8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

AMENDMENT NO. 2 TO

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 29, 2004

MAGMA DESIGN AUTOMATION, INC.

(Exact name of Registrant as Specified in Its Charter)

Delaware

(State or other jurisdiction of incorporation)

000-33213	77-0454924
(Commission File Number)	(I.R.S. Employer Identification Number)

5460 Bayfront Plaza, Santa Clara, California	95054
(Address of principal executive offices)	(Zip Code)

(408) 565-7500

(Registrant’s telephone number, including area code)

Explanatory Note

As previously reported by Magma Design Automation, Inc. (“Magma”), in its current report on Form 8-K filed on May 14, 2004 and Amendment No. 1 to the Form 8-K filed on July 13, 2004, Magma has completed its acquisition of Mojave, Inc., a Delaware corporation (“Mojave”), a privately held developer of advanced technology for integrated circuit manufacturability and verification, pursuant to an Agreement and Plan of Reorganization dated as of February 23, 2004. The sole purpose of this Amendment No. 2 to Form 8-K is to amend the pro forma financial information previously provided in Exhibit 99.3 of the Form 8-K to reflect the accounting for Magma’s acquisition of Mojave as an asset purchase rather than an acquisition of a business. With the exception of the revisions made to pro forma financial information in Exhibit 99.3, no other changes have been made to the financial information previously filed with Amendment No. 1 to the Form 8-K.

Item 7. Financial Statements and Exhibits

(b) Pro forma condensed combined financial information

The following unaudited pro forma condensed combined financial information are filed as Exhibit 99.3 hereto, having been revised to reflect the accounting for the Mojave acquisition as an asset acquisition rather than the acquisition of a business, and replace the material previously filed under Exhibit 99.3 in the Form 8-K/A filed on July 13, 2004:

• Unaudited Pro Forma Balance Sheet as of December 31, 2003.

• Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2003.

• Notes to the Unaudited Condensed Combined Financial Statements.

(c) Exhibits

The following exhibits are filed herewith:

Exhibit No.	Description
2.1	Agreement and Plan of Reorganization, dated as of February 23, 2004, by and among Magma Design Automation, Inc., Motorcar Acquisition Corp., Auto Acquisition Corp., Mojave, Inc. and Vivek Raghavan, as Representative* (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 14, 2004 (File No. 000-33213)).
23.1	Consent of PricewaterhouseCoopers LLP. (incorporated by reference to Exhibit 23.1 to the Company’s Current Report on Form 8-K/A No. 1 filed on July 13, 2004 (File No. 000-33213)).
99.1	Press release dated April 29, 2004 announcing the consummation of the acquisition of Mojave, Inc. (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on May 14, 2004 (File No. 000-33213)).
99.2	Mojave, Inc. Historical Financial Statements. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K/A No. 1 filed on July 13, 2004 (File No. 000-33213)).
99.3	Unaudited Pro Forma Condensed Combined Financial Information

* Confidential treatment has been requested for portions of this exhibit, which portions have been omitted from this Form 8-K filing and have been filed separately with the Securities and Exchange Commission.

Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules to Exhibit 2.1 have been omitted, but will be furnished supplementally to the Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MAGMA DESIGN AUTOMATION, INC.
Dated: July 16, 2004	By:	/s/ Gregory C. Walker
		Gregory C. Walker
		Senior Vice President—Finance and Chief Financial Officer
		(Duly Authorized Signatory)

EX-99.3

Exhibit 99.3

INDEX TO PRO FORMA FINANCIAL INFORMATION

	Page
Unaudited Pro Forma Condensed Combined Financial Information	2
Unaudited Pro Forma Condensed Combined Balance Sheet	3
Unaudited Pro Forma Condensed Combined Statements of Operations	4
Notes to Unaudited Pro Forma Condensed Combined Financial Statements	5

MAGMA DESIGN AUTOMATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2004 and the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended March 31, 2004 combine the historical Magma Design Automation, Inc. (“Magma” or the “Company”) and Mojave, Inc. (“Mojave”) balance sheets and statements of operations as if the acquisition of Mojave, which occurred on April 29, 2004, had been completed on March 31, 2004 for purposes of the presentation of the Unaudited Pro Forma Condensed Combined Balance Sheet and on April 1, 2003 for purposes of the presentation of the Unaudited Pro Forma Condensed Combined Statement of Operations. The Unaudited Pro Forma Condensed Combined Balance Sheet combines Magma’s consolidated balance sheet as of March 31, 2004 with Mojave’s balance sheet as of December 31, 2003. The Unaudited Pro Forma Condensed Combined Statement of Operations combines Magma’s consolidated statement of operations for the year ended March 31, 2004 with Mojave’s statement of operations for the year ended December 31, 2003. The Unaudited Pro Forma Condensed Combined Financial Statements should be read together with the financial statements including the notes to these statements of Magma included in Magma’s Annual Report on Form 10-K for the year ended March 31, 2004 and the historical financial statements of Mojave included in Exhibit 99.2 of this Current Report on Form 8-K/A.

The total initial purchase price of the Mojave acquisition is currently estimated to be approximately $24.7 million and has been accounted for as an asset purchase transaction. We acquired all of the outstanding common stock of Mojave in exchange for initial consideration of $24.6 million, which consisted of 607,554 shares of Magma common and $12.4 million in cash. In addition to the initial merger consideration, we have agreed to pay contingent consideration of up to $115 million, half in stock and half in cash, based on product orders over a period ending March 31, 2009, but such payments are contingent on the achievement of certain technology milestones. We did not assume any stock options or warrants.

The pro forma adjustments reflecting the consummation of the Mojave acquisition are prepared on a basis that the transaction was an asset purchase, and are based on available financial information, certain estimates and assumptions set forth in the notes to the Unaudited Pro Forma Condensed Combined Financial Statements. An appraisal firm assisted us with the valuation of the identified intangible assets in the Unaudited Pro Forma Condensed Combined Financial Statements. The preliminary valuation resulted in the allocation of $28.7 million to existing technology intangible asset and $0.6 million to assembled workforce intangible asset, which will be amortized over their estimated economic life of five years and three years, respectively. The valuation also resulted in the identification of $3.9 million of in-process research and development (“IPR&D”) costs, which were immediately expensed on the closing date. The final purchase price allocation will be based on the closing date (April 29, 2004) balance sheet of Mojave and is also subject to adjustment for payments of contingent consideration in future periods. Until these matters are completed, the purchase price is preliminary and subject to adjustment. The pro forma adjustments do not reflect any operating efficiencies or additional costs that may result with respect to the combined business of Magma and Mojave.

The Unaudited Pro Forma Condensed Combined Financial Statements as of and for the year ended March 31, 2004 do not purport to represent what the actual financial condition or results of operations of the combined businesses would have been if the acquisition of Mojave had occurred on the dates indicated in these pro forma condensed combined financial statements nor does this information purport to project our results or financial position for any future periods.

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MAGMA DESIGN AUTOMATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

(in thousands)

	Historical Magma March 31, 2004			Historical Mojave December 31, 2003			Pro Forma Adjustments			Pro Forma Combined
Assets
Current assets:
Cash and cash equivalents	$	72,684		$	1,072		$	(11,079	)(A)	$	62,677
Restricted cash		2,662			—			—			2,662
Accounts receivable, net		34,237			—			—			34,237
Prepaid expenses and other current assets		9,588			47			—			9,635
Total current assets		119,171			1,119			(11,079	)		109,211
Property and equipment, net		15,196			20			—			15,216
Intangibles, net		62,793						29,339	(B)		92,132
Goodwill		33,529									33,529
Long-term investments		78,158						—			78,158
Other assets		5,628			3			1,320	(C)		6,951
Total assets	$	314,475		$	1,142		$	19,580		$	335,197
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,658		$	25		$	—		$	1,683
Accrued expenses		19,132			61			551	(A)		21,064
								1,320	(D)
Deferred revenue		19,947						—			19,947
Total current liabilities		40,737			86			1,871			42,694
Convertible subordinated notes		150,000			—			—			150,000
Deferred income taxes		5,102			—			11,735	(B)		16,837
Other long-term liabilities		897			—			—			897
Total liabilities		196,736			86			13,606			210,428
Redeemable convertible preferred stock		—			1,815			(1,815	)(E)		—
Stockholders’ equity
Common stock		3			1			(1	) (E)		3
Additional paid-in capital		226,586			1,027			(1,027	)(E)
								11,774	(A)		238,360
Deferred stock-based compensation		(718	)		(674	)		674	(E)		(1,972	)
								(1,254	)(C)
Accumulated deficit		(107,063	)		(1,113	)		1,113	(E)		(110,999	)
								(3,936	)(F)
Accumulated other comprehensive loss		(1,069	)		—			—			(1,069	)
Total stockholders’ equity		117,739			(759	)		7,343			124,323
Total liabilities and stockholders’ equity	$	314,475		$	1,142		$	19,134		$	334,751

See accompanying notes to unaudited pro forma condensed combined financial statements

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MAGMA DESIGN AUTOMATION, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(in thousands, except per share data)

	Historical Magma Year Ended March 31, 2004			Historical Mojave Year Ended December 31, 2003			Pro Forma Adjustments			Pro Forma Combined
Revenue:
Licenses	$	100,387		$	—		$	—		$	100,387
Services		13,342			—			—			13,342
Total revenue		113,729			—			—			113,729
Cost of revenue		16,647			—			5,949	(G)		22,596
Gross profit		97,082			—			(5,949	)		91,133
Operating expenses:
Research and development		26,097			668			839	(H)		27,604
In-process research and development		200			—			—			200
Sales and marketing		36,973			—			—			36,973
General and administrative		11,348			58			—			11,406
Amortization of intangible assets		1,745			—			—			1,745
Stock-based compensation		7,086			316			804	(H)		8,206
Total operating expenses		83,449			1,042			1,643			86,134
Operating profit (loss)		13,633			(1,042	)		(7,592	)		4,999
Other income, net		1,418			20			(363	)(I)		1,075
Income (loss) before income taxes		15,051			(1,022	)		(7,955	)		6,074
Provision for income taxes		(3,576	)		—			—			(3,576	)
Net income (loss)	$	11,475		$	(1,022	)	$	(7,955	)	$	2,498
Net income per share - basic	$	0.36								$	0.08
Net income per share - diluted	$	0.29								$	0.06
Shares used in calculation - basic		31,648						608			32,256
Shares used in calculation - diluted		40,245						608			40,853

See accompanying notes to unaudited pro forma condensed combined financial statements.

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MAGMA DESIGN AUTOMATION, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Pro Forma Presentation

The Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2004 and the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended March 31, 2004 combine the historical Magma Design Automation, Inc. (“Magma” or the “Company”) and Mojave, Inc. (“Mojave”) balance sheets and statements of operations as if the acquisition of Mojave, which occurred on April 29, 2004, had been completed on March 31, 2004 for purposes of the presentation of the Unaudited Pro Forma Condensed Combined Balance Sheet and on April 1, 2003 for purposes of the presentation of the Unaudited Pro Forma Condensed Combined Statement of Operations. The Unaudited Pro Forma Condensed Combined Balance Sheet combines Magma’s consolidated balance sheet as of March 31, 2004 with Mojave’s balance sheet as of December 31, 2003. The Unaudited Pro Forma Condensed Combined Statement of Operations combines Magma’s consolidated statement of operations for the year ended March 31, 2004 with Mojave’s statement of operations for the year ended December 31, 2003. The Unaudited Pro Forma Condensed Combined Financial Statements should be read together with the financial statements including the notes to these statements of Magma included in Magma’s Annual Report on Form 10-K for the year ended March 31, 2004 and the historical financial statements of Mojave included in Exhibit 99.2 of this Current Report on Form 8-K/A.

The acquisition of Mojave will allow Magma to more comprehensively address its customers’ needs of designing and verifying semiconductors that are manufacturable with desirable yield and performance. Manufacturability is a key design parameter as semiconductor process technology moves to sub-90nm geometries. The total initial purchase price of the Mojave acquisition is currently estimated to be approximately $24.7 million and has been accounted for as an asset purchase transaction. We acquired all of the outstanding common stock of Mojave in exchange for initial consideration of $24.2 million, which consisted of 607,554 shares of Magma common and $12.4 million in cash. In addition to the initial merger consideration, we have agreed to pay contingent consideration of up to $115 million, half in stock and half in cash, based on product orders over a period ending March 31, 2009, but such payments are contingent on the achievement of certain technology milestones. We did not assume any stock options or warrants.

The pro forma adjustments reflecting the consummation of the Mojave acquisition are prepared on a basis that the transaction was an asset purchase, and are based on available financial information, certain estimates and assumptions set forth in the notes to the Unaudited Pro Forma Condensed Combined Financial Statements. An appraisal firm assisted us with the valuation of the identified intangible assets in the Unaudited Pro Forma Condensed Combined Financial Statements. The preliminary valuation resulted in the allocation of $28.7 million to existing technology intangible asset and $0.6 million to assembled workforce intangible asset, which will be amortized over its estimated economic life of five years and three years, respectively. The valuation also resulted in the identification of $3.9 million of in-process research and development (“IPR&D”) costs, which were immediately expensed on the closing date. The final purchase price allocation will be based on the closing date (April 29, 2004) balance sheet of Mojave and may also be subject to adjustment for payments of contingent consideration in future periods. Until these matters are completed, the purchase price is preliminary and subject to adjustment. The pro forma adjustments do not reflect any operating efficiencies or additional costs that may result with respect to the combined business of Magma and Mojave.

The Unaudited Pro Forma Condensed Combined Financial Statements as of and for the year ended March 31, 2004 do not purport to represent what the actual financial condition or results of operations of the combined businesses would have been if the acquisition of Mojave had occurred on the dates indicated in these pro forma condensed combined financial statements nor does this information purport to project our results or financial position for any future periods.

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MAGMA DESIGN AUTOMATION, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Magma allocated the initial purchase price of $24.2 million and $0.5 million of legal, other professional expenses and other costs directly associated with the acquisition to the fair values of the assets acquired and liabilities assumed. The preliminary fair value of the existing technology and assembled workforce intangible assets and in-process research and development were determined by management with the assistance of independent appraisal. A summary of the purchase price allocation and the amortization periods of the intangible assets acquired is as follows (in thousands):

	Amount Allocated
Allocation of purchase price:
Net tangible assets acquired	$	611
Intangible assets acquired:
Existing technology		28,728
Assembled workforce		611
In-process research and development		3,936
Deferred compensation		1,320
Deferred stock-based compensation		1,254
Deferred tax liabilities		(11,735	)
Total purchase price	$	24,725
Amortization period of existing technology		5 years
Amortization period of assembled workforce		3 years

The value assigned to existing technology was based upon future discounted cash flows related to the existing technology’s projected income streams using discount rate of 16%. The Company believes this rate was appropriate given the business risks inherent in marketing and selling this technology. Factors considered in estimating the discounted cash flows to be derived from the existing technology included risks related to the characteristics and applications of the technology, existing and future markets and an assessment of the age of the technology within its life span.

The valuation method used to value in-process research and development is a form of discounted cash flow method. This approach is a widely recognized appraisal method and is commonly used to value technology assets. The value of the in-process technology is the sum of the discounted expected future cash flows attributable to the in-process technology, taking into consideration the percentage of completion of products utilizing this technology, utilization of pre-existing technology, the risks related to the characteristics and applications of the technology, existing and future markets and the technological risk associated with completing the development of the technology. The cash flows derived from the in-process technology project were discounted at a rate of 30%. The Company believes the rate used was appropriate given the risks associated with the technologies for which commercial feasibility had not been established. The percentage of completion for the in-process project was determined by identifying the elapsed time and costs invested in the project as a ratio of the total time and costs required to bring the project to technical and commercial feasibility, as well as consideration of engineering milestones required to complete the project. The percentage of completion for the in-process project acquired was 12.4%. Schedules were based on management’s estimate of tasks completed and the tasks to be completed to bring the project to technical and commercial feasibility. Revenue resulting from IPR&D project is expected to commence in calendar year 2005.

Development of in-process technology remains a substantial risk to the Company due to a variety of factors including the remaining effort to achieve technical feasibility, rapidly changing customer requirements and competitive threats from other companies and technologies. Additionally, the value of other intangible assets acquired may become impaired. The in-process research and development valuation, as well as the valuation of other intangible assets was prepared and determined by management with the assistance of an independent appraisal firm, based on input from the Company and the acquired company’s management, using valuation methods that are recognized by the United States Securities and Exchange Commission staff.

Existing technology and assembled workforce intangible assets totaling $29.3 million will be amortized over their estimated economic life of five and three years, respectively. The estimated future amortization expense related to the existing technology and assembles workforce intangible assets is as follows (in thousands) :

Fiscal year	Estimated Amortization Expense
2005	$	5,453
2006		5,949
2007		5,949
2008		5,763
2009 and after		6,224
	$	29,339

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MAGMA DESIGN AUTOMATION, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The preliminary purchase price allocation for Mojave is subject to revision as more detailed analysis is completed and additional information on the fair values of Mojave’s assets and liabilities become available. Any change in the fair value of the net assets of Mojave will change the amount of the purchase price allocable to identified intangible assets and IPR&D. Final accounting adjustments may therefore differ materially from the pro forma adjustments presented here.

2. Pro Forma Adjustments

Certain reclassifications have been made to conform Mojave’s historical amounts to Magma’s financial statement presentation. The following pro form adjustments have been made to the Unaudited Condensed Combined Pro Forma Financial Information:

(A) To record cash paid of $11.1 million and 607,554 shares of Magma common stock issued to acquire Mojave, and estimated transaction costs of $0.5 million incurred in connection with the acquisition. See also (C) for additional cash consideration.

(B) To allocate the purchase price to intangible assets and related deferred tax liabilities, assuming the acquisition of Mojave occurred on March 31, 2004.

(C) To record contingent cash compensation of $1.3 million and deferred stock-based compensation of $1.3 million, which will be earned based on the performance of continuing services. Accordingly, the contingent cash consideration is expensed on a straight line basis over the service period and the deferred stock-based compensation is expensed on an accelerated basis in accordance with Magma’s accounting policy for stock-based compensation.

(D) To record cash consideration payable to the Mojave shareholders for unvested equity interest exchanged in the acquisition.

(E) To reflect the elimination of the redeemable convertible preferred stock and the stockholders’ equity accounts of Mojave.

(F) To record the one-time charge for in-process research and development.

(G) To record amortization of intangible assets associated with the acquisition of Mojave.

(H) To record amortization of deferred cash compensation and deferred stock-based compensation related to unvested cash and stock consideration, respectively, given to the Mojave shareholders in the acquisition.

(I) To record a reduction in interest income earned due to cash consideration paid in connection with the acquisition.

The one-time charge to expense for the fair value of the in-process research and development acquired in the Merger has been excluded from the unaudited pro forma condensed combined consolidated statement of operations due to its non-recurring nature.

7