<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 27, 1996
--------------------------------
AVANT! CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0-25864 94-3133226
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1208 East Arques Avenue, Sunnyvale, California 94086
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (408) 738-8881
--------------------
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
Total pages: 33
Exhibit Index on Page 4
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 27, 1996, Avant! Corporation (the "Registrant") and
FrontLine Design Automation, Inc. ("FrontLine") announced the completion of
their previously announced merger of the two companies. Stockholders of
FrontLine approved the merger on November 26, 1996. The businesses of both
the Registrant and FrontLine will now be operated under the name "Avant!
Corporation."
In the merger, each outstanding share of FrontLine capital stock was
converted into the right to receive approximately 0.35 of a share of the
Registrant's common stock.
ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Avant! Corporation and Subsidiaries Supplemental Consolidated
Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
Avant! Corporation and Frontline Design Automation, Inc. Unaudited
Pro Forma Condensed Combined Financial Statements
(c) EXHIBITS.
Exhibit No. Description
- ----------- -----------
11.1 Computation of Net Income and Pro Forma Net Income Per Share
99.1 Avant! Corporation and Subsidiaries Supplemental
Consolidated Financial Statements.
99.2 Avant! Corporation and Frontline Design Automation, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
99.3 Avant! Corporation Management's Discussion and Analysis of
Financial Condition and Results of Operations
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVANT! CORPORATION
------------------
(Registrant)
By: /s/ GERALD C. HSU
-------------------------------------
Gerald C. Hsu
President and Chief Executive Officer
Date: November 27, 1996
3
<PAGE>
AVANT! CORPORATION
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ---------- ----------- ------------
11.1 Computation of Net Income and Pro Forma Net Income Per Share
99.1 Avant! Corporation and Subsidiaries Supplemental
Consolidated Financial Statements.
99.2 Avant! Corporation and Frontline Design Automation, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
99.3 Avant! Corporation Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
Exhibit 11.1
COMPUTATION OF NET INCOME AND PRO FORMA NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
----------------------------- -------------------------------
1993 1994 1995 1995 1996
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income 15,064
-----------
-----------
Pro forma net income 2,733 4,413 8,412 9,254
-------- -----------------------------------
-------- -----------------------------------
Weighted average number of shares of common stock outstanding 9,754 12,594 19,755 19,131 22,207
Preferred Stock 4,678 4,678
Number of common stock equivalents as a result of stock options 434 731 1,488 2,483 2,269
outstanding using the treasury stock method
Number of common stock options granted 745 767
in accordance with SAB No. 83
Number of shares deemed outstanding to 882 386 319 386
fund shareholder distribution
-------- -----------------------------------------------------
Total 15,748 19,134 22,329 22,000 24,476
Net income per share $0.62
-----------
-----------
Pro forma net income per share $0.17 $0.23 $0.38 $0.42
-------- -----------------------------------------------------
-------- -----------------------------------------------------
</TABLE>
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-2
Supplemental Consolidated Balance Sheets . . . . . . . . . . . . . . F-3
Supplemental Consolidated Statements of Income . . . . . . . . . . . F-4
Supplemental Consolidated Statements of Shareholders' Equity . . . . . F-5
Supplemental Consolidated Statements of Cash Flows . . . . . . . . . . F-7
Notes to Supplemental Consolidated Financial Statements. . . . . . . . F-8
Supplemental Financial Statement Schedule of Valuation and
Qualifying Accounts--Allowance for doubtful accounts. . . . . . . . F-29
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Avant! Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Avant! Corporation and subsidiaries (the Company) as of December 31, 1994 and
1995, and the related supplemental consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. In connection with our audit of the
accompanying supplemental consolidated financial statements, we also have
audited the accompanying supplemental financial statement schedule. These
supplemental consolidated financial statements and supplemental financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements and supplemental financial statement schedule based on our
audits. We did not audit the financial statements of Anagram Incorporated, a
consolidated subsidiary, which statements reflect total assets constituting 1%
and 2%, total revenues constituting 1% and 6%, and income before income taxes
constituting less than 1% and 13% in 1994 and 1995, respectively, of the related
supplemental consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Anagram Incorporated, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Avant! Corporation and Meta-Software, Inc. on October 29, 1996,
which has been accounted for as a pooling of interests as described in Note 2 to
the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Avant! Corporation
and subsidiaries after financial statements covering the date of consummation of
the business combination are issued.
In our opinion, based on our audits and the report of the other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Avant! Corporation and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination. Also in our
opinion, the related supplemental financial statement schedule, when considered
in relation to the supplemental consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
November 23, 1996
San Jose, California
F-2
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
ASSETS 1994 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 9,659 $ 49,528 $ 14,017
Short-term investments 23,561 46,969 89,471
Accounts receivable, net 9,678 12,243 16,859
Deferred income taxes 2,835 2,749 3,893
Prepaid income taxes 283 328 3,481
Other 970 1,713 7,459
-------- -------- --------
Total current assets 46,986 113,530 135,180
Equipment, furniture, and fixtures, net 3,974 6,896 9,087
Capitalized software, net 315 150 80
Other 46 91 201
Deferred income taxes - 1,200 1,200
-------- -------- --------
Total assets $ 51,321 $121,867 $145,748
-------- -------- --------
-------- -------- --------
LIABILITIES, MANDATORY REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 273 $ 145 $ 78
Accounts payable 722 984 1,304
Accrued compensation 1,754 2,319 2,730
Accrued income taxes 150 553 -
Other accrued liabilities 2,670 5,606 6,734
Current portion of technology payable - 876 614
Deferred revenue 5,476 9,143 11,096
Shareholder distribution payable 1 1,800 -
-------- -------- --------
Total current liabilities 11,046 21,426 22,556
Capital lease obligations, less current portion 147 40 3
Deferred rent - 110 81
Deferred income taxes 681 381 -
Other noncurrent liabilities 152 156 243
Long-term portion of technology payable - 1,424 903
Convertible notes payable 100 - -
-------- -------- --------
Total liabilities 12,126 23,537 23,786
Mandatory redeemable convertible preferred stock:
Mandatory redeemable convertible preferred stock, and
convertible preferred stock with put option, $.0001 par
value; 3,655 shares authorized; 3,570 shares issued and
outstanding (liquidation value of $8,536) in 1994; no shares
issued and outstanding in 1995 and 1996 8,312 - -
Shareholders' equity:
Series A convertible preferred stock, $.0001 par value; 5,000
shares authorized; 687 shares issued and outstanding
(liquidation value of $907) in 1994; no shares issued and
outstanding in 1995 and 1996 - - -
Common stock, $.0001 par value; 10,000, 25,000, and 50,000 shares
authorized; 13,007, 22,039, and 22,899 shares issued and
outstanding in 1994, 1995, and 1996, respectively 13 22 23
Additional paid-in capital 25,156 93,278 103,198
Deferred stock compensation (62) (517) (1,707)
Net unrealized gain (loss) on short-term investments (222) 89 (74)
Retained earnings 5,998 5,458 20,522
-------- -------- --------
Shareholders' equity 30,883 98,330 121,962
-------- -------- --------
Total liabilities, mandatory redeemable convertible
preferred stock, and shareholders' equity $ 51,321 $121,867 $145,748
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-3
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended Nine months ended
December 31, September 30,
---------------------------------- --------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Software $18,171 $30,478 $53,089 $36,796 $55,681
Services 4,314 8,373 13,704 9,579 17,263
------- ------- ------- ------- -------
Total revenue 22,485 38,851 66,793 46,375 72,944
------- ------- ------- ------- -------
Costs and expenses:
Costs of software 1,361 1,024 1,319 979 1,624
Costs of service 1,904 2,940 4,845 3,410 5,383
Selling and marketing 7,966 14,215 21,906 15,277 20,502
Research and development 6,488 9,007 14,224 9,981 13,504
General and administrative 2,983 4,069 6,301 4,395 10,211
Acquisition of technology - 1,600 2,693 - 300
Merger expenses - - 3,590 - 920
------- ------- ------- ------- -------
Total operating expenses 20,702 32,855 54,878 34,042 52,444
------- ------- ------- ------- -------
Income from operations 1,783 5,996 11,915 12,333 20,500
Interest income, net 149 834 2,761 1,767 3,108
------- ------- ------- ------- -------
Income before income taxes 1,932 6,830 14,676 14,100 23,608
Provision for income taxes (benefit) (1,449) 1,791 4,090 3,968 8,544
------- ------- ------- ------- -------
Net income $ 3,381 $ 5,039 $10,586 $10,132 $15,064
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income per common share $ 0.62
-------
-------
Pro forma net income and per share data:
Income before taxes as reported $ 1,932 $ 6,830 $ 14,676 $ 14,100
Pro forma provision for income taxes (benefit) (801) 2,417 6,264 4,846
------- ------- ------- -------
Pro forma net income $ 2,733 $ 4,413 $ 8,412 $ 9,254
------- ------- ------- -------
------- ------- ------- -------
Pro forma net income per common share $ 0.17 $ 0.23 $ 0.38 $ 0.42
---- ---- ---- ----
---- ---- ---- ----
Weighted average number of common and common
equivalent shares outstanding 15,748 19,134 22,329 22,000 24,476
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE>
AVANT! CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Series A
convertible
preferred stock Common stock Additional
--------------------- ---------------------- paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1992 1,710 $ 630 8,258 $ 8 $ 3,082
Issuance of common stock - - 1,218 1 112
Repurchase and retirement of common
stock - - (2) - (2)
Unrealized loss on short-term
investments - - - - -
Distributions to shareholders - - - - -
Net income for 1993 - - - - -
------ ------ ------- ---- -------
Balances as of December 31, 1993 1,710 630 9,474 9 3,192
Issuance of common stock - - 20 - 20
Conversion of preferred stock to
common stock (1,023) (630) 1,023 1 629
Issuance of shares in public offering,
net of expenses - - 2,250 3 20,340
Issuance of common stock under stock
option plan, including related tax
benefits - - 134 - 848
Issuance of common stock under
employee stock purchase plan - - 5 - 66
Issuance of shares and accumulated
deficit of merged company (PSI) - - 113 - 1
Repurchase of common stock - - (12) - (2)
Issuance of common stock options at
below market value - - - - 62
Unrealized loss on short-term
investments - - - - -
Distributions to shareholders - - - - -
Net income for 1994 - - - - -
------ ------ ------- ---- -------
Balances as of December 31, 1994 687 - 13,007 13 25,156
Issuance of common stock - - 713 1 158
Conversion of debt to common stock - - 100 1 99
Issuance of common stock in public
offering, net of expense - - 2,360 2 27,711
Conversion of mandatory redeemable
convertible preferred stock into
common stock - - 3,570 4 8,308
Conversion of preferred stock into
common stock (687) - 687 - -
Exercise of stock options and
warrants, including related tax
benefits - - 570 1 5,947
Repurchase of common stock - - (18) - (3)
Issuance of common stock options at
below market value - - - - 588
Amortization of deferred stock
compensation - - - - -
Issuance of common stock under
employee stock purchase plan - - 43 - 534
Unrealized gain on short-term
investments - - - - -
Distributions to shareholders - - - - -
Contributed capital related to stock
compensation expense - - - - 112
Issuance of common stock in public
offering, net of expenses - - 1,007 - 24,668
Net income for 1995 - - - - -
------ ------ ------- ---- -------
Balances as of December 31, 1995 - - 22,039 22 93,278
<CAPTION>
Net
unrealized
Deferred gain (loss) on
stock short-term Retained Shareholders'
compensation investments earnings equity
------------ -------------- -------- ------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1992 $ - $ - $ 2,157 $ 5,877
Issuance of common stock - - - 113
Repurchase and retirement of common
stock - - - (2)
Unrealized loss on short-term
investments - (8) - (8)
Distributions to shareholders - - (2,150) (2,150)
Net income for 1993 - - 3,381 3,381
---- ----- -------- --------
Balances as of December 31, 1993 - (8) 3,388 7,211
Issuance of common stock - - - 20
Conversion of preferred stock to
common stock - - - -
Issuance of shares in public offering,
net of expenses - - - 20,343
Issuance of common stock under stock
option plan, including related tax
benefits - - - 848
Issuance of common stock under
employee stock purchase plan - - - 66
Issuance of shares and accumulated
deficit of merged company (PSI) - - (103) (102)
Repurchase of common stock - - - (2)
Issuance of common stock options at
below market value (62) - - -
Unrealized loss on short-term
investments - (214) - (214)
Distributions to shareholders - - (2,326) (2,326)
Net income for 1994 - - 5,039 5,039
---- ----- -------- --------
Balances as of December 31, 1994 (62) (222) 5,998 30,883
Issuance of common stock - - - 159
Conversion of debt to common stock - - - 100
Issuance of common stock in public
offering, net of expense - - - 27,713
Conversion of mandatory redeemable
convertible preferred stock into
common stock - - - 8,312
Conversion of preferred stock into
common stock - - - -
Exercise of stock options and
warrants, including related tax
benefits - - - 5,948
Repurchase of common stock - - - (3)
Issuance of common stock options at
below market value (588) - - -
Amortization of deferred stock
compensation 133 - - 133
Issuance of common stock under
employee stock purchase plan - - - 534
Unrealized gain on short-term
investments - 311 - 311
Distributions to shareholders - - (11,126) (11,126)
Contributed capital related to stock
compensation expense - - - 112
Issuance of common stock in public
offering, net of expenses - - - 24,668
Net income for 1995 - - 10,586 10,586
---- ----- -------- --------
Balances as of December 31, 1995 (517) 89 5,458 98,330
</TABLE>
(Continued)
F-5
<PAGE>
AVANT! CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Series A
convertible
preferred stock Common stock Additional
--------------------- ---------------------- paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1995 - $ - 22,039 $22 $ 93,278
Exercise of common stock options
including related tax benefits
(unaudited) - - 813 1 7,242
Issuance of common stock under
employee stock purchase plan
(unaudited) - - 47 - 630
Issuance of common stock options at
below market value (unaudited) - - - - 1,387
Amortization of deferred stock
compensation (unaudited) - - - - -
Unrealized loss on investments
(unaudited) - - - - -
Contributed capital on exercise of
vested stock appreciation rights
(unaudited) - - - - 567
Accrued shareholder distribution
adjustment (unaudited) - - - - 46
Contributed capital related to stock
compensation expense (unaudited) - - - - 48
Net income for nine months ended
September 30, 1996 (unaudited) - - - - -
--- ---- ------- --- --------
Balances as of September30, 1996
(unaudited) - $ - 22,899 $23 $103,198
--- ---- ------- --- --------
--- ---- ------- --- --------
<CAPTION>
Net
unrealized
Deferred gain (loss) on
stock short-term Retained Shareholders'
compensation investments earnings equity
------------ -------------- -------- ------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1995 $ (517) $ 89 $ 5,458 $ 98,330
Exercise of common stock options
including related tax benefits
(unaudited) - - - 7,243
Issuance of common stock under
employee stock purchase plan
(unaudited) - - - 630
Issuance of common stock options at
below market value (unaudited) (1,387) - - -
Amortization of deferred stock
compensation (unaudited) 197 - - 197
Unrealized loss on investments
(unaudited) - (163) - (163)
Contributed capital on exercise of
vested stock appreciation rights
(unaudited) - - - 567
Accrued shareholder distribution
adjustment (unaudited) - - - 46
Contributed capital related to stock
compensation expense (unaudited) - - - 48
Net income for nine months ended
September 30, 1996 (unaudited) - - 15,064 15,064
------- ----- ------- --------
Balances as of September 30, 1996
(unaudited) $(1,707) $ (74) $20,522 $121,962
------- ----- ------- --------
------- ----- ------- --------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended Nine months ended
December 31, September 30,
------------------------------------ -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,381 $ 5,039 $ 10,586 $ 10,132 $ 15,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 954 1,373 1,981 1,576 2,059
Gain on sale of securities - - - - 12
Compensation expense (benefit) attributable
to stock appreciation rights 39 380 484 480 (31)
Stock compensation expense - - 112 67 48
Loss on disposal of equipment 20 16 19 - -
Amortization of capitalized software cost 145 199 228 155 70
Amortization of deferred stock
compensation - - 133 - 197
Deferred income taxes (2,404) 398 (111) 1,903 (1,525)
Deferred rent (19) 70 148 31 53
Changes in operating assets and liabilities:
Accounts receivable, net (1,339) (4,639) (2,565) (47) (4,615)
Prepaid expenses and other assets (199) (210) (834) (585) (5,211)
Shareholder advances (300) 300 - - -
Accounts payable (64) 278 262 353 322
Accrued compensation 916 1,521 565 835 411
Accrued income taxes 221 (221) 403 539 (1,006)
Other accrued liabilities 252 301 2,452 986 1,726
Technology acquisition payable - - 2,300 - (783)
Deferred revenue 2,484 1,116 3,633 2,175 1,958
------- ------- -------- --------- ---------
Net cash provided by operating
activities 4,087 5,921 19,796 18,600 8,749
------- ------- -------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments (2,529) (92,615) (79,568) (126,273) (177,335)
Maturities and sales of short-term investments 667 71,366 56,471 92,754 134,656
Purchases of equipment, furniture, and fixtures (1,559) (2,089) (4,922) (3,192) (4,251)
Capitalized software development costs (140) (143) (63) (63) -
Cash received in merger - 19 - - -
------- ------- -------- --------- ---------
Net cash used in investing activities (3,561) (23,462) (28,082) (36,774) (46,930)
------- ------- -------- --------- ---------
Cash flows from financing activities:
Distributions to shareholders (1,579) (2,896) (9,327) (827) (1,754)
Payment on note assumed in merger - (89) - - -
Principal payments under capital lease obligations (134) (235) (235) (190) (104)
Proceeds from issuance of preferred stock, net 4,482 - - 130 -
Repurchase of common stock - (2) (3) (2) -
Exercise of stock options - 201 4,646 4,188 3,898
Issuance of common stock under employee stock
purchase plan - 66 534 183 630
Proceeds from issuance of common stock, net 98 20,363 52,540 27,794 -
Proceeds from issuance of convertible note - 100 - - -
------- ------- -------- --------- ---------
Net cash provided by financing
activities 2,867 17,508 48,155 31,276 2,670
------- ------- -------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,393 (33) 39,869 13,102 (35,511)
Cash and cash equivalents, beginning of period 6,299 9,692 9,659 9,659 49,528
------- ------- ------- ------- -------
Cash and cash equivalents, end of period $ 9,692 $ 9,659 $ 49,528 $ 22,761 $ 14,017
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-7
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Avant! Corporation (the Company or Avant!), formerly ArcSys, Inc.,
develops, markets and supports software products that assist design
engineers in the automated design, layout, physical verification, and
analysis of advanced integrated circuits. Its primary customers are
semiconductor manufacturers in the United States, Japan, Korea, Taiwan, and
Europe.
PRINCIPLES OF PRESENTATION AND PREPARATION
The accompanying supplemental consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The supplemental consolidated financial statements have
been restated to reflect the effect of the mergers with Integrated Silicon
Systems, Inc. (ISS), Anagram, Incorporated (Anagram), and Meta-Software,
Inc. (Meta) discussed in Note 2.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance, and customer support.
SOFTWARE REVENUE
Revenue from the sale of software licenses is recognized upon shipment of
the products, delivery of permanent authorization codes, and fulfillment of
acceptance terms, if any, providing that no significant vendor and post-
contract support obligations remain and collection of the related
receivable is probable. Any remaining insignificant vendor obligations are
accrued at the time the revenue is recognized. In instances where there is
a contingency regarding the sale, revenue recognition is delayed until the
contingency has been resolved. When the Company receives advance payments
for software products, such payments are reported as deferred revenue until
all conditions for revenue recognition are met. The Company has entered
into certain license agreements under which software, support and other
services are provided to a customer for a bundled price for a specific
period of time. Generally, revenue under such agreements is recognized
ratably over the contract period.
F-8
<PAGE>
SERVICES REVENUE
Maintenance revenue is deferred and recognized ratably over the term of the
maintenance agreement, which is typically 12 months. Revenue from customer
training, support, and other services is recognized as the service is
performed.
CASH AND CASH EQUIVALENTS
For the purpose of the accompanying supplemental consolidated statements of
cash flows, the Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Cash equivalents are stated at cost and consist primarily of overnight
Eurodollar deposits, certificates of deposit, and commercial paper. The
carrying amount of cash and cash equivalents approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments, which consist of demand deposit investments in
limited-maturity fixed-income mutual funds, short-term debt securities,
U.S. government agency debt securities, U.S. Treasury Bills,
municipal/corporate auction preferred stock, and municipal bonds, are
reported at fair value and are classified as available-for-sale securities.
The cost of securities sold is determined using the specific identification
method when computing realized gains and losses. Fair value is determined
using available market information. There were no realized gains or losses
on investments sold during 1993, 1994, or 1995. As of December 31, 1994,
the gross unrealized loss on short-term investments was $222,000. As of
December 31, 1995, the net unrealized gain on short-term investments of
$89,000 consisted of $136,000 of gross unrealized gains, and $47,000 of
gross unrealized losses.
EQUIPMENT, FURNITURE, AND FIXTURES
Equipment, furniture, and fixtures consist primarily of computer
workstations and file servers for employees and are stated at cost net of
accumulated depreciation of $3,329,000 and $4,957,000 as of December 31,
1994 and 1995, respectively. Depreciation is provided on the straight-line
method over the estimated useful lives of the related assets (generally
five years).
F-9
<PAGE>
SOFTWARE DEVELOPMENT COSTS
Certain software development costs for new products and product
enhancements are capitalized upon the establishment of technological
feasibility, which is defined by the Company as the completion of a working
model of the software. Capitalization of computer software development
costs ceases, and amortization begins, when the product is available for
general release to customers. The ongoing assessment of the realizability
of these costs requires considerable judgment related to anticipated future
product revenues, estimated economic life, and changes in hardware and
software technology. The amount of software development costs capitalized
for the years 1993, 1994, and 1995 was $140,000, $143,000, and $63,000,
respectively. Accumulated amortization of software development costs was
$849,000 and $997,000 as of December 31, 1994 and 1995, respectively.
Amortization of software development costs is provided on a product-by-
product basis. Annual amortization is the greater of the amount computed
using the ratio of current product revenue to the total of current and
anticipated future product revenue or the straight-line method over the
remaining estimated economic life of the product. All current products
have estimated economic lives of three years. Amortization of software
development costs for the years 1993, 1994, and 1995 was $145,000,
$199,000, and $228,000, respectively. Amortization of software development
costs is included in costs of software in the accompanying supplemental
consolidated statements of income.
INCOME TAXES
Income taxes are provided under the asset and liability method, whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Prior to 1995, the Company
had experienced net operating losses and had established a valuation
allowance against its deferred tax assets relating to the resulting net
operating loss carryforwards due to the uncertainty regarding realization
of the Company's deferred tax assets. The Company's income tax provisions
were restated and the valuation allowance was eliminated during 1993.
The pro forma provision for income taxes for 1993, 1994, and 1995, reflects
the tax expense that would have been reported if Meta had been a C
corporation during those periods.
F-10
<PAGE>
NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of common and common equivalent shares outstanding during each period
presented using the treasury stock method. Common stock equivalents
consist of stock options and awards (using the treasury stock method).
Pro forma net income per common share is computed using pro forma net
income which reflects the tax expense that would have been reported if Meta
had been a C corporation. Common stock equivalents are excluded from the
computation if their effect is antidilutive, except that common stock
issued and stock options and awards during the 12 months preceding the
initial filing of the Registration Statement for the Company's initial
public offering have been included in the calculation of common and common
equivalent shares using the treasury stock method as if they were
outstanding for all periods presented. In addition, the calculation
includes shares deemed to be outstanding, which represent the number of
shares to fund Meta's final S corporation distribution.
STATEMENTS OF CASH FLOWS
Interest of $36,000, $42,000, $51,000, $44,000, and $9,000 was paid in the
years ended 1993, 1994, and 1995, and the nine-month periods ended
September 30, 1995 and 1996 respectively. Income taxes of $823,000,
$1,725,000, $1,441,000, $687,000, and $10,946,000 were paid in the years
ended 1993, 1994, and 1995, and the nine-month periods ended September 30,
1995 and 1996, respectively. Acquisition of equipment under capital lease
obligations was $247,000 and $298,000 during 1993, and 1994, respectively.
Deferred stock compensation of $62,000, $588,000, $588,000, and $1,387,000,
was recognized in the years ended 1994 and 1995, and the nine-month periods
ended September 30, 1995 and 1996, respectively, for stock options issued
below market value. An income tax benefit attributable to employee stock
plans of $647,000, $1,302,000, $1,100,000, and $3,345,000 was credited to
equity in the years ended 1994 and 1995, and the nine-month periods ended
September 30, 1995 and 1996, respectively. In connection with the
Company's initial public offering in 1995, mandatory redeemable convertible
preferred stock was converted to common stock in the amount of $8,312,000.
Conversion of long-term debt to common stock was $100,000 in 1995.
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign subsidiaries consider the U.S. dollar their
functional currency. Resulting foreign exchange gains and losses, which
have been insignificant, are included in the results of operations.
F-11
<PAGE>
STOCK-BASED COMPENSATION
The Company has various stock-based compensation plans as discussed in Note
4. The Company has accounted for the effect of its stock-based
compensation plans under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 123, and plans to
use the pro forma approach allowed under this standard. Disclosures under
SFAS No. 123 will be required in the Company's December 31, 1996
consolidated financial statements.
UNAUDITED INTERIM SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited supplemental consolidated financial statements
as of September 30, 1996 and for the nine-month periods ended September
30, 1995 and 1996, have been prepared on substantially the same basis as
the audited supplemental consolidated financial statements, and include all
adjustments, consisting only of normal recurring adjustments, which
management believes are necessary for a fair presentation of the financial
information set forth herein.
(2) MERGERS
On October 29, 1996, the Company issued approximately 4,471,161 shares of
its common stock for all of the outstanding common stock of Meta, and
assumed approximately 608,204 stock options and subscriptions under option
plans. The merger has been accounted for as a pooling of interests, and,
accordingly, the Company's supplemental consolidated financial statements
have been restated for all periods prior to the merger to include the
results of operations, financial position, and cash flows of Meta. Total
revenue and net income for the individual entities as previously reported
are as follows (in thousands):
Years ended Nine-month
December 31, period ended
------------------ September 30,
1994 1995 1996
---- ---- ----
Total revenue:
Avant! $ 19,199 $ 41,512 $ 48,823
Meta 19,652 25,281 24,121
-------- -------- --------
$ 38,851 $ 66,793 72,944
-------- -------- --------
-------- -------- --------
Net income:
Avant! $ 2,279 $ 6,235 $ 10,587
Meta (pro forma) 2,134 2,177 4,477
-------- -------- --------
$ 4,413 $ 8,412 $ 15,064
-------- -------- --------
-------- -------- --------
F-12
<PAGE>
On September 27, 1996, the Company issued approximately 2,154,000 shares of
its common stock for all of the outstanding common and preferred stock of
Anagram, and assumed approximately 260,000 stock options and subscriptions
under option plans. The Anagram outstanding preferred stock has been
presented as common stock for all periods in the supplemental consolidated
financial statements. The merger has been accounted for as a pooling of
interests, and, accordingly, the Company's supplemental consolidated
financial statements have been restated for all periods prior to the merger
to include the results of operations, financial position, and cash flows of
Anagram. Total revenue and net income for the individual entities as
previously reported are as follows (in thousands):
Years ended Nine-month
December 31, period ended
------------------ September 30,
1994 1995 1996
---- ---- ----
Total revenue:
Avant! $ 18,958 $ 38,004 $ 27,169
Anagram 241 3,508 4,375
-------- -------- --------
$ 19,199 $ 41,512 31,544
-------- -------- --------
-------- -------- --------
Net income:
Avant! $ 2,260 $ 5,065 $ 5,593
Anagram 19 1,170 1,633
-------- -------- --------
$ 2,279 $ 6,235 $ 7,226
-------- -------- --------
-------- -------- --------
In connection with the mergers with Meta and Anagram, the Company expects
to incur direct transaction costs and merger-related integration expenses
of approximately $6.6 million, consisting of transaction fees for
investment bankers, attorneys, accountants, financial printing and
shareholder meetings of approximately $3.5 million and severance costs,
charges for duplicate facilities, and certain other related costs of
approximately $3.1 million. As of September 30, 1996, accrued liabilities
included approximately $500,000 of expected future cash expenditures.
F-13
<PAGE>
On November 27, 1995, the Company issued approximately 6,400,000 shares of
its common stock for all of the outstanding common stock of ISS, and
assumed approximately 1,500,000 stock options and subscriptions under
various ISS stock option and purchase plans. The merger has been accounted
for as a pooling of interests, and accordingly, the Company's consolidated
financial statements have been restated for all periods prior to the merger
to include the results of operations, financial position, and cash flows of
ISS. As a result of the merger, the Company's income tax provisions were
restated and the deferred tax valuation allowance was eliminated during
1993. Total revenue and net income for the individual entities as
previously reported are as follows (in thousands):
Years ended Nine-month
December 31, period ended
------------------- September 30,
1994 1995 1996
---- ---- ----
Total revenue:
Avant! $ 1,696 $ 6,191 $ 12,087
ISS 7,012 12,767 14,414
-------- -------- --------
$ 8,708 $ 18,958 $ 26,501
-------- -------- --------
-------- -------- --------
Net income:
Avant! $ (2,174) $ (1,206) $ 3,073
ISS 1,370 3,128 3,890
-------- -------- --------
(804) 1,922 6,963
Adjustment for deferred
taxes 2,146 338 (957)
-------- -------- --------
$ 1,342 $ 2,260 $ 6,006
-------- -------- --------
-------- -------- --------
In connection with the merger with ISS, the Company recorded related costs
of approximately $3,600,000. These costs consisted primarily of the
following: (i) approximately $2,858,000 for transaction fees for
attorneys, accountants, investment bankers, and other related charges; (ii)
approximately $233,000 for the elimination of duplicate facilities and
equipment; (iii) approximately $337,000 for severance; and (iv)
approximately $162,000 for incremental travel, communications, consulting,
and other costs associated with internal activities. Of the $3,600,000
million of merger-related costs, approximately $3,400,000 related to cash
expenditures while approximately $200,000 related to noncash charges. As
of December 31, 1995, accrued liabilities included $392,000 of expected
future cash expenditures.
On May 5, 1994, ISS completed a merger with Performance Signal Integrity,
Inc. (PSI), a Pennsylvania corporation. The accumulated deficit and
operations of PSI were not material to ISS, and the merger was accounted
for as an immaterial pooling of interests. Therefore, ISS's previously
reported financial results were not restated for the PSI merger.
F-14
<PAGE>
(3) MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK CONVERSION
In connection with the completion of the Company's initial public offering
in June 1995, all the outstanding mandatory redeemable convertible
preferred stock was automatically converted into approximately 3,570,000
shares of the Company's common stock. In addition, outstanding warrants to
acquire Series B preferred stock were automatically converted into
approximately 26,000 shares of the Company's common stock.
As of December 31, 1994, mandatory redeemable convertible preferred stock
consisted of the following (in thousands):
Shares Issued and Liquidation
Series authorized outstanding value
------ ---------- ----------- -----
A 313 313 $ 693
B 1,942 1,910 3,343
C 1,400 1,347 4,500
------ ------ ------
3,655 3,570 $8,536
------ ------ ------
------ ------ ------
(4) SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING AND CHANGES IN AUTHORIZED COMMON AND PREFERRED
STOCK
In April 1995, the Company's Board of Directors authorized the Company to
issue up to 5,000,000 shares of preferred stock in one or more series and
to fix the rights, preferences, privileges, and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting
any series or the designation of such series, without any further vote or
action by the shareholders. In addition, the Company increased its
authorized number of shares of common stock from 10,000,000 to 25,000,000
shares.
In June 1995, the Company closed its initial public offering of common
stock at $13.00 per share. The net proceeds of the offering were
$27,713,000 after deducting applicable costs and expenses. In connection
with the public offering, all the outstanding Series A preferred stock
automatically converted into approximately 687,000 shares of the Company's
common stock.
COMMON STOCK
The Company has issued to the Company's founders and employees 2,683,000
shares of its common stock, which are subject to repurchase upon
termination of employment. The number of shares of common stock subject to
the Company's right to repurchase declines 25% after the founder or
employee has been employed one year, and thereafter ratably over
F-15
<PAGE>
three years on a monthly basis. As of December 31, 1994 and 1995, 232,000
and 66,000 shares, respectively, were subject to repurchase.
SHAREHOLDER DISTRIBUTIONS
As an S corporation, Meta made distributions to its shareholders to provide
them with funds to pay income taxes on corporate earnings. Prior to the
completion of the Meta IPO and the termination of the S corporation in
November 1995, Meta declared a distribution payable to existing
shareholders of Meta. This distribution represented undistributed tax
basis earnings of Meta through termination of the S corporation.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company approved the 1995 Stock Option/Stock Issuance Plan (the 1995
Plan) in April 1995, under which all remaining outstanding stock options
and shares available for grant under the Company's 1993 Stock Option/Stock
Issuance Plan and 1,000,000 additional shares of the Company's common stock
have been authorized for issuance, for a total of 2,336,000 shares of the
Company's common stock. The 1995 Plan is intended to serve as a successor
to the 1993 Stock Option/Stock Issuance Plan (see below) and has terms
similar to those of the 1993 Stock Option/Stock Issuance Plan. Under the
1995 Plan, however, each individual serving as a nonemployee member of the
Company's Board of Directors on the date the Underwriting Agreement for the
initial public offering was executed received an option grant on such date
for 20,000 shares of the Company's common stock, provided such individual
had not otherwise been in the prior employ of the Company. Each individual
who first becomes a nonemployee member of the Board of Directors thereafter
will receive a 20,000 share option grant on the date such individual joins
the Board of Directors provided such individual has not been in the prior
employ of the Company. In addition, at each annual shareholders' meeting,
beginning with the 1996 Annual Shareholders' Meeting, each individual who
is to continue to serve as a nonemployee member of the Board of Directors
after the meeting will receive an additional option grant to purchase 5,000
shares of common stock whether or not such individual has been in the prior
employ of the Company.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
In September 1993, the Board of Directors approved the 1993 Stock
Option/Stock Issuance Plan (the 1993 Plan). Options granted under the 1993
Plan may be either incentive stock options or nonstatutory stock options,
as designated by the Company's Board of Directors. The 1993 Plan provides
that the exercise price of an incentive stock option and a nonstatutory
option will be no less than the fair market value and 85% of the fair
market value, respectively, of the Company's common stock at the date of
grant, as determined by the Company's Board of Directors.
F-16
<PAGE>
The Company's Board of Directors also has the authority to set exercise
dates (no longer than 10 years from the date of grant), payment terms, and
other provisions for each grant. Generally options granted under the 1993
Plan become exercisable as to 25% of the shares on the anniversary date of
grant and thereafter become exercisable ratably over three years. Activity
under the 1993 Plan is as follows:
Options Number Exercise
available of price per
for grant options shares
--------- ------- ------
Balances, December 31, 1993 376,000 200,000 $0.30
Additional shares reserved 460,000 - -
Granted (936,000) 936,000 0.30
Canceled 209,000 (209,000) 0.30
---------- ----------
Balances, December 31, 1994 109,000 927,000 0.30
Additional shares reserved 1,300,000 - -
Granted (405,000) 405,000 0.30 - 44.50
Exercised - (174,000) 0.30
Canceled 74,000 (74,000) 0.30 - 33.50
---------- ----------
Balances, December 31, 1995 1,078,000 1,084,000 $0.30 - 44.50
---------- ----------
---------- ----------
As of December 31, 1995, 755,000 options were exercisable.
The Company has recorded a deferred charge of $650,000, representing the
difference between the exercise price and the deemed fair value of the
Company's common stock for 355,000 shares subject to common stock options
granted in the fourth quarter of 1994 and the first quarter of 1995. The
deferred stock compensation will be amortized to compensation expense over
the period during which the options become exercisable, generally four
years.
F-17
<PAGE>
ISS OPTION PLANS
In connection with the ISS merger discussed in Note 2, various ISS option
plans were assumed by the Company, thereby allowing participants to
purchase Avant! stock in amounts and at prices adjusted to reflect the
exchange ratio of the merger. The following is a summary of activity in
those plans.
Options Number Exercise
available of price per
for grant options shares
--------- ------- ------
Balances, December 31, 1993 29,000 263,000 $ 0.01 - 2.53
Additional shares reserved 1,500,000 - -
Granted (1,036,000) 1,036,000 9.33 - 19.00
Exercised - (134,000) 0.01 - 2.50
---------- ----------
Balances, December 31, 1994 493,000 1,165,000 0.24 - 19.00
Additional shares reserved 1,500,000 - -
Granted (780,000) 780,000 16.67 - 28.17
Exercised - (370,000) 0.24 - 17.67
Canceled 124,000 (124,000) 1.47 - 28.17
Eliminated in merger (1,337,000) - -
---------- ----------
Balances, December 31, 1995 - 1,451,000 $0.24 - 26.50
---------- ----------
---------- ----------
Exercisable as of
December 31, 1995 103,000
----------
----------
As of December 31, 1995, there were 1,450,595 shares reserved for the
future exercise of ISS stock options. No additional options will be
granted under the ISS option plans.
The Company incurred compensation expense relating to nonqualified stock
options of $151,000 during 1993 and $20,000 during 1994.
F-18
<PAGE>
ANAGRAM OPTION PLANS
In connection with the Anagram merger discussed in Note 2, various Anagram
option plans were assumed by the Company, thereby allowing participants to
purchase Avant! stock in amounts and at prices adjusted to reflect a two
for one stock split effective June 1996 and the exchange ratio of the
merger. The following is a summary of activity under the plans:
Options Number Exercise
available of price per
for grant options shares
--------- ------- ------
Balances, December 31, 1993
and 1994 24,000 52,000 $ 0.05
Additional shares reserved 358,000 - -
Granted (358,000) 358,000 0.05 - 0.93
Exercised - (54,000) 0.05 - 0.93
---------- ----------
Balances, December 31, 1995 24,000 356,000 $0.05 - 0.93
---------- ----------
---------- ----------
As of December 31, 1995, 111,000 Anagram stock options were exercisable.
As of December 31, 1995, there were 404,000 shares reserved for the future
exercise of Anagram stock options. No additional options will be granted
under the Anagram option plans.
As of December 31, 1995, there were approximately 698,000 shares of Anagram
restricted common stock outstanding which were subject to repurchase by the
Company.
F-19
<PAGE>
META OPTION PLANS
In connection with the Meta merger discussed in Note 2, various Meta option
plans were assumed by the Company, thereby allowing participants to
purchase Avant! stock in amounts and at prices adjusted to reflect the
exchange ratio of the merger. The following is a summary of activity under
the plans:
Shares
available Options Exercise
for grant outstanding price
--------- ------- ------
Balances as of
December 31, 1992 365,000 - $ -
Granted (261,000) 261,000 $3.24
Canceled 42,000 (42,000) $3.24
---------- ----------
Balances as of
December 31, 1993 146,000 219,000 $3.24
Additional shares reserved 226,000 - -
Granted (303,000) 303,000 $3.52
Canceled 66,000 (66,000) $3.24 - 3.52
---------- ----------
Balances as of
December 31, 1994 135,000 456,000 $3.24 - 3.52
Additional shares reserved 263,000 - -
Granted (345,000) 345,000 $5.32 - 23.15
Canceled 143,000 (143,000) $3.24 - 14.63
---------- ----------
Balances as of
December 31, 1995 196,000 658,000 $3.24 - 23.15
---------- ----------
---------- ----------
As of December 31, 1995, 149,180 options were exercisable. No additional
options will be granted under the Meta option plans.
1992 STOCK OPTION/APPRECIATION PLAN
Under Meta's 1992 Stock Option/Appreciation Plan (the 1992 Plan) 854,100
shares of common stock were reserved for the issuance of stock options, for
grant at not less than 90% of the fair market value at the date of grant.
Fair market value, in the absence of trading on a national or regional
stock exchange, was established by the Board of Directors based on an
independent valuation of Meta. Options generally vested over a period of 1
to 4 years from the date of grant, expired 10 years from the date of grant
and terminated, to the extent not exercised, 1 month after termination of
employment.
F-20
<PAGE>
The 1992 Plan provides for the exercise of stock appreciation rights with
respect to outstanding options in the absence of trading of Meta's stock on
a national or regional stock exchange. Upon the exercise of stock
appreciation rights, the employee surrenders the related unexercised option
and received cash payment equal to the excess of the fair market value of
the underlying shares at the time of exercise over the aggregate exercise
price of the related option. Compensation expense was recognized for the
appreciation in value from the date of grant.
During the months of June, July, and August 1995, Meta entered into
agreements with substantially all individual option holders under the 1992
Plan terminating the stock appreciation right feature of the individual
awards. Compensation expense, based on fair market value of the stock as
determined by the Board of Directors, was recorded based on the vested
stock appreciation rights of the individual shareholders through the date
such rights were terminated. Upon effectiveness of the Meta IPO, all stock
appreciation rights terminated, and no further compensation expense was
recorded.
(5) LEASES
CAPITAL LEASES
Future minimum lease payments under capital lease arrangements as of
December 31, 1995, are as follows (in thousands):
Year ending
December 31,
------------
1996 $145
1997 53
----
198
Less amount representing interest 13
----
185
Less current portion 145
----
Capital lease obligations,
less current portion $ 40
----
----
OPERATING LEASES
The Company leases its Sunnyvale, California, Research Triangle Park, North
Carolina, and various sales office facilities under operating lease
agreements which expire over the next 10 years. Portions of the Company's
headquarters were subleased to an unrelated third party under a lease that
expired in June 1995. Rental expense incurred by the Company under
operating lease agreements totaled $883,000, $1,144,000, and $1,315,000,
for the years 1993, 1994, and 1995, respectively.
F-21
<PAGE>
Future annual minimum lease payments under operating leases as of December
31, 1995, are as follows (in thousands):
Year ending
December 31,
------------
1996 $1,078
1997 1,250
1998 839
1999 784
2000 713
Thereafter 4,000
------
$8,664
------
------
(6) INCOME TAXES
The components of income tax expense (benefit), as presented in the
accompanying supplemental consolidated statements of income, comprise
federal taxes, state taxes, and certain foreign taxes. The pro forma
provision for income taxes reflects the income tax expense that would have
been reported if Meta had been a C corporation for the years ended December
31, 1993, 1994, and 1995. The components of income taxes and pro forma
income taxes as of December 31, 1993, 1994, and 1995, are as follows (in
thousands):
1993 1994 1995
---- ---- ----
Current:
Federal $ 586 $ 289 $ 1,745
Foreign 10 535 1,609
State 354 106 837
-------- -------- --------
Total 950 930 4,191
Deferred:
Federal (2,285) 100 (806)
State (114) 114 (597)
-------- -------- --------
Total (2,399) 214 (1,403)
Charge in lieu of taxes attributable
to employee stock plans - 647 1,302
-------- -------- --------
Total provision for income
taxes (benefit) $ (1,449) $ 1,791 $ 4,090
-------- -------- --------
-------- -------- --------
F-22
<PAGE>
Pro forma income taxes:
1993 1994 1995
---- ---- ----
Current:
Federal $ 1,452 $ 1,073 $ 2,989
Foreign 172 535 1,609
State 475 332 1,240
-------- -------- --------
Total 2,099 1,940 5,838
Deferred:
Federal (2,642) (212) (367)
State (258) 42 (509)
-------- -------- --------
Total (2,900) (170) (876)
Charge in lieu of taxes
attributable to
employee stock plans - 647 1,302
-------- -------- --------
Total provision
for income taxes
(benefit) $ (801) $ 2,417 $ 6,264
-------- -------- --------
-------- -------- --------
F-23
<PAGE>
The Company's effective tax rate and pro forma effective rate differs from
the statutory rate as of December 31, 1993, 1994, and 1995 as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate $ 657 $ 2,322 $ 4,990
State tax expense 240 192 497
Nondeductible merger costs. - - 938
Change in valuation allowance (1,568) 89 (89)
Tax exempt income - (140) (306)
Tax credits (60) (78) (148)
Foreign sales corporation - - (96)
S corporation benefit (751) (1,134) (575)
Establishment of deferred tax assets in
conjunction with the change from S to C
status - - (1,725)
Foreign taxes - 497 423
Other 33 43 181
-------- -------- --------
Actual income tax expense
(benefit) $ (1,449) $ 1,791 $ 4,090
-------- -------- --------
-------- -------- --------
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate $ 657 $ 2,322 $ 4,990
State tax expense 193 298 821
Nondeductible merger costs. - - 938
Change in valuation allowance (1,568) 89 (89)
Tax exempt income - (140) (306)
Tax credits (138) (222) (253)
Foreign sales corporation - - (96)
Other 55 70 259
-------- -------- --------
Pro forma income tax expense
(benefit) $ (801) $ 2,417 $ 6,264
-------- -------- --------
-------- -------- --------
</TABLE>
F-24
<PAGE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities and pro forma deferred
tax assets and deferred tax liabilities as of December 31, 1994 and 1995,
are as follows (in thousands):
1994 1995
---- ----
Deferred tax assets:
Accrued liabilities $ 123 $1,358
Allowance for doubtful accounts 37 155
Tax credit carryforwards 494 361
Unrealized loss on short-term
investments 89 -
Net operating losses 2,153 -
Deferred revenue - 842
Depreciation and amortization - 1,140
Other 28 93
-------- --------
Total gross deferred tax asset 2,924 3,949
Less valuation allowance (89) -
-------- --------
Deferred tax assets, net of valuation allowance 2,835 3,949
Deferred tax liabilities:
Accrual to cash conversion 412 381
Depreciation and amortization 269 -
-------- --------
Total gross deferred tax liabilities 681 381
-------- --------
Net deferred tax asset $ 2,154 $ 3,568
-------- --------
-------- --------
As of December 31, 1995, the Company had $361,000 of foreign tax credits,
expiring in the year 2000, available to offset future federal income taxes.
(7) EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company has a 401(k) retirement savings plan covering substantially all
employees. Contributions are matched at the discretion of the Company's
Board of Directors. The matching contributions amounted to $37,000,
$77,000, and $115,000 for 1993, 1994, and 1995, respectively.
F-25
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has a qualified Employee Stock Purchase Plan, which permits
eligible employees to purchase newly issued common stock of the Company up
to an aggregate of 500,000 shares. Under this plan, employees may purchase
from the Company a designated number of shares through payroll deductions
at a price per share equal to 85% of the lesser of the fair market value of
the Company's common stock as of the date of the grant or the date the
right to purchase is exercised.
(8) CONCENTRATIONS OF CREDIT RISK
The Company maintains excess cash balances in a variety of financial
instruments such as overnight Eurodollar deposits, securities backed by the
U.S. government, municipal/corporate auction preferred stock, municipal
bonds, short-term debt securities, and demand deposit investments in
limited-maturity fixed-income mutual funds. The Company has not
experienced any material losses in any of the instruments it has used for
excess cash balances.
To reduce credit risk, the Company performs ongoing credit evaluations of
its customers' financial condition. The Company maintains reserves for
potential credit losses, but historically has not experienced any
significant losses related to individual customers or groups of customers
in any geographic area. The Company's allowance for doubtful accounts was
$432,000 and $886,000 as of December 31, 1994 and 1995, respectively.
(9) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
electronic design automation industry.
The Company's export revenues are all denominated in U.S. dollars.
International revenue, principally to customers in Asia, accounted for
approximately 26%, 34%, and 33% of total revenue in the years ended
December 31, 1993, 1994, and 1995, respectively.
In 1993, one key customer accounted for 11% of the Company's revenue. As
of December 31, 1994 and 1995, no customer comprised in excess of 10% of
total accounts receivable.
(10) ACQUISITIONS OF TECHNOLOGY
In each of April 1994, October 1995, and September 1996, the Company
acquired rights to certain software technology under development. As the
required software had not reached technological feasibility, it was
expensed upon acquisition.
Under the October 1995 agreement, the Company will make payments through
March 2000. The net present value of these payments is included in
technology acquisition payable in the accompanying supplemental
consolidated balance sheets.
F-26
<PAGE>
(11) COMMITMENTS AND CONTINGENCIES
On December 6, 1995, Cadence Design Systems, Inc. (Cadence) filed an action
against the Company and certain of its officers in the Northern California
United States District Court alleging copyright infringement, unfair
competition, misappropriation of trade secrets, conspiracy, breach of
contract, inducing breach of contract, and false advertising. The essence
of the complaint is that certain Avant! employees who were formerly Cadence
employees misappropriated and improperly copied source code for certain
important functions of Avant! place and route products from Cadence, and
that the Company has competed unfairly by making false statements
concerning Cadence and its products. The action also alleges that the
Company induced certain individual defendants to breach their agreements of
employment and confidentiality with Cadence. In addition to actual and
punitive damages, Cadence seeks to enjoin the sale of certain place and
route products and has filed a motion to obtain a preliminary injunction
pending trial of the action. The Company filed its opposition to Cadence's
motion on June 28, 1996. Cadence filed a reply to Avant!'s opposition on
August 27, 1996. The preliminary injunction hearing took place on
September 10, 1996. No ruling on the preliminary injunction motion has
been issued as of the date hereof.
On January 16, 1996, Avant! filed a counterclaim alleging antitrust
violations, racketeering, false advertising, defamation, trade libel,
unfair competition, unfair trade practices, negligent and intentional
interference with prospective economic advantage, and intentional
interference with contractual relations.
The Santa Clara County District Attorney's office is investigating the
allegations of misappropriation of trade secrets set forth in Cadence's
lawsuit, described above. On December 5, 1995, a search warrant was
executed at the Company's Sunnyvale, California, facility to determine
whether there was evidence of criminal conduct. No criminal charges have
been filed against the Company, but no assurance can be given that such
charges will not be filed in the future. A criminal complaint, if filed,
could result in a loss of personnel and could have other material adverse
effects. On each of December 15, and 19, 1995, class action filings were
made against the Company alleging certain securities law violations,
including omission and/or misrepresentation of material facts. The alleged
omissions and/or misrepresentations are largely consistent with those
outlined in the Cadence claim.
F-27
<PAGE>
It is the Company's position that the plaintiffs' claims are without merit.
The Company believes it has sufficient defenses to all the plaintiffs'
claims and intends to defend itself vigorously. If however, Avant!
defenses are unsuccessful, the Company may be enjoined from selling certain
place and route products and may be required to pay damages to Cadence. In
such event, Avant!'s business, operating results and financial condition
would be materially adversely affected. In particular, Avant!'s place and
route products in dispute, ArcCell-BV and ArcCell XO (which have been
replaced by Aquarius-BV and Aquarius-XO, accounted for approximately 20% of
total supplemental consolidated revenues for the three-year period ended
December 31, 1995. In addition, it is likely that an adverse judgment
against Avant! would result in a steep decline in the market price of
Avant! common stock. Although the Company believes, based on information
it presently possesses, that the conclusion of these claims will not have a
material adverse effect on the Company's supplemental consolidated
financial position, there can be no assurance than an adverse judgment, if
granted, in any claim would not have a material adverse effect on the
Company's business, supplemental consolidated financial position, or
supplemental consolidated results of operations.
In the opinion of management, based on information it presently possesses,
the conclusion of these claims will not have a material adverse effect on
the Company's supplemental consolidated financial position.
The Company is subject to other claims that have arisen in the ordinary
course of business. In the opinion of management, all such matters are
without merit or involve amounts which would not have a material adverse
effect on the Company's supplemental consolidated financial position if
unfavorably resolved.
The Company has charged to expenses approximately $4,500,000 relating to
the litigation discussed above during the nine-month period ended September
30, 1996, net of expected recoveries from insurance. The receivable for
expected recoveries from insurance is included in other current assets.
On October 9, 1996, Avant! entered into a definitive agreement to merge
with FrontLine Design Automation Inc. (FrontLine). The Company will issue
an aggregate of approximately 2,222,222 shares and options to acquire
shares of Avant! common stock in exchange for all outstanding FrontLine
equity interest in connection with the merger. This merger, which Avant!
intends to account for as a pooling of interests and which is subject to
customary closing conditions, is expected to be completed in the fourth
quarter of 1996. The Company expects to incur costs of approximately
$1,000,000 in the fourth quarter of 1996 related to the FrontLine merger.
F-28
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE OF
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED AT END
OF PERIOD TO EXPENSE DEDUCTIONS OF PERIOD
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1993 $ 299 $ 113 $ - $ 412
Year ended December 31, 1994 412 81 61 432
Year ended December 31, 1995 432 582 128 886
</TABLE>
F-29
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
The following unaudited pro forma condensed financial data including the
notes thereto are qualified in their entirety by reference to, and should be
read in conjunction with, the supplemental consolidated financial statements of
Avant! included elsewhere in this report and the historical financial statements
of FrontLine not included herein. The supplemental (Avant!) and historical
(FrontLine) financial statement data as of September 30, 1996 and for the nine-
month periods ended September 30, 1995 and 1996 are unaudited, and have been
prepared on the same basis as the supplemental and historical financial
information derived from the audited financial statements, and in the opinion of
management, contain all adjustments, consisting of normal recurring accruals,
necessary for the fair presentation of the results of operations for such
periods. The supplemental financial statement data of Avant! gives retroactive
recognition to the acquisition of Anagram, Inc. and Meta-Software, Inc., each of
which have been accounted for as poolings of interests. The unaudited pro forma
condensed combined balance sheet data combine Avant! and FrontLine balance
sheets as of September 30, 1996, giving effect to the merger as if it had
occurred on September 30, 1996. The unaudited pro forma condensed combined
statements of income combine Avant! and FrontLine results of operations for the
nine months ended September 30, 1995 and 1996 and each of the three years ended
December 31, 1995, giving effect to the merger as if it had occurred on January
1, 1993. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
condition that would have occurred had the merger been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial condition.
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FRONT PRO FORMA PRO FORMA
AVANT! LINE ADJUSTMENTS COMBINED
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $14,017 $1,054 $ $15,071
Short-term investments. . . . . . . . . . . . . . . . . . . . . 89,471 -- 89,471
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . 16,859 1,742 18,601
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 3,893 -- 3,893
Prepaid income taxes. . . . . . . . . . . . . . . . . . . . . . 3,481 -- 3,481
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,459 81 7,540
--------- ------- ----------- ---------
Total current assets. . . . . . . . . . . . . . . . . . . . . 135,180 2,877 138,057
Equipment, furniture and fixtures, net . . . . . . . . . . . . . . 9,087 270 9,337
Capitalized software, net. . . . . . . . . . . . . . . . . . . . . 80 -- 80
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 8 209
Deferred income taxes (5). . . . . . . . . . . . . . . . . . . . . 1,200 -- 410 1,610
--------- ------- ----------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $145,748 $3,155 $410 $149,313
--------- ------- ----------- ---------
--------- ------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations. . . . . . . . . . $78 $-- $ $78
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . 1,304 149 1,453
Accrued compensation. . . . . . . . . . . . . . . . . . . . . . 2,730 410 3,140
Accrued merger transaction costs (4). . . . . . . . . . . . . . -- -- 6,700 6,700
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . -- 250 250
Other accrued liabilities . . . . . . . . . . . . . . . . . . . 6,734 843 7,577
Current portion technology acquisition payable. . . . . . . . . 614 -- 614
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . 11,096 574 11,670
--------- ------- ----------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 22,556 2,226 6,700 31,482
Capital lease obligations, less current portion. . . . . . . . . . 3 -- 3
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . 81 -- 81
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . -- -- --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 243
Long-term portion technology acquisition payable . . . . . . . . . 903 -- 903
--------- ------- ----------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 23,786 2,226 6,700 32,712
Stockholders' equity:
Common stock (6). . . . . . . . . . . . . . . . . . . . . . . . 23 1,891 (1887) 27
Additional paid-in capital (6). . . . . . . . . . . . . . . . . 103,198 735 1,887 105,820
Deferred stock compensation . . . . . . . . . . . . . . . . . . (1,707) (612) (2,319)
Net unrealized gain (loss) on short-term investments. . . . . . (74) (74)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 20,522 (1,085) (6,290) 13,147
--------- ------- ----------- ---------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 121,962 929 (6,290) 116,601
--------- ------- ----------- ---------
Total liabilities and stockholders' equity. . . . . . . . . . $145,748 $3,155 $410 $149,313
--------- ------- ----------- ---------
--------- ------- ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO PRO
FRONT FORMA FORMA
AVANT! LINE ADJUSTMENT COMBINED
------- ----- ------------ --------
<S> <C> <C> <C> <C>
Revenue:
Software . . . . . . . . . . . . . . . . . . $18,171 $67 $18,238
Services and other . . . . . . . . . . . . . 4,314 8 4,322
------- ----- --------
Total revenue. . . . . . . . . . . . . . . 22,485 75 22,560
------- ----- --------
Costs and expenses:
Costs of software. . . . . . . . . . . . . . 1,361 3 1,364
Costs of services and other. . . . . . . . . 1,904 -- 1,904
Selling and marketing. . . . . . . . . . . . 7,966 99 8,065
Research and development . . . . . . . . . . 6,488 491 6,979
General and administrative . . . . . . . . . 2,983 34 3,017
------- ----- --------
Total operating expenses . . . . . . . . . 20,702 627 21,329
------- ----- --------
Income (loss) from operations. . . . . . . 1,783 (552) 1,231
Other income, net. . . . . . . . . . . . . . . 149 2 151
------- ----- ------------ --------
Income (loss) before income taxes. . . . . 1,932 (550) 1,382
Provision (benefit) for income taxes(5). . . . (801) --- (190) (991)
------- ----- ------------ --------
Net income (loss). . . . . . . . . . . . . $2,733 $(550) $(190) $2,373
------- ----- ------------ --------
------- ----- ------------ --------
Net income (loss) per share. . . . . . . . . . $0.20 $ (0.36) $0.17
------- ----- ------------ --------
------- ----- ------------ --------
Weighted average shares outstanding. . . . . . 13,562 1,549 14,101
------- ----- --------
------- ----- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO PRO
FRONT FORMA FORMA
AVANT! LINE ADJUSTMENTS COMBINED
------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenue:
Software . . . . . . . . . . . . . . . . . . . $30,478 $451 $30,929
Services and other . . . . . . . . . . . . . . 8,373 42 8,415
------- ------ ---------- --------
Total revenue. . . . . . . . . . . . . . . . 38,851 493 39,344
------- ------ ---------- --------
Costs and expenses:
Costs of software. . . . . . . . . . . . . . . 1,024 98 1,122
Costs of services and other. . . . . . . . . . 2,940 -- 2,940
Acquisition of technology. . . . . . . . . . . 1,600 -- 1,600
Selling and marketing. . . . . . . . . . . . . 14,215 261 14,476
Research and development . . . . . . . . . . . 9,007 721 9,728
General and administrative . . . . . . . . . . 4,069 61 4,130
------- ------ ---------- --------
Total operating expenses . . . . . . . . . . 32,855 1,141 33,996
------- ------ ---------- --------
Income (loss) from operations. . . . . . . . 5,996 (648) 5,348
Other income, net. . . . . . . . . . . . . . . . 834 2 836
------- ------ ---------- --------
Income (loss) before income taxes. . . . . . 6,830 (646) 6,184
Provision (benefit) for income taxes(5). . . . . 2,417 -- (220) 2,197
------- ------ ---------- --------
Net income (loss). . . . . . . . . . . . . . $4,413 $(646) (220) $3,987
------- ------ ---------- --------
------- ----- ---------- --------
Net income per share . . . . . . . . . . . . . . $ 0.23 $ (0.17) $ 0.19
------- ------ ---------- --------
------- ------ ---------- --------
Weighted average shares outstanding. . . . . . . 19,134 3,825 20,465
------- ------ ----------- --------
------- ------ ----------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO
FORMA
AVANT! FRONT LINE COMBINED
--------- ---------- ---------
Revenue:
Software............................ $53,089 $2,075 $55,164
Services and other.................. 13,704 -- 13,704
--------- ---------- ---------
Total revenue.................... 66,793 2,075 68,868
--------- ---------- ---------
Costs and expenses:
Costs of software................... 1,319 210 1,529
Costs of services and other......... 4,845 -- 4,845
Acquisition of technology........... 2,693 -- 2,693
Selling and marketing............... 21,906 835 22,741
Research and development............ 14,224 1,094 15,318
General and administrative.......... 6,301 61 6,362
Merger expense...................... 3,590 -- 3,590
--------- ---------- ---------
Total operating expenses......... 54,878 2,200 57,078
--------- ---------- ---------
Income (loss) from operations.... 11,915 (125) 11,790
Other income, net...................... 2,761 26 2,787
--------- ---------- ---------
Income (loss) before income taxes 14,676 (99) 14,577
Provision (benefit) for income taxes(5) 6,264 -- 6,264
--------- ---------- ---------
Net income (loss)................ $8,412 $(99) $8,313
--------- ---------- ---------
--------- ---------- ---------
Net income per share................... $ 0.38 $ (0.02) $ 0.34
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares outstanding.... 22,329 5,290 24,170
--------- ---------- ---------
--------- ---------- ---------
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO
FORMA
AVANT! FRONT LINE COMBINED
--------- ---------- ---------
Revenue:
Software............................. $36,796 $1,275 $38,071
Services and other................... 9,579 -- 9,579
--------- ---------- ---------
Total revenue..................... 46,375 1,275 47,650
--------- ---------- ---------
Costs and expenses:
Costs of software.................... 979 98 1,077
Costs of services and other.......... 3,410 -- 3,410
Selling and marketing................ 15,277 493 15,770
Research and development............. 9,981 695 10,676
General and administrative........... 4,395 47 4,422
--------- ---------- ---------
Total operating expenses.......... 34,042 1,333 35,375
--------- ---------- ---------
Income (loss) from operations..... 12,333 (58) 12,275
Other income, net....................... 1,767 18 1,785
--------- ---------- ---------
Income (loss) before income taxes. 14,100 (40) 14,060
Provision for income taxes(5)........... 4,846 -- 4,846
--------- ---------- ---------
Net income (loss)................. $9,254 $(40) $9,214
--------- ---------- ---------
--------- ---------- ---------
Net income per share.................... $ 0.42 $ (0.01) $ 0.39
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares outstanding..... 22,000 5,247 23,805
--------- ---------- ---------
--------- ---------- ---------
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO
FRONT FORMA
AVANT! LINE COMBINED
--------- ---------- ----------
Revenue:
Software............................ $55,681 $4,349 $60,030
Services and other.................. 17,263 -- 17,263
--------- ---------- ---------
Total revenue.................... 72,944 4,349 77,293
--------- ---------- ---------
Costs and expenses:
Costs of software................... 1,624 178 1,802
Costs of services and other......... 5,383 -- 5,383
Acquisition of technology........... 300 -- 300
Selling and marketing............... 20,502 1,676 22,178
Research and development............ 13,504 1,629 15,133
General and administrative.......... 10,211 398 10,609
Merger expense...................... 920 -- 1,220
--------- ---------- ---------
Total operating expenses......... 52,444 3,88 156,325
--------- ---------- ---------
Income from operations........... 20,500 468 20,968
--------- ---------- ---------
Other income, net...................... 3,108 (8) 3,100
--------- ---------- ---------
Income before income taxes....... 23,608 460 24,068
--------- ---------- ---------
Provision for income taxes............. 8,544 250 8,794
--------- ---------- ---------
Net income....................... $15,064 $210 $15,274
--------- ---------- ---------
--------- ---------- ---------
Net income per share................... $ 0.62 $ 0.03 $ 0.57
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares outstanding.... 24,476 6,126 26,608
--------- ---------- ---------
--------- ---------- ---------
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND FRONTLINE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Avant! and FrontLine statements of income for each of the years in the
three years ended December 31, 1995 and for each of the nine month periods ended
September 30, 1995 and 1996 have been combined. The balance sheets for Avant!
and FrontLine have been combined as of September 30, 1996. The unaudited pro
forma condensed combined financial statements, including the notes thereto,
should be read in conjunction with the supplemental consolidated financial
statements of Avant! included elsewhere herein and the historical financial
statements of FrontLine not included herein. The supplemental consolidated
financial statements of Avant! give retroactive recognition to the acquisition
of Anagram, Inc. and Meta-Software, Inc., each of which have been accounted for
as poolings of interests.
No adjustments have been made to conform the accounting policies of the
combining companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(2) UNAUDITED PRO FORMA COMBINED NET INCOME PER SHARE
The unaudited pro forma condensed combined statements of income for Avant!
and FrontLine have been prepared as if the merger was completed at the beginning
of the earliest period presented. The unaudited pro forma combined net income
per share is based on the combined weighted average number of common and common
equivalent shares of Avant! (giving retroactive recognition to the acquisition
of Anagram, Inc. and Meta-Software, Inc., each of which have been accounted for
as poolings of interests) and FrontLine Capital Stock for each period, based
upon an exchange ratio of 0.35 shares of Avant! Common Stock for each
outstanding share of FrontLine Capital Stock and each share of FrontLine Capital
Stock issuable upon exercise of FrontLine Stock Options.
(3) PRO FORMA UNAUDITED COMBINED SHARES OUTSTANDING
These unaudited pro forma condensed combined financial statements reflect
the exchange of 2,222,222 shares of Avant! Common Stock for all the outstanding
shares of FrontLine Capital Stock (5,223,738 at October 31, 1996) and each share
of FrontLine Capital Stock issuable upon exercise of FrontLine Stock Options
(1,088,500 at October 31, 1996) resulting in an exchange ratio of 0.35 shares of
Avant! Common Stock for each outstanding share of FrontLine Capital Stock.
<PAGE>
The following table details the pro forma share issuances (as of September
30, 1996) in connection with the Merger:
<TABLE>
<CAPTION>
AVANT!
COMMON
SHARES ESTIMATED SHARES
OUTSTANDING EXCHANGE OUTSTANDING
(IN THOUSANDS) RATIO (IN THOUSANDS) %
-------------- --------- -------------- -------
<S> <C> <C> <C> <C>
Avant! shares outstanding as of
September 30, 1996 (giving
retroactive recognition to the
Anagram and Meta acquisitions,
each of which have been accounted
for as poolings of interests)............ 22,899 93%
FrontLine shares outstanding as of
September 30, 1996....................... 5,224 0.35 1,828 7%
Number of shares of Avant! Common
Stock outstanding after completion
of the Merger............................ 24,727 100.00%
-------------- -------
-------------- -------
</TABLE>
The actual exchange ratio will be determined at the effective time of
the merger based on the number of fully-diluted shares of FrontLine Capital
Stock then outstanding.
(4) TRANSACTION COSTS AND MERGER RELATED EXPENSES
Avant! and FrontLine estimate they will incur direct transaction costs and
merger-related integration expenses of approximately $7.6 million associated
with the Merger, the Anagram Acquisition, the Meta Acquisition and the FrontLine
Acquisition consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing, shareholder meetings, severance costs, charges
for duplicate facilities, and certain other related costs. As of September 30,
1996, $920,000 of costs related to the Anagram Acquistion had been incurred. The
remaining estimated transaction costs will be charged to operations during the
quarter ending December 31, 1996.
The unaudited pro forma condensed combined balance sheet gives effect to
estimated direct transaction costs and merger-related integration expenses as if
such costs and expenses had been incurred as of September 30, 1996. These costs
and expenses are not reflected in the unaudited pro forma condensed combined
statements of income.
(5) PROVISION FOR INCOME TAXES
The provision for income taxes for Meta is on a pro forma basis for 1993,
1994, and 1995, reflecting a tax expense that would have been reported if Meta
had been a C Corporation during those periods. See Note 6 of Notes to Avant!
supplemental
<PAGE>
consolidated financial statements. In 1993 and 1994 pro forma adjustments were
made to recognized deferred tax assets relating to FrontLine, as management
believes it is more likely than not, on a consolidated basis, that such assets
will be realizable. The balance sheet as of September 30, 1996 reflects the
cummulative pro forma adjustments to recognize such deferred tax assets, with a
corresponding credit to retained earnings.
(6) SHAREHOLDER EQUITY
A pro forma adjustment has been made to reflect the capital structure of
the combined company based on the par value of the common stock to be issued in
the Merger.
<PAGE>
AVANT! MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Avant! resulted from the merger of ArcSys, Inc. ("ArcSys") and Integrated
Silicon Systems, Inc. ("ISS") on November 27, 1995. Effective September 27,
1996 and October 29, 1996, Avant! acquired Anagram, Inc. and Meta-Software, Inc.
(Meta), respectively. The ISS merger, and the Anagram and Meta acquisitions,
have been accounted for by the pooling-of-interests method, and accordingly,
Avant!'s supplemental consolidated financial statements give retroactive
effect for all periods presented to include the results of operations,
financial position, and cash flows of ISS, Anagram, and Meta.
Avant! develops, markets, and supports software products that assist
design engineers in the physical layout, design, verification, simulation and
timing analysis of advanced ICs. Avant!'s strategy is to focus on
productivity enhancing software for the ICDA segment of the EDA market.
ArcSys was founded in February 1991, and began shipping Aquarius
(formerly ArcCell), its cell-based place and route software product, in 1993.
ISS began shipping its initial physical layout software products in 1988. ISS
introduced Hercules (formerly VeriCheck), its hierarchical physical
verification software, in the third quarter of 1992. ISS introduced its
signal integrity analysis software in 1994. Anagram was founded in March
1993, and began shipping ADM, its high-capacity circuit simulation and
high-accuracy timing analysis software, in December 1994. Meta was founded in
1980, when it introduced its simulation and library software products,
including HSPICE. Substantially all of Avant!'s, Anagram's, and Meta's
revenue on a combined basis for 1993, 1994, 1995 and the nine months ended
September 30, 1996 was derived from the licensing and support of Aquarius,
Hercules, ADM, and HSPICE.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue for
certain items in Avant!'s Supplemental Consolidated Financial Statements
(after giving effect to rounding) for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR END ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of total revenue
Total revenue......................... 100% 100% 100% 100% 100%
Software............................ 81 78 79 79 76
Services............................ 19 22 21 21 24
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Costs and expenses:
Costs of software..................... 6 3 2 2 2
Costs of services..................... 9 8 7 7 7
Selling and marketing................. 35 37 33 33 28
Research and development.............. 29 23 21 22 19
General and administrative............ 13 10 10 9 14
Acquisition of technology............. -- 4 4 -- 1
Merger expenses....................... -- -- 5 -- 1
---- ---- ---- ---- ----
Total operating expenses......... 92 85 82 73 72
---- ---- ---- ---- ----
Income from operations................ 8 16 18 27 28
Interest income, net.................... 1 2 4 4 4
---- ---- ---- ---- ----
Income before income taxes............ 9 18 22 31 32
Provision for income taxes.............. (6) 5 6 9 12
---- ---- ---- ---- ----
Net income............................ 15% 13% 18% 22% 20%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993, AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue. Revenue consists primarily of fees for licenses of Avant!'s
software products, maintenance and customer support. Revenue from the sale of
software licenses is recognized after shipment of the products, delivery of
permanent authorization codes, and fulfillment of acceptance terms, if any,
providing that no significant vendor and post-contract support obligations
remain and collection of the related receivable is probable. Any remaining
insignificant vendor or post-contract support obligations are accrued at the
time the revenue is recognized. In instances where there is a contingency
regarding the sale, revenue recognition is delayed until the contingency has
been resolved. When Avant! receives advance payment for software products,
such payments are reported as deferred revenue until all conditions for
revenue recognition are met. Avant! has entered into certain license
agreements under which software, support and other services are provided to a
customer for a bundled price for a specific period. Generally, revenue under
such agreements is recognized ratably over the contract period. Maintenance
revenue is deferred and recognized ratably over the term of the maintenance
agreement, which is typically twelve months. Revenue from customer training,
support and other services is recognized as the service is performed.
Avant!'s total revenue increased 73% from $22,485,000 in 1993 to
$38,851,000 in 1994, increased 72% to $66,793,000 in 1995 from 1994, and
increased 57% from $46,375,000 in the first nine months of 1995 to
$72,944,000 in the first nine months of 1996. The percentage of Avant!'s
revenue attributable to software licenses decreased from 81% in 1993 to 78%
in 1994, and to 79% in 1995, and decreased from 79% in the first nine months
of 1995 to 76% for the first nine months of 1996. This decrease is primarily
due to the increased user base and resulting increase in maintenance revenue.
Software revenue increased 68% from $18,171,000 in 1993 to $30,478,000 in
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1994, increased 74% to $53,089,000 in 1995 from 1994, and increased 51% from
$36,796,000 in the first nine months of 1995 to $55,681,000 in the first
nine months of 1996. Increases in software revenue were due primarily to
increased license revenue from Avant!'s place and route, physical
verification and simulation and timing software. Services revenue increased
94% from $4,314,000 in 1993 to $8,373,000 in 1994, and increased 64% to
$13,704,000 in 1995 from 1994, and increased 80% from $9,579,000 in the first
nine months of 1995 to $17,263,000 in the first nine months of 1996, all such
increases reflecting the growing base of installed systems. Through September
30, 1996, price increases have not been a material factor in Avant!'s revenue
growth. Avant! does not believe that period-to-period comparisons of past
revenue growth should be relied upon as indications of future performance.
As discussed in the supplemental consolidated financial statements,
Avant! is involved in litigation with Cadence, and other related actions. As
a result of such litigation, some customers may cancel or postpone orders of
Avant!'s products. As of September 30, 1996, such cancellations and
postponements had not had a material financial impact on Avant!; however a
significant delay of orders in the future may impact Avant!'s business,
financial condition and results of operations. An adverse ruling in the
litigation could result in Avant!'s inability to sell certain of its products
and, as a result, could materially affect Avant!'s business, financial
condition and results of operations. In particular, Avant!'s place and route
products in dispute, ArcCell-BV and ArcCell-XO (which have been replaced by
Aquarius-BV and Aquarius-XO), accounted for approximately 20% of Avant!'s
supplemental consolidated revenues for the three-year period ended December
31, 1995, and approximately 20% of Avant!'s supplemental consolidated
revenues for the nine months ended September 30, 1996.
Deferred revenue increased from $5,476,000 at December 31, 1994 to
$9,143,000 at December 31, 1995, and to $11,096,000 at September 30, 1996,
due to the increase in the number of maintenance agreements and license
agreements where software and services are provided for a specific period and
revenue is recognized ratably over the contract period.
Costs of Software. Costs of software consist primarily of expenses
associated with product documentation and production costs as well as
amortization of capitalized software costs. Costs of software increased from
$1,361,000 in 1993 to $1,024,000 in 1994, and to $1,319,000 in 1995, and
increased from $979,000 in the first nine months of 1995 to $1,624,000 in the
first nine months of 1996. Costs of software included amortization of
capitalized software amounting to $145,000, $199,000 and $228,000 in 1993,
1994, and 1995, respectively, and $155,000 and $70,000 in the first nine
months of 1995 and 1996, respectively.
Costs of Services. Costs of services consist of costs of maintenance and
customer support and direct costs associated with providing other services.
Maintenance includes activities undertaken after the product is available for
general release to customers to correct errors and make routine changes and
additions. Customer support includes any installation assistance, training
classes, telephone question and answer services, newsletters, on-site
visits and software or data modifications. Costs of services increased from
$1,904,000 in 1993 to $2,940,000 in 1994, and increased to $4,845,000 in
1995, representing 44%, 35% and 35% of services revenue for 1993, 1994 and
1995,
<PAGE>
respectively, and increased from $3,410,000 in the first nine months of 1995
to $5,383,000 in the first nine months of 1996, representing 36% and 31% of
services revenue for the first nine months of 1995 and 1996, respectively.
The increases in costs of services were due primarily to an increase in
personnel and expenses necessary to support Avant!'s growing base of
installed software. The reduction in costs of services as a percentage of
service revenue reflects the improved utilization of Avant!'s customer
support resources in servicing its increased customer base.
Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of costs, including sales commissions, of all personnel involved in
the sales process. This includes sales representatives, marketing associates
and application engineers. Selling and marketing expenses also include costs
of advertising, public relations, conferences and trade shows. Selling and
marketing expenses increased from $7,966,000 in 1993 to $14,215,000 in 1994,
and to $21,906,000 in 1995, and increased from $15,277,000 in the first nine
months of 1995 to $20,502,000 in the first nine months of 1996. The increases
reflect higher sales commissions associated with increased sales volumes and
increases in sales and marketing personnel. Selling and marketing expenses
represented 35%, 37% and 33% of total revenue in 1993, 1994 and 1995,
respectively, and 33% and 28% of total revenue for the nine months ended
September 30, 1995 and 1996, respectively. The decrease in selling and
marketing expenses as a percentage of total revenue for these periods
resulted primarily from revenue growth and improved sales productivity. The
increase in selling and marketing expenses as a percentage of total revenue
in 1994 resulted from higher costs associated with increased international
sales compared to 1993. Avant! expects to hire additional sales and marketing
personnel and to increase promotion and advertising expenditures throughout
the remainder of 1996.
Research and Development Expenses. Research and development expenses
include all costs associated with the development of new products and
significant enhancements of existing products. Research and development
expenses increased from $6,488,000 in 1993 and $9,007,000 in 1994, and to
$14,224,000 in 1995, and increased from $9,981,000 in the nine months ended
September 30, 1995 to $13,504,000 in the nine months ended September 30,
1996. Research and development expenses represented 29%, 23% and 21% of total
revenue in 1993, 1994 and 1995, respectively, and 22% and 19% of total
revenue in the nine months ended September 30, 1995 and 1996, respectively.
The increases resulted from increased personnel-related costs associated with
the development of new products and significant enhancements of existing
products. Avant! anticipates that it will continue to devote substantial
resources to product research and development. During 1996, capitalized
software costs have not been material as products have been made available
for general release upon achievement of technological feasibility.
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased from $2,983,000 in 1993 to $4,069,000 in 1994, and to $6,301,000 in
1995, and increased from $4,395,000 in the nine months ended September 30,
1995 to $10,211,000 in the nine months ended September 30, 1996. The
increases were primarily due to increases in personnel and related costs
necessary to support Avant!'s growth and legal and other costs incurred in
the first nine months of 1996 relating to the litigation with Cadence.
General and administrative expenses represented 13%, 10% and 9% of total
revenue, in 1993, 1994, and 1995, respectively, and 9% and 14% of total
revenue in the first nine months of 1995 and 1996, respectively. The Company
charged to expenses approximately $4,400,000 during the nine month period
ended September 30, 1996, net of expected recoveries from insurance, related
to the Cadence litigation. Avant! expects these legal expenditures to
continue at least through the remainder of 1996 and into 1997.
Acquisition of Technology. In April 1994, the Company purchased and
expensed in-process library generation and automated cell characterization
technology now embodied in its MASTER Toolbox product. In November 1995, the
Company purchased a set of timing simulator algorithms. In September 1996,
the Company acquired rights to certain software technology under development.
As none of these acquired technologies had reached technological feasibility
at the time of acquisition, they were expensed on acquisition.
Merger Expenses. In connection with the merger with ISS, costs of
approximately $3,590,000 were incurred. These costs consisted primarily of
the following: (a) approximately $2,858,000 for transaction fees for
attorneys, accountants, investment bankers and other related charges; (b)
approximately $233,000 for the elimination of duplicate facilities and
equipment; (c) approximately $337,000 for severance; and (d) approximately
$162,000 for incremental travel, communications, consulting and other costs
associated with internal and customer related integration activities. In
connection with the merger with Anagram, costs of $920,000 were incurred.
These costs consisted primarily of the following: (a) approximately $300,000
for transaction fees for attorneys, accountants and other related charges;
(b) approximately $250,000 for the elimination of duplicate facilities and
equipment; and (c) approximately $370,000 for severance. In connection wtih
the merger with Meta, the Company expects to incur direct transaction costs
and merger-related integration expenses in the fourth quarter of 1996 of
approximately $5.6 million, consisting of transaction fees for investment
bankers, attorneys, accountants, financial printing and shareholder meetings
of approximately $2.5 million and severance costs, charges for duplicate
facilities, and certain other related costs of approximately $3.1 million.
Avant! expects to incur costs of approximately $1,000,000 in the fourth quarter
of 1996 related to the merger with FrontLine.
Income from Operations. Avant! had income from operations of $1,783,000
$5,996,000 and $11,915,000 in 1993, 1994 and 1995, respectively, and
$12,333,000 and $20,500,000 in the first nine months of 1995 and 1996,
respectively. The changes in operating results are attributable to revenue
growth net of increased expenses necessary to support Avant!'s growth.
Operating income represented 8%,
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16% and 18% of total revenue in 1993, 1994 and 1995, respectively, and 27%
and 28% of total revenue for the nine months ended September 30, 1995 and
1996, respectively.
Interest Income, Net. Net interest income was $149,000, $834,000, and
$2,761,000 in 1993, 1994 and 1995, respectively, and was $1,767,000 and
$3,108,000 in the first nine months of 1995 and 1996, respectively. Interest
income increased in 1994 and 1995 and the first nine months of 1996, due to
larger cash balances resulting primarily from the proceeds of the ISS public
offering which was completed in February 1994, the ArcSys public offering,
which was completed in June 1995, and the Meta public offering, which was
completed in November 1995. Interest income is shown net of interest expense
on capital leases.
Income Taxes. Avant! accounts for income taxes in accordance with SFAS
No. 109. Prior to 1995, Avant! had experienced net operating losses and had
established a valuation allowance against its deferred tax assets relating to
the resulting net operating loss carryforwards. As a result of the mergers
with ISS, Anagram, and Meta, the consolidated supplemental financial
statements have been restated and the valuation allowance was eliminated
during 1993. The provision (benefit) for income taxes as a percentage of
pre-tax income was (75%), 26%, 28%, 28% and 36% for 1993, 1994, 1995 and the
nine months ended September 30, 1995 and 1996, respectively. Meta was a
Subchapter S Corporation until the time of its initial public offering in
November 1995. Pro Forma income taxes reflect tax expense as if Meta had been
a C corporation in 1993, 1994 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $4,087,000, $5,921,000 and
$19,796,000 in 1993, 1994 and 1995, respectively, and $18,600,000 and
$8,749,000 in the nine months ended September 30, 1995 and 1996,
respectively. The increases in cash provided by operations primarily result
from increases in net income, deferred taxes and deferred revenue. Avant!
used $3,561,000, $23,462,000 and $28,082,000 of cash in 1993, 1994, and 1995,
respectively, and $36,774,000 and $46,930,000 in the nine months ended
September 30, 1995 and 1996, respectively, for investing activities. Net cash
used in investing activities relates primarily to net purchases of short-term
"available-for-sale" securities. These securities, which are accounted for in
accordance with SFAS No. 115, consist of short-term debt securities, U.S.
Government Agency debt securities, U.S. Treasury Bills, municipal/corporate
auction preferred stock, municipal bonds and demand deposit investments in
limited-maturity fixed-income mutual funds. Cash is also used to acquire
equipment, furniture and fixtures. Purchases of equipment, furniture and
fixtures primarily represent computer workstations and file servers for
Avant!'s employees. Avant! expects that purchases of equipment will likely
increase as Avant!'s employee base grows. Net cash provided by financing
activities was $2,867,000, $17,508,000, and $48,155,000 in 1993, 1994, 1995,
respectively, and $31,276,000 and $2,670,000 in the nine months ended
September 30, 1995 and 1996, respectively. The increase in cash provided by
financing activities primarily results from the sale of preferred and common
stock.
Avant!s stated payment terms generally are net 30 days. However, in
Avant!'s experience, many customers do not comply with stated payment terms
due to industry practice, slower payment by certain major companies and most
foreign customers and general economic conditions. Avant! periodically
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increases its allowance for doubtful accounts to reflect increased sales
levels and collection experience. Avant! believes that its allowance for
doubtful accounts is adequate.
As of September 30, 1996, Avant! had $103,488,000 of cash and short-term
investments and $112,624,000 in working capital. As of September 30, 1996,
Avant! had $22,556,000 in current liabilities, including $11,096,000 of
deferred revenue. As of September 30, 1996, there was no bank indebtedness
outstanding and Avant! had no long-term commitments other than technology
payable and operating and capital leases obligations.
Based on its operating plan, and absent any adverse judgments in the
pending litigation with Cadence, Avant! believes that it has available cash
and short-term investments sufficient to fund Avant!'s operations through at
least the next 12 months.
