<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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----------------------
Commission File Number 0-25864
AVANT! CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3133226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1208 East Arques Avenue
Sunnyvale, California 94086
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (408) 738-8881
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
The number of shares outstanding of the registrant's common
stock as of August 9, 1996 was 16,255,567.
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AVANT! CORPORATION
FORM 10-Q
For the Three Months Ended June 30, 1996
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 1
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
Exhibit Index 15
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AVANT! CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,303 $22,750
Short-term investments 67,230 46,969
Accounts receivable, net 4,799 5,906
Deferred income taxes 2,625 1,638
Other 6,074 1,708
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Total current assets 90,031 78,971
Equipment, furniture and fixtures, net 5,571 5,091
Capitalized software, net 102 150
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Total assets $95,704 $84,212
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 103 $ 145
Accounts payable 903 801
Accrued compensation 2,147 2,319
Accrued income taxes 527 362
Other accrued liabilities 2,829 1,531
Deferred revenue 7,910 5,029
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Total current liabilities 14,419 10,187
Capital lease obligations, less current portion 14 40
Deferred rent 91 110
Deferred income taxes 172 365
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Total liabilities 14,696 10,702
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Commitments and contingencies
Shareholders' equity:
Common stock, $.0001 par value; 50,000 and 25,000 shares
authorized; 16,147 and 15,910 shares issued and outstanding
at June 30, 1996 and December 31,1995, respectively 16 16
Additional paid-in capital 70,217 68,162
Deferred stock compensation (436) (517)
Net unrealized gain (loss) on short-term investments (142) 89
Retained earnings 11,353 5,760
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Net shareholders' equity 81,008 73,510
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Total liabilities and shareholders' equity $95,704 $84,212
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</TABLE>
See accompanying notes to consolidated financial statements.
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AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenue:
Software $10,989 $ 7,696 $21,468 $14,187
Services 3,139 1,174 5,701 2,141
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Total revenue 14,128 8,870 27,169 16,328
------- ------- ------- -------
Costs and expenses:
Costs of software 202 120 430 226
Costs of services 1,149 704 2,373 1,190
Selling and marketing 3,600 3,004 7,185 5,841
Research and development 2,854 1,781 5,622 3,307
General and administrative 2,748 748 4,610 1,443
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Total operating expenses 10,553 6,357 20,220 12,007
------- ------- ------- -------
Income from operations 3,575 2,513 6,949 4,321
Interest income 886 463 1,651 799
Interest expense (3) (13) (7) (27)
------- ------- ------- -------
Income before income taxes 4,458 2,963 8,593 5,093
Provision for income taxes 1,551 968 3,000 1,665
------- ------- ------- -------
Net income $ 2,907 $ 1,995 $ 5,593 $ 3,428
======= ======= ======= =======
Net income per common share $ 0.17 $ 0.13 $ 0.32 $ 0.23
======= ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding 17,548 15,346 17,430 15,126
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
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AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,593 $ 3,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,064 480
Amortization of capitalized software costs 48 113
Amortization of deferred stock compensation 81 52
Deferred income taxes (850) 1,492
Deferred rent (19) --
Changes in operating assets and liabilities:
Accounts receivable, net 1,107 (957)
Other current assets (4,366) 160
Accounts payable 102 143
Accrued compensation (172) 605
Accrued income taxes 165 121
Other accrued liabilities 1,298 (153)
Deferred revenue 2,881 847
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Net cash provided by operating activities 6,932 6,331
-------- --------
Cash flows from investing activities:
Purchases of short-term investments (88,692) (60,907)
Sales of short-term investments 68,200 56,042
Purchases of equipment, furniture and fixtures (1,544) (1,692)
Capitalized software development costs -- (63)
-------- --------
Net cash used in investing activities (22,036) (6,620)
-------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations (68) (141)
Exercise of stock options 1,095 3,587
Issuance of common stock under employee stock purchase plan 630 99
Proceeds from issuance of common stock, net -- 27,788
-------- --------
Net cash provided by financing activities 1,657 31,323
-------- --------
Net increase (decrease) in cash and cash equivalents (13,447) 31,034
Cash and cash equivalents, beginning of period 22,750 5,830
-------- --------
Cash and cash equivalents, end of period $ 9,303 $ 36,864
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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AVANT! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position and results of operations have been
made. Operating results for interim periods are not necessarily indicative of
results which may be expected for a full year. The information included in this
Form 10-Q should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the 1995
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K filed with the Commission.
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.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during each period presented. Fully
diluted and primary income per share are the same for each of the periods
presented. Common stock equivalents consist of stock options and awards (using
the treasury stock method).
3. STATEMENTS OF CASH FLOWS
Income taxes of $3,685,000 and $150,000 were paid during the six months ended
June 30, 1996 and 1995, respectively. Deferred stock compensation of $588,000
was recognized during the six months ended June 30, 1995 for stock options
issued below market value. Interest of $7,000 and $17,000 was paid during the
six months ended June 30, 1996 and 1995, respectively
4. INITIAL PUBLIC OFFERING OF STOCK
In June 1995, the Company closed its initial public offering of common stock
at $13 per share. The net proceeds of the offering were $27,713,000 after
deducting applicable issuance 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.
5. MERGER
On November 27, 1995, the Company issued approximately 6,400,000 shares of
its common stock for all of the outstanding common stock of Integrated Silicon
Systems, Inc. (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.
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6. LITIGATION
The Company is involved in various litigation as discussed in Item 1 of Part
II of this Form 10-Q. The Company has incurred costs of approximately
$2,450,000, net of expected recoveries from insurance. The receivable for
expected recoveries from insurance is included in other current assets.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion in this Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in
"Quarterly Results" and "Factors That May Impact Future Operations" as well as
those discussed in this section and elsewhere in this Form 10-Q, and the risks
discussed in the "Risk Factors" section included in the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange
Commission on June 6, 1995 (Reg. No. 33-91128), the Registration Statement on
Form S-4 as declared effective by the Securities and Exchange Commission on
October 23, 1995 (Reg. No. 33-96648), and other risks detailed from time to time
in the Company's Securities and Exchange Commission reports, including the
report on Form 10-K for the year ended December 31, 1995.
OVERVIEW
Avant! Corporation (the "Company") resulted from the merger of ArcSys, Inc.
(ArcSys) and Integrated Silicon Systems, Inc. (ISS) on November 27, 1995.
Results and discussion for all periods relate to the Company, unless otherwise
indicated. 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.
The Company develops, markets, and supports software products that assist
design engineers in the physical layout, design, verification, and analysis of
advanced integrated circuits (ICs). The Company's strategy is to focus on
productivity enhancing software for the integrated circuit computer-aided design
(IC CAD) segment of the electronic design automation (EDA) market.
ArcSys was founded in February 1991, and began shipping ArcCell, its
cell-based place and route software product, in 1993. ISS began shipping its
initial physical layout software products in 1988. ISS introduced VeriCheck, its
hierarchical physical verification software, in the third quarter of 1992. ISS
introduced its signal integrity analysis software in 1994. Substantially all of
the Company's revenue to-date was derived from the licensing and support of
ArcCell and VeriCheck.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue for certain
items in the Company's Consolidated Financial Statements (after giving effect to
rounding) for the periods indicated:
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue................................................100% 100% 100% 100%
Software................................................... 78 87 79 87
Services................................................... 22 13 21 13
Costs and expenses:
Costs of software.......................................... 1 1 1 1
Costs of services.......................................... 8 8 9 8
Selling and marketing...................................... 26 34 26 36
Research and development................................... 20 20 21 20
General and administrative................................. 19 9 17 9
--- ----- ---- -----
Total operating expenses................................ 74 72 74 74
--- ---- ---- ----
Income from operations.................................. 26 28 26 26
Other income, net............................................ 6 5 6 5
---- ----- ----- -----
Income before income taxes.............................. 32 33 32 31
Provision for income taxes................................... 11 11 11 10
--- ---- ---- ----
Net income.............................................. 21% 22% 21% 21%
=== ==== ==== ====
</TABLE>
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Revenue. Revenue consists primarily of fees for licenses of the
Company'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 the Company receives advance payment 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. 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.
The Company's total revenue increased 66% from $16,328,000 in the first six
months of 1995 to $27,169,000 in the first six months of 1996. The percentage of
the Company's total revenue attributable to software licenses decreased from 87%
in the first six months of 1995 to 79% in the first six months of 1996. The
Company's total revenue increased 59% from $8,870,000 in the second quarter of
1995 to $14,128,000 in the second quarter of 1996. The percentage of the
Company's total revenue attributable to software licenses decreased from 87% in
the second quarter of 1995 to 78% in the second quarter of 1996. This decrease
is primarily due to the increased user base and resulting increase in
maintenance revenue. Increases in total revenue were due primarily to increased
license revenue from the Company's place and route and physical verification
software. Revenue from international sources accounted for approximately 30% of
total revenue in the first six months of 1995 compared to 40% in the first six
months of 1996. To date, price increases have not been a material factor in the
Company's revenue growth. Software revenue increased 51% from $14,187,000 in the
first six months of 1995 to $21,468,000 in the first six months of 1996, and 43%
from $7,696,000 for the second quarter of 1995 to $10,989,000 for the second
quarter of 1996. Revenue from services increased 166% from $2,141,000 in the
first six months of 1995 to $5,701,000 in the first six months of 1996, and 167%
from $1,174,000 for the second quarter of 1995 to $3,139,000 for the second
quarter of 1996, reflecting the growing base of installed systems.
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As discussed in the notes to the consolidated financial statements and Item
1 of Part II, the Company is involved in litigation with Cadence Design Systems,
Inc., and other related actions (collectively "the Cadence litigation"). As a
result of the Cadence litigation, some customers may cancel or postpone orders
of the Company's products. As of June 30, 1996, there had not been a material
financial impact on the Company; however significant order delays in the future
may impact the Company's business, financial condition and results of
operations.
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
$226,000 in the first six months of 1995 to $430,000 in the first six months of
1996, and from $120,000 in the second quarter of 1995 to $202,000 in the second
quarter of 1996. Costs of software included amortization of capitalized software
amounting to $113,000 and $48,000 in the first six months of 1995 and 1996,
respectively, and $56,000 and $21,000 in the second quarter 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 $1,190,000 in
the first six months of 1995 to $2,373,000 in the first six months of 1996, and
from $704,000 in the second quarter of 1995 to $1,149,000 in the second quarter
of 1996. The increase in costs of services was due primarily to an increase in
personnel and expenses necessary to support the Company's growing base of
installed software. Customer service personnel increased from 28 persons at June
30, 1995 to 46 persons at June 30, 1996. The reduction in costs of services
revenue as a percentage of service revenue from 60% in the three months ended
June 30, 1995 to 37% in the three months ended June 30, 1996 reflects improved
utilization of the Company's customer support resources in servicing its
increasing 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,
benchmarking personnel and field application engineers. Selling and marketing
expenses also include costs of advertising, public relations, conferences and
trade shows. Selling and marketing expenses increased from $5,841,000 in the
first six months of 1995 to $7,185,000 in the first six months of 1996, and from
$3,004,000 in the second quarter of 1995 to $3,600,000 in the second quarter of
1996. The increase reflects increases in sales commissions associated with
increased sales volumes. As a percentage of total revenue, selling and marketing
expenses decreased from 36% in the first six months of 1995 to 26% in the first
six months of 1996, and from 34% in the second quarter of 1995 to 26% in the
second quarter of 1996. Sales and marketing personnel increased from 51 persons
at June 30, 1995 to 67 persons at June 30, 1996. The decrease in selling and
marketing expenses as a percentage of revenue in the first six months of 1995 as
compared to the first six months of 1996, and in the second quarter of 1995 as
compared to the second quarter of 1996 resulted primarily from economies of
scale and lower commission costs relating to certain international sales. The
Company expects to hire additional sales and marketing personnel and to increase
promotion and advertising expenditures throughout 1996.
Research and Development Expenses. Research and development expenses
include all costs associated with the development of new products and
significant enhancement of existing products. Research and development expenses
increased from $3,307,000 in the first six months of 1995 to $5,622,000 in the
first six months of 1996, and 60% from $1,781,000 in the second quarter of 1995
to $2,854,000 in the second quarter of 1996. Research and development expenses
represented 20% and 21% of total revenue in the first six months of 1995 and
1996, respectively, and 20% of total revenue in the second quarter of 1995 and
1996. The increases in research and development expenses resulted from increased
personnel-related costs associated with the development of new products and
enhancement of existing products. The Company anticipates that it will continue
to devote substantial resources to product research and development.
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Software development costs are accounted for in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 86, under which the Company is required to capitalize software
development costs once technological feasibility has been established. The
Company amortizes such amounts over three years. The amount of software
development costs capitalized in the first six months of 1995 was $63,000 and
none in the first six months of 1996, representing 2% and 0% of total research
and development costs, respectively. The amount of software development costs
capitalized in the second quarter of 1995 was $8,000 and none in the second
quarter of 1996, representing 1% and 0% of total research and development costs,
respectively. During 1996, capitalized software costs have not been material as
products have been made available for general release upon achievement of
technological feasibility. The number of personnel associated with the
development of new products and enhancement of existing products increased from
80 at June 30, 1995 to 99 persons at June 30, 1996.
General and Administrative Expenses. General and administrative expenses
increased from $1,443,000 in the first six months of 1995 to $4,610,000 in the
first six months of 1996, and from $748,000 in the second quarter of 1995 to
$2,748,000 in the second quarter of 1996. As a percentage of total revenue,
general and administrative expenses increased from 9% in the first six months of
1995 to 17% in the first six months of 1996, and from 9% in the second quarter
of 1995 to 19% in the second quarter of 1996. The increase was primarily due to
legal and other costs incurred in the first half of 1996 relating to the Cadence
litigation. The Company has incurred costs of approximately $2,450,000, net of
expected recoveries from insurance related to the Cadence litigation. The
receivable for expected recoveries from insurance is included in other current
assets. The Company expects these legal expenditures to continue at least
through the remainder of 1996.
Income from Operations. The Company had operating income of $4,321,000 in
the first six months of 1995 and $6,949,000 in the first six months of 1996. The
Company had operating income of $2,513,000 in the second quarter of 1995 and
$3,575,000 in the second quarter of 1996. The change in operating results is
attributable to revenue growth net of increased expenses necessary to support
the Company's growth. Operating income represented 26% of total revenue in the
first six months of 1995 and 1996, and 28% and 26% in the second quarters of
1995 and 1996, respectively.
Interest Income and Expense. Interest income was $799,000 in the first six
months of 1995, $1,651,000 in the first six months of 1996, $463,000 in the
second quarter of 1995, and $886,000 in the second quarter of 1996. Interest
income increased in 1996 over 1995 due to larger cash balances resulting
primarily from the proceeds of the Company's public offering which was completed
in June, 1995. Interest expense represents interest paid on capital leases.
Income Taxes. The Company accounts for income taxes in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109. The provision for income taxes was $1,665,000 in the first
six months of 1995 and $3,000,000 in the first six months of 1996, $968,000 in
the second quarter of 1995 and $1,551,000 in the second quarter of 1996. The
provision for income taxes as a percentage of pre-tax income was 33% for the
first six months and second quarter of 1995 and 35% for the first six months and
second quarter of 1996.
QUARTERLY RESULTS
The Company's quarterly results have varied in the past and may be subject
to fluctuations resulting from a variety of factors, including purchasing
patterns of customers, the completion of product evaluations by customers, the
timing of product enhancements and product introductions by the Company and its
competitors, the timing of significant orders, and the resolution of pending
litigation. The customer evaluation process for the Company's products is
lengthy, and the timing and outcome of such evaluations have affected the
Company's historical quarterly performance and may impact future quarterly
results. A substantial portion of the Company's revenue in each quarter results
from orders received in the same quarter. The Company's expense levels are
based, in part, on its expectations as to future revenue. The Company continues
to expand and increase its operating expenses in order to generate and support
future
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revenue. If revenue levels are below expectations, operating results are
likely to be disproportionately affected because only a small portion of the
Company's expenses varies with its revenue. As a result, the Company believes
that period to period comparisons of financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Due to the factors noted above, the Company's future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Any shortfall in revenues or earnings from levels expected by securities
analysts could have an immediate and significant adverse effect on the trading
price of the Company's common stock. Additionally, the Company may not learn of
such shortfalls until late in a fiscal quarter, which could result in an even
more immediate and adverse effect on the trading price of the Company's common
stock. The Company's stock price may also be affected by broader market trends
that may be unrelated to the Company's performance.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $6,331,000 in the first six months of
1995 and $6,932,000 in the first six months of 1996. The Company used $6,620,000
and $22,036,000 of net cash in the first six months of 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, which were $4,865,000 in the first six months of 1995 and
$20,492,000 in the first six months of 1996. The securities, which are accounted
for in accordance with Statement of Financial Accounting Standards No. 115,
consist of short-term debt securities, US 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 was also used to acquire equipment, furniture and fixtures, primarily
computer workstations and file servers for the Company's employees. The Company
expects that purchases of equipment will likely increase as the Company's
employee base grows.
The Company's stated payment terms generally are net 30 days. However, in
the Company'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. The Company periodically
increases its allowance for doubtful accounts to reflect increased sales levels
and collection experience. The Company believes that its allowance for doubtful
accounts is adequate.
As of June 30, 1996, the Company had $76,533,000 of cash and short-term
investments and $75,612,000 of working capital. As of June 30, 1996, the Company
had $14,419,000 in current liabilities, including $7,910,000 of deferred
revenue. As of June 30, 1996, there was no bank indebtedness outstanding and the
Company had no long-term commitments other than operating lease obligations.
Based on its operating plan, the Company believes that it has available
cash and short-term investments sufficient to fund the Company's operations for
at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's products compete with similar products from both larger and
smaller EDA vendors, and with dissimilar EDA products for a share of their
customers' EDA budgets. The EDA industry, and as a result the Company's
business, has benefited from the rapid world-wide growth of the semiconductor
industry. There can be no assurance that this rapid growth will continue. The
EDA industry as a whole may experience pricing and margin pressures from a
decrease in growth in the semiconductor industry, or other changes in the
overall computing environment. In fact, during 1996 the semiconductor industry
has experienced slower growth than in 1995. In addition, the EDA industry is
experiencing consolidation as the major EDA vendors are seeking to provide a
complete range of EDA products to customers. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, or that market conditions faced by the Company will not adversely
affect its operating results and financial condition.
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The Company's future success depends upon its ability to improve current
products and develop new products that address the increasingly sophisticated
needs of its customers. There can be no assurance that the Company will continue
to be successful in developing technologically acceptable products on a timely
basis. The Company's ability to develop and improve products is dependent on key
individuals for their technical and other contributions. There can be no
assurance that the Company can continue to attract and retain these key
personnel. Loss of certain key personnel could result in loss of the Company's
market advantage and could adversely affect its business, operating results and
financial condition.
The Cadence litigation may result in canceled or postponed customer orders
and increased future expenditures. Since only a small portion of the Company's
expenses varies with revenue, canceled orders or significant expenses related to
the Cadence litigation may have an adverse affect on the Company's business,
operating results and financial condition.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 the Company appropriated and improperly copied source code 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 ArcCell products and has recently
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. The
preliminary injunction hearing is presently scheduled to take place on September
10, 1996.
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.
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.
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. 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 consolidated financial position.
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 consolidated financial position, there can be no assurance that an
adverse judgment, if granted, in any claim would not have a material adverse
effect on the Company's business, consolidated financial position, or
consolidated results of operations.
On May 12, 1995, Charles E. Cump, the Company's former Vice President,
Worldwide Sales and Marketing filed a complaint against the Company and the
Company's Chief Executive Officer in Superior Court, Santa Clara County. The
complaint alleges breach of contract, violation of public policy and several
tort claims in connection with the Company's alleged failure to pay the former
employee certain commissions and with respect to the modification of the
Company's commission plan. In addition, Mr. Cump claims that certain stock
options were improperly taken from him. Mr. Cump is seeking compensatory damages
according to proof, punitive damages, costs of suit and such other relief as the
court deems proper. The Company has conducted an internal investigation and
reviewed the matter with counsel, and believes that it has meritorious defenses
to these claims, and intends to defend this suit vigorously. Although there can
be no assurance that Mr. Cump will not prevail in whole or in part with respect
to his claims, the Company does not believe that the resolution of this suit
would have a material adverse effect on its business, consolidated operating
results and consolidated financial condition.
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 consolidated financial position if unfavorably resolved.
12
<PAGE> 15
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 30, 1996, the Annual Meeting of Shareholders of the Registrant
was held at which the following matters were submitted to and voted on by the
shareholders. The results of the votes are set forth below:
1. The following persons were elected to the Board of Directors to
serve one year terms expiring at the 1997 Annual Meeting of Shareholders. Each
person received the number of votes next to their names below.
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
<S> <C> <C> <C>
Gerald C. Hsu 12,656,050 25,631
Y. Eric Cho 12,656,050 25,631
Robert C. Kagle 12,656,050 25,631
Tench Coxe 12,656,050 25,631
Tatsuya Enomoto 12,607,050 74,631
</TABLE>
2. Shareholders approved an amendment to the Company's 1995 Stock
Option/Stock Issuance Plan authorizing an increase of the
maximum number of shares of Common Stock issuable under the
Plan by 750,000 shares to a total of 3,065,575 shares.
9,044,800 votes were for the amendment, 3,210,952 votes were
against the amendment, 5,400 votes were withheld and 420,529
votes were broker non-votes.
3. Shareholders approved an amendment to the Company's
Certificate of Incorporation increasing the number of shares
of Common Stock authorized for issuance by 25,000,000 shares
to 50,000,000 shares. 12,015,049 votes were for the amendment,
239,805 votes were against the amendment, 6,298 votes were
withheld and 420,529 votes were broker non-votes.
4. Shareholders approved the election of KPMG Peat Marwick LLP
as the auditors of the Company for the year ending December
31, 1996. 12,574,900 votes were for the election, 106,259
votes were against the election, and 522 votes were withheld.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q
are listed on the Exhibit Index immediately preceding such
exhibits and are incorporated herein by reference.
(b) Reports on Form 8-K
None
13
<PAGE> 16
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 thereunto duly authorized.
Avant! Corporation
(Registrant)
August 12, 1996 /s/ GERALD C. HSU
- --------------- ---------------------------------------------
Gerald C. Hsu
President and
Chief Executive Officer
August 12, 1996 /s/ JOHN P. HUYETT
- --------------- ---------------------------------------------
John P. Huyett
Vice President of Finance,
Chief Financial Officer
and Principal Accounting
Officer
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Number Description Page Number
<S> <C> <C>
Exhibit 11.1 Computations of Income Per Share 16
Exhibit 27.1 Financial Data Schedules 17
</TABLE>
15
<PAGE> 1
Exhibit 11.1 Computations of Income Per Share
AVANT! CORPORATION
STATEMENTS RE: COMPUTATIONS OF INCOME PER SHARE
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,907 $ 1,995 $ 5,593 $ 3,428
======== ========= ======== ========
Common shares outstanding
(weighted average) 16,077 13,926 16,002 13,899
Common stock equivalents
(using the treasury stock method):
Stock Options and Awards
(weighted average) 1,471 1,420 1,428 1,227
--------- ---------- --------- ----------
Total 17,548 15,346 17,430 15,126
========= ========= ======== =========
Net income per common share $ 0.17 $ 0.13 $ 0.32 $ 0.23
========= ========== ========= =========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME FILED AS PART OF THIS FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
ON THIS FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,303
<SECURITIES> 67,230
<RECEIVABLES> 5,147
<ALLOWANCES> 348
<INVENTORY> 0
<CURRENT-ASSETS> 90,031
<PP&E> 8,881
<DEPRECIATION> 3,310
<TOTAL-ASSETS> 95,704
<CURRENT-LIABILITIES> 14,419
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 80,992
<TOTAL-LIABILITY-AND-EQUITY> 95,704
<SALES> 21,468
<TOTAL-REVENUES> 27,169
<CGS> 430
<TOTAL-COSTS> 2,803
<OTHER-EXPENSES> 12,807
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 8,593
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 5,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,593
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
