss pool based on the performance of the related accounts
receivable portfolio. Based on the terms of that agreement, potential recourse
obligations at December 31, 1997 were $14,632,000. Based on the credit ratings
of the underlying obligors to the accounts receivable and the performance
history of the accounts receivable portfolio, the Company has assessed the
exposure related to these recourse obligations and determined the potential
liability to be minimal. The fair market value of the recourse obligations at
December 31, 1997 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 $1,846,000, $1,189,000 and $647,000 in 1997, 1996 and 1995,
respectively.

F-17
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. LINES OF CREDIT

At December 31, 1997, the Company had unsecured bank lines of credit for an
aggregate of $57,500,000, under which borrowings bear interest at rates
ranging from approximately LIBOR plus 1% to the bank's prime rate plus 0.75%.
These lines of credit are subject to limitations based upon certain financial
covenants. At December 31, 1997, there were no borrowings outstanding under
these lines of credit.

At December 31, 1997, the Company had aggregate letters of credit
outstanding for approximately $2,623,000, with expiration dates ranging from
March 1998 to December 1998. These letters of credit reduce the balance
available under the lines of credit.

9. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN

As of December 31, 1997, 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 No. 25 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, the Company's net
loss and net loss per share would have been the pro forma amounts indicated
below for the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss:
As reported.................... $(106,128) $(87,194) $(114,217)
Pro forma...................... (120,149) (95,432) (120,349)
Net loss per share:
As reported.................... $ (1.36) $ (1.21) $ (2.10)
Pro forma...................... (1.54) (1.33) (2.21)
</TABLE>

Under SFAS No. 123, the pro forma compensation expense related to the
Company's stock option plans and Stock Purchase Plan, before effects for
income taxes, was approximately $23,575,000, $13,775,000 and $10,309,000 in
1997, 1996 and 1995, respectively.

Excluding stock option plans assumed pursuant to acquisitions, the Company
has six stock option plans ("Company Plans"). The Employee Incentive
Compensation 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 16,160,000 shares. The Chief Executive
Option Plan provides for the granting of options for up to 1,600,000 shares to
the Company's 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, excluding the
Directors' Option Plan, during 1997, 1996 and 1995, 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.

F-18
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 and 1997 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. The assumption of these option grants
resulted in the deemed issuance by the Company of options for 1,603,835,
1,723,316 and 2,131,351 shares in 1997, 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 more than 20 hours per week. Under this plan, the Company is
authorized to issue up to 5,000,000 shares (excluding shares assumed to be
issued pursuant to acquisitions) of Common Stock. Under terms of the Stock
Purchase Plan and current policies of the administrative committee, employees
may elect each year to withhold between one and 50 percent of their cash
compensation through regular payroll deductions to purchase Common Stock,
subject to Internal Revenue Service limitations. 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 1, or September 1 for employees with a start
date between March 1 and August 31) or the exercise date, which is the end of
each plan quarter (February 28, May 31, August 31 and November 30). As of
December 31, 1997, approximately 50% of eligible employees were participating
in the Stock Purchase Plan. Under the Stock Purchase Plan, the Company sold
985,755 and 281,725 shares to employees in 1997 and 1996, respectively
(including amounts relating to acquired companies).

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 1997, 1996 and 1995, respectively: weighted
average option price, which equals the fair market value at date of grant, of
$14.96, $14.24 and $12.94; expected dividend yields of 0% for all years;
expected volatility of 61%, 55% and 55%; risk-free interest rates of 5.66%,
6.37% and 6.12%; and an expected life of five years for all 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 1997 and
1996, respectively: average fair market value of $13.75 and $10.75; average
option price of $11.69 and $9.14; expected dividend yield of 0% for both
years; expected volatility of 61% and 51%; average risk-free interest rate of
5.52% and 5.42%; and expected life of three months for both years.

Stock option plan activity during the years ended December 31, 1997, 1996
and 1995 was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
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................ 14,150,997 $11.99 11,477,651 $10.71 7,976,847 $9.03
Granted................. 4,993,131 14.96 5,022,673 14.24 4,899,247 12.94
Exercised............... (1,850,215) 11.55 (1,446,151) 11.16 (850,221) 7.48
Canceled................ (1,595,100) 9.70 (903,176) 9.61 (548,222) 11.20
---------- ---------- ----------
Outstanding at end of
year................... 15,698,813 13.21 14,150,997 11.99 11,477,651 10.71
========== ========== ==========
Options exercisable at
year-end............... 7,298,672 6,891,404 5,779,310
========== ========== ==========
Weighted-average fair
value of options
granted during the
year................... $ 9.68 $ 6.94 $ 12.30
</TABLE>

F-19
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about fixed stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- -------------------
WEIGHTED-
AVG. WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVG. AVG.
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
-------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ .00-- 9.63 2,348,543 5.94 years $ 4.66 1,653,879 $ 4.31
9.75--12.38 3,662,534 7.63 11.08 1,361,202 10.78
12.50--13.92 3,935,693 7.94 13.27 1,466,303 13.21
14.00--18.25 4,235,540 7.99 16.10 2,105,667 16.18
18.31--36.40 1,516,503 8.30 23.33 711,621 23.98
---------- ---------
15,698,813 7.62 13.21 7,298,672 12.65
========== =========
</TABLE>

During 1997, a wholly-owned subsidiary of the Company adopted a fixed stock
option plan (the "1997 Option Plan"). The 1997 Option Plan provides for the
granting of options to employees for up to an aggregate of 7,500,000 shares of
the subsidiary's common stock. Under this plan, the subsidiary has granted
non-qualified stock options. These options have an exercise price equal to the
fair market value of the subsidiary's stock on the date of grant, have a legal
life of ten years and vest on the sixth anniversary of the grant date. Options
granted under the 1997 Option Plan are exercisable in shares of the
subsidiary's common stock and are not convertible to the Company's Common
Stock. During 1997, the subsidiary granted 5,170,000 options at a fair market
value of $0.92. For the year ended December 31, 1997, 247,500 options were
canceled. The weighted-average grant date fair value of these options was
$0.33 using the Minimum Value option-pricing method and a risk-free interest
rate of 5.80%.

10. PREFERRED STOCK

On December 23, 1997, the Company agreed, pursuant to a stock purchase
agreement, to issue to Intel 1,768,421 shares of its Preferred Stock, which
had a fair market value of approximately $42,000,000 on the date of
subscription, in exchange for certain product technologies and other
intangible assets. The shares of Preferred Stock were subscribed for as of
December 31, 1997 and subsequently issued on January 14, 1998.

The holders of the Preferred Stock have the option to convert, at any time,
each share of Preferred Stock into one share of Common Stock. Each share of
Preferred Stock will automatically convert into one share of Common Stock upon
the transfer by any holder of Preferred Stock in a non-permitted transfer. In
the event of a liquidation of the Company, the holders of the Preferred Stock
are entitled to receive $23.75 per share plus the amount of any declared but
unpaid dividends. The conversion and liquidation terms are subject to
adjustment based upon subsequent changes in equity interests.

As of December 31, 1997, the Company had reserved 1,768,421 shares of its
authorized Common Stock to be issued upon conversion of the Preferred Stock.

F-20
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES

Income (loss) from continuing operations before income taxes for the years
ended December 31, 1997, 1996 and 1995 consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S........................................ $(98,309) $(74,457) $(125,895)
Non-U.S.................................... 16,665 (19,077) 4,655
-------- -------- ---------
Total.................................. $(81,644) $(93,534) $(121,240)
======== ======== =========
</TABLE>

Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $ 3,939 $ 1,562 $ 1,741
State....................................... 1,159 336 419
Foreign..................................... 2,309 1,987 642
Deferred:
Federal..................................... 22,221 (9,458) (8,511)
State....................................... (3,539) (4,179) (5,105)
Foreign..................................... (2,630) -- --
------- ------- --------
$23,459 $(9,752) $(10,814)
======= ======= ========
</TABLE>

The reconciliation of income taxes computed using the Federal statutory rate
of 35% to the income tax provision is as follows for the years ended December
31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at statutory rate...... $(28,576) $(32,737) $(42,434)
State income tax, net of Federal tax
benefit................................... (2,532) (3,693) (4,748)
Research and experimentation credits....... (3,882) (1,720) (1,213)
Foreign tax credit......................... (117) (59) (239)
Foreign taxes.............................. 1,271 751 240
Foreign sales corporation.................. (557) (1,036) (294)
Municipal interest......................... (80) (289) (554)
Stock acquisitions......................... 9,953 6,281 11,450
Nondeductible merger costs................. 730 2,414 4,625
Change in valuation allowance.............. 43,365 12,549 22,939
Other...................................... 3,884 7,787 (586)
-------- -------- --------
Effective tax.............................. $ 23,459 $ (9,752) $(10,814)
======== ======== ========
</TABLE>

F-21
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at December 31, 1997 and 1996 were as
follows:

<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred revenue................................... $ 6,419 $ 1,152
Allowance for doubtful accounts.................... 670 876
Net operating loss carryforwards................... 125,005 102,645
Foreign net operating losses....................... 2,630 --
General business, AMT and state tax credits........ 13,981 9,704
Foreign tax credits................................ 952 1,138
Accrued expenses and reserves...................... 13,031 4,091
Rent abatement..................................... 2,471 1,957
Fixed assets....................................... 444 602
Intangibles........................................ 469 --
Deferred compensation.............................. -- 193
Other.............................................. 9,185 9,854
--------- --------
Total gross deferred tax assets.................. 175,257 132,212
Less valuation allowance........................... (113,933) (70,568)
--------- --------
Net deferred tax assets.......................... 61,324 61,644
--------- --------
Deferred tax liabilities:
Capitalized software, net.......................... 36,420 23,908
Installment sales.................................. 819 826
Depreciation and amortization...................... 502 459
Deferred revenue................................... 524 235
Acquired technology................................ 1,000 3,124
Unrealized gain on marketable equity securities.... 11,161 12,499
Other.............................................. -- 223
--------- --------
Total gross deferred tax liabilities............. 50,426 41,274
--------- --------
Net deferred tax asset........................... $ 10,898 $ 20,370
========= ========
</TABLE>

The net change in the valuation allowance during 1997, 1996 and 1995 was an
increase of $43,365,000, $12,549,000 and $22,939,000, respectively.

The Company has reduced gross 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, 1997
reflects management's estimate of the amount that 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.

At December 31, 1997, the Company had approximately $308,900,000 of net
operating loss carryforwards and $14,600,000 of tax credit carryforwards,
which are available to reduce future Federal income taxes, if any, through the
year 2012. 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.

F-22
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. CONVERTIBLE SUBORDINATED NOTES

In November 1996, the Company issued $115,000,000 of convertible
subordinated notes (the "1996 Notes") due November 15, 2001, bearing interest
at 6.75% annually. Interest is payable semi-annually on May 15 and November
15. 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. During
1997, $10,000 of the 1996 Notes were converted to Common Stock. As of December
31, 1997, $114,990,000 of the 1996 Notes were outstanding.

The Company estimated the fair value of the 1996 Notes as of December 31,
1997 at approximately $236,879,000, based upon their trading price on the
Nasdaq SmallCap Market on that date.

In December 1997, the Company issued $150,000,000 of convertible
subordinated notes (the "1997 Notes") due December 15, 2002, bearing interest
at 6.25% annually. Interest is payable semi-annually on June 15 and December
15, commencing June 15, 1998. The holders of the 1997 Notes have the option to
convert them into shares of Common Stock, at any time prior to maturity, at a
conversion price of $36.05 per share. The 1997 Notes are redeemable at the
option of the Company, in whole or in part, at any time during the twelve-
month period commencing December 15, 2000 at 102.5% of their principal amount
and during the twelve-month period commencing December 15, 2001 at 101.25% of
their principal amount. As of December 31, 1997, $150,000,000 of the 1997
Notes were outstanding.

The Company estimated the fair value of the 1997 Notes as of December 31,
1997 at approximately $159,375,000, based upon their bid price in the
convertible debentures market on that date.

For the years ended December 31, 1998, 1999, 2000, 2001 and 2002, aggregate
annual maturities of the 1996 Notes and the 1997 Notes are $0, $0, $0,
$114,990,000 and $150,000,000, respectively.

13. RESTRUCTURING

In August 1996, the Company's wholly-owned subsidiary, LBMS (acquired as of
May 12, 1998), executed a plan to restructure its operations. During the
second half of 1996, LBMS recorded a restructuring charge of $14,109,000, net
of $3,512,000 in sublease rentals and recoveries from the sale of a product
line. The restructuring charge was comprised primarily of abandoned lease
costs, severance and other personnel costs and write-offs of excess equipment
and other assets. During 1997, LBMS recorded a restructuring benefit of
$1,490,000 related to sublease rental activity. This benefit was offset
against the Company's restructuring charge recorded in 1997, as discussed
below.

In May 1997, the Company executed a restructuring plan to consolidate its
sales, marketing, business development and product development operations to
achieve cost efficiencies through the elimination of redundant functions.
These redundancies resulted primarily from businesses acquired over the
previous three years. The Company also realigned its business units and inside
sales force to redirect focus on its strongest product lines and better
integrate the efforts of certain product development teams. As part of the
plan, the

F-23
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Company reduced its worldwide work force by approximately 10%, eliminating
approximately 400 positions primarily in the areas of product development and
support, marketing and inside sales and, to a lesser extent, professional
services and administration.

The Company recorded a restructuring charge of $57,319,000 during the second
quarter of 1997 related to the restructuring plan. The restructuring charge
included the following expenses: facility-related costs, including a reserve
for estimated lease obligations associated with the closing of office
facilities; write-offs of excess equipment, furniture and fixtures; write-offs
of capitalized software costs and other intangible assets related to the
termination of development efforts for certain discontinued products, as well
as penalties for the cancellation of distributorship agreements for such
products; and severance and other employee-related costs of the terminated
staff.

The following table summarizes the Company's restructuring activity for the
year ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
INTANGIBLES
ASSETS AND
PENALTIES
SEVERANCE FOR PROPERTY
EXCESS AND CANCELLED AND
FACILITIES BENEFITS AGREEMENTS EQUIPMENT TOTAL
---------- --------- ----------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total accrued restructuring costs at December 31, 1995............. $ 1,068
=======
1996 restructuring
charges:
Cash-related charges.. $ 7,021 $ 4,388 $ 1,463 $ -- $12,872
Non-cash charges...... -- -- 368 3,072 3,440
------- ------- ------- ------ -------
$ 7,021 $ 4,388 $ 1,831 $3,072 16,312
======= ======= ======= ======
Payments made in 1996.............................................. (2,977)
Write-offs taken in 1996........................................... (3,440)
-------
Total accrued restructuring costs at December 31, 1996........... 10,963
Less current portion............................................... 3,096
-------
Long-term accrued restructuring costs.............................. $ 7,867
=======
1997 restructuring
charges:
Cash-related charges.. $24,032 $10,364 $ 3,236 $ -- $37,632
Non-cash charges...... (1,490) -- 16,177 3,510 18,197
------- ------- ------- ------ -------
$22,542 $10,364 $19,413 $3,510 55,829
======= ======= ======= ======
Payments made in 1997.............................................. (17,784)
Write-offs taken in 1997........................................... (18,197)
Recoveries incurred in 1997........................................ (1,490)
-------
Total accrued restructuring costs at December 31, 1997............. 29,321
Less current portion............................................... 7,391
-------
Long-term accrued restructuring costs.............................. $21,930
=======
</TABLE>

F-24
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

14. DERIVATIVE FINANCIAL INSTRUMENTS

The Company conducts business on a global basis in numerous major
international currencies and is, therefore, exposed to adverse movements in
foreign currency exchange rates. The Company has established a foreign
currency hedging program utilizing forward foreign exchange contracts to
reduce certain currency exposures. These contracts hedge exposures associated
with nonfunctional currency assets and liabilities denominated in Japanese,
Australian, numerous Asian and various European currencies. At the present
time, the Company hedges only those currency exposures associated with certain
nonfunctional currency assets and liabilities resulting from intercompany
balances and does not generally hedge anticipated foreign currency cash flows.
The Company does not enter into forward exchange contracts for trading
purposes.

Gains and losses on the foreign currency forward exchange contracts are
included in other income and offset foreign exchange gains and losses from the
revaluation of intercompany balances denominated in currencies other than the
functional currency of the reporting entity. The Company's forward contracts
generally have original maturities of one month.

The table below provides information as of December 31, 1997 about the
Company's foreign currency forward exchange contracts, including notional
values of outstanding forward contracts purchased and sold and the unrealized
gains or losses recorded for each contract.

<TABLE>
<CAPTION>
NOTIONAL
VALUE NOTIONAL UNREALIZED
PURCHASED VALUE SOLD GAINS (LOSSES)
--------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
European currencies................... $4,407 $(20,649) $(173)
Asian currencies...................... -- (412) 4
Japanese Yen.......................... -- (972) 4
Australian Dollar..................... -- (338) 11
------ -------- -----
Total............................. $4,407 $(22,371) $(154)
====== ======== =====
</TABLE>

While the notional or contract amounts of the Company's forward exchange
contracts provide one measure of the volume of these transactions, they do not
represent the Company's full exposure to credit risk. The Company faces
additional risks if the banking counterparties are unable to meet the terms of
the agreements. The Company has established policies to minimize such risks
and will only execute forward exchange contracts with major financial
institutions. The Company has assessed the potential exposure related to
default by such institutions to be minimal.

15. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space and certain computer and telecommunications
equipment under long-term lease agreements expiring through the year 2016.
Total future minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1998...................... $ 45,116
1999...................... 36,860
2000...................... 27,852
2001...................... 23,103
2002 and thereafter....... 50,507
--------
Total................. $183,438
========
</TABLE>

F-25
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Future minimum lease payments have not been reduced by minimum sublease
rentals of $603,000 due in the future under noncancelable subleases. Total
rent expense under all operating leases, net of insignificant sublease rental
income, amounted to $35,798,000, $26,116,000 and $18,778,000 in 1997, 1996 and
1995, respectively.

LITIGATION

The Company is subject to certain legal proceedings and claims that 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.

16. OTHER INCOME, NET

Other income (expense), net, for the years ended December 31, 1997, 1996 and
1995 is comprised of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................................. $ 9,200 $8,691 $6,020
Interest expense................................ (9,314) (2,254) (1,602)
Foreign exchange gains (losses)................. 597 (301) 51
Net realized gains on sales of investments...... 7,566 1,032 332
Unrealized gains on marketable equity
securities..................................... 12,590 923 6
Other........................................... (142) (16) (184)
------- ------ ------
$20,497 $8,075 $4,623
======= ====== ======
</TABLE>

17. 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 for the years ended December 31, 1997, 1996 and 1995. 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>
DOMESTIC EUROPE OTHER TOTAL
--------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Revenues....................... $ 548,845 $127,438 $62,597 $ 738,880
Operating income (loss)........ (118,806) 4,934 11,731 (102,141)
Identifiable assets............ 802,949 108,541 61,417 972,907
1996
Revenues....................... $ 399,127 $104,633 $49,724 $ 553,484
Operating loss................. (82,532) (13,938) (5,139) (101,609)
Identifiable assets............ 614,448 85,288 36,932 736,668
1995
Revenues....................... $ 283,658 $ 80,232 $44,535 $ 408,425
Operating income (loss)........ (130,518) 5,154 (499) (125,863)
Identifiable assets............ 436,864 64,286 28,465 529,615
</TABLE>

F-26
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The revenues and operating income (loss) amounts above exclude the effect of
intercompany royalties. The domestic operating losses in 1997, 1996 and 1995
include all merger costs, restructuring costs and acquired in-process
technology charges.

No single customer accounted for 10% or more of total revenues in 1997, 1996
or 1995.

18. DISCONTINUED OPERATIONS

On July 29, 1997, Mastering, a wholly-owned subsidiary of the Company
(acquired as of April 21, 1998), announced its intention to dispose of its
outdoor media business segment. On September 16, 1997, Mastering sold the
assets of its outdoor media business segment for approximately $4,000,000 in
cash and approximately $600,000 in notes receivable, resulting in a pre-tax
gain of approximately $1,100,000. Mastering approved the disposition of the
outdoor media business segment, including a plan for Mastering to identify
potential buyers, on May 17, 1997. As a result, the segment is accounted for
as a discontinued operation in the supplemental consolidated financial
statements for all periods presented, with a measurement date of May 17, 1997.

The following table presents approximate revenues and net income (loss) for
the outdoor media business segment for the period of January 1, 1997 to
September 16, 1997 and the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
JANUARY 1, 1997 TO ---------------------
SEPTEMBER 16, 1997 1996 1995
------------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................ $2,100,000 $3,900,000 $4,000,000
Net income (loss)............... (200,000) 500,000 (600,000)
</TABLE>

Included in the net loss for the period of January 1, 1997 to September 16,
1997 is approximately $200,000 of costs related to the sale of the segment.
The net loss for the period of May 18, 1997 to September 16, 1997 was
approximately $800,000.

On July 29, 1997, Mastering announced its intention to dispose of its
interactive business segment. On September 26, 1997, Mastering sold the assets
of its interactive business segment for $13,500,000 in cash and the right to
future payments contingent on the segment's future earnings, resulting in a
pre-tax gain of approximately $5,600,000. As result of this transaction, the
interactive business segment is accounted for as a discontinued operation in
the supplemental consolidated financial statements for all periods presented,
with a measurement date of July 28, 1997.

The following table presents approximate revenues and net loss for the
interactive business segment for the period of January 1, 1997 to September
26, 1997 and the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
JANUARY 1, 1997 TO -----------------------
SEPTEMBER 26, 1997 1996 1995
------------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues...................... $13,000,000 $14,300,000 $6,700,000
Net loss...................... (5,100,000) (4,100,000) (2,600,000)
</TABLE>

Included in the net loss for the period of January 1, 1997 to September 26,
1997 is approximately $1,500,000 of costs related to the organizational
realignment and the sale of the interactive business segment. The net loss for
the period of July 29, 1997 to September 26, 1997 was approximately
$2,600,000.

F-27
<PAGE>

PLATINUM TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

Mastering sold the following assets and was relieved of the following
liabilities related to the outdoor media and interactive business segments at
their respective sale dates:

<TABLE>
<S> <C>
Assets:
Current assets
Accounts receivable, net................................. $ 3,938,000
Other current assets..................................... 2,345,000
-----------
Total current assets................................... 6,283,000
-----------
Property, plant and equipment, net....................... 5,711,000
Goodwill and other assets, net........................... 3,389,000
-----------
Total assets........................................... 15,383,000
-----------
Liabilities:
Current liabilities
Accounts payable......................................... 778,000
Accrued liabilities...................................... 1,764,000
Other current liabilities................................ 1,148,000
-----------
Total current liabilities.............................. 3,690,000
-----------
Non-current liabilities.................................. 277,000
-----------
Total liabilities...................................... 3,967,000
-----------
Net Assets Sold.............................................. $11,416,000
===========
</TABLE>

Effective June 30, 1995, Mastering discontinued the operations of Production
Masters, Inc. ("PMI"), a company that operated an audio and video post-
production studio. The assets were sold to a third party for approximately
$700,000, and all proceeds from the liquidation of the assets were paid to the
previous owner of the PMI business in satisfaction of all acquisition-related
liabilities. As a result, the operations of PMI through its disposition have
been reflected as discontinued operations in the supplemental consolidated
financial statements for all periods presented. Mastering recorded a loss on
the disposal of this segment of approximately $350,000, consisting of
approximately $58,000 to write down the segment's assets and $292,000 of
payroll and other operating costs incurred from the measurement date through
the date of final disposition. In addition, during 1995, Mastering recorded
approximately $294,000 for losses from PMI operations prior to the measurement
date. During 1996, Mastering recorded a gain of $198,000, net of income taxes,
from discontinued operations, representing the settlement of certain
contingencies related to the PMI business segment.

F-28
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying supplemental consolidated balance sheets of
PLATINUM technology, inc. and subsidiaries as of December 31, 1997 and 1996 and
the related supplemental consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits. We did not audit the financial statements of Mastering, Inc. and Logic
Works, Inc., wholly-owned subsidiaries, which statements reflect total assets
constituting 13 percent and 14 percent in 1997 and 1996, respectively, and
total revenues constituting 12 percent, 12 percent and 10 percent in 1997, 1996
and 1995, respectively, of the related supplemental consolidated totals. 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 Mastering, Inc.
and Logic Works, Inc., 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 provide a reasonable basis
for our opinion.

The supplemental consolidated financial statements give retroactive effect to
the mergers of PLATINUM technology, inc. and Mastering, Inc. on April 21, 1998,
Learmonth and Burchett Management Systems Plc on May 12, 1998 and Logic Works,
Inc. on May 28, 1998, which have been accounted for as poolings of interests as
described in Note 2 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the dates of consummation.
However, they will become the historical consolidated financial statements of
PLATINUM technology, inc. and subsidiaries after financial statements covering
the dates of consummation of the business combinations are issued.

In our opinion, based on our audits and the reports of the other auditors,
the supplemental 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, 1997 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, 1997, in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the dates of consummation of the business
combinations.

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
May 28, 1998

F-29
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

Under date of May 28, 1998, we reported on the supplemental consolidated
balance sheets of PLATINUM technology, inc. and subsidiaries as of December
31, 1997 and 1996, and the related supplemental consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, as contained in this Current Report
on Form 8-K. Our report is based in part on the reports of other auditors. In
connection with our audits of the aforementioned supplemental consolidated
financial statements, we also audited the related supplemental 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 the other auditors,
such supplemental consolidated financial statement schedule, when considered
in relation to the basic supplemental consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
May 28, 1998

S-1
<PAGE>

SUPPLEMENTAL SCHEDULE II

PLATINUM TECHNOLOGY, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
FOR TRADE AND INSTALLMENT BEGINNING BAD DEBT ENDING
RECEIVABLES BALANCE EXPENSE WRITE-OFFS BALANCE
------------------------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997.. $6,626,000 $13,095,000 $(12,439,000) $7,282,000
Year ended December 31, 1996.. 4,643,000 3,303,000 (1,320,000) 6,626,000
Year ended December 31, 1995.. 2,020,000 3,942,000 (1,319,000) 4,643,000
</TABLE>

S-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

PLATINUM technology, inc.

/s/ Larry S. Freedman
By: _________________________________
Larry S. Freedman
Senior Vice President, General
Counsel and Secretary

Dated: August 4, 1998

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S> <C>
23.1 Consent of KPMG Peat Marwick LLP with respect to the Company's
financial statements.
Consent of Arthur Andersen LLP with respect to Mastering's fi-
23.2 nancial statements.
Consent of Ernst & Young LLP with respect to Logic Works' fi-
23.3 nancial statements.
27 Financial Data Schedule.
Report of Arthur Andersen LLP on Mastering's financial state-
99.1 ments.
Report of Ernst & Young LLP on Logic Works' financial state-
99.2 ments.
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
PLATINUM technology, inc.:

We consent to incorporation by reference in the registration statements
(Nos. 33-41248, 33-85798, 33-96762, 333-00454, 333-03284, 333-20897, 333-
45131, 333-57307 and 333-57311) on Form S-8 and (No. 333-45133) on Form S-3 of
PLATINUM technology, inc. of our report dated May 28, 1998, relating to the
supplemental consolidated balance sheets of PLATINUM technology, inc. and
subsidiaries as of December 31, 1997 and 1996, and the related supplemental
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997, and
related supplemental consolidated financial statement schedule, which report
appears in the Current Report on Form 8-K of PLATINUM technology, inc. dated
August 4, 1998.

KPMG Peat Marwick LLP

Chicago, Illinois
July 31, 1998

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report dated January 19, 1998 for Mastering, Inc. included in this Current
Report on Form 8-K of PLATINUM technology, inc. dated August 4, 1998 into
PLATINUM technology, inc.'s previously filed Registration Statements on Forms
S-8 (Files Nos. 33-41248, 33-85798, 33-96762, 333-00454, 333-03284, 333-20897,
333-45131, 333-57307, 333-57311) and the previously filed Registration
Statement on Form S-3 (File No. 333-45133).

Arthur Andersen LLP

Denver, Colorado,
July 31, 1998

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-41248, Form S-8 No. 33-85798, Form S-8 No. 33-96762, Form S-8
No. 333-00454, Form S-8 No. 333-03284, Form S-8 No. 333-20897, Form S-8 No.
333-45131, Form S-8 No. 333-57307, Form S-8 No. 333-57311 and Form S-3 No.
333-45133), of PLATINUM technology, inc. and in the related prospectuses of
our report dated February 10, 1998 except for Note 14, as to which the date is
March 14, 1998, with respect to the consolidated financial statements of Logic
Works, Inc. for the three years ended December 31, 1997 included in the
Current Report (Form 8-K) of PLATINUM technology, inc., filed with the
Securities and Exchange Commission.

/s/ Ernst & Young LLP

Princeton, New Jersey
July 31, 1998

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 233,024
<SECURITIES> 125,180
<RECEIVABLES> 232,752
<ALLOWANCES> 4,788
<INVENTORY> 0
<CURRENT-ASSETS> 608,573
<PP&E> 153,335
<DEPRECIATION> 61,170
<TOTAL-ASSETS> 972,907
<CURRENT-LIABILITIES> 255,910
<BONDS> 0
0
18
<COMMON> 80
<OTHER-SE> 342,778
<TOTAL-LIABILITY-AND-EQUITY> 972,907
<SALES> 0
<TOTAL-REVENUES> 738,880
<CGS> 0
<TOTAL-COSTS> 841,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,095
<INTEREST-EXPENSE> 9,314
<INCOME-PRETAX> (81,644)
<INCOME-TAX> 23,459
<INCOME-CONTINUING> (105,103)
<DISCONTINUED> (1,025)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,128)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)

</TABLE>

<PAGE>

EXHIBIT 99.1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Mastering, Inc.

We have audited the consolidated balance sheets of Mastering, Inc. (formerly
Eagle River Interactive, Inc.), a Delaware corporation, and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1997, not presented separately
herein. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the consolidated
financial position of Mastering, Inc. and subsidiaries as of December 31, 1997
and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Arthur Andersen LLP

Denver, Colorado,
January 19, 1998.

<PAGE>

EXHIBIT 99.2

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Logic Works, Inc.

We have audited the accompanying consolidated balance sheets of Logic Works,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flow for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule II--valuation and
qualifying accounts for the three years ended December 31, 1997. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Logic Works, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flow for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ Ernst & Young LLP

Princeton, New Jersey
February 10, 1998,
except for Note 14, as to which the date is
March 14, 1998