AVANT CORP, 10-Q, 1998-05-15

AVANT CORP
10-Q, 1998-05-15
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<PAGE>

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 MARCH 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______ to _______

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

Commission File Number 0-25864

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.)

46871 Bayside Parkway
Fremont, California 94538
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (510) 413-8000

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 April
30, 1998 was 32,454,280.

<PAGE>

AVANT! CORPORATION

FORM 10-Q

March 31, 1998

INDEX

PART 1. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 1

Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 2

Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 3

Notes to Consolidated Financial Statements 4

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9

PART 2. OTHER INFORMATION
- --------------------------

Item 1. LEGAL PROCEEDINGS 14

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17

Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17

SIGNATURE PAGE 18

EXHIBIT INDEX 19
</TABLE>

<PAGE>

PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AVANT! CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>

March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 71,921 $ 77,523
Short-term investments 57,355 57,394
Accounts receivable, net 25,957 24,777
Due from affiliates 6,764 6,171
Deferred income taxes 8,570 7,658
Prepaid expenses and other current assets 14,226 11,644
---------- ----------
Total current assets 184,793 185,167
Equipment, furniture and fixtures, net 32,328 33,649
Deferred income taxes 13,490 16,208
Intangibles 17,474 15,461
Other assets 12,320 3,851
---------- ----------
Total assets $ 260,405 $ 254,336
---------- ----------
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,691 $ 7,009
Accrued compensation 9,106 9,000
Other accrued liabilities 15,274 14,195
Accrued income taxes 9,132 6,717
Deferred revenue 22,382 17,945
---------- ----------
Total current liabilities 59,585 54,866
Other noncurrent liabilities 1,047 1,294
---------- ----------
Total liabilities 60,632 56,160
---------- ----------

Commitments and contingencies

Shareholders' equity:
Series A convertible preferred stock, $.0001 par value; 5,000 shares
authorized; no shares issued and outstanding in 1998 and 1997 - -
Common stock, $.0001 par value; 75,000 authorized; 32,413
and 32,282 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 3 3
Additional paid-in capital 174,788 174,180
Deferred stock compensation (2,396) (2,698)
Other accumulated comprehensive income (loss) 23 (50)
Retained earnings 27,355 26,741
---------- ----------
Total shareholders' equity 199,773 198,176
---------- ----------
Total liabilities and shareholders' equity $ 260,405 $ 254,336
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>

Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Software $36,846 $27,320
Services 15,170 8,927
------- -------
Total revenue 52,016 36,247
------- -------
Costs and expenses:
Costs of software 1,177 732
Costs of services 3,462 3,519
Selling and marketing 13,769 9,951
Research and development 13,350 7,598
General and administrative 5,166 4,297
Merger expenses 10,747 -
------- -------
Total operating expenses 47,671 26,097
------- -------
Income from operations 4,345 10,150
Interest income and other, net 2,122 1,375
------- -------
Income before income taxes 6,467 11,525
Provision for income taxes 5,853 4,193
------- -------
Net income $ 614 $ 7,332
------- -------
------- -------

Earnings per share - Basic:
Earnings per share $ 0.02 $ 0.24
------- -------
------- -------
Total weighted average number
of common shares outstanding 32,364 30,032
------- -------
------- -------

Earnings per share - Diluted:
Earnings per share $ 0.02 $ 0.22
------- -------
------- -------
Total weighted average number
of common and common equivalent
shares outstanding 33,433 32,912
------- -------
------- -------

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>

Three Months Ended
March 31,
-----------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 614 $ 7,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,357 1,185
Deferred compensation expense 302 436
Deferred income taxes 1,806 578
Tax benefit related to stock options 28 500
Equity (income) loss in joint ventures (1,039) 140
Deferred rent 120 -
Allowance for doubtful accounts (27) 105
Changes in operating assets and liabilities:
Accounts receivable (1,153) (188)
Due from affiliates (593) -
Prepaid expenses and other assets (4,746) 303
Accounts payable (3,318) 4
Accrued compensation 106 779
Accrued income taxes 2,415 1,846
Other accrued liabilities 745 (2,766)
Deferred revenue 4,437 1,908
-------- ---------
Net cash provided by operating activities 4,054 12,162
-------- ---------

Cash flows from investing activities:
Purchases of short-term investments (275,211) (49,997)
Maturities and sales of short-term investments 275,323 71,038
Purchases of equipment, furniture and fixtures (2,164) (2,647)
Purchase of equity investments (6,250) -
Additional purchase price related to Compass acquisition (1,901) -
Collection of notes receivable - 250
-------- ---------
Net cash provided by (used in) investing activities (10,203) 18,644
-------- ---------

Cash flows from financing activities:
Principal payments under capital lease obligations (33) (54)
Payments on technology acquisition payable - (160)
Exercise of stock options 222 1,708
Issuance of common stock under employee stock purchase plan 358 744
-------- ---------
Net cash provided by financing activities 547 2,238
-------- ---------

Net increase (decrease) in cash and cash equivalents (5,602) 33,044
Cash and cash equivalents, beginning of period 77,523 54,141
-------- ---------
Cash and cash equivalents, end of period $ 71,921 $ 87,185
-------- ---------
-------- ---------

Supplemental Disclosure:
Cash paid during the period for:
Interest $ - $ 30
Income taxes paid (refund), net $ 515 $ (530)
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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. The consolidated financial
statements have been restated to reflect the effect of the mergers with
Anagram, Inc. ("Anagram"), Meta-Software Inc. ("Meta"), FrontLine Design
Automation, Inc. ("Frontline"), and Technology Modeling Associates, Inc.
("TMA"). 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 the Company's annual report on Form 10-K for the
year ended December 31, 1997, filed with the Securities and Exchange
Commission (SEC).

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. Certain financial
statement items have been reclassified to conform to the current period's
presentation.

2. NET INCOME PER SHARE

Basic earnings per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted earnings per share
is computed using the weighted-average number of common shares outstanding
and common stock equivalent shares from stock options, warrants and
convertible preferred stock outstanding, when dilutive, using the treasury
stock method. Excluded from the computation of diluted earnings per share for
the three months ended March 31, 1998 and March 31, 1997, are options to
acquire 2,039,000 and 591,000 shares, respectively, of Common Stock with a
weighted-average exercise price of $24.35 and $36.03, respectively, because
their effects would be anti-dilutive. Earnings per share information for
prior periods have been restated to conform to the requirements of the
standard.

<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
----------------
<S> <C> <C>
Diluted EPS:

Net income $ 614 $ 7,332
--------- --------
Weighted average number of common shares outstanding 32,364 30,032
Stock options 1,069 2,880
--------- --------
Total weighted average number of common and common
equivalent shares outstanding 33,433 32,912
--------- --------
Diluted earnings per share $ 0.02 $ 0.22
--------- --------
--------- --------
</TABLE>

3. RECENT PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for
reporting and disclosure of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. The Company has not
determined the manner in which it will present the information required by
SFAS No. 130 in its annual financial statements for the year ending December
31, 1998. The Company's total comprehensive income for all periods presented
herein would not be materially different from those amounts reported as net
income in the consolidated statements of income.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. The Statement establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about

<PAGE>

operating segments in interim financial reports issued to shareholders. This
Statement is effective for financial statements for periods beginning after
December 15, 1997. The Company has not yet determined whether it has any
separately reportable business segments.

4. MERGERS

On January 16, 1998, the Company issued approximately 5,396,000 shares
of its common stock in exchange for all of the outstanding shares of common
stock of TMA, a supplier of electronic design automation software. In
addition, options and subscription rights to acquire TMA's common stock were
exchanged for options and subscription rights to purchase approximately
1,141,000 of the Company's common stock. The merger was accounted for as a
pooling of interests, and accordingly, the Company's consolidated financial
statements have been restated to include the financial position and results
for TMA for all periods presented.

The results of operations previously reported by the separate entities,
Avant! and TMA, and the combined amounts presented in the accompanying
consolidated financial statements are summarized below:

<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Revenue:
Avant! $ 51,436 $ 31,193
TMA 580 5,054
-------- --------
$ 52,016 $ 36,247
-------- --------
-------- --------
Net income:
Avant! $ 1,254 $ 6,824
TMA (640) 508
-------- --------
$ 614 $ 7,332
-------- --------
-------- --------
</TABLE>

In connection with the merger with TMA in January, 1998, the Company
charged direct transaction costs and merger-related integration expenses of
approximately $10,747,000, consisting of transaction fees for investment
bankers, attorneys, accountants, financial printing and shareholder meetings
of approximately $5,400,000, charges for the elimination of duplicate
facilities of approximately $2,247,000 and severance costs and certain other
related costs of approximately $3,100,000. As of March 31, 1998, the Company
had $5,560,000 remaining in accrued merger expenses, which the Company
expects to pay in 1998.

On April 9, 1998, the Company's subsidiary, Galax!, announced the
signing of a letter of intent to acquire Arcus Technology Limited, an ASIC
solutions company. The closing of the transaction is subject to regulatory
and other customary closing conditions.

4. LITIGATION

The Company is involved in various litigation matters as discussed below
as well as in Item 1 of Part 2 of this Form 10-Q. The Company has charged to
expenses approximately $1,800,000 and $1,480,000 in litigation expenses
during the three months ended March 31, 1998 and 1997, respectively.

CADENCE LITIGATION.

On December 6, 1995, Cadence Design Systems, Inc. ("Cadence") filed an
action against the Company and certain of its officers in the United States
District Court for the Northern District of California 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 of the Company's
employees who were formerly Cadence employees allegedly misappropriated and
improperly copied source code for certain important functions of the
Company's place and route products from Cadence, and that the Company has
allegedly 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. The matter is currently awaiting trial,
pending further pretrial matters. A trial date has not been set. On July
25, 1997, the District Court stayed the Cadence civil action pending
completion of the criminal proceedings described below, except for limited
discovery on certain matters approved by the District Court. Avant! posted a
$5 million bond pending the resumption of the civil action.

<PAGE>

In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence is seeking to enjoin the sale of the Company's place and
route products pending trial of the action. On March 18, 1997, the District
Court granted in part and denied in part Cadence's motion for a preliminary
injunction. Cadence appealed the order denying a preliminary injunction. On
September 23, 1997, the United States Court of Appeals for the Ninth Circuit
overruled the District Court's denial of Cadence's motion with respect to the
Company's ArcCell product, a product Avant! no longer sells, and held that a
preliminary injunction should be granted against the further sale of the
ArcCell product. The Court of Appeals did not enjoin the Company's Aquarius
place and route products, but rather remanded this aspect of Cadence's motion
to the District Court for further consideration. The Court of Appeals stated
that, if the Company's Aquarius products are determined to infringe Cadence
products, the sale of Aquarius products should be enjoined. The Company
requested a rehearing on the issue, but on November 21, 1997, the Ninth
Circuit denied this request. On December 19, 1997, the District Court
entered an injunction against continued sales or licensing of any product or
work copied or derived from Cadence's Design Framework II, specifically
including, but not limited to, ArcCell products. The injunction also barred
the Company from possessing or using any copies or any portion of the source
code or object code for ArcCell or any other product, to the extent that
portion is copied or derived from Cadence's Design Framework II. (The
Company no longer sells or licenses ArcCell products or code). The
injunction also required the Company to inform its customers of the
injunction, to obtain confirmation as to whether the customers have a
functioning copy of ArcCell or other such product, and to provide certain
information to the court. On January 25, 1998, the District Court entered a
modified preliminary injunction "to remove any implication that the Company's
customers are authorized by the preliminary injunction to continue to use the
enjoined products without exposure to claims of copyright violation."
Cadence continues to allege that the Company's Aquarius products infringe
Cadence's Design Framework II and the District Court is allowing Cadence to
take discovery concerning the Company's Aquarius and Apollo products to
determine whether those products infringe. At the December 19, 1997 hearing,
the District Court did not rule on Cadence's request to enjoin the sale,
license or support of the Company's Aquarius place and route products from
which the Company derives a significant portion of its total revenue. On
February 28, 1998, the District Court requested an additional briefing
regarding whether Aquarius or Apollo should be enjoined. On April 23, 1998,
the District Court indicated that it will not enjoin the sale of Aquarius
based on the information before the court. On April 23, 1998, the District
Court judge indicated that it will partially lift the stay. A written order
which addresses these issues is expected to be issued by the District Court
shortly. The District Court will hold future hearings regarding the Aquarius
products. There can be no assurance that the District Court will not, upon
further consideration, grant a preliminary injunction with respect to the
sale of the Aquarius or Apollo products, which could have a material adverse
effect on the Company's business, financial position and results of
operations.

On January 16, 1996, the Company filed a counterclaim against Cadence
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. On December 19, 1997, the Company
stipulated to temporarily dismissing its counterclaim in order to file more
detailed allegations. The Company refiled its counterclaim on January 29,
1998.

The Company believes it has defenses to all of Cadence's claims and
intends to defend itself vigorously. If, however, the Company's defenses are
unsuccessful, the Company may ultimately be permanently enjoined from selling
certain place and route products and may be required to pay damages to
Cadence. In addition, upon further consideration by the District Court, the
Company could be preliminarily enjoined from selling its Aquarius or Apollo
place and route products. In such event, the Company's business, financial
condition and results of operations would be materially adversely affected.
In addition, it is likely that an adverse judgment against the Company would
result in a steep decline in the market price of the Company's Common Stock.
Although it is reasonably possible the Company may incur a loss upon
conclusion of these claims, an estimate of any loss or range of loss cannot
be made, based on information the Company presently possesses. There can be
no assurance that an adverse judgement, if granted on any claim would not
have a material adverse effect on the Company's business, financial position
or results of operations. Furthermore, there can be no assurance that the
Company's relationships with its customers and/or partners will not be
adversely affected in the future as a result of the Cadence litigation.

CRIMINAL COMPLAINT.

<PAGE>

criminal complaint could result in criminal fines against the Company, as
well as the potential incarceration of certain members of its management
team. Such outcomes could result in canceled or postponed orders, increased
future expenditures, the loss of management and other key personnel,
additional shareholder litigation, loss of goodwill and would have other
material adverse effects on the Company's business, financial position and
results of operations.

SILVACO LITIGATION.

In March 1993, Meta, which the Company acquired in October 1996 and
which is now a wholly owned subsidiary of the Company, filed a complaint in
the Superior Court of California for Santa Clara County against Silvaco Data
Systems, Inc. and related parties (collectively, "Silvaco") seeking monetary
damages and injunctive relief. Meta's complaint alleged, among other things,
that Silvaco breached its representative agreement with Meta by withholding
customer payments for products and services that had been delivered, and by
failing to pay royalties on software that Silvaco sold to others. In August
1995, Meta was awarded $529,828 under the Superior Court's judicial
arbitration program. Both parties rejected the award and requested a trial de
novo on the issues involved. In August 1995, Silvaco filed a cross-complaint
against Meta alleging, among other things, that Meta owes Silvaco royalties
and license fees pursuant to a product development and marketing program and
unpaid commissions related to Silvaco's sale of Meta's products and services
under such program. Meta filed an answer to the cross-complaint denying the
allegations contained therein. In July 1996, Silvaco filed a first amended
cross-complaint, adding Shawn Hailey, then the President, Chief Executive
Officer and a major shareholder of Meta, and, until July 1997, the Senior
Vice President of the Company's Silicon Division, as a personal defendant,
and further alleging defamation, interference with economic advantage, unfair
competition and abuse of process by acts or statements made by Meta or its
agents.

In August 1997, the Superior Court entered a default judgment against
Mr. Hailey for failure to timely answer the complaint. In October 1997, Mr.
Hailey's application for relief from the default judgment was denied. In
August 1997, the Superior Court entered a default judgment against Meta as to
the defamation and interference with economic advantage claims. On October
31, 1997, Meta's application for relief from the default judgment was denied.
On October 28, 1997, Silvaco first presented its theory of damages and a
trial began on November 3, 1997. On November 4, 1997, the Superior Court
dismissed Meta's remaining affirmative claims. On November 5, 1997, the
Superior Court awarded Silvaco $20 million in damages against Mr. Hailey and
Meta related to the defamation and interference with economic advantage
claims, and on November 6, 1997, the Superior Court awarded Silvaco $11.4
million in damages related to the unfair competition claim. On November 12,
1997, the Superior Court awarded nominal damages to Silvaco related to the
product development claim. Silvaco's claims based on the marketing program
and abuse of process were dismissed. The Company filed appeals on behalf of
Shawn Hailey, and, on its own behalf. A default judgment in the aggregate
amount of $31.4 million was entered against the Company. As required, the
Company posted a bond on behalf of itself and Shawn Hailey in excess of the
amount necessary to satisfy the judgment. The bond is collateralized by a
$23,583,000 letter of credit.

Meta intends to pursue all remedies available to it in connection with
the litigation with Silvaco. Meta believes it has substantial appellate
issues that could cause the judgment to be remanded to the trial court for
further proceedings. Should Meta be permitted to participate fully in
further trial court proceedings, Meta believes it would have substantial
defenses to Silvaco's claims. However, there can be no assurance that any
such remedies will be successful. Although it is reasonably possible Meta
will incur a loss in relation to this claim, it is currently unable to
estimate the actual loss or range of loss. Payment of the damages previously
awarded, and damages which may be awarded in the future, would have a
material adverse effect on the Company's business, financial condition and
results of operations.

On March 31, 1998, Silvaco Data Systems and Silvaco International, Inc.
filed an additional lawsuit, against the Company and Roy Jewell, the
Company's CEO Staff, Corporate Affairs and General Manager of the TCAD
Business Unit, in the Superior Court of California for Santa Clara County.
The complaint alleges causes of action for defamation, negligent and
intentional interference with economic advantage, and unfair competition and
business practices based on statements allegedly made by the Company that
Silvaco claims disparaged Silvaco and its TCAD products. Silvaco is seeking
$20 million in compensatory damages, punitive damages, and an injunction. The
time for the Company to file a response to this complaint has not yet passed.
The Company intends to defend itself vigorously against the allegations made
in this litigation. The Company believes it has defenses to these claims and
intends to defend itself vigorously. Although it is reasonably possible the
Company will incur a loss in relation to these claims, it is currently unable
to estimate the actual loss or range of loss. In the event the Company's
defenses are unsuccessful, the Company may be required to pay damages to the
plaintiffs, and such a judgment could have a material adverse effect on the
Company's business, financial condition and results of operations.

<PAGE>

PESIC LITIGATION.

In September 1996, Katherine Ngai Pesic and Ivan Pesic commenced an
action in the Superior Court of California for Santa Clara County naming as
defendants the Company (as successor in interest to Meta), Shawn Hailey,
Meta's former Chief Executive Officer, and Thomas N. White, Jr. and George S.
Cole, both of whom were Meta's former counsel in the Silvaco matter,
described above. The action asserts claims for invasion of privacy under
California common law and the California Constitution and seeks compensatory
and punitive damages. The Company has answered the complaint, but no trial
date has been set. The Company believes it has defenses to these claims and
intends to defend itself vigorously. Although it is reasonably possible the
Company will incur a loss in relation to these claims, it is currently unable
to estimate the actual loss or range of loss. In the event the Company's
defenses are unsuccessful, the Company may be required to pay damages to the
plaintiffs, and such a judgment could have a material adverse effect on the
Company's business, financial condition and results of operations.

MICROUNITY LITIGATION.

On October 14, 1997, Microunity Systems Engineering, Inc. filed in the
United States District Court for the Northern District of California a
complaint against Precim Corporation ("Precim"). Precim was a wholly owned
subsidiary of TMA, which was acquired by the Company in January, 1998. This
lawsuit alleges liability for patent infringement, unfair competition, and
tortious interference with prospective economic advantage. The action
requests unspecified damages and an injunction against Precim. Precim has
accepted service of the complaint but has not yet responded. Precim believes
it has defenses to these claims and intends to defend itself vigorously.
Although it is reasonably possible the Company will incur a loss in relation
to these claims, it is currently unable to estimate the actual loss or range
of loss. In the event Precim's defenses are unsuccessful, Precim may be
required to pay damages to the plaintiffs, and such a judgment could have a
material adverse effect on the Company's business, financial condition and
results of operations.

SECURITIES CLASS ACTION CLAIMS.

On December 15, 1995, Paul Margetis and Helen Margetis filed in the
United States District Court for the Northern District of California a
securities fraud class action complaint against the Company. In addition, on
December 19, 1995, Fred Tarca filed in the United States District Court for
the Northern District of California a class action complaint against the
Company for violations of the federal securities laws. These class action
lawsuits allege certain securities law violations, including omissions and/or
misrepresentation of material facts. The alleged omissions and/or
misrepresentations are largely consistent with those outlined in the Cadence
claim, described above. In February 1997, plaintiff Tarca voluntarily
dismissed his action and the Margetis plaintiffs were certified as class
representatives in their action. On July 25, 1997, a federal judge stayed
the Margetis action, except for certain documentary and third-party
discovery, pending resolution of the Cadence suit.

On May 30, 1997, Joanne Hoffman filed in the United States District
Court for the Northern District of California a purported class action
alleging securities claims on behalf of purchasers of the Company's stock
between March 29, 1996 and April 11, 1997, the date of the filing of the
criminal complaints against the Company and six of its employees and/or
officers. Plaintiff alleges that the Company and various of its officers
misled the market as to the likelihood of criminal charges being filed and as
to the validity of the Cadence allegations. The Company moved to dismiss the
Hoffman complaint for failure to state a claim, but the District Court in
December 1997 denied the motion. The court also denied without prejudice
plaintiff Hoffman's motion for appointment as lead plaintiff. Plaintiff
Hoffman has filed a new motion as lead plaintiff, which the Company has
opposed. The Company is awaiting a ruling from the court. Counsel for
plaintiff has indicated that the stay of the Margetis securities class action
pending resolution of the Cadence suit will likely apply to this securities
action as well.

The Company believes it has defenses to all of the securities class
action claims, described above, and intends to defend itself vigorously.
There can be no assurance, however, that the Company's defenses will be
successful. Although it is reasonably possible the Company will incur a loss
in relation to these claims, it is currently unable to estimate the actual
loss or range of loss, either individually or in aggregate. In the event
the Company's defenses are unsuccessful, the Company may be required to pay
damages to the securities class action plaintiffs, and such a judgment would
likely have a material adverse effect on the Company's business, financial
condition and results of operations.

<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Act of 1934, including statements
regarding the Company's expectations, beliefs, hopes, intentions or
strategies regarding the future. Forward looking statements include
statements regards future sales, market growth and competition. All forward
looking statements included in this document are based upon information
available to the Company as of the date hereof, and the Company assumes no
obligation to update any such forward looking statement. 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
Affect 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-3 filed
with the SEC on January 13, 1998 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, 1997.

OVERVIEW

Avant! Corporation, (the "Company") develops, markets and supports
software products that assist design engineers in the physical layout,
design, verification, simulation and timing analysis of advanced integrated
circuits ("ICs"). The Company's strategy is to focus on productivity
enhancing software for the integrated circuit design automation ("ICDA")
segment of the electronic design automation ("EDA") market.

Effective September 27, 1996, October 29, 1996, November 27, 1996 and
January 16, 1998, the Company merged with Anagram, Meta, FrontLine and TMA,
respectively. These mergers have been accounted for by the
pooling-of-interests method, and accordingly, the Company's consolidated
financial statements give retroactive effect for all periods presented to
include the results of operations, financial positions, and cash flows of
Anagram, Meta, FrontLine, and TMA. On September 12, 1997 and September 30,
1997, the Company acquired Compass Design Automation, Inc. and Datalink Far
East, Ltd., respectively. These acquisitions have been accounted for by the
purchase method, and accordingly, the Company's consolidated financial
statements do not include the results of operations, financial position and
cash flows prior to the dates of acquisition.

The Company began shipping Hercules (formerly VeriCheck), its
hierarchical physical verification software, in 1992, and, Aquarius (formerly
ArcCell), its cell-based place and route software product, in 1993. Anagram
was founded in March 1993, and began shipping Star-Sim, 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 Star-Hspice. FrontLine was founded in
1993. TMA was founded in 1979 and began its device and process simulation
products, Medici and TSUPREM-4 in 1985 and 1988, respectively. In 1997, the
Company formed a new subsidiary, Galax!. The acquisition of Compass and its
product, Passport Library, was the foundation for Galax! and its mission is
to enable system-on-chip designers to create silicon intellectual property by
providing methodologies, services and design libraries. Substantially all
of the Company's revenue for the three months ended March 31, 1998 was
derived from the licensing and support of Aquarius, Hercules, Star-Hspice and
Passport Library.

<PAGE>

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:

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------
1998 1997
---- ----
<S> <C> <C>
Revenue:
Software. . . . . . . . . . . . . . . . . . . . . . . . . 71 75
Services . . . . . . . . . . . . . . . . . . . . . . . . . 29 25
-- --
Total revenue. . . . . . . . . . . . . . . . . . . . . 100% 100%
Costs and expenses:
Costs of software. . . . . . . . . . . . . . . . . . . . 2 2
Costs of services. . . . . . . . . . . . . . . . . . . . 7 10
Selling and marketing. . . . . . . . . . . . . . . . . . 26 27
Research and development . . . . . . . . . . . . . . . . 26 21
General and administrative . . . . . . . . . . . . . . . 10 12
Merger . . . . . . . . . . . . . . . . . . . . . . . . . 21 -
-- --
Total operating expenses. . . . . . . . . . . . . . . . 92 72
-- --
Income from operations. . . . . . . . . . . . . . . . 8 28
Interest income and other, net . . . . . . . . . . . . . . 4 4
-- --
Income before income taxes. . . . . . . . . . . . . . 12 32
Provision for income taxes . . . . . . . . . . . . . . . . . 11 12
-- --
Net income. . . . . . . . . . . . . . . . . . . . . . . 1% 20%
-- --
-- --

</TABLE>

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997

REVENUE. The Company's total revenue increased 44% to $52,016,000 for
the three months ended March 31, 1998 from $36,247,000 for the three months
ended March 31, 1997. The percentage of the Company's total revenue
attributable to software licenses decreased to 71% for the three months ended
March 31, 1998 from 75% for the three months ended March 31, 1997. The
decrease in software license as a percentage of total revenue, for the three
months ended March 31, 1998, is primarily due to the increased user base and
resulting increase in service and maintenance revenue.

Software revenue increased 35% to $36,846,000 for the three months ended
March 31, 1998 from $27,320,000 for the three months ended March 31, 1997.
Increases in software revenue were due primarily to increased license revenue
from the Company's place and route, physical verification, analysis and
library software. To date, price increases have not been a material factor
in the Company's revenue growth. Services revenue increased 70% to
$15,170,000 for the three months ended March 31, 1998 from $8,927,000 for the
three months ended March 31, 1997. The increase reflects the growing base of
installed systems, integration of Compass' maintenance revenue and addition
of Galax! service business.

As discussed in the notes to the consolidated financial statements and
Item 1 of Part 2, the Company is involved in litigation with Cadence Design
Systems, Inc., and other litigation issues. As a result of the Cadence
litigation, some customers may cancel or postpone orders of the Company's
products. As of March 31, 1998, there had not been a material financial
impact on the Company's revenues as a result of the Cadence litigation;
however significant order delays or cancellations in the future may impact
the Company's business, financial condition and results of operations.

COSTS OF SOFTWARE AND SERVICES. Costs of software consist primarily of
expenses associated with product documentation, production costs and
personnel. Costs of software increased to $1,177,000 from $732,000 for the
three months ended March 31, 1998 and 1997, respectively. As a percentage of
software revenue, costs of software remained at 3% for the three months ended
March 31, 1998 and 1997, respectively. 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, make routine
changes and provide additional features. 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 decreased to $3,462,000 from $3,519,000 for the three
months ended March 31, 1998 and 1997, respectively. Costs of services as a
percentage of services revenue decreased to 23% from 40% for the three months
ended March 31, 1998 and 1997. The reduction in costs of services as a
percentage of service revenue reflects higher revenue growth due to a larger
user base and integration of Compass' service and maintenance revenue and
improved productivity of the

<PAGE>

Company's support resources in serving 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 to $13,769,000 from
$9,951,000 for the three months ended March 31, 1998 and 1997, respectively.
As a percentage of total revenue, selling and marketing expenses decreased to
26% from 27% for the three months ended March 31, 1998 and 1997,
respectively. The increase in selling and marketing costs reflects the
continued expansion of the Company's sales and marketing organizations. As a
percentage of revenue, selling and marketing expenses have decreased, due to
a more rapid growth rate in revenue.

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 to $13,350,000 from $7,598,000 for the three months ended
March 31, 1998 and 1997, respectively. Research and development expenses
increased to 26% from 21% of total revenue for the three months ended March
31, 1998 and 1997, respectively. The increases in expenses resulted from
increased personnel and personnel-related costs, primarily from the Compass
acquisition and from the development of new products and enhancement of
existing products. The increase in research and development expenses as a
percentage of revenue, was due to the commitment from the Company to devote
substantial resources to product research and development.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $5,166,000 from $4,297,000 for the three months ended March 31,
1998 and 1997, respectively. The increase was primarily due to increases in
legal and professional costs. As a percentage of total revenue, general and
administrative expenses decreased to 10% from 12% for the three months ended
March 31, 1998 and 1997, respectively. The Company expects legal costs to
continue in the future as a result of the current litigation issues.

MERGER EXPENSES. In connection with the merger with TMA in January,
1998, the Company recorded direct transaction costs and merger-related
integration expenses of approximately $10,747,000, consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
shareholder meetings of approximately $5,400,000, charges for the elimination
of duplicate facilities of approximately $2,247,000 and severance costs and
certain other related costs of approximately $3,100,000. As of March 31,
1998, the Company had $5,560,000 remaining in accrued merger expenses, which
the Company expects to pay in 1998.

INTEREST INCOME AND OTHER, NET. Interest income and other increased to
$2,122,000 from $1,375,000 for the three months ended March 31, 1998 and
1997, respectively. Most of the increase relates to equity earnings in joint
ventures.

INCOME TAX EXPENSE. The provision for income taxes was $5,853,000 and
$4,193,000 for the three months ended March 31, 1998 and 1997, respectively.
The provision for income taxes as a percentage of pre-tax income was 34%,
excluding merger expenses, and 36% for the three months ended March 31, 1998
and 1997.

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 the
outcome of outstanding litigation, 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 and
the timing of significant orders. 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. 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
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 comparison 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.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations was $4,054,000 for the three months
ended March 31, 1998. The Company's investing activities used $10,203,000 of
net cash for the three months ended March 31, 1998. Net cash used resulted
from the purchase of equity investments, purchases of computer equipment and
office furniture. Net cash provided by financing activities was $547,000 for
the three months ended March 31, 1998. Financing activities consisted of
the exercise of stock options and issuance of common stock under the employee
stock purchase plan.

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 or local 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 March 31, 1998, the Company had $129,276,000 of cash, cash
equivalents and short-term investments and $125,208,000 of working capital.
In connection with the Silvaco litigation, the Company was required to post a
bond. The bond is collaterized by a $23,583,000 letter of credit.

Based on its operating plan and absent any adverse judgments on its
various litigation matters, 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 OPERATIONS

As discussed in the notes to the consolidated financial statements and
Item 1 of Part 2 of this Form 10-Q, the Company is involved in a number of
litigation matters. An adverse outcome in any of the described litigation
matters could have a material adverse effect on the Company's business,
financial condition and results of operations.

On January 16, 1998, the Company completed its merger with TMA. The
Company's future operating results are contingent upon the successful
integration of these entities into its operations.

The EDA business is highly competitive. 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 worldwide growth of the semiconductor industry. There can be no
assurance that this 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 computer industry.
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 business,
financial condition and results of operations.

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 successfully develop 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,
financial condition and results of operations.

The Company sells its software products and provides services to
customers located throughout the world. Managing global operations and sites
located throughout the world presents challenges associated with cultural
differences and organizational alignment. Moreover, each region in the
global EDA market exhibits unique characteristics that can cause purchasing
patterns to vary significantly from period to period. Although international
markets historically have provided the Company with significant revenue
opportunities, periodic economic downturns, trade balance issues, political
instability and fluctuations in interest and foreign currency exchange rates
are all risks that could affect global product and service demand. Many Asian
countries are currently experiencing banking and currency difficulties that
could lead to economic recession in those countries which could result in a
decline in the purchasing power of the Company's Asian customers. This in
turn could result in the cancellation or delay of orders for the Company's
products from Asian customers, thus adversely affecting the Company's results
of operations.

<PAGE>

During 1997, the Company licensed an enterprise-wide resource planning
software application package to replace its existing operational and
financial system. The Company currently is in the process of installing and
implementing the new system. The new system is warranted to be Year 2000
compliant.

The Company has undertaken a preliminary evaluation of the Company's
products to determine if the Company's products are Year 2000 compliant. The
Company believes that its products are Year 2000 compliant and that costs to
be incurred to make the Company's products Year 2000 compliant, if any, will
not have a material impact on the Company's results of operations.

The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those offered by the Company,
which could result in a material adverse effect on the Company's business,
financial condition and results of operation.

<PAGE>

PART 2. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

CADENCE LITIGATION.

<PAGE>

products. In such event, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition,
it is likely that an adverse judgment against the Company would result in a
steep decline in the market price of the Company's Common Stock. Although
it is reasonably possible the Company may incur a loss upon conclusion of
these claims, an estimate of any loss or range of loss cannot be made, based
on information the Company presently possesses. There can be no assurance
that an adverse judgement, if granted on any claim would not have a material
adverse effect on the Company's business, financial position or results of
operations. Furthermore, there can be no assurance that the Company's
relationships with its customers and/or partners will not be adversely
affected in the future as a result of the Cadence litigation.

CRIMINAL COMPLAINT.

The Santa Clara County District Attorney's office is also investigating
the allegations of misappropriation of trade secrets set forth in Cadence's
lawsuit, described above. On April 11, 1997, the Santa Clara County
District Attorney filed a criminal complaint alleging felony level offenses
against, among others, the Company and the following employees and/or
directors of the Company, Gerald C. Hsu, President, Chief Executive Officer
and Chairman of the Board of Directors, Y. Eric Cho, a former officer and
former member of the Board of Directors, Y. Z. Liao, Corporate Fellow,
Stephen Wuu, CEO Staff Operations, Leigh Huang, Marketing Manager and Eric
Cheng, Research and Development Manager, for allegedly violating various
California Penal Code Sections relating to the theft of trade secrets. The
Company and the individuals above have pleaded not guilty and are awaiting
further proceedings. The criminal complaint could result in criminal fines
against the Company, as well as the potential incarceration of certain
members of its management team. Such outcomes could result in canceled or
postponed orders, increased future expenditures, the loss of management and
other key personnel, additional shareholder litigation, loss of goodwill and
would have other material adverse effects on the Company's business,
financial position and results of operations.

SILVACO LITIGATION.

<PAGE>

have a material adverse effect on the Company's business, financial condition
and results of operations.

On March 31, 1998, Silvaco Data Systems and Silvaco International, Inc.
filed an additional lawsuit, against the Company and Roy Jewell, the
Company's CEO Staff, Corporate Affairs and General Manager of the TCAD
Business Unit, in the Superior Court of California for Santa Clara County.
The complaint alleges causes of action for defamation, negligent and
intentional interference with economic advantage, and unfair competition and
business practices based on statements allegedly made by the Company that
Silvaco claims disparaged Silvaco and its TCAD products. Silvaco is seeking
$20 million in compensatory damages, punitive damages, and an injunction.
The time for the Company to file a response to this complaint has not yet
passed. The Company intends to defend itself vigorously against the
allegations made in this litigation. The Company believes it has defenses to
these claims and intends to defend itself vigorously. Although it is
reasonably possible the Company will incur a loss in relation to these
claims, it is currently unable to estimate the actual loss or range of loss.
In the event the Company's defenses are unsuccessful, the Company may be
required to pay damages to the plaintiffs, and such a judgment could have a
material adverse effect on the Company's business, financial condition and
results of operations.

PESIC LITIGATION.

MICROUNITY LITIGATION.

SECURITIES CLASS ACTION CLAIMS.

<PAGE>

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

The Company held a special meeting of stockholders on January 15,
1998 in which the following proposal was submitted to the
stockholders for vote at the meeting:

To approve the issuance of shares of Avant! Common Stock, $.0001
par value (the "Avant! Common Stock"), in connection with the
merger ("the Merger") of Cardinal Merger Corporation, a California
corporation and a wholly owned subsidiary of Avant!, with and into
Technology Modeling Associates, Inc., a California Corporation
("TMA"). In the Merger, each share of TMA's common stock, no par
value (the "TMA Common Stock"), outstanding as of the closing of
the merger will be converted into the right to receive a fraction
of a share of Avant! Common Stock (the "Exchange Ratio"), the
numerator of which is equal to $17.00, and the denominator of which
is equal to the average of the per share closing prices of Avant!
Common Stock as quoted on the Nasdaq National Market for the ten
(10) consecutive trading days ending three (3) business days prior
to the closing date of the Merger (the "Average Nasdaq Per Share
Price"). Notwithstanding anything to the contrary set forth above,
in the event that the Average Nasdaq Per Share Price is greater
than $35.678, then the Exchange Ratio shall be 0.476484, and in the
event that the Average Nasdaq Per Share Price is less than $25.678,
then the Exchange Ratio shall be 0.662045.

Of the total shares voting on the foregoing resolution, 18,977,810
voted in favor, 15,057 against and 54,431 abstained.

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

The Company filed a report on Form 8-K, under items 2 and 7, dated
January 30, 1998. Pursuant to this report, the Company announced
the completion of its merger with Technology Modeling Associates,
Inc. and filed as exhibits, the Agreement and Plan of
Reorganization dated September 7, 1997 and the press release dated
January 20, 1998, announcing the effectiveness of the merger.

<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 thereunto duly authorized.

Avant! Corporation
------------------
(Registrant)

May 14, 1998 /s/ GERALD C. HSU
- ------------ -------------------
Gerald C. Hsu
President, Chief Executive Officer
and Chairman of the Board of Directors

May 14, 1998 /s/ LINDA CHINN
- ------------ ----------------
Linda Chinn
Head of Finance and Administration
(principal accounting officer
and principal financial officer)

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Sequential
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
Exhibit 27.1 Financial Data Schedules

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FILED AS PART
OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 71,921
<SECURITIES> 57,355
<RECEIVABLES> 30,910
<ALLOWANCES> 4,953
<INVENTORY> 0
<CURRENT-ASSETS> 184,793
<PP&E> 54,969
<DEPRECIATION> 22,641
<TOTAL-ASSETS> 260,405
<CURRENT-LIABILITIES> 59,585
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 199,770
<TOTAL-LIABILITY-AND-EQUITY> 260,405
<SALES> 0
<TOTAL-REVENUES> 52,016
<CGS> 1,177
<TOTAL-COSTS> 4,639
<OTHER-EXPENSES> 43,032
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,467
<INCOME-TAX> 5,853
<INCOME-CONTINUING> 614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 614
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02

</TABLE>