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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K
 
             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                         COMMISSION FILE NUMBER 0-25864
                            ------------------------
                               AVANT! CORPORATION
 
             (Exact name of registrant as specified in its charter)
 
                  DELAWARE                             94-3133226
      (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)              Identification No.)
 
                             46871 BAYSIDE PARKWAY
                           FREMONT, CALIFORNIA 94538
          (Address of principal executive offices, including Zip Code)
 
                                 (510) 413-8000
              (Registrant's telephone number, including area code)
 
          Securities registered pursuant to Section 12(b) of the Act:
                                      None
 
          Securities registered pursuant to section 12(g) of the Act:
                Common Stock, $.0001 par value (Title of Class)
 
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
The aggregate market value of the shares of voting stock held by non-affiliates
of the registrant, as of March 17, 1999 was approximately $534,254,122 (based on
the last sale price of such stock as reported by the Nasdaq National Market).
For the purposes of this disclosure shares of common stock held by persons who
own 5% or more of the shares of outstanding common stock and shares of common
stock held by each officer and director have been excluded because such persons
may be deemed "Affiliates" as that term is defined under rules and regulations
of the Act. This determination of Affiliate status is not necessarily a
inclusive determination for other purposes.
 
The number of shares of the registrant's Common Stock outstanding as of March
17, 1999 was 33,260,957.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of: (1) the Avant! Corporation Proxy Statement for the Annual Meeting
of Stockholders to be held on May 14, 1999, are incorporated by reference in
Part III of this Form 10-K
 
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                               AVANT! CORPORATION
                            FORM 10-K ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 1998
 
                               TABLE OF CONTENTS
 
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PART I.
 
Item 1.    Business..................................................................     1
 
Item 2.    Properties................................................................    17
 
Item 3.    Legal Proceedings.........................................................    17
 
Item 4.    Submission of Matters to a Vote of Security Holders.......................    21
 
PART II
 
Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.....    21
 
Item 6.    Selected Consolidated Financial Data......................................    21
 
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
             Operation...............................................................    21
 
Item 7a.   Quantitative and Qualitative Disclosure About Market Risk Derivatives and
             Financial Instruments...................................................    22
 
Item 8.    Consolidated Financial Statements and Supplementary Data..................    22
 
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial
             Disclosure..............................................................    22
 
PART III.
 
Item 10.   Directors and Executive Officers of the Registrant........................    23
 
Item 11.   Executive Compensation....................................................    24
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management............    24
 
Item 13.   Certain Relationships and Related Transactions............................    24
 
PART IV.
 
Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........    24
 
Signature Page.......................................................................    26
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                                    PART I.
 
    This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in Item 1 under the heading "Business-Risk Factors that May
Affect Future Results."
 
ITEM 1. BUSINESS
GENERAL
 
    Avant! Corporation (the "Company" or "Avant!") resulted from the merger of
ArcSys, Inc. ("ArcSys") and Integrated Silicon Systems, Inc. ("ISS") on November
27, 1995. Avant! merged with Anagram, Inc. ("Anagram") on September 27, 1996,
Meta-Software, Inc. ("Meta") on October 29, 1996, FrontLine Design Automation,
Inc. ("FrontLine") on November 27, 1996, acquired Nexsyn Design Technology Inc.
("Nexsyn") on December 31, 1996, Compass Design Automation, Inc. ("Compass") on
September 12, 1997 and Datalink Far East Ltd, ("Datalink") on September 30,
1997. Avant! also merged with Technology Modeling Associates, Inc. ("TMA") on
January 16, 1998 and acquired interHDL Inc. ("interHDL") on November 13, 1998
and ACEO Technology Inc. ("ACEO") on November 19, 1998. Avant! is a Delaware
corporation that develops, markets and supports software products that assist
design engineers in the physical layout, design, verification, simulation,
timing and analysis of advanced integrated circuits ("ICs").
 
    The Company's objective is to establish a significant market position as a
supplier of design software for the integrated circuit design automation
("ICDA") market. To achieve this objective, Avant! has adopted its mission,
which is to provide innovative technology, products and business models that
enable customers to solve the toughest problems in deep submicron (less than
0.5-micron feature size) and very deep-submicron (less than 0.35-micron) feature
size IC design, improve their productivity and achieve a high return on their
investment. To effect its mission, Avant! has adopted the strategies of
maintaining focus on technological innovation and creating strategic
relationships with customers.
 
    As the 21(st) century approaches, reusable silicon libraries, silicon
intellectual property ("SIP"), design blocks, and optimized design-flow
management are becoming critical to creating complex new "systems-on-a-chip."
 
PRODUCTS
 
    Avant! products are based on the Company's proprietary architecture and
technology, which provide a breadth of automated IC design capabilities.
Avant!'s product architecture is designed to solve the problems inherent in
deep-submicron (less than 0.5-micron feature size) and very deep-submicron (less
than 0.35-micron) IC design and to offer improved time-to-market, reduced
development and manufacturing costs and enhanced IC performance when compared to
previous generations of ICDA software.
 
    Avant! products are designed to be compatible with the most commonly used
ICDA tools and to be easily integrated into the customer's existing design
environments and methodologies through industry standard interfaces. Avant!'s
products are primarily written in C, run on UNIX workstations such as those from
Sun Microsystems, Silicon Graphics and Hewlett-Packard, and support industry
standards such as GDSII Stream format, EDIF, VHDL, Verilog, SDF, SPEF, SPF, DSPF
and PDEF.
 
    The Company's Milkyway-TM- system is the first common database for handling
complex, very deep-submicron designs. This database, along with a graphical user
interface, creates a foundation for efficient interoperability of next
generation design tools. Milkyway is designed to dynamically create database
objects for each application, and its patent-pending turbo-compression technique
reduces design database size and accelerates performance for the best in class
tools.
 
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    The Company's Apollo family of cell-based place and route products, which
replaced the Company's Aquarius line of products, are the industry's leading
place and route software for very deep-submicron IC design. Apollo uses
fourth-generation place and route algorithms developed at Avant! and addresses
difficult design issues such as optimization for area, timing, noise, and power.
For placement algorithms, Apollo contains the next-generation HotPlace
hierarchical placement optimization technology, improved timing optimization,
power and rail-driven placement. For very deep-submicron routing, it includes
timing-driven routing, innovative cross-talk noise-driven routing, automatic
wiring sizing, multiple clock tree construction methods and clock tree synthesis
with gated clocks.
 
    Avant!'s Planet product is a RTL and gate level floorplanning and analysis
solution for accurate prediction of the impact of physical effects on design
performance and routability early in the design process. It provides tight
linkage between synthesis-based design entry and physical layout. It
dramatically improves designer's productivity by increasing the probability of
first-time design success, SinglePass Design Solution, with early access to
physical behavior during logic synthesis.
 
    The Company's Saturn product is the all-path, all-cell physical design
optimization solution that addresses very deep-submicron design needs by
creating the most efficient area and timing performance designs using actual
place and route information.
 
    The Mars Family includes Mars-Rail and Mars-Crosstalk that work in
conjunction with Apollo tools on Milkyway to automatically direct power driven
placements and noise driven routing. These tools are significant examples of
design automation tools that help improve design productivity and improve the
quality of results for VDSM designs.
 
    The Hercules family of design verification software is the industry's most
advanced suite of IC physical verification products. Hercules provides geometric
and electrical verification of physical design layouts, and handles designs
containing hundreds of millions of transistors, hierarchically, with
breakthrough speed and enhanced ease of use.
 
    The Company's Star-Hspice product is an industry-standard circuit simulator
that validates critical paths, performs noise margin analysis and optimizes the
tradeoffs between IC speed and power prior to commencement of fabrication.
Star-Hspice incorporates special analysis features for performance and for yield
optimization, which has become increasingly important in deep submicron chip
design.
 
    Avant!'s Star-Sim family of products are high-capacity circuit simulators
for deep submicron process applications such as graphics, memory, communications
and mixed-signal IC designs. The Star-Sim family of products help increase IC
performance and reliability and increase designer productivity by enabling
designers to characterize large blocks. Star-Sim accurately simulates
mixed-signal, dynamic logic and memory circuits where performance, signal
integrity and power analyses are essential. Star-RC is a full-chip hierarchical
parasitic capacitance and resistance extractor and a critical net resistance and
capacitance extractor. It is the first extraction tool capable of identifying
nets with cross-talk problems. Star-Power is a full-chip power
analysis/verification tool that enables designers to perform oversight analysis.
It provides accurate parasitic extraction of power and ground rails, statics and
dynamic power analysis, voltage drop and electromigration analysis. Star-Time is
a high-performance, full-chip circuit simulator that provides transistor-level
dynamic analysis for post-layout verification of timing, signal integrity and
reliability for complex designs with up to 50 million components. All of
Avant!'s Star products are tightly integrated with Avant!'s hierarchical layout
and verification tools, Apollo and Hercules, to provide efficient, accurate and
predictable IC performance.
 
    The Company's Polaris family of products utilize innovative Verilog
simulation solutions to ease the simulation, automated design verification and
optimization of IC design. To handle the complexity of large designs the Polaris
family of products is capable of several levels of design abstraction and uses a
variety of simulation modes. The products run on Unix and Windows workstation
platforms and are therefore attractive tools for a variety of hardware logic
designers.
 
                                       2
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    The Company's Libra-Passport family of design library products were
developed through close relationships with IC foundries around the world, and
utilizes advanced silicon process technology. These products have received
strong market acceptance worldwide.
 
    During each of 1998, 1997 and 1996, the Company derived substantially all of
its total revenue from the licensing and support of the above mentioned
products. Absent any unfavorable results from existing litigation, the Company
currently expects that these products will continue to account for a significant
portion of the Company's revenue for the foreseeable future. As a result, the
Company's future operating results are significantly dependent upon continued
market acceptance of these products. The Company believes that a number of
factors will be necessary for its products to achieve continued market
acceptance. These factors include performance of the Company's existing
products, successful development of advanced features, new product developments,
adaptability into the user's design environment, the Company's technical,
managerial, service and support expertise and the customer's assessment of the
Company's financial resources. A decline in demand for these products as a
result of competition, technological change or other factors would have a
material adverse effect on the business, operating results and financial
condition of the Company. There can be no assurance that these products will
achieve continued market acceptance or that the Company will be successful in
marketing any new or enhanced products.
 
    During 1998, 1997 and 1996, the Company derived 31%, 42%, and 36%,
respectively, of its total revenue from the licensing and support of its
software products internationally. In 1998, Asian and European sales represented
19% and 12% of the Company's total revenue, respectively. In 1997 and 1996,
international sales were primarily in Asia. The Company currently expects
continued growth in both the Asian and European markets. Many Asian countries
are currently experiencing banking and currency difficulties that could lead to
economic recession in those countries which could result in a decline in the
purchasing power of the Company's Asian customers. This in turn could result in
the cancellation or delay of orders for the Company's products from Asian
customers, thus adversely affecting the Company's results of operations. In
addition, the Company's international revenue involves a number of other risks,
including the impact of possible recessionary environments in economies outside
the United States, longer receivables collection periods and greater difficulty
in accounts receivable collection, difficulties in staffing and managing foreign
operations, political and economic instability, unexpected changes in regulatory
requirements, reduced protection for intellectual property rights in some
countries and tariffs and other trade barriers. There can be no assurance that
the Company will be able to sustain or increase revenue derived from
international licensing and service or that the forgoing factors will not have a
material adverse effect on the Company's future international license and
service revenue, and, consequently, on the Company's business, operating results
and financial condition. Failure to sustain or increase such revenue would
materially and adversely affect the Company's business, operating results and
financial condition. Although the Company has attempted to reduce the risk of
fluctuations in exchange rates associated with international revenue by
generally pricing its products and services in United States dollars, the
Company pays the expenses of its international operations in local currencies
and does not currently engage in hedging transactions with respect to such
obligations. Currency exchange fluctuations in countries in which the Company
licenses its products could have a material adverse effect on the Company's
business, operating results or financial condition by resulting in prices that
are not competitive with products priced in local currencies. Furthermore, there
can be no assurance that in the future the Company will be able to continue to
price its products and services internationally in United States dollars. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
 
    The ICDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. The development of more complex ICs
embodying new technologies will require increasingly sophisticated design tools.
The Company's future results of operations will depend in part upon its ability
to enhance its current products and to develop and introduce new products on a
timely and cost-effective basis that will keep pace with technological
developments and evolving industry standards and methodologies, as well as
 
                                       3
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address the increasingly sophisticated needs of the Company's customers. For
example, all of the Company's current products operate in, and planned future
products will operate in, the Unix operating system. In the event that another
operating system, such as Windows NT, were to achieve broad acceptance in the
ICDA industry, the Company would be required to port its products to such an
operating system, which would be costly, time consuming and could have a
material adverse effect on the Company's business, operating results or
financial condition. The Company has in the past and may in the future
experience delays in new product development. The introduction of certain
products in the past have been delayed by as much as 12 months beyond their
original scheduled release dates. There can be no assurance that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change, evolving industry standards and
changing customer requirements, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products or product enhancements, or that
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve any significant degree of market acceptance.
Failure of the Company, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-effective
manner would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the introduction or even
announcement of products by the Company or one or more of its competitors
embodying new technologies or changes in industry standards or customer
requirements could render the Company's existing products obsolete or
unmarketable. There can be no assurance that the introduction or announcement of
new product offerings by the Company or one or more of its competitors will not
cause customers to defer purchases of existing Company products. Such deferment
of purchases could have a material adverse effect on the Company's business,
operating results or financial condition.
 
CUSTOMERS
 
    Avant! focuses its sales and marketing efforts on creating strategic
relationships with technology leaders in IC design and with early adopters of
the most advanced electronic design automation (EDA) tools. By creating strong
relationships with industry leaders, Avant! receives critical technical feedback
that enables it to develop and implement proprietary design technologies and
methodologies. In addition, strategic relationships with these companies can
create influential references for other prospective customers.
 
    The market for the Company's physical layout, design, verification,
simulation, timing and analysis products, and design libraries encompasses a
wide range of industries, including semiconductor, computer, consumer
electronics, multimedia and telecommunications IC companies worldwide. End-users
of the Company's products range from small companies to a number of the world's
largest manufacturing organizations.
 
    No one customer accounted for greater than 10% of the Company's revenue in
1998, 1997 or 1996. The Company does not believe that seasonality is a
significant factor in sales.
 
SALES AND MARKETING
 
    The Company markets its products in North America, Asia and Europe primarily
through its direct sales and support force. Avant! employs highly skilled
engineers and technically proficient sales people capable of serving the
sophisticated needs of its prospective customers' engineering and management
staffs. Avant! has domestic sales and support offices in or near Austin, Texas;
Boston, Massachusetts; Chicago, Illinois; Dallas, Texas; Los Angeles,
California; Phoenix, Arizona; Portland, Oregon; Philadelphia, Pennsylvania;
Mount Olive, New Jersey; Colorado Springs, Colorado; Orlando, Florida; Research
Triangle Park, North Carolina; and Fremont, California; sales and support
offices in Ontario, Canada; London, England; Paris, France and Tokyo, Japan; and
support offices in Munich, Germany; and Taipei,
 
                                       4
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Taiwan. In addition to its direct sales and marketing efforts, Avant!
participates in industry trade shows and organizes seminars to promote the
adoption of its products and methodologies.
 
    In Asia, the Company markets its products primarily through a limited number
of distributors and manufacturer's representatives ("Third Party Sellers") that
license and service Avant! products in this market. Avant! also supports these
distributors and representatives and their customers with technical, sales and
management personnel.
 
    In 1997 and 1996, the Company consolidated its Japanese and Korean sales
channel by forming two joint ventures, MainGate Electronics, KK ("MainGate") and
DavanTech Co., Ltd. ("DavanTech"), respectively. The joint ventures were formed
for the purpose of consolidating distribution in Japan and Korea. The Company
has ownership of 35% and 39.6% of MainGate and DavanTech, respectively, and
accounts for the joint ventures by the equity method. Gerry C. Hsu, the
Company's Chairman of the Board, President and Chief Executive Officer owns 40%
and 2.6%, of MainGate and DavanTech, respectively. The Company believes that
this arrangement optimizes its competitive advantage in the Asian markets to an
extent that could not be achieved by other distributors or by directly selling
into these markets. Distribution and marketing in these markets are dominated by
local companies, making it difficult for non-local manufacturers to distribute
their products directly. Thus, the Company created MainGate and DavanTech, which
are locally managed and operated and have significant local ownership. By
providing local ownership of MainGate and DavanTech through equity incentives,
the Company believes that it is best able to attract and retain top local
talent. However, there can be no assurance that MainGate or DavanTech will be
successful. If they are not successful, the Company's business, operating
results or financial condition would be materially adversely affected.
 
    In 1997, the Company acquired the assets of Datalink Far East Ltd., a Taiwan
EDA distribution corporation ("Datalink"), pursuant to an asset purchase
agreement. The acquisition of Datalink helped the Company consolidate Avant!'s
distribution channels in Taiwan, Hong Kong, Singapore and Mainland China.
 
    The Company has relied on Third Party Sellers and joint ventures for
licensing and support of its products in Japan, Korea and Singapore. A
substantial portion of the Company's international license and service revenue
has resulted from a limited number of these Third Party Sellers and joint
ventures. During 1998, 1997 and 1996 revenue from these channels accounted for
an aggregate of approximately 20%, 31% and 28%, respectively, of the Company's
total revenue.
 
    Since the Company's products are used by highly skilled professional
engineers, in order to be effective, a Third Party Seller or a joint venture
must possess sufficient technical, marketing and sales resources and must devote
these resources to a lengthy sales cycle, customer training and product service
and support. Only a limited number of Third Party Sellers and joint ventures
possess such resources. In addition, the Company's Third Party Sellers and joint
ventures generally offer products of several different companies, including, in
some cases, products that are competitive with the Company's products. There can
be no assurance that the Company's current Third Party Sellers or joint ventures
will choose to or be able to market or service and support the Company's
products effectively, that economic conditions or industry demand will not
adversely affect these or other Third Party Sellers or joint ventures, that any
Third Party Seller or joint venture will continue to market and support the
Company's products or that these Third Party Sellers will not devote greater
resources to marketing and supporting products of other companies. The loss of,
or a significant reduction in revenue from, one of the Company's Third Party
Sellers or joint ventures could have a material adverse effect on the Company's
business, operating results or financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
 
    The license of the Company's software products generally involves a
significant commitment of capital by prospective customers, with the attendant
delays frequently associated with large capital expenditures and lengthy
acceptance procedures. For these and other reasons, the sales cycle associated
with the license
 
                                       5
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of the Company's products is typically lengthy and subject to a number of
significant risks over which the Company has little or no control and, as a
result, the Company believes that its quarterly operating results are likely to
vary significantly in the future. Due to the nature of the Company's business,
the Company does not believe any of its backlog orders to be firm.
 
CUSTOMER SERVICE AND SUPPORT
 
    Avant!'s product management group provides customers with technical support,
training and consulting services. Avant! believes that a high level of customer
service and support is critical to the adoption and successful utilization of
its physical design technology and products.
 
    To address technical issues, Avant! has established both field and corporate
technical application engineering groups that understand the design
methodologies of Avant!'s customers and generally have IC design backgrounds.
Most of Avant!'s customers currently have maintenance agreements that entitle
them to receive software updates, documentation updates and a formal problem
identification and resolution process through a support hotline. Questions or
suggestions may be submitted by facsimile or through the Internet network mail
system. Avant! also offers additional training and consulting services for a
fee. The Company provides on-site and in-house training on all products.
 
    Avant! consultants are available to work closely with customer design
engineering teams for all phases of physical design from conception through
implementation. Avant! consultants provide customers with in-depth technical
expertise in the use of the Company's physical design methodology and products.
 
RESEARCH AND DEVELOPMENT
 
    The ICDA industry is characterized by extremely rapid technological change,
frequent product introductions and enhancements, evolving industry standards and
rapidly changing customer requirements. The development of more complex ICs
embodying new technologies will require increasingly sophisticated design tools.
Avant! believes that its future competitive position and future results of
operations will depend in large part on its ability to quickly and
cost-effectively develop new products, maintain and enhance its current product
line, maintain technological competitiveness and meet an expanding range of
customer requirements. In addition to supporting and enhancing its existing
physical layout, design, verification, simulation, timing and analysis products,
Avant! maintains an advanced research group that is responsible for exploring
new directions and applications of Avant!'s proprietary technologies, migrating
new technologies into the existing product lines and maintaining strong research
relationships outside Avant! with industry and academia.
 
    Another part of Avant!'s growth strategy is to acquire companies that have
strong technologies that are complementary to our business. Avant! has been
active in acquiring several companies that have expanded the markets that we
serve and accelerated our growth through successful mergers. Avant! acquired
Compass Design Automation and assimilated their tool technologies into enhanced
products and also continued to support the established library business that
supports the largest number of foundries. Avant! also acquired ACEO Technologies
who had developed a market for synthesis technologies in the Field Programmable
Gate Array market and applied those technologies to some new products and
important enhancements to several EDA tools that make them more competitive and
provide additional functionality and capability for our customers. A third
successful acquisition was interHDL who had developed some unique technological
capability and products that allows the development of clean or purified RTL
design code. interHDL was recognized as a leader in this emerging front-end
market and their technologies have been used to extend the solutions offered by
Avant! and extend our reach into new markets.
 
    During 1998, 1997, and 1996 the Company's research and development
expenditures were approximately $56,116,000, $36,680,000, and $25,733,000
respectively. The amount of capitalized software development costs amortized was
$62,000 and $88,000 for 1997 and 1996, respectively. All capitalized software
development costs were fully amortized as of December 31, 1997.
 
                                       6
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    The Company believes that it must continue to commit substantial resources
to enhance and extend its product lines in order to remain competitive in the
ICDA market. The Company intends to continue to increase its internally-funded
product development program and, if appropriate, to enter into development
agreements with customers and other third parties to develop specific new
product applications and features. The Company currently has no third-party
funded development agreements.
 
EMPLOYEES
 
    As of January 31, 1999, the Company had 822 employees, including, 404 in
research and development, 317 in sales, marketing and related customer support
services, and 101 in finance and administration. Of these employees, 697 were
located in the United States, 71 in Europe, 5 in Japan, 6 in Korea and 43 in
Taiwan. None of the Company's employees is represented by a labor union or is
subject to a collective bargaining agreement, nor has Avant! experienced any
work stoppage. Avant! considers its relations with its employees to be good.
 
ENVIRONMENTAL AFFAIRS
 
    The Company's operations are subject to numerous federal, state and local
laws and regulations designed to protect the environment. There are no
administrative or judicial proceedings pending or threatened against the Company
alleging violations of such environmental laws and regulations. Compliance with
these laws and regulations has not had, and is not expected to have, a material
adverse effect on the capital expenditures, earnings and competitive position of
the Company.
 
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
 
WE ARE INVOLVED IN SEVERAL LITIGATION MATTERS THAT COULD SERIOUSLY HARM OUR
  BUSINESS
 
    Avant! and its subsidiaries are engaged in various litigation matters,
including: a civil action brought by Cadence Design Systems, Inc.; the criminal
indictment of Avant! and certain of its employees, officers and directors;
securities class action and defamation claims stemming from the Cadence
litigation and the criminal indictment; civil actions brought by Silvaco Data
Systems, Inc.; a civil action brought by Katherine Ngai Pesic and Ivan Pesic; a
civil action brought by Microunity Systems Engineering, Inc.; and a civil action
brought by Eric Nequist. The pending litigation against Avant! and any future
litigation against Avant! or its employees, regardless of the outcome, may
result in substantial costs and expenses and significant diversion of effort by
Avant!'s management. These various matters could seriously harm Avant!'s
business, financial condition and results of operations.
 
CADENCE LITIGATION
 
    On December 6, 1995, Cadence filed an action against Avant! 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 Avant!'s
employees who were formerly Cadence employees allegedly misappropriated and
improperly copied source code for certain important functions of Avant!'s place
and route products from Cadence, and that Avant! has allegedly competed unfairly
by making false statements concerning Cadence and its products. The action also
alleges that Avant! induced certain individual defendants to breach their
agreements of employment and confidentiality with Cadence. Trial has been
scheduled for October 12, 1999.
 
    In addition to actual and punitive damages, which have not been quantified
by Cadence, Cadence is seeking to enjoin the sale of Avant!'s place and route
products pending trial of the action. 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, Avant!'s ArcCell products. The injunction also
barred Avant! from possessing or using any copies or any
 
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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.
(Avant! had stopped selling or licensing ArcCell products or code in mid 1996.)
On December 7, 1998, the District Court entered an injunction against Avant!
prohibiting Avant! from directly or indirectly marketing, selling, leasing,
licensing, copywriting or transferring the Aquarius, Aquarius XO and Aquarius BV
products. The injunction also prohibits Avant! from marketing, selling, leasing,
licensing, copying or transferring any translation code for an Aquarius product
that infringes any protected right of Cadence. With certain exceptions related
to the pending litigation, beginning February 5, 1999, the injunction prohibits
Avant! from possessing or using any copies of any portion of the source code or
object code for the Aquarius products to the extent that such portion is copied
or derived from the Design Framework II product of Cadence. The injunction
further includes certain notice and reporting requirements to be fulfilled by
Avant!. The preliminary injunction against Avant!'s Aquarius products could
seriously harm Avant!'s business, financial condition and results of operations.
 
    On January 16, 1996, Avant! 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, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! refiled its counterclaim on January 29, 1998.
 
    Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay monetary damages to Cadence. In
addition, upon further consideration by the District Court, Avant! could be
preliminarily enjoined from selling its Apollo place and route products. In
addition, it is likely that an adverse judgment against Avant! would result in a
steep decline in the market price of Avant!'s common stock. Accordingly, an
adverse judgement, if granted on any claim, would seriously harm Avant!'s
business, financial position and results of operations. Furthermore, it is
possible that Avant!'s relationships with its customers and/or partners will be
seriously harmed in the future as a result of the Cadence litigation.
 
CRIMINAL INDICTMENT
 
    On December 16, 1998, after a grand jury investigation, the Santa Clara
County District Attorney's office filed a criminal indictment alleging felony
level offenses related to the allegations of misappropriation of trade secrets
set forth in Cadence's lawsuit against, among others, Avant! and the following
current or former employees and/or directors of Avant!:
 
    - Gerald C. Hsu, President, Chief Executive Officer and Chairman of the
      board of directors;
 
    - Y. Eric Cho, a former officer and former member of Avant!'s board of
      directors;
 
    - Y. Z. Liao, Corporate Fellow;
 
    - Stephen Wuu, Executive Staff, Operations;
 
    - Leigh Huang, former marketing manager;
 
    - Eric Cheng, Research and Development Manager; and
 
    - Mike Tsai, a former officer and former member of Avant!'s board of
      directors.
 
    The indictment charges the defendants listed above with conspiring to commit
trade secret theft, trade secret theft, inducing the theft of a trade secret,
conspiracy to commit fraudulent practices in connection with the offer or sale
of a security and fraudulent practices in connection with the offer or sale of a
security. The criminal indictment could result in additional defense costs and
criminal fines against Avant!, as well as the potential incarceration of certain
members of its management team and board of directors.
 
                                       8
<PAGE>
Such outcomes would seriously harm Avant!'s business, financial condition and
results of operations and may also result in canceled or postponed orders,
increased future expenditures, the loss of management and other key personnel,
additional stockholder litigation and loss of goodwill.
 
SILVACO LITIGATION
 
    In March 1993, Meta Software Inc., which Avant! acquired in October 1996 and
which is now a wholly owned subsidiary of Avant!, filed a complaint in the
Superior Court of California for Santa Clara County against Silvaco Data
Systems, Inc. seeking monetary damages and injunctive relief. In August 1995,
Silvaco filed a cross-complaint against Meta and Shawn Hailey, then the
President and Chief Executive Officer of Meta, alleging, among other things,
that Meta owed 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. In November 1997, a
judgment in the aggregate amount of $31.4 million was entered against Avant!.
Avant! filed appeals on its own behalf and on behalf of Mr. Hailey. If Avant!'s
appeal is unsuccessful, Avant! will be required to pay substantial monetary
damages to Silvaco. Payment of the damages previously awarded, and damages which
may be awarded in the future, would seriously harm Avant!'s business, financial
condition and results of operations.
 
    On March 31, 1998, Silvaco filed an additional lawsuit, against Avant! and
Roy Jewell, Avant!'s Executive Staff, Business, in the Superior Court of
California for Santa Clara County. The lawsuit alleges causes of action for
defamation, negligent and intentional interference with economic advantage,
unfair competition, Lanham Act violations and consumer fraud. Silvaco is seeking
$20 million in compensatory damages, punitive damages and an injunction. Avant!
believes it has defenses to these claims and intends to defend itself
vigorously. In the event Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to Silvaco, and such a judgment would seriously harm
Avant!'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
Avant! (as successor in interest to Meta), Shawn Hailey, Meta's former President
and Chief Executive Officer, and Thomas N. White, Jr. and George S. Cole, both
of whom were Meta's former counsel in the Meta v. Silvaco matter discussed
above. The action asserts claims for invasion of privacy under California common
law and the California Constitution and seeks compensatory and punitive damages.
Avant! believes it has defenses to these claims and intends to defend itself
vigorously. In the event that Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to the plaintiffs, and such a judgment could seriously
harm Avant!'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 was a wholly owned subsidiary of Technology
Modeling Associates, Inc. which was acquired by Avant! in January 1998. This
lawsuit alleges liability for patent infringement, unfair competition and
tortious interference with prospective economic advantage. The action requests
unspecified monetary 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. Avant! believes it
has defenses to these claims and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to Microunity, and such a judgment could seriously harm Avant!'s business,
financial condition and results of operations. The parties have engaged in
substantial settlement discussions and have reached a confidential agreement to
resolve the pending actions.
 
                                       9
<PAGE>
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 Avant!. This lawsuit alleges 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 addition, on May 30,
1997, Joanne Hoffman filed in the United States District Court for the Northern
District of California a class action lawsuit alleging securities claims on
behalf of purchasers of Avant!'s stock between March 29, 1996 and April 11,
1997, the date of the filing of a criminal complaint against Avant! and six of
its employees and/or officers. Plaintiff alleges that Avant! and its officers
misled the market as to the likelihood of criminal charges being filed and as to
the validity of the Cadence allegations. The District Court has granted Avant!'s
motion to coordinate the Hoffman action for pretrial purposes with the
earlier-filed Margetis action. Avant! believes it has defenses to these
securities class action claims, and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to the securities class action plaintiffs, and such a judgment could seriously
harm Avant!'s business, financial condition and results of operations.
 
NEQUIST LITIGATION
 
    On July 15, 1998, Eric Nequist filed in the Santa Clara County Superior
Court a complaint against Avant!. The complaint alleges causes of action for
defamation, intentional infliction of emotional distress, negligent and
intentional interference with economic advantage, abuse of process and
violations of California Business and Profession Code section 17200. No trial
date has been set, and the parties have been ordered to mediation, which has
been scheduled for April 15, 1999. Avant! believes it has defenses to Mr.
Nequist's claims and intends to defend itself vigorously. In the event Avant!'s
defenses are unsuccessful, Avant! may be required to pay damages to Mr. Nequist,
and such a judgment could seriously harm Avant!'s business, financial condition
and results of operation.
 
LITIGATION COSTS
 
    The pending litigation and any future litigation against the Company and the
Company's employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the Company. The Company charged to expenses
approximately $12,342,000, $8,720,000 and $6,850,000 for the years 1998, 1997
and 1996, respectively, related to the various litigation issues. The Company
currently expects legal costs to continue in the future as a result of its
current litigation issues and that those costs will increase as those matters
come to trial. Accordingly, any such litigation could have a material adverse
effect on the Company's business, financial position and results of operations.
Furthermore, if Avant! is required to satisfy the default judgments in full in
the Silvaco litigation, Avant! could be required to pay up to $31.4 million in
damages, which would have a material adverse effect on Avant!'s business,
financial condition and results of operations.
 
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS AND PRODUCT LINES WITH
  THOSE OF INTERHDL AND ACEO
 
    We have recently acquired interHDL, Inc. and ACEO Technology, Inc. The
integration of interHDL's and ACEO's business and personnel presents difficult
challenges for Avant!'s management. While Avant!'s management believes that the
combination of Avant!, interHDL and ACEO can be effected in a manner that will
realize the value of the combined entities, it is possible that Avant!'s
management will not effectively manage these business combinations to realize
the anticipated synergies.
 
    Avant! acquired interHDL and ACEO, among other reasons, to acquire the
existing technology of these companies, including technology under development.
Avant! and its newly acquired companies each have different systems and
procedures in various operational areas that must be integrated. Avant! may not
be successful in completing such integration effectively, expeditiously or
efficiently. The difficulties of
 
                                       10
<PAGE>
such integration may be increased by the necessity of coordinating
geographically separated divisions, integrating personnel with disparate
business backgrounds and combining different corporate cultures. The integration
of certain operations will require the dedication of management resources,
temporarily distracting attention from Avant!'s day-to-day business. The
business of the combined company may also be disrupted by employee uncertainty
and lack of focus during the integration process. Accordingly, Avant! may not be
able to retain all of its key technical, sales and other key personnel. Avant!'s
failure to effectively integrate its operations with its newly acquired
companies could seriously harm Avant!'s business, financial condition and
results of operations.
 
WE NEED TO SUCCESSFULLY MANAGE OUR EXPANDING OPERATIONS
 
    Avant! has experienced periods of rapid growth and significant expansion of
its operations that have placed a significant strain upon its management systems
and resources. In addition, Avant! has recently hired a significant number of
employees, and plans to further increase its total headcount. Avant! also plans
to expand the geographic scope of its customer base and operations. This
expansion has resulted and will continue to result in substantial demands on
Avant!'s management resources. Avant!'s ability to compete effectively and to
manage future expansion of its operations, if any, will require Avant! to
continue to improve its financial and management controls, reporting systems and
procedures on a timely basis and expand, train and manage its employee work
force. Avant! may not be successful in addressing such risks, and the failure to
do so would seriously harm Avant!'s business, financial condition and results of
operations.
 
WE MAY BE UNABLE TO ATTRACT AND RETAIN THE KEY MANAGEMENT AND TECHNICAL
  PERSONNEL THAT WE NEED TO SUCCEED
 
    Avant!'s future operating results depend in significant part upon the
continued service of key management and technical personnel. Several of Avant!'s
key personnel have been criminally indicted on charges relating to the matters
underlying the pending litigation between Avant! and Cadence. If any of the
individuals criminally indicted are found guilty and incarcerated or are
otherwise unable to continue to provide services to Avant!, its business,
financial condition and results of operations could be seriously harmed. In
addition, few of Avant!'s employees are bound by employment or non-competition
agreements, and due to the intense competition for such personnel, as well as
the uncertainty caused by the integration of Avant!'s businesses and pending
litigation, it is possible that Avant! will fail to retain such key technical
and managerial personnel. Moreover, there are only a limited number of qualified
integrated circuit design automation engineers, and competition for these
individuals is intense. If Avant! is unable to attract, hire and retain
qualified personnel in the future, the development of new products and the
management of Avant!'s increasingly complex business would be impaired. This
would seriously harm Avant!'s business, operating results and financial
condition. See "--We are involved in several litigation matters that could
seriously harm our business."
 
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE INTEGRATED
  CIRCUIT DESIGN AUTOMATION SOFTWARE MARKET
 
    The integrated circuit design automation software market in which Avant!
competes is intensely competitive and subject to rapid change. Avant! currently
faces competition from major integrated circuit design automation vendors,
including Cadence Design Systems, Inc., which currently holds a dominant share
of the market for integrated circuit physical design software, Synopsys, Inc.
and Mentor Graphics Corporation. Avant! may not be able to maintain a
competitive position against these competitors. This is particularly true
because each of these companies has a longer operating history, significantly
greater financial, technical and marketing resources, greater name recognition
and a larger installed customer base than Avant!. In addition, each of these
competitors will likely be able to respond more quickly to new or emerging
technologies and changes in customer requirements, and to devote greater
resources to the development, promotion and sale of their products than Avant!.
These competitors also have established
 
                                       11
<PAGE>
relationships with current and potential customers of Avant!, and they can
devote substantial resources aimed at preventing Avant! from enhancing
relationships with existing customers or establishing relationships with
potential customers.
 
    Moreover, the integrated circuit design automation software industry is
undergoing a trend toward consolidation that is expected to result in large,
more financially flexible competitors with a broad range of product offerings.
Alliances among competitors could present particularly formidable competition to
Avant!. Furthermore, because there are relatively low barriers to entry in the
software industry, Avant! expects additional competition from other established
and emerging companies. Avant! also competes with the internal integrated
circuit design automation development groups of its existing and potential
customers, many of whom design and develop customized design tools for their
particular needs and therefore may be reluctant to purchase products offered by
independent vendors, such as Avant!. Avant!'s current or potential competitors
may develop products comparable or superior to those developed by Avant! or
adapt more quickly than Avant! to new technologies, evolving industry trends or
changing customer requirements. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
seriously harm Avant!'s business, operating results or financial condition.
Avant! may be unable to compete successfully against current and future
competitors, and competitive pressures faced by Avant! could seriously harm
Avant!'s business, operating results and financial condition.
 
OUR QUARTERLY OPERATING RESULTS ARE DIFFICULT TO PREDICT
 
    We are unable to accurately forecast our future revenues primarily because
of the emerging nature of the market in which we compete and because of the
unpredictability of the various litigation matters to which we are a party. Our
revenues and operating results generally depend on the size, timing and
structure of significant licenses. These factors have historically been, and are
likely to continue to be, difficult to forecast. In particular, we have adopted
a flexible pricing strategy pursuant to which we offer both perpetual and
time-based software licenses to customers, depending on customer requirements
and financial constraints. Because each time-based license may have a different
structure and could be subject to cancellation, future revenue received under
these licenses is unpredictable. In addition, our current and future expense
levels are based largely on our operating plans and estimates of future revenues
and are, to a large extent, fixed. We may be unable to adjust spending
sufficiently quickly to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues in relation to our planned
expenditures would seriously harm our business, financial condition and results
of operations. Such shortfalls in our revenue or operating results from levels
expected by public market analysts and investors could seriously harm the
trading price of our common stock. Additionally, we may not learn of such
revenue shortfalls, earnings shortfalls or other failure to meet market
expectations until late in a fiscal quarter, which could result in an even more
immediate and serious harm to the trading price of our common stock.
 
    Our quarterly operating results have varied, and it is anticipated that our
quarterly operating results will vary, substantially from period to period
depending on various factors, many of which are outside our control. In addition
to the factors discussed in the previous paragraph, other factors that could
affect our quarterly operating results include:
 
    - Increased competition;
 
    - The length of our sales cycle;
 
    - The timing of new or enhanced product announcements, introductions, or
      delays in the introductions of new or enhanced versions of products by us
      or our competitors;
 
    - Market acceptance of new and enhanced versions of our products;
 
    - Changes in pricing policies by us or our competitors;
 
                                       12
<PAGE>
    - Conditions in the semiconductor and electronics industries;
 
    - Cancellation of time-based licenses or maintenance agreements;
 
    - The unavailability of technology of third parties;
 
    - The mix of direct and indirect sales;
 
    - Changes in operating expenses;
 
    - Economic conditions in the Asian and other markets;
 
    - Our ability to continue to market our products in Asian and other markets;
 
    - Foreign currency exchange rates; and
 
    - General economic factors.
 
    Due to the foregoing factors, we cannot predict with any significant degree
of certainty our quarterly revenue and operating results. Further, we believe
that period-to-period comparisons of our operating results are not necessarily a
meaningful indication of future performance.
 
OUR STOCK PRICE IS EXTREMELY VOLATILE
 
    The trading price of our common stock has fluctuated significantly in the
past, and the trading price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in price in response to such factors
as:
 
    - The outcome of the various litigation matters to which we are a party;
 
    - Actual or anticipated fluctuations in our operating results;
 
    - Announcements of technological innovations and new products by us or our
      competitors;
 
    - New contractual relationships with strategic partners by us or our
      competitors;
 
    - Proposed acquisitions by us or our competitors; and
 
    - Financial results that fail to meet public market analyst expectations of
      performance.
 
    In addition, the stock market in general, and The Nasdaq National Market and
the market for technology companies in particular has experienced extreme price
and volume fluctuations that have often been related or disproportionate to the
operating performance of such companies. These broad market and industry factors
may seriously harm the market price of our common stock in future periods.
 
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF PRODUCTS
  FOR SUBSTANTIALLY ALL OF OUR REVENUE
 
    Historically, we have derived substantially all of our total revenue from
the licensing and support of the following products:
 
    - Aquarius (our cell-based place and route software product);
 
    - Apollo (our successor product to Aquarius);
 
    - Hercules (our hierarchical physical verification software product);
 
    - Star-Hspice (our circuit simulator);
 
    - Star-Sim (our high-capacity circuit simulation and high-accuracy timing
      analysis software); and
 
    - Polaris (our Verilog simulation product).
 
                                       13
<PAGE>
    Absent any adverse results from existing litigation, we currently expect
that these products will continue to account for a significant portion of our
revenue for the foreseeable future. As a result, our business, operating results
and financial condition are significantly dependent upon the continued market
acceptance of these products and upon our ability to continue to sell, license
and support each of these products.
 
WE DEPEND ON INTERNATIONAL SALES FOR A SIGNIFICANT PERCENTAGE OF OUR REVENUE
 
    International revenue, principally from Asian customers, accounted for
approximately 31%, 42% and 36% of our total revenue in 1998, 1997, and 1996,
respectively. We expect that international license and service revenue,
particularly in Asia, will continue to account for a significant portion of our
total revenue. Our international business activities are subject to a variety of
potential risks, including:
 
    - The impact of recessionary environments in foreign economies;
 
    - Longer receivables collection periods and greater difficulty in accounts
      receivable collection;
 
    - Difficulties in staffing and managing foreign operations;
 
    - Political and economic instability;
 
    - Unexpected changes in regulatory requirements;
 
    - Reduced protection of intellectual property rights in some countries; and
 
    - Tariffs and other trade barriers.
 
    Currency exchange fluctuations in countries in which we license our products
could also seriously harm our business, financial condition and results of
operations by resulting in pricing that is not competitive with products priced
in local currencies. Furthermore, we may not be able to continue to generally
price our products and services internationally in U.S. dollars because of
changing sovereign restrictions on importation and exportation of foreign
currencies as well as other practical considerations. In addition, the laws of
certain countries do not protect our products and intellectual property rights
to the same extent as do the laws of the United States. Moreover, it is possible
that we may fail to sustain or increase revenue derived from international
licensing and service or that the foregoing factors will seriously harm our
future international license and service revenue, and, consequently, seriously
harm our business, financial condition and results of operations.
 
WE DEPEND UPON THIRD PARTY DISTRIBUTORS AND MANUFACTURER'S REPRESENTATIVES TO
  LICENSE AND SUPPORT OUR PRODUCTS IN ASIA
 
    We rely on distributors and manufacturer's representatives for the licensing
and support of our products in Asia. A substantial portion of our international
license and service revenue is generated from a limited number of these
representatives, although we had no individual customer representing over 10% of
revenue in any of the years 1994-1998. In 1996, we consolidated our Korean sales
channel by forming DavanTech Co., Ltd., a distributor owned by Avant!, Gerald C.
Hsu (Avant!'s Chairman of the Board, President and CEO) and other parties. In
1997, we consolidated our Japanese sales channel by forming MainGate, a
distributor owned by Avant!, Gerald C. Hsu (Avant!'s Chairman of the Board,
President and CEO) and other parties (including other Avant! employees and
former employees of Avant!'s third party distributors). Our reliance on
distributors and manufacturer's representatives subjects us to a number of
risks. For example, our current distributors, manufacturer's representatives
DavanTech or MainGate may not choose to or be able to market, service or support
our products effectively. Economic conditions or industry demand may seriously
harm these or other distributors and manufacturer's representatives or these
distributors, manufacturer's representatives DavanTech or MainGate may devote
greater resources to marketing and supporting products of our competitors.
Additionally, because our products are used by highly skilled professional
engineers, a distributor or manufacturer's representative must possess
sufficient technical,
 
                                       14
<PAGE>
marketing and sales resources in order to be effective and must devote these
resources to a lengthy sales cycle, customer training and product service and
support. Only a limited number of distributors or manufacturer's representatives
possess such resources. Accordingly, the loss of, or a significant reduction in
revenue from, one of our distributors, manufacturer's representatives DavanTech
or MainGate or any other distributor or manufacturer's representative on which
our revenues may, in the future, become dependent, could seriously harm our
business, financial condition and results of operations.
 
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO KEEP PACE WITH THE RAPIDLY
  EVOLVING TECHNOLOGY STANDARDS OF OUR INDUSTRY
 
    Because the semiconductor industry has made significant technological
advances recently, integrated circuit design automation companies, such as
Avant!, that license software to semiconductor companies have been required to
continuously develop new products and enhancements for existing products to keep
pace with the evolving industry standards and rapidly changing customer
requirements. The evolving nature of the integrated circuit design automation
industry could render our existing products and services obsolete. Our success
will depend, in part, on our ability to:
 
    - Enhance our existing products and services;
 
    - Develop and introduce new products and services on a timely and
      cost-effective basis that will keep pace with technological developments
      and evolving industry standards; and
 
    - Address the increasingly sophisticated needs of our customers.
 
    If we are unable, for technical, legal, financial or other reasons, to
respond in a timely manner to changing market conditions or customer
requirements, our business, financial condition and results of operations could
be seriously harmed.
 
WE DEPEND ON THE GROWTH OF THE SEMICONDUCTOR AND ELECTRONICS INDUSTRIES
 
    Avant! is dependent upon the semiconductor industry and, more generally, the
electronics industry. Both of these industries are characterized by rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Segments of these industries
have from time to time experienced significant economic downturns characterized
by decreased product demand, production over-capacity, price erosion, work
slowdowns and layoffs. While these industries have experienced an extended
period of significant economic growth over the past few years, such economic
growth may not continue, and if it does not, any downturn could be especially
severe on Avant!. During such downturns, the number of new integrated circuit
design projects often decreases. Because acquisitions of new licenses from
Avant! are largely dependent upon the commencement of new design projects, any
slowdown in these industries could seriously harm Avant!'s business, financial
condition and results of operations.
 
PROPRIETARY RIGHTS
 
    We rely on a combination of patents, trade secrets, copyrights, trademarks
and contractual commitments to protect our proprietary rights in our software
products. We generally enter into confidentiality or license agreements with our
employees, distributors and customers, and limit access to and distribution of
our software, documentation and other proprietary information. Despite these
precautions, a third party may still copy or otherwise obtain and use our
products or technology without authorization, or develop similar technology
independently. In addition, effective patent, copyright and trade secret
protection may be unavailable or limited in certain foreign countries. We expect
that software companies will increasingly be subject to infringement claims as
the number of products and competitors in the integrated circuit design
automation industry grows and the functionality of products in different
industry segments overlaps. In particular, our current litigation with Cadence
involves such infringement claims. Responding to such claims, regardless of
merit, could consume valuable time, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if available, may not be available on
terms acceptable to us. A forced license could seriously harm our business,
financial condition and results of operations.
 
                                       15
<PAGE>
ERRORS IN OUR SOFTWARE PRODUCTS COULD RESULT IN LOSS OF MARKET SHARE OR FAILURE
  TO ACHIEVE MARKET ACCEPTANCE
 
    Software products as complex as those offered by Avant! may contain defects
or failures when introduced or when new versions are released. Avant! has in the
past discovered software defects in certain of its products and may experience
delays or lost revenue to correct such defects in the future. Despite testing by
Avant!, errors may still be found in new products or releases after commencement
of commercial shipments, resulting in loss of market share or failure to achieve
market acceptance. Any such occurrence could seriously harm Avant!'s business,
financial condition and results of operations.
 
BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES
 
STATE OF READINESS
 
    Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish
21(st) century dates from 20th century dates. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with such "Year 2000" requirements. During 1998, Avant! undertook an
evaluation of its currently supported products to determine if they are Year
2000 compliant. The results of this evaluation revealed that most currently
supported products are Year 2000 compliant. Avant! intends to upgrade or replace
the currently supported products (primarily old products) not currently Year
2000 compliant with fix patch or upgrade, as part of the company's standard
maintenance programs. Any failure by Avant! to make its products Year 2000
compliant could result in:
 
    - A decrease in sales of our products;
 
    - An increase in the allocation of resources to address the Year 2000
      problems of our customers without additional revenue commensurate with
      such dedication of resources; and
 
    - An increase in litigation costs relating to losses suffered by our
      customers due to such Year 2000 problems.
 
    During 1998, Avant! conducted a preliminary review of our internal computer
systems to identify the systems that could be affected by the Year 2000 issue
and to develop a plan to resolve the issue. Avant! has adopted SAP R/3 software
as an enterprise system managing its financial and logistical operations in the
United States. SAP R/3 software has been certified by SAP as Year 2000
compliant. Some other third party software systems and applications currently
used by Avant!, however, are not Year 2000 compliant. Avant! intends to stop
using these software products or upgrade or replace them as part of Avant!'s
growth plans. Avant! only performs Year 2000 compliance testing on its critical
internal support systems. Inoperability related to Year 2000 problems of
internal systems that are certified Year 2000 compliant by the vendor and not
tested by Avant! could seriously harm Avant!'s operational efficiency. Avant! is
also currently engaged in setting up a plan to make our European accounting
system, currently not on SAP, Year 2000 compliant. Our failure to complete such
work prior to December 31, 1999 could seriously harm our business, financial
condition and results of operations. Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for Year
2000 compliance. These expenditures may result in reduced funds available to
purchase products and services such as those offered by Avant!, which could
seriously harm Avant!'s business, operating results and financial condition.
 
RISKS
 
    The Company requests its vendors to provide Year 2000 compliance
certificates for all its internal support systems. However, the Company only
intends to perform testing on its critical internal support systems.
Inoperability related to Year 2000 problems of internal systems that are
certified Year 2000 ready
 
                                       16
<PAGE>
by the vendor and not tested by the Company could have an adverse impact to the
Company's operational efficiency.
 
    The migration paths provided by the Company as the remedies to make its
products Year 2000 ready may not be accepted by the customer, which could have
an adverse impact on the Company's business.
 
    The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or patch their current software systems for Year 2000
readiness. These expenditures may result in reduced funds available to purchase
software products such as those offered by the Company, which could result in a
material adverse effect on the Company's business, financial condition and
results of operation.
 
COSTS
 
    Avant! does not have a project tracking system that tracks the cost and time
that its own internal employees spend on the Year 2000 project. Based on
Avant!'s assessment, the costs incurred to date have had no material impact on
Avant!'s results of operations. Avant! expects that costs directly related to
Year 2000 compliance in excess of normal upgrade and maintenance costs will not
exceed approximately $250,000 for both costs incurred to date and future costs.
 
CONTINGENCY PLANS
 
    Avant! does not presently have a contingency plan for handling Year 2000
problems that are not detected and corrected prior to their occurrences. Upon
completion of testing and implementation activities, Avant! will be able to
assess the areas requiring contingency planning and expects to develop
appropriate planning at that time. Any failure of Avant! to address any
unforeseen Year 2000 problems would seriously harm Avant!'s business, financial
condition and results of operations.
 
ITEM 2. PROPERTIES
 
    In February 1997, the Company signed a lease for its new headquarters in
Fremont, California. The lease covers four buildings with an aggregate of
approximately 281,000 square feet of space with an aggregate annual base rent
amount of approximately $4,800,000. Three of the buildings were occupied on
December 31, 1998 and the fourth is scheduled for occupancy in the second
quarter of 1999. The lease for three of the buildings expires on September 30,
2010 and the lease for the fourth building expires on August 31, 2012. The
Company also occupies a facility near Research Triangle Park in Durham, North
Carolina with an annual base rent of approximately $666,500. This lease expires
on November 30, 2005. The Company also leases sales and support offices in the
United States, Europe, Japan, Korea and Taiwan. Avant! believes that its
existing facilities are adequate for its current needs.
 
ITEM 3. LEGAL PROCEEDINGS
 
    Avant! and its subsidiaries are engaged in various material litigation
matters, including: a civil action brought by Cadence Design Systems, Inc.; the
criminal indictment of Avant! and certain of its employees, officers and
directors; securities class action and defamation claims stemming from the
Cadence litigation and the criminal indictment; civil actions brought by Silvaco
Data Systems, Inc.; a civil action brought by Katherine Ngai Pesic and Ivan
Pesic; a civil action brought by Microunity Systems Engineering, Inc.; and a
civil action brought by Eric Nequist. The pending litigation against Avant! and
any future litigation against Avant! or its employees, regardless of the
outcome, may result in substantial costs and expenses and significant diversion
of effort by Avant!'s management. These various matters could seriously harm
Avant!'s business, financial condition and results of operations.
 
                                       17
<PAGE>
CADENCE LITIGATION
 
    On December 6, 1995, Cadence filed an action against Avant! 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 Avant!'s
employees who were formerly Cadence employees allegedly misappropriated and
improperly copied source code for certain important functions of Avant!'s place
and route products from Cadence, and that Avant! has allegedly competed unfairly
by making false statements concerning Cadence and its products. The action also
alleges that Avant! induced certain individual defendants to breach their
agreements of employment and confidentiality with Cadence. Trial has been
scheduled for October 12, 1999.
 
    In addition to actual and punitive damages, which have not been quantified
by Cadence, Cadence is seeking to enjoin the sale of Avant!'s place and route
products pending trial of the action. 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, Avant!'s ArcCell products. The injunction also
barred Avant! 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. (Avant! had stopped
selling or licensing ArcCell products or code in mid 1996.) On December 7, 1998,
the District Court entered an injunction against Avant! prohibiting Avant! from
directly or indirectly marketing, selling, leasing, licensing, copywriting or
transferring the Aquarius, Aquarius XO and Aquarius BV products. The injunction
also prohibits Avant! from marketing, selling, leasing, licensing, copying or
transferring any translation code for an Aquarius product that infringes any
protected right of Cadence. With certain exceptions related to the pending
litigation, beginning February 5, 1999, the injunction prohibits Avant! from
possessing or using any copies of any portion of the source code or object code
for the Aquarius products to the extent that such portion is copied or derived
from the Design Framework II product of Cadence. The injunction further includes
certain notice and reporting requirements to be fulfilled by Avant!. The
preliminary injunction against Avant!'s Aquarius products could seriously harm
Avant!'s business, financial condition and results of operations.
 
    On January 16, 1996, Avant! 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, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! refiled its counterclaim on January 29, 1998.
 
    Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay monetary damages to Cadence. In
addition, upon further consideration by the District Court, Avant! could be
preliminarily enjoined from selling its Apollo place and route products. In
addition, it is likely that an adverse judgment against Avant! would result in a
steep decline in the market price of Avant!'s common stock. Accordingly, an
adverse judgement, if granted on any claim, would seriously harm Avant!'s
business, financial position and results of operations. Furthermore, it is
possible that Avant!'s relationships with its customers and/or partners will be
seriously harmed in the future as a result of the Cadence litigation.
 
CRIMINAL INDICTMENT
 
    On December 16, 1998, after a grand jury investigation, the Santa Clara
County District Attorney's office filed a criminal indictment alleging felony
level offenses related to the allegations of misappropriation of trade secrets
set forth in Cadence's lawsuit against, among others, Avant! and the following
current or former employees and/or directors of Avant!:
 
    - Gerald C. Hsu, President, Chief Executive Officer and Chairman of the
      board of directors;
 
                                       18
<PAGE>
    - Y. Eric Cho, a former officer and former member of Avant!'s board of
      directors;
 
    - Y. Z. Liao, Corporate Fellow;
 
    - Stephen Wuu, Executive Staff, Operations;
 
    - Leigh Huang, former marketing manager;
 
    - Eric Cheng, Research and Development Manager; and
 
    - Mike Tsai, a former officer and former member of Avant!'s board of
      directors.
 
    The indictment charges the defendants listed above with conspiring to commit
trade secret theft, trade secret theft, inducing the theft of a trade secret,
conspiracy to commit fraudulent practices in connection with the offer or sale
of a security and fraudulent practices in connection with the offer or sale of a
security. The criminal indictment could result in additional defense costs and
criminal fines against Avant!, as well as the potential incarceration of certain
members of its management team and board of directors. Such outcomes would
seriously harm Avant!'s business, financial condition and results of operations
and may also result in canceled or postponed orders, increased future
expenditures, the loss of management and other key personnel, additional
stockholder litigation and loss of goodwill.
 
SILVACO LITIGATION
 
    In March 1993, Meta Software Inc., which Avant! acquired in October 1996 and
which is now a wholly owned subsidiary of Avant!, filed a complaint in the
Superior Court of California for Santa Clara County against Silvaco Data
Systems, Inc. seeking monetary damages and injunctive relief. In August 1995,
Silvaco filed a cross-complaint against Meta and Shawn Hailey, then the
President and Chief Executive Officer of Meta, alleging, among other things,
that Meta owed 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. In November 1997, a
judgment in the aggregate amount of $31.4 million was entered against Avant!.
Avant! filed appeals on its own behalf and on behalf of Mr. Hailey. If Avant!'s
appeal is unsuccessful, Avant! will be required to pay substantial monetary
damages to Silvaco. Payment of the damages previously awarded, and damages which
may be awarded in the future, would seriously harm Avant!'s business, financial
condition and results of operations.
 
    On March 31, 1998, Silvaco filed an additional lawsuit, against Avant! and
Roy Jewell, Avant!'s Executive Staff, Business, in the Superior Court of
California for Santa Clara County. The lawsuit alleges causes of action for
defamation, negligent and intentional interference with economic advantage,
unfair competition, Lanham Act violations and consumer fraud. Silvaco is seeking
$20 million in compensatory damages, punitive damages and an injunction. Avant!
believes it has defenses to these claims and intends to defend itself
vigorously. In the event Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to Silvaco, and such a judgment would seriously harm
Avant!'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
Avant! (as successor in interest to Meta), Shawn Hailey, Meta's former President
and Chief Executive Officer, and Thomas N. White, Jr. and George S. Cole, both
of whom were Meta's former counsel in the Meta v. Silvaco matter discussed
above. The action asserts claims for invasion of privacy under California common
law and the California Constitution and seeks compensatory and punitive damages.
Avant! believes it has defenses to these claims and intends to defend itself
vigorously. In the event that Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to the plaintiffs, and such a judgment could seriously
harm Avant!'s business, financial condition and results of operations.
 
                                       19
<PAGE>
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 was a wholly owned subsidiary of Technology
Modeling Associates, Inc. which was acquired by Avant! in January 1998. This
lawsuit alleges liability for patent infringement, unfair competition and
tortious interference with prospective economic advantage. The action requests
unspecified monetary 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. Avant! believes it
has defenses to these claims and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to Microunity, and such a judgment could seriously harm Avant!'s business,
financial condition and results of operations. The parties have engaged in
substantial settlement discussions and have reached a confidential agreement in
principal to resolve the pending actions.
 
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 Avant!. This lawsuit alleges 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 addition, on May 30,
1997, Joanne Hoffman filed in the United States District Court for the Northern
District of California a class action lawsuit alleging securities claims on
behalf of purchasers of Avant!'s stock between March 29, 1996 and April 11,
1997, the date of the filing of a criminal complaint against Avant! and six of
its employees and/or officers. Plaintiff alleges that Avant! and its officers
misled the market as to the likelihood of criminal charges being filed and as to
the validity of the Cadence allegations. The District Court has granted Avant!'s
motion to coordinate the Hoffman action for pretrial purposes with the
earlier-filed Margetis action. Avant! believes it has defenses to these
securities class action claims, and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to the securities class action plaintiffs, and such a judgment would seriously
harm Avant!'s business, financial condition and results of operations.
 
NEQUIST LITIGATION
 
    On July 15, 1998, Eric Nequist filed in the Santa Clara County Superior
Court a complaint against Avant!. The complaint alleges causes of action for
defamation, intentional infliction of emotional distress, negligent and
intentional interference with economic advantage, abuse of process and
violations of California Business and Profession Code section 17200. No trial
date has been set, and the parties have been ordered to mediation, which has
been scheduled for April 15, 1999. Avant! believes it has defenses to Mr.
Nequist's claims and intends to defend itself vigorously. In the event Avant!'s
defenses are unsuccessful, Avant! may be required to pay damages to Mr. Nequist,
and such a judgment could seriously harm Avant!'s business, financial condition
and results of operation.
 
LITIGATION COSTS
 
    The pending litigation and any future litigation against the Company and the
Company's employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the Company. The Company charged to expenses
approximately $12,342,000, $8,720,000 and $6,850,000 for the years 1998, 1997
and 1996, respectively, related to the various litigation issues. The Company
currently expects legal costs to continue in the future as a result of its
current litigation issues and that those costs will increase as those matters
come to trial. Accordingly, any such litigation could have a material adverse
effect on the Company's business, financial position and results of operations.
Furthermore, if Avant! is required to satisfy the default judgments in full in
the Silvaco litigation, Avant! could be required to pay up to
 
                                       20
<PAGE>
$31.4 million in damages, which would have a material adverse effect on Avant!'s
business, financial condition and results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    The Company did not submit any matters to a vote of its stockholders during
the fourth quarter of the fiscal year ended December 31, 1998.
 
                                    PART II.
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's Common Stock has traded on the Nasdaq National Market under
the Nasdaq symbol "AVNT" since November 27, 1995. The Company's Common Stock
traded on the National Market System under the Nasdaq symbol "ARCS" from the
Company's initial public offering on June 7, 1995 until November 26, 1995. The
Company has not paid cash dividends in the past and none are expected to be paid
in the future. As of March 17, 1999, the Company had approximately 234
stockholders of record. We believe that a significant number of beneficial
owners of our Common Stock hold their shares in a street name.
 
    The following table sets forth the high and low closing sales prices of our
common stock from January 1, 1996 through December 31, 1998. Such prices
represent prices between dealers, do not include retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
 
<TABLE>
<CAPTION>
                                                                               HIGH        LOW
                                                                             ---------  ---------
<S>                                                                          <C>        <C>
Fiscal 1996
First Quarter..............................................................  $   26.25  $   20.25
Second Quarter.............................................................  $   25.75  $   19.00
Third Quarter..............................................................  $   33.50  $   27.25
Fourth Quarter.............................................................  $   34.25  $   28.00
 
Fiscal 1997
First Quarter..............................................................  $   31.25  $   23.75
Second Quarter.............................................................  $   32.75  $   20.38
Third Quarter..............................................................  $   35.13  $   27.63
Fourth Quarter.............................................................  $   24.63  $   14.75
 
Fiscal 1998
First Quarter..............................................................  $   21.75  $   12.25
Second Quarter.............................................................  $   26.55  $   22.63
Third Quarter..............................................................  $   15.00  $   11.75
Fourth Quarter.............................................................  $   17.00  $   12.13
</TABLE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
    The information required by this item is set forth on page 35 of the
Company's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
    The information required by this item is set forth on pages 38 through 50 of
the Company's 1998 Annual Report to Stockholders and is incorporated herein by
reference.
 
                                       21
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK DERIVATIVES
         AND FINANCIAL INSTRUMENTS
 
    Information relating to quantitative and qualitative disclosure about market
risk is set forth in Item 1 of this Form 10K and in the Company's 1998 Annual
Reports to Stockholders under the caption "Factors That may Affect Future
Results" in Management's Discussion and Analysis of Financial Condition and
Results of Operations. Such information is incorporated herein by reference.
 
FOREIGN CURRENCY HEDGING INSTRUMENTS
 
    The Company transacts business in various foreign currencies. Accordingly,
the Company is subject to exposure from adverse movements in foreign currency
exchange rates. This exposure is primarily related to payments from MainGate, a
Japanese distributor. As of December 31, 1998, the Company had no hedging
contracts outstanding.
 
    The Company assesses the need to utilize financial instruments to hedge
currency exposures on an ongoing basis. The Company does not use derivative
financial instruments for speculative trading purposes, nor does the Company
hedge its foreign currency exposure in a manner that entirely offsets the
effects of changes in foreign exchange rates. The Company regularly reviews its
hedging program and may as part of this review determine at any time to change
its hedging program.
 
FIXED INCOME INVESTMENTS
 
    The Company's exposure to market risks for changes in interest rates relate
primarily to investments in debt securities issued by U.S. government agencies
and corporate debt securities. The Company places its investments with high
credit quality issuers and, by policy, limits the amount of credit exposure to
any one issuer.
 
    The Company's general policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. All
highly liquid investments with a maturity of three months or less at the date of
purchase are considered to be cash equivalents; investments with maturities
between three and twelve months are considered to be short-term investments;
investments with maturities in excess of twelve months are considered to be
long-term investments. The weighted average pre-tax interest rate on the
investment portfolio is approximately 5.3%. The Company does not expect any
material loss with respect to its investment portfolio.
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The consolidated financial statements required by this item are included on
pages 59 through 79 of the Company's 1998 Annual Report to Shareholders and are
incorporated herein by reference. With the exception of the aforementioned
information and the information incorporated in Items 5, 6, 7 and 8, the
Company's 1998 Annual Report to Shareholders is not to be deemed filed as part
of this Annual Report on Form 10-K. The report of the Company's Independent
Auditors on the Company's consolidated financial statements is included on pages
32 and 33 here within. The report of the Company's Independent Auditors on the
financial statement schedule and consent of independent auditors is required by
this item and is included as Exhibit 23.1 hereto.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
    Not Applicable
 
                                       22
<PAGE>
                                   PART III.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The information required by Item 10 as to directors is incorporated herein
by reference from the section entitled "Election of Directors" in the Company's
Proxy Statement to be filed by the Company with the Securities and Exchange
Commission within 120 days of the Company's fiscal year ended December 31, 1998.
 
    The executive officers of the Company on December 31, 1998 were:
 
<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
Gerald C. Hsu........................................          51   President, Chief Executive Officer and Chairman of
                                                                      the Board of Directors
Roy E. Jewell........................................          44   Executive Staff, Business
Stephen Tzyh-Lih Wuu.................................          44   Executive Staff, Operations
David H. Stanley.....................................          52   General Counsel
Peter S. Teshima.....................................          41   Head of Finance
</TABLE>
 
    Gerald C. Hsu joined the Company in March 1994 as President, Chief Executive
Officer and a director, and has been Chairman of the Avant! Board of Directors
since November 1995. From July 1991 to March 1994, Mr. Hsu was employed by
Cadence Design Systems, Inc., where his last position was President and General
Manager of the IC Design Group. From June 1988 to July 1991, Mr. Hsu was
employed by Sun Microsystems, Inc., an engineering workstation company, where
his last position was Director of Strategic Business Development. Mr. Hsu holds
an M.S. in Ocean Engineering from the Massachusetts Institute of Technology, an
M.S. in Mechanics and Hydraulics from the University of Iowa and a B.S. in
Applied Mathematics from the National Chung-Hsing University, Taiwan. On
December 16, 1998, after a grand jury investigation, the Santa Clara District
Attorney's office filed a criminal indictment alleging felony level offenses
against, among others, Mr. Hsu, the Company and certain other of the Company's
employees for allegedly violating various California Penal Code sections
relating to the theft of trade secrets. Mrs. Hsu has pleaded not guilty to such
complaint and is awaiting further proceedings.
 
    Roy E. Jewell joined Avant! in January 1998 as Executive Staff, Business of
Avant!'s TCAD business unit following the acquisition of Technology Modeling
Associates, Inc. ("TMA"), where he was employed for 10 years, rising to the
position of Chief Executive Officer in July 1992. Before joining TMA, Mr. Jewell
spent eight years at Texas Instruments, a semiconductor company. Mr. Jewell
holds his B.S. and M.A. degrees from the University of South Florida and his
M.S. degree from the University of Texas, Dallas.
 
    Stephen Tzyh-Lih Wuu joined Avant! in November 1995 as Executive Staff,
Operations following the acquisition of ArcSys. Prior to that he co-founded
ArcSys in February 1991. Since that time he has served as the Vice President of
Engineering. From September 1986 to February 1991, Dr. Wuu was employed by
Cadence Design Systems, Inc. where his last position was Senior Manager in IC
research and development. Dr. Wuu holds a Ph.D. in Electrical Engineering from
the University of California, Berkeley and an M.S. in Electrical Engineering
from National Chiao-Tung University, Taiwan.
 
    David H. Stanley joined Avant! as General Counsel in November 1997. Prior to
joining Avant!, Mr. Stanley was employed by Informix Corporation, a database
software company, where he served as General Counsel for nine years. Mr. Stanley
holds a B.A. from Dartmouth College and a J.D. from the University of San
Francisco.
 
    Peter S. Teshima joined Avant! as Head of Finance in November 1998 following
the acquisition of interHDL, Inc. where he was employed as Vice President of
Finance and Chief Financial Officer. Prior to interHDL, Mr. Teshima spent four
years at High Level Design Systems, Inc., an EDA software company,
 
                                       23
<PAGE>
where he served as Vice President and Chief Financial Officer. Mr Teshima has
approximately 20 years of financial experience in the high technology sector.
Mr. Teshima holds a B.S.C from Santa Clara University.
 
    The information regarding security ownership of certain beneficial owners
and management required by Item 10 as to the filings of Forms 3, 4, and 5 as
required by Section 16(a) of the Securities Exchange Act of 1934 is incorporated
herein by reference to the Company's Proxy to be filed by the Company with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
ended December 31, 1998.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The information regarding executive compensation required by Item 11 is
incorporated herein by reference to the Company's Proxy Statement to be filed by
the Company with the Securities and Exchange Commission within 120 days of the
Company's fiscal year ended December 31, 1998.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information regarding security ownership of certain beneficial owners
and management required by Item 12 is incorporated herein by reference to the
Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days of the Company's fiscal year ended December
31, 1998.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information regarding certain relationships and related transactions
required by Item 13 is incorporated herein by reference from the Company's Proxy
to be filed by the Company with the Securities and Exchange Commission within
120 days of the Company's fiscal year ended December 31, 1998.
 
                                    PART IV.
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
<CAPTION>
                                                                                      PAGE NUMBER
                                                                                       IN ANNUAL
(a)1.      FINANCIAL STATEMENTS                                                         REPORT
           -----------------------------------------------------------------------  ---------------
<S>        <C>                                                                      <C>
           Independent Auditors' Report...........................................            51
           Consolidated Statements of Income for the Years Ended December 31,
             1998, 1997 and 1996..................................................            53
           Consolidated Balance Sheets as of December 31, 1998 and 1997...........            54
           Consolidated Statements of Stockholders' Equity for the Years Ended
             December 31, 1998, 1997 and 1996.....................................         55-56
           Consolidated Statements of Cash Flows for the Years Ended December 31,
             1998, 1997 and 1996..................................................         57-58
           Notes to Consolidated Financial Statements.............................         59-79
 
(a)2.      FINANCIAL STATEMENT SCHEDULE
           -----------------------------------------------------------------------
           Schedule II--Valuation and Qualifying Accounts for the years ended
             December 31, 1998, 1997 and 1996.....................................            27
</TABLE>
 
                                       24
<PAGE>
<TABLE>
<S>        <C>                                                                      <C>
(a)3.      Exhibits
 
           The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index immediately
           preceding such Exhibits and are incorporated by reference.
 
(b)        Reports on Form 8-K
 
           The Company filed a report on Form 8-K, under item 2, dated November 19, 1998. Pursuant
           to this report, the Company announced its acquisition of interHDL, Inc.
 
           The Company filed a report on Form 8-K, under item 5, dated December 22, 1998. Pursuant
           to this report, the Company announced that the U.S. Federal District Court for the
           Northern District of California, in the action CADENCE DESIGN SYSTEMS, INC. V. AVANT!
           CORPORATION, had issued an injunction prohibiting the Company from directly or
           indirectly marketing, selling, leasing, licensing, copywriting or transferring the
           Company's Aquarius products.
</TABLE>
 
                                       25
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                              AVANT! CORPORATION
                                                 (Registrant)
 
March 29, 1999                                   /s/ GERALD C. HSU
                                     -----------------------------------------
                                                   Gerald C. Hsu
                                      PRESIDENT, CHIEF EXECUTIVE OFFICER, AND
                                         CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
          SIGNATURE                      CAPACITY                  DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
                                President (principal
      /s/ GERALD C. HSU           executive officer),
------------------------------    Chief Executive Officer     March 29, 1999
        Gerald C. Hsu             and Chairman of the
                                  Board of Directors
 
                                Head of Finance (Principal
     /s/ PETER S. TESHIMA         accounting officer and
------------------------------    principal financial         March 29, 1999
       Peter S. Teshima           officer)
 
      /s/ ERIC A. BRILL
------------------------------  Director                      March 29, 1999
        Eric A. Brill
 
    /s/ CHARLES ST. CLAIR
------------------------------  Director                      March 29, 1999
      Charles St. Clair
 
     /s/ MORIYUKI CHIMURA
------------------------------  Director                      March 29, 1999
       Moriyuki Chimura
 
     /s/ DANIEL D. TAYLOR
------------------------------  Director                      March 29, 1999
       Daniel D. Taylor
</TABLE>
 
                                       26
<PAGE>
                                                                     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, 1996.........................    $   1,064           464           591            --          937
Year ended December 31, 1997.........................    $     937         2,040           493         2,496        4,980
Year ended December 31, 1998.........................    $   4,980         4,679           863           141        8,937
</TABLE>
 
------------------------
 
(1) Compass Design Automation, Inc. balance as of 9/12/97. interHDL, Inc.
    balance as of 11/13/98.
 
                                       27
<PAGE>
                               INDEX TO EXHIBITS
 
    (a)3.Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                                 DESCRIPTION
-------------  -----------------------------------------------------------------------------------------------------
<C>            <S>
2.1........    Agreement and Plan of Reorganization dated as of August 18, 1996 among the Registrant, AGM
                 Acquisition Corporation and Anagram, Inc.(2)
2.2........    Agreement and Plan of Reorganization dated as of August 22, 1996 among the Registrant, Natasha Merger
                 Corporation and Meta-Software, Inc.(2)
2.3........    Agreement and Plan of Reorganization dated as of October 9, 1996 among the Registrant, DSM
                 Acquisition Corporation and FrontLine Design Automation, Inc.(3)
2.4........    Agreement and Plan of Reorganization dated as of July 31, 1997, as amended on August 27, 1997 among
                 the Registrant, GB Acquisition Corporation, VLSI Technology, Inc. and Compass Design Automation,
                 Inc.(6)
2.5........    Agreement and Plan of Reorganization dated as of September 10, 1997 among the Registrant, Cardinal
                 Merger Corporation and Technology Modeling Associates, Inc.(5)
2.6........    Agreement and Plan of Reorganization dated as of November 4, 1998, as amended on November 12, 1998
                 among the Registrant, Artemis Corporation and interHDL, Inc.(7)
3.1........    Restated Certificate of Incorporation(1)
3.2........    Amended and Restated Bylaws(9)
4.1........    Amended and Restated Investors Rights Agreement between the Company and the Investors specified
                 therein dated September 24, 1993(1)
4.2........    Specimen Common Stock Certificate(1)
4.3........    Registration Rights Agreement between the Registrant and certain investors dated November 27, 1996(4)
4.4........    Registration Rights Agreement dated November 13, 1998(8)
4.5........    Registration Rights Agreement dated September 4, 1998 between the Registrant and Harris Trust Company
                 of California(9)
10.1.......    1995 Stock Option/Stock Issuance Plan(1)
10.2.......    Employee Stock Purchase Plan(1)
10.3.......    Form of Indemnification Agreement(1)
10.4.......    Indemnification Agreement entered into between the Company and Gerald C. Hsu dated May 24, 1994(1)
13.1.......    Portions of the Annual Report (see page 34)
21.1.......    List of subsidiaries of the Company (see page 29)
23.1.......    Report on Financial Statement Schedule and Consent of KPMG LLP, Independent Auditors (see page 30)
23.2.......    Consent of Arthur Andersen LLP, Independent Auditors (see page 31)
</TABLE>
 
--------------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
    S-1 (File No. 33-91128) as declared effective on June 6, 1995.
 
(2) Incorporated by reference from the Company's Registration Statement on Form
    S-4 (File No. 333-11659) as declared effective on September 30, 1996.
 
(3) Incorporated by reference from the Company's Report on Form 8-K filed with
    the SEC on October 24, 1996.
 
(4) Incorporated by reference from the Company's Registration Statement on Form
    S-3 (File No. 333-18445) as filed on January 27, 1997.
 
(5) Incorporated by reference from the Company's Registration Statement on Form
    S-4 (File No. 333-42923) as filed on December 22, 1997.
 
(6) Incorporated by reference from the Company's Registration Statement on Form
    S-3 (File No. 333-43087) as filed on January 13, 1998.
 
(7) Incorporated by reference from the Company Current Report on Form 8-K filed
    with the SEC on November 19, 1998
 
(8) Incorporated by reference from the Company's Registration Statement on Form
    S-3 (File No. 333-67629) as declared effective on March 9, 1999
 
(9) Incorporated by reference from the Company's Current Report on Form 8-K
    filed with the SEC on September 18, 1998
 
                                       28
<PAGE>
EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT
 
<TABLE>
<CAPTION>
                                                                                             JURISDICTION OF
NAME                                                                                          INCORPORATION
--------------------------------------------------------------------------------------  --------------------------
<S>                                                                                     <C>
Integrated Silicon Systems, Inc.......................................................          North Carolina
ISS Software Inc......................................................................              California
ISS Corporate Services, Inc...........................................................          North Carolina
ArcSys UK Limited.....................................................................                 England
Avant! Export FSC, Inc................................................................                Barbados
FrontLine Design Automation, Inc......................................................              California
Meta-Software, Inc....................................................................              California
Anagram, Inc..........................................................................              California
Avant! Japan KK.......................................................................                   Japan
Meta-Software KK......................................................................                   Japan
Meta-Software SA......................................................................             Switzerland
Meta-Software Deutschland, GMBH.......................................................                 Germany
AvanWise, Inc.........................................................................                Delaware
AvanSmart, Inc........................................................................                Delaware
Nexsyn Design Technologies, Inc.......................................................              California
Gemstone Corporation, LLC.............................................................                Delaware
Compass Design Automation, Inc........................................................                Delaware
Galax!, Inc...........................................................................                Delaware
Compass Design Automation, GMBH.......................................................                 Germany
Compass Design Automation, International BV...........................................             Netherlands
Compass Foreign Sales Corporation.....................................................                Barbados
Compass Japan, KK.....................................................................                   Japan
Precim Corporation....................................................................                  Oregon
Technology Modeling Associates, Inc...................................................              California
</TABLE>
 
                                       29
<PAGE>
                                                                    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 February 9, 1999, included the
related financial statement schedule as of December 31, 1998, and for each of
the years in the three-year period ended December 31, 1998, as listed in Item 14
herein. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial statement
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, 333-43087 and 333-67629) 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, 333-71473,
333-65305, 333-53365 and 333-44413) on Form S-8 of our reports dated February 9,
1999 relating to the consolidated balance sheets of Avant! Corporation as of
December 31, 1998 and 1997, 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, 1998, and the related financial statement schedule,
included herein.
 
  [/S/ KPMG LLP]
 
Mountain View, California
March 29, 1999
 
                                       30
<PAGE>
                                                                    EXHIBIT 23.2
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
The Board of Directors
Avant! Corporation:
 
    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 10-K into Avant! Corporation's previously filed Registration Statements on
Form S-3, File Nos. 33318445, 33343087 and 33367629, on Form S-4, File No.
33342923, and on Form S-8, File Nos. 33316303, 33315159, 33306405, 33377196,
33377242, 33371473, 33365305, 33344413 and 33353365.
 
                                          [/S/ ARTHUR ANDERSEN LLP]
 
San Jose, California
March 29, 1999
 
                                       31
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Avant! Corporation:
 
    We have audited the accompanying consolidated balance sheets of Avant!
Corporation and subsidiaries (the Company) as of December 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 audits. We did not audit the 1996 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 3 to the consolidated financial statements, which statements
reflect total revenues constituting 14% of the related consolidated totals for
1996. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
 
           [SIG]
 
February 9, 1999
Mountain View, California
 
                                       32
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors of
Technology Modeling Associates, Inc.:
 
    We have audited the consolidated statements of operations, shareholders'
equity and cash flows (not separately presented herein) of Technology Modeling
Associates, Inc. and subsidiary (a California corporation and wholly owned
subsidiary of Avant! Corporation) for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 results of operations and cash flows of Technology
Modeling Associates, Inc. and subsidiary for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
 
                                          [/S/ ARTHUR ANDERSEN LLP]
 
San Jose, California
January 24, 1997
 
                                       33
<PAGE>
 
<TABLE>
<S>                                                                                    <C>
EXHIBIT 13.1 PORTIONS OF THE ANNUAL REPORT
 
Selected Consolidated Financial Highlights...........................................     35
 
Selected Quarterly Financial Data....................................................    36-37
 
Management's Discussion and Analysis of Financial Condition and Results of
  Operations.........................................................................    38-50
 
Independent Auditors' Report and Management's Statement of Responsibility for
  Financial Reporting................................................................    51-52
 
Consolidated Statements of Income....................................................     53
 
Consolidated Balance Sheets..........................................................     54
 
Consolidated Statements of Stockholder's Equity......................................    55-56
 
Consolidated Statements of Cash Flow.................................................    57-58
 
Notes to Consolidated Financial Statements...........................................    59-79
</TABLE>
 
                                       34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
 
(In thousands, except earnings per share data)
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                         --------------------------------------------------------
<S>                                                      <C>         <C>         <C>         <C>        <C>
                                                            1998        1997        1996       1995       1994
                                                         ----------  ----------  ----------  ---------  ---------
Consolidated Statement of Income Data:
Total revenue..........................................  $  227,141  $  164,384  $  124,046  $  81,461  $  51,422
Income from operations.................................      47,177       2,280      20,964     13,888      7,646
Net income(1)..........................................      27,163       5,398      13,708      9,632      5,463
Earnings per share--Basic:
  Earnings per share...................................  $     0.84  $     0.17  $     0.49  $    0.42  $    0.34
  Total weighted average number of common shares
    outstanding........................................      32,246      31,073      27,954     23,128     15,874
 
Earnings per share--Diluted:
  Earnings per share...................................  $     0.81  $     0.16  $     0.45  $    0.36  $    0.23
    Total weighted average number of common and common
      equivalent shares outstanding....................      33,576      33,001      30,401     26,651     24,052
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                            ------------------------------------------------------
<S>                                                         <C>         <C>        <C>        <C>        <C>
                                                               1998       1997       1996       1995       1994
                                                            ----------  ---------  ---------  ---------  ---------
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................  $  121,206  $  77,523  $  54,141  $  53,294  $  13,936
Working capital...........................................     133,542    130,301    151,175     95,747     38,373
Total assets..............................................     317,386    254,336    198,068    131,241     59,121
Long-term obligations.....................................       1,879      1,294      1,875      2,458      2,052
Manditorily redeemable convertible preferred stock........          --         --         --         --      8,312
Stockholders' equity......................................     235,198    198,176    161,924    102,866     33,558
</TABLE>
 
------------------------
 
(1): Proforma in 1995 and 1994
 
                                       35
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
 
(In thousands, except earnings per share data and price and percentages)
 
<TABLE>
<CAPTION>
                                         Q1/98      Q2/98      Q3/98      Q4/98      Q1/97      Q2/97      Q3/97       Q4/97
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>         <C>
REVENUE:
  Software...........................  $  36,846  $  37,025  $  39,518  $  42,136  $  27,320  $  28,712  $   30,167  $  30,749
  Services...........................     15,170     16,989     18,560     20,897      8,927     11,055      11,928     15,526
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
    Total revenue....................     52,016     54,014     58,078     63,033     36,247     39,767      42,095     46,275
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
 
COSTS AND EXPENSES:
  Costs of software..................      1,177      1,212      1,242      1,251        732        847       1,008      1,504
  Costs of services..................      3,462      3,152      3,846      4,014      3,519      3,239       3,390      2,414
  Selling and marketing..............     13,769     13,388     14,304     15,930      9,951     12,581      12,423     12,584
  Research and development...........     13,350     13,306     13,910     15,550      7,598      8,172       9,219     11,691
  General and administrative.........      5,166      5,448      7,251      7,221      4,297      3,936       5,273      6,540
  In-process R&D.....................         --         --         --     11,268         --         --      41,186         --
  Merger expenses....................     10,747         --         --         --         --         --          --         --
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
    Total operating expenses.........     47,671     36,506     40,553     55,234     26,097     28,775      72,499     34,733
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
    Income (loss) from operations....      4,345     17,508     17,525      7,799     10,150     10,992     (30,404)    11,542
  Interest income and other, net.....      2,122        804      1,476        918      1,375      1,794       1,691      2,126
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
    Income (loss) before income
      taxes..........................      6,467     18,312     19,001      8,717     11,525     12,786     (28,713)    13,668
  Provision (benefit) for
    income taxes.....................      5,853      6,226      6,460      6,795      4,193      4,637     (10,394)     5,432
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
    Net income (loss)................  $     614  $  12,086  $  12,541  $   1,922  $   7,332  $   8,149  $  (18,319) $   8,236
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
Earnings per share--Basic:
  Earnings (loss) per share..........      $0.02      $0.37      $0.39      $0.06      $0.24      $0.27      $(0.59)     $0.26
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
Total weighted average number of
  common shares outstanding..........     32,364     32,558     32,135     32,311     30,032     30,622      31,231     32,132
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
Earnings per share--Diluted:
  Earnings (loss) per share..........      $0.02      $0.35      $0.38      $0.06      $0.22      $0.25      $(0.59)     $0.24
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
Total weighted average number of
  common and common equivalent shares
  outstanding........................     33,433     34,587     33,109     33,203     32,912     32,274      31,231     33,625
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
                                       ---------  ---------  ---------  ---------  ---------  ---------  ----------  ---------
 
Common stock price:
  High...............................     $22.00     $29.75     $25.25     $18.19     $40.50     $32.75      $36.00     $31.88
  Low................................     $12.25     $17.75     $11.75     $10.44     $23.75      $9.75      $27.63     $14.75
</TABLE>
 
                                       36
<PAGE>
 
<TABLE>
<CAPTION>
                                             Q1/98      Q2/98      Q3/98      Q4/98      Q1/97      Q2/97      Q3/97      Q4/97
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Percentage of Total Revenue
 
REVENUE:
  Software...............................        71%        69%        68%        67%        75%        72%        72%        66%
  Services...............................        29%        31%        32%        33%        25%        28%        28%        34%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total revenue........................       100%       100%       100%       100%       100%       100%       100%       100%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 
COSTS AND EXPENSES:
  Costs of software......................         2%         2%         2%         2%         2%         2%         2%         3%
  Costs of services......................         7%         6%         7%         6%        10%         8%         8%         5%
  Selling and marketing..................        26%        25%        25%        25%        27%        32%        30%        27%
  Research and development...............        26%        25%        24%        25%        21%        21%        22%        26%
  General and administrative.............        10%        10%        12%        11%        12%        10%        12%        14%
  In-process research and development....         --         --         --        18%         --         --        98%         --
  Merger expenses........................        21%         --         --         --         --         --         --         --
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total operating expenses.............        92%        68%        70%        87%        72%        73%       172%        75%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
 
    Income (loss) from operations........         8%        32%        30%        12%        28%        27%      (72)%        25%
Interest income and other, net...........         4%         2%         3%         2%         4%         5%         4%         5%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Income (loss) before
      income taxes.......................        12%        34%        33%        14%        32%        32%      (68)%        30%
Provision (benefit) for
  income taxes...........................        11%        12%        11%        11%        12%        12%      (25)%        12%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Net income (loss)....................         1%        22%        22%         3%        20%        20%      (43)%        18%
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                           ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
                                       37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
 
    This report contains forward-looking statements that involve risks and
uncertainties. Our 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"
below, as well as those discussed in: this section and elsewhere in this Annual
Report; our Annual Report on Form 10-K as filed with the Security and Exchange
Commission; and the "Risk Factors" in our Registration Statement on Form S-3
declared effective by the Securities and Exchange Commission on March 12, 1999,
and other risks detailed from time to time in our Securities and Exchange
Commission reports. In addition, past results and trends should not be used by
investors to anticipate future results and trends.
 
OVERVIEW
 
    Avant! Corporation (the Company) develops, markets and supports software
products that assist design engineers in the physical layout, design,
verification, simulation and timing analysis of advanced integrated circuits
(ICs). The Company's strategy is to focus on productivity enhancing software for
the integrated circuit design automation (ICDA) segment of the electronic design
automation (EDA) market.
 
    The Company resulted from the merger of ArcSys, Inc. ("ArcSys") and
Integrated Silicon Systems, Inc. ("ISS") on November 27, 1995. Effective January
16, 1998, November 27, 1996, October 29, 1996 and September 27, 1996 the Company
merged with Technology Modeling Associates ("TMA"), FrontLine Design Automation
("FrontLine"), Meta-Software Inc. ("Meta"), and Anagram, Inc ("Anagram"),
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 positions, and cash flows of TMA,
FrontLine, Meta, Anagram and ISS. On November 19, 1998, November 13, 1998,
September 12, 1997, September 30, 1997 and December 31, 1996, the Company
acquired ACEO Technology Inc. ("ACEO"), interHDL Inc. ("interHDL"), Compass
Design Automation, Inc. ("Compass"), Datalink Far East, Ltd. ("Datalink") and
Nexsyn Design Technology Inc. ("Nexsyn"), 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 prior to the dates of acquisition.
 
    The Company began shipping Hercules (formerly VeriCheck), its hierarchical
physical verification software, in 1992, and Aquarius, its cell-based place and
route software product, in 1993. Anagram was founded in March 1993, and began
shipping Star-Sim, its high-capacity circuit simulation and high-accuracy timing
analysis software, in December 1994. Meta was founded in 1980, when it
introduced its simulation and library software products including Star-Hspice.
FrontLine was founded in 1993. TMA was founded in 1979 and began its device and
process simulation products, Medici and TSUPREM-4 in 1985 and 1988,
respectively.
 
    In January of 1998, the Company announced and began shipping five new
products specifically designed to address very deep submicron (VDSM) challenges.
They are Apollo, its next generation place and route product, Milkyway, VDSM's
only common database and graphical user interface, Saturn, a breakthrough VDSM
synthesis optimization tool, Mars-Rail, power driven design and analysis tool,
and Star-Time, a high-speed high capacity full chip timing simulation tool. At
the June 1998 Design Automation Conference, Avant! announced a Single Pass
design solution which eliminates traditional design iterations due to timing,
power and noise concerns. Avant! also released two additional new physical
design products, Columbia-CE, a shaped-based routing editor, and Mars-Xtalk, a
tool to overcome noise problems in designs. A number of technical computer aided
design (TCAD) products were also released: Optical Proximity Correction
(Taurus-OPC), a tool to anticipate and correct deep submicron lithography
variations; Taurus-Process and Taurus-Device, tools for process and device
simulation; and the Silicon Early Access suite of tools where Star-RC,
Raphael-NES, HSpice and Design for Manufacturing all work together to provide
early silicon information to Apollo, Saturn and Mars. The Company's library
business unit also released the industry's
 
                                       38
<PAGE>
first 0.18 micron and 0.25 micron foundry portable "Fast Track" libraries. The
addition of interHDL's tools and technology allows the Company to penetrate into
the market of register transfer level (RTL) planning and analysis software, and
high performance analysis for system on chip (SOC) designs. The acquisition of
ACEO also allows the company to develop the RTL virtual prototype.
 
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
                                                                        -------------------------------------  -----------
<S>                                                                     <C>          <C>          <C>          <C>
                                                                           1998         1997         1996       1997-1998
                                                                           -----        -----        -----     -----------
REVENUE:
  Software............................................................          68%          71%          76%          33%
  Services............................................................          32           29           24           51
                                                                               ---          ---          ---        -----
    Total revenue.....................................................         100%         100%         100%          38%
                                                                               ---          ---          ---        -----
                                                                               ---          ---          ---        -----
COSTS AND EXPENSES:
  Costs of software...................................................           2            3            3           19
  Costs of services...................................................           6            8            7           15
  Selling and marketing...............................................          25           29           29           21
  Research and development............................................          25           22           21           53
  General and administrative..........................................          11           12           14           25
  In-process research and development.................................           5           25            1          (73)
  Merger expenses.....................................................           5       --                8          100
                                                                               ---          ---          ---        -----
    Total operating expenses..........................................          79           99           83           11
                                                                               ---          ---          ---        -----
    Income from operations............................................          21            1           17         1969
Interest income and other, net........................................           2            4            4          (24)
                                                                               ---          ---          ---        -----
    Income before income taxes........................................          23            5           21          467
Provision for income taxes............................................          11            2           10          555
                                                                               ---          ---          ---        -----
    Net income........................................................          12%           3%          11%         403%
                                                                               ---          ---          ---        -----
                                                                               ---          ---          ---        -----
 
<CAPTION>
 
<S>                                                                     <C>
                                                                         1996-1997
                                                                        -----------
REVENUE:
  Software............................................................          24%
  Services............................................................          63
                                                                             -----
    Total revenue.....................................................          33%
                                                                             -----
                                                                             -----
COSTS AND EXPENSES:
  Costs of software...................................................          13
  Costs of services...................................................          42
  Selling and marketing...............................................          31
  Research and development............................................          43
  General and administrative..........................................          17
  In-process research and development.................................        2323
  Merger expenses.....................................................        (100)
                                                                             -----
    Total operating expenses..........................................          57
                                                                             -----
    Income from operations............................................         (89)
Interest income and other, net........................................          51
                                                                             -----
    Income before income taxes........................................         (64)
Provision for income taxes............................................         (67)
                                                                             -----
    Net income........................................................         (60)%
                                                                             -----
                                                                             -----
</TABLE>
 
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
    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 remained 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. Maintenance revenue was deferred and recognized ratably over
the term of the maintenance agreement, which
 
                                       39
<PAGE>
was typically 12 months. Revenue from consulting services, 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). 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 support (PCS) is recognized ratably over the term of
the support; 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.
 
    In December 1998, the AcSEC issued SOP 98-9, SOFTWARE REVENUE RECOGNITION,
WITH RESPECT TO CERTAIN ARRANGEMENTS, which requires recognition of revenue
using the "residual method" in a multiple element arrangement when fair value
does not exist for one or more of the delivered elements in the arrangement.
Under the "residual method", the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. The Company
does not expect a material change to its accounting for revenues as a result of
the provisions of SOP 98-9.
 
    The Company's total revenue increased 38% to $227,141,000 in 1998 from
$164,384,000 in 1997 and 33% in 1997 from $124,046,000 in 1996. The percentage
of the Company's revenue attributable to software licenses decreased to 68% in
1998 from 71% in 1997 and 76% in 1996. The decrease in 1998 and 1997 was
primarily due to the faster increase of service revenue as compared to software
license revenue as a result of the larger user base.
 
    Software revenue increased 33% to $155,525,000 in 1998 from $116,948,000 in
1997 and 24% in 1997 from $94,552,000 in 1996. 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 51% to $71,616,000 in 1998 from $47,436,000 in 1997 and 61% in 1997
from $29,494,000 in 1996, reflecting the growing base of installed systems.
Through December 31, 1998, 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.
 
    The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way that management organizes the operating segments within the Company for
making operating decisions and assessing financial performance.
 
    The Company's chief operating decision-maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial information
presented on a consolidated basis accompanied by disaggregated information about
revenues by geographic region for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
consolidated statement of operations. Therefore, the Company operates in a
single operating segment: electronic design automation software and services.
 
    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
 
                                       40
<PAGE>
return, or cancel, or postpone orders of, the Company's products. As of December
31, 1998, such cancellations, postponements and returns had not had a material
financial impact on the Company's revenues. However, cancellations returns, 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 $4,882,000 in 1998 from $4,091,000 in 1997 and $3,621,000
in 1996. In 1998 and 1997, the increase was attributable to product
documentation costs due to new releases. Costs of software, as a percentage of
software revenue, were 3%, 3% and 4% for each of 1998, 1997 and 1996,
respectively.
 
    COSTS OF SERVICES.  Costs of services consist of costs of maintenance and
customer support and direct costs associated with providing other services.
Maintenance includes activities undertaken after the product is available for
general release to customers to correct errors, 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
$14,474,000 in 1998 from $12,562,000 in 1997 and $9,284,000 in 1996,
representing 20%, 26% and 32% of services revenue for 1998, 1997 and 1996,
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 1998 and 1997, 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, trade shows and allowance for
doubtful accounts. Selling and marketing expenses increased to $57,391,000 in
1998 from $47,539,000 in 1997 and $36,238,000 in 1996. In 1998, the increase was
due to increased advertising and promotional activities, increased headcount and
increased allowance for doubtful accounts. The allowance for doubtful accounts
was increased $3,000,000 in the fourth quarter of 1998 to reflect sales levels
and collection experience. 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. Selling and marketing expenses
represented 25%, 29% and 29% of total revenue in 1998, 1997 and 1996,
respectively. The decrease in selling and marketing expenses as a percentage of
total revenue during 1998 resulted primarily from revenue growth and improved
productivity of the sales force. The Company expects to hire additional sales
personnel and to increase promotion and advertising costs throughout 1999.
 
    RESEARCH AND DEVELOPMENT.  Research and development expenses include all
costs associated with the development of new products and enhancement of
existing products. Research and development expenses increased to $56,116,000 in
1998 from $36,680,000 in 1997 and $25,733,000 in 1996. In both 1998 and 1997 the
increases were primarily due to increased headcount and higher incentive
compensation. Research and development expenses represented 25%, 22% and 21% of
total revenue in 1998, 1997 and 1996, respectively. This is consistent with the
Company's policy of investing heavily in research and development for future
growth. The Company anticipates that it will continue to devote substantial
resources to product research and development throughout 1999.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
to $25,086,000 in 1998 from $20,046,000 in 1997 and $17,206,000 in 1996. In 1998
and 1997, the increases resulted primarily from 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 11%, 12% and 14%, of total revenue in 1998, 1997 and 1996,
respectively. The decrease in general and administrative expenses as a
percentage of total revenue resulted primarily from the Company's continued
effort to
 
                                       41
<PAGE>
improve efficiency in the general and administrative area. The Company charged
to expenses approximately $12,342,000, $8,720,000 and $6,850,000 for the years
1998, 1997 and 1996, respectively, related to the various litigation issues. The
Company expects legal costs to continue in the future as a result of its current
litigation issues.
 
    IN-PROCESS RESEARCH AND DEVELOPMENT.  On November 19, 1998 and November 13,
1998, the Company acquired ACEO and interHDL. In connection with these
acquisitions, intangibles of $5,930,000 and $33,127,000 were acquired of which
$1,260,000 and $10,008,000 were related to acquired in-process research and
development. These in-process research and development amounts were expensed, as
the underlying technology had not reached technological feasibility and, in
management's opinion, had no probable alternative future use. In September 1997,
the Company acquired Compass. In connection with the acquisition, intangibles of
$56,008,000 were acquired, of which $41,186,000 related to acquired in-process
research and development. These in-process research and development amounts were
expensed, as the underlying technology had not reached technological feasibility
and, in management's opinion, had no probable alternative future use. In
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, it was expensed upon
acquisition.
 
    In connection with the purchase of ACEO and interHDL in November 1998, the
Company allocated $1,260,000 and $10,008,000 respectively, of the $7,203,000 and
$35,018,000 purchase prices to in-process research and development projects.
These allocations represent the estimated fair value based on risk-adjusted cash
flows related to the incomplete research and development projects. At the date
of the acquisitions, these amounts were expensed as a non-recurring charge as
the in-process technology had not yet reached technological feasibility and had
no alternative future uses. ACEO had one major project in progress at the time
of the acquisition. As of the acquisition date, costs to complete the project
acquired were expected to be approximately $500,000 and $250,000 in fiscal 1998
and 1999, respectively. InterHDL had two major projects in progress at the time
of the acquisition. As of the acquisition date, costs to complete the projects
acquired were expected to be approximately $400,000 and $1,100,000 in fiscal
1998 and 1999, respectively. The Company believes there has been no significant
changes to these estimates as of December 31, 1998. The Company currently
expects to complete the development of the projects in fiscal 1999 and to
publish the products upon completion.
 
    In connection with the purchase of Compass in September 1997, the Company
allocated $41,186,000 of the $65,386,000 purchase price to in-process research
and development projects. This allocation represents the estimated fair value
based on risk-adjusted cash flows related to the incomplete research and
development projects. At the date of the acquisition, this amount was expensed
as a non-recurring charge as the in-process technology had not yet reached
technological feasibility and had no alternative future uses. Compass had three
major projects in progress which were not complete at the time of the
acquisition.
 
    In the case of the ACEO and interHDL projects, the nature of the efforts
required to develop the acquired in-process technology into commercially viable
products principally relates to the completion of all planning, designing and
testing activities necessary to establish that the product can be produced to
meet its design requirements including functions, features and technical
performance requirements. Though the Company currently expects that the acquired
in-process technology will be successfully developed, there can be no assurance
that commercial or technical viability of these products will be achieved.
Furthermore, future developments in the industry, changes in technology, changes
in other product offerings or other developments may cause the Company to alter
or abandon these plans. Compass' acquired in-process technology entered
commercial production during 1998.
 
    The value assigned to purchased in-process technology was determined by
estimating the completion percentage of research and development efforts at the
acquisition date, forecasting expected revenues for the purchased in-process
technology once it is completed, estimating the resulting net cash flows from
the
 
                                       42
<PAGE>
projects, estimating the portion of net cash flows attributable to completed
research and development and excluding cash flows attributable to research and
development yet to be completed, and discounting the net cash flows to their
present values at risk-adjusted discount rates appropriate for each project. The
completion percentages were estimated based on cost incurred to date, importance
of the completed development tasks and the elapsed portion of the total project
time. The revenue projection used to value the in-process research and
development is based on sales forecasts for worldwide sales territories. Net
cash flow estimates include cost of goods sold and sales, continued research and
development, sales and marketing and general and administrative expenses and
taxes forecasted based on historical operating characteristics. In addition, net
cash flow estimates were adjusted to allow for fair return on working capital
and fixed assets, charges for franchise and technology leverage and return on
other intangibles. Cash flows were also adjusted to include only cash flows
attributable to completed research and development and excluding cash flows
attributable to research and development yet to be completed. Material net cash
flows from the ACEO and interHDL projects are expected to commence in two to
three years. Material net cash flows from the Compass projects commenced during
1998.
 
    The present values of net cash flows related to completed in-process
research and development efforts were determined by discounting the relevant
cash flows at risk-adjusted discount rates appropriate for the risks of each
project. Because of the relatively high technological and market risk associated
with in-process research and development acquired from ACEO and interHDL a
risk-adjusted discount rate of 35% was used in both cases. The present values of
net cash flows related to in-process research and development projects acquired
from Compass were determined using risk-adjusted discount rates between 18% and
20%, depending on the relative risks of each project.
 
    The remaining identified intangibles will be amortized on a straight-line
basis over five years based on expected useful lives of franchise trade names,
existing products and technologies, retention of workforce, and other intangible
assets.
 
    MERGER EXPENSES.  In connection with the merger with TMA in January 1998,
the Company recorded direct transaction costs and merger-related integration
expenses of approximately $10,747,000, consisting of transaction fees for
investment bankers, attorneys, accountants, financial printing and stockholder
meeting of approximately $5,400,000, charges for the elimination of duplicate
facilities of approximately $2,247,000 and severance and certain other related
costs of approximately $3,100,000. As of December 31, 1998, there were no
material remaining accrued liabilities relating to the merger. Of the
$10,747,000 of merger related costs, approximately $7,900,000 related to cash
expenditures while approximately $2,847,000 related to non-cash charges.
 
    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 stockholder
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.
 
    INCOME FROM OPERATIONS.  The Company had income from operations of
$47,177,000, $2,280,000 and $20,964,000 in 1998, 1997 and 1996, respectively.
Income from operations in 1998 includes the impact of merger expense incurred in
connection with the TMA merger and the acquired in-process research and
development expense incurred in connection with the ACEO and interHDL
acquisitions. The decrease in income from operations in 1997 was attributable to
the acquired in-process research and development expense incurred in connection
with the Compass acquisition. Operating income represented 21%, 1% and 17% of
total revenue in 1998, 1997 and 1996, respectively.
 
    INTEREST INCOME AND OTHER, NET.  Interest income and other was $5,320,000,
$6,986,000 and $4,643,000 in 1998, 1997 and 1996, respectively. The decrease in
interest income and other in 1998 related primarily to
 
                                       43
<PAGE>
foreign exchange losses of $851,000 and lower interest earned on investments.
The majority of the increase for 1997 was due to an increase in interest earned
on investments.
 
    INCOME TAXES.  The Company accounts for income taxes in accordance with SFAS
No. 109. The provision for income taxes, as a percentage of pre-tax income was
48%, 42% and 46% for 1998, 1997 and 1996, respectively. The percentages in 1998,
1997 and 1996 were higher than the federal statutory income tax rate of
approximately 35% due primarily to the effect of certain merger expenses and in
process research and development charges that were not deductible for income tax
purposes. As of December 31, 1998, the increase in deferred tax assets related
primarily to purchased tax benefits resulting from the ACEO and interHDL
acquisitions.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Net cash provided by operating activities was $60,894,000, $16,634,000 and
$22,320,000 in 1998, 1997 and 1996, respectively. The increase in 1998 was
attributable to increase in operating income (net of acquired in-process
research and development), accrued income taxes and deferred revenue, offset by
an increase in accounts receivable, due from affiliates and a decrease in
accrued liabilities. 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). Investing activities used $4,086,000, $875,000 and $56,767,000 of
net cash in 1998, 1997 and 1996, respectively. In 1998, net cash used in
investing activities was used for the purchase of interHDL and ACEO, a
$10,000,000 investment in Forefront Venture Partners L.P., a limited partnership
investing primarily in technology start up companies, and purchase of equipment,
furniture and fixtures primarily for the Company's new headquarters, offset by
net maturities of $36,057,000 of short term investments. In 1997, cash was 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, offset by net maturities
of $40,815,000 of short term investments. In 1996, 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. Financing activities used $13,125,000 and provided
$7,623,000 and $35,294,000 of net cash in 1998, 1997 and 1996, respectively. Net
cash used in financing activities in 1998 primarily related to repurchase of
common stock. Net cash provided by financing activities in 1997 related
primarily to the issuance of common stock under the Company's employee stock
purchase plan and exercise of stock options. Net cash provided by financing
activities in 1996 related primarily to proceeds from TMA's initial public
offering, completed in September 1996. The Company did not issue any significant
amounts of common stock in 1998, 1997 and 1996 except for stock issued in
connection with option exercises, the employee stock purchase plan and the
interHDL, ACEO and Compass acquisitions.
 
    The Company's stated payment terms generally are net 30 days. However, in
the Company's experience, many customers 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 believes that its
allowance for doubtful accounts is adequate.
 
    As of December 31, 1998, the Company had $142,595,000 of cash and short-term
investments and $133,542,000 in working capital. As of December 31, 1998, the
Company had $80,309,000 in current liabilities, including $28,985,000 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.
 
                                       44
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
 
WE ARE INVOLVED IN SEVERAL LITIGATION MATTERS THAT COULD SERIOUSLY HARM OUR
BUSINESS
 
    Avant! and its subsidiaries are engaged in various litigation matters,
including: a civil action brought by Cadence Design Systems, Inc.; the criminal
indictment of Avant! and certain of its employees, officers and directors;
securities class action and defamation claims stemming from the Cadence
litigation and the criminal indictment; civil actions brought by Silvaco Data
Systems, Inc.; a civil action brought by Katherine Ngai Pesic and Ivan Pesic;
and a civil action brought by Eric Nequist. The pending litigation against
Avant! and any future litigation against Avant! or its employees, regardless of
the outcome, may result in substantial costs and expenses and significant
diversion of effort by Avant!'s management. These various matters, of which the
amount of any future costs and expense cannot be reasonably estimated, could
seriously harm Avant!'s business, financial condition and results of operations.
 
CADENCE LITIGATION
 
    On December 6, 1995, Cadence filed an action against Avant! 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 Avant!'s
employees who were formerly Cadence employees allegedly misappropriated and
improperly copied source code for certain important functions of Avant!'s place
and route products from Cadence, and that Avant! has allegedly competed unfairly
by making false statements concerning Cadence and its products. The action also
alleges that Avant! induced certain individual defendants to breach their
agreements of employment and confidentiality with Cadence. Trial has been
scheduled for October 12, 1999.
 
    In addition to actual and punitive damages, which have not been quantified
by Cadence, Cadence is seeking to enjoin the sale of Avant!'s place and route
products pending trial of the action. 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, Avant!'s ArcCell products. The injunction also
barred Avant! 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. (Avant! stopped selling
or licensing ArcCell products or code in mid 1996.) On December 7, 1998, the
District Court entered an injunction against Avant! prohibiting Avant! from
directly or indirectly marketing, selling, leasing, licensing, copywriting or
transferring the Aquarius, Aquarius XO and Aquarius BV products. The injunction
also prohibits Avant! from marketing, selling, leasing, licensing, copying or
transferring any translation code for an Aquarius product that infringes any
protected right of Cadence. With certain exceptions related to the pending
litigation, beginning February 5, 1999, the injunction prohibits Avant! from
possessing or using any copies of any portion of the source code or object code
for the Aquarius products to the extent that such portion is copied or derived
from the Design Framework II product of Cadence. The injunction further includes
certain notice and reporting requirements to be fulfilled by Avant!. The
preliminary injunction against Avant!'s Aquarius products could seriously harm
Avant!'s business, financial condition and results of operations.
 
    On January 16, 1996, Avant! 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, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! refiled its counterclaim on January 29, 1998.
 
    Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay monetary damages to Cadence. In
addition,
 
                                       45
<PAGE>
upon further consideration by the District Court, Avant! could be preliminarily
enjoined from selling its Apollo place and route products. In addition, it is
likely that an adverse judgment against Avant! would result in a steep decline
in the market price of Avant!'s common stock. Accordingly, an adverse judgement,
if granted on any claim, of which amount of possible loss cannot be reasonably
estimated, would seriously harm Avant!'s business, financial position and
results of operations. Furthermore, it is possible that Avant!'s relationships
with its customers and/or partners will be seriously harmed in the future as a
result of the Cadence litigation.
 
CRIMINAL INDICTMENT
 
    On December 16, 1998, after a grand jury investigation, the Santa Clara
County District Attorney's office filed a criminal indictment alleging felony
level offenses related to the allegations of misappropriation of trade secrets
set forth in Cadence's lawsuit against, among others, Avant! and the following
current or former employees and/or directors of Avant!:
 
    - Gerald C. Hsu, President, Chief Executive Officer and Chairman of the
      board of directors;
 
    - Y. Eric Cho, a former officer and former member of Avant!'s board of
      directors;
 
    - Y. Z. Liao, Corporate Fellow;
 
    - Stephen Wuu, Executive staff, Operations;
 
    - Leigh Huang, former marketing manager;
 
    - Eric Cheng, Research and Development Manager; and
 
    - Mike Tsai, a former officer and former member of Avant!'s board of
      directors.
 
    The indictment charges the defendants listed above with conspiring to commit
trade secret theft, trade secret theft, inducing the theft of a trade secret,
conspiracy to commit fraudulent practices in connection with the offer or sale
of a security and fraudulent practices in connection with the offer or sale of a
security. The criminal indictment could result in additional defense costs and
criminal fines against Avant!, as well as the potential incarceration of certain
members of its management team and board of directors. Such outcomes would
seriously harm Avant!'s business, financial condition and results of operations
and may also result in canceled or postponed orders, increased future
expenditures, the loss of management and other key personnel, additional
stockholder litigation and loss of goodwill. Trial has been scheduled for
September 27, 1999.
 
SILVACO LITIGATION
 
    In March 1993, Meta Software Inc., which Avant! acquired in October 1996 and
which is now a wholly owned subsidiary of Avant!, filed a complaint in the
Superior Court of California for Santa Clara County against Silvaco Data
Systems, Inc. seeking monetary damages and injunctive relief. In August 1995,
Silvaco filed a cross-complaint against Meta and Shawn Hailey, then the
President and Chief Executive Officer of Meta, alleging, among other things,
that Meta owed 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. In November 1997, a
judgment in the aggregate amount of $31.4 million was entered against Avant!. As
required, the Company posted a bond on behalf of itself and Shawn Hailey in
excess of the amount necessary to satisfy the judgement. The bond is
collateralized by a $23,583,000 letter of credit. Avant! filed appeals on its
own behalf and on behalf of Mr. Hailey. If Avant!'s appeal is unsuccessful,
Avant! will be required to pay substantial monetary damages to Silvaco. Payment
of the damages previously awarded, and damages which may be awarded in the
future, would seriously harm Avant!'s business, financial condition and results
of operations.
 
                                       46
<PAGE>
    On March 31, 1998, Silvaco filed an additional lawsuit, against Avant! and
Roy Jewell, Avant!'s Executive Staff, Business, in the Superior Court of
California for Santa Clara County. The lawsuit alleges causes of action for
defamation, negligent and intentional interference with economic advantage,
unfair competition, Lanham Act violations and consumer fraud. Silvaco is seeking
$20 million in compensatory damages, punitive damages and an injunction. Avant!
believes it has defenses to these claims and intends to defend itself
vigorously. In the event Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to Silvaco, and such a judgment would seriously harm
Avant!'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
Avant! (as successor in interest to Meta), Shawn Hailey, Meta's former President
and Chief Executive Officer, and Thomas N. White, Jr. and George S. Cole, both
of whom were Meta's former counsel in the Meta v. Silvaco matter discussed
above. The action asserts claims for invasion of privacy under California common
law and the California Constitution and seeks compensatory and punitive damages.
Avant! believes it has defenses to these claims and intends to defend itself
vigorously. In the event that Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to the plaintiffs, and such a judgment could seriously
harm Avant!'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 Avant!. This lawsuit alleges 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 addition, on May 30,
1997, Joanne Hoffman filed in the United States District Court for the Northern
District of California a class action lawsuit alleging securities claims on
behalf of purchasers of Avant!'s stock between March 29, 1996 and April 11,
1997, the date of the filing of a criminal complaint against Avant! and six of
its employees and/or officers. Plaintiff alleges that Avant! and its officers
misled the market as to the likelihood of criminal charges being filed and as to
the validity of the Cadence allegations. The District Court has granted Avant!'s
motion to coordinate the Hoffman action for pretrial purposes with the
earlier-filed Margetis action. Avant! believes it has defenses to these
securities class action claims, and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to the securities class action plaintiffs, and such a judgment would seriously
harm Avant!'s business, financial condition and results of operations. Mediation
has been scheduled for March 25, 1999.
 
NEQUIST LITIGATION
 
    On July 15, 1998, Eric Nequist filed in the Santa Clara County Superior
Court a complaint against Avant!. The complaint alleges causes of action for
defamation, intentional infliction of emotional distress, negligent and
intentional interference with economic advantage, abuse of process and
violations of California Business and Profession Code section 17200. No trial
date has been set, and the parties have been ordered to mediation, which has
been scheduled for April 15, 1999. On March 4, 1999, the court will hear
Avant!'s motion for a stay of this lawsuit pending resolution of the criminal
action. Avant! believes it has defenses to Mr. Nequist's claims and intends to
defend itself vigorously. In the event Avant!'s defenses are unsuccessful,
Avant! may be required to pay damages to Mr. Nequist, and such a judgment could
seriously harm Avant!'s business, financial condition and results of operation.
 
                                       47
<PAGE>
LITIGATION COSTS
 
    The pending litigation and any future litigation against the Company and the
Company's employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the Company. The Company charged to expenses
approximately $12,342,000, $8,720,000 and $6,850,000 for the years 1998, 1997
and 1996, respectively, related to the various litigation issues. The Company
currently expects legal costs to continue in the future as a result of its
current litigation issues and that those costs will increase as those matters
come to trial. Accordingly, any such litigation could have a material adverse
effect on the Company's business, financial position and results of operations.
Furthermore, if Avant! is required to satisfy the default judgments in full in
the Silvaco litigation, Avant! could be required to pay up to $31.4 million in
damages, which would have a material adverse effect on Avant!'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 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.
 
    Many Asian countries are currently experiencing banking and currency
difficulties that could lead to economic recession in those countries which
could result in a decline in the purchasing power of the Company's Asian
customers. This in turn could result in the cancellation or delay of orders for
the Company's products from Asian customers, thus adversely affecting the
Company's results of operations.
 
    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 November 13, 1998, the Company acquired interHDL, Inc. and on November
19, 1998, the Company acquired ACEO, Inc. The Company's future operating results
are contingent upon the successful integration of these entities into its
operations.
 
                                       48
<PAGE>
RECENT PRONOUNCEMENTS
 
    The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 by July 1,
1999. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or results of operations of the
Company.
 
YEAR 2000 ISSUES
 
    During 1998, the Company undertook an evaluation of the Company's products
currently supported to determine if they are Year 2000 ready.
 
STATE OF READINESS
 
    Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. During 1998, the Company undertook an evaluation
of its currently supported products to determine if they are Year 2000
compliant. The results of this evaluation revealed that most currently supported
products are Year 2000 compliant. The Company intends to upgrade or replace the
currently supported products (primarily old products) not currently Year 2000
compliant with fix patch or upgrade as part of the Company's standard
maintenance programs. Any failure by the Company to make its products Year 2000
compliant could result in:
 
    - A decrease in sales of our products;
 
    - An increase in the allocation of resources to address the Year 2000 issues
      of our customers without additional revenue commensurate with such
      dedication of resources; and
 
    - An increase in litigation costs relating to losses suffered by our
      customers due to such Year 2000 issues.
 
    During 1998, the Company conducted a preliminary review of our internal
computer systems to identify the systems that could be affected by the Year 2000
issue and to develop a plan to resolve the issue. The Company has adopted SAP
R/3 software as an enterprise system managing its financial and logistical
operations in the United States. SAP R/3 software has been certified by SAP as
Year 2000 compliant. Some other third party software systems and applications
currently used by the Company, however, are not Year 2000 compliant. The Company
intends to stop using these software products or upgrade or replace them as part
of the Company's growth plans. The Company only performs Year 2000 compliance
testing on its critical internal support systems. Inoperability related to Year
2000 problems of internal systems that are certified Year 2000 compliant by the
vendor and not tested by the Company could seriously harm the Company's
operational efficiency. The Company is also currently engaged in setting up a
plan to make our European accounting system Year 2000 compliant. Our failure to
complete such work prior to December 31, 1999 could seriously harm our business,
financial condition and results of operations. Furthermore, the purchasing
patterns of customers or potential customers may be affected by Year 2000 issues
as companies expend significant resources to correct their current systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by the Company, which
could seriously harm the Company's business, operating results and financial
condition.
 
                                       49
<PAGE>
RISKS
 
    The Company requests its vendors to provide Year 2000 compliance
certificates for all its internal support systems. However, the Company only
intends to perform testing on its critical internal support systems.
Inoperability related to Year 2000 problems of internal systems that are
certified Year 2000 ready by the vendor and not tested by the Company could have
an adverse impact to the Company's operational efficiency.
 
    The migration paths provided by the Company as the remedies to make its
products Year 2000 ready may not be accepted by the customer, which could have
an adverse impact on the Company's business.
 
    The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or patch their current software systems for Year 2000
readiness. These expenditures may result in reduced funds available to purchase
software products such as those offered by the Company, which could result in a
material adverse effect on the Company's business, financial condition and
results of operation.
 
COSTS
 
    The Company does not have a project tracking system that tracks the cost and
time that its own internal employees spend on the Year 2000 project. Based on
the Company assessment, the costs incurred to date have had no material impact
on the Company results of operations. The Company expects that costs directly
related to Year 2000 compliance in excess of normal upgrade and maintenance
costs will not exceed approximately $250,000 for both costs incurred to date and
future costs.
 
CONTINGENCY PLANS
 
    The Company does not presently have a contingency plan for handling Year
2000 problems that are not detected and corrected prior to their occurrences.
Upon completion of testing and implementation activities, the Company will be
able to assess the areas requiring contingency planning and expects to develop
appropriate planning at that time. Any failure of the Company to address any
unforeseen Year 2000 problems would seriously harm the Company's business,
financial condition and results of operations.
 
                                       50
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Avant! Corporation:
 
    We have audited the accompanying consolidated balance sheets of Avant!
Corporation and subsidiaries (the Company) as of December 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 audits. We did not audit the 1996 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 3 to the consolidated financial statements, which statements
reflect total revenues constituting 14% of the related consolidated totals for
1996. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
 
           [SIG]
 
February 9, 1999
Mountain View, California
 
                                       51
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
 
    The consolidated financial statements contained in this annual report are
the responsibility of management. They have been prepared in accordance with
generally accepted accounting principles and necessarily include certain amounts
based on management's best estimates and judgments. The financial information
contained elsewhere in this annual report is consistent with that contained in
the consolidated financial statements.
 
    Management is responsible for establishing and maintaining a system of
internal controls designed to provide reasonable assurance as to the integrity
and reliability of financial reporting. The concept of reasonable assurance is
based on the recognition that there are inherent limitations in all systems of
internal control, and that the cost of such systems should not exceed the
benefits to be derived therefrom.
 
    It has always been the policy and practice of the Company to conduct its
affairs ethically and in a socially responsible manner. Management recognizes
its responsibility for fostering a strong ethical climate. This responsibility
is communicated to all employees in the Company's code of business conduct,
which is distributed throughout the Company.
 
/s/ GERALD C. HSU
Gerald C. Hsu
Chairman of the Board of Directors,
President and Chief Executive Officer
 
/s/ PETER S. TESHIMA
Peter S. Teshima
Head of Finance
 
                                       52
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                  1998        1997        1996
                                                                               ----------  ----------  ----------
<S>                                                                            <C>         <C>         <C>
Revenue:
  Software...................................................................  $  155,525  $  116,948  $   94,552
  Services...................................................................      71,616      47,436      29,494
                                                                               ----------  ----------  ----------
    Total revenue............................................................     227,141     164,384     124,046
                                                                               ----------  ----------  ----------
Costs and expenses:
  Costs of software..........................................................       4,882       4,091       3,621
  Costs of services..........................................................      14,474      12,562       9,284
  Selling and marketing......................................................      57,391      47,539      36,238
  Research and development...................................................      56,116      36,680      25,733
  General and administrative.................................................      25,086      20,046      17,206
  In-process research and development........................................      11,268      41,186       1,700
  Merger expenses............................................................      10,747          --       9,300
                                                                               ----------  ----------  ----------
    Total operating expenses.................................................     179,964     162,104     103,082
                                                                               ----------  ----------  ----------
    Income from operations...................................................      47,177       2,280      20,964
Interest income and other, net...............................................       5,320       6,986       4,643
                                                                               ----------  ----------  ----------
    Income before income taxes...............................................      52,497       9,266      25,607
Provision for income taxes...................................................      25,334       3,868      11,899
                                                                               ----------  ----------  ----------
    Net income...............................................................  $   27,163  $    5,398  $   13,708
Other comprehensive income--change in unrealized gain (loss) on short-term
  investments, net of related tax effects and reclassification adjustments
  for realized gains and losses..............................................         (52)         25        (164)
                                                                               ----------  ----------  ----------
    Total comprehensive income...............................................  $   27,111  $    5,423  $   13,544
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
Net earnings per share--Basic:
  Net earnings per share.....................................................  $     0.84  $     0.17  $     0.49
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
  Total weighted average number of common shares outstanding.................      32,246      31,073      27,954
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
Net earnings per share--Diluted:
  Net earnings per share.....................................................  $     0.81  $     0.16  $     0.45
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
  Total weighted average number of common and common equivalent shares
    outstanding..............................................................      33,576      33,001      30,401
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                       53
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                           DECEMBER 31, 1998 AND 1997
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                               1998        1997
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
                                                      ASSETS
Current assets:
  Cash and cash equivalents...............................................................  $  121,206  $   77,523
  Short-term investments..................................................................      21,389      57,394
  Accounts receivable, net................................................................      33,325      24,777
  Due from affiliates.....................................................................       8,947       6,171
  Deferred income taxes...................................................................      14,418       7,658
  Prepaid expenses and other current assets...............................................      14,566      11,644
                                                                                            ----------  ----------
    Total current assets..................................................................     213,851     185,167
Equipment, furniture and fixtures, net....................................................      28,758      33,649
Deferred income taxes.....................................................................      15,965      16,208
Goodwill and other intangibles, net.......................................................      41,343      15,461
Other assets..............................................................................      17,469       3,851
                                                                                            ----------  ----------
    Total assets..........................................................................  $  317,386  $  254,336
                                                                                            ----------  ----------
                                                                                            ----------  ----------
 
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................................................................  $    5,632  $    7,009
  Accrued compensation....................................................................      10,109       9,000
  Accrued income taxes....................................................................      25,457       6,717
  Other accrued liabilities...............................................................      10,126      14,195
  Deferred revenue........................................................................      28,985      17,945
                                                                                            ----------  ----------
    Total current liabilities.............................................................      80,309      54,866
Other noncurrent liabilities..............................................................       1,879       1,294
                                                                                            ----------  ----------
    Total liabilities.....................................................................  $   82,188  $   56,160
                                                                                            ----------  ----------
Commitments and contingencies
 
Stockholders' equity:
Series A convertible preferred stock, $.0001 par value; 5,000 shares authorized; none
  issued and outstanding..................................................................          --          --
Series A junior participating preferred stock, $.0001 par value, 75,000 shares authorized;
  none issued and outstanding.............................................................          --          --
Common stock, $.0001 par value; 75,000 shares authorized, 33,059 and 32,282 shares issued
  and outstanding in 1998 and 1997, respectively..........................................           3           3
Additional paid-in capital................................................................     182,081     174,180
Deferred compensation.....................................................................        (792)     (2,698)
Other accumulated comprehensive income (loss).............................................           2         (50)
Retained earnings.........................................................................      53,904      26,741
                                                                                            ----------  ----------
    Total stockholders' equity............................................................     235,198     198,176
                                                                                            ----------  ----------
    Total liabilities and stockholders' equity............................................  $  317,386  $  254,336
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       54
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                     NET
                                                                                                 UNREALIZED
                                                 COMMON STOCK        ADDITIONAL                  GAIN (LOSS)
                                           ------------------------   PAID-IN      DEFERRED     ON SHORT- TERM RETAINED
                                            SHARES       AMOUNT       CAPITAL    COMPENSATION    INVESTMENTS   EARNINGS
                                           ---------  -------------  ----------  -------------  -------------  ---------
<S>                                        <C>        <C>            <C>         <C>            <C>            <C>
Balances as of December 31, 1995.........     26,700    $       2    $   96,219    $  (1,093)     $      89    $   7,649
  Issuance of common stock in acquisition
    of technology........................         29           --         1,500         (750)            --           --
  Issuance 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)            --           --
  Forgiveness of notes receivable from
    stockholders.........................         --           --            --          119             --           --
  Issuance of common stock options at
    below market value...................         --           --         2,122       (2,122)            --           --
  Repurchase of common stock.............       (219)          --          (190)         135             --          (14)
  Unrealized loss on short-term
    investments, net of tax effects of
    $88..................................         --           --            --           --           (164)          --
  Deferred compensation..................         --           --         1,009          328             --           --
  Reversal of prior year stockholder
    distribution.........................         --           --            46           --             --           --
  Contributed capital related to stock
    compensation expense.................         --           --            64           --             --           --
  Net income.............................         --           --            --           --             --       13,708
                                                               --
                                           ---------                 ----------  -------------        -----    ---------
 
Balances as of December 31, 1996.........     30,046    $       3    $  144,988    $  (4,335)     $     (75)   $  21,343
  Issuance of common stock in acquisition
    of:
    Compass..............................        522           --        17,500           --             --           --
    Precim...............................        256           --            --           --             --           --
  Exercise of common stock options,
    including related tax benefits.......      1,410           --         9,710           --             --           --
  Issuance of common stock under employee
    stock purchase plan..................        171           --         2,844           --             --           --
  Forgiveness and payment of notes
    receivables from stockholders........         --           --            --          285             --           --
  Deferred compensation..................         --           --           102        1,352             --           --
  Unrealized gain on short-term
    investments, net of tax effects of
    $14..................................         --           --            --           --             25           --
  Repurchase of common stock.............       (123)          --          (964)          --             --           --
  Net income.............................         --           --            --           --             --        5,398
                                                               --
                                           ---------                 ----------  -------------        -----    ---------
 
<CAPTION>
 
                                              TOTAL
                                           STOCKHOLDERS'
                                              EQUITY
                                           ------------
<S>                                        <C>
Balances as of December 31, 1995.........   $  102,866
  Issuance of common stock in acquisition
    of technology........................          750
  Issuance 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
  Forgiveness of notes receivable from
    stockholders.........................          119
  Issuance of common stock options at
    below market value...................           --
  Repurchase of common stock.............          (69)
  Unrealized loss on short-term
    investments, net of tax effects of
    $88..................................         (164)
  Deferred compensation..................        1,337
  Reversal of prior year stockholder
    distribution.........................           46
  Contributed capital related to stock
    compensation expense.................           64
  Net income.............................       13,708
 
                                           ------------
Balances as of December 31, 1996.........   $  161,924
  Issuance of common stock in acquisition
    of:
    Compass..............................       17,500
    Precim...............................           --
  Exercise of common stock options,
    including related tax benefits.......        9,710
  Issuance of common stock under employee
    stock purchase plan..................        2,844
  Forgiveness and payment of notes
    receivables from stockholders........          285
  Deferred compensation..................        1,454
  Unrealized gain on short-term
    investments, net of tax effects of
    $14..................................           25
  Repurchase of common stock.............         (964)
  Net income.............................        5,398
 
                                           ------------
</TABLE>
 
                                       55
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                     NET
                                                                                                 UNREALIZED
                                                 COMMON STOCK        ADDITIONAL                  GAIN (LOSS)
                                           ------------------------   PAID-IN      DEFERRED     ON SHORT- TERM RETAINED
                                            SHARES       AMOUNT       CAPITAL    COMPENSATION    INVESTMENTS   EARNINGS
                                           ---------  -------------  ----------  -------------  -------------  ---------
<S>                                        <C>        <C>            <C>         <C>            <C>            <C>
Balances as of December 31, 1997.........     32,282    $       3    $  174,180    $  (2,698)     $     (50)   $  26,741
  Forgiveness and payment of notes
    receivables from stockholders........         --           --            --          189             --           --
  Exercise of common stock options,
    including related tax benefits.......        462           --         1,938           --             --           --
  Repurchase of common stock.............     (1,182)          --       (18,279)          --             --           --
  Exercise of repurchase option to
    repurchase shares....................         (3)          --            (1)          --             --           --
Issuance of stock in acquisition of
  interHDL...............................      1,256           --        17,584           --             --           --
  Assumption of stock options for:
    interHDL.............................         --           --         2,243           --             --           --
    ACEO.................................         --           --           886           --             --           --
  Amortization of deferred
    compensation.........................         --           --          (914)       1,717             --           --
  Issuance of common stock under employee
    stock purchase plan..................        244           --         4,444           --             --           --
  Unrealized gain on short-term
    investments, net of tax effects of
    $27..................................         --           --            --           --             52           --
  Net income.............................         --           --            --           --             --       27,163
                                                               --
                                           ---------                 ----------  -------------        -----    ---------
Balances as of December 31, 1998.........     33,059    $       3    $  182,081    $    (792)     $       2    $  53,904
                                                               --
                                                               --
                                           ---------                 ----------  -------------        -----    ---------
                                           ---------                 ----------  -------------        -----    ---------
 
<CAPTION>
 
                                              TOTAL
                                           STOCKHOLDERS'
                                              EQUITY
                                           ------------
<S>                                        <C>
Balances as of December 31, 1997.........   $  198,176
  Forgiveness and payment of notes
    receivables from stockholders........          189
  Exercise of common stock options,
    including related tax benefits.......        1,938
  Repurchase of common stock.............      (18,279)
  Exercise of repurchase option to
    repurchase shares....................           (1)
Issuance of stock in acquisition of
  interHDL...............................       17,584
  Assumption of stock options for:
    interHDL.............................        2,243
    ACEO.................................          886
  Amortization of deferred
    compensation.........................          803
  Issuance of common stock under employee
    stock purchase plan..................        4,444
  Unrealized gain on short-term
    investments, net of tax effects of
    $27..................................           52
  Net income.............................       27,163
 
                                           ------------
Balances as of December 31, 1998.........   $  235,198
 
                                           ------------
                                           ------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       56
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                1998         1997         1996
                                                                             -----------  -----------  -----------
<S>                                                                          <C>          <C>          <C>
Cash flows from operating activities:
  Net income...............................................................  $    27,163  $     5,398  $    13,708
  Adjustments to reconcile net income to net cash provided by operating
    activities:
    Depreciation and amortization..........................................       17,237        7,835        3,233
    Acquired in-process research and development...........................       11,268       41,186          750
    Gain on sale of securities.............................................           --           --          (14)
    Amortization of deferred compensation..................................          803        1,013          569
    Write off of note receivable from shareholder..........................          189          122          119
    Compensation expense...................................................          640          441          313
    Loss on disposal of assets.............................................           --          466           --
    Equity in earnings of joint ventures...................................          132         (212)          --
    Amortization of capitalized software costs.............................           --           62           88
    Non cash charges related to TMA merger.................................        2,847           --           --
    Deferred income taxes..................................................       (3,948)     (17,269)      (2,544)
    Tax benefit related to stock options...................................          448        2,992        4,730
    Deferred rent..........................................................          706          (29)         (39)
    Stock issued for services..............................................           --           --          140
    Provision for doubtful accounts........................................        4,679        2,040          464
    Changes in operating assets and liabilities, net of effects from
      acquisitions:
      Accounts receivable, net.............................................      (14,211)      (6,492)        (818)
      Due from affiliates..................................................       (2,776)      (6,171)          --
      Prepaid expenses and other assets....................................       (5,737)      (1,504)      (4,396)
      Accounts payable.....................................................       (1,377)     (12,167)         774
      Accrued compensation.................................................        1,109         (448)       1,336
      Accrued income taxes.................................................       18,740        4,237       (5,286)
      Other accrued liabilities............................................       (8,629)      (1,620)       4,581
      Deferred revenue.....................................................       11,611       (3,246)       4,612
                                                                             -----------  -----------  -----------
        Net cash provided by operating activities..........................       60,894       16,634       22,320
                                                                             -----------  -----------  -----------
Cash flows from investing activities:
  Purchases of short-term investments......................................     (368,253)    (113,982)    (220,522)
  Maturities and sales of short-term investments...........................      404,310      154,797      169,156
  Purchases of equipment, furniture, fixtures and other assets.............       (7,555)     (26,067)      (5,819)
  Investment in joint ventures.............................................      (10,935)         310          668
  Repayment/(issuance) of note receivable..................................           --          250         (250)
  Purchase of acquired entities............................................      (21,653)     (16,183)          --
                                                                             -----------  -----------  -----------
        Net cash used in investing activities..............................       (4,086)        (875)     (56,767)
                                                                             -----------  -----------  -----------
Cash flows from financing activities:
  Distributions to stockholders............................................           --           --       (1,754)
  Principal payments under capital lease obligations.......................         (139)        (191)        (222)
  Payments on notes payable................................................           --         (303)        (303)
</TABLE>
 
                                       57
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                1998         1997         1996
                                                                             -----------  -----------  -----------
<S>                                                                          <C>          <C>          <C>
  Payments on technology acquisition payable...............................           --         (642)        (755)
  Repurchase of common stock...............................................      (18,279)        (966)         (69)
  Repayment of stockholder notes...........................................           --          163           --
  Exercise of stock options................................................        1,490        6,553        5,128
  Issuance of common stock under employee stock purchase plan..............        3,803        2,309        1,921
  Issuance of common stock, net............................................           --          700       31,348
                                                                             -----------  -----------  -----------
        Net cash provided by (used in) financing activities................      (13,125)       7,623       35,294
                                                                             -----------  -----------  -----------
Net increase in cash and cash equivalents..................................       43,683       23,382          847
Cash and cash equivalents, beginning of year...............................       77,523       54,141       53,294
                                                                             -----------  -----------  -----------
Cash and cash equivalents, end of year.....................................  $   121,206  $    77,523  $    54,141
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
Supplemental disclosures:
  Cash paid during the year for:
    Interest...............................................................  $       109  $       220  $       274
    Income taxes...........................................................  $     8,725  $     8,483  $    12,057
Noncash investing activities:
    Issuance of common stock to acquire Compass............................  $        --  $    17,500  $        --
    Issuance of common stock to acquire interHDL...........................  $    17,584  $        --  $        --
    Issuance of options to acquire ACEO and interHDL.......................  $     3,129  $        --  $        --
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       58
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
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 3. The ACEO Technology, Inc. ("ACEO") and interHDL Inc. ("interHDL")
acquisitions, which occurred on November 19, 1998 and November 13, 1998,
respectively, were accounted for under the purchase method, as discussed in Note
3. Accordingly, the Company's consolidated financial statements do not include
the results of operations, financial position or cash flows prior to their
acquisitions.
 
    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, providing that no significant
vendor and post-contract support obligations remained 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). 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
 
                                       59
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 with extended
payment terms (generally greater than twelve months) is recognized as payments
become due. The effect of adopting SOP 97-2 on October 1, 1997 was not material.
 
    In December 1998, the AcSEC issued SOP 98-9, SOFTWARE REVENUE RECOGNITION,
WITH RESPECT TO CERTAIN ARRANGEMENTS, which requires recognition of revenue
using the "residual method" in a multiple element arrangement when fair value
does not exist for one or more of the delivered elements in the arrangement.
Under the "residual method", the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. The Company
does not expect a material change to its accounting for revenues as a result of
the provisions of SOP 98-9.
 
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,
and 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.
 
ACCOUNTS RECEIVABLE AND DEFERRED REVENUE
 
    Accounts receivable includes amounts due from customers for which revenue
has been recognized. Deferred revenue includes amounts received from customers
for which revenue has not been recognized.
 
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 five 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.
 
                                       60
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER 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,
1998, goodwill and related intangibles was $47,185,000 and accumulated
amortization was $5,842,000. The Company periodically evaluates whether changes
have occurred that would require revision of the remaining estimated useful life
of the assigned goodwill or render the goodwill not recoverable. If such
circumstances arise, the Company would use an estimate of the undiscounted value
of expected future operating cash flows to determine whether the goodwill is
recoverable. If the goodwill is not recoverable, the carrying amount of the
goodwill will be reduced to the undiscounted amount of expected future operating
cash flows resulting in a charge to income.
 
    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. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If an asset is
considered to be impaired, the carrying amount of that asset is reduced to the
fair value, calculated based on quoted market price on future cash flows,
resulting in a charge to income. As of December 31, 1998, the Company did not
consider any of its identifiable tangible or intangible assets to be impaired.
 
RELATED PARTY TRANSACTIONS
 
    Included in prepaid expenses and other assets as of December 31, 1998 was
$2,310,000 of notes receivable due from officers in fiscal 1999. Included in
prepaid expenses and other assets as of December 31, 1997 was $825,000 due from
officers relating to relocation costs and a $377,000 loan due from affiliates
for working capital advances. These 1997 amounts were repaid in 1998.
 
    During 1993 and 1994, the Company repurchased 4,369,497 shares of common
stock from three different stockholders in exchange for $116,000 in cash and
$1,616,600 in promissory notes. The three stockholders consisted of two former
officers and one director of the Company. The two remaining unpaid notes as of
December 31, 1998, are due in quarterly installments, bear interest at 10% per
annum, and are due April 15, 1999 and October 15, 1999. As of December 31, 1998
and 1997, there was $145,000 and $425,000 respectively, outstanding. These
amounts are included in other accrued liabilities.
 
    The Company entered into certain joint ventures in Japan and Korea for the
purpose of consolidating distribution in the two countries. See Note 10.
 
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
 
                                       61
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
 
NET INCOME AND NET INCOME PER COMMON SHARE
 
    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. Excluded from
the computation of diluted earnings per share for the year ended December 31,
1998, 1997 and 1996, are options to acquire 929,201, 973,190 and 314,210 shares,
respectively, of common stock with a weighted-average exercise prices of $25.08,
$33.68 and $35.21, respectively, because their effects are anti-dilutive.
 
    The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years presented (in thousands, except
per share data):
 
<TABLE>
<CAPTION>
                                                                     1998       1997       1996
                                                                   ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>
Weighted average number of common shares outstanding.............     32,246     31,073     27,954
 
Common stock equivalents:
  Stock options and awards.......................................      1,330      1,928      2,447
                                                                   ---------  ---------  ---------
Total weighted average number of common and common equivalent
  shares outstanding.............................................     33,576     33,001     30,401
                                                                   ---------  ---------  ---------
                                                                   ---------  ---------  ---------
</TABLE>
 
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 is recorded on the date of grant when the current market
price of the underlying stock exceeds the exercise price. Pursuant to SFAS No.
123, the Company discloses the pro forma effects of using the fair value method
of accounting for stock-based compensation arrangements.
 
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. Exchange gains or losses from
remeasurement of monetary assets and liabilities that are not denominated in
U.S. dollars were not material for any period presented and are included in the
statement of income.
 
ADVERTISING EXPENSE
 
    The cost of advertising is expensed as incurred. Such costs are included in
selling and marketing expense and totaled approximately $5,737,000, $2,945,000
and $1,008,000 during the years ended December 31, 1998, 1997, and 1996,
respectively.
 
                                       62
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS
 
    The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 by January
1, 2000. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or results of operations of the
Company.
 
RECLASSIFICATION
 
    Certain amounts in the 1997 and 1996 consolidated financial statements have
been reclassified to conform to the 1998 presentation.
 
2. EQUIPMENT, FURNITURE AND FIXTURES
 
    As of December 31, equipment, furniture and fixtures consisted of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Furniture and fixtures................................................  $    7,862  $    7,974
Equipment.............................................................      25,657      33,118
Leasehold improvements................................................      11,239       5,288
Construction in progress..............................................          --       6,760
                                                                        ----------  ----------
                                                                            44,758      53,140
Less accumulated depreciation and amortization........................     (16,000)    (19,491)
                                                                        ----------  ----------
                                                                        $   28,758  $   33,649
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
3. MERGERS AND ACQUISITIONS
 
    On November 19, 1998, the Company completed the acquisition of ACEO
Technology, Inc. (ACEO) for approximately $6,075,000 in cash, 99,995 stock
options with a fair value of $886,000, and direct acquisition costs of $242,000.
Fair value of stock options are calculated using the Black-Scholes model with
the following assumptions: expected volatility of 74%, risk-free interest rate
of 5.29%, expected lives of 4 years and no dividend yield. The net tangible
assets of $1,273,000 assumed were allocated as follows: $1,251,000 to current
assets and $22,000 to equipment, furniture and fixtures. The allocation of the
excess purchase price over the net tangible assets assumed was $5,930,000 of
which, based on management's estimates prepared in conjunction with a third
party valuation consultant, $1,260,000 was allocated to purchased in-process
research and development and $4,670,000 was allocated to other intangible
assets. Amounts allocated to other intangibles include franchise trade names of
$542,000, existing technology of $3,599,000, workforces of $149,000 and other
goodwill of $380,000, and are being amortized over lives of five years.
Purchased in-process research and development includes the value of products in
the development stage that are not considered to have reached technological
feasibility or to have alternative future use. Accordingly, this
 
                                       63
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
3. MERGERS AND ACQUISITIONS (CONTINUED)
non-recurring item was expensed in the Consolidated Statement of Income upon
consummation of the acquisition. The results of operations of ACEO and the
estimated fair value of assets acquired and liabilities assumed are included in
the Company's financial statements from the date of acquisition.
 
    On November 13, 1998, the Company completed the acquisition of interHDL Inc.
(interHDL) for approximately $13,677,000 in cash, 1,256,026 shares of its common
stock with a value of $17,584,000, 378,366 stock options with a fair value of
$2,243,000, and direct acquisition costs of $1,514,000. Fair value of stock
options are calculated using the Black-Scholes model with the following
assumptions: expected volatility of 74%, risk-free interest rate of 5.29%,
expected lives of 4 years and no dividend yield. The net tangible assets of
$1,891,000 assumed were allocated as follows: $3,646,000 to current assets,
$86,000 to equipment, furniture and fixtures and $1,841,000 to assumed
liabilities. The allocation of the excess purchase price over the net tangible
assets assumed was $33,127,000 of which, based on management's estimates
prepared in conjunction with a third party valuation consultant, $10,008,000 was
allocated to purchased in-process research and development and $23,119,000 was
allocated to other intangible assets. Amounts allocated to other intangibles
include franchise trade names of $1,773,000, existing technology of $5,820,000,
workforces of $519,000 and other goodwill of $15,007,000, and are being
amortized over lives of five years. Purchased in-process research and
development includes the value of products in the development stage that are not
considered to have reached technological feasibility or to have alternative
future use. Accordingly, this non-recurring item was expensed in the
Consolidated Statement of Income upon consummation of the acquisition. The
results of operations of interHDL and the estimated fair value of assets
acquired and liabilities assumed are included in the Company's financial
statements from the date of acquisition.
 
    The unaudited pro forma consolidated results of operations of the Company,
ACEO and interHDL for 1998 and 1997 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                           1998        1997
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Pro forma revenue.....................................................  $  231,500  $  168,000
Pro forma net income..................................................  $   20,076  $      509
Pro forma basic earnings per share....................................  $     0.62  $     0.02
Pro forma diluted earnings per share..................................  $     0.60  $     0.02
</TABLE>
 
    Included in the combined pro forma net income amounts are amortization of
goodwill and other intangibles over the expected useful lives of five years and
related tax benefit. Write off of in-process research and development is
excluded from the pro forma calculation.
 
    In connection with the merger with ACEO and interHDL, the Company incurred
direct transaction costs and merger-related integration expenses of
approximately $242,000 and $1,514,000, respectively. Expense incurred for the
ACEO acquisition consists of transaction fees for attorneys and accountants of
approximately $197,000 and charges for the elimination of duplicate facilities
of approximately $45,000. Expense incurred for the interHDL acquisition consists
of transaction fees for investment bankers, attorneys, and accountants of
approximately $864,000 and charges for the elimination of duplicate facilities
of approximately $650,000. All of the $242,000 and $1,514,000 merger related
costs for ACEO and interHDL, respectively, are related to cash expenditures.
Substantially all of the costs relating to the ACEO and interHDL mergers remain
unpaid as of December 31, 1998 and are included in accrued liabilites.
 
                                       64
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
3. MERGERS AND ACQUISITIONS (CONTINUED)
    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.
 
    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
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
Avant!................................................................  $  147,348  $  106,087
TMA...................................................................      17,038      17,959
                                                                        ----------  ----------
                                                                        $  164,386  $  124,046
                                                                        ----------  ----------
                                                                        ----------  ----------
Net Income (Loss):
Avant!................................................................  $    6,541  $   12,484
TMA...................................................................      (1,567)      1,224
                                                                        ----------  ----------
                                                                             4,974      13,708
Adjustment for deferred taxes.........................................         424          --
                                                                        ----------  ----------
Net Income............................................................  $    5,398  $   13,708
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    In connection with the merger with TMA, the Company incurred 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 stockholder 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. Of the $10,747,000 of merger related
costs, approximately $7,900,000 related to cash expenditures while approximately
$2,847,000 related to non-cash charges. As of December 31, 1998, there were no
material remaining accrued liabilities relating to the 1998 merger.
 
    On September 30, 1997, the Company acquired the assets of Datalink Far East
Ltd., a Taiwan corporation ("Datalink"), pursuant to an asset purchase
agreement. The purchase agreement called for the Company to pay $900,000 to
acquire Datalink over five installments, extending through 1999. The Company
paid $450,000 on October 1, 1997. In 1998, several key employees left the
Company, resulting in a cancellation of $405,000 of the Company's remaining
obligation, as stipulated in the purchase agreement. The remaining $45,000 is
scheduled to be paid in 1999. The acquisition has been accounted for by the
purchase method and is reflected in other assets on the balance sheet.
 
    On September 12, 1997, the Company completed the acquisition of Compass, a
subsidiary of VLSI Technology, Inc., for approximately $17,500,000 in cash,
522,192 shares of its common stock with a value of $17,500,000 and acquisition
costs of $4,948,000. Fair value of stock options are calculated using the Black-
Scholes model with the following assumptions: expected volatility of 74%,
risk-free interest rate of 6.05%,
 
                                       65
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
3. MERGERS AND ACQUISITIONS (CONTINUED)
expected lives of 4 years and no dividend yield. The net tangible liabilities of
$16,060,000 assumed were allocated as follows: $6,701,000 to current assets,
$4,441,000 to equipment, furniture and fixtures and $27,202,000 to assumed
liabilities. The allocation of the excess purchase price over the net tangible
liabilities assumed was $56,008,000 of which, based on management's estimates
prepared in conjunction with a third party valuation consultant, $41,186,000 was
allocated to purchased in-process research and development and $14,822,000 was
allocated to other intangible assets. Amounts allocated to other intangibles
include franchise trade names of $1,042,000, existing technology of $6,069,000,
workforces of $2,350,000 and other goodwill of $5,361,000, and are being
amortized over five years. Purchased in-process research and development
includes the value of products in the development stage that are not considered
to have reached technological feasibility or to have alternative future use.
Accordingly, this non-recurring item was expensed in the Consolidated Statement
of Income upon consummation of the acquisition. The results of operations of
Compass and the estimated fair value of assets acquired and liabilities assumed
are included in the Company's financial statements from the date of acquisition.
 
    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>
 
    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.
 
    In connection with the merger with Compass, the Company incurred direct
transaction costs and merger-related integration expenses of approximately
$4,948,000, consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing and stockholder meetings of approximately
$610,000, charges for the elimination of duplicate facilities of approximately
$2,438,000 and severance costs and certain other related costs of approximately
$1,900,000 in the third quarter of 1997. Of the $4,948,000 of merger related
costs, approximately $3,848,000 related to cash expenditures while approximately
$1,100,000 related to non-cash charges. As of December 31, 1998, there were no
remaining accrued liabilities relating to the 1997 merger.
 
    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.
 
                                       66
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
3. MERGERS AND ACQUISITIONS (CONTINUED)
    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 and Anagram 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 and Anagram.
The Anagram outstanding 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 stockholder
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.
 
4. STOCKHOLDERS' EQUITY
 
STOCK REPURCHASE PROGRAM
 
    In July 1998, the Board of Directors authorized the purchase of up to
2,000,000 shares of the Company's stock. Prior to November 1998, under this
stock repurchase program the Company repurchased approximately 1,182,000 shares
at prices ranging from $12.00 to $17.00 per share. In November 1998, the Company
reissued all of the treasury shares in connection with the 1,256,000 shares
issued in the acquisition of interHDL.
 
STOCKHOLDER RIGHTS PLAN
 
    The Company's Stockholder Rights Plan adopted September 4, 1998, is intended
to protect stockholders from unfair or unfriendly takeover practices. In
accordance with this plan, the Board of Directors declared a dividend
distribution of one preferred stock purchase right on each outstanding share of
its common stock held as of October 2, 1998, and on each share of common stock
issued by the Company thereafter. Each right entitles the registered holder to
purchase from the Company a one one-thousandth share of preferred stock at $100.
The rights become exercisable in certain circumstances including upon an entity
acquiring or announcing the intention to acquire beneficial ownership of 15
percent or more of the Company's common stock without the approval of the Board
of Directors or upon the Company being acquired by any person in a merger or
business combination transaction. The rights are redeemable by the Company prior
to exercise at $0.01 per right and expire on September 4, 2008.
 
                                       67
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
4. STOCKHOLDERS' EQUITY (CONTINUED)
 
    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 has been
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 the 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. Each individual who becomes a nonemployee Member
of the Board of Directors 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 stockholders'
meeting each individual who continues to serve as a nonemployee Member of the
Board of Directors after the meeting receives an option grant to purchase 5,000
shares of common stock whether or not such individual has been in the prior
employ of the Company.
 
    On February 27, 1998, the Board of Directors approved a stock option
repricing program whereby each eligible stock option was amended to have an
exercise price equal to $13.9375, if elected by employees. As a result,
approximately 1,919,000 options were amended by eligible employees for an equal
number of repriced options. All other terms of the options, including expiration
dates, remain substantially the same.
 
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.
 
    In connection with the mergers discussed in Note 3, various ISS, Anagram,
Meta, FrontLine and TMA 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.
 
    The Company applies APB Opinion No. 25 in accounting for its option and
purchase plans and accordingly no compensation expense has been recognized for
its stock options in the accompanying financial statements, except that, 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,
 
                                       68
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
4. STOCKHOLDERS' EQUITY (CONTINUED)
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. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
plans 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, except per share data):
 
<TABLE>
<CAPTION>
                                                                 1998       1997       1996
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>
Net income as reported.......................................  $  27,163  $   5,398  $  13,708
  Additional compensation cost resulting from:
    Stock options, including the effects of option
      repricing..............................................    (10,800)    (7,091)    (4,681)
    Employee stock purchase rights (Note 7)..................       (233)    (1,032)    (1,046)
                                                               ---------  ---------  ---------
  Pro forma..................................................  $  16,130  $  (2,725) $   7,981
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
Basic earnings (loss) per share
  As reported................................................  $    0.84  $    0.17  $    0.49
  Pro forma..................................................  $    0.50  $   (0.09) $    0.29
Diluted earnings (loss) per share
  As reported................................................  $    0.81  $    0.16  $    0.45
  Pro forma..................................................  $    0.48  $   (0.09) $    0.26
</TABLE>
 
    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 1998, 1997 and 1996, respectively: expected
volatility of 74%, 74% and 57%, risk-free interest rates of 5.29%, 6.05% and
5.27%, 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 1998, 1997 and 1996 and does not consider compensation cost for stock
options granted prior to January 1, 1996.
 
                                       69
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
4. STOCKHOLDERS' EQUITY (CONTINUED)
    A summary of the status of the Company's stock option plans for the years
ended December 31, is presented below:
<TABLE>
<CAPTION>
                                                      1998                            1997                  1996
                                         ------------------------------  ------------------------------  -----------
<S>                                      <C>          <C>                <C>          <C>                <C>
                                           OPTIONS    WEIGHTED-AVERAGE     OPTIONS    WEIGHTED-AVERAGE     OPTIONS
                                            (000)      EXERCISE PRICE       (000)      EXERCISE PRICE       (000)
                                         -----------  -----------------  -----------  -----------------  -----------
Outstanding at beginning of year.......       5,226       $   17.32           4,491       $   13.75           4,109
  Granted..............................       3,926           12.63           2,985           22.56           2,019
  Exercised............................        (462)           3.22          (1,408)           4.55          (1,203)
  Canceled.............................      (2,480)          22.00            (842)          20.17            (434)
                                         -----------                     -----------                     -----------
  Outstanding at end of year...........       6,210       $   13.43           5,226           17.34          (4,491)
                                         -----------                     -----------                     -----------
                                         -----------                     -----------                     -----------
Options exercisable at end of year.....       2,188       $   13.32           1,374       $   13.14           2,120
Weighted-average fair value of options
  granted during the year..............   $    6.53                       $   12.15                       $    6.99
 
<CAPTION>
<S>                                      <C>
                                         WEIGHTED-AVERAGE
                                          EXERCISE PRICE
                                         -----------------
Outstanding at beginning of year.......      $    9.31
  Granted..............................          15.88
  Exercised............................           2.83
  Canceled.............................          11.93
  Outstanding at end of year...........      $   13.75
Options exercisable at end of year.....      $    7.14
Weighted-average fair value of options
  granted during the year..............
</TABLE>
 
    The following summarizes information about stock options outstanding as of
December 31, 1998:
 
<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                -------------------------------------------------------  ------------------------------
<S>             <C>            <C>                    <C>                <C>          <C>
                                 WEIGHTED-AVERAGE
                   NUMBER            REMAINING                             NUMBER     WEIGHTED-AVERAGE
   RANGE OF      OUTSTANDING        CONTRACTUAL       WEIGHTED-AVERAGE   EXERCISABLE      EXERCISE
EXERCISE PRICE      (000)           LIFE (YRS)         EXERCISE PRICE       (000)           PRICE
--------------  -------------  ---------------------  -----------------  -----------  -----------------
Below $0.05...          233               8.25            $    0.02              76       $    0.03
$0.30                   103               6.10                 0.30              99       $    0.30
$0.50-0.58               92               5.80                 0.56              54            0.56
$0.66                   275               9.23                 0.66              26            0.66
$0.76-1.00              148               3.00                 0.88             108            0.87
$1.21-1.47               53               2.70                 1.21              18            1.22
$2.40-3.52               33               4.50                 2.97              33            2.97
$5.31-7.56               66               6.15                 6.78              35            7.07
$9.33-13.94           3,174               8.20                13.12             892           13.20
$14.25-21.25          1,466               8.10                16.64             659           16.53
$23.25-34.00            545               8.50                28.31             172           30.70
$35.00-41.50             22               7.00                40.97              16           41.10
                      -----                                                   -----          ------
$0.01-41.50           6,210               7.96            $   13.43           2,188       $   13.32
                      -----                                                   -----          ------
                      -----                                                   -----          ------
</TABLE>
 
NOTES RECEIVABLE FROM STOCKHOLDERS
 
    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
 
                                       70
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
4. STOCKHOLDERS' EQUITY (CONTINUED)
expense of $189,000, $126,000 and $119,000 for the years ended December 31,
1998, 1997 and 1996, 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.
 
5. LEASES
 
OPERATING LEASES
 
    The Company leases its Fremont, California, Research Park Triangle, North
Carolina, and certain sales facilities under noncancelable operating lease
agreements which expire over the next thirteen years. Rental expense incurred by
the Company under operating lease agreements totaled $7,091,000, $4,517,000 and
$2,584,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
 
    Future annual minimum lease payments under noncancelable operating leases
for the years ended December 31, are as follows (in thousands):
 
<TABLE>
<S>                                                                  <C>
1999...............................................................  $   7,122
2000...............................................................      7,358
2001...............................................................      7,003
2002...............................................................      6,991
2003...............................................................      6,861
Thereafter.........................................................     40,541
                                                                     ---------
                                                                     $  75,876
                                                                     ---------
                                                                     ---------
</TABLE>
 
    The Company subleases certain of its facilities under noncancelable
operating sublease agreements which expire over the next seven years. The
minimum operating lease payments have not been reduced by the minimum sublease
rentals of $5,796,000 due under the noncancelable subleases.
 
6. INCOME TAXES
 
    The components of the Company's total income before provision for income
taxes are as follows:
 
<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                   -------------------------------
                                                     1998       1997       1996
                                                   ---------  ---------  ---------
<S>                                                <C>        <C>        <C>
United States....................................  $  46,189  $  11,025  $  15,074
Foreign..........................................      6,308     (1,759)    10,533
                                                   ---------  ---------  ---------
  Total..........................................  $  52,497  $   9,266  $  25,607
                                                   ---------  ---------  ---------
                                                   ---------  ---------  ---------
</TABLE>
 
                                       71
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
6. INCOME TAXES (CONTINUED)
    The components of income tax expense (benefit), as presented in the
accompanying consolidated statements of income, are comprised of federal taxes,
state taxes and certain foreign taxes. The components of income taxes and pro
forma income taxes as of December 31, 1998, 1997 and 1996, are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                 1998       1997       1996
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>
Provision for income taxes:
Current:
  Federal....................................................  $  19,263  $  14,569  $   7,177
  Foreign....................................................      5,042      1,245      1,680
  State......................................................      4,529      2,331        876
                                                               ---------  ---------  ---------
    Total....................................................     28,834     18,145      9,733
                                                               ---------  ---------  ---------
Deferred:
  Federal....................................................     (3,435)   (15,116)    (2,311)
  State......................................................       (513)    (2,153)      (253)
                                                               ---------  ---------  ---------
    Total....................................................     (3,948)   (17,269)    (2,564)
                                                               ---------  ---------  ---------
Charge in lieu of taxes attributable to employee stock
  plans......................................................        448      2,992      4,730
                                                               ---------  ---------  ---------
    Total provision for income taxes.........................  $  25,334  $   3,868  $  11,899
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
</TABLE>
 
    The Company's effective tax rate differs from the federal statutory income
tax rate of 35% as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  1998       1997       1996
                                                                ---------  ---------  ---------
<S>                                                             <C>        <C>        <C>
Income tax expense at statutory rate..........................  $  18,374  $   3,253  $   8,941
State tax expense, net........................................      2,696        484      1,611
Nondeductible merger costs....................................      8,335      1,732      2,355
Change in valuation allowance.................................     (1,033)     1,338        139
Tax exempt income.............................................       (474)      (839)      (307)
Tax credits...................................................     (2,651)    (1,542)      (387)
Foreign sales corporation.....................................     (1,218)    (1,025)      (980)
Foreign taxes credit utilized.................................         --         --       (955)
Foreign taxes.................................................        764        753        955
Non-cash Stock Compensation...................................        758         --         --
Equity investment in foreign companies........................       (384)        --         --
Other.........................................................        167       (286)       527
                                                                ---------  ---------  ---------
  Actual income tax expense...................................  $  25,334  $   3,868  $  11,899
                                                                ---------  ---------  ---------
                                                                ---------  ---------  ---------
</TABLE>
 
                                       72
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
6. INCOME TAXES (CONTINUED)
    The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1998 and
1997 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                            1998       1997
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
Deferred tax assets:
  Accrued liabilities...................................................  $   3,086  $   1,890
  Accrual to cash adjustment............................................        437         --
  Allowance for doubtful accounts.......................................      3,289        693
  Net operating loss carryforwards......................................      1,803        911
  Deferred revenue......................................................      4,953      5,262
  Property and equipment, principally due to depreciation...............        200         --
  Purchased technology..................................................     15,744     16,480
  Tax credit carryforwards..............................................      1,463      2,053
  Other.................................................................        544         --
                                                                          ---------  ---------
    Total gross deferred tax assets.....................................     31,519     27,289
    Deferred tax asset valuation allowance..............................     (1,107)    (2,141)
                                                                          ---------  ---------
                                                                             30,412     25,148
Deferred tax liabilities:
  Accrual to cash conversion............................................         --        761
  Other.................................................................         29        521
                                                                          ---------  ---------
Net deferred tax assets.................................................  $  30,383  $  23,866
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
    The Company had net operating loss carryforwards of $4,762,000 as of
December 31, 1998, expiring through the year 2018. For the year ended December
31, 1998, the Company had California net operating loss carryforwards of
approximately $2,800,000, available to reduce future income subject to income
taxes. If not utilized, the carryforwards will expire in 2003.
 
    As of December 31, 1998, the Company had foreign tax credit carryforwards of
$1,137,000. The Company also had research credit carryforwards of approximately
$240,000 and $129,000 for federal and California purposes, respectively. 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 a
portion of the total carryforwards may be subject to certain limitations.
 
    Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses and research and development credits that can be carried
forward may be impaired or limited in certain circumstances. Events which may
cause changes in the Company's net operating loss and research and development
credit carryovers include, but are not limited to, a cumulative stock ownership
change of greater than 50%, as defined, over a three year period.
 
    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 foreign tax credit carryforwards and believes that it will generate
additional carryforwards for the foreseeable future. This limitation along with
the change in ownership limitations
 
                                       73
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
6. INCOME TAXES (CONTINUED)
discussed above raises uncertainty regarding the realization of the tax credit
carryforwards. As a result, management has established a valuation allowance for
deferred tax assets of $1,107,000 as of December 31, 1998.
 
7. EMPLOYEE BENEFIT PLANS
 
401(K) PLAN
 
    The Company has a 401(k) retirement savings plan covering substantially all
employees in the United States. Contributions are matched at the discretion of
the Board of Directors. The matching contributions amounted to $2,136,000,
$1,467,000, and $769,000 for 1998, 1997 and 1996, respectively.
 
EMPLOYEE STOCK PURCHASE PLAN
 
    The Company has a Qualified Employee Stock Purchase Plan, which permits
eligible employees to purchase newly issued common stock of the Company up to an
aggregate of 500,000 shares. In May 1998, stockholders also approved an
evergreen annual increase of 250,000 shares effective June 1, 1999. 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. In November 1998, the Board of
Directors reduced the offering periods from a two-year offering period to a
six-month offering period. Under the Plan, the Company sold 217,000, 132,000,
and 83,000 shares to employees in 1998, 1997 and 1996, respectively.
 
    TMA had a Qualified Employee Stock Purchase Plan, which permitted eligible
employees to purchase newly issued common stock of the Company up to an
aggregate of 1,986,135 shares. Under this plan, employees were able to 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 27,000, 39,000, and
328,000 shares to employees in 1998, 1997 and 1996, respectively. This plan was
terminated in 1998.
 
    The fair value of employee purchase rights, for purposes of SFAS No. 123
disclosure (see Note 4) was estimated using the Black-Scholes model with the
following assumptions for 1998, 1997 and 1996, respectively: expected volatility
of 74%, 74% and 57%, respectively, risk-free interest rates of 5.29%, 6.05% and
5.61%, 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 1998, 1997 and 1996 were $5.09, $8.49 and
$8.17, respectively.
 
                                       74
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
8. CONCENTRATIONS OF CREDIT RISK
 
    Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of investments and trade
accounts receivable.
 
    The Company invests in a variety of financial instruments issued by high
credit quality institutions. Markets for these securities generally are highly
liquid, and therefore bear minimal risk. Management regularly monitors the
composition and maturity of these securities. The Company, by policy, limits the
amount of credit exposure to any one financial institution, or commercial or
municipal issuer. The Company has not experienced any material losses on its
investments.
 
    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 $8,937,000, $4,980,000 and
$937,000 as of December 31, 1998, 1997 and 1996, respectively.
 
9. SEGMENT INFORMATION
 
    The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way that management organizes the operating segments within the Company for
making operating decisions and assessing financial performance.
 
    The Company's chief operating decision-maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial information
presented on a consolidated basis accompanied by disaggregated information about
revenues by geographic region for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
consolidated statement of operations. Therefore, the Company operates in a
single operating segment: electronic design automation software and services.
 
    Revenue and asset information regarding operations in the different
geographic regions is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                            NORTH AMERICA    EUROPE      ASIA     CONSOLIDATED
                                            --------------  ---------  ---------  ------------
<S>                                         <C>             <C>        <C>        <C>
Revenues:
  1996....................................   $     79,697   $   8,531  $  35,818   $  124,046
  1997....................................         95,343      14,795     54,246      164,384
  1998....................................        156,752      26,126     44,263      227,141
Identifiable assets:
  1997....................................   $    240,882   $  11,150  $   2,304   $  254,336
  1998....................................        295,381      18,671      3,334      317,386
Long-lived assets:
  1997....................................   $     31,993   $   1,419  $     237   $   33,649
  1998....................................         27,121       1,007        630       28,758
</TABLE>
 
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<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
9. SEGMENT INFORMATION (CONTINUED)
    No single customer accounted for greater than 10% of revenues in any period
reported.
 
    It is not practicable to report the revenues from external customers for
each product and service.
 
10. 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 by 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 joint venture recorded in other income and expense.
 
    The Company recognizes software license revenue sold to these joint ventures
when cash is collected by the joint ventures from the end users. Revenues from
sales to Maingate and DavanTech during 1998 were $14,250,000 and $920,000,
respectively. At December 31, 1998, due from affiliates included trade
receivables of $7,947,000 from Maingate and a $1,000,000 loan to DavanTech, of
which $6,000,000 has been collected from Maingate subsequent to December 31,
1998. 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.
 
    During 1998, the Company invested $10,000,000 into Forefront Venture
Partners L.P. ("Forefront"), a limited partnership investing primarily in
technology start up companies. This investment represented 53.85% ownership of
the partnership as of December 31, 1998 and the partnership is managed by a
non-related General Partner. The Company accounts for this investment by the
equity method because the Company does not control Forefront. This investment is
included in other assets with the Company's share of net income recorded in
other income and expense.
 
11. COMMITMENTS AND CONTINGENCIES
 
    CADENCE LITIGATION
 
    On December 6, 1995, Cadence filed an action against Avant! 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 Avant!'s
employees who were formerly Cadence employees allegedly misappropriated and
improperly copied source code for certain important functions of Avant!'s place
and route products from Cadence, and that Avant! has allegedly competed unfairly
by making false statements concerning Cadence and its products. The action also
alleges that Avant! induced certain individual defendants to breach their
agreements of employment and confidentiality with Cadence. Trial has been
scheduled for October 12, 1999.
 
    In addition to actual and punitive damages, which have not been quantified
by Cadence, Cadence is seeking to enjoin the sale of Avant!'s place and route
products pending trial of the action. 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,
 
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<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Avant!'s ArcCell products. The injunction also barred Avant! 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. (Avant! had stopped selling or licensing ArcCell
products or code in mid 1996.) On December 7, 1998, the District Court entered
an injunction against Avant! prohibiting Avant! from directly or indirectly
marketing, selling, leasing, licensing, copywriting or transferring the
Aquarius, Aquarius XO and Aquarius BV products. The injunction also prohibits
Avant! from marketing, selling, leasing, licensing, copying or transferring any
translation code for an Aquarius product that infringes any protected right of
Cadence. With certain exceptions related to the pending litigation, beginning
February 5, 1999, the injunction prohibits Avant! from possessing or using any
copies of any portion of the source code or object code for the Aquarius
products to the extent that such portion is copied or derived from the Design
Framework II product of Cadence. The injunction further includes certain notice
and reporting requirements to be fulfilled by Avant!. The preliminary injunction
against Avant!'s Aquarius products could seriously harm Avant!'s business,
financial condition and results of operations.
 
    On January 16, 1996, Avant! 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, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! refiled its counterclaim on January 29, 1998.
 
    Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay monetary damages to Cadence. In
addition, upon further consideration by the District Court, Avant! could be
preliminarily enjoined from selling its Apollo place and route products. In
addition, it is likely that an adverse judgment against Avant! would result in a
steep decline in the market price of Avant!'s common stock. Accordingly, an
adverse judgement, if granted on any claim, of which amount of possible loss
cannot be reasonably estimated, would seriously harm Avant!'s business,
financial position and results of operations. Furthermore, it is possible that
Avant!'s relationships with its customers and/or partners will be seriously
harmed in the future as a result of the Cadence litigation.
 
    CRIMINAL INDICTMENT
 
    On December 16, 1998, after a grand jury investigation, the Santa Clara
County District Attorney's office filed a criminal indictment alleging felony
level offenses related to the allegations of misappropriation of trade secrets
set forth in Cadence's lawsuit against, among others, Avant! and the following
current or former employees and/or directors of Avant!:
 
    - Gerald C. Hsu, President, Chief Executive Officer and Chairman of the
      board of directors;
 
    - Y. Eric Cho, a former officer and former member of Avant!'s board of
      directors;
 
    - Y. Z. Liao, Corporate Fellow;
 
    - Stephen Wuu, Executive Staff Operations;
 
                                       77
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    - Leigh Huang, former marketing manager;
 
    - Eric Cheng, Research and Development Manager; and
 
    - Mike Tsai, a former officer and former member of Avant!'s board of
      directors.
 
    The indictment charges the defendants listed above with conspiring to commit
trade secret theft, trade secret theft, inducing the theft of a trade secret,
conspiracy to commit fraudulent practices in connection with the offer or sale
of a security and fraudulent practices in connection with the offer or sale of a
security. The criminal indictment could result in additional defense costs and
criminal fines against Avant!, as well as the potential incarceration of certain
members of its management team and board of directors. Such outcomes would
seriously harm Avant!'s business, financial condition and results of operations
and may also result in canceled or postponed orders, increased future
expenditures, the loss of management and other key personnel, additional
stockholder litigation and loss of goodwill. Trial has been scheduled for
September 27, 1999.
 
    SILVACO LITIGATION
 
    In March 1993, Meta Software Inc., which Avant! acquired in October 1996 and
which is now a wholly owned subsidiary of Avant!, filed a complaint in the
Superior Court of California for Santa Clara County against Silvaco Data
Systems, Inc. seeking monetary damages and injunctive relief. In August 1995,
Silvaco filed a cross-complaint against Meta and Shawn Hailey, then the
President and Chief Executive Officer of Meta, alleging, among other things,
that Meta owed 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. In November 1997, a
judgment in the aggregate amount of $31.4 million was entered against Avant!. As
required, the Company posted a bond on behalf of itself and Shawn Hailey in
excess of the amount necessary to satisfy the judgement. The bond is
collateralized by a $23,583,000 letter of credit. Avant! filed appeals on its
own behalf and on behalf of Mr. Hailey. If Avant!'s appeal is unsuccessful,
Avant! will be required to pay substantial monetary damages to Silvaco. Payment
of the damages previously awarded, and damages which may be awarded in the
future, would seriously harm Avant!'s business, financial condition and results
of operations.
 
    On March 31, 1998, Silvaco filed an additional lawsuit, against Avant! and
Roy Jewell, Avant!'s Executive Staff, Business, in the Superior Court of
California for Santa Clara County. The lawsuit alleges causes of action for
defamation, negligent and intentional interference with economic advantage,
unfair competition, Lanham Act violations and consumer fraud. Silvaco is seeking
$20 million in compensatory damages, punitive damages and an injunction. Avant!
believes it has defenses to these claims and intends to defend itself
vigorously. In the event Avant!'s defenses are unsuccessful, Avant! may be
required to pay damages to Silvaco, and such a judgment would seriously harm
Avant!'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
Avant! (as successor in interest to Meta), Shawn Hailey, Meta's former President
and Chief Executive Officer, and Thomas N. White, Jr. and
 
                                       78
<PAGE>
                      AVANT! CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                       DECEMBER 31, 1998, 1997, AND 1996
 
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
George S. Cole, both of whom were Meta's former counsel in the Meta v. Silvaco
matter discussed above. The action asserts claims for invasion of privacy under
California common law and the California Constitution and seeks compensatory and
punitive damages. Avant! believes it has defenses to these claims and intends to
defend itself vigorously. In the event that Avant!'s defenses are unsuccessful,
Avant! may be required to pay damages to the plaintiffs, and such a judgment
could seriously harm Avant!'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 Avant!. This lawsuit alleges 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 addition, on May 30,
1997, Joanne Hoffman filed in the United States District Court for the Northern
District of California a class action lawsuit alleging securities claims on
behalf of purchasers of Avant!'s stock between March 29, 1996 and April 11,
1997, the date of the filing of a criminal complaint against Avant! and six of
its employees and/or officers. Plaintiff alleges that Avant! and its officers
misled the market as to the likelihood of criminal charges being filed and as to
the validity of the Cadence allegations. The District Court has granted Avant!'s
motion to coordinate the Hoffman action for pretrial purposes with the
earlier-filed Margetis action. Avant! believes it has defenses to these
securities class action claims, and intends to defend itself vigorously. In the
event Avant!'s defenses are unsuccessful, Avant! may be required to pay damages
to the securities class action plaintiffs, and such a judgment would seriously
harm Avant!'s business, financial condition and results of operations. Mediation
has been scheduled for March 25, 1999.
 
    NEQUIST LITIGATION
 
    On July 15, 1998, Eric Nequist filed in the Santa Clara County Superior
Court a complaint against Avant!. The complaint alleges causes of action for
defamation, intentional infliction of emotional distress, negligent and
intentional interference with economic advantage, abuse of process and
violations of California Business and Profession Code section 17200. No trial
date has been set, and the parties have been ordered to mediation, which has
been scheduled for April 15, 1999. On March 4, 1999, the court will hear
Avant!'s motion for a stay of this lawsuit pending resolution of the criminal
action. Avant! believes it has defenses to Mr. Nequist's claims and intends to
defend itself vigorously. In the event Avant!'s defenses are unsuccessful,
Avant! may be required to pay damages to Mr. Nequist, and such a judgment could
seriously harm Avant!'s business, financial condition and results of operation.
 
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