<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 16, 1998
AVANT! CORPORATION
(Exact name of registrant as specified in its charter)
0-25864
(Commission File Number)
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)
(510) 413-8000
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
On January 16, 1998, the Company consummated its business combination
with Technology Modeling Associates, Inc. ("TMA") in a transaction accounted
for as a pooling of interests. In connection with the TMA acquisition, the
Company filed a Registration Statement on Form S-4 (No.333-42923) on December
22, 1997. The accompanying selected financial data, quarterly financial
information, management's discussion and analysis of financial condition and
results of operations, and consolidated financial statements have been
restated on a combined basis to reflect the effects of the TMA acquisition.
The financial information referenced above is set forth as summarized in
the following index:
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<C> <S>
99.1 Financial Data
99.1 Selected Financial Data
99.1 Selected Quarterly Consolidated Financial Data
99.1 Management's Discussion and Analysis of Financial
Condition and Results of Operations
99.1 Consolidated Financial Statements
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Avant! Corporation
----------------------------------
(Registrant)
June 10, 1998 /s/ GERALD C. HSU
- ------------- ----------------------------------
Gerald C. Hsu
President, Chief Executive Officer,
and Chairman of the Board of
Directors
2
<PAGE>
Exhibit 99.1
SELECTED FINANCIAL DATA
- -----------------------
(In thousands, except earnings per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Total revenue $164,384 $124,046 $ 81,461 $ 51,422 $ 30,648
Income from operations 2,280 20,964 13,888 7,646 2,430
Net income (1) 5,398 13,708 9,632 5,463 3,157
Earnings per share - Basic:
Earnings per share $ 0.17 $ 0.49 $ 0.42 $ 0.34 $ 0.27
Total weighted average number of
common shares outstanding 31,073 27,954 23,128 15,874 11,804
Earnings per share - Diluted:
Earnings per share $ 0.16 $ 0.45 $ 0.36 $ 0.23 $ 0.17
Total weighted average number of
common and common equivalent
shares outstanding 33,001 30,401 26,651 24,052 18,291
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 77,523 $ 54,141 $ 53,294 $ 13,936 $ 11,279
Working capital 130,301 151,175 95,747 38,373 13,593
Total assets 254,336 198,068 131,241 59,121 28,392
Long-term obligations 1,294 1,875 2,458 2,052 523
Manditorily redeemable convertible
preferred stock -- -- -- 8,312 8,312
Shareholders' equity 198,176 161,924 102,866 33,558 8,703
</TABLE>
(1) Pro forma in 1995, 1994 and 1993.
3
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
- ---------------------------------
<TABLE>
<CAPTION>
Q1/97 Q2/97 Q3/97 Q4/97 Q1/96 Q2/96 Q3/96 Q4/96
------- ------- ------- ------- ------- ------- ------- -------
(In thousands, except earnings per share data and price and percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Software $27,320 $28,712 $ 30,167 $30,749 $21,372 $22,760 $24,956 $25,464
Services 8,927 11,055 11,928 15,526 5,939 7,302 7,789 8,464
------- ------- -------- ------- ------- ------- ------- -------
Total revenue 36,247 39,767 42,095 46,275 27,311 30,062 32,745 33,928
------- ------- -------- ------- ------- ------- ------- -------
COSTS AND EXPENSES:
Costs of software 732 847 1,008 1,504 870 763 1,021 967
Costs of services 3,519 3,239 3,390 2,414 2,220 2,161 2,331 2,572
Selling and marketing 9,951 12,581 12,423 12,584 8,130 9,097 9,502 9,509
Research and development 7,598 8,172 9,219 11,691 5,928 6,145 6,845 6,815
General and administrative 4,297 3,936 5,273 6,540 3,160 4,282 4,385 5,379
In-process research and development - - 41,186 - - - 300 1,400
Merger expenses - - - - - - 920 8,380
------- ------- -------- ------- ------- ------- ------- -------
Total operating expenses 26,097 28,775 72,499 34,733 20,308 22,448 25,304 35,022
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) from operations 10,150 10,992 (30,404) 11,542 7,003 7,614 7,441 (1,094)
Interest income and other, net 1,375 1,794 1,691 2,126 917 1,127 1,082 1,517
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) before
income taxes 11,525 12,786 (28,713) 13,668 7,920 8,741 8,523 423
Provision (benefit) for income
taxes 4,193 4,637 (10,394) 5,432 2,887 3,200 3,242 2,570
------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) $ 7,332 $ 8,149 $(18,319) $ 8,236 $ 5,033 $ 5,541 $ 5,281 $(2,147)
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
Earnings per share - Basic:
Earnings (loss) per share $ 0.24 $ 0.27 $ (0.59) $ 0.26 $ 0.19 $ 0.20 $ 0.19 $ (0.07)
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
Total weighted average
number of common shares
outstanding 30,032 30,622 31,231 32,132 26,548 27,111 27,777 29,846
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
Earnings per share - Diluted:
Earnings (loss) per share $ 0.22 $ 0.25 $ (0.59) $ 0.24 $ 0.17 $ 0.19 $ 0.18 $ (0.07)
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
Total weighted average number
of common and common
equivalent shares outstanding 32,912 32,274 31,231 33,625 29,133 29,575 30,145 29,846
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
Common stock price:
High $ 40.50 $ 32.75 $ 36.00 $ 31.88 $ 26.25 $ 27.75 $ 34.25 $37.00
Low $ 23.75 $ 9.75 $ 27.63 $ 14.75 $ 14.00 $ 16.25 $ 20.50 $25.50
Percentage of total revenue
REVENUE:
Software 75% 72% 72% 66% 78% 76% 76% 75%
Services 25% 28% 28% 34% 22% 24% 24% 25%
------- ------- -------- ------- ------- ------- ------- -------
Total revenue 100% 100% 100% 100% 100% 100% 100% 100%
------- ------- -------- ------- ------- ------- ------- -------
COSTS AND EXPENSES:
Costs of software 2% 2% 2% 3% 3% 3% 3% 3%
Costs of services 10% 8% 8% 5% 8% 8% 7% 7%
Selling and marketing 27% 32% 30% 27% 30% 30% 29% 28%
Research and development 21% 21% 22% 26% 22% 20% 21% 20%
General and administrative 12% 10% 12% 14% 11% 14% 13% 16%
In-process research and development - - 98% - - - 1% 4%
Merger expenses - - - - - - 3% 25%
------- ------- -------- ------- ------- ------- ------- -------
Total operating expenses 72% 73% 172% 75% 74% 75% 77% 103%
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) from operations 28% 27% (72)% 25% 26% 25% 23% (3)%
Interest income and other, net 4% 5% 4% 5% 3% 4% 3% 4%
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) before
income taxes 32% 32% (68)% 30% 29% 29% 26% 1%
Provision (benefit) for income taxes 12% 12% (25)% 12% 11% 11% 10% 7%
------- ------- -------- ------- ------- ------- ------- -------
Net income (loss) 20% 20% (43)% 18% 18% 18% 16% (6)%
------- ------- -------- ------- ------- ------- ------- -------
------- ------- -------- ------- ------- ------- ------- -------
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
This discussion 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 "Factors That
May Affect Future Results" as well as those discussed in this section and
elsewhere in this report, and the risks discussed in the "Risk Factors"
section on Form S-3 as declared effective by the Securities and Exchange
Commission 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
("IC"s). 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.
The Company resulted from the merger of ArcSys, Inc. ("ArcSys") and
Integrated Silicon Systems, Inc. ("ISS") on November 27, 1995. Effective
September 27, 1996, October 29, 1996, November 27, 1996, August 29, 1997 and
January 16, 1998 the Company merged with Anagram, Inc. ("Anagram"),
Meta-Software, Inc. ("Meta"), FrontLine Design Automation, Inc. ("FrontLine")
and Technology Modeling Associates, Inc. ("TMA"), respectively. These
mergers have all 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 position and cash flows of ISS, Anagram, Meta, FrontLine and TMA.
On September 12, 1997, and September 30, 1997, the Company acquired Compass
Design Automation, Inc. ("Compass") and Datalink Far East, Ltd. ("Datalink"),
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 or cash flows of
Compass or Datalink prior to the dates of acquisition.
The Company began shipping Hercules (formerly VeriCheck), its hierarchical
physical verification software, in the third quarter of 1992, Aquarius
(formerly ArcCell), its cell-based place and route software product, in 1993
and Apollo (replaced Aquarius) in 1998. ISS began shipping its initial
physical layout software products in 1988 and introduced its signal integrity
analysis software in 1994. 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 shipping its device and process simulation products, Medici and
TSUPREM-4 in 1985 and 1988, respectively. In 1997, Avant! formed a new
subsidiary, Galax!. The acquisition of Compass was the foundation for Galax!
and its mission to enable system-on-chip designers to create silicon
intellectual property by providing methodologies, services, and design
libraries. Substantially all of the Company's license revenue for 1995,
1996, and 1997 was derived from the licensing and support of Aquarius,
Hercules, Star-Sim and Star-Hspice.
5
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue and the
percentage change for certain items in the Company's consolidated financial
statements (after giving effect to rounding) for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31, Percentage change
------------------------ --------------------
1997 1996 1995 1996-1997 1995-1996
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Software................................. 71% 76% 79% 24% 48%
Services................................. 29 24 21 63 70
--- --- --- ---- ---
Total revenue............................ 100 100 100 33 52
--- --- --- ---- ---
COSTS AND EXPENSES:
Costs of software........................ 3 3 3 13 80
Costs of services........................ 8 7 7 42 61
Selling and marketing.................... 29 29 32 31 38
Research and development................. 22 21 24 43 32
General and administrative............... 12 14 10 17 121
In-process research and development...... 25 1 3 2323 (37)
Merger expenses.......................... - 8 4 (100) 159
--- --- --- ---- ---
Total operating expenses................ 99 83 83 57 53
--- --- --- ---- ---
Income from operations.................. 1 17 17 (89) 51
Interest income and other, net............. 4 4 4 51 64
--- --- --- ---- ---
Income before income taxes.............. 5 21 21 (64) 53
Provision for income taxes
(Pro forma in 1995)..................... 2 10 9 (67) 68
--- --- --- ---- ---
Net income (pro forma in 1995).......... 3% 11% 12% (60)% 42%
--- --- --- ---- ---
--- --- --- ---- ---
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenue. Revenue consists primarily of fees for licenses of the Company's
software products, maintenance and customer support. Prior to October 1,
1997, the Company complied with the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position ("SOP") 91-1, SOFTWARE REVENUE
RECOGNITION. Revenue from the sale of software licenses was 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 was probable. Any remaining insignificant vendor or post-contract
support obligations were accrued at the time the revenue was recognized. In
instances where there was a contingency regarding the sale, revenue
recognition was delayed until the contingency had been resolved. When the
Company received advance payments for software products, such payments were
reported as deferred revenue until all conditions for revenue recognition
were met. The Company entered into certain license agreements under which
software, support and other services were provided to customers for a bundled
price for a specific period of time. Generally, revenue under such agreements
was recognized ratably over the contract period. Revenue from consulting
services was recognized as the service was performed. Maintenance revenue
was deferred and recognized ratably over the term of the maintenance
agreement, which was typically 12 months. Revenue from customer training,
support and other services was recognized as the service was performed.
In the fourth quarter of 1997, the Company adopted the provisions of AICPA
SOP 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements to be allocated
to each element based on the relative fair values of the elements. The
revenue allocated to software products, including time-based software
licenses, generally is recognized after shipment of the products, delivery of
permanent authorization codes and fulfillment of acceptance terms. The
revenue allocated to postcontract customer
6
<PAGE>
support ("PCS") is recognized ratably over the term of the support and
revenue allocated to service elements is recognized as the services are
performed. In connection with the adoption of SOP 97-2, revenue for
contracts with extended payment terms (generally greater than twelve months)
are recognized as payments become due. The effect of adopting SOP 97-2 on
October 1, 1997 was not material and is not expected to be material in the
future.
The Company's total revenue increased 33% to $164,384,000 in 1997 from
$124,046,000 in 1996 and 52% in 1996 from $81,461,000 in 1995. The
percentage of the Company's revenue attributable to software licenses
decreased to 71% in 1997 from 76% in 1996 and 79% in 1995. The decrease in
1997 was due to the larger user base and was also attributable to Compass'
service and maintenance revenue. The decrease in 1996 was due to the larger
user base and resulting increase in maintenance revenue.
Software revenue increased 24% to $116,948,000 in 1997 from $94,552,000 in
1996 and 48% in 1996 from $63,937,000 in 1995. Increases in software revenue
were due primarily to increased license revenue from the Company's place and
route, physical verification, simulation and timing software. Services
revenue increased 63% to $47,436,000 in 1997 from $29,106,000 in 1996 and 70%
in 1996 from $17,171,000 in 1995, reflecting the growing base of installed
systems and the addition of Galax! service business, beginning in September
1997. Through December 31, 1997, price increases have not been a material
factor in the Company's revenue growth. The Company does not believe that
period-to-period comparisons of past revenue growth should be relied upon as
indications of future performance.
As discussed in the notes to the consolidated financial statements and in the
section entitled "Factors That May Affect Future Results", the Company is
involved in several litigation matters, including a lawsuit with Cadence
Design Systems, Inc. ("Cadence"). As a result of the litigation issues, some
customers may cancel or postpone orders of the Company's products. As of
December 31, 1997, such cancellations and postponements had not had a
material impact on the Company's financial conditions or results of
operations. However, cancellations or a significant delay of orders in the
future would have a material adverse effect on the Company's business,
financial condition and results of operations.
Costs of Software. Costs of software consist primarily of expenses associated
with product documentation, production costs and personnel. Costs of
software increased to $4,091,000 in 1997 from $3,621,000 in 1996 and
$2,015,000 in 1995. In 1997, the increase was attributable to product
documentation costs. In 1996, the increase was attributable to a major
product launch in 1996. Costs of software, as a percentage of software
revenue were 3%, 4% and 3% for 1997, 1996 and 1995, 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, 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 increased to $12,562,000 in 1997 from $8,876,000 in 1996 and
$5,516,000 in 1995, representing 26%, 30% and 32% of services revenue for
1997, 1996 and 1995, respectively. The increases in costs of services were
due primarily to increases in personnel and expenses necessary to support the
Company's growing base of installed software. For both 1997 and 1996, the
reduction in costs of services as a percentage of service revenue reflects
higher revenue growth and improved productivity of the Company's customer
support resources in serving its increasing customer base.
Selling and Marketing. Selling and marketing expenses consist primarily of
costs, including sales commissions, of all personnel involved in the sales
process. This includes sales representatives, marketing associates and
application engineers. Selling and marketing expenses also include costs of
advertising, public relations, conferences and trade shows. Selling and
marketing expenses increased to $47,539,000 in 1997 from $36,238,000 in 1996
and $26,210,000 in 1995. In 1997, the increase was due to increased
advertising and promotional activities, an increase in distributor
commissions due to increased revenue, new sales offices and increased
headcount in both domestic and European sales operations. In 1996, the
increase reflects higher sales commissions associated with increased sales
volumes and increases in headcount. Selling and marketing expenses
represented 29%, 29% and 32% of total revenue in 1997, 1996 and 1995,
respectively. The decrease in selling and marketing expenses as a percentage
of
7
<PAGE>
total revenue during 1997 and 1996 resulted primarily from revenue growth and
improved sales productivity. The Company expects to hire additional sales
personnel and to increase promotion and advertising costs throughout 1998.
Research and Development. 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
$36,680,000 in 1997 from $25,733,000 in 1996 and $19,496,000 in 1995. In
1997, the increase resulted from higher personnel-related costs due to
increased headcount, resulting from the Compass acquisition and from the
development of new products and enhancement of existing products, and higher
incentive compensation. In 1996, the increase resulted from increased
headcount. Research and development expenses represented 22%, 21% and 24% of
total revenue in 1997, 1996 and 1995, respectively. The Company anticipates
that it will continue to devote substantial resources to product research and
development throughout 1998.
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, under which the Company
capitalizes software development costs once technological feasibility has
been established. The Company amortizes such amounts over three years. The
amount of software development costs capitalized for 1995 was $63,000. No
software development costs were capitalized for 1997 and 1996, because
achievement of technological feasibility in the form of a working model was
typically concurrent with general release of the related software product.
General and Administrative. General and administrative expenses increased to
$20,046,000 in 1997 from $17,206,000 in 1996 and $7,785,000 in 1995. In 1997
and 1996, the increases resulted primarily from additional legal costs,
relating to the Company's various litigation matters, and increased personnel
and related costs necessary to support the Company's growth. General and
administrative expenses represented 12%, 14% and 10%, of total revenue in
1997, 1996 and 1995, respectively. The Company charged to expenses
approximately $8,720,000 and $6,850,000 for the years 1997 and 1996,
respectively, related to the various litigation issues. The Company expects
to incur significant legal costs in the future as a result of its current
litigation issues.
In-Process Research and Development. In September 1997, the Company acquired
Compass. In connection with the acquisition, net intangibles of $56,008,000
were acquired, of which $41,186,000 related to acquired in-process research
and development. This amount was expensed, as the underlying technology had
not reached technological feasibility and, in management's opinion, had no
alternative future use. In October 1995 and September and December 1996, the
Company acquired rights to certain software technology under development. As
the acquired technology had not reached technological feasibility at the date
of acquisition and had no alternative future use, it was expensed upon
acquisition.
Merger Expenses. In connection with the 1996 mergers with Anagram, Meta and
FrontLine, the Company incurred direct transaction costs and merger-related
integration expenses of approximately $9,300,000, consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
shareholder meetings of approximately $5,352,000, charges for the elimination
of duplicate facilities of approximately $2,250,000, and severance and other
related costs of approximately $1,698,000. As of December 31, 1997, there
were no remaining accrued liabilities relating to the 1996 mergers.
In connection with the 1995 merger with ISS, the Company incurred direct
transaction costs and merger-related integration expenses of approximately
$3,590,000 consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing and shareholder meetings of approximately
$2,858,000, charges for the elimination of duplicate facilities of
approximately $233,000 and severance and certain other related costs of
approximately $499,000. As of December 31, 1997, there were no remaining
accrued liabilities relating to the 1995 merger.
Income from Operations. The Company had income from operations of $2,280,000,
$20,964,000 and $13,888,000 in 1997, 1996 and 1995, respectively. The
decrease in income from operations in 1997 is primarily attributable to the
acquired in-process research and development expense incurred in connection
with the Compass acquisition. The increase in 1996 is attributable to
revenue growth net of increased expenses necessary to support the Company's
growth. Operating income represented 1%, 17% and 17% of total revenue in
1997, 1996 and 1995, respectively.
8
<PAGE>
Interest Income and Other, Net. Interest income and other was $6,986,000,
$4,643,000 and $2,836,000 in 1997, 1996 and 1995, respectively. The majority
of the increase for 1997 was due to an increase in interest earned on
investments. In 1996, interest income increased due to larger cash balances
resulting primarily from the proceeds of the Company's initial public
offering, which was completed in June 1995, and the Meta initial public
offering, which was completed in November 1995.
Income Taxes. The Company accounts for income taxes in accordance with SFAS
No. 109. Pro forma income taxes have been provided for 1995 as if Meta (an S
corporation for income tax reporting purposes) had been a C corporation. The
provision for income taxes (pro forma in 1995), as a percentage of pre-tax
income was 42%, 46% and 29% for 1997, 1996 and 1995, respectively. The
percentage in 1996 and 1995 (pro forma) was higher than the federal statutory
income tax rate of approximately 35% due primarily to the effect of certain
merger expenses that were not deductible for income tax purposes. As of
December 31, 1997, the increase in deferred tax asset relates to future tax
benefits attributable to the acquired in-process research and development,
resulting from the Compass acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16,634,000, $22,320,000 and
$20,284,000 in 1997, 1996 and 1995, respectively. The decrease in 1997 was
attributable to increases in accounts receivable and due from affiliates,
decreases in accounts payable and accrued liabilities (net of liabilities
assumed from Compass), offset by an increase in operating income (net of
acquired in-process research and development). The increase in 1996 was a
result of increased net income, accrued liabilities and deferred revenue.
Investing activities used $875,000, $56,767,000 and $28,163,000 of net cash
in 1997, 1996 and 1995, respectively. Net cash used in investing activities
relates primarily to net purchases of short-term "available-for-sale"
securities, which consist of short-term debt securities, U.S. Government
Agency debt securities, U.S. Treasury Bills, municipal/corporate auction
preferred stock, municipal bonds and demand deposit investments in
limited-maturity fixed-income mutual funds. Cash was also used for the
purchase of Compass, and purchase of leasehold improvements for the Company's
new headquarter facilities, including furniture, computer workstations and
file servers, for use by the Company's employees. Net cash provided by
financing activities was $7,623,000, $35,294,000 and $47,992,000 in 1997,
1996 and 1995, respectively. Net cash provided by financing activities
increased in 1997 from 1996, primarily from issuance of common stock under
the Company's employee stock purchase plan and exercise of stock options.
Net increase in cash provided by financing activities in 1996 was due to the
proceeds from Avant!, Meta, and TMA's initial public offerings, completed in
June 1995, November 1995 and September 1996, respectively. The Company did
not issue any significant amounts of common stock in 1997 and 1996 except for
stock issued in connection with option exercises, the employee stock purchase
plan and the Compass acquisition.
The Company's stated payment terms generally are net 30 days. However, in
the Company's experience, payments may not comply with stated terms due to
industry practice, slower payment by certain major companies and most foreign
customers and general economic conditions. The Company periodically adjusts
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 December 31, 1997, the Company had $134,917,000 of cash and short-term
investments and $130,301,000 in working capital. As of December 31, 1997,
the Company had $54,866,000 in current liabilities, including $17,945,000 of
deferred revenue. In connection with the Silvaco litigation, the Company was
required to post a bond. The bond is collateralized by a $23,583,000 letter
of credit.
Based on its operating plan and absent any adverse judgments in its various
litigation issues, the Company believes that it has available cash and
short-term investments sufficient to fund the Company's operations through at
least the next twelve months.
9
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
LITIGATION RISK
The Company is subject to a number of litigation matters that, if decided
adversely to the Company, could affect the Company's future results.
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. In an order
dated May 21, 1998, the District Court continued the stay previously entered.
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 claim 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. 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 should be
enjoined. On May 21, 1998, the District Court entered an order denying
Cadence's request to enjoin the sale of Aquarius and denying Cadence's
request to lift the stay of the civil action. The District Court's May 21,
1998 order does not preclude Cadence from applying for an injunction against
the sale of Aquarius on the basis that Aquarius contains code that is
substantially similar to Cadence's Design Framework II or that Aquarius
contains a specific protected idea from Cadence's Design Framework II. 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
10
<PAGE>
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 District Court's May 21, 1998 order stayed the Company's
counterclaims against Cadence.
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.
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 Company and the individual defendants have filed a
motion to recuse the District Attorney's office from prosecuting the case and
the District Attorney has filed a motion to recuse the Judge assigned to the
case. 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.
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
11
<PAGE>
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.
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, as discussed above in
the Meta and Silvaco case. 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
12
<PAGE>
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 answered the
complaint and filed counterclaims against Microunity seeking a declaration
that the patents at issue are invalid and that Precim does not infringe.
Trial has been scheduled for September 20, 1999. 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 has also granted plaintiff's motion for
appointment as lead plaintiff. 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.
OTHER FACTORS
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
13
<PAGE>
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 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.
Asian sales, principally to affiliates, accounted for approximately 31%, 28%
and 28% of the Company's total revenue for 1997, 1996 and 1995, respectively.
Amounts due from affiliates are not significant as of December 31, 1997.
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 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 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,
financial condition and results of operations.
On September 12, 1997, the Company acquired Compass Design Automation, Inc.
and on January 16, 1998, the Company acquired Technology Modeling Associates,
Inc. The Company's future operating results are contingent upon the
successful integration of these entities into its operations.
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.
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 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.
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 or financial
position. However, the Company also relies directly and indirectly,
14
<PAGE>
on external systems of business enterprises such as customers, suppliers,
creditors, financial organizations and government entities, both domestic and
international, for accurate exchange of data. Even if the internal systems
of the Company could be affected through disruptions in the operations of
these enterprises with which the Company interacts. Despite the Company's
efforts to address the Year 2000 impact on its internal systems and business
operations, there can be no assurance that such impact will not result in a
material disruption of its business or have a material adverse effect on the
Company's business, financial condition and results of operations.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Avant! Corporation:
We have audited the accompanying consolidated balance sheet of Avant!
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of Technology Modeling Associates, Inc., a company
acquired by Avant! Corporation in a business combination accounted for as a
pooling of interests as described in Note 4 to the consolidated financial
statements, which statements reflect total assets constituting 21% and 5%
and total revenues constituting 14% and 15% in 1996 and 1995, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for Technology Modeling Associates, Inc.,
is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Avant! Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
May 22, 1998
Mountain View, California
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Technology Modeling Associates, Inc.:
We have audited the accompanying consolidated balance sheet of Technology
Modeling Associates, Inc. (a California corporation and wholly owned
subsidiary of Avant! Corporation) and subsidiary as of December 31, 1996, and
the related consolidated statements of operations, shareholder's equity, and
cash flows (not separately presented herein) for the years ended December 31,
1995 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Technology Modeling
Associates, Inc. and subsidiary as of December 31, 1996 and the results of
their operations and their cash flows for the years ended December 31, 1995
and 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
January 24, 1997
17
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 77,523 $ 54,141
Short-term investments 57,394 98,185
Accounts receivable, net 24,777 15,992
Due from affiliates 6,171 --
Deferred income taxes 7,658 6,597
Prepaid expenses and other current assets 11,644 10,529
-------- --------
Total current assets 185,167 185,444
Equipment, furniture and fixtures, net 33,649 11,440
Deferred income taxes 16,208 --
Intangibles 15,461 --
Other assets 3,851 1,184
-------- --------
Total assets $254,336 $ 198,068
-------- --------
-------- --------
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 7,009 $ 2,378
Accrued compensation 9,000 6,130
Accrued income taxes 6,717 7
Other accrued liabilities 14,195 10,021
Deferred revenue 17,945 15,733
-------- --------
Total current liabilities 54,866 34,269
Other noncurrent liabilities 1,294 1,875
-------- --------
Total liabilities 56,160 36,144
-------- --------
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $.0001 par value; 5,000 shares authorized;
no shares issued and outstanding in 1997 and 1996 -- --
Common stock, $.0001 par value; 75,000 and 50,000 shares authorized,
32,282 and 30,046 shares issued and outstanding in 1997 and 1996, respectively 3 3
Additional paid-in capital 174,180 144,988
Deferred compensation (2,698) (4,335)
Other accumulated comprehensive loss (50) (75)
Retained earnings 26,741 21,343
-------- --------
Total shareholders' equity 198,176 161,924
-------- --------
Total liabilities and shareholders' equity $254,336 $198,068
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software $116,948 $ 94,552 $ 63,937
Services 47,436 29,494 17,524
-------- -------- --------
Total revenue 164,384 124,046 81,461
-------- -------- --------
Costs and expenses:
Costs of software 4,091 3,621 2,015
Costs of services 12,562 9,284 5,784
Selling and marketing 47,539 36,238 26,210
Research and development 36,680 25,733 19,496
General and administrative 20,046 17,206 7,785
In-process research and development 41,186 1,700 2,693
Merger expenses -- 9,300 3,590
-------- -------- ---------
Total operating expenses 162,104 103,082 67,573
-------- -------- ---------
Income from operations 2,280 20,964 13,888
Interest income and other, net 6,986 4,643 2,836
-------- -------- ---------
Income before income taxes 9,266 25,607 16,724
Provision for income taxes 3,868 11,899 4,918
-------- -------- ---------
Net income $ 5,398 $ 13,708 $ 11,806
-------- -------- ---------
-------- -------- ---------
Earnings per share - Basic:
Earnings per share $ 0.17 $ 0.49 $ 0.51
-------- -------- ---------
-------- -------- ---------
Total weighted average number of
common shares outstanding 31,073 27,954 23,128
-------- -------- ---------
-------- -------- ---------
Earnings per share - Diluted:
Earnings per share $ 0.16 $ 0.45 $ 0.44
-------- -------- ---------
-------- -------- ---------
Total weighted average number of
common and common equivalent
shares outstanding 33,001 30,401 26,651
-------- -------- ---------
-------- -------- ---------
Pro forma net income:
Income before income taxes as reported $ 16,724
Pro forma provision for income taxes 7,092
--------
Pro forma net income $ 9,632
--------
--------
Pro forma earnings per share - Basic:
Earnings per share $ 0.42
--------
--------
Total weighted average number of
common shares outstanding 23,128
--------
--------
Pro forma earnings per share - Diluted:
Earnings per share $ 0.36
--------
--------
Total weighted average number of
common and common equivalent shares outstanding 26,651
--------
--------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Series A
convertible Additional
Preferred stock Common Stock paid-in Deferred
Shares Amount Shares Amount capital Compensation
------ ------ ------ ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1994 687 $ - 16,466 $1 $ 26,839 ($ 62)
Issuance of common stock - - 1,063 - 660 -
Conversion of long-term debt to common stock - - 100 - 100 -
Issuance of common stock in public offerings,
net of expenses - - 3,367 - 52,381 -
Conversion of mandatorily redeemable convertible
preferred stock into common stock - - 3,570 1 8,311 -
Conversion of preferred stock into common stock (687) - 687 - - -
Exercise of common stock options and warrants,
including related tax benefits - - 655 - 5,962 -
Repurchase of common stock - - (84) - (23) -
Issuance of common stock options at below market value - - - - 588 (588)
Amortization of deferred compensation - - - - - 133
Issuance of common stock under employee stock purchase
plan - - 876 - 1,289 (684)
Forgiveness of notes receivable from shareholders - - - - - 108
Unrealized gain on short-term investments - - - - - -
Distributions to shareholders - - - - - -
Compensation expense attributable to stock appreciation
rights - - - - 112 -
Net income - - - - - -
------ ------ ------ ------ --------- ------------
Balances as of December 31, 1995 - - 26,700 2 96,219 (1,093)
Issuance of common stock in acquisition of technology - - 29 - 1,500 (750)
Issurance of common stock - - 1,922 - 31,189 -
Exercise of common stock options, including related tax
benefits - - 1,203 1 9,917 -
Issuance of common stock under employee stock purchase
plan - - 411 - 3,112 (952)
Foregiveness of notes receivable from shareholders - - - - - 119
Issuance of common stock options at below market value - - - - 2,122 (2,122)
Repurchase of common stock - - (219) - (190) 135
Amortization of deferred compensation - - - - - 849
Deferred compensation related to issuance of stock
options - - - - 521 (521)
Unrealized loss on short-term investments - - - - - -
Compensation expense attributable to stock appreciation
rights - - - - 488 -
Reversal of prior year shareholder distribution - - - - 46 -
Contributed capital related to stock compensation expense - - - - 64 -
Net income - - - - - -
------ ------ ------ ------ --------- ------------
Balances as of December 31, 1996 - - 30,046 3 144,988 (4,335)
Issuance of common stock in acquisition of
Compass Design Automation, Inc. - - 522 - 17,500 -
Precim - - 256 - - -
Exercise of common stock options, including related tax
benefit - - 1,410 - 9,710 -
Note write-off and payoff from shareholders - - - - - 285
Issuance of common stock under employee stock purchase
plan - - 171 - 2,844 -
Repurchase of common stock - - (123) - (964) -
Amortization of deferred compensation - - - - - 1,352
Unrealized gain on short-term investments - - - - - -
Compensation expense attributable to stock appreciation
rights - - - - 102 -
Net income - - - - - -
------ ------ ------ ------ --------- ------------
Balances as of December 31, 1997 $ - $ - 32,282 $3 $174,180 ($2,698)
------ ------ ------ ------ --------- ------------
------ ------ ------ ------ --------- ------------
Net unreal. Total
G/(L) on Retained Shareholders'
ST Invest. Earnings Equity
------------ -------- ------------
<S> <C> <C> <C>
Balances as of December 31, 1994 ($222) $ 7,002 $ 33,558
Issuance of common stock - - 660
Conversion of long-term debt to common stock - - 100
Issuance of common stock in public offerings,
net of expenses - - 52,381
Conversion of mandatorily redeemable convertible
preferred stock into common stock - - 8,312
Conversion of preferred stock into common stock - - -
Exercise of common stock options and warrants,
including related tax benefits - - 5,962
Repurchase of common stock - (33) (56)
Issuance of common stock options at below market value - - -
Amortization of deferred compensation - - 133
Issuance of common stock under employee stock purchase
plan - - 605
Forgiveness of notes receivable from shareholders - - 108
Unrealized gain on short-term investments 311 - 311
Distributions to shareholders - (11,126) (11,126)
Compensation expense attributable to stock appreciation
rights - - 112
Net income - 11,806 11,806
----------- -------- ------------
Balances as of December 31, 1995 89 7,649 102,866
Issuance of common stock in acquisition of technology - - 750
Issurance of common stock - - 31,189
Exercise of common stock options, including related tax
benefits - - 9,918
Issuance of common stock under employee stock purchase
plan - - 2,160
Foregiveness of notes receivable from shareholders - - 119
Issuance of common stock options at below market value - - -
Repurchase of common stock - (14) (69)
Amortization of deferred compensation - - 849
Deferred compensation related to issuance of stock
options - - -
Unrealized loss on short-term investments (164) - (164)
Compensation expense attributable to stock appreciation
rights - - 488
Reversal of prior year shareholder distribution - - 46
Contributed capital related to stock compensation expense - - 64
Net income - 13,708 13,708
----------- -------- ------------
Balances as of December 31, 1996 (75) 21,343 161,924
Issuance of common stock in acquisition of
Compass Design Automation, Inc. - - 17,500
Precim - - -
Exercise of common stock options, including related tax
benefit - - 9,710
Note write-off and payoff from shareholders - - 285
Issuance of common stock under employee stock purchase
plan - - 2,844
Repurchase of common stock - - (964)
Amortization of deferred compensation - - 1,352
Unrealized gain on short-term investments 25 - 25
Compensation expense attributable to stock appreciation
rights - - 102
Net income - 5,398 5,398
----------- -------- ------------
Balances as of December 31, 1997 ($50) $26,741 $198,176
----------- -------- ------------
----------- -------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,398 $ 13,708 $ 11,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,835 3,233 2,477
Acquired in-process research and development 41,186 750 2,693
Gain on sale of securities - (14) -
Compensation expense (benefit) attributable
to stock appreciation rights 102 (31) 484
Stock compensation expense 461 463 220
Loss on disposal of assets 466 - 19
Equity earnings in joint ventures (212) - -
Amortization of capitalized software costs 62 88 228
Amortization of deferred compensation 1,013 569 133
Deferred income taxes (17,269) (2,544) (1,431)
Tax benefit related to stock options 2,992 4,730 1,302
Provision for doubtful accounts 2,040 464 672
Deferred rent (29) (39) 110
Stock issued for services - 140 -
Changes in operating assets and liabilities, net of effects
from purchase of Compass Design Automation:
Accounts receivable (6,492) (818) (4,877)
Due from affiliates (6,171) - -
Prepaid expenses and other assets (1,504) (4,396) (1,178)
Accounts payable (12,167) 774 530
Accrued compensation (448) 1,336 1,241
Accrued income taxes 4,237 (5,286) (899)
Other accrued liabilities (1,620) 4,581 2,804
Deferred revenue (3,246) 4,612 3,950
--------- --------- --------
Net cash provided by operating activities 16,634 22,320 20,284
--------- --------- --------
Cash flows from investing activities:
Purchases of short-term investments (113,982) (220,522) (81,469)
Repayment/(issuance) of note receivable 250 (250) -
Maturities and sales of short-term investments 154,797 169,156 59,127
Purchases of equipment, furniture and fixtures (26,067) (5,569) (5,758)
Purchase of long-term assets - (250) -
Capitalized software development costs - - (63)
Investment in joint ventures 310 668 -
Purchase of Compass Design Automation,
net of cash acquired (16,183) - -
--------- --------- --------
Net cash used in investing activities (875) (56,767) (28,163)
--------- --------- --------
Cash flows from financing activities:
Distributions to shareholders - (1,754) (9,327)
Principal payments under capital lease obligations (191) (222) (235)
Payments on notes payable (303) (303) (303)
Payments on technology acquisition payable (642) (755) (393)
Repayment of shareholder notes 163 - -
Issuance of preferred stock, net - - 500
Repurchase of common stock (966) (69) (56)
Exercise of stock options 6,553 5,128 4,646
Issuance of common stock under employee stock purchase plan 2,309 1,921 534
Issuance of common stock, net 700 31,348 52,626
--------- --------- --------
Net cash provided by financing activities 7,623 35,294 47,992
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 23,382 847 40,113
Cash and cash equivalents, beginning of year 54,141 53,294 13,181
--------- --------- --------
Cash and cash equivalents, end of year $ 77,523 $ 54,141 $ 53,294
--------- --------- --------
--------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Avant! Corporation (the "Company" or "Avant!") develops, markets and
supports software products that assist design engineers in the automated
design, layout, physical verification and analysis of advanced integrated
circuits. Its primary customers are semiconductor companies in the United
States, Japan, Korea, Taiwan and Europe.
PRINCIPLES OF PRESENTATION AND USE OF ESTIMATES
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements
have been restated to reflect the effect of the merger with
Technology Modeling Associates, Inc. ("TMA"), which is discussed in
Note 4.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses of the Company's
software products, maintenance and customer support.
SOFTWARE REVENUE
Prior to October 1, 1997, the Company complied with the American
Institute of Certified Public Accountants' ("AICPA") Statement of
Position ("SOP") 91-1, SOFTWARE REVENUE RECOGNITION. Revenue from the
sale of software licenses was recognized after shipment of the
products, delivery of permanent authorization codes and fulfillment
of acceptance terms, if any, provided that no significant vendor and
post-contract support obligations remain and collection of the
related receivable was probable. Any remaining insignificant vendor
or post-contract support obligations were accrued at the time the
revenue was recognized. In instances where there was a contingency
regarding the sale, revenue recognition was delayed until the
contingency had been resolved. When the Company received advance
payments for software products, such payments were reported as
deferred revenue until all conditions for revenue recognition were
met. The Company had entered into certain license agreements under
which software, support and other services were provided to customers
for a bundled price for a specific period of time. Generally, revenue
under such agreements was recognized ratably over the contract
period.
In the fourth quarter of 1997, the Company adopted the provisions of
the AICPA SOP 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair
values of the elements. The revenue allocated to software products,
including time-based software licenses, generally is recognized after
shipment of the products, delivery of permanent authorization codes
and fulfillment of acceptance terms. In connection with the adoption
of SOP 97-2, revenue for contracts
22
<PAGE>
with extended payment terms (generally greater than twelve months)
are recognized as payments become due. The effect of adopting SOP
97-2 on October 1, 1997 was not material and is not expected to be
material in the future.
Services Revenue
----------------
Maintenance revenue is deferred and recognized ratably over the term
of the maintenance agreement, which is typically 12 months. Revenue
from customer training, support and other services is recognized as
the service is performed.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining
maturity of three months or less at the date of acquisition to be
cash equivalents.
Cash equivalents are stated at cost and consist primarily of
certificates of deposit and commercial paper. The carrying amount of
cash and cash equivalents approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments, which are classified as available-for-sale,
consist of demand deposit investments in limited maturity
fixed-income mutual funds, short-term debt securities, U.S.
Government Agency debt securities, U.S. Treasury Bills,
municipal/corporate auction preferred stock and municipal bonds are
reported at fair value. The cost of securities sold is determined
using the specific identification method when computing realized
gains and losses. Fair value is determined using available market
information.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated at cost. Equipment,
furniture and fixtures are depreciated using the straight-line method
over the estimated useful lives of the assets which range from three
to thirteen years. Leasehold improvements are depreciated using the
straight-line method over the shorter of the lease term, or the
estimated useful life of the asset. Expenditures for repairs and
maintenance are charged to expense as incurred.
INTANGIBLES
Intangibles consist principally of goodwill representing purchased
technology and other intangible assets resulting from the excess of
the cost of a purchased business over the cost of the net assets
acquired. Goodwill is amortized using the straight-line method over
five years. As of December 31, 1997, goodwill and related
intangibles was $16,511,000 and accumulated amortization was
$1,050,000. The Company assesses the recoverability of goodwill
based on undiscounted future cash flows. The amount of any
impairment would be the difference between the carrying value of
goodwill and undiscounted future cash flows. As of December 31,
1997, the Company does not consider its goodwill to be impaired.
The Company assesses the recoverability of its identifiable tangible
and intangible assets under SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. This statement requires identifiable tangible and
intangible assets to be evaluated for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset
may not be recoverable. If an asset is considered to be impaired,
the carrying amount of that asset is reduced to the fair value
resulting in a charge to income. As of December 31, 1997, the
Company did not consider any of its identifiable tangible and
intangibles to be impaired.
23
<PAGE>
RELATED PARTY TRANSACTIONS
Included in prepaid expenses and other assets is $825,000 due from
officers relating to relocation costs and a loan and $377,000 due
from affiliates for working capital advances.
During 1993 and 1994, the Company repurchased 4,369,497 shares of
common stock from three different shareholders in exchange for
$116,600 in cash and $1,616,600 in promissory notes. The three
shareholders consisted of two former officers and one director of the
Company. These notes are due in quarterly installments, bear
interest at 10% per annum, and are due July 1, 1998, April 15, 1999
and October 15, 1999. Two of the notes can be prepaid without
penalty. As of December 31, 1997 and 1996, there was $425,000 and
$728,000, respectively, outstanding. These amounts are included in
the other current liabilities and non current liabilities.
OTHER ACCRUED LIABILITIES
In 1997, other accrued liabilities includes legal costs and other
costs of $4,860,000 and $9,335,000, respectively. In 1996, other
accrued liabilities includes merger, legal and other costs of
$3,910,000, $1,903,000 and $4,208,000, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The pro forma provision for income taxes for 1995 reflects the tax
expense that would have been reported if Meta (an S corporation for
income tax reporting purposes) had been a C corporation during that
period.
NET INCOME AND NET INCOME PER COMMON SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, EARNINGS PER SHARE. SFAS No. 128
requires the presentation of both basic and diluted earnings per
share ("EPS"). Basic earnings per share is computed based on the
weighted-average number of common shares outstanding during each
year. Diluted earnings per share is based on the sum of the
weighted-average number of common shares outstanding plus common
stock equivalents arising out of employee stock options and
convertible preferred stock. Excluded from the computation of
diluted earnings per share for the year ended December 31, 1997 and
December 31, 1996, are options to acquire 973,190 and 314,210 shares,
respectively, of common stock with a weighted-average exercise price
of $33.68 and $35.21, respectively, because their effects would be
anti-dilutive. Earnings per share information for all prior periods
have been restated to conform to the requirements of the standard.
There are no adjustments to net income (numerator) for either the
basic or diluted earnings per share calculation.
24
<PAGE>
The following is a reconciliation of the denominators of the basic and
diluted EPS computations for the years presented (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 31,073 27,954 23,128
Common stock equivalents:
Stock options and awards 1,928 2,447 2,353
Preferred stock -- -- 851
Shares deemed to be outstanding
to fund shareholder distribution -- -- 319
---- ---- ----
Total weighted average number of
common and common equivalent
shares outstanding 33,001 30,401 26,651
------ ------ ------
------ ------ ------
</TABLE>
During 1995, the calculation includes shares deemed to be outstanding,
which represent the number of shares sufficient to fund Meta's final S
corporation distribution.
STOCK OPTION AND STOCK PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted the disclosure requirements
of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under SFAS No.
123, the Company must disclose pro forma net income and pro forma earnings
per share for employee stock option grants and employee stock purchases
made in 1995 and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the U.S
dollar. Accordingly, the financial statements of those subsidiaries, which
are maintained in the local currency, are remeasured into U.S. dollars in
accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION. All exchange
gains or losses from remeasurement of monetary assets and liabilities that
are not denominated in U.S. dollars are recognized currently in income.
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.
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 operating segments in
interim financial reports issued to shareholders. This Statement is
effective for financial statements for periods beginning after
25
<PAGE>
December 15, 1997. The Company has not yet determined whether it has any
separately reportable business segments.
RECLASSIFICATION
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
2. EQUIPMENT, FURNITURE AND FIXTURES
At December 31, equipment, furniture and fixtures consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Furniture and fixtures $ 7,974 $ 3,022
Equipment 33,118 17,166
Leasehold improvements 5,288 1,075
Construction in progress 6,760 -
------- -------
53,140 21,263
Less accumulated depreciation 19,491 9,823
------- -------
$33,649 $11,440
------- -------
------- -------
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
Interest of $220,000, $274,000 and $173,000 was paid in 1997, 1996 and
1995, respectively. Income taxes of $8,483,000, $12,057,000 and $2,956,000
were paid during 1997, 1996 and 1995, respectively. Deferred compensation
of $4,193,000 and $588,000 was recognized in 1996 and 1995, respectively,
for stock options issued below market value. This amount will be
recognized as expense over the vesting period of the underlying equity
instruments, of which $1,352,000 and $849,000 of the expense was recognized
for the year ended December 31, 1997 and 1996, respectively. An income tax
benefit attributable to employee stock plans of $2,992,000, $4,730,000 and
$1,302,000 was credited to equity in the years ended December 31, 1997,
1996 and 1995, respectively. In 1997, non cash investing activities
includes 522,192 shares of common stock with a fair market value of
$17,500,000 issued in connection with the Compass acquisition. The Company
issued 256,211 shares of common stock related to the acquisition of Precim.
The Company issued $750,000 of common stock for the acquisition of
technology during 1996. Other accrued liabilities were reduced $102,000,
$488,000 and $112,000 through the issuance of common stock related to
accrued stock appreciation rights in 1997, 1996 and 1995, respectively.
During 1996 and 1995, common stock of 411,000 shares and 876,000 shares
were issued for notes receivable of $152,000 and $684,000, respectively.
During 1996, $660,000 of property and equipment purchases were financed
with capital lease obligations. Conversion of long-term debt to common
stock was $100,000 in 1995. In connection with the Company's initial public
offering in 1995, mandatorily redeemable convertible preferred stock was
converted to common stock in the amount of $8,312,000.
4. MERGERS AND ACQUISITIONS
On January 16, 1998, Avant! acquired TMA in a transaction accounted for as
a pooling of interests. The Company issued approximately 5,396,000 shares
of its common stock valued at approximately $95,000,000 in exchange for all
of the outstanding common stock of TMA. The Company also assumed
approximately 1,141,000 in TMA stock options, thereby allowing participants
to purchase Avant! stock in amounts and at prices adjusted to reflect the
relative exchange ratios of the merger.
26
<PAGE>
The results of operations previously reported by the separate entities,
Avant! and TMA, and the combined amounts represented in the accompanying
consolidated financial statements are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Avant! $147,348 $106,087 $ 68,868
TMA 17,038 17,959 12,593
-------- -------- --------
$164,386 $124,046 $ 81,461
-------- -------- --------
-------- -------- --------
Net Income (Loss):
Avant! $ 6,541 $ 12,484 $ 8,350
TMA (1,567) 1,224 1,282
-------- -------- --------
4,974 13,708 9,632
Adjustment for deferred taxes 424 - -
-------- -------- --------
Net Income $ 5,398 $ 13,708 $ 9,632
-------- -------- --------
-------- -------- --------
</TABLE>
In connection with the merger with TMA, 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 in the first quarter of
1998.
On September 30, 1997, the Company acquired the assets of Datalink, a
Taiwan corporation, pursuant to an asset purchase agreement. The Company
will pay $900,000 to acquire Datalink. The Company paid $450,000 on
October 1, 1997 and the balance will be paid in four equal installments on
December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999.
The acquisition has been accounted for by the purchase method and the cost
allocated to the acquired technology is reflected in other assets in the
accompanying consolidated balance sheet.
On September 12, 1997, the Company acquired Compass, a subsidiary of VLSI
Technology, Inc., in exchange for $17,500,000 cash and 522,192 shares of
its common stock, issued with a fair market value of $17,500,000, and costs
of acquisition of $4,948,000. The net purchase price of $39,948,000 was
allocated as follows: $6,701,000 to current assets; $4,441,000 to
equipment, furniture and fixtures; $41,186,000 to in-process research and
development; $14,822,000 to goodwill and other identifiable intangibles and
$27,202,000 to assumed liabilities. In the first quarter of 1998, the
Company paid an additional amount of $1,901,000. The acquisition has been
accounted for by the purchase method, and accordingly, the Company's
consolidated financial statements do not include the results of operations,
financial position or cash flows of Compass prior to September 12, 1997.
The following pro forma consolidated results of operations give effect to
the acquisition as if it had occurred on January 1, 1996.
The unaudited pro forma consolidated results of operations of the Company
and Compass for 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pro forma revenue $197,430 $178,231
Pro forma net income $ 23,392 $ 6,498
Pro forma basic earnings per share $ 0.75 $ 0.23
Pro forma diluted earnings per share $ 0.71 $ 0.21
</TABLE>
27
<PAGE>
Included in pro forma revenue and net income for 1997 and 1996 are revenues
of $33,046,000 and $54,185,000, respectively, and net loss of $8,365,000
and $3,656,000, respectively, from Compass operations. Included in the
combined pro forma net income amounts are amortization of goodwill and
other intangibles over the expected useful lives ranging from four to five
years and related tax benefit.
On August 29, 1997 the Company issued approximately 256,000 shares of its
common stock for all of the outstanding stock of Precim. The financial
position, results of operations and cash flows of Precim were not material
to Avant!, and the acquisition was accounted for by the purchase method.
On December 31, 1996, the Company issued approximately 29,000 shares of its
common stock for all of the outstanding stock of Nexsyn, and assumed
approximately 22,000 stock options under option plans. The financial
position, results of operations and cash flows of Nexsyn were not material
to Avant!, and the acquisition was accounted for by the purchase method.
On November 27, 1996, the Company issued approximately 1,812,000 shares of
its common stock for all of the outstanding common stock of FrontLine,
and assumed approximately 410,000 warrants and stock options under option
plans.
On October 29, 1996, the Company issued approximately 4,471,000 shares of
its common stock for all of the outstanding common stock of Meta, and
assumed approximately 608,000 stock options and subscriptions under option
and purchase plans.
On September 27, 1996, the Company issued approximately 2,154,000 shares
of its common stock for all of the outstanding common and preferred stock
of Anagram, and assumed approximately 260,000 stock options under option
plans.
The FrontLine, Meta, Anagram and TMA mergers have been accounted for as
poolings of interests, and, accordingly, the Company's consolidated
financial statements have been restated for all periods prior to the
mergers to include the results of operations, financial position, and cash
flows of FrontLine, Meta, Anagram and TMA. The Anagram outstanding
convertible preferred stock has been presented as common stock for all
periods presented in the consolidated financial statements.
In connection with the 1996 mergers with FrontLine, Meta and Anagram, the
Company incurred direct transaction costs and merger-related integration
expenses of approximately $9,300,000, consisting of transaction fees for
investment bankers, attorneys, accountants, financial printing and
shareholder meetings of approximately $5,352,000, charges for the
elimination of duplicate facilities of approximately $2,250,000, and
severance costs and certain other related costs of approximately
$1,698,000. Of the $9,300,000 of merger-related costs, approximately
$8,400,000 related to cash expenditures while approximately $900,000
related to noncash charges. As of December 31, 1997, there were no
remaining accrued liabilities relating to the 1996 mergers.
On November 27, 1995, the Company issued approximately 6,400,000 shares of
its common stock for all of the outstanding common stock of ISS, and
assumed approximately 1,500,000 stock options and subscriptions under
various ISS stock option and purchase plans. The merger has been accounted
for as a pooling of interests, and accordingly, the Company's consolidated
financial statements have been restated for all periods prior to the merger
to include the results of operations, financial position and cash flows of
ISS.
In connection with the 1995 merger with ISS, the Company incurred direct
transaction costs and merger-related integration expenses of approximately
$3,590,000 consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and shareholder meetings of
approximately $2,858,000, charges for the elimination of duplicate
facilities of approximately $233,000, and severance and certain other
related costs of approximately $499,000. Of the $3,590,000 of merger-
related costs, approximately $3,390,000 related to cash expenditures while
approximately
28
<PAGE>
$200,000 related to noncash charges. As of December 31, 1997,
there was no remaining accrued liabilities relating to the 1995 merger.
5. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the completion of the Company's initial public offering
in June 1995, all the outstanding mandatorily redeemable convertible
preferred stock automatically converted into approximately 3,570,000
shares of the Company's common stock. In addition, outstanding warrants
to acquire Series B preferred stock were automatically converted into
approximately 26,000 shares of the Company's common stock.
6. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING AND CHANGES IN AUTHORIZED COMMON AND PREFERRED
STOCK
In April 1995, the Company increased its authorized number of shares of
preferred stock to 5,000,000 shares and authorized the Board of Directors
to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting
any series or the designation of such series, without any further vote or
action by the shareholders.
In June 1995, the Company closed its initial public offering of common
stock at $13.00 per share. The net proceeds of the offering were
$27,713,000 after deducting applicable costs and expenses. In connection
with the public offering, all the outstanding Series A preferred stock
automatically converted into approximately 687,000 shares of the Company's
common stock.
In May 1996, the Company increased its authorized number of shares of
common stock from 25,000,000 to 50,000,000 shares.In May 1997, the Company
increased its authorized number of shares of common stock from 50,000,000
shares to 75,000,000.
SHAREHOLDER DISTRIBUTIONS
Meta (an S corporation for income tax reporting purposes) made
distributions to its shareholders to provide them with funds to pay income
taxes on corporate earnings. Prior to the completion of the Meta initial
public offering and the termination of the S corporation election in
November 1995, Meta declared a distribution payable of approximately
$11,100,000 to existing shareholders of Meta. This distribution
represented undistributed tax basis earnings of Meta through the
termination of the S corporation election.
29
<PAGE>
1995 STOCK OPTION/ISSUANCE PLAN
The Company approved the 1995 Stock Option/Stock Issuance Plan (the "1995
Plan") in April 1995, under which all remaining outstanding stock options
and shares available for grant under the Company's 1993 Stock Option/Stock
Issuance Plan and 1,000,000 additional shares of the Company's common stock
were authorized for issuance. The 1995 Plan is intended to serve as a
successor to the 1993 Stock Option/Stock Issuance Plan (see below) and has
terms similar to those of the 1993 Stock Option/Stock Issuance Plan. Under
the 1995 Plan, the term of options is generally ten years with a vesting
requirement of 25% after one year of service and monthly, thereafter, fully
vesting upon completion of the fourth year of service. Under the Plan, each
individual serving as a nonemployee Board of Directors' member on the date
the Underwriting Agreement for the initial public offering was executed
received an option grant on such date for 20,000 shares of common stock,
provided such individual had not otherwise been in the prior employ of the
Company. Each individual who becomes a nonemployee Board of Directors'
member thereafter receives a 20,000 share option grant on the date such
individual joins the Board of Directors provided such individual has not
been in the prior employ of the Company. In addition, at each annual
shareholders' meeting, beginning with the 1996 Annual Shareholders'
Meeting, each individual who continues to serve as a nonemployee Board of
Directors' member after the meeting receives an additional option grant to
purchase 5,000 shares of common stock whether or not such individual has
been in the prior employ of the Company.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
In September 1993, the Board of Directors approved the 1993 Stock
Option/Stock Issuance Plan (the "Plan"). Options granted under the Plan
may be either incentive stock options or nonstatutory stock options, as
designated by the Board of Directors. The Plan provides that the exercise
price of an incentive stock option and a nonstatutory option will be no
less than the fair market value and 85% of the fair market value,
respectively, of the Company's common stock at the date of grant, as
determined by the Board of Directors.
The Company's Board of Directors also has the authority to set exercise
dates (no longer than 10 years from the date of grant), payment terms and
other provisions for each grant. Generally options granted under the Plan
become exercisable as to 25% of the shares on the anniversary date of grant
and thereafter become exercisable ratably over three years.
The Company has recorded deferred compensation of $3,522,000, representing
the difference between the exercise price and the deemed fair value of the
Company's common stock for 604,000 shares subject to common stock options
granted in the fourth quarter of 1994, the first quarter of 1995 and
options assumed in the Anagram and FrontLine mergers and Nexsyn acquisition
during 1996. The deferred compensation will be amortized to compensation
expense over the period during which the options become exercisable,
generally four years.
In connection with the mergers discussed in Note 4, various ISS, Anagram,
Meta and FrontLine option plans were assumed by the Company, thereby
allowing participants to purchase Avant! stock in amounts and at prices
adjusted to reflect the relative exchange ratios of the mergers.
1992 STOCK OPTION/APPRECIATION PLAN
Under Meta's 1992 Stock Option/Appreciation Plan (the "1992 Plan"), the
exercise price of stock options is to be at not less than 90% of the fair
market value at the date of grant. Fair market value, in the absence of
trading on a national or regional stock exchange, was established by Meta's
Board of Directors based on an independent valuation of Meta. Options
generally vested over a period of one to four years from the date of grant,
expired ten years from the date of grant, and were terminated, to the
extent not exercised, one month after termination of employment.
30
<PAGE>
The 1992 Plan provides for the exercise of stock appreciation rights with
respect to outstanding options in the absence of trading of Meta's stock on
a national or regional stock exchange. Upon the exercise of stock
appreciation rights, the employee surrendered the related unexercised
option and received cash payment equal to the excess of the fair market
value of the underlying shares at the time of exercise over the aggregate
exercise price of the related option. Compensation expense was recognized
for the appreciation in value from the date of grant.
During the months of June, July, and August 1995, Meta entered into
agreements with substantially all individual option holders under the 1992
Plan to eliminate the stock appreciation right feature of the individual
awards. Compensation expense of $484,000, representing the difference
between the exercise price and the fair market value of the stock, was
recognized during the year ended December 31, 1995. Subsequent to
elimination of the stock appreciation rights feature, no further
compensation expense was recorded on the remaining options.
NOTES RECEIVABLE FROM SHAREHOLDERS
In June 1995, the Company issued a total of 754,731 shares of common stock
to two officers of the Company in exchange for notes receivable. The terms
of the notes specify that 25% of the balance will be forgiven on each
anniversary date of the note while these individuals are still actively
employed by the corporation. The first year's forgiveness was guaranteed.
The Company has recorded compensation expense of $126,000, $119,000 and
$108,000 for the year ended December 31, 1997, 1996 and 1995, respectively
in connection with the forgiveness of these notes.
During 1996, the Company issued a total of 125,457 shares of common stock
to certain officers of the Company in exchange for notes receivable of
$152,000. The notes bear interest at 5.45% to 5.73% and the principal,
with interest, is due in January and April of the year 2000.
The Company applies APB Opinion No. 25 in accounting for its option and
purchase plans and accordingly, compensation expense has been recognized
for its stock options in the financial statements using the intrinsic value
method. Had the Company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income as reported $ 5,398 $13,708 $9,632
Additional compensation cost resulting from:
Stock options (7,091) (4,681) (1,779)
Employee stock purchase rights (Note 9) (1,032) (1,046) (309)
------- ------- ------
Pro forma $(2,725) $ 7,981 $7,544
------- ------- ------
------- ------- ------
Basic earnings per share
As reported $ 0.17 $ 0.49 $ 0.42
Pro forma $ (0.09) $ 0.29 $ 0.33
Diluted earnings per share
As reported $ 0.16 $ 0.45 $ 0.36
Pro forma $ (0.09) $ 0.26 $ 0.28
</TABLE>
31
<PAGE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996, and 1995, respectively: expected
volatility of 74%, 57% and 57%, risk-free interest rates of 6.05%, 5.27%
and 7.86%, respectively, expected lives of six months after vesting and no
dividend yield.
The effects of applying SFAS No. 123 for disclosing compensation cost may
not be representative of the effects on reported net income for future
years because pro forma net income reflects compensation costs for stock
options granted in 1997, 1996 and 1995 and does not consider compensation
cost for stock options granted prior to January 1, 1995.
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
Weighted Weighted Weighted
average average average
Shares exercise Shares exercise Shares exercise
(000) price (000) price (000) price
-------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 4,491 $13.75 4,109 $ 9.31 3,937 $ 4.30
Granted 2,985 22.56 2,019 15.88 2,043 12.33
Exercised (1,408) 4.55 (1,203) 2.83 (655) 9.78
Canceled (842) 20.17 (434) 11.93 (1,216) 2.12
------ ------ ------
Outstanding at end of year 5,226 $17.34 4,491 $13.75 4,109 $ 9.31
------ ------ ------
------ ------ ------
Options exercisable at end
of year 1,374 $13.14 2,120 $ 7.14 1,667 $ 5.18
Weighted average fair
value of options granted
during the year $12.15 $ 6.99 $ 5.26
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------- ----------------------------
Weighted
Range average Weighted
of Number remaining Weighted Number average
exercise outstanding contractual average exercisable exercise
price (000) life (years) exercise price (000) price
------------ ----------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.05- 3.52 858 7.10 $ 0.78 414 $ 0.73
$ 5.31- 9.81 305 7.80 8.69 115 8.66
$10.92-14.62 242 7.70 13.67 108 13.68
$15.08-19.33 2,097 8.30 15.98 514 16.81
$20.50-24.69 424 7.70 22.53 95 22.01
$25.13-28.52 202 8.70 25.51 17 25.99
$30.00-34.00 830 9.20 31.26 44 33.52
$35.00-38.79 210 8.40 35.85 35 37.07
$41.25-44.50 58 7.90 41.81 32 41.85
----------- ------------ -------------- ----------- ---------
$ 0.05-44.50 5,226 8.10 $17.34 1,374 $ 13.14
----------- ------------ -------------- ----------- ---------
----------- ------------ -------------- ----------- ---------
</TABLE>
7. LEASES
OPERATING LEASES
The Company leases its Fremont, California, Sunnyvale, California, Research
Park Triangle, North Carolina, and certain sales facilities under operating
lease agreements which expire over the next thirteen years. Rental expense
incurred by the Company under operating lease agreements totaled
32
<PAGE>
$4,517,000, $2,584,000 and $1,728,000, and for the years ended December 31,
1997, 1996 and 1995, respectively.
Future annual minimum lease payments under noncancelable operating leases
for the years ended December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 5,627
1999 6,359
2000 6,687
2001 6,304
2002 6,166
Thereafter 46,951
-------
$78,094
-------
-------
</TABLE>
The Company leases its primary facility under a noncancelable operating
lease that expires in February 2001. In connection with the move to this
facility in March 1996, the Company vacated its former facility and
subleased it to a third party. This sublease is effective from May 1, 1996
through the expiration of the lease, May 31, 1998. The minimum operating
lease payments for the Company's former facility have not been reduced by
the minimum sublease rentals of $427,000 due ratably over the next 5 months
under the noncancelable sublease.
CAPITAL LEASES
In May 1996, the Company entered into a $660,000 capital lease line,
expiring July 31, 1996, for the purchase of furniture and other office
equipment. The interest rate on the lease is 9.0% and borrowings are
secured by the purchased equipment. As of December 31, 1996, the Company
had acquired $660,000 of furniture and other office equipment under the
lease line.
Minimum future lease payments under capital leases as of December 31, 1997
were as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 183
1999 183
2000 123
------
Total minimum lease payments 489
Less amount representing interest (56)
------
Present value of lease payments 433
Less current portion 151
------
Long-term portion, net of current portion $ 282
------
------
</TABLE>
33
<PAGE>
8. INCOME TAXES
The components of income tax expense (benefit), as presented in the
accompanying statements of income, comprise federal taxes, state taxes and
certain foreign taxes. The pro forma provision for income taxes reflects
the income tax expense that would have been reported if Meta (an S
corporation for income tax reporting purposes) had been a C corporation
for the years ended December 31, 1995. The components of income taxes and
pro forma income taxes as of December 31, 1997, 1996 and 1995, are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Provision for income taxes:
Current:
Federal $ 14,569 $ 7,177 $ 1,776
Foreign 1,245 1,680 2,354
State 2,331 876 917
-------- ------- -------
Total 18,145 9,733 5,047
-------- ------- -------
Deferred:
Federal (15,116) (2,311) (826)
State (2,153) (253) (605)
-------- ------- -------
Total (17,269) (2,564) (1,431)
-------- ------- -------
Charge in lieu of taxes attributable to employee stock plans 2,992 4,730 1,302
-------- ------- -------
Total provision for income taxes $ 3,868 $ 11,899 $ 4,918
-------- ------- -------
-------- ------- -------
Pro forma income taxes:
Current:
Federal $ 3,029
Foreign 2,354
State 1,320
-------
Total 6,703
-------
Deferred:
Federal (396)
State (517)
-------
Total (913)
-------
Charge in lieu of taxes attributable to employee stock plans 1,302
-------
Total pro forma provision for income taxes $ 7,092
-------
-------
</TABLE>
The Company's effective tax rate and pro forma effective rate differs from
the statutory income tax rate of 35% as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Income tax expense at statutory rate $ 3,253 $ 8,941 $ 5,832
State tax expense 484 1,611 544
Nondeductible merger costs 1,732 2,355 938
Change in valuation allowance 1,338 139 6
Tax exempt income (839) (307) (306)
Tax credits (1,542) (387) (200)
Foreign sales corporation (1,025) (980) (96)
S corporation benefit - - (575)
Establishment of deferred tax assets in conjunction with
Meta's change from a S corporation to C corporation status - - (1,725)
Foreign tax credit utilized - (955) (698)
Foreign taxes 753 955 1,168
Other (286) 527 30
------- ------- -------
Actual income tax expense $ 3,868 $11,899 $ 4,918
------- ------- -------
------- ------- -------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Pro forma income tax expense at statutory rate $ 5,832
State tax expense 868
Nondeductible merger costs 938
Change in valuation allowance 6
Tax exempt income (306)
Tax credits (305)
Foreign sales corporation (96)
Foreign tax credit utilized (698)
Foreign taxes 745
Other 108
-------
Pro forma income tax expense $ 7,092
-------
-------
</TABLE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities $ 1,890 $ 1,766
Allowance for doubtful accounts 693 305
Tax credit carryforwards 2,053 689
Net operating loss carryforwards 911 201
Deferred revenue 5,262 4,682
Property and equipment, principally due to depreciation - 607
Purchased technology 16,480 -
Other - 82
-------- --------
Total gross deferred tax assets 27,289 8,332
Deferred tax asset valuation allowance (2,141) (803)
-------- --------
Total deferred tax assets 25,148 7,529
Deferred tax liabilities:
Cash to accrual conversion 761 932
Other 521 -
-------- --------
Net deferred tax assets $ 23,866 $ 6,597
-------- --------
-------- --------
</TABLE>
The Company had net operating loss carryforwards of $2,478,000 and $117,000
as of December 31, 1997, and 1996, respectively, expiring through the year
2012. For the year ended December 31, 1997, the Company had California net
operating loss carryforwards of approximately $781,000, available to reduce
future income subject to income taxes. If not utilized, the carryforwards
will expire in 2002.
As of December 31, 1997, the Company had foreign tax credit carryforwards
of approximately $1,079,000 and minimum tax credit carryforwards of
approximately $163,000 for federal income tax purposes. The Company also
had research credit carryforwards of approximately $515,000 and $295,000
for federal and California purposes. Under the Tax Reform Act of 1986, the
credits that can be utilized in the carryforward period may be limited in
the event of certain stock ownership changes. The Company experienced such
a change in 1994; therefore, its ability to utilize the carryforwards is
subject to certain limitations.
As the company generates a significant portion of its total revenue from
international sales that require withholding of foreign tax, it has not
been able to utilize all of its available tax credits. Accordingly, the
Company has generated significant tax credit carryforwards and believes
that it will generate additional carryforwards for the foreseeable future.
This limitation along with the change in ownership limitations discussed
above raises uncertainty regarding the realization of the tax credit
carryforwards. As a result, management has established a valuation
allowance for the portion of
35
<PAGE>
deferred tax assets related to tax credits for which realization is
uncertain. The valuation allowance for deferred tax assets as of January 1,
1997 was $803,000. The net change in the total valuation allowance for the
year ended December 31, 1997 was an increase of $1,338,000.
9. EMPLOYEE BENEFIT PLANS
401(K) PLAN AND PROFIT SHARING
The Company has a 401(k) retirement savings plans covering substantially
all employees in the United States. Contributions are matched at the
discretion of the Board of Directors. The matching contributions amounted
to $1,467,000, $769,000 and $115,000 for 1997, 1996 and 1995, respectively.
TMA had a profit sharing plan covering substantially all of its employees.
Expenses related to the plan were $416,000, $183,000 and $210,000 for
the years ended December 31, 1997, 1996, and 1995 respectively. For the
years ended December 31, 1995 employees had the right to utilize
distributions under this plan to purchase shares of the Company's common
stock pursuant to the Company's 1994 Stock Purchase Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Employee Stock Purchase Plan, which permits
eligible employees to purchase newly issued common stock of the Company up
to an aggregate of 382,409 shares. Under this plan, employees may purchase
from the Company a designated number of shares through payroll deductions
at a price per share equal to 85% of the lesser of the fair market value of
the Company's common stock as of the date of the grant or the date the
right to purchase is exercised. Under the Plan, the Company sold 171,000,
411,000 and 876,000 shares to employees in 1997, 1996 and 1995,
respectively.
The fair value of employee purchase rights, for purposes of SFAS No. 123
disclosure (see Note 6) was estimated using the Black-Scholes model with
the following assumptions for 1997, 1996 and 1995, respectively: expected
volatility of 74%, 57% and 57%, respectively, risk-free interest rates of
6.05%, 5.61% and 7.76%, respectively, and no dividend yield. The weighted
average fair value of those purchase rights (including the 15% discount to
the fair value of the Company's common stock) granted in 1997, 1996 and
1995 were $8.49, $8.17 and $13.25, respectively. The expected life of the
employee purchase rights is fifteen months.
1994 STOCK PURCHASE PLAN - TMA
On January 22, 1994, the Company adopted the 1994 Stock Purchase Plan (the
"1994 Plan") under which eligible employees, officers, consultants and
directors of the Company may purchase shares of the Company's common stock
at the discretion of the Board of Directors at a purchase price of 100% of
the fair market value of the stock as determined by the Board of Directors
at the time of purchase. Shares purchased under the 1994 Plan are subject
to a right of repurchase by the Company at the original issuance price.
This repurchase right lapses over a period of four years. On January 20,
1996, the Board of Directors increased the number of shares reserved for
issuance under the 1994 Plan from 1,324,090 to 1,986,135 shares. As of
December 31, 1996, the Company had issued and outstanding a total of
1,117,864 shares under the 1994 Plan of which 459,793 shares are subject to
repurchase by the Company. As of December 31, 1996, there were 868,403
shares available for future sale under the 1994 Plan. As of January 31,
1998, this plan is no longer active. All TMA employees are under
the Company's current employee stock purchase plan.
36
<PAGE>
10. CONCENTRATIONS OF CREDIT RISK
The Company maintains excess cash balances in a variety of financial
instruments such as securities backed by the U.S. government,
municipal/corporate auction preferred stock, municipal bonds, short-term
debt securities, and demand deposit investments in limited-maturity
fixed-income mutual funds. The Company has not experienced any material
losses in any of its financial instruments.
To reduce credit risk, the Company performs ongoing credit evaluations of
its customers' financial condition. The Company maintains reserves for
potential credit losses, but historically has not experienced any
significant losses related to individual customers or groups of customers
in any geographic area. The Company's allowance for doubtful accounts was
$4,980,000, $937,000 and $1,064,000 as of December 31, 1997, 1996 and 1995,
respectively.
11. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
electronic design automation industry.
The Company's export revenues are all denominated in U.S. dollars.
International revenue, accounted for approximately 42%, 40%, and 39% of
total revenue in the years ended December 31, 1997, 1996, and 1995,
respectively. In 1997, Asian and European sales represented 33% and 9%,
respectively. In 1996 and 1995, international sales were primarily in
Asia.
12. ACQUISITIONS OF TECHNOLOGY
In each of December 1996, September 1996, October 1995 and April 1994, the
Company acquired rights to certain software technology under development.
As the acquired software had not reached technological feasibility at the
dates of acquisition and possessed no alternative uses, it was expensed
upon acquisition.
Under the October 1995 agreement, the Company will make payments of
approximately $475,000, $350,000 and $200,000 in March 1998, 1999 and 2000,
respectively. The present value of these payments is included in accrued
expenses in the accompanying consolidated balance sheets.
13. JOINT VENTURES
During 1997 and 1996, respectively, the Company entered into joint ventures
with Maingate Electronics, KK ("Maingate") of Japan and DavanTech Co., Ltd,
("DavanTech") of Korea. The joint ventures were formed for the purpose of
consolidating distribution in their respective countries. The Company has
ownership of 35% and 39.6% of Maingate and DavanTech, respectively, and
accounts for them using the equity method. The Company's Chairman of the
Board, President and Chief Executive Officer owns 40% of Maingate and 2.6%
of DavanTech. These investments are included in other assets with the
Company's share of the net income of each company recorded in other income
and expense.
The Company recognizes software license revenue from these joint ventures
when cash is collected from the end users, by the joint ventures. Revenues
from sales to Maingate and DavanTech during 1997 were $4,778,000 and
$723,000, respectively. At December 31, 1997, due from affiliates included
$5,694,000 and $477,000 from Maingate and DavanTech, respectively.
37
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
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. In an order dated May 21, 1998, the
District Court continued the stay previously entered.
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 claim 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. 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 should be enjoined. On May 21, 1998, the
District Court entered an order denying Cadence's request to enjoin the
sale of Aquarius and denying Cadence's request to lift the stay of the
civil action. The District Court's May 21, 1998 order does not preclude
Cadence from applying for an injunction against the sale of Aquarius on
the basis that Aquarius contains code that is substantially similar to
Cadence's Design Framework II or that Aquarius contains a specific
protected idea from Cadence's Design Framework II. 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.
38
<PAGE>
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 District Court's May 21, 1998 order stayed the Company's
counterclaims against Cadence.
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.
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 Company and the individual defendants have filed a
motion to recuse the District Attorney's office from prosecuting the case and
the District Attorney has filed a motion to recuse the Judge assigned to the
case. 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.
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
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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 fa1ilure 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.
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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, as discussed above in
the Meta and Silvaco case. 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 answered the
complaint and filed counterclaims against Microunity seeking a declaration
that the patents at issue are invalid and that Precim does not infringe.
Trial has been scheduled for September 20, 1999. 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 has also granted plaintiff's
motion for appointment as lead plaintiff. The stay of the Margetis securities
class action pending resolution of the Cadence suit will likely apply to this
securities action as well.
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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.
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Schedule II
AVANT! CORPORATION
VALUATION AND QUALIFYING ACCOUNTS -
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance Additions Balance
At Beginning Charged Adjust- At End
of Period to Expense Deductions ments(1) of Period
--------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $ 520 $ 672 $128 $ - $1,064
Year ended December 31, 1996 1,064 464 591 - 937
Year ended December 31, 1997 937 2,040 493 2,496 4,980
</TABLE>
(1) Compass Design Automation, Inc. balance as of 9/12/97.
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Exhibit 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Avant! Corporation:
The audits referred to in our report dated May 22, 1998, included the related
consolidated financial statement schedule as of December 31, 1997, and for
each of the years in the three-year period ended December 31, 1997, included
herein. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this consolidated financial statement schedule based on our audits. In our
opinion, such consolidated financial schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statements (Nos.
333-18445 and 333-43087) on Form S-3, in the registration statement (No.
333-42923) on Form S-4 and in the registration statements (Nos. 333-16981,
333-16303, 333-15159, 333-06405, 333-77196, 333-77242 and 333-53365) on Form
S-8 of Avant! Corporation of our report dated May 22, 1998, relating to
the consolidated balance sheets of Avant! Corporation as of December 31, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, and the related consolidated financial statement schedule,
which reports are included herein.
/s/ KPMG PEAT MARWICK LLP
Mountain View, California
June 11, 1998
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Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the incorporation of
our report on the December 31, 1996 consolidated financial statements of
Technology Modeling Associates, Inc. dated January 24, 1997 included in this
Form 8-K/A into Avant! Corporation's previously filed registration statements
on Form S-3, File Nos. 33318445 and 33343087, on Form S-4, File No. 33342923,
on Form S-8, File Nos. 33316981, 33316303, 33315159, 33306405, 33377196,
33377242 and 33353365.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
June 8, 1998
45
