CONTINUUM CO INC, 10-K, 1996-05-20

CONTINUUM CO INC
10-K, 1996-05-20
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]

For the fiscal year ended March 31, 1996 or

|_|Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]

For the transition period from ___________ to___________

Commission File No. 1-10151
THE CONTINUUM COMPANY, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 74-1609363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

9500 Arboretum Boulevard
Austin, Texas 78759-6399
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code: (512) 345-5700

Securities Registered Pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.10 Par Value New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[x]

State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 30, 1996:
Common Stock, $.10 Par Value -- $1,029,000,000

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of April 30, 1996:
Common Stock, $.10 Par Value -- 24,179,000

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1996 Annual
Stockholders' Meeting are incorporated by reference into Part III, unless the
Registrant includes such information in an amendment to this Form 10-K.

<PAGE>

PART I

ITEM 1. BUSINESS

The Continuum Company, Inc. (the "Company") was incorporated under the laws
of the State of Texas in 1968, and reincorporated in the State of Delaware in
August 1987. Unless the context otherwise requires, references in this report to
the "Company" are to the predecessor Texas corporation, the current Delaware
corporation and their subsidiaries. The principal executive offices of the
Company are located at 9500 Arboretum Boulevard, Austin, Texas 78759-6399, and
its telephone number is (512) 345-5700.

The following trademarks or service marks owned by the Company appear
herein: CONTINUUM(R), PAXUS(R), VANTAGE-ONE(R), VANTAGE(R), CLIENT/CONTRACT
ADMINISTRATION(TM), CCA(TM), LIFE/70(R), LIFE-COMM(R), COGEN(R), CLOAS(R),
COLOSSUS(TM), ES/C(TM), AIA(TM), OCEANIC(TM), IBA(TM), HOGAN(R) and HOGAN
SYSTEMS(R). The following trademark owned by DST Systems, Inc. appears herein:
AWD(R). The following trademark owned by International Business Machines ("IBM")
appears herein: AS/400(R).

GENERAL

The Company is an international consulting and computer services firm
serving the needs of the global financial services industry for computer
software and services. The Company's revenues are principally derived from
providing outsourcing services, including third party administrative services,
to the financial services industry, licensing sophisticated financial services
software systems, and providing related software development, installation,
customization, enhancement, and maintenance services. Outsourcing services
offered by the Company range from providing a customer with remote processing of
a single financial services software application to the complete replacement of
a customer's data processing department. The software systems marketed by the
Company streamline the work processes and automate the administrative functions
of financial services companies, such as issuing insurance policies,
administering deposits, and complying with complex government regulations and
reporting requirements. The Company offers a wide range of banking, life
insurance, general insurance (also known as non-life or property and casualty
insurance), and reinsurance software applications, including products with
extensive adaptations to the specific regional requirements of the world's major
financial services markets. The Company's product line includes systems designed
for use on a variety of hardware platforms, including mainframe computers,
mid-range computers, workstations and local area networks.

The Company's fee-based services business, which currently provides over
93% of the Company's revenues, is built around the Company's proprietary
application software systems, and emphasizes the cultivation and preservation of
long-term relationships with customers. The Company's outsourcing contracts tend
to be long-term relationships with good probabilities of ongoing renewal. The
implementation of the Company's software systems often generates significant
service revenues because the unique nature of each financial services company's
products and operations requires customization. The Company's workforce of
approximately 4,300 persons (at March 31, 1996) is composed principally of
skilled professionals with extensive, specialized knowledge of software
development, data processing, and financial services operations.

RECENT DEVELOPMENTS

PROPOSED MERGER

On April 29, 1996, the Company announced it had signed an Agreement and
Plan of Merger with Computer Sciences Corporation ("CSC") based in El Segundo,
California, and a wholly owned subsidiary of CSC. Shareholders of the Company
will receive 0.79 shares of CSC stock for each share of the Company's Common
Stock if the merger, which is subject to customary conditions including
shareholder and regulatory approvals, is consummated. The merger is expected to
be consummated during the summer of 1996.

FISCAL 1996 ACQUISITIONS

During fiscal 1996, the Company acquired three new subsidiaries: Hogan
Systems, Inc. ("Hogan"), SOCS Holding ("SOCS") and Ra Group Limited ("Ra").

On March 15, 1996, the Company acquired all of the outstanding shares of
Hogan through the issuance of 4,813,541 shares of the Company's Common Stock.
Hogan provides integrated software applications and related consulting services
to banks and other financial institutions worldwide. Prior to the acquisition of
Hogan, the Company's sales efforts were concentrated primarily in the insurance
industry. The Company views its acquisition of Hogan as a logical expansion into
a closely-related industry that the Company is well-positioned to serve through
its existing customer relationships and international infrastructure. The
Company believes the acquisition of Hogan is an essential long-term strategic
move that will position the Company to serve the emerging global diversified
financial services industry, while at the same time providing attractive
near-term opportunities for increased revenue and cost savings. The Company has
eliminated over $11,000,000 of recurring annual expenses at Hogan by
restructuring facilities, data processing and other functions, and expects
additional cost reductions to raise total cost savings to over $12,000,000 per
year. Hogan is a wholly-owned subsidiary of the Company with operations in
Dallas, Texas; Frankfurt, Germany; London, England; and Melbourne, Australia.
The acquisition has been accounted for as a pooling of interests.

On December 28, 1995, the Company acquired all of the outstanding shares of
SOCS, a Paris-based software and services company, for $37,600,000 in cash. SOCS
is the leading provider of insurance application software and related services
to the French insurance industry. SOCS has over 130 insurance customers in
Europe, primarily in France. The acquisition of SOCS provides the Company with
leading edge object-oriented software technology and a staff of approximately
200 persons with extensive insurance and object-oriented development expertise.
SOCS' primary insurance product is AIA, which is a functionally rich,
client/server insurance administration application supporting both individual
and group life and health insurance. AIA is the new generation of insurance
software, supported by an open, integrated, object-oriented development and
execution environment called OCEANIC. This revolutionary application development
environment allows the AIA application to be implemented rapidly and to remain
flexible and responsive to changing business needs. The Company plans to
continue enhancing the tools and methodologies developed by SOCS as object
technology standards evolve and to integrate them with the Company's other
software development efforts. The acquisition has been accounted for using the
purchase method of accounting.

On May 3, 1995, the Company acquired all of the outstanding shares of Ra
for $10,823,000 in cash. Ra is a leading provider of software systems to
insurance brokers in the United Kingdom, predominantly in the property and
casualty sector. Ra also provides a range of services to insurance brokers, such
as updated rate books, electronic data interchange links to insurance companies,
insurance document printing and specialist broker insurance products. The
acquisition of Ra advances the Company's plans to provide the European insurance
industry with systems for all distribution channels. The acquisition has been
accounted for using the purchase method of accounting.

OUTSOURCING CONTRACTS

The Company entered into several significant outsourcing contracts during
its 1996 fiscal year, with expected revenues in excess of $200 million over the
lives of these contracts. The new contracts included outsourcing agreements with
Fidelity and Guaranty Life Insurance Company (with expected revenues of
approximately $80 million over eight years) and Penncorp Financial Group, Inc.
(with expected revenues of approximately $50 million over seven years).

Other important outsourcing contracts announced during the year include
agreements with Sun Alliance Group plc, Independent Order of Foresters and the
New Zealand Department of Labour.

COLOSSUS LICENSES

The Company made a number of important license sales of COLOSSUS during
fiscal 1996, including two sales in Europe to two major United Kingdom based
insurers and sales in the United States to Metropolitan Property and Casualty
Insurance Company and The Continental Casualty Company (CNA). COLOSSUS is an
artificial intelligence software system that assists insurance adjusters with
the evaluation of bodily injury claims.

INDUSTRY OVERVIEW

CONVERGENCE OF FINANCIAL SERVICES INDUSTRY

The Company believes that, in important markets for financial services
around the world, barriers are dropping between the various financial services
sectors, such as insurance, banking and mutual funds. Rapid creation of consumer
wealth and shifting consumer demographics, especially the aging of the worldwide
population in developed countries and the resulting growth of pension
liabilities, are causing increased consumer investment in financial products and
services. This shift has created a large and growing market that insurance
companies, banks, and mutual fund providers are all competing to serve. This
competition for both the investment dollars and ownership of the customer
relationship is driving the virtual and physical convergence of financial
services.

As financial sectors converge, the complexity of the resulting financial
services businesses and increasing cost competition are forcing the players to
focus on their core competencies while turning to specialist partners to manage
non-core functions such as information technology, back-office administration
and telesales and teleservices. The Company's goal is to become the leading
provider of information technology and outsourcing services to the integrated
financial services industry.

THE NEED FOR SOFTWARE

Financial services companies have relied for decades on extensive data
processing capabilities to manage the large volume of data needed to market and
administer financial products and services. To meet this requirement, financial
services companies have sought software products that automate administrative
functions such as issuing policies, administering deposits, and complying with
complex government regulations and reporting requirements.

THE NEED FOR SERVICES

The implementation of a financial services software system typically
requires customization because of the unique nature of each company's products
and operations. In addition, software products require ongoing maintenance and
enhancement due to competitive pressures in the financial services industry, as
well as technological and regulatory changes. As a result, financial services
companies often require the assistance of software professionals for the
installation, training, customization, enhancement, and maintenance of software
products.

PRODUCT LINES AND GEOGRAPHY

The financial services industry traditionally has been segmented by lines
of business and by geographic region. The major lines of business in the
financial services industry include mutual funds, banking, life insurance,
general insurance, and health insurance. Many financial services companies
participate in multiple lines of business, and the industry is increasingly
characterized by cross border competition and large, international companies.
The most significant geographic regions, measured by funds under management, are
North America, Europe, and the Pacific Rim, particularly Japan.

BUSINESS STRATEGY

The Company's objective is to be the leading business partner for the
provision of superior quality technology-based solutions to meet the needs of
the global financial services industry. The Company emphasizes a number of
strategies to meet this objective.

OUTSOURCING PROVIDER

Outsourcing refers to arrangements in which corporations rely on outside
service providers to deliver functions traditionally performed by internal staff
with corporate owned assets. Outsourcing is becoming an increasingly common
business strategy in many industries. Outsourcing allows a company to focus on
its core business by delegating to a service provider tasks that are not central
to the company's core business, and may provide other benefits such as improving
service, reducing expenses, and freeing capital.

The Company offers a range of outsourcing services to the financial
services industry. The outsourcing services provided by the Company range from
data processing contracts, which provide for the Company to install and operate
a customer's software systems on the Company's data center, to complex
arrangements in which the Company takes over a customer's existing data center,
purchases the customer's computer equipment and hires the customer's data
processing personnel in return for a long-term, comprehensive services contract.
These outsourcing arrangements allow the customer to move all or part of the
risk and difficulty of managing technology to the Company and receive data
processing services from the Company for a known cost. The Company also offers
third party administration services, which allow life insurance companies to
outsource the clerical administration as well as the data processing support for
all or part of their insurance business to the Company.

A growing number of financial services companies of all sizes are
considering outsourcing. Although smaller data processing contracts for limited
segments of business have been common in the insurance industry for years,
acceptance of comprehensive outsourcing arrangements is relatively new in the
industry. Because insurers have been late adopters of outsourcing solutions,
outside professional and outsourcing services approximate 10% of the estimated
$50 billion that insurers spend annually on information technology. Likewise,
larger banks are only now broadening their use of outsourcing services, although
mid-tier banks were early adopters. Industry forecasts indicate that by 1999 the
annual expenditure by banks on professional and outsourcing information
technology will exceed $35 billion.

An increasing portion of the Company's service revenue is now derived from
outsourcing arrangements. The Company believes that its proven financial
services industry expertise, its extensive insurance and banking software
product offerings and its data processing arrangements with a related company
position it to pursue additional outsourcing contracts with financial services
companies. The Company also believes that financial services companies are
excellent candidates for outsourcing arrangements because of the heavy reliance
of the financial services industry on data processing and the market pressures
on these companies to control costs while keeping up with technological
advances. During the year ended March 31, 1996, outsourcing provided 32% of the
Company's service revenue.

GEOGRAPHIC AND PRODUCT DIVERSITY

The Company has an extensive professional staff and a broad customer base
throughout North America, Europe and the Pacific Rim, as well as a diverse set
of insurance and banking software products. The Company believes its geographic
and product diversity are important competitive assets in serving the global
financial services industry. Since the early 1980's, the Company has pursued a
strategy of establishing a strong local marketing presence and customer support
capability in each of the three major financial services geographies, North
America, Europe and the Pacific Rim. The Company has carried out this strategy
through substantial investments in regional offices, beginning with the opening
of its United Kingdom office in 1982, and through a series of strategic
acquisitions, including the acquisition of Computations Holdings Limited in
October 1990, the acquisitions of Paxus Corporation Limited ("Paxus") and
Vantage Computer Systems, Inc. ("Vantage") in August and September 1993 and the
acquisitions of SOCS in December 1995 and Hogan in March 1996.

FLEXIBLE PRODUCTS

While the competitive nature of the financial services industry has
prompted financial services companies to seek advanced computer technology,
these companies increasingly view the implementation of large, comprehensive
computer systems as expensive and risky. The evaluation, development, and
implementation of a new system may not only be costly, but also may result in
the loss of significant investments in predecessor systems that often prove
incompatible with the newer system. Moreover, an expensive effort to implement a
new system may prove unsuccessful or be rendered obsolete by the next generation
of software. In order to assist financial services companies in solving these
problems, the Company pursues a strategy for delivering software system
solutions in smaller components that can be integrated with a customer's
existing systems and with new systems in the future.

The AWD system, COGEN , the Hogan Integrated Banking Applications ("IBA"),
and VANTAGE-ONE are all examples of the Company's flexible product strategy.
With the AWD system, a customer can provide its data processing users with a
common graphical user interface operating on intelligent workstations while its
older, mainframe administrative systems continue to perform their functions in
the background. With the COGEN Client Component, an insurance company can
establish a single customer data base linked to all of its previously separate
administrative systems. The modular structure of the IBA and the VANTAGE-ONE
system allows a customer to implement just those components needed by the
customer at a particular time, such as a Hogan System component for a single
banking function, a VANTAGE-ONE administration component for a single insurance
product line, or the VANTAGE-ONE Repetitive Payment System.

The Company also emphasizes a strategy of modular, open architecture.
Various functions that would traditionally be inseparable parts of a single
large software system are divided into discrete products that can be installed
and used one at a time or in combination. Open architecture principles allow
these separate software products to be readily integrated not only with one
another, but also with the customer's existing and future systems, whether
provided by the Company or other vendors.

Open architecture is aimed at controlling the risk and expense of new
software implementation projects, while at the same time improving the
customer's return on investment in technology. The modular approach reduces risk
and expense by allowing the customer to implement new software one component at
a time, resulting in smaller, faster implementation projects. The customer is
able to select a software solution targeted at a specific business need, and
enjoy the benefits of that solution sooner and at a lower cost than with a
traditional monolithic software system. Finally, the built-in compatibility of
open architecture products preserves the customer's investment in older software
systems and increases the useful life of the Company's products themselves.

In further support of its goal of delivering quality, flexible systems, the
Company is committed to using object-oriented development methodologies. Object
orientation is a software engineering technique that is gaining broad acceptance
in the global software development community. It contributes to better quality
and productivity through reuse of discrete components, or objects. It supports
more flexible deployment of business function based on dynamic business
requirements. In December, the Company gained ownership of a functionally rich
object-oriented insurance application, OCEANIC AIA, through its acquisition of
SOCS. With this comprehensive library of business objects as a basis, the
Company intends to be a leader in the financial services industry's evolution
toward software solutions based on business objects. The Company is committed to
large-scale global reuse of business objects, and this will form the basis of
many of the Company's new applications. These object solutions will not only be
packaged into comprehensive administration systems, but also into intelligent
workstations that can surround the Company's existing applications as well as
customers' legacy systems.

SOFTWARE PRODUCTS

LIFE INSURANCE SOFTWARE PRODUCTS

VANTAGE-ONE. The VANTAGE-ONE product, gained by the Company through the
Vantage acquisition, is a real time system which offers advanced capabilities
for: New Business Issue and Automated Underwriting; Product Administration;
Agency and Commission Support; and Payout Administration. Stand-alone
VANTAGE-ONE components include: the VANTAGE-ONE New Business/Underwriting
System, the VANTAGE-ONE Administration System (available by product line), the
VANTAGE-ONE Distribution Support System, and the VANTAGE-ONE Repetitive Payment
System. All VANTAGE-ONE components are available in both mainframe and
client/server versions.

AIA. AIA is a functionally rich, client/server insurance administration
application supporting both individual and group life and health insurance. AIA
is the new generation of insurance software, supported by an open, integrated,
object-oriented development and execution environment called OCEANIC. This
revolutionary rapid application development environment allows the AIA
application to be implemented rapidly and to remain flexible and responsive to
changing business needs. The Company plans to continue enhancing the tools and
methodologies developed by SOCS as object technology standards evolve and to
integrate them with the Company's other software development efforts.

LIFE/70, LIFE-COMM, AND CLOAS. The LIFE/70 System was introduced by the
Company in 1971. LIFE-COMM, a similar software system, was introduced by another
company in the early 1970's and acquired by the Company in late 1984. CLOAS was
developed in Australia and introduced in the late 1970's by Continuum Australia
(then known as Computations Holdings Limited). LIFE/70, LIFE-COMM, and CLOAS all
utilize batch and on-line processing and provide extensive administrative
capabilities to life insurance companies, including billing and collections,
agency administration, policy generation and administration, and regulatory
reporting. LIFE/70 and LIFE-COMM have been marketed primarily to United States
life insurance companies, while most CLOAS users are located in Australia and
Europe. These products have been extensively enhanced and extended since their
introduction and currently have active product support programs.

LIFE/400. LIFE/400, which operates on the IBM AS/400 platform, is an
individual life and pensions administration system for both traditional and
unit-linked insurance products. LIFE/400 was added to the Company's product set
through the Paxus acquisition. This multi-lingual, multi-currency system
provides a comprehensive range of client and agent administration services.
Thorough policy handling, accounting, claims and termination services, and
reinsurance combine to make LIFE/400 the solution selected by many life
insurance companies.

CAPSIL. CAPSIL is a comprehensive individual life and pensions
administration system designed for the IBM mainframe user. CAPSIL was added to
the Company's product set through the Paxus acquisition. CAPSIL meets the needs
of the European life insurance industry and has been used by various retail and
banking customers to support their entry into the insurance market. CAPSIL
supports both traditional and unitized insurance products by providing sales and
marketing support, new business and underwriting, client servicing, premium
collection and accounting, agency and commission handling, unit accounting,
reinsurance, general ledger, financial reporting, valuation and statutory
reporting, and system audit and control capabilities. CAPSIL's comprehensive
array of features and services has made it the choice of many insurance
companies in Europe.

CLIENT/CONTRACT ADMINISTRATION SYSTEM (CCA) AND CCA2. First released in
1987, CCA is a large, complex administrative and marketing computer software
system for life insurance companies. CCA is an interactive, on-line system
utilizing a modern, relational data base architecture. In contrast to older
insurance software systems, CCA arranges information by client rather than by
policy, thereby permitting the monitoring of products sold to clients and
facilitates access to important demographic information for marketing, product
design, and other purposes. In addition, billings and collections can be
conducted on a client rather than a product basis, eliminating the cost and
inconvenience of multiple billings. CCA2 is a group of open architecture life
insurance software products that provide the functionality of CCA in a more
advanced, modular architecture.

PROPERTY AND CASUALTY INSURANCE SOFTWARE PRODUCTS

COGEN. COGEN is an administrative and marketing computer software system
for property and casualty insurance companies. COGEN is an on-line, real-time,
relational data base system that provides property and casualty insurance
companies with extensive data processing capability, from automated policy
generation to claims payment. The major functional components of COGEN include
client handling, underwriting, claims management, reinsurance, payables and
receivables management, regulatory reporting, and productivity tools. The
Company has enhanced COGEN to comply with open architecture principles and to
add specific functionality for the United States market.

COLOSSUS. COLOSSUS is an artificial intelligence system that assists claims
adjusters with the evaluation and settlement of bodily injury claims. By posing
a series of detailed questions concerning the extent of the injury, COLOSSUS
guides adjusters through the assessment process and helps the adjuster determine
the recommended settlement amount. COLOSSUS is designed to run on IBM and IBM
compatible mainframe computers or microcomputers.

POLISY/400. POLISY/400, which operates on the IBM AS/400 platform, is an
underwriting, claims administration, and reinsurance system for the fire and
general insurance industry, handling both commercial and personal insurance
products. POLISY/400 was added to the Company's product set through the Paxus
acquisition. It is a multi-lingual and multi-currency system. Full life-cycle
underwriting is supported by POLISY/400, from initial quotation to reinsurance
or cancellation. Policy accounting services support both underwriting and claims
administration, integrated with each application. POLISY/400 furnishes premium
class level commission accounting for agents and brokers, but the product is
also able to support direct written business with the policyholder.

SICS. SICS is a software system designed for the reinsurance processing
requirements of the insurance industry in Europe. SICS was added to the
Company's product set through the Paxus acquisition. SICS is available for IBM
mainframes and RISC 6000 platforms, and for HP 9000 and Siemens MX systems. Most
common reinsurance and claims administration requirements are supported, as well
as multi-currency handling of accounting and payments. SICS is designed to
handle the complex requirements of the typical reinsurer in the European
insurance industry, and includes a range of standard interfaces to industry
agencies. SICS has proved itself to be a preferred approach for reinsurers and
insurance carriers across Europe.

BANKING SOFTWARE PRODUCTS

The Company's integrated banking applications, collectively known as the
Hogan system, comprise a complete set of software solutions for banks, including
enterprise management solutions, relationship management solutions, delivery
solutions, card solutions and transaction accounting solutions. The applications
in the Hogan system incorporate the latest in both mainframe and client/server
technologies within a unique application architecture, providing customers with
high levels of functionality, flexibility and processing performance. All
applications within the Hogan system are based on a unique architecture that
allows business users to modify the products via centralized rules rather than
programmer developed code, thus reducing the time to respond to changes in the
business environment. This Advanced Application Architecture is founded on
principles for data application and platform independence. The architecture uses
a layered approach of separating data access, decision logic, and presentation
components to ensure flexibility, longevity and reusability. It links and
controls processes and communication using common programs, techniques and
procedures.

ENTERPRISE MANAGEMENT SOLUTIONS. The Company's enterprise management
solutions transform corporate-wide data into meaningful management information,
help users determine profitability by customer, organization and product,
support the budget and planning process and analyze credit risk. The specific
applications include:

EARNINGS ANALYSIS SYSTEM. The Earnings Analysis System (EAS) is an
enterprise-wide repository of profitability and performance data that can
be used to manage all levels of an organization. EAS integrates
profitability and performance information, standardizes and warehouses
profitability and performance information, calculates funds transfer
pricing, executes user-defined allocations, and promotes performance
improvement with information delivery.

BUDGET & PLANNING SYSTEM. The Budget & Planning System is an
enterprise-wide, distributed tool for developing forecasts, budgets, and
strategic plans. The system improves the budgeting and planning process
through advanced features such as automatically populating initial budgets
and forecasts with baseline data.

CREDIT RISK SYSTEM. The Credit Risk System allows users to measure, monitor
and control various credit risks. By gathering data at the detailed
customer and instrument levels from all sources, the system helps ensure
that all factors that drive or influence credit risk are available for
reporting and analysis.

RELATIONSHIP MANAGEMENT SOLUTIONS. The Company's relationship management
solutions allow for a more comprehensive view of customer and account
affiliations by consolidating all relationship information into a common
analytical repository. Specific applications include:

CUSTOMER INFORMATION SYSTEM. The Customer Information System is a
comprehensive customer information database. It centralizes customer,
account and address data for an entire enterprise. The system facilitates
relationship banking by creating a profile of a bank's customers. Online,
realtime processing permits easy updating so that users can keep customer
information current.

RELATIONSHIPS & PROFITABILITY MANAGER. The Relationships & Profitability
Manager is a customer and account analysis and reporting tool for
evaluating commercial banking customers and their accounts. It provides
financial institutions with an overall solution for in-depth analysis,
pricing, modeling, projections and commercial customer servicing.

PREFERRED CLIENT SERVICES SYSTEM. The Preferred Client Services System
enables bankers to deliver personalized services to upscale retail and
corporate customers. The system equips the personal banker with new,
flexible product offerings, allows the creation of unique personal banker
services and facilitates cross-selling of existing products.

RELATIONSHIP INFORMATION SYSTEM. The Relationship Information System
creates an enterprise-wide repository of prospect and customer data used in
management and market analysis. The system consolidates information from
the Customer Information System and other internal and external sources,
standardizes and stores customer information and promotes selective selling
with online information and comprehensive query and reporting capabilities.

DELIVERY SOLUTIONS. The Company's delivery solutions, utilizing Windows and
OS/2, deliver unparalleled power at a bank's customer contact point through
tight integration with Hogan's back office and information management systems.
Specific applications include:

RETAIL SALES & SERVICE SYSTEM. The Company's Retail Sales & Service System
is a customer-oriented, retail banking product sales and service delivery
system. It automates the presentation, selection, setup and servicing
functions.

CREDIT APPROVAL SYSTEM. The Company's Credit Approval System is an online,
realtime system that processes credit applications for retail lending
products. The system uses automated underwriting and processes preapproved
applications.

CARD SOLUTIONS. The Company's card solutions offer an integrated approach
to debit, credit and merchant business needs. Tools enable banks to optimize
credit cycles, deliver differentiated card-based offerings and segment and
manage the card profile. Specific applications include:

CREDIT SYSTEM. The Company's Credit Card System helps financial
institutions manage a variety of target-marketed credit card products with
a single, integrated software solution. Online, effective-dated business
rules allow the user to develop new products quickly and easily.
Application and account management capabilities help card issuers rapidly
turn qualified prospects into active accounts.

DEBIT SYSTEM. The Company's Debit Card System enables financial
institutions to develop and service a broad range of online and offline
debit card products. The system handles a variety of debit products, from
single-access cards to full-function, branded cards for international users
at automated teller machines and the point of sale. Flexible online
parameters define pricing and processing options for new products without
programming time and resources.

MERCHANT SYSTEM. The Company's Merchant System enables financial
institutions to provide complete card processing for their merchant
customers. The system tracks activity from credit or debit cards accepted
by merchants, such as Visa, Mastercard, Europay, proprietary products and
fuel cards.

TRANSACTION ACCOUNT SOLUTIONS. The Company's transaction account solutions
provide integrated high-volume deposit and loan systems, support the tactical
need for rapid product development and accelerate mergers, acquisitions and
consolidations. The specific applications include:

DEPOSITS SYSTEM. The Company's Deposit System supports the development and
servicing of a full range of deposit products, from simple savings accounts
to complex funds management products.

LOANS SYSTEM. The Company's Loans System integrates the processing of
retail, commercial, mortgage, construction and indirect lending into one
application with the processing power to handle high-volume transaction
accounting. The system integrates loan management, consolidates common
processing and supports and array of lending features.

BUSINESS PROCESS SOFTWARE PRODUCTS

AWD. The Company distributes the Automated Work Distributor ("AWD") to the
worldwide insurance industry under an arrangement with DST. AWD was originally
developed by DST to automate and streamline clerical workflows for mutual fund
companies and other financial services businesses. AWD currently operates on IBM
compatible workstations and AS/400 servers and combines workflow distribution
software with image processing technology.

LICENSING

The Company offers a variety of licenses to its proprietary software.
Historically, the Company offered perpetual licenses to its software products
for a one time upfront license fee, along with an optional product support
service. More recently, the Company began offering licenses with an upfront
initial license charge combined with ongoing monthly utilization and support
fees. The Company emphasized licensing practices intended to build a stable
source of recurring revenues and provide funding for ongoing product
enhancements.

Although approximately 90% of the Company's revenues in each of the past
three years have been service revenues, as opposed to license revenues, license
sales are important to the Company's performance. New license sales tend to
result in additional service revenues as new customers request assistance from
the Company to install, customize, and maintain software systems licensed from
the Company. New license sales are essential to the Company's growth, as well as
to the replacement of service revenues lost as older customers complete the
implementation of software systems licensed from the Company or otherwise reduce
their need for the Company's services.

ROYALTY ARRANGEMENTS

The Company has entered into a variety of software development arrangements
in which the Company receives funding for software development projects in
return for royalties on future licenses resulting from those projects. In
addition, the Company pays royalties on licenses of AWD, COGEN and COLOSSUS. A
variety of other agreements require the Company to pay royalties on licenses of
specific enhancements to its software products. See "Business -- Services --
Shared-Cost Enhancements." The Company's revenues are recorded net of royalties.

SERVICES

The Company's products often require customization to meet the needs of
individual customers. In addition, the Company's products have relatively long
lives, are very complex, and require ongoing maintenance and enhancement due to
competitive pressures in the financial services industry, as well as
technological and regulatory changes. As a result, the Company's customers often
require the assistance of software professionals for the installation,
customization, enhancement, and maintenance of their software systems. Such
services are performed by the Company as well as third-party consultants and
internal data processing specialists. Service revenues have represented
approximately 90% of the Company's total revenues for each of its last three
fiscal years.

The Company emphasizes the cultivation and preservation of long-term
relationships with its customers and offers a wide range of services, including
outsourcing services, software development, shared-cost enhancements, consulting
and installation assistance, custom modifications, and maintenance. The Company
also provides communication centers to respond to customer inquiries. The
beginning of the installation cycle of its products provides the Company with a
significant opportunity to provide services to its licensees.

The Company's charges for its services are typically based upon an agreed
hourly rate plus expenses, much like other professional service firms. On
long-term projects, rates may be based on person-months or even person-years,
rather than person-hours. The Company may also bid for projects on a fixed fee
basis at the request of the customer. Maintenance services for the Company's
products are typically offered for a fixed annual or monthly charge.
Arrangements for outsourcing charges vary, but typically include a minimum
monthly or annual charge, plus a monthly charge that varies with the volume of
work performed.

OUTSOURCING. The Company derives a significant portion of its service
revenues from long-term outsourcing contracts, with options ranging from
data processing support for a single application, product line or business
area, to total information systems management and third party
administration. The Company provides outsourcing services to numerous
customers through its data processing arrangement with a related company
and the Company's own data processing facilities in Dallas, Texas,
Australia and New Zealand. As discussed in "Business - Business Strategy -
Outsourcing Provider," the Company is currently seeking to expand its
outsourcing services to provide comprehensive data processing services to
financial services companies.

CONSULTING AND INSTALLATION. The conversion by a financial services
company from one software system to another can require from one to several
years to complete, depending upon the size of the company, the features
desired, and other considerations. The Company provides a broad range of
services to assist its customers in planning for and installing new
software systems. These services include designing a comprehensive
conversion plan; supplying actuarial, data processing, and user-oriented
financial services professionals; providing educational programs at either
the Company's offices or the customer's facility; and supervising the
actual implementation of the conversion to the new system.

SHARED-COST ENHANCEMENTS. Since the Company's software systems
periodically require modifications in response to technological,
competitive, regulatory, and other changes in the industry, the Company
sponsors programs whereby the costs of such modifications can be borne by a
group of participating companies on a shared basis. Generally, the cost to
each participant is substantially lower than the cost of a custom
enhancement by the Company, the customer's data processing staff, or a
third-party software consultant. The Company typically retains ownership of
enhancements made pursuant to shared-cost arrangements and may offer to
license such enhancements to other customers for inclusion in their
systems. The customer sponsors of shared-cost enhancements may receive
royalties on sales of those enhancements. The Company's license revenues
are recorded net of royalties. The number of sponsoring companies in any
shared-cost arrangement varies with the nature of the enhancement.

CUSTOM MODIFICATIONS. Although the Company's software systems are
comprehensive, most customers have requirements that are not satisfied by
standard software because of the unique nature of each customer's products
and operations. To the extent that such requirements are unique and the
customer cannot take advantage of the Company's shared-cost enhancement
programs to satisfy these requirements, the customer may request the
Company to provide the analysis and programming necessary to effect such
additions or alterations. The Company has a staff of analysts and
programmers available to assist these customers with their requirements.

MAINTENANCE. Maintenance of the Company's products is generally
provided pursuant to product support service agreements with initial terms
ranging from one to five years. Subscribers receive maintenance services
and selected improvements and enhancements to their respective software
systems.

SALES AND MARKETING

The Company's software professionals work with many of the Company's
customers on a daily basis on a wide range of software development and
implementation projects, and are effective at identifying and responding to
upcoming customer needs.

The Company's marketing efforts are directed primarily at large and medium
sized financial services companies in North America, Europe, and the Pacific
Rim. The Company believes it is well positioned for global growth and that
outsourcing will remain an important part of its business. The Company intends
to continue aggressively pursuing new outsourcing contracts in all of its
geographic regions.

The Company believes it has significant opportunities for new software
license sales in all of its regions for its banking, insurance, and business
process software systems. Sales cycles for the Company's products are long and
unpredictable and the amount and timing of new license sales is uncertain.

RESEARCH AND DEVELOPMENT

The computer industry is characterized by rapid technological change and
the financial services industry is subject to continuing regulation and frequent
regulatory changes. Consequently, computer software companies servicing the
financial services industry must devote substantial resources to the development
of new software products and the enhancement of existing software products.

The Company's expenditures for product research and development were
approximately $95.0 million, $67.1 million, and $62.7 million, respectively, for
the three fiscal years ended March 31, 1996, 1995 and 1994. Research and
development costs include expenses related to the development of the new
software products and the enhancement of existing software products for which
the Company retains ownership rights. In addition, Hogan capitalized internally
developed software during the three fiscal years ended March 31, 1996, 1995 and
1994 of $5.6 million, $13.2 million and $17.2 million, respectively. In March
1996, $20,200,000 of capitalized software was written off to reflect a decline
in net realizable value associated primarily with changes in market conditions
and changes in business strategy relating to the Company's banking products.

A substantial portion of research and development costs relate to
activities wholly or partially funded by customers, including the product
support programs for the Company's various products and shared-cost enhancement
development projects.

PRODUCT SUPPORT PROGRAMS

Fees received by the Company pursuant to product support service agreements
fund ongoing development of selected product improvements and enhancements, as
well as error correction and other support services. See "Business -- Services
-- Maintenance," and "Business -- Licensing."

SHARED-COST ENHANCEMENTS

The Company also receives software development funding pursuant to
shared-cost enhancement arrangements with customers. See "Business -- Services
-- Shared-Cost Enhancements."

COMPETITION

The computer software and services industry is highly competitive.
Competition in the computer software and services industry is based primarily on
service, price, functionality, technological advances, and vendor reliability.
Financial services companies have several alternatives for satisfying their
needs for computer applications software systems, including third-party vendors
of standardized software such as that offered by the Company, internal software
development staffs, and customized software systems developed by third-party
consultants. The Company believes that internal software development staffs are
its principal source of competition. In addition, there are a number of larger
companies, including computer manufacturers such as IBM and computer service
companies, that have substantially greater financial resources than the Company
and the technological ability to develop products similar to those offered by
the Company. There are also a number of competitors who offer software products
that are functionally similar to those offered by the Company, including, among
others, Policy Management Systems Corporation, the largest supplier of such
software systems to United States property and casualty insurance companies.

The Company faces competition for outsourcing business from much larger
companies, such as Electronic Data Systems and IBM, who have established
reputations as providers of outsourcing services. See "Business -- Services --
Outsourcing."

EMPLOYEES

At March 31, 1996, the Company had approximately 4,300 full-time employees.
Approximately 2,100 of these employees were based in North America, 1,100 in
Europe, and 1,100 in the Pacific Rim.

BACKLOG

At March 31, 1996, the Company had entered into written maintenance,
shared-cost program enhancement, custom program modification, data processing,
and other service related contracts with customers for approximately $517
million, $240 million of which is expected to be recognized in fiscal 1997.
Approximately 60% of the backlog at March 31, 1996 is derived from outsourcing
contracts.

FOREIGN OPERATIONS

See Note 4 to the Consolidated Financial Statements of the Company included
in Part IV, Item 14 of this report.

ITEM 2. PROPERTIES

The Company's Austin, Texas corporate headquarters building is
approximately 186,000 square feet and is owned by the Company. In conjunction
with the Vantage acquisition, the Company obtained additional leased office
space in Wethersfield, Connecticut and Kansas City, Missouri. The Wethersfield
lease expires in October 1997 and includes 48,000 square feet at an annual cost
of $17 per square foot. The Kansas City premises are leased through the year
2001 and consist of 80,000 square feet at an annual cost of $14 per square foot.
In connection with the Hogan acquisition and a customer contract, the Company
obtained additional leased space in Dallas, Texas of approximately 166,000
square feet at an annual cost of $9 to $15 per square foot. The Dallas leases
expire in December 1998 and June 2003.

The Company's principal operating and sales facilities in Europe are
located in Camberley and Halifax, England; Paris, France and Oslo, Norway. The
Camberley facilities lease expires in 2015 and consists of approximately 30,000
square feet at an annual cost of $28 per square foot. The Halifax facilities
lease expires in 2011 and consists of approximately 19,000 square feet at an
annual cost of $19 per square foot. The lease in Paris expires in January 2004
and consist of approximately 31,000 square feet at an annual rate of $30 per
square foot. The Oslo premises are leased through the year 2000 and include
17,000 square feet at an annual cost of $27 per square foot.

The principal facilities for the Company's Pacific Rim operations are
leased and are located primarily in Sydney and Melbourne, Australia and
Auckland, New Zealand. The approximate total square footage by location is
38,000, 36,000 and 76,000, respectively. The lease expiration dates vary by
location with expiration dates ranging from 1996 to 2000. Costs per square foot
range from $11 to $28 annually.

The Company also maintains leased administrative and sales office
facilities in Toronto, Canada; Tokyo, Japan; Singapore; Hong Kong; Frankfurt,
Germany; Paris, France; Dublin, Ireland; Lisbon, Portugal; Copenhagen, Denmark;
Zurich, Switzerland; and Utrecht, Netherlands.

In September 1993, the Company entered into a data processing services
agreement with DST Systems, Inc. ("DST") which allows the Company to purchase
data processing resources from DST. The Company's data processing facilities in
Austin, Texas were closed in February 1994 and processing services are now
provided through DST at its facilities in Kansas City, Missouri. The Company
operates large data centers in Dallas, Texas; Sydney and Melbourne, Australia
and Auckland, New Zealand which utilize various IBM and Amdahl mainframe and
mid-range computers. The Company also has data processing facilities which
utilize IBM mid-range computers in Tokyo, Japan and Camberley, England. The
Company intends to consolidate its Australian data center activities in fiscal
1997.

ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS

The Company is involved in various lawsuits and is subject to certain
contingencies incidental to its business, while the ultimate results of these
matters cannot be predicted with certainty, management does not expect them to
have a material adverse effect on the consolidated financial position or
operations of the Company.

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

(a) A special meeting of the stockholders of the Company was held on
March 15, 1996.

(b) The issuance and reservation for issuance of up to 5,319,300
shares of the Company's Common Stock in connection with the
acquisition of Hogan Systems, Inc. was approved by the requisite
majority of the outstanding shares of the Company as follows:

For 14,982,271
Against 739,890
Abstain 22,351

The total number of shares of Common Stock, $0.10 par value,
outstanding as of January 17, 1996, the record date of the special
meeting, was 19,292,039.

PART II

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

The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the trading symbol "CNU." The following table sets forth for each
quarter during the fiscal years ended March 31, 1996 and 1995, the high and low
sale prices per share of the Common Stock as reported on the NYSE.

1996 1995
--------------------- ---------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
First Quarter Ended June 30 ............... $ 34 $ 29 3/4 $ 25 5/8 $ 19 3/4
Second Quarter Ended September 30 ......... 39 1/2 32 1/2 23 3/4 18
Third Quarter Ended December 31 ........... 41 3/4 33 5/8 30 1/2 20 3/4
Fourth Quarter Ended March 31 ............. 42 3/8 33 1/2 32 1/4 27

</TABLE>

As of April 30, 1996, there were approximately 2,400 holders of record of
the 24,179,000 shares of Common Stock then outstanding.

ITEM 6. SELECTED FINANCIAL DATA*

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ----------- ---------- -----------
(In Thousands Except Per Share Amounts and Number of Employees)
<S> <C> <C> <C> <C> <C>
Revenue $ 499,466 $ 416,443 $ 315,434 $ 304,835 $ 321,226
Income (loss) from
continuing operations*** (32,261) 32,498 (23,508) 119 (13,426)
Earnings (loss) per common share
from continuing operations (1.35) 1.37 (1.10) 0.01 (0.70)
Research and development expense 94,981 67,067 62,744 47,359 59,881
Total assets 340,281 296,381 257,180 242,554 262,293
Long-term debt 21,163 25,379 19,149 24,513 13,000
Number of employees 4,255 3,539 3,085 2,477 2,613
Dividends per common share -- ** ** ** **

</TABLE>

* The selected financial data has been restated to include the results of
Paxus and Hogan, accounted for as poolings of interests, for all periods
presented. The selected financial data includes the results of Vantage, SOCS
and Ra from the dates of acquisition. FAS No. 109, "Accounting for Income
Taxes", was adopted effective April 1, 1993. Prior year financial data has
not been restated as the cumulative effect of the accounting change was not
material.

** Hogan paid dividends to its shareholders of record of $.15 per share in
fiscal 1992 and 1993 and $.17 per share in fiscal 1994 and 1995. Hogan did
not pay a dividend to its shareholders of record in fiscal 1996. Continuum
did not pay dividends during fiscal 1992 through 1996.

***Income (loss) from continuing operations includes restructuring and other
costs associated with the Company's acquisitions in fiscal 1996 and 1994.

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

GENERAL

RECENT DEVELOPMENTS

PROPOSED MERGER

OUTSOURCING CONTRACTS

The Company entered into several significant outsourcing contracts during
its 1996 fiscal year, with expected revenues in excess of $200 million over the
lives of those contracts. The new contracts included outsourcing agreements with
Fidelity and Guaranty Life Insurance Company (with expected revenues of
approximately $80 million over eight years) and Penncorp Financial Group, Inc.
(with expected revenues of approximately $50 million over seven years).

Other important outsourcing contracts announced during the year include
agreements with Sun Alliance Group plc, Independent Order of Foresters and the
New Zealand Department of Labour.

FISCAL 1996 ACQUISITIONS

During fiscal 1996, the Company acquired three major new subsidiaries:
Hogan, SOCS and Ra.

On December 28, 1995, the Company acquired all of the shares of SOCS, a
Paris-based software and services company, for $37,600,000 in cash. SOCS is the
leading provider of insurance application software and related services to the
French insurance industry. SOCS has over 130 insurance customers in Europe,
primarily in France. The acquisition of SOCS provides the Company with leading
edge object-oriented software technology and a staff of approximately 200
persons with extensive insurance and object-oriented development expertise.
SOCS' primary insurance product is AIA, which is a functionally rich
client/server insurance administration application supporting both individual
and group life and health insurance. AIA is the new generation of insurance
software, supported by an open, integrated, object-oriented development and
execution environment called OCEANIC. This revolutionary application development
environment allows the AIA application to be implemented rapidly and to remain
flexible and responsive to changing business needs. The Company plans to
continue enhancing the tools and methodologies developed by SOCS as object
technology standards evolve and to integrate them with the Company's other
software development efforts.

The acquisition of Hogan was accounted for as a pooling of interests and
accordingly, the Company's consolidated results of operations have been restated
to include the results of Hogan for all periods presented. The acquisitions of
SOCS and Ra have been accounted for as purchases and the operating results of
SOCS and Ra have been included from the date of the acquisitions.

FISCAL 1994 ACQUISITIONS

The Company completed two acquisitions during fiscal 1994, the acquisition
of Paxus Corporation Limited on August 13, 1993 and the acquisition of Vantage
Computer Systems, Inc. on September 30, 1993. The acquisition of Paxus
substantially broadened the Company's customer base and staff in Europe and the
Pacific Rim and gave the Company several new product offerings, including
LIFE/400, POLISY/400, SICS, and CAPSIL. The acquisition of Vantage brought the
Company the VANTAGE-ONE life insurance and administration software system,
significant new outsourcing revenues and a substantial increase in the Company's
North American customer base.

The acquisition of Paxus was accounted for as a pooling of interests and
accordingly, the Company's consolidated results of operations have been restated
to include the results of Paxus for all periods presented. The acquisition of
Vantage has been accounted for as a purchase and the operating results of
Vantage have been included from the date of acquisition.

RESULTS OF OPERATIONS

The following table presents selected data for the three fiscal years ended
March 31, 1996 from the Consolidated Statements of Operations as a percentage of
total revenues and the percentage change of those items as compared to the prior
period.

<TABLE>
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
------------------------
PERCENTAGE OF TOTAL REVENUES 1996 1995
------------------------------------------ vs vs
1996 1995 1994 1995 1994
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue
Service revenues 93.5 % 91.3% 89.3 % 22.7 % 35.0 %
Software system licensing 6.3 8.4 10.1 (10.3) 10.2
Interest income 0.2 0.3 0.6 22.7 (46.4)
------- ------ --------
Total revenue 100.0 100.0 100.0 19.9 32.0
------- ------ --------
Expenses
Service expenses 71.6 69.2 68.0 24.0 34.4
Marketing and administration 19.5 18.9 23.0 24.1 8.1
Interest expense 0.6 0.6 1.3 12.6 (32.8)
Restructuring and other costs 10.0 -- 10.3 100.0 (100.0)
Charge for purchased R&D 5.2 -- 5.1 100.0 (100.0)
------- ------ --------
Total expenses 106.9 88.7 107.7 44.6 8.8
------- ------ --------
Income (loss) before income taxes (6.9) 11.3 (7.7) (173.2) 94.9
Income tax provision (benefit) (0.4) 3.5 (0.2) (115.1) 2,333.0
------- ------ --------
Net income (loss) (6.5)% 7.8% (7.5)% (199.3)% 238.2 %
======= ====== =========

</TABLE>

RESULTS OF OPERATIONS -- 1996 VERSUS 1995

On March 15, 1996, the Company acquired Hogan. The acquisition has been
accounted for as a pooling of interests and, therefore, the financial statements
of the Company have been restated to include the results of Hogan for all
periods reported. During the year ended March 31, 1996, the Company also
recorded nonrecurring charges of $76,053,000 ($61,724,000 net of tax benefits)
related to its acquisitions.

Excluding the results of Hogan and nonrecurring charges, the Company
recorded income of $34,525,000 for fiscal 1996 compared to $26,204,000 for
fiscal 1995, an increase of 32%. For fiscal 1996 Hogan recorded a net loss of
$5,062,000 compared to net income for fiscal 1995 of $6,294,000.

Total revenue excluding Hogan increased from $323,536,000 in fiscal 1995 to
$414,500,000 for fiscal 1996 or 28%. Hogan total revenue decreased 8% from
$92,097,000 to $84,966,000 for the comparable period. Reflecting the restatement
to include Hogan, revenue grew $83,023,000 or 20% from $416,443,000 in fiscal
1995 to $499,466,000 in fiscal 1996.

Service revenue excluding Hogan grew from $301,783,000 in fiscal 1995 to
$382,950,000 for fiscal 1996 or 27%. The increase in revenue is primarily
attributable to a growth in outsourcing revenue of $36,800,000, increased
consulting revenue and increases related to the acquired businesses of SOCS and
Ra. Hogan service revenue increased 7% from $78,615,000 to $83,874,000,
primarily attributable to increased service revenue associated with
implementation projects. Reflecting the restatement to include Hogan, service
revenue grew $86,426,000 or 23% from $380,398,000 in fiscal 1995 to $466,824,000
in fiscal 1996.

Service expenses excluding Hogan for fiscal 1996 were $292,625,000, an
increase of 28% compared to fiscal 1995 when they totaled $228,725,000,
primarily due to the growth in service revenue. Hogan service expenses increased
9% to $64,900,000, primarily due to an increase in service revenue and an
increase in development costs and additional software amortization. Reflecting
the restatement to include Hogan, service expenses for fiscal 1996 were
$357,525,000, an increase of 24% compared to fiscal 1995 when they totaled
$288,246,000.

Service gross profit excluding Hogan increased $17,267,000 or 24%, from
$73,058,000 for fiscal 1995 to $90,325,000 for fiscal 1996. Service gross profit
as a percent of revenue excluding the results of Hogan was 24% for fiscal 1995
and 1996. Hogan service gross profit decreased $120,000 or 1%. Reflecting the
restatement to include Hogan, total service gross profit increased $17,147,000
or 19%, from $92,152,000 for fiscal 1995 to $109,299,000 for fiscal 1996. As a
percent of revenue gross profit declined from 24% in fiscal 1995 to 23% for
fiscal 1996.

License revenue excluding Hogan increased 46% from $21,135,000 in fiscal
1995 to $30,765,000 in fiscal 1996 reflecting the continued acceptance of
COLOSSUS and increases in all geographic regions. Hogan license revenue
decreased $13,242,000 from $13,991,000 to $749,000. The decline in license sales
is related to adjustments to conform the revenue recognition practices of Hogan
and the usual delay in license decisions associated with the pending acquisition
of Hogan. Reflecting the restatement to include Hogan, license revenue decreased
from $35,126,000 in fiscal 1995 to $31,514,000 in fiscal 1996, a decrease of
10%.

Year to year marketing and administration expenses excluding Hogan
increased $16,130,000 or 30% and were 17% of revenue in both fiscal 1996 and
1995. Hogan marketing and administration expenses increased $2,799,000 or 12%
and increased from 26% of revenue in fiscal 1995 to 32% of revenue in fiscal
1996. The increase in expenditures is primarily attributable to an increase in
international sales activities. Reflecting the restatement to include Hogan
marketing and administration expenses for fiscal 1996 totaled $97,446,000 an
increase of 24% compared to fiscal 1995 when they were $78,517,000.

Pretax income excluding Hogan and before nonrecurring charges of
$76,053,000 for fiscal 1996 was $48,569,000 compared to $38,108,000 for fiscal
1995, an increase of 27%. For fiscal 1996 Hogan incurred a pretax loss of
$6,978,000 compared to pretax income of $8,994,000 for fiscal 1995. Reflecting
the restatement to include Hogan, pretax income before nonrecurring charges for
the year ended March 31, 1996 was $41,591,000 compared to pretax income of
$47,102,000 for fiscal 1995.

Tax expense excluding Hogan and tax benefits for the nonrecurring charges
was $14,044,000 for fiscal 1996 compared to $11,904,000 for fiscal 1995. The
effective rates of 29% for fiscal 1996 and 31% for fiscal 1995 are lower than
the statutory rate primarily due to the utilization of net loss carry-forwards.
Hogan recognized a tax benefit in fiscal 1996 of $1,916,000 which is an
effective tax rate of 27%, lower than the statutory rate due to foreign tax
losses without tax benefit. Fiscal 1995 tax expense for Hogan was $2,700,000, an
effective tax rate of 30%, lower than the statutory rate primarily due to the
utilization of net loss carry-forwards.

The nonrecurring charges of $76,053,000, which were largely related to the
acquisitions of Hogan and SOCS, included a $26,000,000 charge for purchased
research and development, restructuring and transaction costs of $19,400,000,
and adjustments to the carrying value of certain operating assets of
$30,700,000.

The $26,000,000 charge for purchased research development was a noncash
charge to expense resulting from the value assigned to the software development
activities in process at SOCS.

The $19,400,000 restructuring charge resulted from a plan effected by the
Company following the acquisitions of Hogan and SOCS to integrate, restructure
and realign its expanded business to better serve its customers and markets.
These charges included transaction costs associated with the acquisition of
Hogan of $9,600,000 and costs associated with the consolidation of facilities,
data processing activities and other functions of $9,800,000. Transaction costs
included investment banking fees, proxy related expenses, legal, accounting and
consulting fees.

Restructuring costs for facilities and data processing activities totaled
$3,200,000 and included the costs of consolidating offices and data processing
in Europe and Australia. These consolidations will be completed in the first
half of fiscal 1997 and will reduce occupancy and data processing costs in
future periods. Restructuring charges for staff reductions totaled $6,600,000
and reflected the elimination of redundant functions and capacity, including
marketing, administrative, management and development personnel worldwide. The
staff reductions will result in reduced payroll expenses in future periods.

The adjustments to the carrying value of certain operating assets included
reductions in the capitalized software and other intangibles of $22,000,000 and
a reduction in the value of certain receivables of $8,700,000. These adjustments
in carrying value represent noncash charges.

Reflecting the restatement for Hogan and nonrecurring charges, the Company
recognized a tax benefit for fiscal 1996 of $2,201,000, reflecting an effective
tax rate of 6% which is lower than the statutory rate primarily due to purchase
accounting adjustments and nonrecurring charges that are not deductible for tax
purposes. Tax expense for fiscal 1995 was $14,604,000 reflecting an effective
tax rate of 31% which is lower than the statutory rate primarily due to the
utilization of net loss carry-forwards.

In summary, the Company incurred a net loss for fiscal 1996 of $32,261,000
or $1.35 per share, reflecting nonrecurring charges of $76,053,000 ($61,724,000
after tax benefits), compared to net income of $32,498,000 or $1.37 per share
for fiscal 1995.

RESULTS OF OPERATIONS -- 1995 VERSUS 1994

During the year ended March 31, 1995 the Company recorded net income of
$32,498,000 or $1.37 per share compared to a net loss of $23,508,000 or $1.10
per share for fiscal 1994. The loss for fiscal 1994 resulted from nonrecurring
charges of $48,592,000. These nonrecurring charges were related to the
acquisitions of Paxus and Vantage and included a charge for purchased research
and development, restructuring charges and other one-time charges.

Pretax income excluding Hogan and before nonrecurring charges was
$38,108,000 for fiscal 1995 compared to $13,938,000 for fiscal 1994, an increase
of 173%. For fiscal 1995 Hogan recorded pretax income of $8,994,000 compared to
$10,492,000 for fiscal 1994. Reflecting the restatement to include Hogan, pretax
income before nonrecurring charges for the year ended March 31, 1995 was
$47,102,000 compared to pretax income of $24,430,000 for fiscal 1994.

Total revenue excluding Hogan increased 33% from $242,949,000 in fiscal
1994 to $323,536,000 for fiscal 1995. Hogan total revenue increased 28% from
$72,485,000 to $92,907,000. Reflecting the restatement to include Hogan, revenue
grew $101,009,000 or 32% from $315,434,000 in fiscal 1994 to $416,443,000 in
fiscal 1995.

Service revenue excluding Hogan grew 33% from $227,391,000 in fiscal 1994
to $301,783,000 for fiscal 1995. The increase in revenue is primarily
attributable to a growth in outsourcing revenue, consulting revenue and a full
year of Vantage's results. Outsourcing revenue increased 95% from $55,900,000 in
fiscal 1994 to $108,900,000 in fiscal 1995. Hogan service revenue increased 44%
from $54,441,000 to $78,615,000 for comparable periods. The increase was
primarily attributable to an increase in professional service rates and
consulting associated with implementations. Reflecting the restatement to
include Hogan, service revenue grew $98,566,000 or 35% from $281,832,000 in
fiscal 1994 to $380,398,000 in fiscal 1995.

Service expenses excluding Hogan for fiscal 1995 were $228,725,000, an
increase of 31% compared to fiscal 1994 when they totaled $174,615,000. The
increase was due to an increase in service revenue. Hogan service expenses
increased 49% to $59,251,000 for comparable periods due to an increase in
service revenue. Reflecting the restatement to include Hogan, service expenses
for fiscal 1995 were $288,246,000, an increase of 34% compared to fiscal 1994
when they totaled $214,519,000.

Service gross profit excluding Hogan increased $20,282,000 or 38%, from
$52,776,000 for fiscal 1994 to $73,058,000 for fiscal 1995. Service gross profit
as a percent of revenue, excluding the results of Hogan, increased from 23% in
fiscal 1994 to 24% in fiscal 1995. Hogan service gross profit increased
$4,557,000 or 31%. Reflecting the restatement to include Hogan, service gross
profit increased $24,839,000 or 37%, from $67,313,000 for fiscal 1994 to
$92,152,000 for fiscal 1995. Service gross profit was 24% of revenue for fiscal
1994 and 1995.

License revenue excluding Hogan increased 44% from $14,689,000 in fiscal
1994 to $21,135,000 in fiscal 1995 with the increase attributable to sales of
COLOSSUS and VANTAGE-ONE. Hogan license revenue decreased $3,208,000 from
$17,199,000 in fiscal 1994 to $13,991,000 in fiscal 1995. The decrease is
attributable to the decline in the number of licenses sold during fiscal 1995.
Reflecting the restatement to include Hogan, license revenue increased from
$31,888,000 in fiscal 1994 to $35,126,000 in fiscal 1995, an increase of 10%.

Year to year, excluding Hogan, marketing and administration expenses
increased $3,864,000 or 8% and decreased from 21% of revenue in fiscal 1994 to
17% of revenue in fiscal 1995. The decrease as a percent of revenue is
attributable to revenue growth during the year and the restructuring of Paxus
and Vantage during the last half of fiscal 1994. Hogan marketing and
administration expenses increased $2,004,000 or 9% and decreased from 30% of
revenue in fiscal 1994 to 26% of revenue in fiscal 1995. The decrease as a
percent of revenue is attributable to revenue growth during the year. Reflecting
the restatement to include Hogan, marketing and administration expenses for
fiscal 1995 totaled $78,517,000 an increase of 8% compared to fiscal 1994 when
they were $72,649,000. Reflecting the restatement to include Hogan, marketing
and administration expenses for fiscal 1995 were 19% of revenues compared to 23%
of revenue for fiscal 1994.

Interest income decreased in fiscal 1995 and totaled $919,000 compared to
$1,714,000 in fiscal 1994. Interest expense decreased from $3,836,000 in 1994 to
$2,578,000 in 1995. Net interest expense decreased to $1,659,000 in fiscal 1995
from $2,122,000 in fiscal 1994 primarily due to excess cash balances being used
to retire Paxus debt in fiscal 1994.

Tax expense for fiscal 1995 was $14,604,000 reflecting an effective tax
rate of 31%. The effective rate for fiscal 1995 is lower than the statutory rate
primarily due to the utilization of net loss carry-forwards. The Company
recognized a tax benefit for fiscal 1994 of $654,000, reflecting an effective
tax rate of 3% which is lower than the statutory rate primarily due to purchase
accounting adjustments and nonrecurring charges that are not deductible for tax
purposes.

In summary, the Company incurred a net loss for fiscal 1994 of $23,508,000
or $1.10 per share, primarily due to nonrecurring charges, compared to net
income of $32,498,000 or $1.37 per share for fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased to $9,006,000 at March 31, 1996
compared to $52,289,000 at March 31, 1995. During fiscal 1996, the Company
generated $18,803,000 from operations and $3,324,000 from financing activities.
The Company utilized $43,821,000 in cash during the year to finance the
acquisitions of SOCS and Ra.

During fiscal 1996 the Company renewed and increased its $20,000,000
revolving bank line of credit to $60,000,000. Approximately $23,000,000 was used
to fund the acquisition of SOCS in the December quarter. This debt was reduced
by $16,000,000 during the fourth quarter of fiscal 1996. The Company does not
intend to renew Hogan's revolving line of credit, which expires in June 1996.

Over half of the Company's revenue is generated outside the United States.
As a result, the Company's operations could be significantly affected by
international factors, such as changes in foreign currency exchange rates. The
Company's strategy is designed to minimize the exchange rate risk by contracting
for services in the currency in which the costs are incurred. However, the
Company's results of operations may be significantly affected in the short-term
by fluctuations in foreign currency exchange rates. The Company's gains and
losses on transactions denominated in foreign currencies have not been material
to the Company's operations. The Company does not enter into forward foreign
exchange contracts as a regular course of business.

The Company's planned expansion of its outsourcing business may require
significant expenditures to the extent that the Company is required, among other
things, to purchase computer facilities from its customers, develop additional
data centers, assume or buy out leases and software licenses, or assume
responsibility for a customer's data processing staff. The Company anticipates
that, in the absence of significant expenditures arising from entering into
outsourcing activities, current cash balances, the Company's available line of
credit and cash from future operations will be adequate for working capital and
anticipated investment requirements for the foreseeable future. To the extent
that current cash balances from operations and current credit facilities are not
adequate to satisfy the Company's requirements with respect to outsourcing
arrangements, the Company would anticipate seeking additional external
financing. Such financing could include new borrowings, the availability and
cost of which will depend upon general economic and market conditions.

QUARTERLY RESULTS

During fiscal 1996 service revenues accounted for 93% of total revenues.
License sales, however, significantly affect the Company's earnings due to
license fees for some of the Company's products which can exceed $1,000,000. As
a result, a single license sale can have a significant effect on the Company's
earnings for the period in which the sale occurs and future periods. These
factors may impact quarter to quarter comparisons of the Company's revenues and
earnings.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company set forth under Item 14(a) of this
Form 10-K Report are submitted as the response to the financial statement
requirement of this Item.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company will file with the Securities and Exchange Commission not later
than 120 days after March 31, 1996, the information required by this item with
respect to officers and directors in an amendment to this Report or pursuant to
Regulation 14A in a definitive Proxy Statement involving the election of
directors. Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The Company will file with the Securities and Exchange Commission not later
than 120 days after March 31, 1996, the information required by this item with
respect to executive compensation in an amendment to this Report or pursuant to
Regulation 14A in a definitive Proxy Statement involving the election of
directors. Such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company will file with the Securities and Exchange Commission not later
than 120 days after March 31, 1996, the information required by this item with
respect to security ownership in an amendment to this Report or pursuant to
Regulation 14A in a definitive Proxy Statement involving the election of
directors. Such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company will file with the Securities and Exchange Commission not later
than 120 days after March 31, 1996, the information required by this item with
respect to certain relationships and related transactions in an amendment to
this Report or pursuant to Regulation 14A in a definitive Proxy Statement
involving the election of directors. Such information is incorporated herein by
reference.

PART IV

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

(a) (1) AND (2) LIST OF FINANCIAL STATEMENTS

The response to this item is submitted as a separate section of this
Report. See the index on page F-1.

(3) EXHIBITS

The following exhibits are filed with this report:
<TABLE>
<CAPTION>

PAGE

<S> <C> <C> <C>
2.1 -- Takeover Offer to Holders of Ordinary Shares of Paxus Corporation
Limited (filed as Annex A of the Registrant's Proxy Statement for
the special meeting of stockholders held July 13, 1993, and
incorporated herein by reference)

2.2 -- Agreement dated September 30, 1993, by and among the Registrant,
Continuum Acquisition, Inc., Vantage Computer Systems, Inc., DST
Systems, Inc., and Robert S. Maltempo (filed as Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated September 30,
1993, and incorporated herein by reference)

2.3 -- Plan and Agreement of Merger dated September 30, 1993, by and
between Continuum Acquisition, Inc. and Vantage Computer Systems,
Inc. (filed as Exhibit 2.2 to the Registrant's Current Report on
Form 8-K dated September 30, 1993, and incorporated herein by
reference)

2.4 -- Acquisition Agreement of 100% of the Issued Shares of SOCS
Holding dated December 19, 1995, by and among Registrant,
Jean-Michel Renck, Jean-Louis Rossignol, and Jean-Charles
Miginiac (filed as Exhibit 2.1 of the Registrant's Current Report
on Form 8-K dated January 12, 1996, and incorporated herein by
reference)

2.5 -- Plan and Agreement of Merger dated December 10, 1995, as
amended, by and among the Registrant, Continuum Acquisition
Corporation and Hogan Systems, Inc. (filed as Appendix I to the
Registrant's Registration Statement on Form S-4 (No. 33-65405),
and incorporated herein by reference)

2.6 -- Agreement and Plan of Merger dated April 28, 1996, among the
Registrant, Computer Sciences Corporation and Continental
Acquisition, Inc. (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated April 28, 1996, and incorporated
herein by reference)

3.1 -- Certificate of Incorporation of the Registrant and Amendment
thereto (filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994, and
incorporated herein by reference

3.2 -- Bylaws of the Registrant, as amended S-1

10.1 -- Lease Agreement dated June 11, 1985, between the Registrant and
Crow - Gottesman - Buchanan #3 (filed as an Exhibit to the
Registrant's Current Report on Form 8-K dated June 13, 1985, and
incorporated herein by reference)

10.2* -- Registrant's 1983 Incentive Stock Option Plan (filed as Annex A
of the Registrant's Proxy Statement for the fiscal year ended
March 31, 1990, and incorporated herein by reference)

10.3* -- Stock Option Agreement dated September 19, 1989, between the
Registrant and W. Michael Long (filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1990, and incorporated herein by reference)

10.4* -- Stock Option Agreement dated February 1, 1990, between the
Registrant and E. Lee Walker (filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994, and incorporated herein by reference)

10.5* -- Registrant's 1990 Restricted Stock and Bonus Plan (filed as
Annex A of the Registrant's Proxy Statement for the fiscal year
ended March 31, 1990, and incorporated herein by reference)

10.6* -- Registrant's 1992 Stock Option Plan (filed as Annex A of the
Registrant's Proxy Statement for the fiscal year ended March 31,
1992, and incorporated herein by reference)

10.7* -- Registrant's 1994 Directors Stock Option Plan (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994, and incorporated herein by
reference)

10.8* -- Registrant's 1994 Incentive Stock Plan (filed as an Exhibit to
the Registrant's Proxy Statement for the fiscal year ended March
31, 1994, and incorporated herein by reference)

10.9* -- Registrant's 1995 Directors' Stock Option Plan (filed as an
Exhibit of the Registrant's Registration Statement on Form S-8
(No. 33-61733), and incorporated herein by reference)

10.10* -- Stock Option Agreement dated April 1, 1996, between the
Registrant and Michael H. Anderson S-2

10.11 -- Data Processing Services Agreement dated September 30, 1993, by
and between the Registrant and DST Systems, Inc. (filed as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated herein by
reference)

10.12 -- Software License Distribution Agreement dated September 30, 1993,
by and between the Registrant and DST Systems, Inc. (filed as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated herein by
reference)

10.13* -- Description of Compensatory Arrangement between the Registrant
and Edward C. Stanton, III S-7

21.1 -- Subsidiaries of the Registrant S-8

23.1 -- Consent of Independent Auditors S-10

23.2 -- Consent of Independent Accountants S-11
</TABLE>

* Indicates Registrant's management compensation plans

The Registrant will furnish a copy of each long-term debt instrument to the
Commission upon request.

(b) REPORTS ON FORM 8-K

Reports on Form 8-K filed by the Registrant during the last quarter covered
by this report:

Form 8-K reporting date - December 28, 1995
Items reported: Acquisition of SOCS Holding

Form 8-K reporting date - March 15, 1996
Items reported: Acquisition of Hogan Systems, Inc.

Form 8-K reporting date - April 28, 1996
Items reported: Execution of an agreement whereby the Company would be
acquired by Computer Sciences Corporation

<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

THE CONTINUUM COMPANY, INC.
By: JOHN L. WESTERMANN III
Vice President, Chief Financial Officer

Dated: May 20, 1996

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

SIGNATURE TITLE DATE

Ronald C. Carroll Chairman of the Board
of Directors

LOWELL C. ANDERSON Director

THOMAS G. BROWN Director

W. MICHAEL LONG President, Chief Executive
Officer and Director

THOMAS A. MCDONNELL Director

CARL S. QUINN Director May 20, 1996

EDWARD C. STANTON, III Director

E. LEE WALKER Director

JOHN L. WESTERMANN III Chief Financial Officer
and Treasurer (Principal
Financial Officer)

LOU ANNE GILMORE Vice President and Controller
(Principal Accounting Officer)

By: JOHN L. WESTERMANN III Attorney-in-fact

THE CONTINUUM COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this report in response to Item
14(a)(1) and (2):

PAGE

1. Financial Statements

Report of Independent Auditors ..........................................F-2
Consolidated Statements of Operations -- three years
ended March 31, 1996 .................................................F-4
Consolidated Balance Sheets -- March 31, 1996 and 1995 ..................F-5
Consolidated Statements of Cash Flows -- three years
ended March 31, 1996 .................................................F-7
Consolidated Statements of Stockholders' Equity -- three
years ended March 31, 1996 ...........................................F-8
Notes to Consolidated Financial Statements ..............................F-10

2. All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are addressed within the
notes to consolidated financial statements, are not required under the related
instructions or are inapplicable, and therefore have been omitted.

<PAGE>

REPORT OF INDEPENDENT AUDITORS

STOCKHOLDERS AND BOARD OF DIRECTORS
The Continuum Company, Inc.

We have audited the consolidated financial statements of The Continuum
Company, Inc. listed in the accompanying index to financial statements (Item
14(a)). The consolidated financial statements give retroactive effect to the
acquisition of Hogan Systems, Inc. in March 1996, which has been accounted for
using the pooling of interests method as described in the notes to the
consolidated financial statements. These financial statements are the
responsibility of the management of The Continuum Company, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1995 and 1994 financial statements of Hogan
Systems, Inc., which statements reflect total assets constituting 33% as of
March 31, 1995 and net income constituting approximately 19% and 27% for the
years ended March 31, 1995 and 1994, respectively, of the related consolidated
financial statement totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for Hogan Systems, Inc. for 1995 and 1994, is based solely on the
report of other auditors.

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

In our opinion, based on our audits, and for 1995 and 1994 the report of
other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Continuum Company, Inc. at March 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1996, after giving effect to the merger of Hogan Systems,
Inc., as described in the notes to the consolidated financial statements, in
conformity with generally accepted accounting principles.

As described in Note 1 to the consolidated financial statements, during the
year ended March 31, 1994, The Continuum Company, Inc. changed its method of
accounting for income taxes.

ERNST & YOUNG LLP

Austin, Texas
May 1, 1996

F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Hogan Systems, Inc.

In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of cash flows and of changes in shareholders' equity as of
and for each of the two years in the period ended March 31, 1995 (not presented
separately herein) present fairly, in all material respects, the financial
position, results of operations and cash flows of Hogan Systems, Inc. and its
subsidiaries (Hogan) as of and for each of the two years in the period ended
March 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Hogan's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Hogan for
any period subsequent to March 31, 1995.

PRICE WATERHOUSE LLP

Dallas, Texas
April 21, 1995

F-3
<PAGE>
<TABLE>
<CAPTION>

THE CONTINUUM COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED MARCH 31,
----------------------------------------------------
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenue
Service revenues .......................................... $ 466,824,000 $ 380,398,000 $ 281,832,000
Software system licensing ................................. 31,514,000 35,126,000 31,888,000
Interest income ........................................... 1,128,000 919,000 1,714,000
--------------- -------------- ---------------
499,466,000 416,443,000 315,434,000

Expenses
Service expenses .......................................... 357,525,000 288,246,000 214,519,000
Marketing and administration .............................. 97,446,000 78,517,000 72,649,000
Interest expense .......................................... 2,904,000 2,578,000 3,836,000
Restructuring and other costs ............................. 50,053,000 -- 32,629,000
Charge for purchased research and development ............. 26,000,000 -- 15,963,000
--------------- -------------- --------------
533,928,000 369,341,000 339,596,000
--------------- -------------- --------------

Income (loss) before income taxes ........................... (34,462,000) 47,102,000 (24,162,000)
Income tax (benefit) provision .............................. (2,201,000) 14,604,000 (654,000)
--------------- -------------- -------------
Net income (loss) ........................................... $ (32,261,000) $ 32,498,000 (23,508,000)
=============== ============== =============

Net income (loss) per common share .......................... $ (1.35) $ 1.37 $ (1.10)
=============== ============== ===============

Average common shares outstanding ........................... 23,879,000 23,700,000 21,390,000
=============== ============== ===============

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

F-4
<PAGE>
<TABLE>
<CAPTION>

THE CONTINUUM COMPANY, INC.
CONSOLIDATED BALANCE SHEETS

MARCH 31,
----------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................................................... $ 9,006,000 $ 52,289,000
Receivables, net of allowance for doubtful accounts of
$9,339,000 and $1,822,000, respectively ................................... 155,212,000 118,639,000
Deferred tax asset .......................................................... 22,233,000 6,579,000
Other ....................................................................... 16,216,000 10,732,000
-------------- --------------
202,667,000 188,239,000
-------------- --------------
Property and equipment
Land and building ........................................................... 24,130,000 17,926,000
Furniture and equipment ..................................................... 69,088,000 59,539,000
Leasehold improvements ...................................................... 9,063,000 11,586,000
-------------- --------------
102,281,000 89,051,000
Less allowance for depreciation ............................................. 63,024,000 54,919,000
-------------- --------------
39,257,000 34,132,000
Software systems, net of accumulated amortization of
$50,012,000 and $39,179,000, respectively .................................. 25,307,000 46,327,000
Goodwill, net of accumulated amortization of
$2,969,000 and $1,261,000, respectively ..................................... 37,137,000 15,995,000
Other ......................................................................... 35,913,000 11,688,000
-------------- --------------
TOTAL ASSETS .................................................................. $ 340,281,000 $ 296,381,000
============== ==============

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

F-5
<PAGE>
<TABLE>
<CAPTION>
THE CONTINUUM COMPANY, INC.
CONSOLIDATED BALANCE SHEETS

MARCH 31,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ......................................................... $ 35,099,000 $ 24,498,000
Accrued compensation ..................................................... 26,399,000 23,704,000
Deferred revenue ......................................................... 40,615,000 28,733,000
Taxes payable ............................................................ 15,496,000 10,355,000
Notes payable and current portion of long-term debt ...................... 8,031,000 2,742,000
Accrued restructuring costs .............................................. 10,092,000 1,993,000
Other .................................................................... 32,957,000 15,998,000
-------------- --------------
168,689,000 108,023,000
-------------- --------------

Other obligations
Deferred revenue ......................................................... 1,725,000 3,092,000
Long-term debt ........................................................... 21,163,000 25,379,000
Deferred income taxes .................................................... 11,537,000 10,505,000
Other .................................................................... 25,724,000 10,421,000
-------------- --------------
60,149,000 49,397,000
-------------- --------------

Stockholders' equity
Preferred Stock, $0.01 par value, issuable in series,
authorized and unissued 5,000,000 shares ............................... -- --
Common Stock, $0.10 par value, authorized 40,000,000 shares;
24,220,487 and 23,940,898 issued, respectively ......................... 2,422,000 2,394,000
Capital in excess of par value ........................................... 170,404,000 166,573,000
Retained deficit ......................................................... (55,777,000) (22,120,000)
Unearned restricted stock ................................................ (607,000) (852,000)
Common Stock in treasury, at cost; 63,970 and 280,685
shares, respectively ................................................... (134,000) (5,982,000)
Notes receivable for Common Stock sold to employees ...................... (4,865,000) (1,052,000)
-------------- --------------
111,443,000 138,961,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 340,281,000 $ 296,381,000
============== ==============

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

F-6
<PAGE>
<TABLE>
<CAPTION>
THE CONTINUUM COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED MARCH 31,
-----------------------------------------------------
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .......................................................... $ (32,261,000) $ 32,498,000 $ (23,508,000)
Items included in income (loss) which do not affect cash:
Amortization of software systems and other assets ........................ 13,531,000 8,146,000 7,683,000
Depreciation and amortization of property and equipment .................. 10,521,000 9,469,000 8,215,000
Deferred income taxes .................................................... (13,242,000) 4,548,000 (2,871,000)
Restructuring and other costs ............................................ 47,186,000 -- 8,600,000
Purchased research and development ....................................... 26,000,000 -- 15,963,000
Changes in operating assets and liabilities:
(Increase) in receivables ................................................ (38,167,000) (11,350,000) (27,722,000)
(Increase) in research and development venture, net ...................... -- (1,411,000) (9,889,000)
Increase in accounts payable ............................................. 7,273,000 5,025,000 1,331,000
Increase in deferred revenue ............................................. 11,286,000 201,000 3,887,000
(Increase) decrease in other net assets .................................. (13,324,000) 4,971,000 14,079,000
--------------- -------------- --------------
Net Cash Provided (Used) by Operating Activities ....................... 18,803,000 52,097,000 (4,232,000)
--------------- -------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, equipment and purchased software .................... (16,007,000) (14,149,000) (12,998,000)
Additions to capitalized software .......................................... (5,618,000) (13,170,000) (17,171,000)
Decrease in short-term investments ......................................... -- -- 13,874,000
Purchase of businesses, net of cash received ............................... (43,821,000) -- 158,000
Purchase of marketing and support rights ................................... -- -- (6,000,000)
--------------- -------------- --------------
Net Cash (Used) by Investing Activities .................................. (65,446,000) (27,319,000) (22,137,000)
--------------- -------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ....................................... (45,940,000) (3,025,000) (24,106,000)
Proceeds from long-term debt ............................................... 43,541,000 8,920,000 --
Dividends paid ............................................................. -- (2,443,000) (2,510,000)
Common Stock transactions .................................................. 5,723,000 4,505,000 415,000
--------------- -------------- ---------------
Net Cash Provided (Used) by Financing Activities ......................... 3,324,000 7,957,000 (26,201,000)
--------------- -------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................................... 36,000 (1,484,000) (1,955,000)
--------------- -------------- ---------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................. (43,283,000) 31,251,000 (54,525,000)
Cash and Cash Equivalents at Beginning of Period ............................. 52,289,000 21,038,000 75,563,000
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................... $ 9,006,000 $ 52,289,000 $ 21,038,000
=============== ============== ===============

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

F-7
<PAGE>
<TABLE>
<CAPTION>
THE CONTINUUM COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

NOTES
COMMON STOCK CAPITAL IN UNEARNED COMMON RECEIVABLE
------------------------ EXCESS OF RETAINED RESTRICTED STOCK IN FOR STOCKHOLDERS'
SHARES ISSUED AMOUNT PAR VALUE DEFICIT STOCK TREASURY SHARES SOLD EQUITY
------------- ---------- ------------ ------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
MARCH 31, 1993 ... 19,330,569 $1,933,000 $116,168,000 $(26,680,000) $(1,465,000) $(130,000) $(3,198,000) $86,628,000
Issuance of Common
Stock for
acquisition ...... 4,000,000 400,000 39,900,000 40,300,000
Acquisition of
treasury shares (5,855,000) (5,855,000)
Granting of
restricted stock,
net of forfeiture,
amortization
of $494,000 ...... 15,800 2,000 350,000 109,000 461,000
Hogan dividend (2,510,000) (2,510,000)
Exercise of stock
options and employee
stock plan ....... 425,360 43,000 7,328,000 7,371,000
Translation adjustment (403,000) (403,000)
Repayment of
notes receivable 487,000 487,000
Net loss for the year (23,508,000) (23,508,000)
---------- --------- ----------- ------------ ----------- ----------- ----------- ------------
BALANCE AT
MARCH 31, 1994 ... 23,771,729 2,378,000 163,746,000 (53,101,000) (1,356,000) (5,985,000) (2,711,000) 102,971,000
---------- --------- ----------- ------------ ----------- ----------- ----------- ------------
Exercise of stock
options and employee
stock plan ....... 173,264 16,000 2,913,000 2,929,000
Amortization of
restricted stock 504,000 504,000
Hogan dividend (2,443,000) (2,443,000)
Cancellation of
stock subscription (4,095) (80,000) (80,000)
Issuance of treasury
shares ........... (6,000) 3,000 (3,000)
Translation adjustment 926,000 926,000
Repayment of
notes receivable 1,659,000 1,659,000
Net income for the year 32,498,000 32,498,000
---------- --------- ----------- ------------ --------- ----------- ----------- ------------
BALANCE AT
MARCH 31, 1995 ... 23,940,898 2,394,000 166,573,000 (22,120,000) (852,000) (5,982,000) (1,052,000) 138,961,000
---------- --------- ----------- ------------ --------- ----------- ----------- ------------

F-8
<PAGE>
Granting of restricted
stock, net of
amortization
of $445,000 ...... 5,228 1,000 199,000 245,000 445,000
Exercise of stock
options and employee
stock plan ....... 491,112 49,000 9,458,000 (3,888,000) 5,619,000
Retirement of
treasury shares .. (216,751) (22,000) (5,826,000) 5,848,000 --
Translation adjustment,
cumulative loss
of $6,675,000 .... (1,396,000) (28,000) (1,424,000)
Repayment of
notes receivable 103,000 103,000
Net loss for the year (32,261,000) (32,261,000)
---------- ---------- ------------ ------------- ---------- ---------- ------------ ------------
BALANCE AT
MARCH 31, 1996 ... 24,220,487 $2,422,000 $170,404,000 $(55,777,000) $(607,000) $(134,000) $(4,865,000) $111,443,000
========== ========== ============ ============= ========== ========== ============ ============

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

F-9
<PAGE>

THE CONTINUUM COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

The consolidated financial statements include the accounts of The Continuum
Company, Inc. (the "Company") and its subsidiaries. Intercompany accounts and
transactions have been eliminated upon consolidation.

DESCRIPTION OF BUSINESS

The Company's revenues are principally derived from providing outsourcing
services, including third party administrative services, to the financial
services industry, licensing sophisticated financial services software systems,
and providing related software development, installation, customization,
enhancement, and maintenance services.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in particular estimates of anticipated contract costs utilized in
the revenue recognition process, that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of foreign operations are translated into United
States dollars using exchange rates prevailing at the balance sheet date. Income
and expense accounts are translated at the average exchange rate for the year.
Resulting translation adjustments are included in retained earnings. Transaction
gains or losses, including those arising from intercompany transactions, which
are not material, are included in marketing and administration expenses of the
period in which they occur.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and include amounts recorded
under capital leases. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets. The useful lives utilized range
primarily from two to forty years. Leasehold improvements are amortized using
the straight-line method over the lesser of the estimated useful lives of the
assets or the term of the related leases and such amortization is included in
depreciation and amortization of property and equipment.

F-10
<PAGE>
SOFTWARE SYSTEMS

Purchased software systems are recorded at cost and are amortized over
their estimated economic lives of three to five years. Costs of internally
developed software systems incurred subsequent to establishing technological
feasibility are capitalized. Amortization of internally developed or acquired
software systems is provided on a product by product basis at the greater of
amortization based on the estimated revenues of the products or the
straight-line amortization over the estimated economic lives of the products,
generally ten years. At March 31, 1996, the Company's principal software systems
have remaining estimated economic lives of four to ten years.

Hogan capitalized internally developed software in fiscal 1996, 1995 and
1994 of $5,618,000, $13,170,000 and $17,171,000, respectively. Amortization of
capitalized internally developed software in fiscal 1996, 1995 and 1994 was
$5,821,000, $2,155,000 and $641,000, respectively. Amortization of all software
systems for the years ended March 31, 1996, 1995 and 1994 was $10,833,000,
$6,429,000 and $7,105,000, respectively, and is included in service expenses.

In March 1996, $20,200,000 of capitalized software was written off to
reflect a decline in net realizable value associated primarily with changes in
market conditions and changes in business strategy relating to the Company's
banking products.

RESEARCH AND DEVELOPMENT

Research and development costs, including software development costs
incurred prior to technological feasibility, are expensed as incurred. A
substantial portion of the Company's research and development is fully or
partially funded by customers through various programs, including product
support and shared-cost arrangements. Costs totaled $94,981,000, $67,067,000 and
$62,744,000 for the fiscal years ended March 31, 1996, 1995 and 1994,
respectively, and are included in service expenses. Revenues derived from
customer-related research and development are included in service revenues.

GOODWILL

Goodwill represents the excess of the purchase price of acquired business
over the fair value of the identifiable net assets acquired and is amortized on
a straight-line basis over the expected period of benefit, generally twenty
years. Amortization of goodwill for the fiscal years ended March 31, 1996, 1995,
and 1994 was $1,708,000, $853,000 and $578,000, respectively, and is included in
marketing and administration expenses.

RECOGNITION OF REVENUE

Service revenues including outsourcing services, systems installations,
computer processing, education, consulting, and development and enhancements
under product support, shared-costs, and other arrangements are recognized as
the services are performed, or upon the completion of specific contractual
events, or based on an estimated percentage of completion as work progresses.
Projected losses, if any, are recognized when they become identified. Service
revenues under maintenance contracts are recognized pro rata over the life of
the contracts.

F-11
<PAGE>
Software systems license revenue is recognized when the license is not
cancelable, the software has been delivered, collectibility of the license fee
is assured, and no significant future obligation exists. Revenues are recorded
net of royalties. Where customer acceptance is subject to significant future
events, revenue is deferred. Revenue from significant software development
contracts is recognized based on an estimated percentage of completion as the
work progresses. Projected losses, if any, are recognized when they become
identified.

Deferred revenue consists primarily of advances on certain software and
installation contracts and payments in excess of revenue recognized on
maintenance and development contracts.

EARNINGS PER COMMON SHARE

Earnings per common share are based on the weighted average of common
shares outstanding during the period. Common Stock equivalents have been
excluded in the year ended March 31, 1996 because the Company reflected a loss
for the year. Common Stock equivalents were excluded in the previous year due to
immateriality.

CASH EQUIVALENTS

All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents.

RECLASSIFICATIONS

For comparative purposes, certain reclassifications have been made to
amounts presented for fiscal years prior to 1996.

INCOME TAXES

Effective April 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires the use of the
liability method. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting and tax purposes at the rates expected to be in effect when the
deferred taxes are realized.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company will adopt Statement No. 121 in fiscal 1997 and, based on current
circumstances, does not expect a material impact to the Company's results of
operations or financial position.

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options. The
Company must adopt the provisions of Statement No. 123 during the year ended
March 31, 1997. The Company continues to evaluate the provisions of the
statement and has not determined whether it will adopt the Statement for expense
recognition purposes.

NOTE 2: ACQUISITIONS

F-12
<PAGE>
RA GROUP LIMITED

On May 3, 1995, the Company acquired all of the outstanding shares of Ra
Group Limited ("Ra") for $10,823,000. A cash payment of $5,423,000 was remitted
at closing and the remainder was paid in January 1996. The acquisition was
accounted for using the purchase method and, accordingly, the operating results
of Ra have been included in the consolidated financial statements from the date
of acquisition. Ra's tangible assets, including cash of $2,970,000, were
recorded at their fair value of $7,242,000 and Ra's liabilities were recorded at
their fair value of $3,965,000. The excess of $7,546,000 was assigned to
goodwill. The acquisition did not have a material effect on operations.

SOCS HOLDING

On December 28, 1995, the Company acquired all of the shares of SOCS
Holding ("SOCS"), a Paris-based software and services company, for $37,600,000
in cash. SOCS is the leading provider of insurance application software and
related services to the French insurance industry. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
operating results of SOCS have been included in the consolidated financial
statements from the date of acquisition. SOCS' tangible assets were recorded at
their fair value of $11,100,000 and SOCS' liabilities were recorded at their
fair value of $17,200,000. The excess of the purchase price over the net assets
acquired totaled $43,700,000, with $2,400,000 assigned to purchased software,
$15,300,000 assigned to goodwill, and $26,000,000 assigned to purchased research
and development which was expensed in connection with the acquisition in fiscal
1996. The acquisition did not have a material effect on operations, except for
the effect of the charge for purchased research and development.

HOGAN SYSTEMS, INC.

On March 15, 1996, the Company acquired all of the outstanding shares of
Hogan Systems, Inc. ("Hogan") through the issuance of 4,813,541 shares of the
Company's Common Stock on approval by the Company's shareholders at a special
meeting held on March 15, 1996. The Company also assumed the outstanding Hogan
stock options equivalent to 504,578 options of the Company's Common Stock at an
average exercise price of $20.71. Hogan provides integrated software
applications and related consulting services to financial institutions
worldwide. Hogan is a wholly-owned subsidiary of the Company with operations in
Dallas, Texas; Frankfurt, Germany; London, England; and Melbourne, Australia.
The acquisition was accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the results of Hogan for all periods presented.

Components of the results of operations for the year ended March 31, 1996
are as follows (in thousands):

Restructuring
Continuum Hogan and other* Consolidated
--------- --------- ------------ -------------
Revenue $ 414,500 $ 84,966 $ - $ 499,466

Net income (loss) $ 34,525 $ (5,062) $ (61,724) $ (32,261)

* Includes a charge for purchased research and development of $26,000,000,
restructuring and other costs of $50,053,000 and associated tax benefits
of $14,329,000.

F-13
<PAGE>
PAXUS CORPORATION LIMITED

In August 1993, the Company issued 3,858,552 shares of its Common Stock for
all of the outstanding common stock of Paxus Corporation Limited of Sydney,
Australia ("Paxus"). Paxus develops and provides information technology and
services to the insurance, banking, health care, corporate and government
sectors in Australia, New Zealand, Asia, Europe and Canada. The acquisition was
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the results of
Paxus for all periods presented.

VANTAGE COMPUTER SYSTEMS, INC.

On September 30, 1993, the Company acquired all of the outstanding shares
of Vantage Computer Systems, Inc. ("Vantage") through the issuance of 4,000,000
shares of the Company's Common Stock (valued at $40,300,000) comprised of
2,939,000 shares issued on September 30, 1993, and 1,061,000 shares issued on
approval by the Company's shareholders at a special shareholders meeting held on
December 22, 1993. Vantage was a consulting and computer services company with
offices in Hartford, Connecticut and Kansas City, Missouri providing computer
software and services to the financial services industry.

The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Vantage have been included
in the consolidated financial statements from the date of acquisition. Vantage's
tangible assets were recorded at their estimated fair value of $14,293,000, and
Vantage's liabilities were recorded at their estimated fair value of
$13,599,000. The estimated excess of the purchase price over the net assets
acquired totaled $39,606,000, with $8,543,000 assigned to purchased software,
$17,255,000 assigned to goodwill, $2,155,000 assigned to deferred taxes, and
$15,963,000 assigned to purchased research and development, which was expensed
in connection with the acquisition.

NOTE 3: RESTRUCTURING AND OTHER CHARGES

In connection with the fiscal 1996 acquisitions discussed in Note 2, the
Company effected a plan to integrate, restructure and realign its expanded
business to better serve its customers and markets. During the year ended March
31, 1996, the Company charged to expense approximately $50,100,000 in
nonrecurring charges. The charges included transaction costs of $9,600,000 and
restructuring costs (including the consolidation of facilities and data
processing and employee terminations) of $9,800,000. At March 31, 1996,
$16,031,000 of restructuring and transaction costs are reflected in accrued
restructuring and other current liabilities. In addition, the Company recorded
noncash adjustments to the carrying value of certain operating assets of
$30,700,000. The adjustments to the carrying value of certain operating assets
includes capitalized software of $20,200,000 (see Note 1), allowances for
certain receivables of $8,700,000 and other intangibles of $1,800,000.

During the year ended March 31, 1994, in connection with the acquisitions
of Paxus and Vantage, the Company charged to expense approximately $23,700,000
in restructuring charges including $7,000,000 for facilities, $1,500,000 for
data center consolidation, $4,200,000 for employee reductions, $8,600,000 for
the write-down of certain operating assets and $2,400,000 in other costs. In
addition, the Company accrued approximately $8,900,000 for anticipated expenses
associated with changes in product strategy.

F-14
<PAGE>
NOTE 4: SEGMENTS OF BUSINESS AND GEOGRAPHIC AREA INFORMATION

The Company is engaged in the development and sale of software systems and
in the providing of services relating to such software, focusing primarily on
the financial services industry. The Company considers such business activities
to constitute a single segment of business.

A summary of the Company's operations by geographic area follows (in
thousands):
<TABLE>
<CAPTION>

YEAR ENDED MARCH 31,
-----------------------------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Revenue:
United States
Domestic ............................ $ 214,111 $ 176,505 $ 100,877
Export
Europe ........................... 983 275 2,334
Pacific Rim ...................... 1,152 12,351 11,907
Canada and Latin America ......... 23,539 23,596 14,788
----------- ----------- ------------
Total United States .................... 239,785 212,727 129,906
Europe ................................. 116,318 88,440 94,762
Pacific Rim ............................ 136,924 111,701 86,259
Canada and Latin America ............... 6,439 3,575 4,507
----------- ----------- ------------
Total ............................ $ 499,466 $ 416,443 $ 315,434
=========== =========== ============
Net income (loss):
United States .......................... $ (40,413) $ 19,646 $ (22,250)
Europe ................................. 3,520 6,278 6,008
Pacific Rim ............................ 4,312 6,380 (7,624)
Canada and Latin America ............... 320 194 358
----------- ----------- ------------
Total ............................ $ (32,261) $ 32,498 $ (23,508)
=========== =========== ============
Identifiable assets:
United States .......................... $ 189,025 $ 214,455 $ 155,867
Europe ................................. 100,607 44,251 51,198
Pacific Rim ............................ 49,929 37,058 46,642
Canada and Latin America ............... 720 617 3,473
----------- ----------- ------------
Total ............................ $ 340,281 $ 296,381 $ 257,180
=========== =========== ============
</TABLE>

F-15
<PAGE>
NOTE 5: NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt at March 31 consists of the following (in
thousands):

1996 1995
--------- ---------
Collateralized notes ............. $ 18,379 $ 19,052
Notes payable .................... 3,500 7,000
Revolving lines of credit ........ 7,001 1,920
Other obligations ................ 314 149
--------- ---------
29,194 28,121
Current maturities ............... (8,031) (2,742)
--------- ---------
Total long-term debt ............. $ 21,163 $ 25,379
========= =========

The collateralized notes are secured by a mortgage of real estate and an
assignment of the Company's lease of the building for its Austin, Texas
headquarters. Principal and interest are paid monthly with a final balloon
payment of $16,143,000 due on December 29, 1998. Interest accrues at prime plus
1.5% (9.75% at March 31, 1996 and 10.5% at March 31, 1995).

The $3,500,000 note payable outstanding at March 31, 1996 consists of
borrowings from a customer made in fiscal 1996 in connection with an outsourcing
agreement. The note is payable December 31, 2001 and interest accrues at 5% per
year. The note payable in fiscal 1995 consists of borrowings from a customer
made in fiscal 1995 in connection with an outsourcing services agreement and was
repaid in fiscal 1996.

In December 1995, the Company renewed and increased its $20,000,000
revolving bank line of credit to $60,000,000. The credit line expires on June
22, 1996. Under the terms of the agreement, the Company may borrow funds in U.S.
dollars or in optional foreign currencies. U.S. dollar borrowings bear interest
at the greater of the bank's prime lending rate or the federal funds rate plus
0.5%. Foreign currency borrowings bear interest at the Eurocurrency rate for
selected periods of one, two, or three months plus 1%. Additionally, the
agreement requires the Company to obtain approval for paying dividends and to
maintain certain minimum financial ratios. As of March 31, 1996, borrowings
outstanding in connection with this agreement were $7,001,000. There were no
borrowings outstanding in connection with this agreement as of March 31, 1995.

In March 1995, Hogan entered into a $20,000,000 unsecured revolving line of
credit, which expires on June 14, 1996. There were no borrowings outstanding in
connection with this agreement as of March 31, 1996. As of March 31, 1995,
borrowings outstanding in connection with this agreement were $1,920,000.

Interest expense, which approximates interest paid, for fiscal years March
31, 1996, 1995 and 1994 was $2,904,000, $2,578,000 and $3,836,000, respectively.

F-16
<PAGE>
Maturities of notes payable and long-term debt are as follows (in
thousands):

FISCAL YEAR
-----------
1997 .......... $ 8,031
1998 .......... 850
1999 .......... 16,813
Thereafter .... 3,500
---------
Total ......... $ 29,194
=========

The fair value of the Company's note payable and long-term debt at March
31, 1996 approximates their carrying value because substantially all the debt
has variable interest rates.

NOTE 6: COMMITMENTS

The Company leases a portion of its premises and equipment under terms
generally ranging from one to fifteen years with options for renewals for
additional periods. A summary of minimum lease commitments at March 31, 1996
that have initial or remaining lease terms in excess of one year follows (in
thousands):

FISCAL YEAR
-----------
1997 ................................... $ 19,914
1998 ................................... 13,292
1999 ................................... 9,508
2000 ................................... 6,762
2001 ................................... 5,670
Thereafter ............................. 23,432
-----------
Total minimum lease payments ........... $ 78,578
===========

Rental expense for all operating leases, including short-term rental
agreements, was $36,931,000, $26,410,000 and $25,466,000 for the fiscal years
ended March 31, 1996, 1995 and 1994, respectively. Leases for some office space
provide that the base rent may be increased to cover increased building
operating expenses.

Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company's
customer base includes significant, well-known life and general insurance
companies and banks in North America, Europe, Latin America, and the Pacific
Rim. Although the Company is directly affected by the financial well-being of
the insurance and banking industry, management does not believe significant
credit risks exist at March 31, 1996.

In September 1993, the Company entered into an agreement with a shareholder
(the former parent company of Vantage) to purchase data processing services at
commercial rates for a period of six years. During fiscal 1996, 1995 and 1994
the Company has incurred expenses of $22,647,000, $15,662,000 and $6,100,000,
respectively, for data processing and other consulting services, which are
included in service expenses. In addition, in fiscal 1994, the shareholder
assumed responsibility for the Company's capital leases of computer equipment
and purchased at book value certain of the Company's data processing assets.

F-17
<PAGE>
The Company is involved in various lawsuits and is subject to certain
contingencies incidental to its business, while the ultimate results of these
matters cannot be predicted with certainty, management does not expect them to
have a material adverse effect on the consolidated financial position or
operations of the Company.

NOTE 7: RESEARCH AND DEVELOPMENT VENTURE

During fiscal 1992, Paxus entered into an agreement with a financial
institution to complete the development of a new software application designed
for the insurance industry. Paxus licensed core technology to the financial
institution and acted as the contractor carrying out the development on behalf
of the investor. The agreement was renegotiated in fiscal 1995.

Prior to the renegotiation, Paxus had the exclusive rights to market the
new software application through March 31, 1998. During this period royalties
were payable to the financial institution based on each sale and a final royalty
payment, regardless of the level of sales achieved, was to be made on March 31,
1998.

During fiscal 1995, Paxus made payments of $20,963,000. As a result of the
renegotiation and reviews of anticipated future obligations, the Company
recognized a reduction of service expenses of $2,700,000 and $2,400,000 during
the fiscal years ended March 31, 1996 and 1995, respectively. At March 31, 1996,
the balance sheet includes in other liabilities approximately $1,200,000 of
anticipated future obligations under the agreement.

NOTE 8: INTANGIBLE ASSETS

Hogan acquired the marketing and support service rights to Hogan's
Integrated Banking Applications software and certain other products in the
United States, Canada, Puerto Rico and Latin America from International Business
Machines Corporation ("IBM") effective February 1, 1994 (marketing) and March 1,
1994 (maintenance and support). The Company is amortizing the rights over the
anticipated periods of benefit of 15 months and 12 years for the maintenance and
support and marketing rights, respectively. At March 31, 1996, $4,600,000 of
intangible assets is reflected in other assets. Amortization charged to expense
for these rights amounted to $540,000 in fiscal 1996 and $864,000 in fiscal
1995.

NOTE 9: RECEIVABLES

At March 31, 1996, approximately $6,154,000 of unbilled receivables
associated with long-term outsourcing contracts are included in other long-term
assets. The Company expects to bill and collect these amounts in fiscal 1998 and
1999.

The following table summarized the changes in the allowance for doubtful
accounts for the three fiscal years ended March 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at the beginning of the period .............. $ 1,822 $ 2,855 $ 2,221
Additions charged to costs and expenses .......... 7,386 1,223 1,424
Additions charged to other accounts .............. 345 834 226
Write-off of uncollectible receivables ........... (214) (3,090) (1,016)
-------- -------- --------
Balance at the end of the period .................... $ 9,339 $ 1,822 $ 2,855
======== ======== ========
</TABLE>
F-18
<PAGE>
NOTE 10: INCOME TAXES

The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal and state .................................. $ 4,151 $ 4,145 $ (3,337)
Foreign ............................................ 8,694 7,295 4,565
--------- -------- ---------
Total current ...................................... 12,845 11,440 1,228
--------- -------- ---------
Deferred:
Federal and state .................................. (11,874) 2,475 (1,025)
Foreign ............................................ (3,172) 689 (857)
--------- -------- ---------
Total deferred ..................................... (15,046) 3,164 (1,882)
--------- -------- ---------
Total provision (benefit) for income taxes .............. $ (2,201) $ 14,604 $ (654)
========= ======== =========
</TABLE>

The differences between the effective tax rate and the U.S. federal
statutory rate are reconciled as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
FEDERAL STATUTORY RATE 35% 34% 34%
Tax expense (benefit) at the federal statutory rate ...... $ (12,062) $ 16,015 $ (8,215)
State taxes, net of federal benefit ...................... 715 1,298 593
Effect of purchase accounting differences ................ 455 445 118
Foreign earnings at various tax rates .................... 2,167 1,776 1,542
Utilization of loss carry-forwards ....................... (4,399) (5,211) 89
Restructuring and purchased R&D .......................... 10,810 -- 6,034
R&D incentives ........................................... -- (477) (638)
Other .................................................... 113 758 (177)
---------- --------- ---------
Total provision (benefit) for income taxes ............... $ (2,201) $ 14,604 $ (654)
========== ========= =========
</TABLE>

F-19
<PAGE>
Components of the deferred tax assets and deferred tax liabilities as of
March 31 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax liabilities
Capitalization of software .......................... $ 5,133 $ 13,596 $ 10,047
Prepaids, deferred charges and other ................ 8,064 7,072 1,830
--------- --------- ---------
Total deferred tax liabilities ...................... 13,197 20,668 11,877
--------- --------- ---------
Deferred tax assets
Restructuring accrual ............................... 6,639 930 3,896
R&D venture ......................................... 2,371 4,164 3,474
Property plant and equipment ........................ 3,800 1,825 2,301
Accrued liabilities ................................. 3,761 7,697 5,475
Deferred revenue .................................... 5,581 658 267
Tax loss and credit carry-forwards .................. 5,999 12,935 18,673
Valuation allowance ................................. (3,594) (10,922) (21,042)
--------- --------- ---------
Total deferred tax assets ........................... 24,557 17,287 13,044
--------- --------- ---------
Net deferred tax assets (liabilities) ..................... $ 11,360 $ (3,381) $ 1,167
========= ========= =========
</TABLE>

The $7,328,000 and $10,120,000 decrease in the valuation allowance in
fiscal 1996 and 1995, respectively, relates to the utilization of foreign tax
loss carry-forwards and management's assessment of the adequacy of the
allowance. The $1,134,000 increase in valuation allowance in fiscal 1994 relates
primarily to additional foreign tax loss carry-forwards.

At March 31, 1996 and 1995 long-term deferred tax assets of approximately
$2,067,000, and $935,000, respectively, are presented with other (non-current)
assets. Current deferred tax liabilities at March 31, 1996 and 1995, presented
with other current liabilities, are approximately $1,403,000 and $390,000,
respectively.

At March 31, 1996, the Company had approximately $2,846,000 of foreign tax
operating loss carry-forwards. Approximately $1,798,000 of the tax net operating
loss carry-forwards are available indefinitely; the remaining $1,048,000 expire
beginning in fiscal 1997. These carry-forwards are subject to various foreign
rules which may restrict their utilization in future periods. As of March 31,
1996, the Company had approximately $4,876,000 of U.S. research and development
credits, which expire beginning in 1997. These credits are subject to separate
return and change of ownership limitations. The Company also has foreign capital
loss carry-forwards. The utilization of these carry-forwards is doubtful because
they are available only to offset capital gains.

F-20
<PAGE>
Deferred federal and foreign taxes are not provided on approximately
$32,134,000 of unremitted earnings of foreign subsidiaries as the earnings are
intended to be indefinitely reinvested. Under existing law, these earnings will
not be subject to U.S. tax until distributed as dividends. Any taxes paid to
foreign governments on those earnings may be used in whole or in part as credits
against the U.S. tax on the dividend distributions. It is not practicable to
estimate the amount of unrecognized deferred U.S. taxes on these undistributed
earnings.

Income tax payments, net of any refunds, made during the fiscal years ended
March 31, 1996, 1995 and 1994 were approximately $5,486,000, $4,591,000 and
$3,804,000, respectively.

At March 31, 1996, various income tax returns for prior years were under
examination by respective tax authorities. The Company does not expect material
adjustments from these examinations.

NOTE 11: INCENTIVE AND BENEFIT PLANS

The Company has a defined contribution employee retirement plan covering
substantially all U.S. employees. Contributions made pursuant to such plan are
calculated on the basis of the greater of a portion of employee compensation or
a portion of the income before taxes of the Company. Employee retirement plan
expense was $1,825,000, $2,107,000 and $1,564,000 for the fiscal years ended
March 31, 1996, 1995 and 1994, respectively. The Company does not provide
benefits other than pensions to retired employees.

The Company has a restricted stock and bonus plan for granting awards of
Common Stock to key employees subject to certain forfeiture restrictions and for
paying them cash bonuses coincident with such grants. The plan provides for the
issuance of up to 200,000 shares of which an aggregate of 162,828 shares net of
forfeiture were outstanding at March 31, 1996. Vesting occurs ratably over five
years from the grant date. Amortization of the unearned compensation was
$683,000, $755,000, and $748,000 for the fiscal years ended March 31, 1996, 1995
and 1994, respectively. Cash bonuses of $211,000, $77,000 and $332,000 were paid
during the fiscal years ended March 31, 1996, 1995 and 1994, respectively. Tax
deductions associated with the awards of Common Stock result in the Company
receiving current federal tax reductions approximating the cash bonuses paid.

The Company has a deferred compensation incentive plan to provide deferred
compensation to a limited number of executive officers of the Company in the
event that certain goals are attained as to pretax income amounts. Amounts
credited to participants do not vest for one year, at which time vesting and
payment occur at the rate of 25% per year. Deferred compensation awarded in
fiscal year 1996 and 1995 was $1,645,000 and $1,062,000, respectively.

Prior to its acquisition, Paxus sold common stock to employees and
directors in exchange for non-interest-bearing notes secured by the shares.
Payments received in fiscal 1996, 1995 and 1994 were $103,000, $1,659,000 and
$487,000, respectively. The notes are classified as a reduction of stockholders'
equity.

In November 1995, Hogan received recourse notes related to the exercise of
Hogan stock options totaling $3,888,000 from certain officers of Hogan. These
notes are also secured by shares of the Company's Common Stock and are
classified as a reduction of stockholders' equity.

F-21
<PAGE>
The Company has a number of Stock Option plans which provide for the
granting of options to directors, officers and key employees to purchase, after
a certain period of time, shares of the Company's Common Stock. As a result of
the acquisition of Hogan, the Company assumed the outstanding Hogan stock
options equivalent to 504,578 options of the Company's Common Stock at an
average exercise price of $20.71.

The maximum number of shares of the Company's Common Stock that will be
issued under all stock option plans is 3,478,990. In fiscal 1994 the Company
issued an option to purchase 200,000 shares of Common Stock at $25 per share
exercisable from October 1995 through September 1998.

Total option activity for the three fiscal years ended March 31, 1996, was
as follows:
<TABLE>
<CAPTION>
Number of
Shares Prices $
---------- ---------------
<S> <C> <C>
Outstanding March 31, 1993 ................... 1,563,439 3.00 - 32.94
Granted ...................................... 992,030 15.38 - 35.32
Exercised .................................... (391,825) 4.54 - 21.83
Expired ...................................... (157,020) 11.51 - 22.62
----------
Outstanding March 31, 1994 ................... 2,006,624 3.00 - 35.32
Granted ...................................... 761,872 12.00 - 26.25
Exercised .................................... (101,535) 4.54 - 30.56
Expired ...................................... (64,226) 11.51 - 35.32
----------
Outstanding March 31, 1995 ................... 2,602,735 3.00 - 35.32
Granted ...................................... 1,139,900 30.00 - 41.88
Exercised .................................... (410,729) 4.75 - 35.32
Expired ...................................... (21,560) 12.00 - 35.32
----------
Outstanding March 31, 1996 ................... 3,310,346 3.00 - 41.88
==========
Exercisable March 31, 1996 ................... 1,239,159 3.00 - 26.25
==========
</TABLE>

At March 31, 1996 and 1995, 168,644 and 787,411 shares of Common Stock,
respectively, were available for grant under the stock option plans discussed
above.

In addition, the Company has an Employee Stock Purchase Plan which provides
for the purchase of up to 300,000 shares of Common Stock by employees of the
Company. Substantially all employees are eligible to participate subject to
certain limitations. The plan provides for the semi-annual purchase of shares of
Common Stock at 85% of the lower of the fair market value of the Company's
Common Stock on the first or last day of the offering period. In fiscal years
1996, 1995 and 1994, employees purchased 80,383, 71,834 and 33,270 shares of
Common Stock, respectively, with net proceeds of $2,172,000, $1,208,000 and
$502,000, respectively.

F-22
<PAGE>
NOTE 12: SHAREHOLDERS' EQUITY

During fiscal 1994, Hogan repurchased 688,772 shares of Hogan stock,
equivalent to 216,963 shares of Continuum stock, from IBM for $5,855,000. These
shares were retired in fiscal 1996.

NOTE 13: QUARTERLY RESULTS (UNAUDITED)

The Company's unaudited quarterly results for the fiscal years ended March
31, 1996 and 1995 include the results of Hogan Systems, Inc. for all periods
presented. The quarterly results for fiscal 1996 have been restated to reflect
adjustments to conform the accounting practices of Hogan. The quarterly results
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>

FISCAL 1996 MARCH 31 DEC 31 SEP 30 JUNE 30
----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenue .................................... $ 132,114 $ 126,570 $ 124,204 $ 116,578
Expenses ................................... 179,221 139,077 110,857 104,773
Net income (loss) .......................... (33,410) (16,291) 9,216 8,224
Earnings (loss) per common share ........... (1.38) (0.68) 0.37 0.33

FISCAL 1995 MARCH 31 DEC 31 SEP 30 JUNE 30
----------- ---------- ---------- --------- ---------
Revenue .................................... $ 119,921 $ 102,879 $ 100,498 $ 93,145
Expenses ................................... 103,461 92,541 88,872 84,467
Net income ................................. 12,042 7,155 7,621 5,680
Earnings per common share .................. 0.51 0.30 0.32 0.24
</TABLE>

NOTE 14: PROPOSED MERGER

F-23
<PAGE>

EXHIBIT 3.2

AMENDMENT TO THE
COMPANY'S BYLAWS

ADOPTED JULY 19, 1994

RESOLVED, that the Section 3.2 of the Company's Bylaws be
amended in its entirety as follows:

Section 3.2 Number and Term. The number of directors shall be set
by resolution of the Board of Directors and may be increased or
decreased (provided such decrease does not shorten the term of any
incumbent director) from time to time by resolution; provided,
however, that the number of directors shall never be less than
three (3) nor more than ten (10). Directors need not be
Stockholders. No decrease in the number of directors shall have
the effect of shortening the term of office of any incumbent
director. Directors shall be elected by the Stockholders at each
annual meeting. Unless removed in accordance with the provisions
of these Bylaws or the Certificate of Incorporation, each director
shall hold office until the next annual meeting of Stockholders
and until his successor shall have been elected and qualified.

S-1
<PAGE>

EXHIBIT 10.10

NONQUALIFIED STOCK OPTION AGREEMENT

The Continuum Company, Inc. a Delaware corporation (the "Company"), and
MICHAEL H. ANDERSON (the "Employee") make this Agreement as of the 1st day of
April, 1996 (the "Grant Date") by affording Employee the opportunity to purchase
shares of common stock of the Company ("Stock").

1. GRANT OF OPTION. The Company grants Employee the option ("Option") to
purchase all or any part of an aggregate of 100,000 shares of Stock, subject to
the vesting schedule stated in Section 3 and to the other terms and conditions
of this Agreement. This Option shall not be treated as an incentive stock option
within the meaning of section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code").

2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $42.50 per share.

3. EXERCISE OF OPTION. This Option shall vest (i.e. become exercisable) as
to fifty thousand (50,000) shares of Stock on the first anniversary of the Grant
Date and fifty thousand (50,000) shares on the second anniversary, provided
Employee remains an employee of the Company. However, if the closing price of
Stock, as quoted on the New York Stock Exchange, is equal to or greater than
$70.00 per share for any twenty-two consecutive trading days during the term of
this Option Agreement, the Option shall become immediately exercisable as to
one-half of the then unvested portion, and the remaining unvested Stock shall
continue to vest at the rate of fifty percent (50%) of the number of shares of
Stock stated in Section 1 above on each anniversary of the Grant Date until the
Option is fully vested. If the closing price of Stock, as quoted on the New York
Stock Exchange, is equal to or greater than $85.00 per share for any twenty-two
consecutive trading days during the term of this Option Agreement, the Option
shall become immediately exercisable in full. The acceleration rights stated in
this Section shall lapse if not invoked prior to any termination of Employee's
employment, including a termination due to disability or retirement (as defined
below).

Employee may not transfer this Option except by will or by the laws of
descent and distribution. Only Employee may exercise this Option during
Employee's lifetime.

This Option may be exercised only while Employee remains an employee of the
Company and will terminate and cease to be exercisable immediately upon
Employee's termination of employment with the Company, except that:

(a) If Employee's employment with the Company terminates by reason of
disability (as used herein, disability shall be within the meaning of
Section 22(e)(3) of the Code), unless Employee requests acceleration as
provided in (c) below, the Option will continue to become exercisable as if
Employee remained employed by the Company; provided, however, that the
Option shall expire immediately in the event that Employee participates
within the United States as an employee, agent, or consultant, in any
enterprise that develops or markets computer software or computer related
services to any industry served by the Company if the software or services
developed or marketed by such enterprise serve, for the end user, any of

S-2
<PAGE>
the functions served by the Company's software or services (excluding any
of the Company's software or services for which Employee has had no
material access to confidential information and no material participation
in marketing, development, or delivery), or software or services (excluding
any of the Company's software of services for which Employee has had no
material access to confidential information and no material participation
in marketing development, or delivery) that, to Employee's knowledge, the
Company is actively planning to develop or market (collectively referred to
herein as "Restricted Activities").

(b) If Employee's employment with the Company terminates by reason of
retirement (meaning voluntary termination after age 60 years), the Option
will continue to become exercisable as if Employee remained employed by the
Company; provided, however, that the Option shall expire immediately in the
event that Employee engages in any of the Restricted Activities.

(c) In the event of Employee's disability (as defined above), Employee has
the right to request in writing that all of the unvested portion of the
Option immediately vest as of the date of disability. The request must be
made during a period of disability. Immediate acceleration of any unvested
Option would be contingent upon Employee agreeing in writing that, until
the tenth anniversary of the Grant Date, Employee will not participate in
any of the Restricted Activities. In the event that Employee does
participate in a Restricted Activity within ten years of the Grant Date,
then Employee agrees to immediately pay to the Company an amount equal to
the fair market value, as of the date of disability, of the number of
shares of Stock underlying the portion of the Option in which vesting was
accelerated under this provision. The fair market value of such Stock shall
equal the closing price of the Stock as of the date of disability less the
Option exercise price.

(d) If Employee dies while in the employ of the Company, this Option shall
become exercisable as of the date of death in full (less the number of
shares for which this Option has been exercised before death), and
Employee's estate or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the death of
Employee may exercise this Option at any time until the first anniversary
of the date of death.

(e) If Employee's employment with the Company is terminated (which for
purposes of this 3(e) shall include any voluntary or involuntary
termination of employment following either a material reduction in the
Employee's compensation or a material reduction in the Employee's duties or
responsibilities) by the Company other than for "cause" (as defined in 3(f)
below) within two years after a "change in control" (as defined below) of
the Company, this Option shall become exercisable as of the date of such
termination in full (less the number of shares for which this Option has
been exercised before such termination), and Employee (or Employee's estate
or the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Employee) may exercise
this Option at any time until the tenth anniversary of the Grant Date.
"Change of Control" shall mean and shall be deemed to have taken place if
(i) any third person or entity other than DST Systems, Inc., including a
"group" as contemplated by Section 13(d)(3) of the Securities Exchange Act
of 1934 (together with all persons or entities controlling, controlled by
or under common control with such person, entity or group), purchases or,
as a result of a tender offer, exchange offer, merger, consolidation, or

S-3
<PAGE>
other transaction acquires, beneficial ownership or control (including,
without limitation, the power to vote) of shares of capital stock of the
Company having thirty percent (30%) or more of the number of votes that may
be cast for the election of directors of the Company or (ii) as a result
of, or in connection with a contested election for directors, a number of
directors equal to a majority of the Board of Directors of the Company
before such election cease to be members of the Board of Directors of the
Company. In the case of DST Systems, Inc., a "Change of Control" shall be
deemed to have taken place if DST Systems, Inc. (together with all persons
or entities controlling, controlled by or under common control with DST
Systems, Inc.) purchases or, as a result of a tender offer, exchange offer,
merger, consolidation, or other transaction acquires, beneficial ownership
or control (including, without limitation, the power to vote) of shares of
capital stock of the Company having thirty-two percent (32%) or more of the
number of votes that may be cast for the election of directors of the
Company. The date of occurrence of a "Change of Control" shall mean the
date of occurrence of the specified event constituting such "Change of
Control." If more than one event constituting a "Change of Control" occurs,
the date of the "Change of Control" for purposes of the Plan shall be the
first to occur of such events.

(f) If Employee's employment with the Company terminates for any reason
other than as described in (a) - (e) above, this Option may be exercised by
Employee at any time during the period of three (3) months following such
termination, or by Employee's estate (or the person who acquires this
Option by will or the laws of descent and distribution or otherwise by
reason of the death of Employee) during a period of one (1) year following
Employee's death if Employee dies during such three-month period. This
exception shall not apply if Employee voluntarily terminates without the
written consent of the Company or is terminated for cause. For purposes of
this Agreement, "cause" shall mean Employee's gross negligence or willful
misconduct in performance of the duties of Employee's employment, or
Employee's final conviction of a felony or of a misdemeanor involving moral
turpitude.

This Option shall not be exercisable in any event after the tenth
anniversary of the Grant Date. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise in
cash (including check, bank draft or money order payable to the order of
the Company). Employee must exercise its Option as to whole shares of
Stock; no fraction of a share of Stock shall be issued by the Company upon
exercise of an Option. Unless and until a certificate or certificates
representing such shares shall have been issued by the Company to Employee,
Employee (or the person permitted to exercise this Option in the event of
Employee's death) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an
exercise of this Option.

4. WITHHOLDING OF TAX. If the exercise of this Option or the disposition of
shares of Stock acquired by exercise of this Option results in compensation
income to Employee for federal or state income tax purposes, Employee shall pay
to the Company at the time of such exercise or disposition such amount as the
Company may require to meet its withholding obligation arising from such income
under applicable tax laws, regulations, or rulings.

S-4
<PAGE>
5. STATUS OF STOCK. The Company intends to register for issuance under the
Securities Act of 1933, as amended (the "Act") the shares of Stock acquirable
upon exercise of this Option, and to keep such registration effective throughout
the period this Option is exercisable. In the absence of such effective
registration or an available exemption from registration under the Act, issuance
of shares of Stock acquirable upon exercise of this Option will be delayed until
registration of such shares is effective or an exemption from registration under
the Act is available. The Company intends to use its best efforts to ensure that
no such delay will occur. In the event exemption from registration under the Act
is available upon an exercise of this Option, Employee (or the person permitted
to exercise this Option in the event of Employee's death or incapacity), if
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.

Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee (as defined in the Plan) deems appropriate in order to assure
compliance with applicable securities laws, (ii) that the Company may refuse to
register the transfer of the shares of Stock purchased under this Option on the
stock transfer records of the Company if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of any
applicable securities law, and (iii) that the Company may give related
instructions to its transfer agent, if any, to stop registration of the transfer
of the shares of Stock purchased under this Option.

6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall
be considered to be in the employment of the Company as long as Employee remains
an employee of either the Company, a parent or subsidiary corporation (as
defined in Section 424 of the Code) of the Company, or a corporation or a parent
or subsidiary of such corporation assuming or substituting a new option for this
Option. Any question as to whether and when there has been a termination of such
employment, and the cause of such termination, shall be determined by the
Committee, and its determination shall be final.

7. NON-COMPETITION. Employee agrees that for a period of twelve (12) months
following any termination of Employee's employment with the Company (and for
such longer period as may be applicable under any provision of Section 3
hereof), Employee shall not engage in any Restricted Activity.

8. RECAPITALIZATION OR REORGANIZATION. (a) The existence of this Option
shall not affect in any way the right or power of the Board of Directors (the
"Board") or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization, or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of debt or equity securities ahead of or affecting Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.

S-5
<PAGE>
(b) The shares with respect to which this Option is granted are shares of
Stock as presently constituted, but if, and whenever prior to the expiration of
the Option, the Company shall effect a subdivision or consolidation of shares of
Stock or the payment of a stock dividend on Stock without receipt of
consideration by the Company, the number of shares of Stock with respect to
which this Option may thereafter be exercised (i) in the event of an increase in
the number of outstanding shares shall be proportionately increased, and the
purchase price per share shall be proportionately reduced, and (ii) in the event
of a reduction in the number of outstanding shares shall be proportionately
reduced, and the purchase price per share shall be proportionately increased.

(c) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, this Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that Employee shall
have the right to exercise this Option as to all of the Stock underlying this
Option, including shares of Stock as to which the Option would not otherwise be
exercisable. If the Board makes this Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify Employee that this Option shall be fully exercisable for a period
of sixty (60) days from the date of such notice, and this Option will terminate
upon the expiration of such period.

(d) Except as herein before expressly provided, the issuance by the Company
of shares of Stock of any class or securities convertible into shares of Stock
of any class for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to this Option or the purchase price per share.

9. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Employee.

10. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.

THE CONTINUUM COMPANY, INC.

By:

Employee: Michael H. Anderson

S-6

<PAGE>

EXHIBIT 10.13

The Company paid to Edward C. Stanton, III a fee of $75,000 for corporate
finance and merger consulting services rendered by him to the Company from
November 1995 to March 1996.

S-7
<PAGE>

EXHIBIT 21.1

SUBSIDIARIES

Each of the following is a subsidiary of The Continuum Company, Inc.,
having been incorporated in the indicated jurisdiction.
<TABLE>
<CAPTION>
SUBSIDIARY PLACE OF INCORPORATION
<S> <C>

Alliance-One Services, L.P. ............................................. Delaware, U.S.A. limited partnership
C.I.D. (Australia) Pty. Ltd. ............................................ New South Wales, Australia
CAPSCO Pty Limited ...................................................... South Australia, Australia
CAPSCO-SA (Pty) Limited ................................................. South Africa
CBDIS S.A. .............................................................. France
Computations Australia Pacific Limited .................................. New South Wales, Australia
Computations Computer Unit Trust ........................................ Australia
Computations Computers Pty Ltd. ......................................... New South Wales, Australia
Computations Financial Systems Ltd. ..................................... New South Wales, Australia
Computations Insurance Systems Ltd. ..................................... New South Wales, Australia
Computations International Insurance Systems Ltd. ....................... New South Wales, Australia
Computations People Ltd. ................................................ New South Wales, Australia
Computations Services (M) Sdn. Bhd. ..................................... Malaysia
Computer Installations Development (Australia) Pty Limited .............. New South Wales, Australia
Continuum (Australia) Holdings Limited .................................. Delaware, U.S.A.
Continuum (Deutschland) GmbH ............................................ Germany
Continuum (Europe) Limited .............................................. UK
Continuum (Hong Kong) Limited ........................................... Hong Kong
Continuum (Ireland) Limited ............................................. Ireland
Continuum (NZ) Limited .................................................. Auckland, New Zealand
Continuum (SICS) A/S .................................................... Norway
Continuum (Twyford) Limited ............................................. UK
Continuum (UK) Holdings Limited ......................................... UK
Continuum Arboretum, Limited ............................................ Texas, U.S.A. limited partnership
Continuum Australia Limited ............................................. New South Wales, Australia
Continuum Canada Inc. ................................................... Canada
Continuum Company Limited ............................................... UK
Continuum Corporation Limited ........................................... UK
Continuum Direct Limited ................................................ UK
Continuum Europe B.V. ................................................... Netherlands
Continuum France Sarl ................................................... France
Continuum Information Services (Hong Kong) Limited ...................... Hong Kong
Continuum Interest, Inc. ................................................ Delaware, U.S.A.
Continuum New TPA Corporation ........................................... Delaware, U.S.A.
Continuum Ra Group Limited .............................................. UK
Continuum Real Estate Holdings, Inc. .................................... Texas, U.S.A.
Continuum Research Syndicate No. 1 Pty Ltd. ............................. New South Wales, Australia
Continuum Services B.V. ................................................. Netherlands
Continuum SICS S.A. ..................................................... Belgium
Continuum SOCS Development SAS .......................................... France
Continuum Software Europe Limited ....................................... UK
Continuum Software Services (Singapore) Pte. Limited .................... Singapore

S-8
<PAGE>
Continuum Software UK Limited ........................................... UK
Continuum Systems Research, Inc. ........................................ Texas, U.S.A.
DATASOCS SARL ........................................................... France
Fides Software Limited .................................................. UK
Hogan Services (Proprietary) Limited .................................... South Africa
Hogan Systems (UK) Limited .............................................. UK
Hogan Systems GmbH ...................................................... Germany
Hogan Systems Pty. Ltd. ................................................. New South Wales, Australia
Hogan Systems, Inc. ..................................................... Delaware, U.S.A.
Hyperion S.A. ........................................................... France
Idaps (UK) Limited ...................................................... UK
Idaps Australia Finance NV .............................................. Netherlands Antilles
Idaps Information Service Limited ....................................... Auckland, New Zealand
Idaps International Limited ............................................. Hong Kong
Idaps Investments Pty Ltd ............................................... Australian Capital Territory, Australia
Idaps Pty Ltd ........................................................... New South Wales, Australia
INSCOM International Limited ............................................ Hong Kong
Insurance Software & Systems (Services) Limited ......................... UK
Key Choice Independent Financial Services Limited ....................... UK
Key Choice Insurance Marketing Limited .................................. UK
North Park Computer Services Limited .................................... UK
Parallax S.A. ........................................................... France
Paxus Australia Pty Limited ............................................. Victoria, Australia
Paxus Broker Services Ltd ............................................... New South Wales, Australia
Paxus Comnet Pty. Limited ............................................... Australian Capital Territory, Australia
Paxus Computer Services Pty Ltd ......................................... New South Wales, Australia
Paxus Corporate Services Limited ........................................ Auckland, New Zealand
Paxus Corporation Limited ............................................... New South Wales, Australia
Paxus Corporation Limited ............................................... Auckland, New Zealand
Paxus Financial R&D Pty Limited ......................................... Victoria, Australia
Paxus Financial Systems Pty. Limited .................................... New South Wales, Australia
Paxus Financial Systems SA .............................................. South Africa
Paxus Information Services (Australia) Pty Limited ...................... New South Wales, Australia
Paxus Information Services Corporation .................................. Delaware, U.S.A.
Paxus Information Services Netherlands B.V. ............................. Netherlands
Paxus Investments Pty Limited ........................................... New South Wales, Australia
Paxus Marketing Pty Limited ............................................. New South Wales, Australia
Paxus N.V. .............................................................. Netherlands Antilles
Paxus Professional Systems Limited ...................................... UK
Paxus Research & Development Limited .................................... Auckland, New Zealand
Policyholder Service Corporation ........................................ Delaware, U.S.A.
Ra Financial Systems Limited ............................................ UK
Reveille Holdings SDN Berhad ............................................ Malaysia
SANZ Pty Limited ........................................................ New South Wales, Australia
SOCS Associes S.A. ...................................................... France
SOCS Gestion S.A. ....................................................... France
SOCS Groupe S.A. ........................................................ France
SOCS NTI SARL ........................................................... France
SOCS S.A. ............................................................... France
SOFADEC SARL ............................................................ France
Spetchley Pty. Ltd. ..................................................... Australian Capital Territory, Australia
The Continuum Company (Japan), Ltd. ..................................... Delaware, U.S.A.
The Continuum Company, Ltd. ............................................. Canada
Vantage P & C Systems, Inc. ............................................. Texas, U.S.A.

S-9
</TABLE>
<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration
Statements: Form S-4 (No. 33-65405) and Form S-8 (Nos. 33-57870, 33-41965,
33-41140, 33-57876, 33-68748, 33-85904, 33-81342, and 33-01791); and in the
related Prospectuses of our report dated May 1, 1996, with respect to the
consolidated financial statements of The Continuum Company, Inc. included in
this Annual Report (Form 10-K) for the three years in the period ended March 31,
1996.

ERNST & YOUNG LLP

Austin, Texas
May 16, 1996

S-10
<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use of our report dated April 21, 1995, relating to the
financial statements of Hogan Systems, Inc. and subsidiaries, which appears on
page F-3 of this Annual Report on Form 10-K for The Continuum Company, Inc. for
the fiscal year ended March 31, 1996, which Form 10-K we understand has in turn
been incorporated by reference into The Continuum Company, Inc. previously filed
Registration Statements on Form S-4 (No. 33-65405) and Form S-8 (Nos. 33-57870,
33-41965, 33-41140, 33-57876, 33-68748, 33-85904, 33-81342, and 33-01791).

PRICE WATERHOUSE LLP

Dallas, Texas
May 14, 1996

S-11

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<S> <C>
<PERIOD-TYPE> 12-MOS

<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,006,000
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</TABLE>