8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 28, 2008

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)
1650 Technology Drive, San Jose, California	95110
(Address of principal executive offices)	(Zip Code)

(408) 565-7500

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On August 28, 2008, Magma Design Automation, Inc. (“Magma”) issued a press release reporting its financial results for the quarter ended August 3, 2008. The press release is furnished as Exhibit 99.1 to this Form 8-K.

The information included under this Item 2.02 of this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934 (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The following exhibit is furnished herewith:

Exhibit No.	Description
99.1	Press Release issued August 28, 2008.

SIGNATURES

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

	MAGMA DESIGN AUTOMATION, INC.
Dated: August 28, 2008
	By:	/s/ Peter S. Teshima
		Peter S. Teshima
		Corporate Vice President- Finance and
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release issued August 28, 2008.

EX-99.1

Exhibit 99.1

News Release

Magma Reports Revenue of $45.7 million for First Quarter

SAN JOSE, Calif., Aug. 28, 2008 –– Magma Design Automation Inc. (Nasdaq: LAVA), a provider of chip design software, today reported revenue of $45.7 million for its first quarter of fiscal 2009, compared to revenue of $50.2 million reported for the first quarter of fiscal 2008.

“The first quarter proved to be a more difficult business environment than we anticipated, a situation that we believe may continue throughout at least a portion of the remainder of our fiscal year. Our key products and technology continue to deliver compelling solutions, but customers are experiencing softening demand in some of their end markets and we believe the first quarter results reflected delays in their purchases of design software as well as changes in our sales channel,” said Rajeev Madhavan, chief executive officer. “Given this assessment of market conditions and recent changes in our sales channel, we lowered our full-year guidance. The new target is consistent with our intent to increase the portion of our revenue based on backlog to 90 percent or more of revenue in future periods.”

GAAP Results

In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(14.9) million, or $(0.34) per share (basic and diluted), for the first quarter ended Aug. 3, 2008, compared to a net loss of $(11.3) million, or $(0.29) per share (basic and diluted), for the first quarter of fiscal 2008.

Non-GAAP Results

Magma’s non-GAAP net income was $.7 million for the first quarter, or $0.02 per share (diluted), which compares to non-GAAP net income of $4.6 million, or $0.10 per share (diluted), for the first quarter of fiscal 2008.

Non-GAAP net income for the first quarter of fiscal 2009 excludes the effects of amortization of developed technology, amortization of intangible assets, amortization of deferred stock-based compensation, amortization of debt issuance costs and debt discount accretion, charges associated with losses in equity investments, restructuring charges, acquisition-related expenses and the tax effects of these adjustments. A reconciliation of our non-GAAP results to GAAP results is included in this press release. Non-GAAP net income for the first quarter of fiscal 2008 excluded the above items and litigation settlement costs and related legal expenses.

In the first quarter Magma used approximately $6.4 million of cash in operations.

Business Outlook

Magma is changing its business model in that from now on it intends to achieve a revenue mix whereby 90 percent or more of revenue in a period comes from Magma’s backlog and the remainder comes from transactions completed in the period. Consistent with this new model, for Magma’s fiscal 2009 second quarter, ending Nov. 2, 2008, the company expects total revenue in the range of $34.0 million to $35.0 million. GAAP net loss per share is expected to be in the range of $(0.70) to $(0.68) and non-GAAP loss per share (EPS) is expected to be in the range of $(0.20) to $(0.18). For fiscal 2009, ending May 3, 2009, the company expects total revenue in the range of $158.0 million to $160.0 million. GAAP net loss per share is expected to be in the range of $(1.93) to $(1.89) and non-GAAP loss per share (EPS) is expected to be in the range of $(0.19) to $(0.15). A schedule showing a reconciliation of the projected non-GAAP EPS to GAAP EPS results is included in this release. A Financial Data Supplement containing detailed financial information intended to provide guidance and further insight into our business is available online in the Investor Relations section of the Magma website.

Transition Period

On Jan. 31, 2008, Magma announced a shift in its fiscal year, creating a transition period between the end of fiscal 2008 and the beginning of fiscal 2009. Results for this transition period, which began April 7, 2008 and concluded May 4, 2008, will be reported in the 10-Q for Magma’s fiscal 2009 first quarter and in Magma’s fiscal 2009 10-K. Neither the results reported for the first quarter of fiscal 2009 nor Magma’s Business Outlook reflect results of the transition period.

GAAP Reconciliation

Magma provides non-GAAP financial information to assist investors in assessing its current and future operations in the way that Magma’s management evaluates those operations. Magma believes that this non-GAAP information provides useful information to investors by excluding the effect of some expenses that are required to be recorded under GAAP but that Magma believes are not indicative of Magma’s core operating results, or that are expected to be incurred over a limited period of time.

Magma’s management evaluates and makes operating decisions about its business operations primarily based on bookings, revenue and the core costs of those business operations. Management believes that the amortization of developed technology and intangible assets, stock-based compensation, in-process research and development expenses, debt issuance costs and debt discount accretion, charges associated with losses in equity investments, restructuring charges, acquisition-related expenses, litigation settlement and related legal expenses, and the tax effects of its non-GAAP adjustments and other significant unusual items are not operating costs of its core software and service business operations. Therefore, management presents non-GAAP financial measures, along with GAAP measures, in this earnings release by excluding these items from the period expenses.

The income statement line items affected are as follows: (1) cost of revenue, licenses; (2) cost of revenue, bundled licenses and services; (3) cost of revenue, services; (4) operating expenses, research and development; (5) operating expenses, in-process research and development; (6) operating expenses, sales and marketing; (7) operating expenses, general and administrative; (8) operating expenses, amortization of intangible assets; (9) operating expenses, restructuring charge; (10) other income (expense), net; (11) tax effect; and (12) net income (loss) per share. To determine its non-GAAP provision for income taxes, Magma recalculates tax based on non-GAAP income before income taxes and adjusts accordingly.

For each such non-GAAP financial measure, the adjustment provides management with information about Magma’s underlying operating performance that management believes enables a more meaningful comparison of its financial results in different reporting periods. For example, since Magma does not acquire businesses on a predictable cycle, management excludes acquisition-related charges, such as in-process research and development charges, to make more consistent and meaningful evaluations of Magma’s operating expenses. Similarly, since Magma does not undertake significant restructuring or realignments on a predictable cycle, management would have difficulty evaluating Magma’s profitability as measured by gross profit, operating profit, income before taxes and net income on a period-to-period basis unless it excluded these charges. Management also uses these measures to help it make budgeting decisions between those expenses that affect operating expenses and operating margin (such as research and development, sales and marketing, and general and administrative expenses), and those expenses that affect cost of revenue and gross margin (such as product development expenses).

Further, the availability of non-GAAP financial information helps management track actual performance relative to financial targets, including both internal targets and publicly announced targets. Making this non-GAAP financial information available also helps investors compare Magma’s performance with the announced operating results of its principal competitors, which regularly provide similar non-GAAP financial information.

Management recognizes that the use of these non-GAAP measures has limitations, including the fact that management must exercise judgment in determining whether some types of charges, such as stock-based compensation relating to stock grants and acquisition related charges, should be excluded from non-GAAP financial measures. Management believes, however, that providing this non-GAAP financial information facilitates consistent comparison of Magma’s financial performance over time. Magma has historically provided non-GAAP results to the investment community, not as an alternative but as a supplement to GAAP information, to enable investors to evaluate Magma’s core operating performance in the way that management does.

Conference Call

Magma will discuss the financial results for the recently completed quarter, along with forward-looking guidance, during a live conference call today at 2 p.m. PDT, available by both webcast and telephone. To listen via webcast, visit the Investor Relations section of Magma’s website at http://investor.magma-da.com/events.cfm. To listen via telephone, call either of the numbers below:

U.S. & Canada:	(888) 219-1456, code #9688422
Elsewhere:	(913) 312-1227, code #9688422

Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/events.cfm through Sept. 4, 2008. Those without Internet access may listen to a replay of the call by telephone until 11:59 p.m. PDT on Sept. 4 by calling:

U.S. & Canada:	(888) 203-1112, code #9688422
Elsewhere:	(719) 457-0820, code #9688422

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements in the “Business Outlook” section and in quotations from Magma’s management. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from Magma’s current expectations. Factors that could cause or contribute to such differences include, but are not limited to: competition in the EDA market; Magma’s ability to integrate acquired businesses and technologies; potentially higher-than-anticipated costs of litigation; potentially higher-than-anticipated costs of compliance with regulatory requirements, including those relating to internal control over financial reporting; any delay of customer orders or failure of customers to renew licenses; weaker-than-anticipated sales of Magma’s products and services; weakness in the semiconductor or electronic systems industries; a potential failure of customers to adopt, or to adopt at a sufficiently fast rate, 65-nanometer and smaller design geometries on a large scale; the ability to manage expanding operations; the ability to attract and retain the key management and technical personnel needed to operate Magma successfully; the ability to continue to deliver competitive products to customers; and changes in accounting rules. Further discussion of these and other potential risk factors may be found in Magma’s public filings with the Securities and Exchange Commission (www.sec.gov), including its Form 10-K for the fiscal year ended April 6, 2008. Magma undertakes no additional obligation to update these forward-looking statements.

About Magma

Magma’s software for designing integrated circuits (ICs) is used to create complex, high-performance chips required in cellular telephones, electronic games, WiFi, MP3 players, DVD/digital video, networking, automotive electronics and other electronic applications. Magma’s EDA software for IC implementation, analysis, physical verification, circuit simulation and characterization is recognized as embodying the best in semiconductor technology, enabling the world’s top chip companies to ``Design Ahead of the Curve”(tm) while reducing design time and costs. Magma is headquartered in San Jose, Calif., with offices around the world. Magma’s stock trades on Nasdaq under the ticker symbol LAVA. Visit Magma Design Automation on the Web at www.magma-da.com.

Magma is a registered trademark and “Design Ahead of the Curve” is a trademark of Magma Design Automation. All other product and company names are trademarks and registered trademarks of their respective companies.

MAGMA DESIGN AUTOMATION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	August 3, 2008			April 6, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	29,674		$	46,970
Restricted cash		1,090			—
Short-term investments		—			3,000
Accounts receivable, net		36,379			38,310
Prepaid expenses and other current assets		5,336			5,244
Total current assets		72,479			93,524
Long-term investments		17,462			17,538
Property and equipment, net		14,669			15,553
Intangibles, net		32,202			40,436
Goodwill		66,349			64,877
Restricted cash		—			—
Deferred tax assets		6,901			6,901
Other assets		6,338			5,467
Total assets	$	216,400		$	244,296
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,818		$	3,971
Accrued expenses		21,350			29,866
Deferred revenue, current		27,709			25,254
Revolving note, current		4,700			—
Convertible notes		—			15,216
Total current liabilities		57,577			74,307
Convertible subordinated notes, net		48,728			48,518
Revolving Note		8,300			—
Long-term tax liabilities		12,232			11,869
Other long-term liabilities		3,041			2,374
Total liabilities		129,878			137,068
Stockholders’ equity:
Common stock		5			5
Additional paid-in capital		384,115			374,183
Accumulated deficit		(260,670	)		(229,479	)
Treasury stock at cost		(32,615	)		(32,697	)
Accumulated other comprehensive loss		(4,313	)		(4,784	)
Total stockholders’ equity		86,522			107,228
Total liabilities and stockholders’ equity	$	216,400		$	244,296

MAGMA DESIGN AUTOMATION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended
	August 3, 2008			July 1, 2007
Revenue:
Licenses	$	26,096		$	31,989
Bundled licenses and services		9,930			9,657
Services		9,716			8,519
Total revenue		45,742			50,165
Cost of revenue:
Licenses		4,809			5,324
Bundled licenses and services		2,519			2,424
Services		5,002			4,846
Total cost of revenue		12,330			12,594
Gross profit		33,412			37,571
Operating expenses:
Research and development		20,133			18,670
Sales and marketing		16,803			16,902
General and administrative		6,952			8,334
Amortization of intangible assets		1,444			2,027
Restructuring charge		2,020			291
Total operating expenses		47,352			46,224
Operating loss		(13,940	)		(8,653	)
Other income (expense):
Interest income		186			459
Interest expense		(621	)		(657	)
Other income (expense), net		(96	)		(727	)
Total other income, (expense) net		(531	)		(925	)
Net loss before income taxes		(14,471	)		(9,578	)
Provision for (benefit from) income taxes		439			1,691
Net loss	$	(14,910	)	$	(11,269	)
Net loss per share – basic and diluted	$	(0.34	)	$	(0.29	)
Shares used in calculation:
Basic and diluted		43,385			38,840

Reconciliation of First Quarter GAAP and Non-GAAP Financial Results

Statement of Operations Reconciliation

(in thousands)

	Three Months Ended
	August 3, 2008			July 1, 2007
GAAP net loss	$	(14,910	)	$	(11,269	)
Cost of license revenue
Amortization of developed technology		4,652			5,212
Cost of bundled license and services revenue
Amortization of developed technology		1,300			1,223
Stock-based compensation		95			82
		1,395			1,305
Cost of service revenue
Stock-based compensation		318			347
Research and development
Stock-based compensation		2,070			1,932
Acquisition related and other expenses		395			672
		2,465			2,604
Sales and marketing
Stock-based compensation		1,639			1,222
General and administrative
Stock-based compensation		1,253			1,396
Litigation settlement and related legal expense		—			581
		2,892			1,977
Amortization of intangible assets		1,444			2,027
Restructuring charges		2,020			291
Other income (expense)
Interest expense, amortization of debt issuance cost, and debt discount accretion		265			546
Loss on equity investments		(13	)		201
		252			747
Tax effect		196			153
Non-GAAP net income	$	724		$	4,616

Reconciliation of First Quarter GAAP and Non-GAAP Financial Results

Earnings/(Loss) Per Share Reconciliation

	Three Months Ended
	August 3, 2008			July 1, 2007
GAAP net loss	$	(0.34	)	$	(0.29	)
Cost of license revenue
Amortization of developed technology		0.11			0.13
Cost of bundled license and services revenue
Amortization of developed technology		0.03			0.03
Stock-based compensation		—			—
		0.03			0.03
Cost of service revenue
Stock-based compensation		0.01			0.01
Research and development
Stock-based compensation		0.05			0.05
Acquisition related expenses		0.01			0.02
		0.06			0.07
Sales and marketing
Stock-based compensation		0.04			0.03
General and administrative
Stock-based compensation		0.03			0.04
Litigation settlement and related legal expense		—			0.01
		0.03			0.05
Amortization of intangible assets		0.03			0.05
Restructuring charges		0.04			0.01
Other income (expense)
Interest expense, amortization of debt issuance cost, and debt discount accretion		0.01			0.01
Loss on equity investments		—			0.01
		0.01			0.02
Tax effect		—			—
Non-GAAP net income (basic)	$	0.02		$	0.11
Non-GAAP net income (diluted)	$	0.02		$	0.10
Basic shares used in calculation		43,385			38,840
Diluted shares used in calculation*		43,964			45,546

* Gives effect to the potential issuance of common stock upon conversion of convertible subordinated notes, if dilutive, and to the effect of all dilutive potential common shares outstanding during the period, including stock options, using the treasury stock method

MAGMA DESIGN AUTOMATION, INC.

AS OF AUGUST 3, 2008

IMPACT OF KNOWN NON-GAAP ADJUSTMENTS ON FORWARD-LOOKING DILUTED NET

INCOME PER SHARE AND NET INCOME

(Unaudited)

	Quarter Ending November 2, 2008	Fiscal Year Ending May 3, 2009
GAAP diluted net loss per share	$ (0.70) to $ (0.68)	$ (1.93) to $ (1.89)
Amortization of developed technology and intangibles	$0.26	$0.94
Amortization of deferred stock-based compensation	$0.14	$0.51
Acquisition related expenses	$0.01	$0.04
Interest Expense, amortization of debt issuance cost and debt discount accretion	$0.01	$0.03
Restructuring	$0.08	$0.22
Non-GAAP diluted net loss per share	$(0.20) to $(0.18)	$(0.19) to $(0.15)
(in millions)	Quarter Ending November 2, 2008	Fiscal Year Ending May 3, 2009
GAAP net loss	$ (32) to $ (31)	$ (90) to $ (88)
Amortization of developed technology and intangibles	$12	$43
Amortization of deferred stock-based compensation	$6	$24
Acquisition related expenses	$.5	$2
Interest expense, amortization of debt issuance cost and debt discount accretion	$.5	$2
Restructuring	$4	$10
Non-GAAP net loss	$(9) to $(8)	$(9) to $(7)

LAVA-F
Contacts:
Magma Design Automation Inc.
Media:	Investors:
Monica Marmie	Milan G. Lazich
Director, Marketing Communications	Vice President, Corporate Marketing
(408) 565-7689	(408) 565-7706
mmarmie@magma-da.com	milan.lazich@magma-da.com