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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

| | x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - |  | ------------------------------------------------------------------------------------

For the fiscal year ended April 6, 2008

or



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

For the transition period from              to

COMMISSION FILE NO.: 0-33213





MAGMA DESIGN AUTOMATION, INC.

(Exact name of Registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 77-0454924                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1650 Technology Drive

San Jose, California 95110

(408) 565-7500

(Address, including zip code, and telephone number, including area code, of the registrants principal executive offices)





SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



|                                          |  |                                                   
|----------------------------------------- |  | --------------------------------------------------
|Title of Each Class:                      |  | Name of Each Exchange on Which Registered:        
|COMMON STOCK, par value $0.0001 per share |  | The Nasdaq Stock Market LLC (Nasdaq Global Market)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

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 the 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.  x

Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                                                                          |  |                             
|------------------------------------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈                                                |  | Accelerated filer  x        
|Non-accelerated filer   ̈    (Do not check if a smaller reporting company) |  | Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes   ̈    No  x

The aggregate market value of the registrants common stock held by non-affiliates of the registrant, based upon the closing sale price of the registrants common stock on September 28, 2007, the last
business day of the registrants most recently completed second fiscal quarter, as reported on the Nasdaq Global Market, was $560,538,923. This calculation does not reflect a determination that certain persons are affiliates of the registrant
for any other purpose.

As of June 2, 2008, the registrant had outstanding 44,006,912 shares of Common Stock, $0.0001 par value.





DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive proxy statement to be delivered to the stockholders in connection with the registrants 2008 Annual Meeting of Stockholders to be held on August 29, 2008, are incorporated by reference
into Part III of this Form 10-K to the extent stated herein. The registrants definitive proxy statement is expected to be filed within 120 days after the registrants fiscal year ended April 6, 2008.









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MAGMA DESIGN AUTOMATION, INC.

ANNUAL REPORT ON FORM 10-K

Year
ended April 6, 2008

TABLE OF CONTENTS



|              |  |                                                                                                              |  |     
|------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|              |  |                                                                                                              |  | Page
|PART I        |  |                                                                                                              |  |     
|              |  |                                                                                                             
|Item 1.       |  | Business                                                                                                     |  | 2   
|Item 1A.      |  | Risk Factors                                                                                                 |  | 12  
|Item 1B.      |  | Unresolved Staff Comments                                                                                    |  | 29  
|Item 2.       |  | Properties                                                                                                   |  | 29  
|Item 3.       |  | Legal Proceedings                                                                                            |  | 29  
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                          |  | 30  
|              |  | Executive Officers of the Registrant                                                                         |  | 30  
|              |  |                                                                                                             
|PART II       |  |                                                                                                              |  |     
|              |  |                                                                                                             
|Item 5.       |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 32  
|Item 6.       |  | Selected Financial Data                                                                                      |  | 34  
|Item 7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 35  
|Item 7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 57  
|Item 8.       |  | Financial Statements and Supplementary Data                                                                  |  | 58  
|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 104 
|Item 9A.      |  | Controls and Procedures                                                                                      |  | 104 
|Item 9B.      |  | Other Information                                                                                            |  | 105 
|              |  |                                                                                                             
|PART III      |  |                                                                                                              |  |     
|              |  |                                                                                                             
|Item 10.      |  | Directors, Executive Officers and Corporate Governance                                                       |  | 106 
|Item 11.      |  | Executive Compensation                                                                                       |  | 106 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 106 
|Item 13.      |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 106 
|Item 14.      |  | Principal Accountant Fees and Services                                                                       |  | 106 
|              |  |                                                                                                             
|PART IV       |  |                                                                                                              |  |     
|              |  |                                                                                                             
|Item 15.      |  | Exhibits and Financial Statement Schedules                                                                   |  | 107 
|              | 
|Signatures    |  | 108                                                                                                         
|              | 
|Exhibit Index |  | 109                                                                                                         





Magma, Blast Fusion, Blast
Noise, QuickCap, SiliconSmart, Talus and YieldManager are registered trademarks, and ArchEvaluator, Blast Power, Blast Plan, Blast Rail, Blast Create, Quartz, Blast Yield, Camelot, The Fastest Path from RTL to Silicon, FineSim, Native
Parallel Technology, Sign-off in the Loop, and Titan are trademarks of Magma Design Automation, Inc. All other product and company names are trademarks and registered trademarks of their respective companies.



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##### Table of Contents

PART I

ITEM 1.    BUSINESS

Overview

Magma Design Automation, Inc. provides electronic design automation (EDA) software products and related services. Our software enables chip
designers to reduce the time it takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. Our products comprise a digital integrated solution for the
chip development cycle, from initial design through physical implementation.

Our software products allow chip designers to meet critical
time-to-market objectives, improve chip performance and handle chip designs involving millions of components. Our flagship Blast and Talus family of products and our Quartz family of sign-off and verification tools combine into one integrated chip
design and verification flow, from what traditionally had been separate logic design, physical design, and analysis and sign-off processes. This integrated flow significantly reduces design iterations, allowing our customers to accelerate the time
it takes to design and produce deep submicron integrated circuits. Our Titan platform for custom integrated chip design provides an integrated chip-finishing solution for mixed-signal designs.

We provide consulting, training and services to help our customers more rapidly adopt our technology. We also provide post-contract support, or
maintenance, for our products.

We have a single operating segment as set forth in Note 13 to the Consolidated Financial
StatementsSegment Information in Item 8 of this Annual Report. Revenues, profits and losses and total assets for fiscal 2008, fiscal 2007 and fiscal 2006 for this segment are set forth in Item 6.

Evolution of the Electronic Design Automation Market

The trend toward deep submicron and system-on-chip designs has driven demand for improved electronic design automation software that enables the efficient design and implementation of these complex chips. Limitations in traditional
electronic design automation technology could slow the adoption of deep submicron processes due to the difficulty in implementing designs at these small feature sizes. Historically, electronic design automation companies developed software for use
by separate engineering groups to address either the front-end chip design or back-end chip implementation processes.

In the front-end
design process, the chip design is conceptualized and written as a register transfer level computer program, or RTL file, that describes the required functionality of the chip. For large chips, the design is often divided into a number of individual
blocks, each with its own associated RTL file. This is often done because of capacity limitations in existing electronic design automation tools. The designer also develops constraints for the design that are used to describe the desired timing
performance of the chip. Finally, a target library is specified that contains detailed information about the basic functional building blocks, or logic gates, that will be used in the design. This library is typically provided by the semiconductor
vendor or a third-party library vendor. The next step is to run the RTL files through synthesis software that generates a netlist. The netlist describes the circuit in terms of logic gates selected from the target library and connected such that the
functionality specified in the RTL files is realized. The synthesis software also performs optimizations to attempt to meet the timing constraints specified by the designer.

A critical objective of chip design is to minimize total circuit delay, which is comprised of gate delay and wire delay. Front-end software was initially
developed when the gate delay, or the time it takes for an electrical signal to travel through a logic gate, was the most significant component of total circuit delay. Wire delay, or the time it takes for a signal to travel through a wire connecting
two or more gates, was negligible and designers could use simple estimates and still meet targeted circuit speeds.



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In the back-end implementation process, physical design software is used to transform the netlist
generated by the front-end process into a physical layout of the chip. The resulting physical layout is usually output in a binary file format, commonly referred to as GDSII, that is used to generate the photomasks used to manufacture the integrated
circuit. The two primary functions provided by traditional physical design software are placement and routing. Placement determines the optimal physical location for the logic gates on the integrated circuit. After placement is completed, routing
connects the logic gates with wires to achieve the desired circuit functionality. After the layout is completed, the final step in the back-end process is to run timing analysis to verify that the chip will run at the desired circuit speed. If
circuit speeds are slower than the speeds reported by the synthesis software, the design must often be iterated back through the synthesis step in an attempt to improve the timing. Since each timing closure iteration cycle can take one or more
weeks, successive iterations of the design process can significantly lengthen the time it takes to design and produce new chips.

Integrated circuit (IC) designs which are both large and highly integrated require a fundamental new technology to create and maintain chip floorplans. Creating hierarchical chip floorplans traditionally has been a manual
error-prone task with less optimal quality of results in terms of chip die area and performance. Alternative flat chip design methodologies simplify floorplan creation but suffer from a long turn around time making it unacceptable.

Deep Submicron Challenges

The trend toward deep
submicron technology has rendered traditionally separate front-end and back-end electronic design automation processes less effective for rapid, cost-effective and reliable chip designs. As integrated circuits have increased in complexity and
feature sizes have dropped, the problems faced by chip designers have changed. Wire delay now accounts for the majority of total circuit delay and has become the most significant factor in circuit performance for deep submicron technologies.
Front-end estimates of wire delay may vary considerably from actual wire delays measured in the final layout. As a result, the front-end timing might meet the design requirements, but the final layout timing at the completion of the back-end process
may be unacceptable, requiring time-consuming iterations back through the front-end process.

Deep submicron process technologies bring
additional complexities to the design and implementation process that can cause chip failures. These complexities include, among others, signal integrity problems such as electrical interference from wires in close proximity, commonly referred to as
crosstalk or noise, that can affect both circuit performance and functionality. Using existing design flows and software, designers must contend with analyzing and fixing these problems manually after the layout is completed. These adjustments often
change the chip timing and further contribute to the timing closure problem.

These deep submicron challenges make it difficult to
efficiently design chips using separate front-end and back-end processes. Semiconductor manufacturers and electronic products companies are currently seeking alternatives to older generation electronic design automation software to shorten design
time, improve circuit speed, and handle larger chip designs. As a result, we believe that a significant opportunity exists for a new electronic design automation approach to chip design that can enable the design of more complex deep submicron
integrated circuits, improve performance, and significantly reduce the time it takes to design and produce next-generation electronic products.

Our
Solution

The important technical foundations for our software products are found
within our unified data model architecture, platform logic synthesis, interconnect synthesis, automated chip creation, physical verification, design-for-manufacturability (DFM) and silicon sign-off (known to us as our Sign-off in
the Loop flow), which allow our customers to reduce the number of iterations that are often required in conventional integrated circuit design processes.



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Logic Design

Our fast, high-capacity logic synthesis provides a common front-end to standard cell application specific integrated circuit (ASIC) and structured ASIC IC implementation platforms. A single RTL representation of the design is
synthesized to technology-independent netlist and taken through architecture-specific mapping and physical synthesis to predict the area, performance, power, testability and routability during physical implementation.

Design Implementation

Unified Data Model
Architecture

Conventional electronic design automation flows are typically based on a collection of software programs that have
their own associated data models, often resulting in cumbersome design flows. We believe that we are the only electronic design automation vendor that offers a complete integrated circuit design implementation flow based on a unified data model. Our
unified data model architecture is a key enabler for our ability to deliver automated signal integrity detection and correction, integrated power analysis and Sign-off in the Loop. The unified data model contains all the logical and physical
information about the design and is resident in core memory during execution. The various functional elements of our software such as the implementation engines for synthesis, placement and routing, and our analysis software for timing, RC and delay
extraction, power, and signal integrity, all operate directly on this data model. Because the data model is concurrently available to all the engines and analysis software, it is possible to analyze the design and make rapid tradeoff decisions
during the physical design process, thereby reducing design iterations.

Interconnect Synthesis

Interconnect Synthesis is a recent addition to our integrated circuit implementation design flow. With Interconnect Synthesis, optimization for timing,
crosstalk, on-chip variation (OCV), power and yield are performed in the routing phase, rather than relying on logic optimization during logic synthesis as has historically been done. Optimization in logic synthesis alone was
insufficient as wireload models started failing at 0.18 micron and below. At 90 nanometers and below, wire delay and the effect of their neighbors contribute to almost all deep-submicron effects. Accordingly, optimization has to be done as wires are
assigned to tracks and are being routed. This move to combine optimization and routing requires a new flow with a new approachInterconnect Synthesis. We believe we are currently the only IC implementation vendor to enable the above-referenced
advanced optimization techniques during the routing phase.

Automated Chip Creation

Automated chip creation is a new generation of implementation technology that automatically synthesizes chip floorplans. Automated chip creation is found
in our new Talus family of products. Talus is an RTL-to-GDSII solution that aims to eliminate manual and resource intensive floorplan interventions. Designs are automatically partitioned into blocks, shaped and placed to achieve optimal floorplan
chip area and performance. Furthermore, blocks are automatically distributed on multiple computing processing machines to implement any size designs 5-10 times faster. Talus allows prototyping of large designs early in the design cycle and flexible
floorplans to implement engineering changes later in the design while it provides better quality of results.

Physical Verification and Design for
Manufacturability

Every completed physical layout must be analyzed and manipulated before final manufacturing. This
processcommonly called physical verificationhas increased in complexity and importance as manufacturing technology has moved from 130 nanometers to 90 nanometers, and now to 65 nanometers and below. Moreover, new physical phenomena at
these manufacturing nodesincluding optical proximity correction (OPC) and chemical-mechanical-polishing (CMP) effectshave introduced the need for new design-for-manufacturing technologies.



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We have introduced a new product line to address
these challenges, with technologies resulting from our acquisition of Mojave, Inc. (Mojave). These products include Quartz DRC and Quartz LVS, physical verification tools designed specifically to address the challenges at 90 nanometers and 65 nanometers and below. Quartz DRC and Quartz LVS have been architected to be highly scalable. By using
techniques that enable fine-grain parallelism, Quartz DRC and Quartz LVS are able to use a large number (up to 100) of separate Linux machines on a standard computer network. This ability to do distributed processing on a standard Linux machine
provides the ability to linearly increase the speed of processingincreasing the number of processors by 2x increases the speed by 2xfor design rule checking. This scalability is essential to achieving a fast turnaround time of two hours
or less.

We have a strong position for design for manufacturabilityas we now offer both a leading physical design system, and a
leading physical verification system. We are leveraging the Mojave technology, and developing future products, including OPC-aware software, that will be used during both design and manufacturing.

Silicon Sign-off

Design teams have traditionally relied upon one set of tools for implementation and another set of tools for sign-off analysis. While this separation enables an advantageous tradeoff with respect to accuracy versus
runtime, it also requires corrective iteration loops when discrepancies are found during sign-off analysis. With the increased analysis challenges which the 90- and 65-nanometer and smaller processes present, such as combining noise analysis with
on-chip variation, or OCV, across ever-increasing process corners and operating modes, the use of separate point sign-off tools becomes a primary bottleneck in the drive to improve design cycle time. Our Sign-off in the Loop flow breaks
the sign-off iteration bottleneck by making sign-off-level analysis directly available during the implementation flow. The capabilities of Quartz RC are augmented by the integration of
QuickCap technology into the extractor. QuickCap is the industry golden standard for reference parasitic extraction. The inclusion of this technology into a full-chip extractor enables users to attain the highest possible accuracy for the most
timing critical nets on a chip.

Custom/Mixed-Signal

Analog design flows and teams historically have been isolated from digital design. Analog integrated circuits have typically been full-custom and painstakingly crafted by hand. In addition to being time-consuming and
prone to error, this transistor-level design style does not allow an existing design to be easily transferred to a new foundry or process/technology node. With Magmas Titan platform, analog designers can apply their expertise in defining the
first circuit topology, but porting to new geometry nodes is easier.

Products

Below is a description of our major products.

TalusDesign is a key
component of the next-generation RTL-to-GDSII Talus platform. This product enables logic designers to synthesize, evaluate, and improve the quality of their RTL code, design constraints, testability requirements and floorplan. The physical netlist
generated by Talus Design provides a clean handoff between the RTL designer and layout engineer, eliminating back-to-front iterations necessary for timing closure in conventional flows.

Talus Vortex is our
place and route product within the next-generation Talus platform. Talus Vortex flow begins with design netlist, target library, and design constraints. It utilizes state-of-the-art implementation automation to produce a physical layout and routing
connection of the design to meet timing, area, power, clock, and routing requirements for manufacture.

Talus Power is an optimization option to Talus Design and Talus Vortex for advanced low-power needs. By using Talus Power, dynamic and
leakage power can be minimized while meeting design performance, area, and manufacturing requirements. Multiple techniques are employed and embodied in a design flow to maximize the automation required to meet aggressive design schedules.



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Talus DFM is the design for manufacturing optimization tool to avoid or correct yield limiting defects during IC design implementation phase. DFM aware optimizations take advantage of available high yield standard
cell libraries when possible to implement a DFM friendly chip. Our routing technology produces fewer via metal contacts, which are a major source of lower yield. Furthermore, wire optimization to spread or widen wires reduces random defects without
introducing physical design rule check or timing closure problems. In addition, foundry provided soft DFM rules such as end of line and redundant via contacts are automatically supported during design implementation phase to comply with foundry
recommended DFM rules.

Quartz Rail is a manufacturing sign-off analysis tool for static and transient voltage drop within a chip. Using industry-standard input for design logic, layout, and activity, and including
an interface to our FineSim SPICE product for silicon accurate measurement, Quartz Rail provides a reliable and comprehensive voltage-drop analysis for design implementation. Quartz Rail is integrated in the Talus implementation platform to simplify
the flow for design analysis to influence design decisions early in the implementation process for best quality of results.

Quartz RC provides
sign-off-quality parasitic extraction and can operate as either a standalone tool or integrated with the Blast Fusion system, where it underlies the Sign-off in the Loop flow.

Quartz Time combines
the proven static timer in Blast Fusion with advanced timing capabilities to create a standalone sign-off timing system.

Quartz SSTA provides a
parametric yield analysis capability for the design, providing parametric extraction and statistical timing analysis simultaneously.

Quartz DRC and
Quartz LVS are targeted to provide the fastest turnaround time of any physical verification tools, with a goal of performing a full chip design rule check (DRC)
in less than 2 hours.

Quartz Formal is a logic equivalency checking tool used to verify the functional accuracy of a gate-level design with respect to its source HDL description.

Blast Create is a key
component of our RTL-to-GDSII integrated circuit design solution. It enables logic designers to synthesize, visualize, evaluate and improve the quality of their RTL code, design constraints, testability requirements and floorplan. The physical
netlist generated by Blast Create provides a clean handoff between RTL designer and layout engineer, eliminating back-to-front iterations necessary for timing closure in conventional flows.

Blast Fusion® is our physical
design software that shortens the time it takes to design and produce deep submicron integrated circuits. The Blast Fusion flow starts by reading in the netlist, target library and design constraints. The netlist is optimized for circuit performance
taking into account placement information that specifies the location of the gates in the chip layout. At the conclusion of this step, Blast Fusion generates a report that predicts the final timing performance that is achievable in the completed
chip layout. In the final step, detailed physical design, Blast Fusion generates the final chip layout by performing the routing of wires that are needed to connect the gates into the desired circuit configuration and meet the timing performance
requirements.

Blast Fusion is intended for use by chip design teams and other groups who are responsible for taking a design from netlist
to completed chip layout. In the conventional ASIC design flow, front-end designers use synthesis software to translate and optimize their RTL files into a netlist which is then handed off to the ASIC or semiconductor vendor or separate layout
design group for physical design using Blast Fusion. Sales of Blast Fusion account for the largest portion of our revenue.

Blast Noise® is our noise
detection and correction product. Interference, or noise from wires in close proximity to each other, can decrease chip performance or cause chip failure, particularly at 0.18 micron and below. Blast Noise works with Blast Fusion to actively detect
potential noise problems and correct them during the physical design process.



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Blast Plan delivers hierarchical design planning capabilities for use in implementing complex integrated circuit and system-on-chip designs. In a hierarchical design methodology, a chip design is partitioned into blocks that
are designed and implemented individually and then later assembled to create the entire chip. Blast Plan works with Blast Fusion and Blast Create to streamline the hierarchical planning and design of large chips and system-on-chips within a single
environment.

Blast Plan Pro combines the hierarchical design planning capabilities of Blast Plan with design exploration and early problem detection. Blast Plan Pro uses the same analysis engines as our implementation system, thus
providing a direct path to IC implementation using Blast Fusion.

Blast
Rail provides IC designers with integrated power analysis and planning, voltage-drop analysis, voltage-drop-induced delay analysis, and electromigration analysis on rail wires and
vias. These features enable designers to maintain power integrity in their designs. Blast Rail is fully integrated with our RTL-to-GDSII implementation flow to enable a correct-by-construction rail design solution. Blast Rail NX is our enhanced version of Blast Rail.

Blast Power, when launched in May 2004, was the industrys first integrated power management and power minimization solution from RTL to GDSII.
Blast Power is available as an option to our Blast Create and Blast Fusion implementation system, enabling us to offer a low-power design methodology that includes embedded power, timing, and rail analysis and power minimization techniques. With
Blast Power, our users will be able to make power-vs-timing and power-vs-area tradeoffs throughout the RTL-to-GDSII flowwithout having to export design data out of the Magma system. This tight integration of power optimization and management
into the implementation process will enable users to deliver lower power and more cost-effective development cycles than point tool flows.

Blast Fusion® QT provides
advanced capabilities that enable Sign-off in the Loop timing analysis with concurrent optimization. This product provides designers access to a sign-off timing analysis engine within the implementation flow, eliminating the need to
iterate with external sign-off tools.

Blast Fusion® 5.0 provides enhanced physical synthesis to improve congestion and timing of high performance designs. The product supports advanced 65-nanometer routing rules and improved runtime up to
50%. The optimization engine will take full advantage of multi mode and margin less OCV analysis to reduce design margins and turn around time.

Blast Plan FX provides
automated hierarchical design capabilities for taking a complete hierarchical chip from RTL to GDSII in a deterministic, repeatable fashion throughout the design cycle.

Blast Yield is a
comprehensive design-for-yield (DFY) solution which incorporates multiple techniques to optimize the design for parametric and functional yieldboth cell and wire yieldwithout compromising timing or area.

ArchEvaluator is the only
commercial EDA tool that enables the programmable or Structured ASIC architecture designers to discover new synthesis-friendly architectures with the best performance and density advantages. ArchEvaluator is able to evaluate a wide scope of
architecture parameters.

QuickCap® is the industrys leading parasitic extraction technology. QuickCap is a highly accurate 3D-field solver used in parameter extraction and rules generation, library cell extraction, critical cell analysis,
and critical net analysis.

QuickCap® NX is an enhanced version of the QuickCap tool, targeted to address specific design challenges that occur in 90-nanometer and smaller process technologies.



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SiliconSmart® products provide robust timing, power, and signal integrity models in a variety of industry standard formats.

FineSimPro is a
next-generation, highly accurate fast circuit simulator with full-chip analysis capabilities, including advanced post-layout simulation features, high accuracy with low memory usage and high performance.

FineSim SPICEis a
unique, native parallel, true SPICE simulator which may enable users to simulate circuits at full SPICE accuracy, which previously could only be simulated with fast-SPICE simulators.

Camelot provides silicon
debug capability by linking IC design data with manufactured ICs using tool navigation, allowing for the localization of errors on the silicon versus design in early yield improvement cycles.

YieldManager® provides fab wide
capability to collect, correlate, analyze and report yield loss data, driving yield prediction and early yield loss detection in the semiconductor manufacturing production process.

Titan is a mixed-signal
design platform that is integrated with our digital implementation and verification products, as well as with our circuit simulation and parasitic extraction products.

Services

We provide consulting and training to help our customers more rapidly adopt our technology.
We also provide post-contract support, or maintenance, for our products.

Customers

We license our software products to semiconductor manufacturers and electronic products companies around the world. Our major customers include Toshiba,
Samsung, Qualcomm, Broadcom, Renesas, Intel, Infineon Technologies, NEC, Marvell, Texas Instruments, LSI Logic, and NVIDIA. No customer accounted for 10% or more of our consolidated revenues during fiscal 2008.

Product Backlog

As of April 6, 2008 and
April 1, 2007, we had greater than $390 million and $420 million, respectively, in backlog, which represents contractual commitments by our customers through purchase orders or contracts. As of April 6, 2008 and April 1, 2007,
approximately 14% and 12%, respectively, of the backlog is variable based on volume of usage of our products by the customers, approximately 4% and 1%, respectively, includes specific future deliverables, and approximately 6% and 4%, respectively,
is recognized in revenue on a cash receipts basis. We have estimated variable usage, for the purposes of determining our backlog, based on information from customers forecasts available at the contract execution date. It is possible that
customers from whom we expect to derive revenue from backlog will default and as a result we may not be able to recognize expected revenue from backlog.

Revenue and Orders Mix

Our license revenue in any given quarter depends on the volume of short-term licenses shipped during
the quarter and the amount of long-term, ratable and cash receipts revenue from deferred revenue that is recognized out of backlog and recognized on orders received during the quarter. We set our revenue targets for any given period based, in part,
upon an assumption that we will achieve a certain level of orders and a certain mix of short-term licenses. The precise mix of orders is subject to substantial fluctuation in any given quarter or multiple quarter periods, and the actual mix of
licenses sold affects the revenue we recognize in the period. Even if we achieve the target level of total orders, we may not meet our revenue targets if we are unable to achieve our target license mix. In particular, we may fall short of our
revenue targets if we deliver more long-term or ratable licenses than expected, or we may exceed our revenue targets if we deliver more short-term licenses than expected.



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Unbilled Accounts Receivable

Unbilled accounts receivable represent revenue that has been recognized in advance of contractual invoicing to the customer. We typically generate invoices 45 days in advance of contractual due dates and invoice the
entire amount of the unbilled accounts receivable within one year from the contract inception. As of April 6, 2008 and April 1, 2007, unbilled accounts receivable were approximately $12.0 million and $7.6 million, respectively. These
amounts were included in accounts receivable on our consolidated balance sheets for these periods.

Revenue by Geographic Areas

We generated 40% of our total revenue from sales outside the United States for fiscal 2008, compared to 32% in fiscal 2007 and 33% in fiscal 2006.
Additional disclosure regarding financial information on geographic areas is included in Note 13 to our consolidated financial statements in Item 8 of this Annual Report.

Sales and Marketing

We license our products primarily through a direct sales force focused primarily
on the industry leaders in the communications, computing, consumer electronics, networking and semiconductor industries. We have North American sales offices in California, North Carolina, Pennsylvania, Texas, Washington and Canada. Internationally,
we have European offices in Germany, France and the United Kingdom, offices in Israel and the United Arab Emirates, and Asian offices in China, India, Japan, South Korea and Taiwan. Our direct sales force is supported by a larger group of field
application engineers that work closely with the customers technical chip design professionals.

As of April 6, 2008, we had 428
employees in our marketing, sales and technical sales support organizations. We intend to continue to expand our sales and field application engineering personnel on a worldwide basis.

Competition

The electronic design automation industry is highly competitive and characterized by
technological change, evolving standards, and price erosion. Major competitive factors in the market we address include technical innovation, product features and performance, level of integration, reliability, price, total system cost, reduction in
design cycle time, customer support and reputation.

We currently compete with companies that hold dominant shares in the electronic design
automation market. In particular, Cadence Design Systems, Inc. (Cadence) and Synopsys, Inc. (Synopsys) are continuing to broaden their product lines to provide an integrated design flow, and we continue to compete with Mentor
Graphics Corporation (Mentor) in certain product areas, such as physical verification tools. Each of these companies has a longer operating history and significantly greater financial, technical and marketing resources, as well as
greater name recognition and larger installed customer bases than we do. These companies also have established relationships with our current and potential customers and can devote substantial resources aimed at preventing us from establishing or
enhancing our customer relationships. Our competitors are better able to offer aggressive discounts on their products, a practice that they often employ. Our competitors offer a more comprehensive range of products than we do; for example, we do not
offer logic simulation, which can sometimes be an impediment to our winning a particular customer order. In addition, our industry has traditionally viewed acquisitions as an effective strategy for growth in products and market share, and our
competitors greater cash resources and higher market capitalization may give them a relative advantage over us in buying companies with promising new chip design products or companies that may be too large for us to acquire without a strain on
our resources. Further consolidation in the electronic design automation market could result in an increasingly competitive environment. Competitive pressures may prevent us from increasing market share or require us to reduce the price of products
and services, which could harm our business. To execute our business strategy successfully, we must continue to increase our sales worldwide. If we fail to do so in a timely manner or at all, we may not be able to gain market share and our business
and operating results could suffer.



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Also, a variety of small companies continue to emerge, developing and introducing new products. Any of
these companies could become a significant competitor in the future. We also compete with the internal chip design automation development groups of our existing and potential customers. Therefore, these customers may not require, or may be reluctant
to purchase, products offered by independent vendors.

Our competitors may develop or acquire new products or technologies that have the
potential to replace our existing or new product offerings. The introduction of these new or additional products by competitors may cause potential customers to defer purchases of our products. If we fail to compete successfully, we will not gain
market share and our business may fail.

Research and Development

We devote a substantial portion of our resources to developing new products and enhancing our existing products, conducting product testing and quality assurance testing, improving our core technology and
strengthening our technological expertise in the electronic design automation market. Our research and development expenditures for fiscal 2008, 2007 and 2006 were $76.9 million, $63.6 million and $50.1 million, respectively. There have not been any
customer-sponsored research activities since our inception.

As of April 6, 2008, our research and development group consisted of 494
employees. We have engineering centers in California and Texas in the United States, and in China, India, the Netherlands and South Korea. Our engineers are focused in the areas of product development, advanced research, product engineering and
design services. Our product development group develops our common core technology and is responsible for ensuring that each product fits into this common architecture. Our advanced research group works independently from our product development
group to assess and develop new technologies to meet the evolving needs of integrated circuit design automation. Our product engineering group is primarily focused on product releases and customization. Our design services group is specifically
focused on, and assists in completing, customer designs for commercial applications.

Intellectual Property

Currently, we hold, directly or indirectly, more than 80 issued patents. Patent protection affords only limited protection for our technology. Our patents
will expire on various dates between May 2009 and July 2025. We have filed, and plan to file, applications for additional patents. We do not know if our patent applications or any future patent application will result in a patent being issued with
the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. Rights that may be granted under our patent applications that may issue in the future may not provide us competitive advantages.
Further, patent protection in foreign jurisdictions where we may need this protection may be limited or unavailable.

It is difficult to
monitor and prevent unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. In addition, our competitors may independently develop technology similar
to ours. We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

Our success depends in part upon our rights in proprietary software technology. We have patent applications pending for some of our
proprietary software technology. We rely on a combination of copyright, trade secret, trademark and contractual protection to establish and protect our proprietary rights that are not protected by patents, and we enter into confidentiality
agreements with those of our employees and consultants involved in product development. We routinely require our employees, customers and potential business partners to enter into confidentiality and nondisclosure agreements before we will disclose
any sensitive aspects of our products, technology or business plans. We require employees to agree to surrender to us any proprietary information, inventions or other intellectual property they generate while employed by us. Despite our efforts to
protect our



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proprietary rights through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our products or
technology. These precautions may not prevent misappropriation or infringement of our intellectual property.

Some of our products and
technology include software or other intellectual property licensed from other parties. In addition, we also license software and other intellectual property from other parties for internal use. We may have to or want to obtain new licenses or renew
licenses in the future.

Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. Many of
our contracts contain provisions indemnifying our customers from third-party intellectual property infringement claims. Third parties may assert infringement claims against us and/or our customers. Our products may be found by a court to infringe
issued patents that may relate to or are required for our products. In addition, because patent applications in the United States are sometimes not publicly disclosed until the patent is issued, applications may have been filed that relate to our
software products. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties.
Intellectual property litigation is expensive and time consuming and could divert managements attention away from running our business. If there is a successful claim of infringement, we may be ordered to pay substantial monetary damages, we
may be prevented from distributing some of our products, and/or we may be required to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable
terms, if at all. Our failure to develop non-infringing technology or license the proprietary rights on a timely basis would harm our business.

Foreign
Operations

As indicated above and in Item 2 below, we have offices, including sales offices and engineering centers, located
around the world. For additional information regarding risks attendant to our foreign operations, see the discussions under Item 1A, Risk Factors including discussion under the headings stating: Because much of our business
is international, we are exposed to risks inherent to doing business internationally that could harm our business. We also intend to expand our international operations. If our revenue from this expansion does not exceed the expenses associated with
this expansion, our business and operating results could suffer, We are subject to risks associated with changes in foreign currency exchange rates, and Failure to obtain export licenses could harm our business
by preventing us from transferring our technology outside of the United States.

Employees

As of April 6, 2008, we had 1,030 full-time employees, including 494 in research and development, 428 in sales and marketing and 108 in general and
administrative. None of our employees are covered by collective bargaining agreements. We believe our relations with our employees are good.

Corporate
Information

We were incorporated in Delaware in 1997. Our principal executive offices are located at 1650 Technology Drive, San Jose,
California 95110, and our telephone number is (408) 565-7500. Our common stock is traded on the Nasdaq Global Market under the ticker symbol LAVA. Our Web site address is www.magma-da.com. The information on or accessible through our Web
site is not incorporated by reference into this Annual Report. Through a link on the Investor Relations section of our Web site, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange
Commission. Additionally, the public may read and copy any materials we file with the Securities and Exchange Commission



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at the Securities and Exchange Commissions Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Securities and Exchange Commission at the following Internet site: http://www.sec.gov. Our 2008 annual meeting is scheduled to be held on August 29, 2008 at our offices in
San Jose, California. Financial information about us is set forth in the financial statements below.

ITEM 1A.    RISK FACTORS

Our business faces many risks. The risks
described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risk
factors actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

Our limited operating history makes it difficult to evaluate our business and prospects.

We were incorporated in April
1997. We have a limited history of generating revenue from our software products, and the revenue and income potential of our business and market is still unproven. As a result of our short operating history, we have limited financial data that can
be used to evaluate our business. We have only been profitable in fiscal 2003 and fiscal 2004. Our software products represent a new approach to the challenges presented in the electronic design automation market, which to date has been dominated by
established companies with longer operating histories. Key markets within the electronic design automation industry may fail to adopt our proprietary technologies and use our software products. Any evaluation of our business and our prospects must
be considered in light of our limited operating history and the risks and uncertainties often encountered by relatively young companies.

We have a
history of losses, except for fiscal 2003 and fiscal 2004, and had an accumulated deficit of approximately $229.5 million as of April 6, 2008. If we continue to incur losses, the trading price of our stock would likely decline.

We had an accumulated deficit of approximately $229.5 million as of April 6, 2008. Except for fiscal 2003 and fiscal 2004, we incurred losses in
all other fiscal years. If we continue to incur losses, or if we fail to achieve profitability at levels expected by securities analysts or investors, the market price of our common stock is likely to decline. If we continue to incur losses, we may
not be able to maintain or increase our number of employees or our investment in capital equipment, sales, marketing, and research and development programs. Further, we may not be able to continue to operate.

Our quarterly results are difficult to predict, and if we fail to reach certain quarterly financial expectations, our stock price is likely to decline.

Our quarterly revenue and operating results fluctuate from quarter to quarter and are difficult to predict. It is likely that our
operating results in some periods will be below investor expectations. If this happens, the market price of our common stock is likely to decline. Fluctuations in our future quarterly operating results may be caused by many factors, including:



| |  |  | size and timing of customer orders, which are received unevenly and unpredictably throughout a fiscal year;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the mix of products licensed and types of license agreements;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to recognize revenue in a given quarter;
| | - |  | ----------------------------------------------------



| |  |  | higher-than-anticipated costs in connection with litigation;
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| |  |  | timing of customer license payments;
| | - |  | ------------------------------------



| |  |  | the relative mix of time-based licenses bundled with maintenance, unbundled time-based license agreements and perpetual license agreements, each of which has
different revenue recognition practices;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | size and timing of revenue recognized in advance of actual customer billings and customers with graduated payment schedules which may result in higher accounts
receivable balances and days sales outstanding (DSO);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the relative mix of our license and services revenue;
| | - |  | -----------------------------------------------------



| |  |  | our ability to win new customers and retain existing customers;
| | - |  | ---------------------------------------------------------------



| |  |  | changes in our pricing and discounting practices and licensing terms and those of our competitors;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | changes in the level of our operating expenses, including general compensation levels as well as increases in incentive compensation payments that may be associated
with future revenue growth;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the interpretation of the authoritative literature under which we recognize revenue;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the timing of product releases or upgrades by us or our competitors; and
| | - |  | ------------------------------------------------------------------------



| |  |  | the integration, by us or our competitors, of newly-developed or acquired products or businesses.
| | - |  | -------------------------------------------------------------------------------------------------

We have faced lawsuits related to patent infringement and other claims, and we may face additional intellectual property infringement claims or other litigation.
Lawsuits can be costly to defend, can take the time of our management and employees away from day-to-day operations, and could result in our losing important rights and paying significant damages.

We have faced lawsuits related to patent infringement and other claims in the past. For example, Synopsys previously filed various suits, including an
action for patent infringement, against us. In addition, a putative shareholder class action lawsuit and a putative derivative lawsuit have been filed against us. All claims brought against us by Synopsys have been fully resolved by a settlement and
a license under the asserted patents, although other similar litigation involving Synopsys or other parties may follow (subject, in the case of Synopsys, to the terms of the settlement agreement with Synopsys pursuant to which we and Synopsys agreed
not to initiate future patent litigation against each other for a period of two years commencing on March 29, 2007 provided certain terms are met). In the future other parties may assert intellectual property infringement claims against us or
our customers. We may have acquired or may in the future acquire software as a result of our acquisitions, and we could be subject to claims that such software infringes the intellectual property rights of third parties. We also license technology
from certain third parties and could be subject to claims if the software which we license is deemed to infringe the rights of others. In addition, we are often involved in or threatened with commercial litigation unrelated to intellectual property
infringement claims such as labor litigation and contract claims, and we may acquire companies that are actively engaged in such litigation.

Our products may be found to infringe intellectual property rights of third parties, including third-party patents. In addition, many of our contracts contain provisions in which we agree to indemnify our customers from third-party
intellectual property infringement claims that are brought against them based on their use of our products. Also, we may be unaware of filed patent applications that relate to our software products. We believe that the patent portfolios of our
competitors generally are far larger than ours. This disparity between our patent portfolio and the patent portfolios of our competitors may increase the risk that they may sue us for patent infringement and may limit our ability to counterclaim for
patent infringement or settle through patent cross-licenses.

The outcome of intellectual property litigation and other types of litigation
could result in our loss of critical proprietary rights and unexpected operating costs and substantial monetary damages. Intellectual property litigation and other types of litigation are expensive and time-consuming and could divert our
managements



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attention from our business. If there is a successful claim against us for infringement, we may be ordered to pay substantial monetary damages (including
punitive damages), we may also be prevented from distributing all or some of our products, and we may also be required to develop non-infringing technology or enter into royalty or license agreements, which may not be available on acceptable terms,
if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis would harm our business.

Publicly announced developments in our litigation matters may cause our stock price to decline sharply and suddenly. Other factors may reduce the market price of our common stock, and we are subject to ongoing risks of securities class
action litigation related to volatility in the market price for our common stocks.

We may not be successful in defending some or all
claims that may be brought against us. Regardless of the outcome, litigation can result in substantial expense and could divert the efforts of our management and technical personnel from our business. In addition, the ultimate resolution of the
lawsuits could have a material adverse effect on our financial position, results of operations and cash flows, and harm our ability to execute our business plan.

The price of our common stock may fluctuate significantly, which may make it difficult for our stockholders to resell our stock at attractive prices.

Our common stock trades on the Nasdaq Global Market under the symbol LAVA. There have been previous quarters in which we have experienced shortfalls in revenue and earnings from levels expected by
securities analysts and investors, which have had an immediate and significant adverse effect on the trading price of our common stock. Furthermore, the price of our common stock has fluctuated significantly in recent periods.

The market price of our stock is subject to significant fluctuations in response to the risk factors set forth in this Item 1A, many of which are
beyond our control. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of our common stock.

In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market
fluctuations may adversely affect the price of our common stock, regardless of our operating performance. Recent problems with the financial system, such as problems involving banks as well as the mortgage markets, might increase such market
fluctuations.

We may not be able to hire and/or retain the number of qualified personnel required for our business, particularly engineering personnel,
which would harm the development and sales of our products and limit our ability to grow.

Competition in our industry for senior
management, technical, sales, marketing and other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, our growth may be limited due to a lack of capacity to develop and
market our products.

In particular, we continue to experience difficulty in hiring and retaining skilled engineers with appropriate
qualifications to support our growth strategy. Our success depends on our ability to identify, hire, train and retain qualified engineering personnel with experience in integrated circuit design. Specifically, we need to continue to attract and
retain field application engineers to work with our direct sales force to qualify new sales opportunities technically and perform design work to demonstrate our products capabilities to customers during the benchmark evaluation process.
Competition for qualified engineers is intense, particularly in the Silicon Valley area where our headquarters are located.

Furthermore,
in light of our adopting SFAS 123R, Share-Based Payment in the first quarter of our fiscal year 2007, we changed our employee compensation practices, and those changes could make it harder for us to



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retain existing employees and attract qualified candidates. If we lose the services of a significant number of our employees and/or if we cannot hire
additional employees of the same caliber, we will be unable to increase our sales or implement or maintain our growth strategy.

Our success is highly
dependent on the technical, sales, marketing and managerial contributions of key individuals who we may be unable to recruit and retain.

We depend on our senior executives and certain key research and development and sales and marketing personnel, who are critical to our business. We do not have long-term employment agreements with our key employees, and we do not maintain
any key person life insurance policies. Furthermore, our larger competitors may be able to offer more generous compensation packages to executives and key employees, and therefore we risk losing key personnel to those competitors. If we lose the
services of any of our key personnel, our product development processes and sales efforts could be slowed. We may also incur increased operating expenses and be required to divert the attention of our senior executives to search for their
replacements. The integration of new executives or new personnel could disrupt our ongoing operations.

Customer payment defaults may cause us to be
unable to recognize revenue from backlog, and changes in the type of orders comprising backlog could affect the proportion of revenue recognized from backlog each quarter, which could have a material adverse effect on our financial condition and
results of operations.

A portion of our revenue backlog is variable based on volume of usage of our products by the customers or
includes specific future deliverables or is recognized in revenue on a cash receipts basis. Our management has estimated variable usage based on customers forecasts, but there can be no assurance that these estimates will be realized. In
addition, it is possible that customers from whom we expect to derive revenue from backlog will default and as a result we may not be able to recognize expected revenue from backlog. If a customer defaults and fails to pay amounts owed, or if the
level of defaults increases, our bad debt expense is likely to increase. Any material payment default by our customers could have a material adverse effect on our financial condition and results of operations.

Our lengthy and unpredictable sales cycle and the large size of some orders, make it difficult for us to forecast revenue and increase the magnitude of quarterly
fluctuations, which could harm our stock price.

Customers for our software products typically commit significant resources to evaluate
available software. The complexity of our products requires us to spend substantial time and effort to assist potential customers in evaluating our software and in benchmarking our products against those of our competitors. As the complexity of the
products we sell increases, we expect our sales cycle to lengthen. In addition, potential customers may be limited in their current spending by existing time-based licenses with their legacy vendors. In these cases, customers delay a significant new
commitment to our software until the term of the existing license has expired. Also, because our products require our customers to invest significant time and incur significant costs, we must target those individuals within our customers
organizations who are able to make these decisions on behalf of their companies. These individuals tend to be senior management in an organization, typically at the vice president level. We may face difficulty identifying and establishing contact
with such individuals. Even after those individuals decide to purchase our products, the negotiation and documentation processes can be lengthy and could lead the decision-maker to reconsider the purchase. Our sales cycle typically ranges between
three and nine months, but can be longer. Any delay in completing sales in a particular quarter could cause our operating results to fall below expectations. Furthermore, technological changes, litigation risk or other competitive factors could
cause some customers to shorten the terms of their licenses significantly, and such shorter terms could in turn have an impact on our total results for orders for this fiscal year. In addition, the precise mix of orders is subject to substantial
fluctuation in any given quarter or multiple quarter periods, and the actual mix of licenses sold affects the revenue we recognize in the period. Even if we achieve the target level of total orders, we may not meet our revenue targets if we are
unable to achieve our target license mix. In particular, we may fall short of our revenue targets if we deliver more long-term or ratable licenses than expected, or we may exceed our revenue targets if we deliver more short-term licenses than
expected.



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We may be unable to make payments to satisfy our indemnification obligations.

We enter into standard license agreements in the ordinary course of business. Pursuant to these agreements, we agree to indemnify certain of our customers
for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to our products. These indemnification obligations have perpetual terms. Our normal
business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount of indemnification we may be required to make may exceed our normal business practices. We estimate that
the fair value of our indemnification obligations is insignificant, based upon our historical experience concerning product and patent infringement claims. Accordingly, we have no liabilities recorded for indemnification under these agreements. If
an indemnification event were to occur, we might not have enough funds to pay our indemnification obligations. Further, any material indemnification payment could have a material adverse effect on our financial condition and the results of our
operations.

We have entered into certain indemnification agreements whereby certain of our officers and directors are indemnified for
certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. Additionally, in connection with certain of our recent business acquisitions, we agreed to assume, or cause our subsidiaries to assume,
indemnification obligations to the officers and directors of the acquired companies. While we have directors and officers insurance that reduces our exposure and enables us to recover a portion of any future amounts paid pursuant to our
indemnification obligations to our officers and directors, the maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, as a result of our directors and officers insurance
coverage and our belief that our estimated potential exposure to our officers and directors for indemnification liabilities is minimal, no liabilities have been recorded for these agreements as of April 6, 2008. Therefore, if an indemnification
event were to occur, we might not have enough funds to pay our indemnification obligations. Further, any material indemnification payment could have a material adverse effect on our financial condition and the results of our operations.

We rely on a small number of customers for a significant portion of our revenue, and our revenue could decline due to delays of customer orders or the failure of
existing customers to renew licenses or if we are unable to maintain or develop relationships with current or potential customers.

Our
business depends on sales to a small number of customers. For the fiscal year ended April 6, 2008, our top three customers together accounted for approximately 19% of our revenue.

We expect that we will continue to depend upon a relatively small number of customers for a substantial portion of our revenue for the foreseeable
future. If we fail to sell sufficient quantities of our products and services to one or more customers in any particular period, or if a large customer reduces purchases of our products or services, defers orders, or fails to renew licenses, our
business and operating results could be harmed.

Most of our customers license our software under time-based licensing agreements, with
terms that typically range from 15 months to 48 months. Most of our license agreements automatically expire at the end of the term unless the customer renews the license with us or purchases a perpetual license. If our customers do not renew their
licenses, we may not be able to maintain our current revenue or may not generate additional revenue. Some of our license agreements allow customers to terminate an agreement prior to its expiration under limited circumstancesfor example, if
our products do not meet specified performance requirements or goals. If these agreements are terminated prior to expiration or we are unable to collect under these agreements, our revenue may decline.

Some contracts with extended payment terms provide for payments which are weighted toward the latter part of the contract term. Accordingly, for bundled
agreements, as the payment terms are extended, the revenue from these contracts is not recognized evenly over the contract term, but is recognized as the lesser of the cumulative amounts due and payable or ratably. For unbundled agreements, as the
payment terms are extended,



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the revenue from these contracts is recognized as amounts become due and payable. Revenue recognized under these arrangements will be higher in the latter
part of the contract term, which potentially puts our future revenue recognition at greater risk of the customers continued credit-worthiness. In addition, some of our customers have extended payment terms, which creates additional credit
risk.

We compete against companies that hold a large share of the EDA market and competition is increasing among EDA vendors as customers tightly
control their EDA spending and use fewer vendors to meet their needs. If we cannot compete successfully, we will not gain market share and our revenue could decline.

We currently compete with companies that hold dominant shares in the electronic design automation market, such as Cadence, Synopsys and Mentor. Each of these companies has a longer operating history and significantly
greater financial, technical and marketing resources than we do, as well as greater name recognition and a larger installed customer base. Our competitors are better able to offer aggressive discounts on their products, a practice they often employ.
Competition and corresponding pricing pressures among EDA vendors or other factors might be causing or might cause in the future the overall market for EDA products to have low growth rates, remain relatively flat or even decrease in terms of
overall dollars. Our competitors offer a more comprehensive range of products than we do; for example, we do not offer logic simulation which can sometimes be an impediment to our winning a particular customer order. In addition, our industry has
traditionally viewed acquisitions as an effective strategy for growth in products and market share and our competitors greater cash resources and higher market capitalization may give them a relative advantage over us in acquiring companies
with promising new chip design products or companies that may be too large for us to acquire without a strain on our resources and liquidity.

Competition in the EDA market has increased as customers rationalized their EDA spending by using products from fewer EDA vendors. Continued consolidation in the electronic design automation market could intensify this trend. Also, many of
our competitors, such as Cadence, Synopsys and Mentor, have established relationships with our current and potential customers and can devote substantial resources aimed at preventing us from establishing or enhancing our customer relationships.
Competitive pressures may prevent us from obtaining new customers and gaining market share, may require us to reduce the price of products and services or cause us to lose existing customers, which could harm our business. To execute our business
strategy successfully, we must continue our efforts to increase our sales worldwide. If we fail to do so in a timely manner or at all, we may not be able to gain market share and our business and operating results could suffer.

Also, a variety of small companies continue to emerge, developing and introducing new products which may compete with our products. Any of these
companies could become a significant competitor in the future. We also compete with the internal chip design automation development groups of our existing and potential customers. Therefore, these customers may not require, or may be reluctant to
purchase, products offered by independent vendors.

Our competitors may develop or acquire new products or technologies that have the
potential to replace our existing or new product offerings. The introduction of these new or additional products by competitors may either cause potential customers to defer purchases of our products or cause potential customers to decide against
purchasing our products. If we fail to compete successfully, we will not gain market share, or our market share may decrease, and our business may fail.

Acquisitions are an important element of our strategy. We may not find suitable acquisition candidates and we may not be successful in integrating the operations of acquired companies and acquired technology.

Part of our growth strategy is to pursue acquisitions. We expect to continuously evaluate the possibility of accelerating our growth through acquisitions,
as is customary in the electronic design automation industry. Achieving the anticipated benefits of past and possible future acquisitions will depend in part upon whether we can integrate the



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operations, products and technology of acquired companies with our operations, products and technology in a timely and cost-effective manner. The process of
integrating acquired companies and acquired technology is complex, expensive and time consuming, and may cause an interruption of, or loss of momentum in, the product development and sales activities and operations of both companies. In addition,
the earnout arrangements we use, and expect to continue to use, to consummate some of our acquisitions, pursuant to which we agreed to pay additional amounts of contingent consideration based on the achievement of certain revenue, bookings or
product development milestones, can sometimes complicate integration efforts. We cannot be sure that we will find suitable acquisition candidates or that acquisitions we complete will be successful. Assimilating previously acquired companies such as
Sabio Labs, Inc. (Sabio), Rio Design Automation, Inc. (Rio), Knights Technology, Inc. (Knights), ACAD Corporation (ACAD), Mojave, Silicon Metrics Corporation, or any other companies we have acquired or
may seek to acquire in the future, involves a number of other risks, including, but not limited to:



| |  |  | adverse effects on existing customer relationships, such as cancellation of orders or the loss of key customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | adverse effects on existing licensor or supplier relationships, such as termination of certain license agreements;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in integrating or retaining key employees of the acquired company;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the risk that earnouts based on revenue will prove difficult to administer due to the complexities of revenue recognition accounting;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk that actions incentivized by earnout provisions will ultimately prove not to be in our best interest if our interests change over time;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in integrating the operations of the acquired company, such as information technology resources, manufacturing processes, and financial and operational
data;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in integrating the technologies of the acquired company into our products;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | diversion of our managements attention;
| | - |  | ----------------------------------------



| |  |  | potential incompatibility of business cultures;
| | - |  | -----------------------------------------------



| |  |  | potential dilution to existing stockholders if we incur debt or issue equity securities to finance acquisitions; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | additional expenses associated with the amortization of intangible assets.
| | - |  | --------------------------------------------------------------------------

Our operating results may be harmed if our customers do not adopt, or are slow to adopt, 65-nanometer and smaller design geometries on a large scale.

Our customers are currently working on a range of design geometries, including without limitation 45-nanometer, 65-nanometer and 90-nanometer designs. We
continue to work toward developing and enhancing our product line in anticipation of increased customer demand for 65-nanometer and other smaller design geometries. Notwithstanding our efforts to support 65-nanometer, and other smaller design
geometries, customers may fail to adopt these geometries on a large scale and we may be unable to persuade our customers to purchase our related software products. Accordingly, any revenues we receive from enhancements to our products or acquired
technologies may be less than the development or acquisition costs. If customers fail to adopt 65-nanometer and other smaller design geometries on a large scale, our operating results may be harmed. In addition, if customers are not able
successfully to generate profits as they adopt smaller geometries, demand for our products may be adversely affected, and our operating results may be harmed.

Our operating results will be harmed if chip designers do not adopt or continue to use Blast Fusion, Talus, FineSim, the Quartz family of products, Titan or our other current and future products.

Blast Fusion has accounted for the largest portion of our revenue since our inception and we believe that revenue from Blast Fusion, Talus, FineSim, the
Quartz family of products and Titan will account for most of our



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revenue for the foreseeable future. In addition, we have dedicated significant resources to developing and marketing Talus, Titan and other products. We must
gain market penetration of Talus, FineSim, the Quartz family of products, Titan and other products in order to achieve our growth strategy and financial success. Moreover, if integrated circuit designers do not continue to adopt or use Blast Fusion,
Talus, FineSim, the Quartz family of products, Titan or our other current and future products, our operating results will be significantly harmed.

In
the event that the changes we made to our organizational structure in fiscal 2006 and in fiscal 2008 result in ineffective interoperability between our products or ineffective collaboration among our employees, then our operating results may be
harmed.

We changed our organizational structure in fiscal 2006 to establish major business units that are responsible for our various
products, and we made some additional changes to our organizational structure in fiscal 2008. If this organizational structure results in ineffective interoperability between our products or ineffective collaboration among our employees, then our
operating results may be harmed. For example, if this organizational structure is not successful, we could experience delays in new product development that could cause us to lose customer orders and thereby could harm our operating results.

If the industries into which we sell our products experience a recession or other cyclical effects affecting our customers research and
development budgets, our revenue would be likely to decline.

Demand for our products is driven by new integrated circuit design
projects. The demand from semiconductor and systems companies is uncertain and difficult to predict. Slower growth in the semiconductor and systems industries, a reduced number of design starts, reduction of electronic design automation budgets or
consolidation among our customers would harm our business and financial condition.

The primary customers for our products are companies in
the communications, computing, consumer electronics, networking and semiconductor industries. Any significant downturn in our customers markets or in general economic conditions that results in the cutback of research and development budgets
or the delay of software purchases would likely result in lower demand for our products and services and could harm our business. The continuing threat of terrorist attacks in the United States, the ongoing events in Afghanistan, Iraq, Iran, the
Middle East and North Korea, recent problems with the financial system, such as problems involving banks as well as the mortgage markets, global climate change and other worldwide events have increased uncertainty in the United States economy. If
the economy declines as a result of this economic, political, social, and environmental turmoil, existing customers may delay their implementation of our software products and prospective customers may decide not to adopt our software products,
either of which could negatively impact our business and operating results.

The electronics industry has historically been subject to
seasonal and cyclical fluctuations in demand for its products, and this trend may continue in the future. These industry downturns have been and may continue to be characterized by diminished product demand, excess manufacturing capacity and
subsequent erosion of average selling prices. Any such seasonal or cyclical industry downturns could harm our operating results.

Difficulties in
developing and achieving market acceptance of new products and delays in planned release dates of our software products and upgrades may harm our business.

To succeed, we will need to develop innovative new products. We may not have the financial resources necessary to fund all required future innovations. Expanding into new technologies or extending our product line
into areas we have not previously addressed may be more costly or difficult than we presently anticipate. Also, any revenue that we receive from enhancements or new generations of our proprietary software products may be less than the costs that we
incur to develop those technologies and products. If we fail to develop and market new products in a timely manner, or if new products do not meet performance features as marketed, our reputation and our business could suffer.



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Our costs of customer engagement and support are high, so our gross margin may decrease if we incur
higher-than-expected costs associated with providing support services in the future or if we reduce our prices.

Because of the
complexity of our products, we typically incur high field application engineering support costs to engage new customers and assist them in their evaluations of our products. If we fail to manage our customer engagement and support costs, our
operating results could suffer. In addition, our gross margin may decrease if we are unable to manage support costs associated with the services revenue we generate or if we reduce prices in response to competitive pressure.

Product defects could cause us to lose customers and revenue, or to incur unexpected expenses.

Our products depend on complex software, which we either developed internally or acquired or licensed from third parties. Our customers may use our
products with other companies products, which also contain complex software. If our software does not meet our customers performance requirements or meet the performance features as marketed, our customer relationships may suffer. Also,
a limited number of our contracts include specified ongoing performance criteria. If our products fail to meet these criteria, it may lead to termination of these agreements and loss of future revenue. Complex software often contains errors. Any
failure or poor performance of our software or the third-party software with which it is integrated could result in:



| |  |  | delayed market acceptance of our software products;
| | - |  | ---------------------------------------------------



| |  |  | delays in product shipments;
| | - |  | ----------------------------



| |  |  | unexpected expenses and diversion of resources to identify the source of errors or to correct errors;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | delayed or lost revenue; and
| | - |  | ----------------------------



| |  |  | product liability claims.
| | - |  | -------------------------

Our
product functions are often critical to our customers, especially because of the resources our customers expend on the design and fabrication of integrated circuits. Many of our licensing agreements contain provisions to provide a limited warranty.
In addition, some of our licensing agreements provide the customer with a right of refund for the license fees if we are unable to correct errors reported during the warranty period. If our contractual limitations are unenforceable in a particular
jurisdiction or if we are exposed to claims that are not covered by insurance, a successful claim could harm our business. We currently carry insurance coverage and limits that we believe are consistent with similarly situated companies within the
EDA industry, however, our insurance coverage may prove insufficient to protect against any claims that we experience.

Because much of our business is
international, we are exposed to risks inherent to doing business internationally that could harm our business. We also intend to expand our international operations. If our revenue from this expansion does not exceed the expenses associated with
this expansion, our business and operating results could suffer.

In fiscal 2008, we generated 40% of our total revenue from sales
outside North America, compared to 32% in fiscal 2007 and 33% in fiscal 2006. While most of our international sales to date have been denominated in U.S. dollars, our international operating expenses have been denominated in foreign currencies. As a
result, a decrease in the value of the U.S. dollar relative to the foreign currencies could increase the relative costs of our overseas operations, which could reduce our operating margins.

As we expand our international operations, we will need to maintain sales offices in Europe, the Middle East, and the Asia Pacific region. If our revenue
from international operations does not exceed the expense of establishing and maintaining our international operations, our business could suffer. Additional risks we face in conducting business internationally include:



| |  |  | difficulties and costs of staffing and managing international operations across different geographic areas;
| | - |  | -----------------------------------------------------------------------------------------------------------



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| |  |  | changes in currency exchange rates and controls;
| | - |  | ------------------------------------------------



| |  |  | uncertainty regarding tax and regulatory requirements in multiple jurisdictions;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the possible lack of financial and political stability in foreign countries, preventing overseas sales growth;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | current events in North Korea, Iran, Iraq and the Middle East;
| | - |  | --------------------------------------------------------------



| |  |  | the effects of terrorist attacks in the United States;
| | - |  | ------------------------------------------------------



| |  |  | recent problems with the financial system, such as problems involving banks as well as the mortgage markets; and
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | any related conflicts or similar events worldwide.
| | - |  | --------------------------------------------------

Future changes in accounting standards, specifically changes affecting revenue recognition, could cause unexpected adverse revenue fluctuations for us.

Future changes in accounting standards or interpretations thereof, specifically those changes affecting software revenue recognition, could require us to change our methods of revenue recognition. These changes could
result in deferral of revenue recognized in current periods to subsequent periods or in accelerated recognition of deferred revenue to current periods, each of which could cause shortfalls in meeting the expectations of investors and securities
analysts. Our stock price could decline as a result of any shortfall. Implementation of internal controls reporting and attestation requirements, as further described below, will continue to impose additional financial and administrative obligations
on us and may continue to cause us to incur substantial implementation costs from third party consultants, which could adversely affect our results.

We
have incurred and will continue to incur significant costs as a result of being a public company.

As a public company, we incur
significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq Stock Market, required changes in the corporate
governance practices of public companies, which increased our legal and financial compliance costs. In particular, we have incurred and will continue to incur administrative expenses relating to compliance with Section 404 of the Sarbanes-Oxley
Act, which requires that we implement and maintain an effective system of internal controls and annual certification of our compliance by our independent auditor. In addition, we incur other costs associated with our public company reporting
requirements.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and
any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), we are required to furnish a report by our management on our internal control over financial reporting. The report contains,
among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This
assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. In addition, our independent registered public accounting firm must attest to and report on managements
assessment of the effectiveness of the internal control over financial reporting. Although we review our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, if our independent registered
public accounting firm is not satisfied with our internal control over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if the independent registered public accounting firm interprets the
requirements, rules and/or



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regulations differently from our interpretation, then they may decline to attest to managements assessment or may issue a report that is qualified.
This could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact our stock price.

While we have determined in our Managements Report on Internal Control over Financial Reporting included in this Annual Report, that our internal
control over financial reporting was effective as of April 6, 2008, we must continue to monitor and assess our internal control over financial reporting. A failure to comply with Section 404 could cause us to delay filing our public
reports, potentially resulting in de-listing by the Nasdaq Stock Market and penalties or other adverse consequences under our existing contractual arrangements. In particular, pursuant to the indenture for the 2% Convertible Senior Notes due
May 15, 2010 (the 2010 Notes), if we fail to file our annual or quarterly reports in accordance with the terms of that indenture, or if we do not comply with certain provisions of the Trust Indenture Act specified in the indenture,
after the passage of certain periods of time at the election of a certain minimum number of holders of the 2010 Notes, we may be in default under the indenture unless we pay a fee equal to 1% per annum of the aggregate principal amounts of the
2010 Notes, or the extension fee, to extend the default date. Even if we pay the applicable extension fee, we will eventually be in default for these filing failures if sufficient time passes and we have not made the applicable filing.

The effectiveness of disclosure controls is inherently limited.

We do not expect that our disclosure controls and procedures, or our internal control over financial reporting, will prevent all errors and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system objectives will be met. The design of a control system must also reflect applicable resource constraints, and the benefits of controls must be considered relative to their
costs. As a result of these inherent limitations, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Failure of the control systems to prevent error
or fraud could materially adversely impact our financial results and our business.

Forecasting our tax rates is complex and subject to
uncertainty.

Our management must make significant assumptions, judgments and estimates to determine our current provision for
income taxes, deferred tax assets and liabilities, and any valuation allowance that may be recorded against our deferred tax assets. These assumptions, judgments and estimates are difficult to make due to their complexity, and the relevant tax law
is often changing.

Our future effective tax rates could be adversely affected by the following:



| |  |  | an increase in expenses that are not deductible for tax purposes, including stock-based compensation and write-offs of acquired in-process research and development;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the valuation of our deferred tax assets and liabilities;
| | - |  | --------------------------------------------------------------------



| |  |  | future changes in ownership that may limit realization of certain assets;
| | - |  | -------------------------------------------------------------------------



| |  |  | changes in forecasts of pre-tax profits and losses by jurisdiction used to estimate tax expense by jurisdiction;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | assessment of additional taxes as a result of federal, state, or foreign tax examinations; or
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in tax laws or interpretations of such tax laws.
| | - |  | --------------------------------------------------------



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Our success will depend on our ability to keep pace with the rapidly evolving technology standards of the
semiconductor industry. If we are unable to keep pace with these evolving technology standards, our products could be rendered obsolete, which would cause our operating results to decline.

The semiconductor industry has made significant technological advances. In particular, recent advances in deep sub-micron technology have required
electronic design automation companies to develop or acquire new products and enhance existing products continuously. The evolving nature of our 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | address the increasingly sophisticated needs of our customers; and
| | - |  | ------------------------------------------------------------------



| |  |  | acquire other companies that have complementary or innovative products.
| | - |  | -----------------------------------------------------------------------

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 and operating results could be seriously harmed.

If we fail to offer and maintain competitive equity compensation packages for our
employees, or if our stock price declines materially for a protracted period of time, we might have difficulty retaining our employees and our business may be harmed.

In todays competitive technology industry, employment decisions of highly skilled personnel are influenced by equity compensation packages, which offer incentives above traditional compensation only where there
is a consistent, long-term upward trend over time of a companys stock price. Our stock price declined significantly for several years due to market conditions and had recently been negatively affected by uncertainty surrounding the outcome of
our litigation with Synopsys, Inc. discussed above. In addition, our stock price has declined significantly in light of our financial results for fiscal year 2008 (including our backlog as of April 6, 2008, which backlog is described in
Item 1 above) as well as our outlook for fiscal year 2009.

As a result, many of our outstanding stock options have exercise prices
per share that are currently below the trading price per share of our common stock. Therefore, we may be forced to grant additional options to retain employees. This in turn could result in:



| |  |  | immediate and substantial dilution to investors resulting from the grant of additional options necessary to retain employees; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | compensation charges against us, which would negatively impact our operating results.
| | - |  | -------------------------------------------------------------------------------------

In addition, the new accounting requirements for employee stock options discussed below has adversely affected our option grant practices and may affect
our ability to recruit and retain employees.

Due to changes in the accounting treatment for employee stock options, we have changed our employee
compensation practices, and our reported results of operations have been and will likely continue to be adversely affected.

Until
April 2, 2006, we accounted for the issuance of employee stock options under principles that did not require us to record compensation expense for options granted at fair market value. In December 2004, the FASB issued SFAS 123R,
Share-Based Payment, which eliminates the ability to account for share-based compensation transactions using APB 25, and generally requires instead that such transactions be accounted for using a fair-value based method. Under SFAS 123R,
companies are required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. We adopted the new rules in the first quarter of our fiscal year 2007. This
change in accounting treatment has resulted and will continue to result in significant additional compensation expense compared to prior periods and has adversely affected and will likely continue to adversely affect our reported results of



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operations and hinder our ability to achieve profitability. We are continuing to assess the full impact of the adoption of SFAS 123R on our business
practices and, as part of that assessment, have changed our employee compensation practices by, for example, issuing more restricted stock and fewer stock options. These changes could make it harder for us to retain existing employees and attract
qualified candidates.

If our sales force compensation arrangements are not designed effectively, we may lose sales personnel and resources.

Designing an effective incentive compensation structure for our sales force is critical to our success. We have experimented, and
continue to experiment, with different systems of sales force compensation. If our incentives are not well designed, we may experience reduced revenue generation, and we may also lose the services of our more productive sales personnel, either of
which would reduce our revenue or potential revenue.

Fluctuations in our growth place a strain on our management systems and resources, and if we fail
to manage the pace of our growth, our business could be harmed.

Periods of growth followed by efforts to realign costs when revenue
growth is slower than anticipated have placed a strain on our management, administrative and financial resources. Over time we have significantly expanded our operations in the United States and internationally, and we plan to continue to expand the
geographic scope of our operations. However, in the first quarter of fiscal 2008, we decreased our workforce by 21 employees; and in May 2008, we initiated a restructuring plan and expected to incur restructuring charges of approximately $1.2
million to $2.2 million in fiscal 2009 primarily for employee termination costs. To pace the growth of our operations with the growth in our revenue, we must continue to improve administrative, financial and operations systems, procedures and
controls. Failure to improve our internal procedures and controls could hinder our efforts to manage our growth adequately, disrupt operations, lead to deficiencies in our internal controls and financial reporting and otherwise harm our business.

If chip designers and manufacturers do not integrate our software into existing design flows, or if other software companies do not cooperate in
working with us to interface our products with their design flows, demand for our products may decrease.

To implement our business
strategy successfully, we must provide products that interface with the software of other electronic design automation software companies. Our competitors may not support efforts by us or by our customers to integrate our products into their
existing design flows. We must develop cooperative relationships with competitors so that they will work with us to integrate our software into customers design flow. Currently, our software is designed to interface with the existing software
of Cadence, Synopsys and others. If we are unable to persuade customers to adopt our software products instead of those of competitors (including competitors offering a broader set of products), or if we are unable to persuade other software
companies to work with us to interface our software to meet the demands of chip designers and manufacturers, our business and operating results will suffer.

We may not obtain sufficient patent protection, which could harm our competitive position and increase our expenses.

Our
success and ability to compete depends to a significant degree upon the protection of our software and other proprietary technology. We currently have a number of issued patents in the United States, but this number is relatively small in relation
to our competitors.

These legal protections afford only limited protection for our technology. In addition, rights that may be granted
under any patent application that may issue in the future may not provide competitive advantages to us. Further, patent protection in foreign jurisdictions where we may need this protection may be limited or unavailable. It is possible that:



| |  |  | our pending U.S. and non-U.S. patents may not be issued;
| | - |  | --------------------------------------------------------



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| |  |  | competitors may design around our present or future issued patents or may develop competing non-infringing technologies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | present and future issued patents may not be sufficiently broad to protect our proprietary rights; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | present and future issued patents could be successfully challenged for validity and enforceability.
| | - |  | ---------------------------------------------------------------------------------------------------

We believe the patent portfolios of our competitors are far larger than ours, and this may increase the risk that they may sue us for patent infringement
and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses.

We rely on trademark, copyright and trade
secret laws and contractual restrictions to protect our proprietary rights, and if these rights are not sufficiently protected, it could harm our ability to compete and generate income.

To establish and protect our proprietary rights, we rely on a combination of trademark, copyright and trade secret laws, and contractual restrictions,
such as confidentiality agreements and licenses. Our ability to compete and grow our business could suffer if these rights are not adequately protected. We seek to protect our source code for our software, documentation and other written materials
under trade secret and copyright laws. We license our software pursuant to agreements, which impose certain restrictions on the licensees ability to utilize the software. We also seek to avoid disclosure of our intellectual property by
requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Our proprietary rights may not be adequately protected because:



| |  |  | laws and contractual restrictions in U.S. and foreign jurisdictions may not prevent misappropriation of our technologies or deter others from developing similar
technologies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competitors may independently develop similar technologies and software;
| | - |  | ------------------------------------------------------------------------



| |  |  | for some of our trademarks, federal U.S. trademark protection may be unavailable to us;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | our trademarks might not be protected or protectable in some foreign jurisdictions;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the validity and scope of our U.S. and foreign trademarks could be successfully challenged; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of this
unauthorized use.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The laws of some countries in which we market our products may offer little or no protection of our
proprietary technologies. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for them, which would harm our competitive
position and market share.

Our directors, executive officers and principal stockholders own a substantial portion of our common stock and as a result
of this concentration of ownership may be able to elect most of our directors and delay or prevent a change in control of Magma.

Our
directors, executive officers and stockholders who currently own over 5% of our common stock beneficially own a substantial portion of our outstanding common stock. These stockholders, in a combined vote, will be able to influence significantly all
matters requiring stockholder approval. For example, they may be able to elect most of our directors, delay or prevent a transaction in which stockholders might receive a premium over the market price for their shares or prevent changes in control
or management.

We may need additional capital in the future, but there is no assurance that funds would be available on acceptable terms.

In the future we may need to raise additional capital in order to achieve growth or other business objectives. This financing may not
be available in sufficient amounts or on terms acceptable to us and may be dilutive to



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existing stockholders. If adequate funds are not available or are not available on acceptable terms, our ability to expand, develop or enhance services or
products, or respond to competitive pressures would be limited.

Our certificate of incorporation, bylaws and Delaware corporate law contain
anti-takeover provisions which could delay or prevent a change in control even if the change in control would be beneficial to our stockholders. We could also adopt a stockholder rights plan, which could also delay or prevent a change in control.

Delaware law, as well as our certificate of incorporation and bylaws, contain anti-takeover provisions that could delay or prevent a
change in control of our company, even if the change of control would be beneficial to the stockholders. These provisions could lower the price that future investors might be willing to pay for shares of our common stock. These anti-takeover
provisions:



| |  |  | authorize our Board of Directors to create and issue, without prior stockholder approval, preferred stock that can be issued increasing the number of outstanding
shares and deter or prevent a takeover attempt;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish a classified Board of Directors requiring that not all members of the board be elected at one time;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit the ability of stockholders to call special meetings of stockholders; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | require advance notice requirements for nominations for election to the Board of Directors and proposals that can be acted upon by stockholders at stockholder
meetings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, Section 203 of the Delaware General Corporation Law and the terms of our stock option plans
may discourage, delay or prevent a change in control of our company. That section generally prohibits a Delaware corporation from engaging in a business combination with an interested stockholder for three years after the date the stockholder became
an interested stockholder. Also, our stock option plans include change-in-control provisions that allow us to grant options or stock purchase rights that will become vested immediately upon a change in control.

Our board of directors also has the power to adopt a stockholder rights plan, which could delay or prevent a change in control of us even if the change
in control is generally beneficial to our stockholders. These plans, sometimes called poison pills, are sometimes criticized by institutional investors or their advisors and could affect our rating by such investors or advisors. If our
board were to adopt such a plan it might have the effect of reducing the price that new investors are willing to pay for shares of our common stock.

We
are subject to risks associated with changes in foreign currency exchange rates.

We transact some portions of our business in various
foreign currencies. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. This exposure is primarily related to a portion of revenue in Japan and operating expenses in Europe, Japan and Asia-Pacific,
which are denominated in the respective local currencies. As of April 6, 2008, we had approximately $6.3 million of cash and money market funds in foreign currencies. During the third quarter of fiscal 2008, we entered into foreign exchange
forward contracts to mitigate the effects of our currency exposure risk for foreign currency transactions in Japanese Yen. While we assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis, our assessments may
prove incorrect. Therefore, movements in exchange rates could negatively impact our business operating results and financial condition.



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A portion of our marketable securities is invested in auction rate securities. Failures in these auctions may affect
our liquidity and value of these investments.

A portion of our marketable securities portfolio is invested in auction rate securities
which are structured to provide liquidity through an auction process that resets the applicable interest rate generally every 28 days. During the fourth quarter of fiscal 2008, the $18.35 million auction rate securities held by us failed auction due
to sell orders exceeding buy orders. These auctions have historically provided a liquid market for these securities. All of the auction rate securities that failed are AAA rated and are secured by pools of student loans guaranteed by state regulated
higher education agencies and reinsured by the U.S. Department of Education. However, the liquidity and fair value of these investments have been impacted primarily by the uncertainty of the credit markets. In the event we need to liquidate our
investments in these types of securities, we will not be able to do so until a successful auction occurs, a buyer is found outside of the auction process or the underlying securities have matured. Given these circumstances and the lack of liquidity,
we have classified all of our auction rate securities as long-term investments as of April 6, 2008. Based on an impairment analysis performed during the fourth quarter of fiscal 2008, we have recorded temporary unrealized losses of $0.8 million
in other comprehensive income as a reduction in stockholders equity. If a certain concentration of the underlying reference portfolios default, if the issuing agent fails to make the required interest payments or the final principal payment
upon the ultimate maturity of the notes, or if the credit ratings on the underlying reference portfolios deteriorate significantly, we may be required to adjust the carrying value of these investments through an other-than-temporary impairment
charge, which could materially affect our results of operations and financial condition.

The convertible notes we issued in March 2007 must be repaid
in cash in May 2010, if they are not redeemed or converted into shares of our common stock at an earlier date, which is unlikely to occur if the price of our common stock does not exceed the conversion price.

In May 2003, we issued $150.0 million principal amount of the Zero Coupon Convertible Subordinated Notes due May 15, 2008 (the 2008
Notes). In May 2005, we repurchased, in privately negotiated transactions, $44.5 million face amount (or approximately 29.7% of the total) of the 2008 Notes at an average discount to face value of approximately 22%. In addition, in May 2006,
we repurchased another $40.3 million face amount (approximately 38.2% of the remaining principal) of the 2008 Notes at an average discount to face value of approximately 13%. We spent an aggregate of approximately $34.8 million and $35.0 million,
respectively, on the repurchases in May 2005 and May 2006. In March 2007, we exchanged, in privately negotiated transactions, an aggregate principal amount of $49.9 million of the 2008 Notes for an equal aggregate principal amount of the 2010 Notes.
We repaid the $15.2 million remaining principal amount of the 2008 Notes in full in May 2008 and we will be required to repay the $49.9 million principal amount of the 2010 Notes in full in May 2010 unless the holders of those notes elect to convert
them into shares of our common stock before the repayment dates or these notes are otherwise redeemed. The conversion price is $15.00 for the 2010 Notes, subject to adjustment in certain circumstances. If the price of our common stock does not rise
above the applicable conversion price, conversion of the notes is unlikely and we would be required to repay the principal amounts of the notes in cash.

We may have insufficient cash flow to meet our debt service obligations, including payments due on our convertible notes.

We will be required to generate cash sufficient to conduct our business operations and pay our indebtedness and other liabilities, including all amounts, both principal and interest, due on our outstanding 2010 Notes. The 2010 Notes have an
aggregate outstanding principal amount of $49.9 million and bear interest at 2% per annum, with interest payable on May 15 and November 15 of each year, commencing on May 15, 2007. We may not be able to cover our anticipated debt
service obligations from our cash flow. This may materially hinder our ability to make payments on the 2010 Notes. Our ability to meet our future debt service obligations will depend upon our future performance, which will be subject to financial,
business and other factors affecting our operations, many of which are beyond our control. Accordingly, we cannot assure that we will be able to make required principal and interest payments on the 2010 Notes when due.



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The conversion of our outstanding convertible notes would result in dilution to our current stockholders, and there
may be additional dilution to our current stockholders upon achievement of various milestones pursuant to our mergers and acquisitions.

The terms of the 2010 Notes permit the holders to convert the 2010 Notes into shares of our common stock. The 2010 Notes are convertible into shares of our common stock at an initial conversion price of $15.00 per share, which would result
in an aggregate of approximately 3.3 million shares of our common stock being issued upon conversion, subject to adjustment. Upon the occurrence of certain triggering events, approximately 1.1 million additional shares of our common stock
may be issued upon conversion of the 2010 Notes. The conversion of some or all of the 2010 Notes will dilute the voting power and ownership interest of our existing stockholders. Sales in the public market of a substantial number of shares of our
common stock issuable upon conversion of the 2010 Notes, or the perception that such sales may occur, could cause the market price of our common stock to decline and could increase the fluctuations in our stock price. In addition, there may be
additional dilution to our current stockholders upon achievement of various milestones pursuant to our mergers and acquisitions, and such dilution would also dilute the voting power and ownership interest of our existing stockholders and could cause
the market price of our common stock to decline and could increase the fluctuations in our stock price.

We may be unable to meet the requirements under
the indentures to purchase our 2010 Notes upon a change in control.

Upon a change in control, which is defined in the indentures
relating to the 2010 Notes to include some cash acquisitions and private company mergers, note holders may require us to purchase all or a portion of the notes they hold. If a change in control were to occur, we might not have enough funds to pay
the purchase price for all tendered notes. Future credit agreements or other agreements relating to our indebtedness might prohibit the redemption or repurchase of the notes and provide that a change in control constitutes an event of default. If a
change in control occurs at a time when we are prohibited from purchasing the notes, we could seek the consent of our lenders to purchase the notes or could attempt to refinance this debt. If we do not obtain a consent, we could not purchase the
notes. Our failure to purchase tendered notes would constitute an event of default under the indenture, which might constitute a default under the terms of our other debt. In such circumstances, or if a change in control would constitute an event of
default under our senior indebtedness, the subordination provisions of the indenture would possibly limit or prohibit payments to note holders. Our obligation to offer to purchase the notes upon a change in control would not necessarily afford note
holders protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

Failure to obtain export
licenses could harm our business by preventing us from licensing or transferring our technology outside of the United States.

We are
required to comply with U.S. Department of Commerce regulations when shipping our software products and/or transferring our technology outside of the United States or to certain foreign nationals. We believe we have complied with applicable export
regulations, however, these regulations are subject to change, and future difficulties in obtaining export licenses for current, future developed and acquired products and technology, or any failure (if any) by us to comply with such requirements in
the past, could harm our business, financial conditions and operating results.

Our business operations may be adversely affected in the event of an
earthquake or other natural disaster.

Our corporate headquarters and much of our research and development operations are located in San
Jose, California, in Californias Silicon Valley region, which is an area known for its seismic activity. An earthquake, fire or other significant natural disaster could have a material adverse impact on our business, financial condition and/or
operating results.



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ITEM 1B.    UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.       PROPERTIES

Our corporate headquarters are
located in San Jose, California, where we occupy approximately 106,854 square feet under two leases, both of which expire on October 31, 2011. We have North American sales offices in California, North Carolina, Pennsylvania, Texas, Washington
and Canada. In addition, we have European offices in Germany, the Netherlands, France and the United Kingdom, offices in Israel and the United Arab Emirates, and Asian offices in China, India, Japan, South Korea and Taiwan. We believe our current
facilities are adequate to support our current and near-term operations. However, if we need additional space, adequate space may not be available on commercially reasonable terms or at all.



|ITEM 3.       LEGAL | PROCEEDINGS
|------------------- | -----------

We are subject to certain legal
proceedings described below and from time to time, we are also involved in other disputes that arise in the ordinary course of business. The number and significance of these litigation proceedings and disputes are increasing as our business expands
and we grow larger. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. As a
result, these litigation proceedings and disputes could harm our business and have an adverse effect on our consolidated financial statements. However, the results of any litigation or dispute are inherently uncertain and, at this time, no estimate
could be made of the loss or range of loss, if any, from such litigation matters and disputes unless they are or are close to being settled. Liabilities are recorded when a loss is probable and the amount can be reasonably estimated. Accordingly, as
of April 6, 2008, we recorded a liability of $1.1 million to cover legal settlement exposure related to the shareholder class action lawsuit and the derivative complaint, as described below, and have not recorded any liabilities related to
other contingencies. However, any estimates of losses or any such recording of legal settlement exposure is not assurance that there will be any court approval of any settlement, and there is no assurance that there will be any final, court approved
settlement. Litigation settlement and legal fees are expensed in the period in which they are incurred.

On June 13, 2005, a putative
shareholder class action lawsuit captioned The Cornelia I. Crowell GST Trust vs. Magma Design Automation, Inc., Rajeev Madhavan, Gregory C. Walker and Roy E. Jewell., No. C 05 02394, was filed in U.S. District Court, Northern District of
California. The complaint alleges that defendants failed to disclose information regarding the risk of Magma infringing intellectual property rights of Synopsys, Inc., in violation of Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder, and prays for unspecified damages. In March 2006, defendants filed a motion to dismiss the consolidated amended complaint. Plaintiff filed a further amended complaint in June 2006, which defendants again moved to dismiss.
Defendants motion was granted in part and denied in part by an order dated August 18, 2006, which dismissed claims against two of the individual defendants. On November 30, 2007, the parties agreed to a settlement. Plaintiffs filed a
motion for preliminary approval of the settlement on June 6, 2008. There is no assurance that the court will grant preliminary approval of the settlement or that the settlement will subsequently obtain final court approval.

On July 26, 2005, a putative derivative complaint captioned Susan Willis v. Magma Design Automation, Inc. et al., No. 1-05-CV-045834,
was filed in the Superior Court of the State of California for the County of Santa Clara. The Complaint seeks unspecified damages purportedly on behalf of us for alleged breaches of fiduciary duties by various directors and officers, as well as for
alleged violations of insider trading laws by executives during a period between October 23, 2002 and April 12, 2005. Defendants have demurred to the Complaint, and the action has been stayed pending further developments in the putative
shareholder class action referenced above. On January 8, 2008, the parties reached an agreement in principle with respect to certain aspects of settlement of the case and agreed upon the remaining terms of the settlement on February 21,
2008. We anticipate that plaintiff will file a motion for preliminary approval of the settlement on June 18, 2008. There is no assurance that the court will grant preliminary approval of the settlement or that the settlement will subsequently obtain
final court approval.



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##### Table of Contents

|ITEM 4.       SUBMISSION | OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------------------------ | ----------------------------------------

Not
applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3) of Form 10-K, the information regarding our executive officers required by Item 401(b) of Regulation S-K is
listed below.

The following table provides the names, offices, and ages of each of our executive officers as of June 2, 2008:



|                 |  |     |  |                                                               
|---------------- |  | --- |  | --------------------------------------------------------------
|Name             |  | Age |  | Position                                                      
|Rajeev Madhavan  |  | 42  |  | Chief Executive Officer and Chairman of the Board of Directors
|Roy E. Jewell    |  | 53  |  | President, Chief Operating Officer and Director               
|Peter S. Teshima |  | 50  |  | Corporate Vice President, Finance and Chief Financial Officer 
|Bruce Eastman    |  | 53  |  | Corporate Vice President, Worldwide Sales                     
|David H. Stanley |  | 61  |  | Corporate Vice President, Corporate Affairs and Secretary     

Rajeev Madhavan has served as our Chief Executive Officer and Chairman of the Board of
Directors since our inception in April 1997. Mr. Madhavan served as our President from our inception until May 2001. Prior to co-founding Magma, from July 1994 until February 1997, Mr. Madhavan founded and served as the President and Chief
Executive Officer of Ambit Design Systems, Inc., an electronic design automation software company, later acquired by Cadence Design Systems, Inc., an electronic design automation software company.

Roy E. Jewell has served as our President since May 2001 and as one of our directors since July 2001. Mr. Jewell has served as our Chief
Operating Officer since March 2001. From March 1999 to September 2000, Mr. Jewell served as the Chief Executive Officer at a company he co-founded, Clarisay, Inc., a supplier of surface acoustic wave filters. From January 1998 to March 1999,
Mr. Jewell was a member of the CEO Staff at Avant! Corporation, a provider of software products for integrated circuit designs. From July 1992 to January 1998, Mr. Jewell was the President and Chief Executive Officer of Technology Modeling
Associates, Inc., or TMA, subsequently acquired by Avant! Corporation. Prior to that time, Mr. Jewell served in various marketing positions at TMA.

Peter S. Teshima has served as our Corporate Vice President, Finance and Chief Financial Officer since April 2006. He served as our Vice President, Finance from August 2004 to April 2006. As our Vice President,
Finance, he managed Magmas worldwide finance organization. From January 2003 to August 2004, he served as Chief Operating Officer and Chief Financial Officer for Hier Design, Inc., a provider of electronic design automation design planning
software targeted at the field programmable gate array market space. From February 2000 to December 2002, Mr. Teshima was Chief Financial Officer and Vice President of Finance and Administration at InTime Software, Inc., a provider of
electronic design automation software. From November 1998 to January 2000, Mr. Teshima served as the Chief Financial Officer and Vice President of Finance and Administration of Cyclone Commerce, a provider of e-commerce and business to business
software applications and products. From 1997 to 1998, Mr. Teshima served as Chief Financial Officer and Vice President of Finance and Administration of Avant! Corporation. Mr. Teshimas prior experience includes serving as Chief
Financial Officer at interHDL Inc., and High Level Design Systems.

Bruce Eastman has served as our Corporate Vice President,
Worldwide Sales since April 2008. From September 2005 to April 2008, he served as an advisor to Silicon Navigator, Inc., a provider of electronic design automation software, as well as various other technology startups. From about May 2001 to
September 2005, he served as President and Chief Executive Officer of Hitachi Storage Software, Inc., a provider of IT storage management products and an independent subsidiary of Hitachi, Ltd. From September 1999 to May 2001,



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Mr. Eastman served as a founder and Chief Executive Officer of Comstock Systems, an IT management company which was acquired by Hitachi, Ltd.
Mr. Eastman has extensive experience in sales and sales management in the electronic design automation industry. His prior experience includes experience in sales management with ECAD through that companys initial public offering and
eventual merger with SDA to form Cadence Design Systems, Inc. While at Cadence, he served as Vice President of Worldwide Major Accounts and Technology Partners. He later served as Vice President of North America Sales for Quickturn Systems through
its initial public offering, and as Executive Vice President of Sales for Avant! Corporation, which went public during his tenure. His prior experience also includes having served as Worldwide Vice President of Sales of InterHDL, which was acquired
by Avant! Corporation, and also as Worldwide Vice President of Sales and Marketing of Silicon Architects, which was acquired by Synopsys.

David H. Stanley has served as our Corporate Vice President, Corporate Affairs since November, 2005 and as our Corporate Secretary since January 2006. From April 2005 to November 2005, Mr. Stanley served as a legal consultant to
us. From July 2004 to April 2005, Mr. Stanley was an independent legal advisor. Prior to that, Mr. Stanley was our Director for Corporate Development and Strategy from August 2003 to June 2004, in which position Mr. Stanley worked on
mergers and acquisitions. From September 1999 until April 2003, Mr. Stanley was general counsel of COLO.COM, a collocation space provider. From October 1997 to September 1999, Mr. Stanley was the general counsel and a member of the CEO
Staff of Avant! Corporation. Mr. Stanley received an A.B. degree in economics from Dartmouth College in Hanover, New Hampshire, and a J.D. degree from the University of San Francisco.



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PART II

ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol LAVA.
Public trading in our common stock commenced on November 20, 2001. Prior to that, there was no public market for our common stock. As of June 2, 2008, there were 543 holders of record (not including beneficial holders of stock held in
street names) of our common stock.

The following table sets forth, for the periods indicated, the high and low per share sale prices of
our common stock, as reported by the Nasdaq Global Market.



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|Fiscal 2008:   |  |      |       |     |   |      
|Fourth quarter |  | $    | 13.42 |     | $ | 8.48 
|Third quarter  |  | $    | 15.40 |     | $ | 11.35
|Second quarter |  | $    | 15.44 |     | $ | 12.02
|First quarter  |  | $    | 15.70 |     | $ | 11.64
|               |  |     
|Fiscal 2007:   |  |      |       |     |   |      
|Fourth quarter |  | $    | 8.95  |     | $ | 6.50 
|Third quarter  |  | $    | 9.58  |     | $ | 6.49 
|Second quarter |  | $    | 9.89  |     | $ | 8.28 
|First quarter  |  | $    | 12.35 |     | $ | 8.13 



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The following graph compares the cumulative 5-year total return to holders of our common stock relative
to the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Index. The graph assumes that the value of the investment in our common stock and in each index was $100 on March 31, 2003 and
tracks it (including reinvestment of dividends) through April 6, 2008. The comparisons in the table are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of the
common stock.

LOGO



|                                  |  |         |  |         |  |         |  |        |  |        |  |       
|--------------------------------- |  | ------- |  | ------- |  | ------- |  | ------ |  | ------ |  | ------
|                                  |  | 3/31/03 |  | 3/31/04 |  | 3/31/05 |  | 4/2/06 |  | 4/1/07 |  | 4/6/08
|Magma Design Automation, Inc.     |  | 100.00  |  | 269.42  |  | 153.16  |  | 111.61 |  | 154.32 |  | 130.58
|NASDAQ Composite                  |  | 100.00  |  | 151.41  |  | 152.88  |  | 181.51 |  | 190.24 |  | 177.63
|NASDAQ Computer & Data Processing |  | 100.00  |  | 125.27  |  | 135.69  |  | 157.98 |  | 172.44 |  | 164.86



|* | $ 100 Invested on 3/31/03 in stock or index-including reinvestment of dividends. Indexes calculated on month-end basis.
|- | -----------------------------------------------------------------------------------------------------------------------

Dividend Policy

We have not declared or paid cash
dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Our Board of Directors will determine future
dividends, if any.

Securities Authorized for Issuance under Equity Compensation Plans

Information relating to securities authorized for issuance under equity compensation plans will be presented under the caption Securities Authorized
for Issuance under Equity Compensation Plans in our definitive proxy statement. That information is incorporated into this Annual Report by reference.



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Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer

The following table shows repurchases of shares of our common stock in the fourth quarter of fiscal 2008:



|                               |  |                                 |  |                            |       |                                                                              |         |                                                                                       |    
|------------------------------ |  | ------------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------- | ---
|Period                         |  | Total Numberof SharesPurchased* |  | AveragePrice Paidper Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |         | Approximate Dollar Value ofShares that May Yet BePurchased Under the Plansor Programs
|January 7  January 31, 2008   |  | 7,934                           |  | $                          | 3.80  |                                                                              | 0       |                                                                                       | N/A
|February 1  February 29, 2008 |  | 338,945                         |  | $                          | 10.20 |                                                                              | 298,000 |                                                                                       | N/A
|March 1  April 6, 2008        |  | 210,877                         |  | $                          | 9.74  |                                                                              | 201,500 |                                                                                       | N/A
|                               |  |                                 |  |                            |       |                                                                              |         |                                                                                       |    
|Total                          |  | 557,756                         |  | $                          | 10.08 |                                                                              | 499,500 |                                                                                       | N/A



|* | Includes purchases of 499,500 shares of treasury stock at an average price of $9.98 in the open market pursuant to the repurchase program announced in February 2008, and 50,515
shares repurchased at prices ranging from $10.07 to $11.52, the fair market value on the repurchase dates, in order to satisfy tax withholding obligations associated with the vesting of restricted shares. The remaining shares that were repurchased
represented forfeitures of restricted stock as a result of employee terminations.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following selected
consolidated financial data are qualified by reference to, and should be read in conjunction with, Managements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and
related Notes included in Item 8 of this Annual Report. The selected consolidated balance sheet data as of April 6, 2008 and April 1, 2007 and selected consolidated statements of operations data for the years ended April 6,
2008, April 1, 2007 and April 2, 2006, are derived from our audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated balance sheet data as of April 2, 2006, March 31, 2005
and March 31, 2004 and the selected consolidated statements of operations data for the years ended March 31, 2005 and 2004 were derived from audited consolidated financial statements not included in this Annual Report. Our historical
results are not necessarily indicative of our future results.



|                                            |  |                                       |         |   |               |   |         |               |  |   |                |   |  |                |         |   |  |   |        
|------------------------------------------- |  | ------------------------------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | -------------- | - |  | -------------- | ------- | - |  | - | -------
|                                            |  | Fiscal Year Ended                    
|                                            |  | April 6, 2008                         |         |   | April 1, 2007 |   |         | April 2, 2006 |  |   | March 31, 2005 |   |  | March 31, 2004
|                                            |  | (in thousands, except per share data)
|Consolidated Statements of Operations Data: |  |                                       |         |   |               |   |         |               |  |   |                |   |  |                |         |   |  |   |        
|Revenue                                     |  | $                                     | 214,419 |   |               | $ | 178,153 |               |  | $ | 164,044        |   |  | $              | 145,941 |   |  | $ | 113,729
|Cost of revenue(1)                          |  | $                                     | 49,354  |   |               | $ | 54,579  |               |  | $ | 41,715         |   |  | $              | 22,216  |   |  | $ | 16,647 
|Operating income (loss)(1)(2)(3)            |  | $                                     | (24,732 | ) |               | $ | (67,773 | )             |  | $ | (26,529        | ) |  | $              | (5,654  | ) |  | $ | 13,633 
|Other income (expense), net(4)              |  | $                                     | (1,037  | ) |               | $ | 7,269   |               |  | $ | 8,141          |   |  | $              | 209     |   |  | $ | 1,418  
|Net income (loss)                           |  | $                                     | (30,835 | ) |               | $ | (61,185 | )             |  | $ | (20,937        | ) |  | $              | (8,581  | ) |  | $ | 11,475 
|Net income (loss) per sharebasic           |  | $                                     | (0.76   | ) |               | $ | (1.67   | )             |  | $ | (0.61          | ) |  | $              | (0.25   | ) |  | $ | 0.36   
|Net income (loss) per sharediluted         |  | $                                     | (0.76   | ) |               | $ | (1.67   | )             |  | $ | (0.61          | ) |  | $              | (0.25   | ) |  | $ | 0.29   



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|                                                                |  |                |         |               |   |               |  |                |         |                |   |         |  |   |        
|--------------------------------------------------------------- |  | -------------- | ------- | ------------- | - | ------------- |  | -------------- | ------- | -------------- | - | ------- |  | - | -------
|                                                                |  | As of         
|                                                                |  | April 6, 2008  |         | April 1, 2007 |   | April 2, 2006 |  | March 31, 2005 |         | March 31, 2004
|                                                                |  | (in thousands)
|Consolidated Balance Sheet Data:                                |  |                |         |               |   |               |  |                |         |                |   |         |  |   |        
|Cash and cash equivalents, short-term and long-term investments |  | $              | 67,508  |               | $ | 56,038        |  | $              | 97,158  |                | $ | 135,518 |  | $ | 150,842
|Total assets                                                    |  | $              | 244,296 |               | $ | 239,646       |  | $              | 284,064 |                | $ | 319,224 |  | $ | 314,475
|Convertible notes, net                                          |  | $              | 63,734  |               | $ | 63,077        |  | $              | 105,500 |                | $ | 150,000 |  | $ | 150,000
|Other non-current liabilities                                   |  | $              | 14,243  |               | $ | 4,689         |  | $              | 5,727   |                | $ | 1,749   |  | $ | 5,999  
|Total stockholders equity                                      |  | $              | 107,228 |               | $ | 82,767        |  | $              | 113,903 |                | $ | 121,399 |  | $ | 117,739



|(1) | We adopted SFAS 123R, Share-Based Payment on April 3, 2006 using the modified prospective transition method, under which we began recognizing compensation expense
for stock-based awards granted on or after April 3, 2006 and unvested awards granted prior to April 3, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes a charge of $12.5 million relating to litigation settlement expense for fiscal 2007.
|--- | ---------------------------------------------------------------------------------------------

|(3) | Includes charges of $2.3 million, $1.3 million, $0.5 million $4.4 million and $0.2 million for fiscal 2008, 2007, 2006, 2005 and 2004, respectively, for in-process research and
development.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes gains on extinguishment of convertible notes of $6.5 million and $8.8 million for fiscal 2007 and 2006, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This Managements Discussion and Analysis of Financial Condition and Results of Operation section should be read in conjunction with
Selected Consolidated Financial Data and our consolidated financial statements and results appearing elsewhere in this Annual Report. Throughout this section, we make forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can often identify these and other forward looking statements by terms such as becoming, may, will, should,
predicts, potential, continue, anticipates, believes, estimates, seeks, expects, plans, intends, or comparable terminology. These
forward-looking statements include, but are not limited to, our expectations about revenue, completion of in-process development of products, research and development expense, sales and marketing expense, general and administrative expense, cash
expenditures, various other operating expenses and acquisitions.

Although we believe that the expectations reflected in the
forward-looking statements contained herein are reasonable, and we have based these expectations on our beliefs and assumptions, such expectations may prove to be incorrect. Our actual results of operations and financial performance could differ
significantly from those expressed in or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to the risks discussed under the heading Risk Factors in
Item 1A of this Annual Report and the following factors:



| |  |  | competition in the EDA market;
| | - |  | ------------------------------



| |  |  | our ability to integrate acquired businesses and technologies;
| | - |  | --------------------------------------------------------------



| |  |  | negative effects of past and future changes to our organizational structure;
| | - |  | ----------------------------------------------------------------------------



| |  |  | litigation, including potentially higher-than-anticipated costs of litigation and future litigation about which we are unaware;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | potentially higher-than-anticipated costs of compliance with regulatory requirements, including those relating to internal control over financial reporting;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in laws and regulations, including export control laws and tax regulations;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | any delay of customer orders or failure of customers to renew licenses;
| | - |  | -----------------------------------------------------------------------



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| |  |  | delays or defaults in customer payments;
| | - |  | ----------------------------------------



| |  |  | weaker-than-anticipated sales of our products and services;
| | - |  | -----------------------------------------------------------



| |  |  | higher-than-expected costs of providing support services for our products; adverse pricing pressure;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | difficulties in developing and achieving market acceptance of new products and delays in planned release dates of our software products and upgrades;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks relating to conducting business internationally, including currency risks;
| | - |  | --------------------------------------------------------------------------------



| |  |  | weakness in and the cyclical nature of the communications, computing, consumer electronics, networking or semiconductor industries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to manage expanding operations;
| | - |  | -------------------------------------------



| |  |  | our ability to attract and retain key personnel, including management, technical, marketing and sales personnel needed to operate our company successfully;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | product defects;
| | - |  | ----------------



| |  |  | our ability to protect our intellectual property;
| | - |  | -------------------------------------------------



| |  |  | our ability to attract sufficient capital on reasonable terms in the future;
| | - |  | ----------------------------------------------------------------------------



| |  |  | terrorism or natural disasters such as earthquakes;
| | - |  | ---------------------------------------------------



| |  |  | and changes in accounting rules.
| | - |  | --------------------------------

We undertake no additional obligation to update these forward-looking statements.

Change in Fiscal Year End

We have a 52-53 week fiscal year ending on the first Sunday subsequent to March 31. Our fiscal years consist of four quarters of 13 weeks each except
for each fifth or sixth fiscal year, which includes one quarter with 14 weeks. Our fiscal year 2008 consisted of 53 weeks. The result of the additional week was included in this Annual Report, and did not have a material impact on our consolidated
financial position or results of operations.

On January 28, 2008, our Board of Directors approved a change of fiscal year from a
fiscal year ending on the first Sunday subsequent to March 31 to a fiscal year ending on the first Sunday subsequent to April 30 (except for any given year in which April 30 is a Sunday, in which case the fiscal year will end on
April 30), starting with fiscal 2009. Information covering the transition period from April 7, 2008 to May 4, 2008 will be included in our quarterly report on Form 10-Q for the quarterly period ending August 3, 2008, the first
quarterly report of our newly adopted fiscal year. The separate audited financial statements required for the transition period will be included in our annual report on Form 10-K for the fiscal year ending May 3, 2009.

Executive Summary

We provide EDA software products
and related services. Our software enables chip designers to reduce the time it takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. Our
products are used in all major phases of the chip development cycle, from initial design through physical implementation. Our focus is on software used to design the most technologically advanced integrated circuits, specifically those with minimum
feature sizes of 0.13 micron and smaller. See Item 1, Business for a more complete description of our business.

As an EDA
software provider, we generate substantially all our revenue from the semiconductor and electronics industries. Our customers typically fund purchases of our software and services out of their research and development (R&D) budgets.
As a result, our revenue is heavily influenced by our customers long-term business outlook and willingness to invest in new chip designs.



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The semiconductor industry is highly volatile and cost-sensitive. Our customers focus on controlling
costs and reducing risk, lowering R&D expenditures, cutting back on design starts, purchasing from fewer suppliers, and requiring more favorable pricing and payment terms from suppliers. In addition, intense competition among suppliers of EDA
products has resulted in pricing pressure on EDA products.

To support our customers, we have focused on providing technologically advanced
products to address each step in the IC design process, as well as integrating these products into broad platforms, and expanding our product offerings. Our goal is to be the EDA technology supplier of choice for our customers as they pursue
longer-term, broader and more flexible relationships with fewer suppliers.

Our accomplishments during fiscal 2008 include:



| |  |  | We successfully completed three transactions during fiscal 2008 to broaden our product offerings and to incorporate key technologies into our existing products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The number of our employees increased to 1,030 as of April 6, 2008, up from 843 as of April 1, 2007. Most of the increase in employees represents
additions to our R&D and application engineering organizations. We believe our investments in these organizations will enable us to continue to provide advanced design solutions for our customers in all key areas of chip design.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenue for fiscal 2008 was $214.4 million, an increase of 20% from the prior year. Licenses and bundled licenses and services sales for fiscal 2008 and 2007
accounted for approximately 84% and 81%, respectively, of our revenue. For fiscal 2008, 61% of our revenue was derived from orders recognized on a ratable basis or due-and-payable or cash-receipts basis, and 23% of our revenue was derived from
short-term time-based and perpetual licenses recognized up-front (of which 19% of our revenue was from new contracts entered into during fiscal 2008 and the remaining 4% of our revenue from orders received prior to fiscal 2008 but recognized as
revenue in fiscal 2008).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Domestic sales revenue increased by $6.0 million or 5% in fiscal 2008 compared to the prior year. This increase was primarily due to large orders executed during
fiscal 2008 in North America. These orders came from new customers and existing customers who extended license periods and added license capacity due to the continued use of existing and new Magma products among their design group designers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For fiscal 2008, cash flows generated from operations were $13.2 million, or 6% of fiscal 2008 revenue. If excluding the $12.5 million one-time payment on Synopsys
litigation settlement, the cash flows generated from operations for fiscal 2008 would have been $25.7 million, or 12% of fiscal 2008 revenue.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Acquisitions

During fiscal 2008, we acquired companies and purchased technologies that enable us to expand into new
markets. We believe that these acquisitions will be a significant factor in Magmas ability to compete successfully in the EDA industry and we expect to make similar acquisitions in the future. These acquisitions have increased the number of
our employees and, as a result, increased our research and development and sales and marketing expenses. These acquisitions may decrease our liquidity in the short term if earnout milestones are achieved and we are required to pay contingent cash
consideration under the terms of the applicable acquisition agreements.

On February 26, 2008, we acquired Sabio Labs, Inc., a
privately-held developer of analog design solutions for mixed-signal designers. Sabios software enables designers to create robust analog designs, port complex circuits to new process technologies in foundries efficiently, and explore system
design trade-offs early in the design process. The total purchase price for the acquisition was $16.5 million, consisting of approximately 1,574,000 shares of our common stock valued at $16.2 million and transaction costs of $270,000. As part of the



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initial consideration, 127,000 shares of our common stock valued at $1.3 million was associated with employee retention and will be earned and recorded as
compensation expenses in accordance with such employees vesting schedules. In addition, we agreed to pay up to $7.5 million of contingent consideration in the form of cash or shares of Magma common stock, at our discretion, to the former Sabio
stockholders upon achieving certain product integration and booking milestones.

On September 19, 2007, we acquired Rio Design
Automation, Inc., a privately-held EDA software company that provides package-aware chip design software. Rios software enables designers to analyze and optimize integrated circuit design within the context of the package and electronic
system, further expanding our product offering. Prior to acquiring Rio, we had an 18% ownership interest in Rio. The total purchase price for the step acquisition was $4.5 million, consisting of $526,000 in cash, approximately 278,700 shares of our
common stock valued at $3.8 million, and transaction costs of $168,000.

On April 13, 2007, we acquired certain assets from a
privately-held developer of EDA technology. Pursuant to the asset purchase agreement, we paid total consideration of $200,000 in cash. Based on managements estimates and appraisal, the $200,000 consideration was allocated to patents and
intellectual property.

During fiscal 2008, a total of $9.6 million in gross contingent cash consideration and a total of $3.8 million in
gross contingent stock consideration were earned by various acquired businesses upon their achievement of certain milestones under various prior asset purchase and business combination agreements.

Critical Accounting Policies and Estimates

In
preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our
balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the most significant potential impact on our financial statements, so we consider these to be our critical accounting
policies. We consider the following accounting policies related to revenue recognition, stock-based compensation, allowance for doubtful accounts, cash equivalent, short-term and long-term investments, strategic investments, asset purchases and
business combinations, valuation of long-lived assets and income taxes to be our most critical policies due to the estimation processes involved in each.

Revenue recognition

We recognize revenue in accordance with Statement of Position (SOP) 97-2, as
modified by SOP 98-9, which generally requires revenue earned on software arrangements involving multiple elements (such as software products, upgrades, enhancements, maintenance, installation and training) to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to us. If evidence of fair value does not exist for each element of a license arrangement and maintenance is the only undelivered
element, then all revenue for the license arrangement is recognized over the term of the agreement. If evidence of fair value does exist for the elements that have not been delivered, but does not exist for one or more delivered elements, then
revenue is recognized using the residual method, under which recognition of revenue for the undelivered elements is deferred and the residual license fee is recognized as revenue immediately.

Our revenue recognition policy is detailed in Note 1 to the Consolidated Financial Statements in Item 8 of this Annual Report. Management has made
significant judgments related to revenue recognition. Specifically, in connection with each transaction involving our products (referred to as an arrangement in the accounting literature) we must evaluate whether our fee is fixed
or determinable and we must assess whether collectibility is probable. These judgments are discussed below.



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The fee is fixed or determinable.    With respect to each arrangement, we must
make a judgment as to whether the arrangement fee is fixed or determinable. If the fee is fixed or determinable, then revenue is recognized upon delivery of software (assuming other revenue recognition criteria are met). If the fee is not fixed or
determinable, then the revenue is recognized when customer installments are due and payable.

In order for an arrangement to be considered
to have fixed or determinable fees, 100% of the license, services and initial post contract support fee is to be paid within one year or less from the order date. We have a history of collecting fees on such arrangements according to contractual
terms. Arrangements with payment terms extending beyond twelve months are considered not to be fixed or determinable.

Collectibility is
probable.    In order to recognize revenue, we must make a judgment about the collectibility of the arrangement fee. Our judgment of the collectibility is applied on a customer-by-customer basis pursuant to our credit review
policy. We typically sell to customers for which there is a history of successful collection. New customers are subjected to a credit review process, which evaluates the customers financial positions and ability to pay. If it is determined
from the outset of an arrangement that collectibility is not probable based upon our credit review process, revenue is recognized on a cash receipts basis (as each payment is collected).

Licenses revenue and bundled licenses and services revenue

We derive license revenue primarily from licenses of our design and implementation software and, to a lesser extent, from licenses of our analysis and verification products. We license our products under time-based
and perpetual licenses whereby license revenue is recognized after the execution of a license agreement and the delivery of the product to the customer, provided that there are no uncertainties surrounding the product acceptance, fees are fixed or
determinable, collection is probable and there are no remaining obligations other than maintenance.

For perpetual licenses and unbundled
time-based license arrangements, where maintenance is included for the first period of the license term, with maintenance thereafter renewable by the customer at the substantive rates stated in their agreements with us, the stated rate for
maintenance renewal is vendor-specific objective evidence (VSOE) of the fair value of maintenance in these arrangements. For these arrangements license revenue is recognized using the residual method in the period in which the license
agreement is executed assuming all other revenue recognition criteria are met. Where an arrangement involves extended payment terms, revenue recognized using the residual method is limited to amounts due and payable.

For transactions that include bundled maintenance for the entire license term we have no VSOE of fair value of maintenance. Therefore, we recognize
license revenue ratably over the maintenance period. If an arrangement involves extended payment termsthat is, where payment for less than 100% of the arrangement fee is due within one year of the contract datewe recognize revenue to the
extent of the lesser of the amount due and payable or the ratable portion. We classify the revenue recognized from these transactions separately as bundled licenses and services revenue in our consolidated statements of operations.

If we were to change any of these assumptions or judgments, it could cause a material increase or decrease in the amount of revenue that we report in a
particular period. Amounts invoiced relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized over time as the applicable revenue recognition criteria are satisfied.

Services revenue

We derive
services revenue primarily from consulting and training for our software products and from maintenance fees for our products. Most of our license agreements include maintenance, generally for a one-year period, renewable annually. Services revenue
from maintenance arrangements is recognized on a straight-line basis over the maintenance term. Because we have VSOE of fair value for consulting and training services,



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revenue is recognized as these services are performed or completed. Our consulting and training services are generally not essential to the functionality of
the software. Our products are fully functional upon delivery of the product. Additional factors considered in determining whether the revenue should be accounted for separately include, but are not limited to: degree of risk, availability of
services from other vendors, timing of payments and impact of milestones or acceptance criteria on our ability to recognize the software license fee.

Stock-based compensation

Effective April 3, 2006, we adopted SFAS No. 123 (revised 2004),
Share-Based Payment using the modified prospective transition method. Under SFAS 123R, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of
estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires
the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture
rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of
options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These
input factors are subjective and are determined using managements judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Unbilled accounts receivable

Unbilled
accounts receivable represent revenue that has been recognized in advance of being invoiced to the customer. In all cases, the revenue and unbilled receivables are for contracts which are non-cancelable, in which there are no contingencies and where
the customer has taken delivery of both the software and the encryption key required to operate the software. We typically generate invoices 45 days in advance of contractual due dates, and we invoice the entire amount of the unbilled accounts
receivable within one year from the contract inception.

Allowances for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly
review the adequacy of our accounts receivable allowance after considering the size of the accounts receivable balance, each customers expected ability to pay and our collection history with each customer. We review significant invoices that
are past due to determine if an allowance is appropriate using the factors described above. We also monitor our accounts receivable for concentration in any one customer, industry or geographic region.

As of April 6, 2008, two of our customers each accounted for more than 10% of total receivables. The allowance for doubtful accounts represents our
best estimate, but changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. If actual losses are significantly greater than the allowance we have established, that would increase
our general and administrative expenses and reported net loss. Conversely, if actual credit losses are significantly less than our allowance, this would decrease our general and administrative expenses and our reported net income would increase.

Cash equivalent, short-term investments and long-term investments

We account for our investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. These
investments are classified as available-for-sale, and are recorded on the



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balance sheet at fair market value as of the balance sheet date, with unrealized gains or losses considered to be temporary in nature reported as a component
of other comprehensive income (loss) within the stockholders equity on our consolidated balance sheets.

The fair value of our
investments is generally determined from quoted market prices based upon transactions in active markets. We have investments in auction rate securities recorded at cost, which approximates fair market value (unless the auction fails) due to their
variable interest rates, which reset through an auction process generally every 28 days. When auctions fail, trading essentially ceases and the securities are deemed to be not liquid, we may use other alternatives, such as broker-dealer valuation
methodologies, to determine the fair value of these securities, which could be materially different from the actual market performance of these securities.

We periodically evaluate our investments for possible other than temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition
of the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value. Once a decline in fair value is determined to be other than temporary, an impairment charge is
recorded to the extent that the carrying value of the securities exceeds the estimated fair market value of the securities. Assessing the above factors involves inherent uncertainty. Write-downs, if recorded, could be materially different from the
actual market performance of investments in our portfolio, if, among other things, relevant information related to our investments was not publicly available or other factors not considered by us would have been relevant to the determination of
impairment.

Accounting for asset purchases and business combinations

We are required to allocate the purchase price of acquired assets and business combinations to the tangible and intangible assets acquired, liabilities
assumed, as well as in-process research and development based on their estimated fair values. Such a valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from license sales, maintenance
agreements, consulting contracts, customer contracts, acquired workforce and acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows
from the projects when completed; the acquired companys brand awareness and market position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined companys product portfolio; and
discount rates. Managements estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and
circumstances may occur.

Other estimates associated with the accounting for business combinations may change as additional information
becomes available regarding the assets acquired and liabilities assumed resulting in changes in the purchase price allocation.

Goodwill impairment

SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill be tested for impairment at the
reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of
reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of the reporting units. We have determined that we have one reporting unit (see Note 13 to the consolidated
financial statements). Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount



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rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting units. Any
impairment losses recorded in the future could have a material adverse impact on our financial condition and results of operations.

Valuation of
intangibles and long-lived assets

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
requires that we record an impairment charge on finite-lived intangibles or long-lived assets to be held and used when we determine that the carrying value of intangible assets and long-lived assets may not be recoverable. If one or more indicators
of impairment exist, we will measure any impairment of intangibles or long-lived assets based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our business
model. Our estimates of cash flows require significant judgment based on our historical results and anticipated results and are subject to many factors.

Income taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes. Significant judgment is required in determining our provision for income taxes. In the ordinary course of business, there are many transactions and calculations where the ultimate tax outcome is uncertain. The amount of income taxes we
pay could be subject to audits by federal, state, and foreign tax authorities, which could result in proposed assessments. Although we believe that our estimates are reasonable, no assurance can be given that the final outcome of these tax matters
will not be different from what was reflected in our historical income tax provisions.

We assess the likelihood that our net deferred tax
assets will be recovered from future taxable income and, to the extent we believe that the recovery is not likely, we establish a valuation allowance. We consider all available positive and negative evidence including our past operating results, the
existence of cumulative losses in the most recent fiscal years, future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. We will continue to evaluate the realizability of the
deferred tax assets on a quarterly basis. Future reversals or increases to our valuation allowance could have a significant impact on our future earnings.

On April 2, 2007, we adopted FIN 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109. Under FIN 48, we are required to apply the more likely than
not threshold to the recognition and derecognition of tax positions. FIN 48 also provides guidance on the measurement of tax positions, balance sheet classification, interest and penalties, accounting in interim periods, disclosure and
transition. As a result of the implementation of FIN 48, we recognized a $0.5 million increase to liabilities for uncertain tax positions, which was accounted for as an adjustment to the April 2, 2007 balance of accumulated deficit. At
April 2, 2007, we had approximately $10.4 million of gross unrecognized tax benefits, $3.5 million of which, if recognized, would favorably affect our effective tax rate in future periods. Upon adoption of FIN 48, we also recognized
additional long-term income tax assets of $6.9 million and additional long-term income tax liabilities of $6.9 million to present the unrecognized tax benefits as gross amounts on the consolidated balance sheet.

We recognize interest and/or penalties related to uncertain tax positions in income tax expenses. As of April 6, 2008, we had approximately $0.35
million of accrued interest and penalties related to uncertain tax positions.

Strategic investments in privately-held companies

Our strategic equity investments consist of preferred stock and convertible notes that are convertible into preferred or common stock of several
privately-held companies. The carrying value of our portfolio of strategic



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equity investments totaled $2.2 million at April 6, 2008. Our ability to recover our investments in private, non-marketable equity securities and
convertible notes and to earn a return on these investments is primarily dependent on how successfully these companies are able to execute on their business plans and how well their products are accepted, as well as their ability to obtain
additional capital funding to continue operations.

Under our accounting policy, the carrying value of a non-marketable investment is
the amount paid for the investment unless it has been determined to be other than temporarily impaired, in which case we write the investment down to its estimated fair value. For equity investments where our ownership interest is between 20% to
50%, or where we have significant influence on the investees operating or financial decisions, we record our share of net equity income (loss) of the investee based on our proportionate ownership. During the second quarter of fiscal 2008, with
the purchase of the remaining 82% ownership of one of our equity investments, Rio Design Automation, Inc., we ceased accounting for our investment in Rio under the equity method and began accounting for our 100% ownership on a consolidated basis.
The equity investment balance of $220,000 on the acquisition date was reclassified from other assets and was allocated to the book value of the previously owned assets and liabilities on our consolidated balance sheets. We recorded $0.5 million of
net loss on our equity investments during fiscal 2008.

We review all of our investments periodically for impairment; however, for
non-marketable equity securities, the fair value analysis requires significant judgment. This analysis includes assessment of each investees financial condition, the business outlook for its products and technology, its projected results and
cash flows, the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or others. If an investee obtains additional funding at a valuation lower than our carrying amount, we
presume that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise, such as when we hold contractual rights that give us a preference over the rights of other investors. As the equity markets
have experienced volatility over the past few years, we have experienced substantial impairments in our portfolio of non-marketable equity securities. If certain equity market conditions do not improve, as companies within our portfolio attempt to
raise additional funds, the funds may not be available to them, or they may receive lower valuations, with more onerous investment terms than in previous financings, and the investments will likely become impaired. However, we are not able to
determine at the present time which specific investments are likely to be impaired in the future, or the extent or timing of individual impairments. We did not record any impairment charges related to these non-marketable equity investments
during fiscal 2008.

Results of Operations

Revenue overview

Revenue is comprised of licenses revenue, bundled licenses and services revenue, and services
revenue. Licenses revenue consists of fees for time-based or perpetual licenses of our software products. Bundled licenses and services revenue consists of fees for software licenses and post-contract customer support (PCS), where we do
not have VSOE of fair value of PCS. Services revenue consists of fees for services, such as customer training, consulting and PCS associated with unbundled license arrangements. We recognize revenue based on the specific terms and conditions of the
license contracts with our customer for our products and services as described in detail above under the heading Critical Accounting Policies and Estimates. For management reporting and analysis purposes we classify our revenue into the
following four categories:



| |  |  | Ratable
| | - |  | -------



| |  |  | Due & Payable
| | - |  | -------------



| |  |  | Cash Receipts
| | - |  | -------------



| |  |  | Up-Front / Perpetual or Time-Based
| | - |  | ----------------------------------



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We classify our license arrangements as either bundled or unbundled. Bundled license contracts include
maintenance with the license fee and do not include optional maintenance periods. Unbundled license contracts have separate maintenance fees and include optional maintenance periods.

We use this classification of license revenue to provide greater insight into the reporting and monitoring of trends in the components of our revenue and
to assist us in managing our business. It is important to note that the characterization of an individual contract may change over time. For example, a contract originally characterized as Ratable may be redefined as Cash Receipts if that customer
has difficulty in making payments in a timely fashion. In cases where a contract has been re-characterized for management reporting purposes, prior periods are not restated to reflect that change. The following table shows the breakdown of license
revenue by category as defined for management reporting and analysis purposes (in thousands, except for percentage data):



|                                                   |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  
|-------------------------------------------------- |  | ----------------------- | ------- | ----------- | --- | - | ----------------------- | - | ----------- |  | --- | ----------------------- |  | ----------- | ------- |  | --- | -
|                                                   |  | Year EndedApril 6, 2008 |         | % ofRevenue |     |   | Year EndedApril 1, 2007 |   | % ofRevenue |  |     | Year EndedApril 2, 2006 |  | % ofRevenue |        
|Revenue category:                                  |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  
|                                                   |  |                         |         |             |     |  
|Licenses and bundled licenses and services revenue |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  
|Ratable                                            |  | $                       | 43,859  |             | 20  | % |                         | $ | 33,199      |  | 19  | %                       |  | $           | 34,123  |  | 21  | %
|Due & Payable                                      |  |                         | 81,320  |             | 38  | % |                         |   | 75,506      |  | 42  | %                       |  |             | 55,004  |  | 34  | %
|Cash Receipts                                      |  |                         | 6,116   |             | 3   | % |                         |   | 9,199       |  | 5   | %                       |  |             | 8,465   |  | 5   | %
|Up-Front*                                          |  |                         | 48,282  |             | 23  | % |                         |   | 27,012      |  | 15  | %                       |  |             | 41,659  |  | 25  | %
|                                                   |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  
|                                                   |  |                         | 179,577 |             | 84  | % |                         |   | 144,916     |  | 81  | %                       |  |             | 139,251 |  | 85  | %
|Services revenue                                   |  |                         | 34,842  |             | 16  | % |                         |   | 33,237      |  | 19  | %                       |  |             | 24,793  |  | 15  | %
|                                                   |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  
|Total Revenue                                      |  | $                       | 214,419 |             | 100 | % |                         | $ | 178,153     |  | 100 | %                       |  | $           | 164,044 |  | 100 | %
|                                                   |  |                         |         |             |     |   |                         |   |             |  |     |                         |  |             |         |  |     |  



|* | Includes $40,278 or 19% of revenue from new contracts for fiscal 2008, $32,141 or 18% of revenue from new contracts for fiscal 2007 and $50,552 or 31% of revenue from new contracts
for fiscal 2006.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ratable.    For bundled time-based licenses, we recognize license revenue
ratably over the contract term, or as customer payments become due and payable, if less. The revenue for these bundled arrangements for both license and maintenance is classified as license revenue in our statement of operations. For unbundled
time-based licenses with a term of less than 15 months, we recognize license revenue ratably over the license term. For management reporting and analysis purposes, we refer to both these types of licenses generally as Ratable and we
generally refer to all time-based licenses recognized on a ratable basis as Long-Term, independent of the actual length of term of the license.

We classify unbundled perpetual or time-based licenses with a term of fifteen months or greater based on the payment term structure, as Due and Payable, Cash Receipts or Up-Front:

Due and Payable/Time-Based licenses with long-term payments.    For unbundled time-based licenses where the
payment terms extend greater than one year from the arrangement effective date, we recognize license revenue on a due and payable basis and we recognize maintenance and services revenue ratably over the maintenance term. For management reporting and
analysis purposes, we refer to this type of license generally as Due and Payable/Long-term Time-Based Licenses.

Cash
Receipts.    We recognize revenue from customers who have not met our predetermined credit criteria on a cash receipts basis to the extent that revenue has otherwise been earned. Such customers generally order short-term
time-based licenses or separate annual maintenance. We recognize license revenue as we receive cash payments from these customers. Maintenance is recognized ratably over the maintenance term as we receive cash payments from these customers. For
management reporting and analysis purposes, we refer to this type of license revenue as Cash Receipts.



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Up-Front/Perpetual license or Time-Based licenses with short-term
payments.    For unbundled time-based and perpetual licenses, we recognize license revenue upon shipment if the payment terms require the customer to pay 100% of the license fee and the initial period of PCS within one year
from the agreement date and payments are generally linear. We recognize maintenance revenue ratably over the maintenance term. In all of these cases, the contracts are non-cancelable, and the customer has taken delivery of both the software and the
encryption key required to operate the software. For management reporting and analysis purposes, we refer to this type of license generally as Up-Front, where the license is either perpetual or time-based.

Our license revenue in any given quarter depends upon the mix and volume of perpetual or short-term licenses ordered during the quarter and the amount of
long-term ratable or due and payable, and cash receipts license revenue recognized during the quarter. In general, we refer to license revenue recognized from perpetual or time-based licenses during the quarter as Up-Front revenue, for
management reporting and analysis purposes. All other types of revenue are generally referred to as revenue from backlog. We set our revenue targets for any given period based, in part, upon an assumption that we will achieve a certain level of
orders and a certain mix of short-term licenses. The precise mix of orders fluctuates substantially from period to period and affects the revenue we recognize in the period. If we achieve our target level of total orders but are unable to achieve
our target license mix, we may not meet our revenue targets (if we have more-than-expected long-term licenses) or may exceed them (if we have more-than-expected short-term or perpetual licenses). If we achieve the target license mix but the overall
level of orders is below the target level, then we may not meet our revenue targets as described in Item 1A, Risk Factors.

Revenue,
cost of revenue and gross profit

The table below sets forth the fluctuations in revenue, cost of revenue and gross profit from
fiscal 2007 to fiscal 2008 and from fiscal 2006 to fiscal 2007 (in thousands, except percentage data):



|                                      |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ----------- | - |  | ----------- | -- |  | --- | --
|                                      |  | Year Ended    |         |   | % Change      |  
|                                      |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 |  |   | 2007 / 2008 |   |  | 2006 / 2007 |   
|Revenue:                              |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Licenses                              |  | $             | 139,062 |   |               | $ | 101,991 |               |  | $ | 86,418      |   |  | 36          | %  |  | 18  | % 
|Bundled licenses and services.        |  |               | 40,515  |   |               |   | 42,925  |               |  |   | 52,833      |   |  | (6          | )% |  | (19 | )%
|Services                              |  |               | 34,842  |   |               |   | 33,237  |               |  |   | 24,793      |   |  | 5           | %  |  | 34  | % 
|                                      |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Total revenue                         |  |               | 214,419 |   |               |   | 178,153 |               |  |   | 164,044     |   |  | 20          | %  |  | 9   | % 
|Cost of revenue                       |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Licenses                              |  |               | 19,151  |   |               |   | 24,125  |               |  |   | 16,267      |   |  | (21         | )% |  | 48  | % 
|Bundled licenses and services.        |  |               | 9,474   |   |               |   | 12,935  |               |  |   | 13,404      |   |  | (27         | )% |  | (4  | )%
|Services                              |  |               | 20,729  |   |               |   | 17,519  |               |  |   | 12,044      |   |  | 18          | %  |  | 46  | % 
|                                      |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Total cost of revenue                 |  |               | 49,354  |   |               |   | 54,579  |               |  |   | 41,715      |   |  | (10         | )% |  | 31  | % 
|                                      |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Gross profit                          |  | $             | 165,065 |   |               | $ | 123,574 |               |  | $ | 122,329     |   |  | 34          | %  |  | 1   | % 
|                                      |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Percentage of total revenue:          |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Licenses revenue                      |  |               | 65      | % |               |   | 57      | %             |  |   | 53          | % |  |             |    |  |     |   
|Bundled licenses and services revenue |  |               | 19      | % |               |   | 24      | %             |  |   | 32          | % |  |             |    |  |     |   
|Services revenue                      |  |               | 16      | % |               |   | 19      | %             |  |   | 15          | % |  |             |    |  |     |   
|Cost of revenue                       |  |               | 23      | % |               |   | 31      | %             |  |   | 25          | % |  |             |    |  |     |   
|Gross profit                          |  |               | 77      | % |               |   | 69      | %             |  |   | 75          | % |  |             |    |  |     |   



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We market our products and related services to customers in four geographic regions: North America,
Europe (Europe, the Middle East and Africa), Japan, and Asia-Pacific. Internationally, we market our products and services primarily through our subsidiaries and various distributors. Revenue is attributed to geographic areas based on the country in
which the customer is domiciled. The table below sets forth the fluctuations in geographic distribution of revenue from fiscal 2007 to fiscal 2008 and from fiscal 2006 to fiscal 2007 (in thousands, except percentage data):



|                             |  |               |         |   |               |   |         |               |  |   |             |   |  |             |   |  |    |  
|---------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ----------- | - |  | ----------- | - |  | -- | -
|                             |  | Year Ended    |         |   | % Change      |  
|                             |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 |  |   | 2007 / 2008 |   |  | 2006 / 2007 |  
|Revenue:                     |  |               |         |   |               |   |         |               |  |   |             |   |  |             |   |  |    |  
|Domestic                     |  | $             | 127,664 |   |               | $ | 121,633 |               |  | $ | 109,434     |   |  | 5           | % |  | 11 | %
|International                |  |               | 86,755  |   |               |   | 56,520  |               |  |   | 54,610      |   |  | 54          | % |  | 4  | %
|                             |  |               |         |   |               |   |         |               |  |   |             |   |  |             |   |  |    |  
|Total revenue                |  | $             | 214,419 |   |               | $ | 178,153 |               |  | $ | 164,044     |   |  | 20          | % |  | 9  | %
|                             |  |               |         |   |               |   |         |               |  |   |             |   |  |             |   |  |    |  
|Percentage of total revenue: |  |               |         |   |               |   |         |               |  |   |             |   |  |             |   |  |    |  
|Domestic                     |  |               | 60      | % |               |   | 68      | %             |  |   | 67          | % |  |             |   |  |    |  
|International                |  |               | 40      | % |               |   | 32      | %             |  |   | 33          | % |  |             |   |  |    |  
|Total revenue                |  |               | 100     | % |               |   | 100     | %             |  |   | 100         | % |  |             |   |  |    |  

Revenue



| |  |  | Licenses revenue increased by 36% in fiscal 2008 compared to fiscal 2007 primarily due to large orders executed during fiscal 2008 in all regions. These
orders came from new and existing customers who extended license periods or added license capacity due to the continued use of existing and new Magma products among their design group designers. We do not factor any of our receivables to obtain
revenue. No customer accounted for greater than 10% of total revenue for fiscal 2008. Licenses revenue as a percentage of total revenue increased by 8% in fiscal 2008 compared to fiscal 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

License revenue increased by 18% in fiscal 2007 compared to fiscal 2006 primarily due to large orders executed during fiscal 2007 in North America, Japan
and Asia-Pacific. These orders came from new customers and existing customers who extended license periods and added license capacity due to the continued use of existing and new Magma products, among their design group designers. We do not factor
any of our receivables to obtain revenue. The increase in domestic revenue was partially offset by a decrease in revenue from Europe in fiscal 2007 compared to fiscal 2006. No customer accounted for greater than 10% of total revenue for fiscal 2007
and one customer accounted for greater than 10% of total revenue for fiscal 2006. License revenue as a percentage of revenue increased by 4% in fiscal 2007 compared to fiscal 2006.



| |  |  | Bundled licenses and services revenue decreased by 6% in fiscal 2008 compared to fiscal 2007 primarily due to a decrease in bundled licenses and services
revenue in North America, Japan and Asia-Pacific, partially offset by an increase in bundled licenses and services revenue in Europe. The decreases were primarily driven by revenue from a few large orders executed during fiscal 2007 that either
shifted to unbundled license revenue or ended in fiscal 2008. Bundled licenses and services revenue as a percentage of total revenue decreased by 5% in fiscal 2008 compared to fiscal 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Bundled licenses and services revenue decreased by 19% in fiscal 2007 compared to fiscal 2006 primarily driven by revenue from a few large orders executed
during fiscal 2006 that either shifted to unbundled license revenue or ended in fiscal 2007. Bundled licenses and services revenue decreased in all regions except Asia-Pacific. Bundled licenses and services revenue came from new customers and
existing customers extending license periods. Bundled licenses and services revenue as a percentage of revenue decreased by 8% in fiscal 2007 compared to fiscal 2006.



| |  |  | Services revenue increased by 5% in fiscal 2008 compared to fiscal 2007 primarily due to a $1.2 million increase in maintenance revenue and a $0.4 million
increase in consulting and training revenue, primarily driven by large orders of a few of our customers executed during fiscal 2008 throughout all regions. Services revenue as a percentage of total revenue decreased by 3% in fiscal 2008 compared to
fiscal 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Services revenue increased by 34% in fiscal 2007 compared to fiscal 2006 primarily due to a $4.5 million
increase in services revenue and a $3.9 million increase in maintenance revenue. The increase in maintenance revenue was primarily due to our large customers accelerating their deployment of our licenses and placing additional service orders.
Services revenue as a percentage of total revenue increased by 4% in fiscal 2007 compared to fiscal 2006.



| |  |  | Domestic revenueincreased by 5% in fiscal 2008 compared to fiscal 2007 primarily due to an increase in total licenses revenue and bundled licenses and
services revenue from existing customers. Domestic revenue as a percentage of total revenue decreased by 8% in fiscal 2008 compared to fiscal 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Domestic revenue increased by 11% in fiscal 2007 compared to fiscal 2006 primarily due to large orders executed during fiscal 2007 from a few major customers. Domestic revenue as a percentage of total revenue was
approximately the same in fiscal 2007 as compared to fiscal 2006.



| |  |  | International revenue increased by 54% in fiscal 2008 compared to fiscal 2007 primarily due to an increase in purchases from new and existing customers in
all three international regions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

International revenue increased by 4% in fiscal 2007 compared to fiscal 2006 primarily
due to an increase in purchases from new and existing customers in Japan and Asia-Pacific, partially offset by decreases in purchases from existing customers in Europe, who required less capacity for existing licenses and fewer licenses to new
technology products.

Cost of revenue



| |  |  | Cost of licenses revenue primarily consists of amortization of acquired developed technology and other intangible assets, software maintenance costs,
royalties and allocated outside sales representative expenses. Cost of licenses revenue decreased by 21% in fiscal 2008 compared to fiscal 2007, primarily due to a decrease in amortization charges related to existing intangible assets in fiscal 2008
compared to fiscal 2007 as several acquired technology licenses were fully amortized prior to or during fiscal 2008. The decreases were partially offset by increases in amortization charges related to newly acquired intangible assets and decreases
in costs allocated to cost of bundled licenses and services revenue in fiscal 2008 compared to fiscal 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cost of
license revenue increased by 48% in fiscal 2007 compared to fiscal 2006 primarily due to an increase in amortization charges related to new acquired intangible assets and to several existing acquired technology licenses, as we began recognizing
revenue from such products that were based on these acquired technologies during fiscal 2007 or fiscal 2006. All or a portion of the amortization expenses on these existing technology assets were included in the operating expense for fiscal 2006.
The remainder of the fluctuation in cost of license was accounted for by other individually insignificant items.



| |  |  | Cost of bundled licenses and services revenue primarily consists of allocation of costs from cost of licenses and services. Cost of bundled licenses and
services revenue decreased by 27% in fiscal 2008 compared to fiscal 2007 primarily due to decreases in allocated cost of licenses revenue in fiscal 2008 compared to fiscal 2007. Cost of bundled licenses and services revenue decreased by 4% in fiscal
2007 compared to fiscal 2006 primarily due to decreases in bundled licenses and services revenue in fiscal 2007 compared to fiscal 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost of services revenue primarily consists of personnel and related costs to provide product support, training and consulting services. Cost of services
revenue also includes stock-based compensation expenses, asset depreciation and allocated outside sales representative expenses. Cost of services revenue increased by 18% in fiscal 2008 compared to fiscal 2007 primarily due to increases in payroll
related costs and stock-based compensation expenses for application engineers resulting from increases in the number of employees and annual salary increases.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Cost of services revenue increased by 46% in fiscal 2007 compared to fiscal 2006 primarily due to
increases in personnel and related costs and stock-based compensation expenses for application engineers that corresponded to higher consulting and maintenance activities in fiscal 2007 compared to fiscal 2006. Stock-based compensation expense for
fiscal 2007 was based on the SFAS 123R fair value method, while stock-based compensation expense for fiscal 2006 was based on the intrinsic value method.

Operating expenses

The table below sets forth the fluctuations in operating expenses from fiscal 2007 to fiscal 2008
and from fiscal 2006 to fiscal 2007 (in thousands, except percentage data):



|                                    |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|----------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ----------- | - |  | ----------- | -- |  | --- | --
|                                    |  | Year Ended    |         |   | % Change      |  
|                                    |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 |  |   | 2007 / 2008 |   |  | 2006 / 2007 |   
|Operating expenses:                 |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Research and development            |  | $             | 76,920  |   |               | $ | 63,625  |               |  | $ | 50,085      |   |  | 21          | %  |  | 27  | % 
|Sales and marketing                 |  |               | 70,711  |   |               |   | 60,041  |               |  |   | 46,539      |   |  | 18          | %  |  | 29  | % 
|General and administrative          |  |               | 31,576  |   |               |   | 42,870  |               |  |   | 39,935      |   |  | (26         | )% |  | 7   | % 
|Amortization of intangible assets   |  |               | 8,043   |   |               |   | 11,011  |               |  |   | 11,849      |   |  | (27         | )% |  | (7  | )%
|In-process research and development |  |               | 2,256   |   |               |   | 1,300   |               |  |   | 450         |   |  | 74          | %  |  | 189 | % 
|Restructuring costs                 |  |               | 291     |   |               |   |        |               |  |   |            |   |  |             |    |  |     |   
|Litigation settlement               |  |               |        |   |               |   | 12,500  |               |  |   |            |   |  |             |    |  |     |   
|                                    |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Total operating expenses            |  | $             | 189,797 |   |               | $ | 191,347 |               |  | $ | 148,858     |   |  | (1          | )% |  | 29  | % 
|                                    |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Percentage of total revenue:        |  |               |         |   |               |   |         |               |  |   |             |   |  |             |    |  |     |   
|Research and development            |  |               | 36      | % |               |   | 36      | %             |  |   | 31          | % |  |             |    |  |     |   
|Sales and marketing                 |  |               | 33      | % |               |   | 34      | %             |  |   | 28          | % |  |             |    |  |     |   
|General and administrative          |  |               | 15      | % |               |   | 24      | %             |  |   | 24          | % |  |             |    |  |     |   
|Amortization of intangible assets   |  |               | 4       | % |               |   | 6       | %             |  |   | 7           | % |  |             |    |  |     |   
|In-process research and development |  |               | 1       | % |               |   | 1       | %             |  |   | 0           | % |  |             |    |  |     |   
|Restructuring costs                 |  |               | 0       | % |               |   |        |               |  |   |            |   |  |             |    |  |     |   
|Litigation settlement               |  |               |        |   |               |   | 7       | %             |  |   |            |   |  |             |    |  |     |   
|Total operating expenses            |  |               | 89      | % |               |   | 107     | %             |  |   | 91          | % |  |             |    |  |     |   



| |  |  | Research and development expense increased by $13.3 million in fiscal 2008 compared to fiscal 2007 primarily due to increases in payroll related expenses of
$6.2 million, allocations of increased common expenses, such as information technology and facility related expenses, of $3.9 million, and increases in other individually insignificant items such as stock-based compensation expense and professional
fees in fiscal 2008 compared to fiscal 2007. The increase in payroll related expenses was primarily due to increases in the number of employees and annual salary increases. We increased the number of our research and development employees by 30%
through direct hiring and acquisitions during fiscal 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Research and development expense increased by $13.5 million in
fiscal 2007 compared to fiscal 2006 primarily due to an increase in payroll-related expenses of $9.7 million, an increase in stock-based compensation charges of $1.7 million, and increases in other individually insignificant items such as consulting
and travel expenses. The increase in payroll related expenses in fiscal 2007 was primarily attributable to an increase in bonus expense of $1.5 million and an increase in salaries and related expenses of $7.3 million due to increases in the number
of employees and annual wage increases. We increased the number of our research and development employees by 50% through direct hiring and acquisitions during fiscal 2007. Stock-based compensation expense for fiscal 2007 was based on the SFAS 123R
fair value method, while stock-based compensation expense for fiscal 2006 was based on the intrinsic value method.



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We expect our research and development expense in fiscal 2009 to increase moderately, but to remain at
levels comparable to fiscal 2008 as a percentage of fiscal 2009 revenue.



| |  |  | Sales and marketing expense increased by $10.7 million in fiscal 2008 compared to fiscal 2007 primarily due to an increase in payroll related and commission
expenses of $8.7 million, stock-based compensation expense of $1.4 million and travel expenses of $1.2 million, partially offset by a $1.0 million increase in expenses allocated to cost of services revenue (primarily application engineering costs).
The remainder of the fluctuation in sales and marketing expense was accounted for by other individually insignificant items. The increases in payroll related charges were primarily due to increases in the number of employees and annual salary
increases. In fiscal 2008, the number of employees in sales and marketing increased by 19% over fiscal 2007 primarily due to growth in the number of application engineer employees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sales and marketing expense increased by $13.5 million in fiscal 2007 compared to fiscal 2006 primarily due to an increase in payroll related expenses of
$7.7 million, an increase in stock-based compensation charges of $3.7 million, an increase in commission expense of $1.4 million, an increase in travel expense of $1.4 million and increases in other individually insignificant items such as
professional services and marketing communications. The increases in payroll related charges were primarily due to increases in the number of employees and annual wage increases. In fiscal 2007, the number of employees in sales and marketing
increased by 20% over fiscal 2006 primarily due to growth in the number of application engineer employees. Stock-based compensation expense for fiscal 2007 was based on the SFAS 123R fair value method, while stock-based compensation expense for
fiscal 2006 was based on the intrinsic value method. The increases were partially offset by an increase in expenses allocated to cost of services revenue (primarily application engineering costs) of $2.2 million.

We expect our sales and marketing expenses in fiscal 2009 to increase moderately compared to fiscal 2008, and to remain at levels comparable to fiscal
2008 as a percentage of fiscal 2009 revenue.



| |  |  | General and administrative expense decreased by $11.3 million in fiscal 2008 compared to fiscal 2007 primarily due to a decrease of $11.5 million in legal
fees related to patent litigation with Synopsys, a decrease of $2.1 million in moving expenses and write-off of unamortized leasehold improvements, and an increase of $6.0 million in allocated cost to other functional areas due to higher common
expenses in fiscal 2008. The decreases were partially offset by increases in office and facility related expenses of $3.8 million, payroll related expenses of $1.2 million and other professional fees of $1.0 million in fiscal 2008. The
remainder of the fluctuation in general and administrative expense was accounted for by other individually insignificant items.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General and administrative expense increased by $2.9 million in fiscal 2007 compared to fiscal 2006 primarily due to increases in stock-based compensation expenses of $4.4 million, moving expenses and write-off of unamortized leasehold
improvements of $2.8 million, payroll related expenses of $2.0 million, asset depreciation of $1.0 million and consulting expense of $0.9 million. The increases were partially offset by a decrease of $6.9 million in legal fees related to patent
litigation with Synopsys, Inc. and other legal expenses, excluding the settlement fee of $12.5 million for the Synopsys litigation, and an increase in allocated cost to other functional areas of $2.9 million due to higher common expenses in fiscal
2007 compared to fiscal 2006. Stock-based compensation expense for fiscal 2007 was based on the SFAS 123R fair value method, while stock-based compensation expense for fiscal 2006 was based on the intrinsic value method. The remainder of the
fluctuation in general and administrative expense was accounted for by other individually insignificant items.

We expect our general and
administrative expenses in fiscal 2009 to remain at levels comparable to fiscal 2008, and to decrease as a percentage of fiscal 2009 revenue.



| |  |  | Amortization of intangible assets decreased by 27% in fiscal 2008 compared to fiscal 2007 primarily due to several existing developed technologies and
patents having been fully amortized prior to or during fiscal 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Amortization of intangible assets decreased by $0.8 million in fiscal 2007 compared to fiscal 2006
primarily due to the change in classification of amortization charges relating to developed technology from operating expenses to cost of license revenue as we began recognizing revenues from products based on the developed technology during fiscal
2007 or fiscal 2006.

The intangible assets amortized include licensed technology, customer relationship or base, patents, customer
contracts, assembled workforces, no shop rights, non-competition agreements and trademarks that were identified in the purchase price allocation for each business combination and asset purchase transaction.



| |  |  | In-process research and development (IPR&D) expense of $2.3 million in fiscal 2008 consisted of charges of $1.6 million and $0.7 million
recorded in connection with our acquisitions of Sabio and Rio, respectively, during fiscal 2008. The charges were recorded based on managements final purchase price allocation and were related to acquired technologies for which commercial
feasibility had not been established and had no alternative future uses. IPR&D expense of $1.3 million in fiscal 2007 consisted of a charge recorded in connection with our acquisition of Knights in November 2006. IPR&D expenses of $450,000
in fiscal 2006 consisted of a charge recorded in connection with our acquisition of ACAD in November 2005. The charges were recorded based on managements final purchase price allocation and were related to acquired technologies for which
commercial feasibility had not been established and had no alternative future uses. The in-process technology projects of Knights and ACAD were completed in fiscal 2008 and 2007, respectively, and we expect to bring the in-process products of Sabio
and Rio to completion during fiscal 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restructuring costs of $0.3 million in fiscal 2008 represented employee termination charges resulting from our realignment to current business objectives. No
such charge was incurred in fiscal 2007 and fiscal 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Litigation settlement costs of $12.5 million in fiscal 2007 represented an accrued payment to Synopsys of $12.5 million toward the settlement of the patent
litigation with Synopsys. The payment was made in April 2007. No such charge was incurred in fiscal 2008 and fiscal 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other
items

The table below sets forth the fluctuations in other items from fiscal 2007 to fiscal 2008 and from fiscal 2006 to fiscal
2007 (in thousands, except percentage data):



|                                                   |  |               |        |   |               |   |        |               |  |   |             |   |  |             |    |  |     |   
|-------------------------------------------------- |  | ------------- | ------ | - | ------------- | - | ------ | ------------- |  | - | ----------- | - |  | ----------- | -- |  | --- | --
|                                                   |  | Year Ended    |        |   | % Change      |  
|                                                   |  | April 6, 2008 |        |   | April 1, 2007 |   |        | April 2, 2006 |  |   | 2007 / 2008 |   |  | 2006 / 2007 |   
|Other income (expense), net:                       |  |               |        |   |               |   |        |               |  |   |             |   |  |             |    |  |     |   
|Interest income                                    |  | $             | 2,021  |   |               | $ | 2,729  |               |  | $ | 2,875       |   |  | (26         | )% |  | (5  | )%
|Interest and amortization of debt discount expense |  |               | (2,467 | ) |               |   | (723   | )             |  |   | (849        | ) |  | 241         | %  |  | (15 | )%
|Gain on extinguish of debt                         |  |               |       |   |               |   | 6,532  |               |  |   | 8,781       |   |  | (100        | )% |  | (26 | )%
|Other expense, net                                 |  |               | (591   | ) |               |   | (1,269 | )             |  |   | (2,666      | ) |  | (53         | )% |  | (52 | )%
|                                                   |  |               |        |   |               |   |        |               |  |   |             |   |  |             |    |  |     |   
|Total other income (expense), net                  |  | $             | (1,037 | ) |               | $ | 7,269  |               |  | $ | 8,141       |   |  |             |    |  |     |   
|Income tax provision                               |  | $             | 5,066  |   |               | $ | 1,002  |               |  | $ | 2,549       |   |  | 406         | %  |  | (61 | )%



| |  |  | Interest income decreased by 26% in fiscal 2008 compared to fiscal 2007 primarily due to our lower averaged cash and investments balance resulting from our
use of cash to acquire intangible assets and fixed assets, and to repurchase our common stock during fiscal 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest income decreased by 5% in fiscal 2007 compared to fiscal 2006 primarily due to our lower cash and investments balance resulting from our use of cash to acquire intangible assets and to repurchase a portion of our 2008 Notes during
fiscal 2007. The decrease was partially offset by higher interest rates on our cash and investments balance during fiscal 2007.



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##### Table of Contents

| |  |  | Interest expense primarily represents amortization of debt discount and issuance costs in connection with our 2010 Notes and 2008 Notes. Interest expense
increased in fiscal 2008 compared to fiscal 2007 primarily due to an additional $1.6 million expense related to debt discount amortization and the 2% interest payment on the 2010 Notes. The 2010 Notes offering was completed in the fourth quarter of
fiscal 2007. The remainder of the fluctuation in interest expense was accounted for by other individually insignificant items, such as amortization of debt issuance costs and interest expenses on the line of credit and capital leases.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During fiscal 2007, we wrote off a total of $0.9 million of the unamortized debt issuance costs in connection with the
portions of the 2008 Notes repurchased in May 2006 and exchanged in March 2007, resulting in less amortization on debt issuance costs for fiscal 2007 compared to fiscal 2006. The decrease was partially offset by an increase in interest expense on
capital leases in fiscal 2007.



| |  |  | Gain on extinguishment of debt, net in fiscal 2007 primarily consisted of a $5.3 million gain on the repurchase of $40.3 million of the 2008 Notes and a $2.1
million gain on the exchange of $49.9 million of the 2008 Notes for the 2010 Notes. The gains were partially offset by a total of $0.9 million write-offs of the debt issuance costs related to the portions of the 2008 Notes repurchased or exchanged
in fiscal 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gain on extinguishment of debt, net in fiscal 2006 primarily consisted of a $9.7 million gain on
repurchase of $44.5 million of the convertible subordinated debt, partially offset by a $0.9 million write-off of the debt issuance costs related to the repurchase.



| |  |  | Other expense, net decreased by $0.7 million in fiscal 2008 compared to fiscal 2007 primarily due to a $0.6 million change in foreign exchange gain/loss in
fiscal 2008. The changes in foreign exchange gain/loss were primarily caused by favorable exchange rate fluctuations between the U.S. Dollar and the Japanese Yen.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During fiscal 2008, we entered into foreign currency forward contracts to mitigate exposure in movements between the U.S. dollar and Japanese Yen. The
derivatives do not qualify for hedge accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We recognize the gain and loss on foreign currency forward contracts in the same period as
the remeasurement loss and gain of the related foreign currency-denominated exposures. In fiscal 2008, net foreign exchange loss totaled $110,000 and was included in other income (expense), net in our consolidated statements of operations.

Other expense, net decreased by $1.4 million in fiscal 2007 compared to fiscal 2006 primarily due to a $0.7 million decrease in loss on
sale of short-term investments, a $0.4 million decrease in loss on our equity investments and a $0.3 million favorable change in foreign exchange gain/loss in fiscal 2007. The impairment charge was determined based on our periodic review of the
investee companys financial performance, financial conditions and near-term prospects. The favorable change in foreign exchange gain/loss in fiscal 2007 was caused by a favorable exchange rate fluctuation between the U.S. Dollar and the
Japanese Yen.



| |  |  | Provision for income taxes.Our effective tax rate was 19.7%, 1.7%, and 13.9% in fiscal 2008, 2007 and 2006, respectively. Our
effective tax rates vary from the U.S. statutory rate primarily due to changes in our valuation allowance, state taxes, foreign income taxed at other than U.S. rates, in-process research and development, research and development tax credits, and
foreign withholding taxes for which no U.S. tax benefits were received due to our full valuation allowance. U.S. income tax expense was $5.1 million, $1.0 million, and $2.5 million in fiscal 2008, 2007 and 2006, respectively. The income tax expense
is comprised primarily of alternative minimum taxes, state and local taxes, income taxes in certain foreign jurisdictions, and foreign withholding taxes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are in a net deferred tax asset position, for which a full valuation allowance has been recorded. We will continue to provide a valuation allowance against our net deferred tax assets until it becomes more likely
than not that the deferred tax assets are realizable. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.



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In the event of a future change in ownership, as defined under federal and state tax laws, our net
operating loss and tax credit carryforwards may be subject to an annual limitation. The annual limitations may result in an increase to our current income tax provision and/or the expiration of unutilized net operating loss and tax credit
carryforwards.

Liquidity and Capital Resources



|                                                             |  |                |         |   |               |   |         |               |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ------- | -
|                                                             |  | April 6, 2008  |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|                                                             |  | (in thousands) |        
|As of:                                                       |  |                |         |   |               |   |         |               |  |   |         |  
|Cash and cash equivalents                                    |  | $              | 46,970  |   |               | $ | 45,338  |               |  | $ | 58,550  |  
|Short-term investments                                       |  |                | 3,000   |   |               |   | 10,700  |               |  |   | 38,608  |  
|Long-term investments                                        |  |                | 17,538  |   |               |   |        |               |  |   |        |  
|                                                             |  |                |         |   |               |   |         |               |  |   |         |  
|Cash, cash equivalents, short-term and long-term investments |  | $              | 67,508  |   |               | $ | 56,038  |               |  | $ | 97,158  |  
|                                                             |  |                |         |   |               |   |         |               |  |   |         |  
|For the Year Ended:                                          |  |                |         |   |               |   |         |               |  |   |         |  
|Net cash provided by operating activities                    |  | $              | 13,214  |   |               | $ | 21,315  |               |  | $ | 40,210  |  
|Net cash provided by (used in) investing activities          |  | $              | (22,564 | ) |               | $ | (8,340  | )             |  | $ | 43,082  |  
|Net cash provided by (used in) financing activities          |  | $              | 10,932  |   |               | $ | (26,189 | )             |  | $ | (45,233 | )

As of April 6, 2008, our total cash, cash equivalents, short-term investments and long-term
investments, excluding restricted cash, was $67.5 million, as compared to $56.0 million as of April 1, 2007 and $97.2 million as of April 2, 2006. In fiscal 2008 and 2007, our primary sources of cash consisted of cash provided by
operations and proceeds from issuance of common stock to employees, and our primary uses of cash consisted of the repurchase of a portion of the 2008 Notes, repurchases of our common stock, purchases of property and equipment, and payments related
to business combination and intangible asset acquisitions.

Our investment portfolio consists of high-grade fixed-income securities
diversified among corporate, U.S. agency and municipal issuers with maturities of two years or less. A portion of the portfolio is allocated to auction rate securities which are structured to provide liquidity through an auction process that resets
the applicable interest rate generally every 28 days.

During the fourth quarter of fiscal 2008, the $18.35 million auction rate securities
held by us failed auction due to sell orders exceeding buy orders. As of April 6, 2008, we have written down our auction rate securities from their par value of approximately $18.35 million to the estimated fair value of approximately $17.5
million. The $0.8 million decline in market value was deemed temporary as we believe that these investments generally are of high credit quality, as substantially all of the investments carry an AAA credit rating and are secured by pools
of student loans guaranteed by state-regulated higher education agencies and reinsured by the U.S. Department of Education. In addition, we have the intent and ability to hold these investments until anticipated recovery in market value occurs.
Accordingly, we have recorded an unrealized loss on these securities of $0.8 million in other comprehensive loss as a reduction in stockholders equity. The funds invested in auction rate securities that have experienced failed auctions
will not be accessible until a successful auction occurs, a buyer is found outside of the auction process or the underlying securities have matured. Based on our ability to access our cash, cash equivalents and short-term investments, our expected
operating cash flows, and our other sources of cash, we do not anticipate the current lack of liquidity on these investments to have a material impact on our financial condition or results of operations.

As of April 6, 2008, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated operating and working capital
expenditure requirements in the ordinary course of business for at least



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the next 12 months, as well as the repayment of the remaining 2008 Notes, which we completed in May 2008. If we require additional capital resources to grow
our business internally or to acquire complementary technologies and businesses at any time in the future, we may use cash or need to sell additional equity or debt securities. The sale of additional equity or convertible debt securities may result
in more dilution to our existing stockholders. Financing arrangements may not be available to us, or may not be available in amounts or on terms acceptable to us.

Net cash provided by operating activities

Net cash provided by operating activities decreased by $8.1 million in
fiscal 2008 compared to fiscal 2007. The decrease was primarily due to a $36.5 million increase in payments on accounts payable and accrued liabilities balances (including the $12.5 million one-time payment on the Synopsys litigation
settlement), and a $7.1 million increase in costs and expenses in fiscal 2008. These decreases in cash flow were partially offset by a $36.2 million increase in cash from customers in fiscal 2008. The increase in cash from customers was
primarily due to growth in revenue and strong cash collections in fiscal 2008. The decrease in accrued liabilities balances in fiscal 2008 was primarily due to payments on legal fees, employee bonuses and the Synopsys litigation settlement fee of
$12.5 million.

Net cash provided by operating activities decreased by $18.9 million to $21.3 million in fiscal 2007 compared to fiscal
2006. The decrease was primarily due to a $31.8 million increase in costs and expenses and a $1.0 million decrease in cash from interest income. These decreases in cash flow were partially offset by a $7.7 million net change in accounts payable
and accrued liabilities balances and a $6.4 million increase in cash from customers in fiscal 2007. The increase in cash from customers was primarily due to growth in revenue and strong cash collection in fiscal 2007 compared to fiscal 2006.
Accounts payable and accrued liabilities balances increased by $19.4 million and $11.7 million, respectively, in fiscal 2007 and 2006. The increase in accrued liabilities balances was primarily due to the accrual of the $12.5 million Synopsys
litigation settlement in the fourth quarter of fiscal 2007, partially offset by decreases in accrued bonuses and commissions balances.

Net cash
provided by/used in investing activities

Net cash used in investing activities was $22.6 million in fiscal 2008. We used a total of
$8.3 million in cash to make earnout payments relating to prior acquisitions, acquire Rio, purchase technology licenses and made an investment of $1.3 million in a privately held technology company for business and strategic purposes. We also
acquired property and equipment totaling $7.2 million in cash and $2.9 million through capital leases. The primary sources of cash were the net proceeds of $10.6 million from sales of marketable securities and the $4.9 million from the releases of
restricted cash. In connection with the establishment of the $10.0 million credit facility in July 2007, we are no longer required to maintain restricted cash balances relating to the $1.9 million letters of credit and to the $3.0 million borrowing
under the prior credit facility which was paid off in the second quarter of fiscal 2008. We expect to make capital expenditures of approximately $8.3 million during fiscal 2009. These capital expenditures will be used to support selling, marketing
and product development activities. We will use capital lease financing as well as our cash and cash equivalents to fund these purchases. In addition, we may make earnout payments related to prior acquisitions and acquire additional technologies and
strategic equity investments in the future using our cash and cash equivalents.

Net cash used in investing activities was $8.3 million in
fiscal 2007. We used a total of $25.3 million in cash to acquire Knights, purchase technology licenses and make earnout payments relating to prior acquisitions and made an investment of $0.9 million in a privately held technology company for
business and strategic purposes. We also acquired property and equipment totaling $5.4 million in cash and $2.8 million through capital leases. The property and equipment expenditures were primarily for purchases of computer equipment and research
and development tools to support our growing operations. In addition, in connection with the $3.0 million borrowings under the line of credit and our entry into two new office leases, we maintain restricted cash of $4.7 million as securities to the
borrowings and deposits for the new leases. The primary source of cash was the net proceeds of $28.0 million from sales of marketable securities as we liquidated these investments to repurchase a portion of the 2008 Notes.



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Net cash provided by investing activities was $43.1 million in fiscal 2006. We had net proceeds of
$76.4 million from sales of marketable securities as we liquidated these investments to repurchase a portion of the 2008 Notes as well as to repurchase 2,000,000 shares of common stock. Partially offsetting the cash inflow, we used a total of
$11.6 million in cash to acquire ACAD, to purchase a technology license from IBM and patents from ReShape. We also made earnout payments totaling $14.5 million upon achievement of certain milestones relating to Mojave and other prior asset
purchases. We also made an investment of $0.8 million in a privately held technology company for business and strategic purposes. In addition, we acquired property and equipment totaling $6.5 million in cash and $2.4 million through capital leases.

Net cash provided by/used in financing activities

Net cash provided by financing activities was $10.9 million in fiscal 2008. The primary source of cash was $21.4 million in net cash received from the exercise of stock options and shares purchased under the employee
stock purchase plan during fiscal 2008. We used $5.0 million to repurchase 499,500 shares of our common stock in the open market. In addition, we used $3.0 million to payoff the borrowings under our line of credit facility and made payments of $2.4
million on our capital lease obligations.

Net cash used in financing activities was $26.2 million in fiscal 2007. We used $35.0 million to
repurchase a portion of 2008 Notes and received net proceeds of $84,000 from termination of the related portion of the bond hedge and warrant, incurred $1.0 million of debt issuance costs in connection with the exchange of a portion of our 2008
Notes, and made payments of $1.5 million on our capital lease obligations. The primary sources of cash were $3.0 million borrowings under the line of credit and $8.2 million in net cash received from the exercise of stock options and purchases
of shares under the employee stock purchase plan during the period.

Net cash used in financing activities was $45.2 million in fiscal
2006. We used $34.8 million to repurchase a portion of our 2008 Notes and received net proceeds of $140,000 from termination of the related portion of the bond hedge and warrant. In addition, we used $16.0 million to repurchase 2,000,000 shares of
our common stock in the open market, as authorized by our Board of Directors in April 2005, and made payments of $0.8 million on our capital lease obligations. The primary source of cash was $6.3 million in net cash received from the exercise of
stock options and shares purchased under the employee stock purchase plan during the period.

Convertible notes

On May 22, 2003, we issued $150.0 million principal amount of the 2008 Notes resulting in net proceeds of approximately $145.1 million. The 2008
Notes did not bear coupon interest and were convertible into shares of our common stock at an initial conversion price of $22.86 per share. In order to minimize the dilutive effect from the issuance of the 2008 Notes, we entered into convertible
bond hedge and warrant transactions with Credit Suisse First Boston International (CSFB International). Under the convertible bond hedge arrangement, CSFB International agreed to sell us, for $22.86 per share, up to 6.56 million
shares of our common stock to cover our obligation to issue shares upon conversion of the 2008 Notes. In addition, we issued CSFB International a warrant to purchase up to 6.56 million shares of common stock for a purchase price of $31.50 per
share. The net cost incurred in connection with these arrangements, which consists of the $56.2 million cost of the convertible bond hedge, offset in part by the $35.9 million proceeds from the issuance of the warrant, was approximately $20.3
million.

In May 2005, we repurchased $44.5 million face amount (or approximately 29.7% of the principal amount) of the 2008 Notes at an
average discount to face value of approximately 22%. We spent an aggregate of approximately $34.8 million on the repurchase. The repurchase left approximately $105.5 million aggregate principal amount of the 2008 Notes outstanding. At the same time
we terminated a corresponding portion of the hedging arrangements.

In May 2006, we repurchased an additional $40.3 million face amount (or
approximately 38.2% of the remaining principal amount) of the 2008 Notes at an average discount to face value of approximately 13%. We



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spent an aggregate of approximately $35.0 million on the repurchase. The repurchase left approximately $65.2 million aggregate principal amount of the 2008
Notes outstanding. At the same time we terminated a corresponding portion of the hedging arrangements.

In March 2007, we exchanged an
aggregate principal amount of $49.9 million (or approximately 76.7% of the remaining principal amount) of the 2008 Notes for an equal aggregate principal amount of the 2010 Notes. At the same time we terminated a corresponding portion of the
hedging arrangements. The 2010 Notes bear interest at 2% per annum and are convertible into shares of our common stock at an initial conversion price of $15.00 per share, for an aggregate of approximately 3.33 million shares. The 2010
Notes are unsecured senior indebtedness of Magma, which rank senior in right of payment to the 2008 Notes and junior in right of payment to Magmas $10.0 million revolving line of credit facility. After May 20, 2009, we will have the
option to redeem the 2010 Notes for cash in an amount equal to 100% of the aggregate outstanding principal amount at the time of such redemption. The 2010 Notes also contain a net share settlement provision which allows us, at our option, in lieu of
delivery of some or all of the shares of common stock otherwise issuable upon conversion of the 2010 Notes, to pay holders of the 2010 Notes in cash for all or a portion of the principal amount of the converted 2010 Notes and any amounts in excess
of the principal amount which are due.

Approximately $15.2 million principal amount of the 2008 Notes was due on May 15, 2008, and
approximately $49.9 million principal amount of the 2010 Notes remain due on May 15, 2010, unless the holders of those notes elect to convert them into our common or the notes are otherwise redeemed before their respective repayment dates.
We repaid the $15.2 million principal amount of the 2008 Notes in May 2008. The remaining portion of the hedging arrangements expired at the same time.

Repurchases of common stock

On February 21, 2008, we announced that our Board of Directors authorized us to
repurchase up to $20.0 million of our common stock. In March 2008, we used approximately $5.0 million to repurchase 499,500 shares of our common stock in the open market. The repurchased shares are to be used for general corporate purposes.

Line of credit

In July 2007,
we established a $10.0 million unsecured revolving line of credit facility with Wells Fargo Bank, N.A. This credit facility, which replaces the $5.0 million revolving line of credit facility previously established in November 2006, is available
through July 2010 and bears an interest rate equal to the banks prime rate less 1.20% or LIBOR plus 1.00%. We are required to make interest only payments monthly and the outstanding principal amount plus all accrued but unpaid interest is
payable in full at the expiration of the credit facility. The credit facility requires that we maintain certain financial conditions and pay fees of 0.125% per year, which was subsequently reduced to 0.075% per year effective February
2008, on the unused amount of the facility. In addition, the credit facility allows letters of credit to be issued on our behalf, provided that the aggregate outstanding amount of the letters of credit shall not exceed the available amount for
borrowing under the credit facility. Letters of credit under the prior facility were transferred to the new $10.0 million credit facility. As of April 6, 2008, two letters of credit totaling $1.7 million were outstanding and we had a
borrowing base availability of $8.3 million under the credit facility. Since the new credit facility is unsecured, we are no longer required to maintain restricted cash balances relating to the letters of credit under the credit facility.

Contractual obligations

As of
April 6, 2008, our principal contractual obligations consisted of operating lease commitments, with an aggregate future amount of $18.2 million through fiscal 2013 for office facilities, repayments of the convertible notes of $15.2 million due
in May 2008 and $49.9 million due in May 2010, capital lease obligations for computer equipment and purchase obligations. Although we have no material commitments for capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments with our



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anticipated growth in operations and infrastructure. Purchase obligations represent an estimate of all open purchase orders and contractual obligations in
the normal course of business for which we have not received the goods or services as of April 6, 2008. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule
and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. In addition, we have other obligations for goods and services entered into in the normal course of business. These obligations,
however, either are not enforceable or legally binding or are subject to change based on our business decisions.

Our acquisition
agreements related to certain business combination and asset purchase transactions obligate us to pay certain contingent cash consideration based on meeting certain financial or project milestones and continued employment of certain employees. The
total amount of cash contingent consideration that could be paid under our acquisition agreements, assuming all contingencies are met, was $42.1 million as of April 6, 2008. These contingent consideration obligations are not expected to affect
our estimate that our existing cash and cash equivalents will be sufficient to meet our anticipated operating and working capital expenditure requirements in the ordinary course of business for at least the next 12 months, as well as the repayment
of the remaining 2008 Notes of $15.2 million, which we completed in May 2008.

The table below summarizes our significant contractual
obligations at April 6, 2008, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions). The operating lease obligations and purchase obligations were not recorded in our consolidated
balance sheets as of April 6, 2008.



|                            |  |                        |      |                 |   |          |  |          |      |              |   |     |  |   |  
|--------------------------- |  | ---------------------- | ---- | --------------- | - | -------- |  | -------- | ---- | ------------ | - | --- |  | - | -
|                            |  | Payments due by period
|Contractual Obligations     |  | Total                  |      | Less than1 year |   | 1-3Years |  | 4-5Years |      | After 5Years
|Operating lease obligations |  | $                      | 18.2 |                 | $ | 6.7      |  | $        | 9.1  |              | $ | 2.4 |  | $ | 
|Capital lease obligations   |  |                        | 4.1  |                 |   | 2.4      |  |          | 1.7  |              |   |    |  |   | 
|Convertible notes           |  |                        | 65.1 |                 |   | 15.2     |  |          | 49.9 |              |   |    |  |   | 
|Purchase obligations        |  |                        | 7.8  |                 |   | 4.9      |  |          | 2.9  |              |   |    |  |   | 
|                            |  |                        |      |                 |   |          |  |          |      |              |   |     |  |   |  
|Total                       |  | $                      | 95.2 |                 | $ | 29.2     |  | $        | 63.6 |              | $ | 2.4 |  | $ | 
|                            |  |                        |      |                 |   |          |  |          |      |              |   |     |  |   |  

Income taxes

As of April 6, 2008, our unrecognized tax benefits amounted to $11.8 million and were included in our long-term tax liabilities on our consolidated balance sheet. We are not able to estimate the amount or timing
of any cash payments required to settle these liabilities; however, we do not anticipate the settlement of the liabilities will require payment of cash within the next twelve months and do not believe that the ultimate settlement of these
obligations will materially affect our liquidity.

Off-balance sheet arrangements

As of April 6, 2008, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation
S-K.

Warranties

We warrant to
our customers that our products will conform to the documentation provided. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, we have no liabilities recorded for these
warranties as of April 6, 2008. We assess the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty accrual will not become necessary in the future.



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|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio.
The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing in widely diversified short-term and long-term investments, consisting
primarily of investment grade securities. As of April 6, 2008, a hypothetical 100 basis point increase in interest rates would not result in a material impact on the fair value of our cash equivalents and short-term investments.

The fair value of our fixed rate long-term debt is sensitive to interest rate changes. Interest rate changes would result in increases or decreases in
the fair value of our debt, due to differences between market interest rates and rates in effect at the inception of our debt obligation. Changes in the fair value of our fixed rate debt have no impact on our cash flows or consolidated financial
statements.

Credit Risk

During the
fourth quarter of fiscal 2008, the $18.35 million auction rate securities we held failed auction due to sell orders exceeding buy orders. As of April 6, 2008, we have written down our auction rate securities from their par value of
approximately $18.35 million to the estimated fair value of approximately $17.5 million. The $0.8 million decline in market value was deemed temporary as we believe that these investments generally are of high credit quality, as
substantially all of the investments carry an AAA credit rating and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education. In addition, we have the intent and
ability to hold these investments until anticipated recovery in market value occurs. Accordingly, we have recorded an unrealized loss on these securities of $0.8 million in other comprehensive loss as a reduction in stockholders equity.
The funds invested in auction rate securities that have experienced failed auctions will not be accessible until a successful auction occurs, a buyer is found outside of the auction process or the underlying securities have matured. Based on our
ability to access our cash, cash equivalents and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate the current lack of liquidity on these investments to have a material impact on our
financial condition or results of operations.

In May 2003, we completed an offering of $150.0 million principal amount of the 2008 Notes.
In order to minimize the dilutive effect from the issuance of the 2008 Notes, concurrent with the issuance of the 2008 Notes, we entered into convertible bond hedge and warrant transactions with respect to our common stock, the exposure for which
was held by Credit Suisse First Boston International. In May 2005 and May 2006, we repurchased $44.5 million and $40.3 million, respectively, face value of our 2008 Notes for $34.8 million and $35.0 million, respectively. In doing so, we liquidated
investments that generated a realized loss of approximately $0.7 million related to the May 2005 repurchases. There were no significant losses realized in connection with the May 2006 repurchases. Certain portions of the hedge and warrant
transactions entered into by us in 2003 were terminated in connection with the repurchases. We believe that it was in the best interests of the stockholders to reduce the balance sheet debt despite the one-time loss resulting from the liquidation of
marketable securities.

Foreign Currency Exchange Rate Risk

A majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we transact some portions of our business in various foreign currencies, primarily related to a portion of
revenue in Japan and operating expenses in Europe, Japan and Asia-Pacific. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. As of April 6, 2008, we had approximately $6.3 million of cash and
money market funds in foreign currencies. During the third quarter of fiscal 2008, we entered into foreign currency forward contracts to mitigate exposure in movements between the U.S. dollar and Japanese Yen. The derivatives do not qualify for
hedge accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We recognize the gain and loss on foreign currency forward contracts in the same period as the remeasurement loss and gain
of the related foreign currency-denominated exposures. In fiscal 2008, net foreign exchange loss totaled $110,000 and was included in Other Income, Net in our consolidated statements of operations.



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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements and Financial Statement Schedules



|                                                                                                                                                             |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                                                             |  | Page
|Consolidated Financial Statements:                                                                                                                           |  |     
|Reports of Independent Registered Public Accounting Firm                                                                                                     |  | 59  
|Consolidated Balance Sheets as of April 6, 2008 and April 1, 2007                                                                                            |  | 61  
|Consolidated Statements of Operations for each of the three fiscal years ended April 6, 2008                                                                 |  | 62  
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for each of the three fiscal years ended
 April 6, 2008                      |  | 63  
|Consolidated Statements of Cash Flows for each of the three fiscal years ended April 6, 2008                                                                 |  | 65  
|Notes to Consolidated Financial Statements                                                                                                                   |  | 67  
|Financial Statement Schedules:                                                                                                                               |  |     
|IIValuation and Qualifying Accounts                                                                                                                         |  | 103 
|All other schedules are omitted because they are not required or the required information is shown in the Consolidated Financial Statements or
Notes thereto |  |     
|Supplementary Financial Data:                                                                                                                                |  |     
|Selected Consolidated Quarterly Financial Data (Unaudited)                                                                                                   |  | 103 



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Magma Design Automation, Inc.

We have audited Magma Design Automation, Inc. and subsidiaries (a Delaware Corporation) internal control over financial reporting as
of April 6, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Magma Design Automation, Inc.s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on Magma Design Automation, Inc. and subsidiaries internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Magma Design Automation,
Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of April 6, 2008, based on criteria established in Internal ControlIntegrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance
sheets of Magma Design Automation, Inc. and subsidiaries as of April 6, 2008 and April 1, 2007, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for each of the years
in the three-year period ended April 6, 2008. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). Our report dated June 12, 2008 expressed an
unqualified opinion on those financial statements and financial statement schedule.

/s/    GRANT
THORNTON LLP

San Jose, CA

June 12, 2008



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Magma Design Automation, Inc.

We have audited the accompanying consolidated balance sheets of Magma Design Automation, Inc. and subsidiaries (a Delaware corporation) as
of April 6, 2008 and April 1, 2007, and the related consolidated statements of operations, stockholders equity and comprehensive income and cash flows for each of the years in the three-year period ended April 6, 2008. Our
audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Magma Design Automation, Inc. and subsidiaries as of April 6, 2008 and
April 1, 2007, and the consolidated results of their operations and cash flows for each of the years in the three-year period ended April 6, 2008 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 14 to the consolidated financial statements, effective April 2, 2007 Magma Design Automation, Inc. and subsidiaries adopted
FASB Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109. As discussed in Note 1 to the consolidated financial statements, effective April 3, 2006 the Company
adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, applying the modified-prospective method.

We also have audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), Magma Design Automation, Inc. and subsidiaries internal control over financial reporting as of
April 6, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 12, 2008, expressed an
unqualified opinion on the effective operation of internal control over financial reporting.

/s/    GRANT
THORNTON LLP

San Jose, California

June 12, 2008



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in
thousands, except share data)



|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                                        |  | April 6, 2008 |          |   | April 1, 2007 |  
|ASSETS                                                                                                                                                                  |  |               |          |   |               |   |          |  
|Current assets:                                                                                                                                                         |  |               |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                                               |  | $             | 46,970   |   |               | $ | 45,338   |  
|Restricted cash                                                                                                                                                         |  |               |         |   |               |   | 4,997    |  
|Short-term investments                                                                                                                                                  |  |               | 3,000    |   |               |   | 10,700   |  
|Accounts receivable, net                                                                                                                                                |  |               | 38,310   |   |               |   | 41,086   |  
|Prepaid expenses and other current assets                                                                                                                               |  |               | 5,244    |   |               |   | 4,126    |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total current assets                                                                                                                                                    |  |               | 93,524   |   |               |   | 106,247  |  
|Property and equipment, net                                                                                                                                             |  |               | 15,553   |   |               |   | 17,866   |  
|Intangible assets, net                                                                                                                                                  |  |               | 40,436   |   |               |   | 56,874   |  
|Goodwill                                                                                                                                                                |  |               | 64,877   |   |               |   | 48,499   |  
|Restricted cash                                                                                                                                                         |  |               |         |   |               |   | 4,700    |  
|Deferred tax assets                                                                                                                                                     |  |               | 6,901    |   |               |   |         |  
|Long-term investments                                                                                                                                                   |  |               | 17,538   |   |               |   |         |  
|Other assets                                                                                                                                                            |  |               | 5,467    |   |               |   | 5,460    |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total assets                                                                                                                                                            |  | $             | 244,296  |   |               | $ | 239,646  |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |               |          |   |               |   |          |  
|Current liabilities:                                                                                                                                                    |  |               |          |   |               |   |          |  
|Accounts payable                                                                                                                                                        |  | $             | 3,971    |   |               | $ | 7,442    |  
|Accrued expenses                                                                                                                                                        |  |               | 29,866   |   |               |   | 53,254   |  
|Deferred revenue                                                                                                                                                        |  |               | 25,254   |   |               |   | 28,417   |  
|Convertible notes                                                                                                                                                       |  |               | 15,216   |   |               |   |         |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total current liabilities                                                                                                                                               |  |               | 74,307   |   |               |   | 89,113   |  
|Convertible notes, net of debt discount of $1,421 and $2,078 at April 6, 2008 and April 1, 2007, respectively                                                           |  |               | 48,518   |   |               |   | 63,077   |  
|Line of credit                                                                                                                                                          |  |               |         |   |               |   | 3,000    |  
|Long-term tax liabilities                                                                                                                                               |  |               | 11,869   |   |               |   |         |  
|Other long-term liabilities                                                                                                                                             |  |               | 2,374    |   |               |   | 1,689    |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total liabilities                                                                                                                                                       |  |               | 137,068  |   |               |   | 156,879  |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Commitments and contingencies (Note 12)                                                                                                                                 |  |               |          |   |               |   |          |  
|                                                                                                                                                                        |  |              
|Stockholders equity:                                                                                                                                                   |  |               |          |   |               |   |          |  
|Preferred stock, $.0001 par value; 5,000,000 shares authorized and no shares issued and outstanding                                                                     |  |               |         |   |               |   |         |  
|Common stock, $.0001 par value; 150,000,000 shares authorized; 43,473,403 and 38,533,351 shares issued and outstanding at April 6, 2008
and April 1, 2007, respectively |  |               | 5        |   |               |   | 4        |  
|Additional paid-in capital                                                                                                                                              |  |               | 374,183  |   |               |   | 310,825  |  
|Accumulated deficit                                                                                                                                                     |  |               | (229,479 | ) |               |   | (197,808 | )
|Treasury stock at cost, 3,044,607 and 2,679,426 shares at April 6, 2008 and April 1, 2007, respectively                                                                 |  |               | (32,697  | ) |               |   | (29,162  | )
|Accumulated other comprehensive loss                                                                                                                                    |  |               | (4,784   | ) |               |   | (1,092   | )
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total stockholders equity                                                                                                                                              |  |               | 107,228  |   |               |   | 82,767   |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                                              |  | $             | 244,296  |   |               | $ | 239,646  |  
|                                                                                                                                                                        |  |               |          |   |               |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ------- | -
|                                                                                                       |  | Year Ended    |        
|                                                                                                       |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|Revenue:                                                                                               |  |               |         |   |               |   |         |               |  |   |         |  
|Licenses                                                                                               |  | $             | 139,062 |   |               | $ | 101,991 |               |  | $ | 86,418  |  
|Bundled licenses and services                                                                          |  |               | 40,515  |   |               |   | 42,925  |               |  |   | 52,833  |  
|Services                                                                                               |  |               | 34,842  |   |               |   | 33,237  |               |  |   | 24,793  |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Total revenue                                                                                          |  |               | 214,419 |   |               |   | 178,153 |               |  |   | 164,044 |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Cost of revenue:                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Licenses                                                                                               |  |               | 19,151  |   |               |   | 24,125  |               |  |   | 16,267  |  
|Bundled licenses and services                                                                          |  |               | 9,474   |   |               |   | 12,935  |               |  |   | 13,404  |  
|Services                                                                                               |  |               | 20,729  |   |               |   | 17,519  |               |  |   | 12,044  |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Total cost of revenue                                                                                  |  |               | 49,354  |   |               |   | 54,579  |               |  |   | 41,715  |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Gross profit                                                                                           |  |               | 165,065 |   |               |   | 123,574 |               |  |   | 122,329 |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Operating expenses:                                                                                    |  |               |         |   |               |   |         |               |  |   |         |  
|Research and development                                                                               |  |               | 76,920  |   |               |   | 63,625  |               |  |   | 50,085  |  
|Sales and marketing                                                                                    |  |               | 70,711  |   |               |   | 60,041  |               |  |   | 46,539  |  
|General and administrative                                                                             |  |               | 31,576  |   |               |   | 42,870  |               |  |   | 39,935  |  
|Amortization of intangible assets                                                                      |  |               | 8,043   |   |               |   | 11,011  |               |  |   | 11,849  |  
|In-process research and development                                                                    |  |               | 2,256   |   |               |   | 1,300   |               |  |   | 450     |  
|Restructuring charge                                                                                   |  |               | 291     |   |               |   |        |               |  |   |        |  
|Litigation settlement                                                                                  |  |               |        |   |               |   | 12,500  |               |  |   |        |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Total operating expenses                                                                               |  |               | 189,797 |   |               |   | 191,347 |               |  |   | 148,858 |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Operating loss                                                                                         |  |               | (24,732 | ) |               |   | (67,773 | )             |  |   | (26,529 | )
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Other income (expense):                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Interest income                                                                                        |  |               | 2,021   |   |               |   | 2,729   |               |  |   | 2,875   |  
|Interest and amortization of debt discount expense                                                     |  |               | (2,467  | ) |               |   | (723    | )             |  |   | (849    | )
|Gain on extinguishment of debt                                                                         |  |               |        |   |               |   | 6,532   |               |  |   | 8,781   |  
|Other expense, net                                                                                     |  |               | (591    | ) |               |   | (1,269  | )             |  |   | (2,666  | )
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Other income (expense), net                                                                            |  |               | (1,037  | ) |               |   | 7,269   |               |  |   | 8,141   |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss before income taxes                                                                           |  |               | (25,769 | ) |               |   | (60,504 | )             |  |   | (18,388 | )
|Provision for income taxes                                                                             |  |               | 5,066   |   |               |   | 1,002   |               |  |   | 2,549   |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss before cumulative effect of change in accounting principle                                    |  |               | (30,835 | ) |               |   | (61,506 | )             |  |   | (20,937 | )
|Cumulative effect of change in accounting principle                                                    |  |               |        |   |               |   | 321     |               |  |   |        |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss                                                                                               |  | $             | (30,835 | ) |               | $ | (61,185 | )             |  | $ | (20,937 | )
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss per common share before cumulative effect of change in accounting principlebasic and diluted |  | $             | (0.76   | ) |               | $ | (1.68   | )             |  | $ | (0.61   | )
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss per sharebasic and diluted                                                                   |  | $             | (0.76   | ) |               | $ | (1.67   | )             |  | $ | (0.61   | )
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  
|Shares used in calculationbasic and diluted                                                           |  |               | 40,518  |   |               |   | 36,605  |               |  |   | 34,348  |  
|                                                                                                       |  |               |         |   |               |   |         |               |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)



|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------ | - | ------------------------ | ------ | - | ------------------------------- | - | ------- | ------------------ |  | - | -------------- | - |  | ----------------- | -------- | - | --------------------------------- | ---------- | - | ------------------------ | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                               |  | Common Stock |   | AdditionalPaid-inCapital |        |   | DeferredStock-BasedCompensation |   |         | AccumulatedDeficit |  |   | Treasury Stock |   |  | ComprehensiveLoss |          |   | AccumulatedOtherComprehensiveLoss |            |   | TotalStockholdersEquity |  
|                                                                               |  | Shares       |   |                          | Amount |   |                                 |   |         | Shares             |  |   | Amount         |   |  |                   |         
|BALANCES AT MARCH 31, 2005                                                     |  | 35,249,858   |   |                          | $      | 4 |                                 | $ | 261,627 |                    |  | $ | (5,749         | ) |  | $                 | (115,644 | ) |                                   | (1,000,000 | ) |                          | $ | (16,606 | ) |  |   |         |   |  | $ | (2,233 | ) |  | $ | 121,399 |  
|Issuance of common stock under stock incentive plans                           |  | 1,180,128    |   |                          |        |  |                                 |   | 6,454   |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 6,454   |  
|Issuance of common stock in connection with asset purchase                     |  | 1,264,648    |   |                          |        |  |                                 |   | 15,653  |                    |  |   | (1,509         | ) |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 14,144  |  
|Issuance of common stock warrant in connection with asset purchase             |  |             |   |                          |        |  |                                 |   | 3,080   |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 3,080   |  
|Net proceeds from termination of hedge and warrant                             |  |             |   |                          |        |  |                                 |   | 140     |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 140     |  
|Repurchase of common stock                                                     |  | (2,000,000   | ) |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   | (2,000,000 | ) |                          |   | (16,044 | ) |  |   |         |   |  |   |       |   |  |   | (16,044 | )
|Stock-based compensation                                                       |  |             |   |                          |        |  |                                 |   | 801     |                    |  |   | (696           | ) |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 105     |  
|Repurchase of restricted stock                                                 |  | (118,933     | ) |                          |        |  |                                 |   | (1,656  | )                  |  |   | 1,463          |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | (193    | )
|Amortization of deferred stock-based compensation, net of forfeitures          |  |             |   |                          |        |  |                                 |   | (1      | )                  |  |   | 4,471          |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 4,470   |  
|Tax benefits associated with convertible debt repurchase                       |  |             |   |                          |        |  |                                 |   | 128     |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 128     |  
|Tax benefits associated with exercise of stock options and debt issuance costs |  |             |   |                          |        |  |                                 |   | 110     |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 110     |  
|Comprehensive loss:                                                            |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                       |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   | (20,937  | ) |                                   |           |   |                          |   |        |   |  | $ | (20,937 | ) |  |   |       |   |  |   | (20,937 | )
|Cumulative translation adjustments                                             |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   | 272     |   |  |   | 272    |   |  |   | 272     |  
|Unrealized gain on investments, net of tax                                     |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   | 775     |   |  |   | 775    |   |  |   | 775     |  
|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Other comprehensive income                                                     |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   | 1,047  |   |  |   |         |  
|Total comprehensive loss                                                       |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  | $ | (19,890 | ) |  |   |        |   |  |   |         |  
|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCES AT APRIL 2, 2006                                                      |  | 35,575,701   |   |                          | $      | 4 |                                 | $ | 286,336 |                    |  | $ | (2,020         | ) |  | $                 | (136,581 | ) |                                   | (3,000,000 | ) |                          | $ | (32,650 | ) |  |   |         |   |  | $ | (1,186 | ) |  | $ | 113,903 |  
|Issuance of common stock under stock incentive plans                           |  | 1,866,841    |   |                          |        | 1 |                                 |   | 8,652   |                    |  |   |               |   |  |                   |         |   |                                   | 15,099     |   |                          |   | 163     |   |  |   |         |   |  |   |       |   |  |   | 8,815   |  
|Issuance of common stock in connection with asset purchase                     |  | 1,177,399    |   |                          |        |  |                                 |   | 6,220   |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 6,220   |  
|Net proceeds from termination of hedge and warrant                             |  |             |   |                          |        |  |                                 |   | 190     |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 190     |  
|Retirement of common stock                                                     |  | (86,590      | ) |                          |        |  |                                 |   | (695    | )                  |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | (695    | )
|Elimination of unamortized deferred stock-based compensation                   |  |             |   |                          |        |  |                                 |   | (2,020  | )                  |  |   | 2,020          |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   |        |  
|Stock-based compensation expense, net of forfeitures                           |  |              |   |                          |        |   |                                 |   | 15,565  |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 15,565  |  
|Cumulative effect of change in accounting principle                            |  |             |   |                          |        |  |                                 |   | (321    | )                  |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | (321    | )
|Tax benefits associated with exercise of stock options and debt issuance costs |  |             |   |                          |        |  |                                 |   | 223     |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 223     |  
|Retirement of treasure stock                                                   |  |              |   |                          |        |   |                                 |   | (3,325  | )                  |  |   |                |   |  |                   |          |   |                                   | 305,475    |   |                          |   | 3,325   |   |  |   |         |   |  |   |       |   |  |   |        |  
|Comprehensive loss:                                                            |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                       |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   | (61,185  | ) |                                   |           |   |                          |   |        |   |  | $ | (61,185 | ) |  |   |        |   |  |   | (61,185 | )
|Reissuance of treasury stock                                                   |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   | (42      | ) |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   | (42     | )
|Cumulative translation adjustments                                             |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   | 29      |   |  |   | 29     |   |  |   | 29      |  
|Net unrealized gain on investments                                             |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   | 65      |   |  |   | 65     |   |  |   | 65      |  
|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Other comprehensive income                                                     |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   | 94     |   |  |   |         |  
|Total comprehensive loss                                                       |  |             |   |                          |        |  |                                 |   |        |                    |  |   |               |   |  |                   |         |   |                                   |           |   |                          |   |        |   |  | $ | (61,091 | ) |  |   |        |   |  |   |         |  
|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCES AT APRIL 1, 2007                                                      |  | 38,533,351   |   |                          | $      | 4 |                                 | $ | 310,825 |                    |  | $ |               |   |  | $                 | (197,808 | ) |                                   | (2,679,426 | ) |                          | $ | (29,162 | ) |  |   |         |   |  | $ | (1,092 | ) |  | $ | 82,767  |  
|                                                                               |  |              |   |                          |        |   |                                 |   |         |                    |  |   |                |   |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)(Continued)

(in thousands, except share data)



|                                                                               |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------ | - | ------------------------ | ------ | - | ------------------------------- | - | ------------------ | ------ |  | -------------- | ------ |  | ----------------- | -------- | - | --------------------------------- | ---------- | - | ------------------------ | - | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                               |  | Common Stock |   | AdditionalPaid-inCapital |        |   | DeferredStock-BasedCompensation |   | AccumulatedDeficit |        |  | Treasury Stock |        |  | ComprehensiveLoss |          |   | AccumulatedOtherComprehensiveLoss |            |   | TotalStockholdersEquity |  
|                                                                               |  | Shares       |   |                          | Amount |   |                                 |   |                    | Shares |  |                | Amount |  |                   |          |  
|BALANCES AT APRIL 1, 2007 (CONTINUED)                                          |  | 38,533,351   |   |                          | $      | 4 |                                 | $ | 310,825            |        |  | $              |       |  | $                 | (197,808 | ) |                                   | (2,679,426 | ) |                          | $ | (29,162 | ) |  |   |         |   |  | $ | (1,092 | ) |  | $ | 82,767  |  
|Issuance of common stock under stock incentive plans                           |  | 3,324,196    |   |                          |        | 1 |                                 |   | 22,319             |        |  |                |       |  |                   |         |   |                                   | 134,319    |   |                          |   | 1,460   |   |  |   |         |   |  |   |       |   |  |   | 23,780  |  
|Issuance of common stock in connection with asset purchase                     |  | 281,269      |   |                          |        |  |                                 |   | 2,662              |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 2,662   |  
|Issuance of common stock in connection with business combination               |  | 1,979,833    |   |                          |        |  |                                 |   | 19,970             |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |        |   |  |   | 19,970  |  
|Retirement of common stock                                                     |  | (145,746     | ) |                          |        |  |                                 |   | (2,070             | )      |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | (2,070  | )
|Repurchase of common stock                                                     |  | (499,500     | ) |                          |        |  |                                 |   |                   |        |  |                |       |  |                   |         |   |                                   | (499,500   | ) |                          |   | (4,995  | ) |  |   |         |   |  |   |       |   |  |   | (4,995  | )
|Stock-based compensation expense, net of forfeitures                           |  |              |   |                          |        |   |                                 |   | 20,424             |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 20,424  |  
|Tax benefits associated with exercise of stock options and debt issuance costs |  |             |   |                          |        |  |                                 |   | 53                 |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   |         |   |  |   |       |   |  |   | 53      |  
|Comprehensive loss:                                                            |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                                       |  |             |   |                          |        |  |                                 |   |                   |        |  |                |       |  |                   | (30,835  | ) |                                   |           |   |                          |   |        |   |  | $ | (30,835 | ) |  |   |        |   |  |   | (30,835 | )
|Effect of FIN 48 adoption                                                      |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   | (502     | ) |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   | (502    | )
|Reissuance of treasury stock                                                   |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   | (334     | ) |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   | (334    | )
|Cumulative translation adjustments                                             |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   | (2,885  | ) |  |   | (2,885 | ) |  |   | (2,885  | )
|Net unrealized loss on investments                                             |  |             |   |                          |        |  |                                 |   |                   |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  |   | (807    | ) |  |   | (807   | ) |  |   | (807    | )
|                                                                               |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Other comprehensive loss                                                       |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   | (3,692 | ) |  |   |         |  
|Total comprehensive loss                                                       |  |             |   |                          |        |  |                                 |   |                   |        |  |                |       |  |                   |         |   |                                   |           |   |                          |   |        |   |  | $ | (34,527 | ) |  |   |        |   |  |   |         |  
|                                                                               |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|BALANCES AT APRIL 6, 2008                                                      |  | 43,473,403   |   |                          | $      | 5 |                                 | $ | 374,183            |        |  | $              |       |  | $                 | (229,479 | ) |                                   | (3,044,607 | ) |                          | $ | (32,697 | ) |  |   |         |   |  | $ | (4,784 | ) |  | $ | 107,228 |  
|                                                                               |  |              |   |                          |        |   |                                 |   |                    |        |  |                |        |  |                   |          |   |                                   |            |   |                          |   |         |   |  |   |         |   |  |   |        |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ------- | -
|                                                                                |  | Year Ended    |        
|                                                                                |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|Cash flows from operating activities:                                           |  |               |         |   |               |   |         |               |  |   |         |  
|Net loss                                                                        |  | $             | (30,835 | ) |               | $ | (61,185 | )             |  | $ | (20,937 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |               |         |   |               |   |         |               |  |   |         |  
|Cumulative effect of change in accounting principle                             |  |               |        |   |               |   | (321    | )             |  |   |        |  
|Depreciation and amortization                                                   |  |               | 9,883   |   |               |   | 10,364  |               |  |   | 9,467   |  
|Amortization of intangible assets                                               |  |               | 30,277  |   |               |   | 42,149  |               |  |   | 35,524  |  
|In-process research and development                                             |  |               | 2,256   |   |               |   | 1,300   |               |  |   | 450     |  
|Provision for (recovery from) doubtful accounts                                 |  |               | 562     |   |               |   | 88      |               |  |   | (282    | )
|Amortization of debt discount and debt issuance costs                           |  |               | 1,165   |   |               |   | 506     |               |  |   | 725     |  
|Loss on strategic equity investments                                            |  |               | 481     |   |               |   | 605     |               |  |   | 1,003   |  
|Gain on extinguishment of convertible notes                                     |  |               |        |   |               |   | (6,532  | )             |  |   | (8,781  | )
|Loss on sale of short-term investments                                          |  |               |        |   |               |   | 3       |               |  |   | 661     |  
|Loss on disposal of fixed assets                                                |  |               | 17      |   |               |   | 2,557   |               |  |   | 93      |  
|Stock-based compensation                                                        |  |               | 20,424  |   |               |   | 15,565  |               |  |   | 4,576   |  
|Tax benefit realized from gain on repurchase of convertible debt                |  |               |        |   |               |   |        |               |  |   | 128     |  
|Tax benefits associated with exercise of stock options and debt issuance costs  |  |               | 53      |   |               |   | 223     |               |  |   | 110     |  
|Other non-cash items                                                            |  |               | 28      |   |               |   |        |               |  |   |        |  
|Changes in operating assets and liabilities, net of effect of acquisitions:     |  |               |         |   |               |   |         |               |  |   |         |  
|Accounts receivable                                                             |  |               | (648    | ) |               |   | (7,298  | )             |  |   | 687     |  
|Prepaid expenses and other current assets                                       |  |               | (1,262  | ) |               |   | 1,225   |               |  |   | 2,125   |  
|Other assets                                                                    |  |               | (299    | ) |               |   | (327    | )             |  |   | (417    | )
|Accounts payable                                                                |  |               | (1,447  | ) |               |   | 3,082   |               |  |   | (704    | )
|Accrued expenses                                                                |  |               | (15,692 | ) |               |   | 16,316  |               |  |   | 12,396  |  
|Deferred revenue                                                                |  |               | (3,373  | ) |               |   | 3,795   |               |  |   | 3,877   |  
|Long-term tax liabilities                                                       |  |               | 1,346   |   |               |   |        |               |  |   |        |  
|Other long-term liabilities                                                     |  |               | 278     |   |               |   | (800    | )             |  |   | (491    | )
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Net cash flows provided by operating activities                                 |  |               | 13,214  |   |               |   | 21,315  |               |  |   | 40,210  |  
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Cash flows from investing activities:                                           |  |               |         |   |               |   |         |               |  |   |         |  
|Cash paid for business and asset acquisitions, net of cash acquired             |  |               | (8,288  | ) |               |   | (25,257 | )             |  |   | (26,085 | )
|Purchase of property and equipment                                              |  |               | (7,208  | ) |               |   | (5,453  | )             |  |   | (6,485  | )
|Purchase of available-for-sale investments                                      |  |               | (49,593 | ) |               |   | (29,395 | )             |  |   | (97,588 | )
|Proceeds from maturities and sales of available-for-sale investments            |  |               | 38,950  |   |               |   | 57,365  |               |  |   | 173,990 |  
|Purchase of strategic investments                                               |  |               | (1,275  | ) |               |   | (900    | )             |  |   | (750    | )
|Restricted cash                                                                 |  |               | 4,850   |   |               |   | (4,700  | )             |  |   |        |  
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Net cash flows provided by (used in) investing activities                       |  |               | (22,564 | ) |               |   | (8,340  | )             |  |   | 43,082  |  
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Cash flows from financing activities:                                           |  |               |         |   |               |   |         |               |  |   |         |  
|Proceeds from issuance of common stock, net                                     |  |               | 21,377  |   |               |   | 8,180   |               |  |   | 6,259   |  
|Repurchase of common stock                                                      |  |               | (4,995  | ) |               |   |        |               |  |   | (16,044 | )
|Repurchase of convertible notes, net                                            |  |               | (83     | ) |               |   | (35,889 | )             |  |   | (34,668 | )
|Proceeds from (repayments of) line of credit                                    |  |               | (3,000  | ) |               |   | 3,000   |               |  |   |        |  
|Repayment of lease obligations                                                  |  |               | (2,367  | ) |               |   | (1,480  | )             |  |   | (780    | )
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Net cash provided by (used in) financing activities                             |  |               | 10,932  |   |               |   | (26,189 | )             |  |   | (45,233 | )
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Effect of foreign currency translation changes on cash and cash equivalents     |  |               | 50      |   |               |   | 2       |               |  |   | (131    | )
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Net change in cash and cash equivalents                                         |  |               | 1,632   |   |               |   | (13,212 | )             |  |   | 37,928  |  
|Cash and cash equivalents, beginning of year                                    |  |               | 45,338  |   |               |   | 58,550  |               |  |   | 20,622  |  
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  
|Cash and cash equivalents, end of year                                          |  | $             | 46,970  |   |               | $ | 45,338  |               |  | $ | 58,550  |  
|                                                                                |  |               |         |   |               |   |         |               |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

(in thousands)



|                                                                             |  |               |        |               |   |               |  |   |        |  
|---------------------------------------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | - | ------ | -
|                                                                             |  | Year Ended    |       
|                                                                             |  | April 6, 2008 |        | April 1, 2007 |   | April 2, 2006 | 
|Supplemental disclosure of cash flow information:                            |  |               |        |               |   |               |  |   |        |  
|Non-cash investing and financing activities:                                 |  |               |        |               |   |               |  |   |        |  
|Deferred stock-based compensation recorded in connection with asset purchase |  | $             |       |               | $ | 514           |  | $ | (246   | )
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Purchase of fixed assets under capital leases                                |  | $             | 2,875  |               | $ | 2,791         |  | $ | 2,352  |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Issuance of common stock in connection with acquisitions                     |  | $             | 22,632 |               | $ | 6,220         |  | $ | 15,407 |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Issuance of common stock warrant in connection with asset purchase           |  | $             |       |               | $ |              |  | $ | 3,080  |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Retirement of treasury stock                                                 |  | $             |       |               | $ | 3,325         |  | $ |       |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Common stock received from termination of hedge and warrant                  |  | $             |       |               | $ | 102           |  | $ |       |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Cash paid for:                                                               |  |               |        |               |   |               |  |   |        |  
|Interest                                                                     |  | $             | 990    |               | $ | 141           |  | $ | 126    |  
|                                                                             |  |               |        |               |   |               |  |   |        |  
|Income taxes                                                                 |  | $             | 1,488  |               | $ | 740           |  | $ | 572    |  
|                                                                             |  |               |        |               |   |               |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|Note | 1.    The Company and Summary of Significant Accounting Policies
|---- | ----------------------------------------------------------------

The Company

Magma Design Automation,
Inc. (the Company or Magma), a Delaware corporation, was incorporated on April 1, 1997. The Company provides design and implementation, analysis and verification software that enables chip designers to reduce the time it
takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. The Company has licensed its products to major semiconductor companies and electronic
products manufacturers in Asia, Europe and the United States.

Principles of consolidation

The consolidated financial statements of Magma include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. Accounts denominated in foreign-currency have been translated from their functional currency to the U.S. dollar.

Change in fiscal year end

The Company has a 52-53 week fiscal year ending on the first Sunday
subsequent to March 31. The Companys fiscal years consist of four quarters of 13 weeks each except for each fifth or sixth fiscal year, which includes one quarter with 14 weeks. The Companys fiscal year 2008 consisted of 53 weeks.
The result of the additional week was included in the Companys Form 10-K for the fiscal year, and did not have a material impact on the Companys consolidated financial position or results of operations. All references to years or
quarters in these notes to consolidated financial statements represent fiscal years or fiscal quarters, respectively, unless otherwise noted.

On January 28, 2008 the Companys Board of Directors adopted a new fiscal year end. The Companys new fiscal year will end on the first Sunday subsequent to April 30 (except for any given year in which April 30 is a
Sunday, in which case the fiscal year will end on April 30), beginning with the fiscal year ending May 3, 2009. Information covering the transition period from April 7, 2008 to May 4, 2008 will be included in the Companys
quarterly report on Form 10-Q for the quarterly period ending August 3, 2008, the first quarterly report of the Companys newly adopted fiscal year. The separate audited financial statements required for the transition period will be
included in the Companys annual report on Form 10-K for the fiscal year ending May 3, 2009.

Reclassifications

Certain immaterial amounts in the fiscal 2007 and 2006 consolidated financial statements have been reclassified to conform to the
fiscal 2008 presentation.

Use of estimates

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management
periodically evaluates such estimates and assumptions for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Revenue recognition

Revenue is comprised of licenses revenue, bundled licenses and services revenue, and services revenue. Licenses revenue consists of fees for time-based or
perpetual licenses of the Companys software products. Bundled licenses and services revenue consists of fees for software licenses and post-contract customer support (PCS), where the Company does not have vendor specific objective
evidence (VSOE) of fair value of PCS. Services revenue consists of fees for services, such as customer training, consulting and PCS associated with unbundled license arrangements. PCS sold with unbundled license arrangements is renewable
after the initial PCS period expires, generally in one-year increments for a fixed percentage of the net license fee.

The Company
recognizes revenue in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modifications of SOP 97-2, Software
Revenue Recognition, with respect to certain transactions. The Company recognizes revenue when all of the following criteria are met as set forth in paragraph 8 of SOP 97-2:



| |  |  | Persuasive evidence of an arrangement exists,
| | - |  | ---------------------------------------------



| |  |  | Delivery has occurred,
| | - |  | ----------------------



| |  |  | The vendors fee is fixed or determinable, and
| | - |  | ----------------------------------------------



| |  |  | Collectibility is probable.
| | - |  | ---------------------------

The
Company defines each of the four criteria above as follows:

Persuasive evidence of an arrangement exists.    It
is the Companys customary practice to have a written contract, which is signed by both the customer and Magma, or a purchase order from those customers that have previously negotiated an end-user license arrangement or volume purchase
agreement, prior to recognizing revenue on an arrangement.

Delivery has occurred.    The Companys
software may be either physically or electronically delivered to its customers. For those products that are delivered physically, the Companys standard transfer terms are FOB shipping point. For an electronic delivery of software, delivery is
considered to have occurred when the customer has been provided with the access codes that allow the customer to take immediate possession of the software on its hardware.

If an arrangement includes undelivered products or services that are essential to the functionality of the delivered product, delivery is not considered
to have occurred.

The fee is fixed or determinable.    The fee customers pay for products is negotiated at the
outset of an arrangement. If the license fees are a function of variable-pricing mechanisms such as the number of units distributed or copied by the customer, or the expected number of users in an arrangement, such fees are not recognized as revenue
until such time as amounts become fixed or determinable. In addition, where the Company grants extended payment terms to a specific customer, the Companys fees are not considered to be fixed or determinable at the inception of the
arrangements.

The Company considers arrangements where less than 100% of the license and initial period PCS fee is due within one year
from the order date to have extended payment terms. For bundled agreements, revenue from such arrangements is recognized at the lesser of the aggregate of amounts due and payable or ratably. For unbundled agreements, revenue from such arrangements
is recognized as amounts become due and payable. Payments received from customers in advance of revenue being recognized are presented as deferred revenue on the consolidated balance sheets.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Collectibility is probable.    Collectibility is assessed on a
customer-by-customer basis. The Company typically sells to customers for which there is a history of successful collection. New customers are subjected to a credit review process that evaluates the customers financial positions and ultimately
their ability to pay. If it is determined from the outset of an arrangement that collectibility is not probable based upon the Companys credit review process, revenue is recognized on a cash receipts basis (as each payment is collected).

Multiple element arrangements.    The Company allocates revenue on software arrangements involving multiple
elements to each element based on the relative fair values of the elements. The Companys determination of fair value of each element in multiple element arrangements is based on VSOE. The Company limits its assessment of VSOE for each element
to the price charged when the same element is sold separately or renewal rates of PCS.

The Company has analyzed all of the elements
included in its multiple-element arrangements and determined that it has sufficient VSOE to allocate revenue to the PCS components of its perpetual license products and consulting. Accordingly, assuming all other revenue recognition criteria are
met, revenue from unbundled licenses is recognized upon delivery using the residual method in accordance with SOP 98-9 and revenue from PCS is recognized ratably over the PCS term. If an unbundled arrangement involves extended payment terms, revenue
recognized using the residual method is limited to amounts due and payable. The Company recognizes revenue from bundled licenses ratably over the term of the license period, as the license and PCS portions of a bundled license are not sold
separately. Revenue from bundled arrangements with extended payment terms is recognized as the lesser of amounts due and payable or ratable portion of the entire fee.

Certain of the Companys time-based licenses include the rights to specified and unspecified additional products. Revenue from contracts with the rights to unspecified additional software products is recognized
ratably over the contract term. The Company recognizes revenue from time-based licenses that include both unspecified additional software products and extended payment terms that are not considered to be fixed or determinable in an amount that is
the lesser of amounts due and payable or the ratable portion of the entire fee. Revenue from licenses that include a right to specified upgrades is deferred until the upgrades are delivered because there is no vendor specific objective evidence for
the specific upgrade.

The Company provides design methodology assistance and specialized services relating to generalized turnkey design
services. The Company has vendor specific objective evidence of fair value for consulting and training services. Therefore, revenue from such services is recognized when such services are performed. The Companys consulting services generally
are not essential to the functionality of the software. The Companys software products are fully functional upon delivery and implementation does not require any significant modification or alteration. The Companys services to its
customers often include assistance with product adoption and integration and specialized design methodology assistance. Customers typically purchase these professional services to facilitate the adoption of the Companys technology and dedicate
personnel to participate in the services being performed, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Software products are billed separately and independently
from consulting services, which are generally billed on a time-and-materials or milestone-achieved basis. The Company generally recognizes revenue from consulting services as the services are performed.

Cost of revenue

Cost of revenue
includes cost of licenses revenue, cost of bundled licenses and services revenue and cost of services revenue. Cost of licenses revenue primarily consists of amortization of acquired developed technology and other intangible assets, software
maintenance costs, royalties and allocated outside sale representative expenses. Cost of bundled licenses and services revenue includes allocation of license and service costs. Cost of



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services revenue primarily consists of personnel and related costs to provide product support, consulting services and training, as well as stock-based
compensation, asset depreciation, and allocated outside sale representative expenses.

Commission expense

The Company recognizes sales commission expense as it is earned by its employees based on the terms of the respective commission plan. According to the
terms of the commission plan, commissions for orders recorded are paid by the Company to employees over a period of time, typically over two to six quarters, depending on the size of the respective orders.

Unbilled receivables

Unbilled
receivables represent revenue that has been recognized in the financial statements in advance of contractual invoicing to the customer. The Company will invoice all of the unbilled receivables within one year. As of April 6, 2008 and
April 1, 2007, unbilled receivables were approximately $12.0 million and $7.6 million, respectively, and are included in accounts receivable on the consolidated balance sheets for each of these periods.

Research and development expenses

Research and development expenses are charged to expense as incurred.

Capitalized software

Costs incurred in connection with the development of software products are accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Development costs incurred in the research and development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility in the form of a working model has been established. To date, the Companys software has been available for general release concurrent with the establishment of
technological feasibility, and accordingly no costs have been capitalized to date.

Software included in property and equipment includes
amounts paid for purchased software and customization services for software used internally which has been capitalized in accordance with SOP 98-1, Accounting for Costs of Computer Software for Internal Use.

Foreign currency

The financial
statements of foreign subsidiaries are measured using the local currency of the subsidiary as the functional currency. Accordingly, assets and liabilities of the subsidiaries are translated at current rates of exchange at the balance sheet date, and
all revenue and expense items are translated using weighted-average exchange rates. At April 6, 2008, April 1, 2007 and April 2, 2006, cumulative foreign currency translation loss is included in accumulated other comprehensive loss on
the consolidated balance sheets.

Cash equivalents, short-term and long-term investments

The Company invests its excess cash in money market accounts and debt securities. Cash equivalents consist of highly liquid debt instruments purchased
with an original or remaining maturity of three months or less. Investments with an original maturity at the time of purchase between three and twelve months are classified as short-term investments and investments that have a maturity date more
than twelve months from the balance sheet date are classified as long-term investments.



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The Company accounts for investments in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. These investments are classified as available-for-sale, and are recorded on the balance sheet at fair market value as of the balance sheet date, with unrealized gains or losses considered to
be temporary in nature reported as a component of other comprehensive income (loss) within the stockholders equity. The Company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as
the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and the Companys ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery
of market value. The Company reviews impairment associated with the above in accordance with Emerging Issue Task Force (EITF) 03-01 and Financial Accounting Standards Board (FASB) Staff Position (FSP) SFAS 115-1
and 124-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments to determine the classification of the impairment as temporary or other-than-temporary. An impairment charge is
recorded to the extent that the carrying value of available-for-sale securities exceeds the estimated fair market value of the securities and the decline in value is determined to be other-than-temporary.

Auction rate securities are securities that are structured to provide liquidity through an auction process that resets the applicable interest rate
generally every 28 days but have contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. During the fourth quarter of fiscal 2008, the $18.35
million auction rate securities held by the Company failed auction due to sell orders exceeding buy orders. Typically, the fair value of auction rate securities approximates par value (unless auction fails) due to the frequent resets through the
auction rate process. While the Company continues to earn interest on these investments at the contractual rates, the estimated market value of these auction rate securities no longer approximates par value. As of April 6, 2008, based in part
on price valuation information provided by the broker-dealer managing the Companys investments, the Company wrote down its auction rate securities from their par value of approximately $18.35 million to the estimated fair value of
approximately $17.5 million. The $0.8 million decline in market value was deemed temporary as the Company believes that these investments generally are of high credit quality, as substantially all of the investments carry an AAA credit
rating and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education. In addition, the Company currently has the intent and ability to hold these investments until
anticipated recovery in market value occurs. Accordingly, the Company has recorded an unrealized loss on these securities of $0.8 million in other comprehensive loss as a reduction in stockholders equity.

The funds invested in auction rate securities that have experienced failed auctions will not be accessible until a successful auction occurs, a buyer is
found outside of the auction process or the underlying securities have matured. As a result, the Company has classified those securities with failed auctions as long-term assets in the consolidated balance sheet as of April 6, 2008.

The Company continues to monitor the market for auction rate securities and consider the markets impact (if any) on the fair market value of its
investments. If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, the Company may be required to record additional unrealized losses in other comprehensive income or impairment charges in
future periods.



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Cash, cash equivalents, short-term and long-term investments are included in the consolidated balance
sheets as follows (in thousands):



|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|---------------------------------- |  | ---- | ------ | -------------------- | - | ---------------------------------------- |  | - | ------------------- | - |  | - | ------
|                                   |  | Cost |        | GrossUnrealizedGains |   | GrossUnrealizedLoss (less than12 months) |  |   | EstimatedFair Value
|April 6, 2008                      |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Cash and cash equivalents:         |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Cash (U.S. and international)      |  | $    | 17,351 |                      | $ |                                         |  | $ |                    |   |  | $ | 17,351
|Money market funds (U.S.)          |  |      | 11,975 |                      |   |                                         |  |   |                    |   |  |   | 11,975
|Money market funds (International) |  |      | 173    |                      |   |                                         |  |   |                    |   |  |   | 173   
|Commercial paper                   |  |      | 17,479 |                      |   |                                         |  |   | (8                  | ) |  |   | 17,471
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|                                   |  |      | 46,978 |                      | $ |                                         |  | $ | (8                  | ) |  |   | 46,970
|Short-term investments:            |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Government agencies                |  |      | 3,000  |                      |   |                                         |  |   |                    |   |  |   | 3,000 
|Long-term investments:             |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Auction rate certificates          |  |      | 18,350 |                      |   |                                         |  |   | (812                | ) |  |   | 17,538
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Total                              |  | $    | 68,328 |                      | $ |                                         |  | $ | (820                | ) |  | $ | 67,508
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|April 1, 2007                      |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Cash and cash equivalents:         |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Cash (U.S. and international)      |  | $    | 15,785 |                      | $ |                                         |  | $ |                    |   |  | $ | 15,785
|Money market funds (U.S.)          |  |      | 20,599 |                      |   |                                         |  |   |                    |   |  |   | 20,599
|Money market funds (International) |  |      | 155    |                      |   |                                         |  |   |                    |   |  |   | 155   
|Commercial paper                   |  |      | 8,806  |                      |   |                                         |  |   | (7                  | ) |  |   | 8,799 
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|                                   |  |      | 45,345 |                      |   |                                         |  |   | (7                  | ) |  |   | 45,338
|Short-term investments:            |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|Auction rate certificates          |  |      | 10,700 |                      |   |                                         |  |   |                    |   |  |   | 10,700
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       
|                                   |  | $    | 56,045 |                      | $ |                                         |  | $ | (7                  | ) |  | $ | 56,038
|                                   |  |      |        |                      |   |                                          |  |   |                     |   |  |   |       

As of April 6, 2008, the stated maturities of the Companys current investments
(including $17.5 million classified as cash equivalent investments in the table above) are $20.5 million within one year and $18.35 million after ten years.

As of April 6, 2008 and April 1, 2007, all unrealized losses have a duration of less than twelve months. The unrealized losses for the year ended April 6, 2008 were primarily associated with failed
auction rate securities as discussed above. Gross realized gains and losses from the sales of marketable securities were immaterial for all periods presented.

Restricted cash

The Companys total restricted cash balance was zero as of April 6, 2008
and was $9.7 million (of which $5.0 million was classified as current assets and $4.7 million was classified as long-term assets) as of April 1, 2007. The restricted cash at April 1, 2007 primarily represented the portion of cash
consideration maintained in escrow accounts to secure certain indemnification obligations related to certain business combination and asset purchase transactions, as well as a total of $4.85 million as securities to the borrowings under the $5.0
million line of credit and letters of credit issued under the credit facility. The cash consideration in the escrow accounts



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were released in fiscal 2008 and the Company is no longer required to maintain restricted cash balances relating to the letters of credit after replacing the
$5.0 million line of credit with a new unsecured credit facility in fiscal 2008.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term
investments and accounts receivable. The Companys cash, cash equivalents and short-term investments generally consist of commercial paper, government agencies, municipal obligations and money market funds with high-quality financial
institutions. Accounts receivable are typically unsecured and are derived from license and service sales. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts.

At April 6, 2008, two customers accounted for 14% and 13%, respectively, of accounts receivable. At April 1, 2007, one customer accounted for
12% of accounts receivable. See Note 13, Segment Information, for disclosure on customers accounting for greater than 10% of revenue for each of the three years ended April 6, 2008.

Trade accounts receivable

Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is Magmas best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The
Company determines the allowance based on historical write-off experience, current market trends and for larger accounts, the ability to pay outstanding balances. Magma continually reviews its allowances for collectibility. Past due balances over 90
days and other higher risk amounts are reviewed individually for collectibility. Account balances are charged off against the allowance after collection efforts have been exhausted and the potential for recovery is considered remote.

Property and equipment

Property and
equipment are recorded at cost. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the related assets, generally three to five years. Leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repair costs are charged to operations as incurred.

Property and equipment consisted of the following (in thousands):



|                                          |  |               |         |   |               |   |         |  
|----------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | -
|                                          |  | April 6, 2008 |         |   | April 1, 2007 |  
|Property and equipment, net:              |  |               |         |   |               |   |         |  
|Computer equipment                        |  | $             | 36,281  |   |               | $ | 31,522  |  
|Software                                  |  |               | 8,366   |   |               |   | 7,599   |  
|Furniture and fixtures                    |  |               | 4,137   |   |               |   | 3,561   |  
|Leasehold improvements                    |  |               | 6,075   |   |               |   | 5,144   |  
|                                          |  |               |         |   |               |   |         |  
|                                          |  |               | 54,859  |   |               |   | 47,826  |  
|Accumulated depreciation and amortization |  |               | (39,306 | ) |               |   | (29,960 | )
|                                          |  |               |         |   |               |   |         |  
|                                          |  | $             | 15,553  |   |               | $ | 17,866  |  
|                                          |  |               |         |   |               |   |         |  



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Depreciation expense was $9.9 million, $10.4 million and $9.5 million, respectively, for the years
ended April 6, 2008, April 1, 2007 and April 2, 2006.

The cost of equipment acquired under capital leases included in
property and equipment was $8.0 million and $5.8 million, respectively, as of April 6, 2008 and April 1, 2007. Accumulated amortization of the leased equipment was $4.2 million and $2.4 million, respectively, as of April 6, 2008 and
April 1, 2007. Amortization of assets reported under capital leases was included with depreciation expense.

Impairment of
long-lived assets

In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Under SFAS 144, an impairment loss would be recognized for assets to be held and used when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is
less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.

Strategic investments

The Company invests in debt and equity of private companies as part of its business strategy. The investments are included in other long-term assets in the consolidated balance sheets. The carrying value of a
non-marketable investment is the amount paid for the investment unless it has been determined to be other than temporarily impaired, in which case the Company writes the investment down to its estimated fair value. For equity investment with
ownership between 20% to 50%, the Company records its share of net equity income (loss) of the investee based on its proportionate ownership. During the second quarter of fiscal 2008, with the purchase of the remaining 82% ownership of one of our
equity investments, Rio Design Automation, Inc. (Rio), we ceased accounting for our investment in Rio under the equity method and began accounting for our 100% ownership on a consolidated basis. The equity investment balance of $220,000
on the acquisition date was reclassified from other assets and was allocated to the book value of the previously owned assets and liabilities on our consolidated balance sheets.

The Company regularly reviews the assumptions underlying the operating performance and cash flow forecasts based on information provided by these
investee companies. Assessing each investments carrying value requires significant judgment by management as this financial information may be more limited, may not be as timely and may be less accurate than information available from publicly
traded companies. If the Company determines, based on the best available evidence, that the carrying value of an investment is impaired, the Company writes down the carrying value of an investment to its estimated fair value and records the related
write-down as a loss in equity investment, which is included in other income (expense), net in its consolidated statements of operations. For the years ended April 6, 2008, April 1, 2007 and April 2, 2006, the Company recorded net
loss on equity investments of $0.5 million, $0.6 million and $1.0 million, respectively. At April 6, 2008 and April 1, 2007, the carrying value on the strategic investments was $2.2 million and $2.0 million, respectively.

Income taxes

Income taxes are
accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying



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amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not that all or a portion of the deferred tax assets will not be realized.

Treasury stock reissuance

Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in a reduction of stockholders equity in the Companys Consolidated Balance Sheets. From time to time, treasury shares may be
reissued as part of the Companys stock-based compensation programs. When shares are reissued, we use the weighted average cost method for determining cost. If the issuance price is higher than the cost, the excess of the issuance price over
cost is credited to additional paid-in capital (APIC). If the issuance price is lower than the cost, the difference is first charged against any credit balance in APIC from treasury stock and the balance is charged to retained earnings
(accumulated deficit). During the years ended April 6, 2008 and April 1, 2007, the Company recorded $334,000 and $42,000, respectively, of such charges to accumulated deficit.

Stock-based compensation

Effective
April 3, 2006, the Company accounts for stock-based employee compensation arrangements under SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R) which supersedes the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and requires the fair value recognition of share-based payment arrangements, including stock options, restricted stock, restricted stock units and
shares issued under the Employee Stock Purchase Plan (ESPP). Prior to April 3, 2006, the Company accounted for its stock-based compensation plans using the intrinsic value method under the provisions of APB 25 and related guidance.
The Company adopted SFAS 123R using the modified prospective transition method and accordingly prior periods have not been restated to reflect the impact of SFAS 123R. Under the modified-prospective-transition method, the results of operations
include compensation costs of unvested options and awards granted prior to April 3, 2006, and options and awards granted subsequent to that date. Additionally, the Company elected to use the straight-line method to recognize its stock-based
compensation expenses over the option and awards vesting periods. For options and awards granted prior to adoption of SFAS 123R, the Company continues to record stock-based compensation expenses under the accelerated attribution method.

The Company uses the Black-Scholes option pricing model to determine the fair value of each stock option grant and each purchase right
granted under its ESPP. The fair value of each restricted stock and restricted stock unit is determined using the fair value of the Companys common stock on the date of the grant. Determining the fair value of stock-based awards at the grant
date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. The Company established the expected term for employee options and
awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and
pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and
average implied volatility. The risk-free interest rate for the period within the expected life of the option is based on the yield of United States Treasury notes at the time of grant. Magma has not historically paid dividends, thus the expected
dividends used in the calculation are zero.



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The Company has not provided an income tax benefit for stock-based compensation expense for current
and prior year periods because it is more likely than not that the deferred tax assets associated with this expense will not be realized. To the extent the Company realizes the deferred tax assets associated with the stock-based compensation expense
in the future, the income tax effects of such an event may be recognized at that time. Prior to the adoption of SFAS 123R, the Company presented all tax benefits for deductions resulting from the exercise of stock options as operating cash flows on
its statement of cash flows. SFAS 123R requires the cash retained as a result of tax benefits for tax deductions in excess of the compensation expense recorded for those options to be classified as cash from financing activities. The Company
recorded no such excess tax benefits for fiscal 2008 and 2007. The tax benefits recorded in fiscal 2008 and 2007 under additional paid-in capital on the consolidated stockholders equity statement represented the true-up adjustment on its prior
year tax provision. In addition, upon adoption of SFAS 123R, the Company elected to calculate its historical pool of windfall tax benefits using the long-form method provided in paragraph 81 of SFAS 123R, which resulted in an APIC
windfall pool of tax benefits position.

Fair value of financial instruments

Financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable and payable, accrued liabilities,
convertible notes, convertible bond hedge and a written call warrant. The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable and payable and accrued liabilities approximate their fair values because of the
short-term nature of those instruments. The Company has estimated the fair value of its convertible subordinated notes, convertible bond hedge and written call warrant by using available market information and valuation methodology considered to be
appropriate. The following table summarizes the Companys carrying values and market-based fair values of these financial instruments as of April 6, 2008 and April 1, 2007 (in thousands):



|                                        |  |               |        |   |                     |   |        |  
|--------------------------------------- |  | ------------- | ------ | - | ------------------- | - | ------ | -
|                                        |  | CarryingValue |        |   | EstimatedFair Value |  
|April 6, 2008                           |  |               |        |   |                     |   |        |  
|Convertible subordinated notes due 2008 |  | $             | 15,216 |   |                     | $ | 15,178 |  
|Convertible senior notes due 2010       |  | $             | 48,518 |   |                     | $ | 45,944 |  
|Convertible bond hedge                  |  | $             | (5,696 | ) |                     | $ |       |  
|Written call warrant                    |  | $             | 3,642  |   |                     | $ |       |  
|                                        |  |              
|April 1, 2007                           |  |               |        |   |                     |   |        |  
|Convertible subordinated notes due 2008 |  | $             | 15,216 |   |                     | $ | 14,227 |  
|Convertible senior notes due 2010       |  | $             | 47,861 |   |                     | $ | 46,693 |  
|Convertible bond hedge                  |  | $             | (5,696 | ) |                     | $ | (31    | )
|Written call warrant                    |  | $             | 3,642  |   |                     | $ |       |  

Information on the carrying value of the convertible notes, convertible bond hedge and written
call warrant is provided in Note 7Convertible Notes.

Comprehensive income (loss)

SFAS No. 130, Reporting Comprehensive Income requires companies to classify items of other comprehensive income by their nature in the
financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of the balance sheet. Comprehensive income includes all changes in equity
(net assets) during a period from non-owner sources. Accumulated other comprehensive income or loss is shown in the consolidated statement of stockholders equity.



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Components of accumulated other comprehensive loss were as follows (in thousands):



|                                                       |  |               |        |   |               |   |        |  
|------------------------------------------------------ |  | ------------- | ------ | - | ------------- | - | ------ | -
|                                                       |  | April 6, 2008 |        |   | April 1, 2007 |  
|Unrealized loss on available-for-sale investments, net |  | $             | (812   | ) |               | $ | (7     | )
|Foreign currency translation adjustments               |  |               | (3,972 | ) |               |   | (1,085 | )
|                                                       |  |               |        |   |               |   |        |  
|Accumulated other comprehensive loss                   |  | $             | (4,784 | ) |               | $ | (1,092 | )
|                                                       |  |               |        |   |               |   |        |  

Recently issued accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies only to other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective
for fiscal years beginning after November 15, 2007. The Company does not expect that the adoption of this statement will have a material impact on its consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159
permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect that the
adoption of this statement will have a material impact on its consolidated financial position or results of operations.

In June 2007, the
FASB ratified a consensus opinion reached by the EITF on EITF Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. The guidance in EITF 07-3
requires the Company to defer and capitalize nonrefundable advance payments made for goods or services to be used in research and development activities until the goods have been delivered or the related services have been performed. If the goods
are no longer expected to be delivered nor the services expected to be performed, the Company would be required to expense the related capitalized advance payments. The consensus in EITF 07-3 is effective for fiscal years beginning after
December 15, 2007. The Company does not expect that the adoption of EITF 07-3 will have a material impact on its consolidated financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), which expands the
definition of a business combination and establishes principles and requirements for how an acquirer recognizes fair values of acquired assets, including goodwill, and assumed liabilities. SFAS 141R requires the acquirer to recognize 100% of the
fair values of acquired assets, including goodwill, and assumed liabilities, even if the acquirer has acquired less than 100% of the target. As a consequence, the current step-acquisition model will be eliminated. Under SFAS 141R, contingent
consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. SFAS 141R also requires that transaction costs be expensed as incurred and does not permit certain restructuring
activities previously allowed under EITF No. 95-3 to be recorded as a component of purchase accounting. In addition, under SFAS 141R, acquired research and development value will no longer be expensed at acquisition, but instead will be
capitalized as an indefinite-lived intangible asset, subject to impairment accounting throughout its development stage and then subject to amortization and impairment after development is complete. SFAS 141R is effective for fiscal years
beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial position or results of operations,
but the impact will be limited to any future acquisitions beginning in fiscal 2010.



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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS 160). This Statement establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity, changes in a parents ownership interest
while the parent retains its controlling interest should be accounted for as equity transactions, and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary should be initially measured at fair value. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. The Company does not expect that the adoption of this statement will have a material impact on its consolidated financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS
161). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial position,
financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of the
adoption of this statement on its consolidated financial position or results of operations.

In April 2008, the FASB issued FASB Staff
Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other U.S. GAAP. This FSP is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial position or results of operations.

In May 2008, the FASB issued FSP Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires cash settled convertible debt to be separated into debt and equity components at issuance and a
value to be assigned to each. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair
value will be recorded as a debt discount and amortized to interest expense over the life of the bond. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and should be applied
retrospectively to all periods presented in the financial statements. Early adoption is prohibited. The Company is currently evaluating the impact of the adoption of this statement on its consolidated financial position or results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS
162). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for
nongovernmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board auditing amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles. The Company will adopt SFAS 162 once it is effective and is currently evaluating the impact of the adoption of this statement on its consolidated financial position or results
of operations.



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Note 2.    Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share. Basic net income (loss) per share
is computed by dividing net income (loss) attributed to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted net income (loss) per share gives effect to all dilutive
potential common shares outstanding during the period including stock subject to repurchase, stock options and warrants using the treasury stock method and convertible subordinated notes using the if-converted method.

For each of the three years ended April 6, 2008, all potential common shares outstanding during the period were excluded from the computation of
diluted net loss per share as their effect would be anti-dilutive. Such shares included the following (in thousands, except per share data):



|                                                                     |  |               |        |               |   |               |  |   |      
|-------------------------------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | - | -----
|                                                                     |  | Year Ended   
|                                                                     |  | April 6, 2008 |        | April 1, 2007 |   | April 2, 2006
|Shares of common stock issuable upon conversion of convertible notes |  |               | 3,995  |               |   | 3,995         |  |   | 4,615
|Warrants outstanding                                                 |  |               |       |               |   |              |  |   | 500  
|Shares of common stock issuable under stock option plans outstanding |  |               | 12,217 |               |   | 11,233        |  |   | 8,979
|Weighted average price of shares issuable under stock option plans   |  | $             | 10.69  |               | $ | 9.80          |  | $ | 11.51

Note 3.    Balance Sheet Components

Significant components of certain balance sheet items are as follows (in thousands):



|                                   |  |               |        |   |               |   |        |  
|---------------------------------- |  | ------------- | ------ | - | ------------- | - | ------ | -
|                                   |  | April 6, 2008 |        |   | April 1, 2007 |  
|Accounts receivable, net:          |  |               |        |   |               |   |        |  
|Trade accounts receivable          |  | $             | 26,642 |   |               | $ | 33,580 |  
|Unbilled receivable                |  |               | 12,044 |   |               |   | 7,561  |  
|                                   |  |               |        |   |               |   |        |  
|Gross accounts receivable          |  |               | 38,726 |   |               |   | 41,141 |  
|Allowance for doubtful accounts    |  |               | (376   | ) |               |   | (55    | )
|                                   |  |               |        |   |               |   |        |  
|                                   |  | $             | 38,310 |   |               | $ | 41,086 |  
|                                   |  |               |        |   |               |   |        |  
|Accrued expenses:                  |  |               |        |   |               |   |        |  
|Accrued sales commissions          |  | $             | 2,434  |   |               | $ | 3,058  |  
|Accrued bonuses                    |  |               | 5,352  |   |               |   | 10,623 |  
|Other payroll and related accruals |  |               | 9,558  |   |               |   | 6,988  |  
|Acquisition accrual                |  |               | 3,349  |   |               |   | 6,960  |  
|Litigation settlement accrual      |  |               |       |   |               |   | 12,500 |  
|Accrued professional fees          |  |               | 1,441  |   |               |   | 4,101  |  
|Income taxes payable               |  |               | 1,791  |   |               |   | 3,866  |  
|Other                              |  |               | 5,941  |   |               |   | 5,158  |  
|                                   |  |               |        |   |               |   |        |  
|                                   |  | $             | 29,866 |   |               | $ | 53,254 |  
|                                   |  |               |        |   |               |   |        |  



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Note 4.    Acquisitions

Business Combinations

On February 26, 2008, the Company acquired Sabio Labs, Inc.
(Sabio), a privately-held developer of analog design solutions for mixed-signal designers. Sabios software enables designers to create robust analog designs, port complex circuits to new process technologies in foundries
efficiently, and explore system design trade-offs early in the design process. The purchase price for the acquisition was $16.5 million, consisting of approximately 1,574,000 shares of the Companys common stock valued at $16.2 million and
transaction costs of $270,000. The valuation of the Companys common stock issued in connection with the acquisition was based on the average closing price per share of the stock for the ten-day period ended on the fourth day preceding the
acquisition date. As part of the initial consideration, 127,195 shares of Magma stock valued at $1.3 million was associated with employee retention and will be earned and recorded as compensation expenses in accordance with pre-defined vesting
schedules. The Company held back approximately 213,000 shares of Magma common stock valued at $2.2 million to secure certain indemnification obligations of Sabio that may arise for a 15-month period from the date of the acquisition. In addition, the
Company agreed to pay up to $7.5 million of contingent consideration in the form of cash or shares of Magma common stock, at Magmas discretion, to the former Sabio shareholders upon achieving certain product integration and booking milestones.
The results of operations of Sabio have been included in the Companys results of operations since the acquisition date. Pro forma information has not been provided as the effects of the acquisition do not materially change the Companys
results of operations.

On September 19, 2007, the Company acquired Rio Design Automation, Inc. (Rio), a privately-held
electronic design automation (EDA) software company that provides package-aware chip design software. Rios software allows designers to analyze and optimize integrated circuit design within the context of the package and electronic
system, further expanding the Companys product offering. Prior to acquiring Rio, the Company had an 18% ownership interest in Rio, which was accounted for under the equity method with a carrying value of approximately $220,000 as of
September 19, 2007. In accordance with SFAS No. 141, Business Combinations, this acquisition was accounted for as a step acquisition. The total purchase price for the step acquisition totaled $4.5 million, consisting of
$526,000 in cash, approximately 278,700 shares of the Companys common stock valued at $3.8 million, and transaction costs of $168,000. The valuation of the Companys common stock issued in connection with the acquisition was based on the
average closing price per share of the stock for the ten days before the signing date of the definitive merger agreement. The Company held back approximately 46,900 shares of Magma common stock valued at $638,000 to secure certain indemnification
obligations of Rio that may arise for a 12-month period from the date of the acquisition. The results of operations of Rio have been included in the Companys results of operations since the acquisition date. Pro forma information has not been
provided as the effects of the acquisition do not materially change the Companys results of operations.

On November 20, 2006,
the Company acquired Knights Technology, Inc. (Knights), a wholly owned subsidiary of FEI Company. Knights is a provider of yield management and failure analysis software solutions to the semiconductor industry. The acquisition broadens
the Companys product portfolio and is expected to allow the Company to tighten the link between design and manufacturing. The Company acquired Knights for a total consideration of approximately $8.0 million in cash. The Company retained
$250,000 of the initial consideration in a segregated bank account to secure certain indemnification obligations of FEI Company, and this $250,000 was recorded as restricted cash and is separately disclosed on the Companys consolidated balance
sheet as of April 6, 2008. The results of operations of Knights have been included in Magmas results of operations since the acquisition date.

On November 29, 2005, the Company acquired ACAD Corporation (ACAD), a privately-held company that develops circuit simulation software, to broaden its product portfolio into simulation, addressing a
new



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market, and to enhance certain other existing Magma products, all of which help integrated circuit (IC) manufacturers produce higher quality
chips more efficiently. The acquisition of ACAD further supports Magmas focus to deliver effective electronic design automation (EDA) software to IC manufactures, enabling IC designers to meet critical time-to-market objectives,
improve chip performance, and handle multimillion-gate designs. The Company acquired ACAD for an initial consideration of approximately $453,000 in cash and assumption of its net liabilities of approximately $3.9 million as of November 29,
2005. The Company also agreed to pay up to $5.65 million of cash in contingent consideration to the ACAD shareholders upon achieving or exceeding certain financial and technical milestones. As of April 6, 2008, $2.8 million of the contingent
consideration has been earned and was recorded as an addition to goodwill on the Companys consolidated balance sheet.

The results of
operations from ACAD have been included in Magmas results of operations from the acquisition date.

Summary of Purchase Price Allocation and
Valuation Methodology

The acquisitions described above were accounted for as a business combination. The purchase price was allocated
to the assets acquired and liabilities assumed based on their respective fair values. A summary of the purchase price allocations pertaining to these acquisition and the amortization periods of the intangible assets acquired is as follows (in
thousands):



|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|-------------------------------------------------- |  | ----------- | ------ | --- | ----------- | ----- | ----------- |  | - | ------- | - | ---- | - | ----- |  | - | ------ | -
|                                                   |  | Fiscal 2008 |        |     | Fiscal 2007 |       | Fiscal 2006 | 
|                                                   |  | Sabio       |        | Rio |             |       | Total       |  |   | Knights |   | ACAD |  
|Cash consideration                                 |  | $           |       |     | $           | 525   |             |  | $ | 525     |   |      | $ | 8,000 |  | $ | 453    |  
|Equity consideration                               |  |             | 16,181 |     |             | 3,789 |             |  |   | 19,970  |   |      |   |      |  |   |       |  
|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Total consideration                                |  |             | 16,181 |     |             | 4,314 |             |  |   | 20,495  |   |      |   | 8,000 |  |   | 453    |  
|Transaction and other costs                        |  |             | 270    |     |             | 389   |             |  |   | 659     |   |      |   | 140   |  |   |       |  
|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Total purchase price                               |  | $           | 16,451 |     | $           | 4,703 |             |  | $ | 21,154  |   |      | $ | 8,140 |  | $ | 453    |  
|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Allocation of purchase price:                      |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Net tangible assets acquired (liabilities assumed) |  | $           | 510    |     | $           | (926  | )           |  | $ | (416    | ) |      | $ | 240   |  | $ | (3,931 | )
|Intangible assets acquired:                        |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Customer relationship or base                      |  |             | 1,200  |     |             | 1,065 |             |  |   | 2,265   |   |      |   | 1,000 |  |   | 110    |  
|Developed technology                               |  |             | 2,000  |     |             | 819   |             |  |   | 2,819   |   |      |   | 2,600 |  |   | 1,860  |  
|Non-competition agreements                         |  |             | 100    |     |             |      |             |  |   | 100     |   |      |   | 200   |  |   | 300    |  
|Acquired customer contracts                        |  |             |       |     |             |      |             |  |   |        |   |      |   | 300   |  |   | 190    |  
|Trademarks                                         |  |             |       |     |             |      |             |  |   |        |   |      |   | 500   |  |   |       |  
|In-process research and development                |  |             | 1,600  |     |             | 656   |             |  |   | 2,256   |   |      |   | 1,300 |  |   | 450    |  
|Goodwill                                           |  |             | 11,041 |     |             | 3,089 |             |  |   | 14,130  |   |      |   | 2,000 |  |   | 1,474  |  
|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|                                                   |  | $           | 16,451 |     | $           | 4,703 |             |  | $ | 21,154  |   |      | $ | 8,140 |  | $ | 453    |  
|                                                   |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Amortization period of intangibles (in years)      |  |             |        |     |             |       |             |  |   |         |   |      |   |       |  |   |        |  
|Customer relationship or base                      |  |             | 5-6    |     |             | 7-8   |             |  |   |         |   |      |   | 7     |  |   | 4      |  
|Developed technology                               |  |             | 5      |     |             | 5     |             |  |   |         |   |      |   | 4-5   |  |   | 4      |  
|Non-competition agreements                         |  |             | 3      |     |             |      |             |  |   |         |   |      |   | 3     |  |   | 3      |  
|Acquired customer contracts                        |  |             |       |     |             |      |             |  |   |         |   |      |   | 3     |  |   | 1-2    |  
|Trademarks                                         |  |             |       |     |             |      |             |  |   |         |   |      |   | 7     |  |   |       |  



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For each acquisition, the excess of the purchase price over the estimated value of the net tangible
and intangible assets acquired was allocated to goodwill. Goodwill is not expected to be deductible for income tax purposes.

The values
assigned to developed technologies related to each acquisition were based upon future discounted cash flows related to the existing products projected income streams using discount rates ranging from 11% to 21%. The Company believes these
rates were appropriate given the business risks inherent in marketing and selling these products. Factors considered in estimating the discounted cash flows to be derived from the existing technology include 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. Other intangible assets included the value of customer relationship or base, non-competition agreements, acquired
customer contracts and trademarks. The cash flows generated by these intangible assets were valued using discount rates ranging from 13% to 25%.

The portion of the purchase price allocated to in-process research and development (IPR&D) was recognized as a charge to operating expenses on the acquisition date. The in-process technologies acquired are at a stage of
development that require further research and development to determine technical feasibility and commercial viability and they have no future alternative use. The valuation method used to value IPR&D is a form of discounted cash flow method
commonly known as the excess earnings 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 costs to complete the 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 flow derived from the in-process technology was discounted at rates ranging from 15-30%. The Company believes the rate used
was appropriate given the risks associated with the technology for which commercial feasibility had not been established and there was no alternative use. The percentage of completion for in-process technology projects acquired was an average of the
percentage of completion based on costs and time. The cost-based percentage of completion was determined by identifying the total expenses incurred to date for the project as a ratio of the total expenses expected to be incurred to bring the project
to technical and commercial feasibility. The time-based percentage of completion was determined by identifying the elapsed time invested in the project as a ratio of the total time required to bring the project to technical and commercial
feasibility. 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. As of April 6, 2008, the in-process technology projects of Knights
and ACAD have been completed, and the IPR&D projects of Rio and Sabio are expected to be completed in fiscal year 2009.

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 value of the in-process research and development, as well as the value of other intangible assets, was estimated by the 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 in accordance with the generally accepted accounting principles.

Asset Purchases

On April 13, 2007, the Company
acquired certain assets from a privately-held developer of EDA technology. Pursuant to the asset purchase agreement, the Company paid total consideration of $200,000 in cash.



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Based on managements estimates and appraisal, the $200,000 consideration was allocated to patents and intellectual property, which was included in the
intangible assets on the Companys consolidated balance sheet, and is being amortized over the estimated economic life of three years.

On February 12, 2007, the Company acquired certain assets from a privately-held developer of EDA technology. Pursuant to the asset purchase agreement, the Company paid a total consideration of $250,000 in cash. Based on
managements estimates and appraisal, $233,000 of the consideration was allocated to patents and intellectual property and $17,000 was allocated to workforce. Both were included in the intangible assets on the Companys consolidated
balance sheets and are being amortized over the estimated economic life of four years.

On October 6, 2006, the Company acquired a
technology license and certain other information from another company for a total fee of $2.0 million. The licensed technology will be integrated into the Companys current product offerings and various other products under development. Under
the license agreement, the Company obtained a perpetual, fully-paid, royalty-free worldwide license. The Company also agreed to pay up to $6.0 million of cash in additional license fees based upon achievement of certain milestones. The $2.0
million initial license fee was included in the intangible assets on the Companys consolidated balance sheets and is being amortized over the estimated economic life of five years.

On May 3, 2006, the Company acquired a license to technology relating to electronic design automation from Stabie-Soft, Inc. The Company paid $2.5
million for the license in May 2006 and agreed to pay additional fees of $0.5 million based upon achievement of certain technology milestones. The initial license fee of $2.5 million was included in the intangible assets on the Companys
consolidated balance sheets and is being amortized over the estimated economic life of five years.

On March 9, 2006, the Company
acquired certain assets of Reshape, Inc., a privately-held developer of EDA and design flow technology, for a total fee of $750,000. Based on managements estimates and appraisal, the $750,000 consideration was allocated to patents and
intellectual property, which was included in the intangible assets on the Companys consolidated balance sheets, and is being amortized over the estimated economic life of three years.

On June 30, 2005, the Company acquired a technology license from International Business Machines Corporation (IBM) to copyrighted
material pertinent to technology relating to electronic design automation, as well as other intellectual property owned by IBM. In connection with the technology license agreement, IBM and Magma entered into an amendment extending to 2010 the term
of Magmas patent license agreement with IBM dated March 24, 2004. These two licenses cover IBMs patents and significant technology with respect to the development of EDA tools and products that perform physical implementation. The
total cash paid for the licenses was $7.0 million. In addition, the Company entered into a warrant agreement pursuant to which IBM is entitled to purchase up to 500,000 shares of Magma common stock at an exercise price of $4.73 per share. In August
2006, the warrant was exercised on a cashless net exercise basis and a total of 149,005 shares of the Companys common stock were issued to IBM. The fair value of the warrants was estimated to be $6.16 per share using the Black-Scholes option
pricing model. The license fee of $7.0 million and the $3.1 million fair value of the 500,000 shares of common stock warrant were included in the intangible assets on the Companys consolidated balance sheets and is being amortized over the
estimated economic life of three years.

AcquisitionRelated Earnouts

For a number of Magmas previously completed acquisitions, the Company agreed to pay contingent considerations in cash and/or stock to former
stockholders of the acquired companies based on the acquired



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business achievement of certain technology or financial milestones. The following table summarizes the amounts of goodwill and intangible assets
recorded by the Company for contingent considerations paid or payable to former stockholders of the acquired companies (in thousands):



|                   |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|------------------ |  | ------------- | ----- | ----------------- | - | ------------- |  | ----------------- | ----- | ---- | - | ----------------- |  | - | ------ |  | - | ------
|                   |  | Year Ended   
|                   |  | April 6, 2008 |       | April 1, 2007     |   | April 2, 2006
|                   |  | Cash          |       | Common StockValue |   | Cash          |  | Common StockValue |       | Cash |   | Common StockValue
|Goodwill:          |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|ACAD Corporation   |  | $             | 2,825 |                   | $ |              |  | $                 | 2,825 |      | $ |                  |  | $ |       |  | $ |      
|Other              |  |               | 25    |                   |   |              |  |                   |      |      |   |                  |  |   |       |  |   |      
|                   |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|                   |  | $             | 2,850 |                   | $ |              |  | $                 | 2,825 |      | $ |                  |  | $ |       |  | $ |      
|                   |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|Intangible assets: |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|Mojave, Inc.       |  | $             | 2,664 |                   | $ | 2,662         |  | $                 | 6,219 |      | $ | 6,221             |  | $ | 13,063 |  | $ | 13,062
|Other              |  |               | 3,003 |                   |   |              |  |                   | 1,500 |      |   |                  |  |   | 1,182  |  |   | 1,081 
|                   |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       
|                   |  | $             | 5,667 |                   | $ | 2,662         |  | $                 | 7,719 |      | $ | 6,221             |  | $ | 14,245 |  | $ | 14,143
|                   |  |               |       |                   |   |               |  |                   |       |      |   |                   |  |   |        |  |   |       

Note 5.    Goodwill and Other Intangible Assets

The following table summarizes the components of goodwill, other intangible assets and related accumulated amortization balances, which were recorded as a
result of business combinations and asset purchases described in Note 4 (in thousands):



|                              |  |                                |                     |               |                         |               |   |                   |   |                     |   |                         |  |   |                   |  |   |          |   |  |   |       
|----------------------------- |  | ------------------------------ | ------------------- | ------------- | ----------------------- | ------------- | - | ----------------- | - | ------------------- | - | ----------------------- |  | - | ----------------- |  | - | -------- | - |  | - | ------
|                              |  | WeightedAverageLife (inMonths) |                     | April 6, 2008 |                         | April 1, 2007
|                              |  |                                | GrossCarryingAmount |               | AccumulatedAmortization |               |   | NetCarryingAmount |   | GrossCarryingAmount |   | AccumulatedAmortization |  |   | NetCarryingAmount
|Goodwill                      |  |                                |                     | $             | 64,877                  |               | $ |                  |   |                     | $ | 64,877                  |  | $ | 48,499            |  | $ |         |   |  | $ | 48,499
|                              |  |                                |                     |               |                         |               |   |                   |   |                     |   |                         |  |   |                   |  |   |          |   |  |   |       
|Other intangible assets:      |  |                                |                     |               |                         |               |   |                   |   |                     |   |                         |  |   |                   |  |   |          |   |  |   |       
|Developed technology          |  | 44                             |                     | $             | 113,609                 |               | $ | (85,759           | ) |                     | $ | 27,850                  |  | $ | 104,464           |  | $ | (64,228  | ) |  | $ | 40,236
|Licensed technology           |  | 40                             |                     |               | 41,097                  |               |   | (34,503           | ) |                     |   | 6,594                   |  |   | 39,093            |  |   | (29,667  | ) |  |   | 9,426 
|Customer relationship or base |  | 70                             |                     |               | 5,575                   |               |   | (2,429            | ) |                     |   | 3,146                   |  |   | 3,310             |  |   | (1,631   | ) |  |   | 1,679 
|Patents                       |  | 57                             |                     |               | 13,015                  |               |   | (11,205           | ) |                     |   | 1,810                   |  |   | 12,690            |  |   | (8,615   | ) |  |   | 4,075 
|Acquired customer contracts   |  | 33                             |                     |               | 1,390                   |               |   | (1,090            | ) |                     |   | 300                     |  |   | 1,390             |  |   | (1,069   | ) |  |   | 321   
|Assembled workforce           |  | 45                             |                     |               | 1,252                   |               |   | (1,221            | ) |                     |   | 31                      |  |   | 1,252             |  |   | (976     | ) |  |   | 276   
|No shop right                 |  | 24                             |                     |               | 100                     |               |   | (100              | ) |                     |   |                        |  |   | 100               |  |   | (100     | ) |  |   |      
|Non-competition agreements    |  | 32                             |                     |               | 600                     |               |   | (325              | ) |                     |   | 275                     |  |   | 500               |  |   | (156     | ) |  |   | 344   
|Trademark                     |  | 67                             |                     |               | 900                     |               |   | (470              | ) |                     |   | 430                     |  |   | 900               |  |   | (382     | ) |  |   | 518   
|                              |  |                                |                     |               |                         |               |   |                   |   |                     |   |                         |  |   |                   |  |   |          |   |  |   |       
|Total                         |  |                                |                     | $             | 177,538                 |               | $ | (137,102          | ) |                     | $ | 40,436                  |  | $ | 163,699           |  | $ | (106,824 | ) |  | $ | 56,875
|                              |  |                                |                     |               |                         |               |   |                   |   |                     |   |                         |  |   |                   |  |   |          |   |  |   |       



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The Company has included the amortization expense on intangible assets that relate to products sold
in cost of license revenue, while the remaining amortization is shown as a separate line item on the Companys consolidated statement of operations. The amortization expense related to intangible assets was as follows (in thousands):



|                                               |  |               |        |               |   |               |  |   |       
|---------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | - | ------
|                                               |  | Year Ended   
|                                               |  | April 6, 2008 |        | April 1, 2007 |   | April 2, 2006
|Amortization of intangible assets included in: |  |               |        |               |   |               |  |   |       
|Cost of revenuelicenses                       |  | $             | 18,078 |               | $ | 23,368        |  | $ | 15,964
|Cost of revenuebundled licenses and services  |  |               | 4,156  |               |   | 7,770         |  |   | 7,711 
|Operating expenses                             |  |               | 8,043  |               |   | 11,011        |  |   | 11,849
|                                               |  |               |        |               |   |               |  |   |       
|Total                                          |  | $             | 30,277 |               | $ | 42,149        |  | $ | 35,524
|                                               |  |               |        |               |   |               |  |   |       

As of April 6, 2008, the estimated future amortization expense of other intangible assets in
the table above is as follows:



|                      |  |                              |       
|--------------------- |  | ---------------------------- | ------
|Fiscal year           |  | EstimatedAmortizationExpense
|April 7  May 4, 2008 |  | $                            | 2,410 
|2009                  |  |                              | 26,252
|2010                  |  |                              | 4,807 
|2011                  |  |                              | 3,734 
|2012                  |  |                              | 1,871 
|2013 and beyond       |  |                              | 1,362 
|                      |  |                              |       
|                      |  | $                            | 40,436
|                      |  |                              |       

In accordance with SFAS 142, the Company performed an annual goodwill impairment test as of
January 6, 2008 and determined that goodwill was not impaired. In performing the impairment test, the Company determined that it had one reporting unit. The Company evaluates goodwill at least on an annual basis and whenever events and changes
in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flow. No assurances can be given that future evaluations of goodwill will not result in charges as a result of future impairment.

Note 6.    Restructuring Charge

During fiscal 2008, the Company recorded a restructuring charge of $0.3 million for costs related to termination costs of 21 employees resulting from the Companys realignment to current business objectives. As of April 6, 2008,
all of these termination costs had been paid and the Company had not planned to incur additional costs related to this business realignment.

Note
7.    Convertible Notes

Zero Coupon Convertible Subordinated Notes due 2008 (the 2008 Notes)

In May 2003, the Company completed an offering of $150.0 million principal amount of the 2008 Notes due May 15, 2008 to qualified buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended, resulting in net proceeds to the Company of approximately $145.1 million. The 2008 Notes do not bear coupon interest



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and were initially convertible into shares of the Companys common stock at a conversion price of $22.86 per share, for an aggregate of 6,561,680
shares. The 2008 Notes are subordinated to the Companys existing and future senior indebtedness and effectively subordinated to all indebtedness and other liabilities of the Companys subsidiaries. The Company paid approximately $4.5
million in transaction fees to the underwriters of the offering and approximately $0.4 million in other debt issuance costs. The Company is amortizing the transaction fees and issuance costs over the life of the 2008 Notes using the effective
interest method.

In order to minimize the dilutive effect from the issuance of the 2008 Notes, the Company undertook the following
additional transactions concurrent with the issuance of the Notes:



| |  |  | The Company repurchased approximately 1.1 million shares of its common stock at a price of $18.00 per share, or approximately $20.0 million, from one of the
initial purchasers of the 2008 Notes, and those shares were retired as of May 30, 2003.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company and Credit Suisse First Boston International (CSFB International) entered into convertible bond hedge and warrant transactions with respect
to the Companys common stock, the exposure for which is held by CSFB International. Under the convertible bond hedge arrangement, CSFB International agreed to sell to the Company, for $22.86 per share, up to 6,561,680 shares of Magma common
stock to cover the Companys obligation to issue shares upon conversion of the Notes. In addition, the Company issued CSFB International a warrant to purchase up to 6,561,680 shares of common stock for a purchase price of $31.50 per share.
Purchases and sales under this arrangement may be made only upon expiration of the 2008 Notes or their earlier conversion (to the extent thereof). Both transactions may be settled at the Companys option either in cash or net shares, and will
expire on the earlier of a conversion event or the maturity of the convertible debt on May 15, 2008. The transactions are expected to reduce the potential dilution from conversion of the 2008 Notes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net cost of $20.3 million incurred in connection with these arrangements, which consisted of the $56.2 million cost of the convertible bond hedge,
offset in part by the $35.9 million proceeds from the issuance of the warrant, was presented in stockholders equity as a reduction of additional paid-in-capital, in accordance with the guidance in Emerging Issues Task Force Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. If the contracts are ultimately settled in a manner that results in the Company delivering or receiving cash, the amount
of cash paid or received should be reported as a reduction of, or an addition to, stockholders equity. The shares issuable under these arrangements were excluded from the calculation of earnings per share as their effect was anti-dilutive.

In May 2005, the Company repurchased, in privately negotiated transactions, in an aggregate principal amount of $44.5 million (or
approximately 29.7% of the total) of the 2008 Notes at an average discount to face value of approximately 22%. The Company spent approximately $34.8 million on the repurchase. The repurchase left approximately $105.5 million principal amount of the
2008 Notes outstanding. In addition, a portion of the hedge and warrant transactions was terminated in connection with the repurchase. In fiscal 2006, the Company recorded a gain of $9.7 million on the repurchase of the 2008 Notes, which was
partially offset by the write-off of $0.9 million of deferred financing costs associated with the 2008 Notes. The net proceeds of $140,000 from the termination of a portion of the hedge and warrant were charged to additional paid-in capital.

In May 2006, the Company repurchased, in privately negotiated transactions, in an aggregate principal amount of $40.3 million (or
approximately 38.2% of the remaining principal) of the 2008 Notes at an average discount to face value of approximately 13%. The Company spent approximately $35.0 million on the repurchases. The repurchase left approximately $65.2 million principal
amount of the 2008 Notes outstanding. In addition, a portion of the hedge and warrant transactions was terminated in connection with the repurchase. In the first quarter of fiscal 2007, the Company recorded a gain of $5.3 million on the repurchase,
which was partially



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offset by the write-off of $0.5 million of deferred financing costs associated with the 2008 Notes. The Company received 14,467 shares of Magma common stock,
valued at approximately $102,000, as settlement for termination of a portion of the hedge and warrant in connection with the repurchase. The amount was charged to additional paid-in-capital.

In March 2007, the Company exchanged, in privately negotiated transactions, an aggregate principal amount of $49.9 million (or approximately 76.7% of the
remaining principal) of the 2008 Notes for a new series of 2% convertible senior notes due May 2010. The exchange left approximately $15.2 million principal amount of the 2008 Notes outstanding. In the fourth quarter of fiscal 2007, the Company
recorded a gain of $2.1 million on the exchange, which was partially offset by the write-off of $0.4 million of deferred financing costs associated with the 2008 Notes. Please see below under 2% Convertible Senior Notes due 2010 for
further discussion of the exchange. In addition, a portion of the hedge and warrant was terminated in connection with the exchange. The net proceeds of $88,000 from the termination of a portion of the hedge and warrant were charged to additional
paid-in capital.

The $15.2 million principal amount of the 2008 Notes and the related $10,000 of unamortized balance of transaction fees
and debt issuance costs were included in current liabilities on the Companys consolidated balance sheets as of April 6, 2008. The shares issuable on the conversion of the 2008 Notes are included in fully diluted shares
outstanding under the if-converted method of accounting for purposes of calculating diluted earnings per share. See Note 16, Subsequent Events, for disclosure on the repayment of the 2008 Notes in May 2008.

2% Convertible Senior Notes due 2010 (the 2010 Notes)

In March 2007, the Company exchanged, in privately negotiated transactions, an aggregate principal amount of $49.9 million of the 2008 Notes for an equal aggregate principal amount of the 2010 Notes. The 2010 Notes
mature on May 15, 2010 and bear interest at 2% per annum, with interest payable on May 15 and November 15 of each year, commencing May 15, 2007. The 2010 Notes are unsecured senior indebtedness of Magma, which rank senior in
right of payment to the 2008 Notes and junior in right of payment to Magmas revolving line of credit facility. In addition, after May 20, 2009, the Company will have the option to redeem the 2010 Notes for cash in an amount equal to 100%
of the aggregate outstanding principal amount at the time of such redemption. The 2010 Notes also contain a net share settlement provision which allows the Company, at its option, in lieu of delivery of some or all of the shares of common stock
otherwise issuable upon conversion of the 2010 Notes, to pay holders of the 2010 Notes in cash for all or a portion of the principal amount of the converted 2010 Notes and any amounts in excess of the principal amount which are due.

The 2010 Notes will be convertible upon the occurrence of certain conditions into shares of Magma common stock at an initial conversion price of $15.00
per share, which is equivalent to an initial conversion rate of approximately 66 shares per $1,000 principal amount of 2010 Notes. The conversion price and the conversion rate will adjust automatically upon certain dilution events. The 2010 Notes
are convertible into shares of Magma common stock on or prior to maturity at the option of the holders upon the occurrence of certain change of control events. Conversions under these circumstances require Magma to pay a premium make-whole amount
whereby the conversion rate on the 2010 Notes may be increased by up to 22 shares per $1,000 principal amount. The premium make-whole amount shall be paid in shares of common stock upon any such automatic conversion, subject to Magmas option
for net share settlement.

The 2010 Notes shall also be convertible at the option of the holders at such time as: (i) the closing
price of Magma common stock exceeds 150% of the conversion price of the 2010 Notes, initially $15.00, for 20 out of 30 consecutive trading days; (ii) the trading price per $1,000 principal amount of 2010 Notes is less than 98% of the



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product of (x) the average price of common stock for each day during any five consecutive trading day period and (y) the conversion rate per $1,000
principal amount of 2010 Notes; (iii) Magma distributes to all holders of common stock rights or warrants entitling them to purchase additional shares of common stock at less than the closing price of common stock on March 5, 2007;
(iv) Magma distributes to all holders of common stock any form of dividend which has a per share value exceeding 7.5% of the price of the common stock on the day prior to such date of distribution; (v) the period beginning 60 days prior to
May 15, 2010; (vi) there has been a designated change of control of Magma; or (vii) the 2010 Notes have been called for redemption by Magma. Any such conversions shall not entitle the holders of the 2010 Notes to any premium
make-whole payment by Magma.

The exchange offer was treated as an extinguishment of the 2008 Notes in accordance with EITF 96-19,
Debtors Accounting for a Modification or Exchange of Debt Instruments, as amended by EITF 06-6, Debtors Accounting for a Modification (or Exchange) of Convertible Debt Instruments. The exchange resulted in a gain of
$2.1 million on extinguishment of debt, which was partially offset by the write-off of $0.4 million of deferred financing costs associated with the 2008 Notes. The Company initially recorded the 2010 Notes at fair value of $47.8 million, net of the
debt discount of $2.1 million. The debt discount is being amortized to interest expenses over the term of the 2010 Notes. As of April 6, 2008, debt discount balance related to the 2010 Notes was $1.4 million.

The $1.3 million of underwriting and legal fees related to the 2010 Notes offering was capitalized upon issuance and is being amortized over the term of
the 2010 Notes using the effective interest method. As of April 6, 2008, the unamortized balance of debt issuance costs related to the 2010 Notes was approximately $0.9 million. The shares issuable on the conversion of the 2010 Notes are
included in fully diluted shares outstanding under the if-converted method of accounting for purposes of calculating diluted earnings per share.

Note 8.    Line of Credit

In November 2006, the Company established a $5.0 million revolving line of
credit facility with Wells Fargo Bank, N.A. The credit facility is available through November 2011 and bears an interest rate equal to the banks prime rate less 1.60% or LIBOR plus 0.60%. The Company is required to make interest only payments
monthly and the outstanding principal amount plus all accrued but unpaid interest is payable in full at the expiration of the credit facility. As of April 1, 2007, there were $3.0 million borrowings outstanding under the credit facility,
bearing an interest rate at 5.94%. The credit facility is secured by deposits held with the bank. In addition, the credit facility allows letters of credit to be issued on behalf of the Company, provided that the aggregate outstanding amount of the
letters of credit shall not exceed the available amount for borrowing under the credit facility. As of April 1, 2007, three letters of credit totaling $1.85 million were outstanding under the credit facility.

In July 2007, the Company established a $10.0 million unsecured revolving line of credit facility with Wells Fargo Bank, N.A. This credit facility, which
replaces the previous $5.0 million revolving line of credit facility, is available through July 2010 and bears an interest rate equal to the banks prime rate less 1.20% or LIBOR plus 1.00%. The Company is required to make interest only
payments monthly and the outstanding principal amount plus all accrued but unpaid interest is payable in full at the expiration of the credit facility. As of April 6, 2008, the Company had no borrowings outstanding under the facility.

The credit facility requires that the Company maintain certain financial conditions and pay fees of 0.125% per year on the unused
amount of the facility. As of April 6, 2008, the Company was in compliance with the financial conditions. In addition, the credit facility allows letters of credit to be issued on behalf of the Company, provided that the aggregate
outstanding amount of the letters of credit shall not exceed the available



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amount for borrowing under the credit facility. In connection with the establishment of the credit facility, the Company repaid the $3.0 million outstanding
borrowing under the previous $5.0 million credit facility. Letters of credit under the prior credit facility were transferred to the new $10.0 million credit facility. As of April 6, 2008, two letters of credit totaling $1.7 million
were outstanding and the Company had a borrowing base availability of $8.3 million under the facility. Since the new credit facility is unsecured, the Company is not required to maintain restricted cash balances relating to the letters of
credit under the facility.

Note 9.    Stockholders Equity

Stock Incentive Plans

2004 Employment Inducement Award Plan

The 2004 Employment Inducement Award Plan (Inducement Plan) was adopted by the Board of Directors on August 30, 2004. Under the
Inducement Plan, the Company, with the approval of the Compensation Committee of the Board of Directors (the Committee), may grant non-qualified stock options to new hire employees who are not executive officers of the Company. These
employees may also be awarded restricted common shares, stock appreciation rights (SARs) or stock unit awards (Stock Units). The Committee determines whether an award may be granted, the number of shares/options awarded, the
date an award may be exercised, vesting and the exercise price. Each award must be subject to an agreement between each applicable employee and the Company. The term of the Inducement Plan continues until May 4, 2011 unless it is terminated
earlier in accordance with its terms. The initial number of shares of common stock issuable under the Inducement Plan was 1,000,000 shares, subject to adjustment for certain changes in the Companys capital structure. On January 24, 2006,
the Inducement Plan was amended by the Committee to increase the maximum aggregate number of options, SARs, Stock Units and restricted shares that may be awarded under the Inducement Plan to 2,000,000 shares. As of April 6, 2008, there were
options to purchase 1,311,037 shares outstanding under the Inducement Plan, and 234,070 shares were available for the grant of future options or other awards under the Inducement Plan.

2001 Stock Incentive Plan

The 2001
Stock Incentive Plan (2001 Plan) was approved by the stockholders in August 2001. Under the 2001 Plan, the Company, with the approval of the Committee or its delegates, may grant incentive stock options or non-qualified stock options to
purchase common stock to employees, directors, advisors, and consultants. They may also be awarded restricted common shares, SARs or Stock Units based on the value of the common stock. The initial number of shares of common stock issuable under the
2001 Plan was 2.0 million shares, subject to adjustment for certain changes in the Companys capital structure. As of January 1 of each year, commencing with January 1, 2002, the aggregate number of options, restricted awards,
SARs, and Stock Units that may be awarded under the 2001 Plan will automatically increase by a number equal to the lesser of 6% of the total number of fully diluted shares of common stock then outstanding, 6.0 million shares of common stock, or
any lesser number as is determined by the Board of Directors. A committee of the Board of Directors determines the exercise price per share; however, the exercise price of an incentive stock option cannot be less than 100% of the fair market value
of the common stock on the option grant date, and the exercise price of a non-qualified stock option cannot be less than the par value of the common stock subject to such non-qualified stock options. As of April 6, 2008, there were options to
purchase 10,097,435 shares outstanding under the 2001 Plan, and 3,050,439 shares were available for the grant of future options or other awards under the plan.

1997 and 1998 Stock Incentive Plans

In the year ended March 31, 1998, the Company adopted the
1997 Stock Incentive Plan (1997 Plan), and in the year ended March 31, 1999 the Company adopted the 1998 Stock Incentive Plan (1998 Plan)



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(collectively, the Plans). Under the Plans, the Company may grant options to purchase common stock to employees, directors, and consultants.
Shares that are subject to options that in the future expire, terminate or are cancelled or as to which options have not been granted under these plans will not be available for future option grants or issuance. Options granted under the Plans were
either incentive stock options or non-qualified stock options. The exercise price of incentive stock options and non-qualified stock options were no less than 100% and 85%, respectively, of the fair market value per share of the Companys
common stock on the grant date (110% of fair market value in certain instances), as determined by the Board of Directors. Pursuant to the Plans, the Board of Directors also had the authority to set the term of the options (no longer than ten years
from the date of grant, five years in certain instances). Under the terms of the Plans, the options become exercisable prior to vesting, and the Company has the right to repurchase such shares at their original purchase price if the optionee is
terminated from service prior to vesting. Such rights expire as the options vest over the vesting period, which is generally four years. At April 6, 2008, there were no unvested shares subject to the Companys repurchase rights.

As a result of the 2001 Plan becoming effective, no shares of the Companys common stock are available for future issuance under the
Plans. At April 6, 2008, there were no outstanding options under the 1997 Plan and options to purchase 802,583 shares outstanding under the 1998 Plan.

Moscape 1997 Incentive Stock Plan

The Moscape 1997 Incentive Stock Plan (the Moscape
Plan) provides for the granting of stock options and stock purchase rights to employees, officers, directors and consultants. Both the options and stock purchase rights under the Moscape Plan are exercisable immediately, subject to the
Companys repurchase right in the event of termination, and generally vest over four years. At April 6, 2008, there were options to purchase 6,263 shares outstanding under the Moscape Plan.

2005 Key Contributor Long-Term Incentive Plan

The
2005 Key Contributor Long-Term Incentive Plan (KC Incentive Plan) was adopted by the Board of Directors on December 23, 2004. Awards under the KC Incentive Plan are granted in exchange for a participants contributions to
Magma. Awards may include (i) cash payments, and/or (ii) shares of Magmas restricted stock granted under the 2001 Plan, that vest while the participant remains employed by and in good standing with Magma. KC Incentive Plan
participants may receive cash awards prior to such awards becoming fully vested and earned. These awards are considered recoverable advances and are to be repaid to Magma in the event that the participants employment with Magma is terminated
prior to an award being earned. All executive officers as well as certain other participants who receive a restricted stock award under the KC Incentive Plan will have accelerated vesting of such award upon a change in control of Magma. Effective
upon a change in control, 25% of a participants unvested shares of restricted stock granted under the KC Incentive Plan will immediately become vested shares. In addition, if the participant is, or is deemed to have been, involuntarily
terminated within one year after Magmas change in control, 50% of the remaining unvested shares of restricted stock will vest. If the award so states, participants that receive a cash or stock award under the KC Incentive Plan will not be
eligible to receive equity grants under Magmas 2001 Plan, or cash awards under any other Magma cash variable award plans, until such award is fully vested. As of April 6, 2008, 95,120 shares of restricted stock, net of forfeitures, were
issued under the KC Incentive Plan.

2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan (Purchase Plan or ESPP) was established in November 2001. Employees, including officers and employee directors but excluding 5% or greater stockholders,
are eligible to participate if they are employed for more than 20 hours per week and five months in any calendar year. The Purchase Plan provided for a series of overlapping offering periods with a duration of 24 months, with new



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offering periods, except the first offering period, which commenced on November 19, 2001, beginning in February, May, August, and November of each year.
The Purchase Plan was amended in April 2008 to provide that future offering periods would commence on the first day of March, June, September and December of each year and that purchase dates under the new offering periods would be the last day of
February, May, August and November. The maximum number of shares a participant may purchase during a single accumulation period is 4,000 shares. The Purchase Plan allows employees to purchase common stock through payroll deductions of up to 15% of
their eligible compensation. Such deductions will accumulate over a three-month accumulation period without interest. After such accumulation period, shares of common stock will be purchased at a price equal to 85% of the fair market value per share
of common stock on either the first day preceding the offering period or the last date of the accumulation period, whichever is less. During the year ended April 6, 2008, a total of 1,071,176 shares were issued under the Purchase Plan with an
average price of $7.88 per share.

As of April 6, 2008, a total of 3,398,586 shares of common stock remained available for issuance
under the Purchase Plan. Starting with fiscal 2003, the number of shares reserved for issuance is increased on January 1 of each calendar year through fiscal 2011 by the lesser of 3,000,000 shares, 3% of the outstanding common stock on the last
day of the immediately preceding fiscal year, or such lesser number of shares as is determined by the Board or the Compensation Committee of the Board.

Option Exchange Program

In June 2005, the Company offered to its employees a voluntary stock option exchange program
designed to promote employee retention and reward contributions to stockholder value. Directors and executive officers were not eligible to participate in this option exchange program. Under the program, the Company offered to exchange outstanding
options to purchase common stock at exercise prices greater than or equal to $10.50, for a smaller number of new options at an exercise price of $9.20, the fair market value on August 22, 2005, the date the new options were granted. The
exchange ratio ranged from 60% to 75% depending on exercise price of the old option. As a result of the exchange program, options to purchase an aggregate of approximately 4.4 million shares of its common stock were canceled (with exercise
prices ranging from $10.50 to $30.28) and options to purchase an aggregate of approximately 3.0 million shares of its common stock at an exercise price of $9.20 were granted under the 2001 Plan on August 22, 2005. The new options generally
will vest and become exercisable over a two to four-year period, with 12.5% to 25% of each new option generally becoming exercisable after a six-month period of continued service following the grant date.

Repurchases of Common Stock

On February 21,
2008, the Company announced that its Board of Directors authorized Magma to repurchase up to $20.0 million of its common stock. In March 2008, the Company used approximately $5.0 million to repurchase 499,500 shares of its common stock in the open
market, with repurchase prices ranging from $9.81 to $10.22 per share. The repurchased shares are to be used for general corporate purposes.

In May 2005, with the authorization by its Board of Directors, the Company used approximately $16.0 million to repurchase 2,000,000 shares of common stock in the open market, with repurchase prices ranging from $7.82 to $8.17 per share. An
aggregate of 1,000,000 of the repurchased shares will be used to fund the increased shares approved by the Committee under the Inducement Plan. The remaining 1,000,000 shares are to be used for general corporate purposes.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|Note |  | 10.    Employee Benefit Plan
|---- |  | ----------------------------

Effective April 1, 1997, the Company adopted a plan (the 401(k) Plan) that is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986. The 401(k) Plan covers essentially all employees. Eligible
employees may make voluntary contributions to the 401(k) Plan up to 20% of their annual eligible compensation. The Company is permitted to make contributions to the 401(k) Plan as determined by the Board of Directors. The Company has not made any
contributions to the Plan.



|Note |  | 11.    Stock-Based Compensation
|---- |  | -------------------------------

The stock-based compensation recognized in the consolidated statements of operations was as follows (in thousands):



|                                       |  |               |        |               |   |               |  |   |      
|-------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | - | -----
|                                       |  | Year Ended   
|                                       |  | April 6, 2008 |        | April 1, 2007 |   | April 2, 2006
|Cost of revenue                        |  | $             | 1,680  |               | $ | 1,253         |  | $ | 78   
|Research and development expense       |  |               | 8,050  |               |   | 5,880         |  |   | 4,150
|Sales and marketing expense            |  |               | 5,235  |               |   | 3,852         |  |   | 131  
|General and administrative expense     |  |               | 5,459  |               |   | 4,580         |  |   | 217  
|                                       |  |               |        |               |   |               |  |   |      
|Total stock-based compensation expense |  | $             | 20,424 |               | $ | 15,565        |  | $ | 4,576
|                                       |  |               |        |               |   |               |  |   |      

The Company has adopted several stock incentive plans providing stock-based awards to employees,
directors, advisors and consultants, including stock options, restricted stock and restricted stock units. The Company also has an Employee Stock Purchase Plan which enables employees to purchase shares of the Companys common stock.
Stock-based compensation expense recognized under SFAS 123R in the consolidated statements of operations by type of award in fiscal 2008 and fiscal 2007 was as follows (in thousands):



|                                            |  |               |        |               |   |       
|------------------------------------------- |  | ------------- | ------ | ------------- | - | ------
|                                            |  | Year Ended   
|                                            |  | April 6, 2008 |        | April 1, 2007
|Stock options                               |  | $             | 10,549 |               | $ | 10,489
|Restricted stock and restricted stock units |  |               | 6,666  |               |   | 3,187 
|Employee stock purchase plan                |  |               | 3,209  |               |   | 1,889 
|                                            |  |               |        |               |   |       
|Total stock-based compensation expense      |  | $             | 20,424 |               | $ | 15,565
|                                            |  |               |        |               |   |       

Stock Options

The Companys stock incentive plans require that stock options be granted at the market price of the Companys common stock on the date of grant. The weighted average grant date fair value of options granted
during fiscal 2008 and fiscal 2007 was $4.86 per share and $3.62 per share, respectively. The Company uses the Black-Scholes option pricing model to determine the fair value of each stock option grant. The weighted average assumptions used in the
model for fiscal 2008 and fiscal 2007 were as follows:



|                        |  |               |   |  |               |  
|----------------------- |  | ------------- | - |  | ------------- | -
|                        |  | Year Ended    |  
|                        |  | April 6, 2008 |   |  | April 1, 2007 |  
|Expected life (years)   |  | 4.16          |   |  | 4.14          |  
|Volatility              |  | 39  45       | % |  | 41  50       | %
|Risk-free interest rate |  | 2.16  4.91   | % |  | 4.49  5.15   | %
|Expected dividend yield |  | 0             | % |  | 0             | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the changes in stock options outstanding and exercisable under the Companys stock
incentive plans during the year ended April 6, 2008 is as follows (in thousands, except year and per share amount):



|                                             |  |                 |   |  |                               |       |                                                 |      |                         |   |       
|-------------------------------------------- |  | --------------- | - |  | ----------------------------- | ----- | ----------------------------------------------- | ---- | ----------------------- | - | ------
|                                             |  | Numberof Shares |   |  | WeightedAveragePriceper Share |       | WeightedAverageRemainingContractual Term(Years) |      | AggregateIntrinsicValue
|Options outstanding at April 1, 2007         |  | 11,233          |   |  | $                             | 9.80  |                                                 |      |                         | $ | 31,831
|Granted                                      |  | 3,249           |   |  | $                             | 12.80 |                                                 |      |                         |   |       
|Exercised                                    |  | (1,726          | ) |  | $                             | 8.70  |                                                 |      |                         |   |       
|Forfeited                                    |  | (447            | ) |  | $                             | 9.90  |                                                 |      |                         |   |       
|Expired                                      |  | (92             | ) |  | $                             | 17.76 |                                                 |      |                         |   |       
|                                             |  |                 |   |  |                               |       |                                                 |      |                         |   |       
|Options outstanding at April 6, 2008         |  | 12,217          |   |  | $                             | 10.69 |                                                 | 3.95 |                         | $ | 11,918
|                                             |  |                 |   |  |                               |       |                                                 |      |                         |   |       
|Vested and expected to vest at April 6, 2008 |  | 11,424          |   |  | $                             | 10.69 |                                                 | 3.91 |                         | $ | 11,284
|Exercisable at April 6, 2008                 |  | 7,691           |   |  | $                             | 10.53 |                                                 | 3.93 |                         | $ | 8,694 

The total intrinsic value of options exercised was $9.1 million and $446,000 during fiscal 2008
and fiscal 2007, respectively. Cash received from stock option exercises was $15.0 million during fiscal 2008 and $1.8 million during fiscal 2007. As of April 6, 2008, there was approximately $16.3 million of unrecognized stock-based
compensation expense, net of estimated forfeitures, related to stock option grants, which will be recognized over the remaining weighted average vesting period of approximately 2.34 years.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock units were granted to employees at par value under the Companys stock incentive plans and Key Contributor Long-Term Incentive Plan, or assumed in connection with an acquisition. In general,
restricted stock and restricted stock unit awards vest over two to four years and are subject to the employees continuing service to the Company.

A summary of the changes in restricted stock outstanding during the year ended April 6, 2008 is presented below (in thousands, except per share amount):



|                                  |  |                |   |  |                                               |      
|--------------------------------- |  | -------------- | - |  | --------------------------------------------- | -----
|                                  |  | NumberofShares |   |  | Weighted AverageGrant DateFair Valueper Share
|Shares nonvested at April 1, 2007 |  | 412            |   |  | $                                             | 9.63 
|Granted                           |  | 517            |   |  | $                                             | 13.13
|Vested                            |  | (488           | ) |  | $                                             | 10.78
|Forfeited                         |  | (48            | ) |  | $                                             | 11.53
|                                  |  |                |   |  |                                               |      
|Shares nonvested at April 6, 2008 |  | 393            |   |  | $                                             | 12.58
|                                  |  |                |   |  |                                               |      

As of April 6, 2008, the Company had $3.1 million of unrecognized stock-based compensation
expense, net of estimated forfeitures, related to restricted stock awards, which will be recognized over the remaining weighted average vesting period of approximately 1.02 years.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the changes in restricted stock units outstanding during the year ended April 6,
2008 is presented below (in thousands, except per share amount):



|                                  |  |                |   |  |                                               |      
|--------------------------------- |  | -------------- | - |  | --------------------------------------------- | -----
|                                  |  | NumberofShares |   |  | Weighted AverageGrant DateFair Valueper Share
|Shares nonvested at April 1, 2007 |  | 27             |   |  | $                                             | 7.11 
|Granted                           |  | 190            |   |  | $                                             | 12.60
|Vested                            |  | (119           | ) |  | $                                             | 13.12
|Forfeited                         |  | (5             | ) |  | $                                             | 12.14
|                                  |  |                |   |  |                                               |      
|Shares nonvested at April 6, 2008 |  | 93             |   |  | $                                             | 13.53
|                                  |  |                |   |  |                                               |      

As of April 6, 2008, there was $1.0 million of unrecognized stock-based compensation expense,
net of estimated forfeitures, related to restricted stock unit awards, which will be recognized over the remaining weighted average vesting period of approximately 2.64 years.

The total fair value of restricted stock and restricted stock units that were vested was $7.9 million during fiscal 2008 and $3.4 million during
fiscal 2007.

Employee Stock Purchase Plan

The weighted average estimated grant date fair value of purchase rights granted under the ESPP was $4.52 during fiscal 2008 and $2.75 during fiscal 2007. The Company uses the Black-Scholes option pricing model to determine the fair value of
each purchase right granted under its ESPP. The weighted average assumptions used in the model for the year ended April 6, 2008 were as follows:



|                        |  |               |   |  |               |  
|----------------------- |  | ------------- | - |  | ------------- | -
|                        |  | Year Ended    |  
|                        |  | April 6, 2008 |   |  | April 1, 2007 |  
|Expected life (years)   |  | 1.13          |   |  | 1.13          |  
|Volatility              |  | 39  45       | % |  | 41  51       | %
|Risk-free interest rate |  | 2.13  4.91   | % |  | 4.93  5.11   | %
|Expected dividend yield |  | 0             | % |  | 0             | %

As of April 6, 2008, the Company had $5.6 million of total unrecognized compensation
expense, net of estimated forfeitures, related to ESPP, which will be recognized over the remaining weighted average vesting period of 1.7 years. Cash received from the purchase of shares under the ESPP was $8.4 million during fiscal 2008 and
$7.0 million during fiscal 2007.

Stock-Based Compensation for Fiscal 2006

Prior to April 2, 2006, the Company accounts for stock-based employee compensation arrangements in accordance with provisions of APB 25 and related
guidance. In fiscal 2006, the Company recognized $4.6 million of stock-based compensation expense primarily for the intrinsic value of the restricted stock awards.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During the year ended April 2, 2006, the Company complied with the disclosure-only provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, as amended. Had compensation cost for the Companys stock-based compensation plan been determined using the Black-Scholes option pricing model at the grant date for
awards granted in accordance with the provisions of SFAS 123, the Companys net loss would have been the amounts indicated below (in thousands):



|                                                                                                    |  |                         |         |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | -
|                                                                                                    |  | Year EndedApril 2, 2006 |        
|Net loss attributed to common stockholders:                                                         |  |                         |         |  
|As reported                                                                                         |  | $                       | (20,937 | )
|Add: Stock-based employee compensation expense included in reported net loss                        |  |                         | 4,576   |  
|Deduct: Stock-based employee compensation expense determined under fair-value method for all awards |  |                         | (22,972 | )
|                                                                                                    |  |                         |         |  
|Pro forma                                                                                           |  | $                       | (39,333 | )
|                                                                                                    |  |                         |         |  
|Net loss per share, basic and diluted:                                                              |  |                         |         |  
|                                                                                                    |  |                         |         |  
|As reported                                                                                         |  | $                       | (0.61   | )
|                                                                                                    |  |                         |         |  
|Pro forma                                                                                           |  | $                       | (1.15   | )
|                                                                                                    |  |                         |         |  

The weighted-average estimated fair value per share at the date of grant for options granted to
employees and for share purchase rights granted under the employee stock purchase plans was as follows:



|                              |  |                         |     
|----------------------------- |  | ----------------------- | ----
|                              |  | Year EndedApril 2, 2006
|Stock options                 |  | $                       | 3.84
|Employee stock purchase plans |  |                         | 2.68

The fair value of options at the date of grant was estimated using the Black-Scholes option
pricing model using the following assumptions:



|                               |  |                         |  
|------------------------------ |  | ----------------------- | -
|                               |  | Year EndedApril 2, 2006 |  
|Stock options:                 |  |                         |  
|Risk-free interest             |  | 4.02                    | %
|Expected life                  |  | 3.04 years              |  
|Expected dividend yield        |  | 0                       | %
|Volatility                     |  | 61                      | %
|                               | 
|Employee stock purchase plans: |  |                         |  
|Risk-free interest             |  | 4.26                    | %
|Expected life                  |  | 1.16 years              |  
|Expected dividend yield        |  | 0                       | %
|Volatility                     |  | 62                      | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|Note |  | 12.     Commitments and Contingencies
|---- |  | -------------------------------------

Commitments

The Company leases its facilities under several non-cancelable operating leases expiring at various dates
through December 2011. The Company also leases its computer equipment under several capital leases. Approximate future minimum lease payments under these operating leases at April 6, 2008 are as follows (in thousands):



|                      |  |                  |        |                |   |      
|--------------------- |  | ---------------- | ------ | -------------- | - | -----
|Fiscal Year           |  | Operating Leases |        | Capital Leases
|April 7  May 4, 2008 |  | $                | 539    |                | $ | 216  
|2009                  |  |                  | 6,182  |                |   | 2,143
|2010                  |  |                  | 5,101  |                |   | 1,335
|2011                  |  |                  | 3,979  |                |   | 328  
|2012                  |  |                  | 2,189  |                |   | 34   
|2013 and beyond       |  |                  | 214    |                |   | 10   
|                      |  |                  |        |                |   |      
|                      |  | $                | 18,204 |                | $ | 4,066
|                      |  |                  |        |                |   |      

Rent expense for the years ended April 6, 2008, April 1, 2007 and April 2, 2006 was
approximately $5.8 million, $4.0 million and $4.2 million, respectively.

Contingencies

The Company is subject to certain legal proceedings described below and from time to time, it is also involved in other disputes that arise in the
ordinary course of business. The number and significance of these litigation proceedings and disputes are increasing as the Companys business expands and grows larger. Any claims against the Company, whether meritorious or not, could be time
consuming, result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. As a result, these litigation proceedings and disputes could harm the Companys business
and have an adverse effect on its consolidated financial statements. However, the results of any litigation or dispute are inherently uncertain and, at this time, no estimate could be made of the loss or range of loss, if any, from such litigation
matters and disputes unless they are or are close to being settled. Liabilities are recorded when a loss is probable and the amount can be reasonably estimated. Accordingly, as of April 6, 2008, the Company recorded a liability of $1.1 million
to cover legal settlement exposure related to the shareholder class action lawsuit and the derivative complaint, as described below, and has not recorded any liabilities related to other contingencies. However, any estimates of losses or any such
recording of legal settlement exposure is not assurance that there will be any court approval of any settlement, and there is no assurance that there will be any final, court approved settlement. Litigation settlement and legal fees are expensed in
the period in which they are incurred.

On June 13, 2005, a putative shareholder class action lawsuit captioned The Cornelia I.
Crowell GST Trust vs. Magma Design Automation, Inc., Rajeev Madhavan, Gregory C. Walker and Roy E. Jewell., No. C 05 02394, was filed in U.S. District Court, Northern District of California. The complaint alleges that defendants failed to
disclose information regarding the risk of Magma infringing intellectual property rights of Synopsys, Inc., in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and prays for unspecified damages. In
March 2006, defendants filed a motion to dismiss the consolidated amended complaint. Plaintiff filed a further amended complaint in June 2006, which defendants again moved to dismiss. Defendants motion was granted in part and denied in part by
an order dated August 18, 2006, which dismissed claims against two of the individual defendants. On November 30, 2007, the parties agreed to a settlement. Plaintiffs filed a motion for preliminary approval of the settlement on June 6,
2008. There is no assurance that the court will grant preliminary approval of the settlement or that the settlement will subsequently obtain final court approval.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On July 26, 2005, a putative derivative complaint captioned Susan Willis v. Magma Design
Automation, Inc. et al., No. 1-05-CV-045834, was filed in the Superior Court of the State of California for the County of Santa Clara. The Complaint seeks unspecified damages purportedly on behalf of us for alleged breaches of fiduciary
duties by various directors and officers, as well as for alleged violations of insider trading laws by executives during a period between October 23, 2002 and April 12, 2005. Defendants have demurred to the Complaint, and the action has
been stayed pending further developments in the putative shareholder class action referenced above. On January 8, 2008, the parties reached an agreement in principle with respect to certain aspects of settlement of the case and agreed upon the
remaining terms of the settlement on February 21, 2008. The Company anticipates that plaintiff will file a motion for preliminary approval of the settlement on June 18, 2008. There is no assurance that the court will grant preliminary
approval of the settlement or that the settlement will subsequently obtain final court approval.

Litigation and Settlement with
Synopsys

From September 17, 2004 until March 29, 2007, Synopsys, Inc. and the Company were involved in various lawsuits against
each other in California, Delaware, Germany and Japan, including claims and counterclaims of patent infringement as well as various other claims.

On March 29, 2007 Synopsys and the Company settled all pending litigation between the companies. As part of the settlement, Synopsys and the Company agreed to release all claims in California, Delaware, Germany and Japan and to cross
license the patents at issue in these jurisdictions as well as any related applications, both companies agreed not to initiate future patent litigation against each other for 2 years provided certain terms are met, and the Company agreed to make a
payment to Synopsys of $12.5 million toward the settlement of this dispute; the payment was made during the first quarter of fiscal 2008.

Indemnification Obligations

The Company enters into standard license agreements in the ordinary course of business.
Pursuant to these agreements, the Company agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to the
Companys products. These indemnification obligations have perpetual terms. The Companys normal business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount
of indemnification the Company may be required to provide may exceed the amount received from the customer. The Company estimates the fair value of its indemnification obligations to be insignificant, based upon its historical experience concerning
product and patent infringement claims. Accordingly, the Company has no liabilities recorded for indemnification under these agreements as of April 6, 2008.

The Company has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at the Companys request in such capacity. The
maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that reduces its exposure
and enables the Company to recover a portion of future amounts paid. As a result of the Companys insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, no
liabilities have been recorded for these agreements as of April 6, 2008.

In connection with certain of the Companys recent
business acquisitions, it has also agreed to assume, or cause Company subsidiaries to assume, the indemnification obligations of those companies to their respective officers and directors. No liabilities have been recorded for these agreements as of
April 6, 2008.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Warranties

The Company offers certain customers a warranty that its products will conform to the documentation provided with the products. To date, there have been no payments or material costs incurred related to fulfilling
these warranty obligations. Accordingly, the Company has no liabilities recorded for these warranties as of April 6, 2008. The Company assesses the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty
accrual will not become necessary in the future.



|Note |  | 13.     Segment Information
|---- |  | ---------------------------

The Company has adopted the provisions of SFAS 131, Disclosures about Segments of an Enterprise and Related Information, which requires the reporting of segment information using the management approach. Under this
approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Companys chief operating decision maker (CODM) for purposes of evaluating performance and allocating
resources. Based on this approach, the Company has one reportable segment as the CODM reviews financial information on a basis consistent with that presented in the consolidated financial statements.

Revenue from North America, Europe, Japan and the Asia Pacific region, which includes India, South Korea, Taiwan, Hong Kong and the Peoples
Republic of China, was as follows (in thousands, except for percentages shown):



|               |  |               |         |   |               |   |         |               |  |   |         |  
|-------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ------- | -
|               |  | Year Ended    |        
|               |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|North America* |  | $             | 127,664 |   |               | $ | 121,633 |               |  | $ | 109,434 |  
|Europe         |  |               | 26,539  |   |               |   | 19,440  |               |  |   | 27,670  |  
|Japan          |  |               | 35,150  |   |               |   | 22,162  |               |  |   | 14,523  |  
|Asia-Pacific   |  |               | 25,066  |   |               |   | 14,918  |               |  |   | 12,417  |  
|               |  |               |         |   |               |   |         |               |  |   |         |  
|Total          |  | $             | 214,419 |   |               | $ | 178,153 |               |  | $ | 164,044 |  
|               |  |               |         |   |               |   |         |               |  |   |         |  
|               | 
|               |  | Year Ended    |        
|               |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|North America* |  |               | 60      | % |               |   | 68      | %             |  |   | 67      | %
|Europe         |  |               | 12      |   |               |   | 11      |               |  |   | 17      |  
|Japan          |  |               | 16      |   |               |   | 13      |               |  |   | 9       |  
|Asia-Pacific   |  |               | 12      |   |               |   | 8       |               |  |   | 7       |  
|               |  |               |         |   |               |   |         |               |  |   |         |  
|Total          |  |               | 100     | % |               |   | 100     | %             |  |   | 100     | %
|               |  |               |         |   |               |   |         |               |  |   |         |  



|* | Substantially all of the Companys North America revenue related to the United States for all periods presented.
|- | ----------------------------------------------------------------------------------------------------------------

Revenue attributable to significant customers, representing 10% or more of total revenue for at least one of the respective periods, are summarized as
follows:



|           |  |               |  |               |  |               |  
|---------- |  | ------------- |  | ------------- |  | ------------- | -
|           |  | Year Ended    | 
|           |  | April 6, 2008 |  | April 1, 2007 |  | April 2, 2006 |  
|Customer A |  | **            |  | **            |  | 16            | %



|** | Less than 10% of total revenue.
|-- | -------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has substantially all of its long-lived assets located in the United States.



|Note | 14.    Income Taxes
|---- | -------------------

Income tax
expense consisted of the following (in thousands):



|                          |  |               |       |   |               |   |       |               |  |   |       |  
|------------------------- |  | ------------- | ----- | - | ------------- | - | ----- | ------------- |  | - | ----- | -
|                          |  | Year Ended    |      
|                          |  | April 6, 2008 |       |   | April 1, 2007 |   |       | April 2, 2006 | 
|Current:                  |  |               |       |   |               |   |       |               |  |   |       |  
|Federal                   |  | $             | 516   |   |               | $ | (123  | )             |  | $ | 977   |  
|State                     |  |               | 57    |   |               |   | 27    |               |  |   | 109   |  
|Foreign                   |  |               | 4,664 |   |               |   | 1,152 |               |  |   | 1,531 |  
|                          |  |               |       |   |               |   |       |               |  |   |       |  
|                          |  |               | 5,237 |   |               |   | 1,056 |               |  |   | 2,617 |  
|                          |  |               |       |   |               |   |       |               |  |   |       |  
|Deferred:                 |  |               |       |   |               |   |       |               |  |   |       |  
|Foreign                   |  |               | (171  | ) |               |   | (54   | )             |  |   | (68   | )
|                          |  |               |       |   |               |   |       |               |  |   |       |  
|Total income tax expenses |  | $             | 5,066 |   |               | $ | 1,002 |               |  | $ | 2,549 |  
|                          |  |               |       |   |               |   |       |               |  |   |       |  

Net loss before provision for income taxes consisted of (in thousands):



|                                                 |  |               |         |   |               |   |         |               |  |   |         |  
|------------------------------------------------ |  | ------------- | ------- | - | ------------- | - | ------- | ------------- |  | - | ------- | -
|                                                 |  | Year Ended    |        
|                                                 |  | April 6, 2008 |         |   | April 1, 2007 |   |         | April 2, 2006 | 
|United States                                    |  | $             | (23,146 | ) |               | $ | (64,458 | )             |  | $ | (20,251 | )
|International                                    |  |               | (2,623  | ) |               |   | 3,954   |               |  |   | 1,863   |  
|                                                 |  |               |         |   |               |   |         |               |  |   |         |  
|Total net loss before provision for income taxes |  | $             | (25,769 | ) |               | $ | (60,504 | )             |  | $ | (18,388 | )
|                                                 |  |               |         |   |               |   |         |               |  |   |         |  

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate
of 35% to pretax loss as a result of the following (in thousands):



|                                                             |  |               |        |   |               |   |         |               |  |   |        |  
|------------------------------------------------------------ |  | ------------- | ------ | - | ------------- | - | ------- | ------------- |  | - | ------ | -
|                                                             |  | Year Ended    |       
|                                                             |  | April 6, 2008 |        |   | April 1, 2007 |   |         | April 2, 2006 | 
|Federal tax benefit at statutory rate                        |  | $             | (9,019 | ) |               | $ | (21,064 | )             |  | $ | (6,436 | )
|Permanent differences                                        |  |               | 1,315  |   |               |   | 147     |               |  |   | 111    |  
|In process research and development                          |  |               | 789    |   |               |   | 455     |               |  |   | 158    |  
|Tax benefit from extraterritorial income exclusion           |  |               |       |   |               |   |        |               |  |   | (158   | )
|Goodwill and intangibles                                     |  |               | 516    |   |               |   |        |               |  |   | 601    |  
|State tax, net of federal benefit                            |  |               | 57     |   |               |   |        |               |  |   | 85     |  
|Foreign tax withholding, not benefited for U.S. tax purposes |  |               | 800    |   |               |   | 265     |               |  |   | 287    |  
|Foreign tax rate differential                                |  |               | 4,612  |   |               |   | (769    | )             |  |   | 532    |  
|Credits                                                      |  |               | (2,365 | ) |               |   | (4,212  | )             |  |   | (1,881 | )
|Change in valuation allowance                                |  |               | 8,361  |   |               |   | 26,275  |               |  |   | 9,289  |  
|Other                                                        |  |               |       |   |               |   | (95     | )             |  |   | (39    | )
|                                                             |  |               |        |   |               |   |         |               |  |   |        |  
|Total income tax expense                                     |  | $             | 5,066  |   |               | $ | 1,002   |               |  | $ | 2,549  |  
|                                                             |  |               |        |   |               |   |         |               |  |   |        |  

The Company has not provided for U.S. income taxes on undistributed earnings of a majority of its
foreign subsidiaries because it intends to permanently re-invest these earnings outside the U. S. The cumulative amount of such undistributed earnings upon which no U.S. income taxes have been provided as of April 6, 2008 was approximately
$11.0 million.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The types of temporary differences that give rise to significant portions of the Companys
deferred tax assets and liabilities are as follows (in thousands):



|                                                    |  |               |         |   |               |   |         |  
|--------------------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | -
|                                                    |  | April 6, 2008 |         |   | April 1, 2007 |  
|Deferred tax assets:                                |  |               |         |   |               |   |         |  
|Capitalized costs                                   |  | $             | 2,500   |   |               | $ | 2,863   |  
|Accrued liabilities                                 |  |               | 3,304   |   |               |   | 3,138   |  
|Property and equipment                              |  |               | 9,136   |   |               |   | 7,481   |  
|Accrued compensation related expenses               |  |               | 8,650   |   |               |   | 7,915   |  
|Net operating loss and credit carryforwards         |  |               | 66,034  |   |               |   | 62,173  |  
|Litigation settlement                               |  |               | 2,837   |   |               |   | 4,809   |  
|                                                    |  |               |         |   |               |   |         |  
|Gross deferred tax assets                           |  |               | 92,461  |   |               |   | 88,379  |  
|Valuation allowance                                 |  |               | (80,053 | ) |               |   | (71,516 | )
|                                                    |  |               |         |   |               |   |         |  
|Total deferred tax assets                           |  |               | 12,408  |   |               |   | 16,863  |  
|Deferred tax liabilitiesacquired intangible assets |  |               | (12,408 | ) |               |   | (16,863 | )
|                                                    |  |               |         |   |               |   |         |  
|Net deferred tax liabilities                        |  | $             |        |   |               | $ |        |  
|                                                    |  |               |         |   |               |   |         |  

At April 6, 2008, the Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $133.7 million and $33.7 million, respectively, available to reduce future income subject to income taxes. The federal and state net operating loss carryforwards will begin to expire in 2019 and 2010,
respectively. The Company also has research credit carryforwards for federal and California tax purposes of approximately $11.4 million and $10.9 million, respectively, available to reduce future income subject to income taxes. The federal research
credit carryforwards will begin to expire in 2012 through 2028, and the California research credits carry forward indefinitely.

The
Companys management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended April 6, 2008 the Company has
provided a valuation allowance against the Companys net deferred tax assets. The net change in the valuation allowance for the years ended April 6, 2008 and April 1, 2007 was an increase of $8.5 million and $24.3 million,
respectively.

Approximately $21.4 million of the valuation allowance at April 6, 2008 is attributable to employee stock deductions
and original issue discount deductions, the benefit of which will be allocated to additional paid-in capital if and when subsequently realized. Approximately $8.0 million of the valuation allowance at April 6, 2008 is attributable to deferred
assets which were recorded in connection with various acquisitions. When recognized, the benefit of these assets will be applied, first, to reduce to zero any goodwill related to these acquisitions; second, to reduce to zero other non-current
intangible assets related to the acquisitions; and last, to reduce income tax.

The Companys income taxes payable for federal and
state purposes were reduced by the tax benefits associated with the exercise of employee stock options and original issue discount deductions. The benefits applicable to stock options and original issue discount were credited directly to
stockholders equity and amounted to $22,000 for fiscal 2008. No such tax benefits were recorded to additional paid-in capital in fiscal 2007 because the Company is in a taxable loss position. The tax benefits applicable to acquired entities
were credited directly to goodwill and other intangible assets and amounted to $0.5 million in fiscal 2008. Again, no such benefits were recorded to reduce goodwill in fiscal 2007 due to taxable loss.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Tax Reform Act of 1986 and similar state provisions impose restrictions on the utilization of net
operating loss and tax credit carryforwards in the event of an ownership change as defined in the Internal Revenue Code. If an ownership change occurs, the Companys ability to utilize its net operating loss and tax credit
carryforwards may be subject to an annual limitation on the amount that can be utilized in future years to offset future taxable income. The annual limitations may result in the expiration of the net operating loss and tax credit carryforwards prior
to utilization. The Company has determined that the utilization of the net operating losses that were recorded as part of the acquisition of Silicon Metrics Corporation will be subject to an annual limitation. As of April 6, 2008, the Company
had approximately $24.1 million of federal net operating losses recorded from the acquisition and may utilize approximately $1.5 million of these net operating losses each year if the Company has taxable income. During fiscal 2006, the Company also
determined that the utilization of its net operating losses generated prior to April 30, 2005 is subject to an annual limitation of approximately $16.2 million.

The Company is currently under examination by certain foreign tax authorities. At the present time, it is difficult to predict the results of the tax examination and the timing of the final resolution. The Company
management does not believe that the outcome of this examination would have a material impact to its financial statements. The Companys larger jurisdictions provide a statute of limitation ranging from three to six years. In the U.S., the
statute of limitations remains open for fiscal years 2004 and forward.

On April 2, 2007, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN 48). As a result of the implementation of FIN 48, the Company recognized a $0.5 million increase to
liabilities for uncertain tax positions, which was accounted for as an adjustment to the April 2, 2007 balance of accumulated deficit. As of April 2, 2007, the Company had approximately $10.4 million of total gross unrecognized tax
benefits, of which $3.5 million, if recognized, would favorably affect its effective tax rate in future periods and $1.6 million, if recognized, would result in a credit to additional paid-in capital. The remaining $5.3 million of unrecognized
tax benefits, if recognized, would result in an increase in deferred tax assets. However, the Company currently has a full valuation allowance against its U.S. net deferred tax assets which would impact the timing of the effective tax rate benefit
should any of such uncertain tax positions be favorably settled in the future. The Company recorded an additional unrecognized tax benefit of $1.4 million, all of which, if recognized in future periods, would favorably affect its effective tax rate.

Upon adoption of FIN 48, the Company also recognized additional long-term income tax assets of $6.9 million and additional long-term
income tax liabilities of $6.9 million to present the unrecognized tax benefits as gross amounts on the consolidated balance sheet.

The
Company recognizes interest and/or penalties related to uncertain tax positions in income tax expenses. As of April 6, 2008 and April 2, 2007, the Company has approximately $0.35 million and $0.25 million, respectively, of accrued interest
and penalties related to uncertain tax positions.

The following table shows the changes in the gross amount of unrecognized tax benefits
as of April 6, 2008 (in thousands):



|                                                                                             |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | - | ------ | -
|Balance as of April 1, 2007                                                                  |  | $ | 10,431 |  
|Gross amount of increases in unrecognized tax benefits for tax positions taken in prior year |  |   | 1,455  |  
|Decrease in unrecognized tax benefits resulting from the lapse of statute of limitation      |  |   | (17    | )
|                                                                                             |  |   |        |  
|Balance as of April 6, 2008                                                                  |  | $ | 11,869 |  
|                                                                                             |  |   |        |  



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company does not anticipate that its total unrecognized tax benefits will significantly change
due to settlement of examination or the expiration of statute of limitation during the next twelve months.

Note 15.    Related
Party Transactions

In fiscal 2004, the Company began leasing a building for its corporate headquarters from one of its customers under
a seven-year lease agreement, as amended in February 2007, which expires in 2010. Under the lease amendment, the Company vacated most of the building and is not obligated to make rent payments effective January 31, 2007. In fiscal 2008, 2007
and 2006, the Company recorded $0.6 million, $1.5 million and $1.7 million, respectively, of rent expense related to this lease and recognized $7.9 million, $7.9 million and $4.8 million, respectively, in revenue from the sale of software
licenses to this customer.

Note 16.    Subsequent Events

Repayment of the 2008 Notes

In May 2008, the Company repaid the $15.2 million remaining principal
amount of its 2008 Notes. In connection with the repayment, the remaining portion of the hedge and warrant expired at the same time.

Restructuring
charges

In May 2008, the Company initiated a restructuring plan resulting from the Companys realignment to current business
objectives. The Company estimates that it will incur approximately $1.2 million to $2.2 million of restructuring charges in fiscal 2009 in connection with this business restructure, primarily for employee termination costs.



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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Schedule IIValuation and Qualifying Accounts

Years Ended April 6, 2008, April 1, 2007 and April 2, 2006

(in thousands)



|                                |  |                             |     |                                      |     |                             |      |   |                        |   |    
|------------------------------- |  | --------------------------- | --- | ------------------------------------ | --- | --------------------------- | ---- | - | ---------------------- | - | ---
|                                |  | BalanceatBeginningof Period |     | AdditionsCharged toCosts andExpenses |     | Write-offs,Net ofRecoveries |      |   | Balance atEnd ofPeriod
|Year ended April 6, 2008        |  |                             |     |                                      |     |                             |      |   |                        |   |    
|Allowance for doubtful accounts |  | $                           | 55  |                                      | 562 |                             | (241 | ) |                        | $ | 376
|Year ended April 1, 2007        |  |                             |     |                                      |     |                             |      |   |                        |   |    
|Allowance for doubtful accounts |  | $                           | 115 |                                      | 88  |                             | (148 | ) |                        | $ | 55 
|Year ended April 2, 2006        |  |                             |     |                                      |     |                             |      |   |                        |   |    
|Allowance for doubtful accounts |  | $                           | 425 |                                      | 282 |                             | (592 | ) |                        | $ | 115

Selected Consolidated Quarterly Financial Data (Unaudited)

The following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period
ended April 6, 2008. In the Companys opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair
statement of the financial information for the period presented.



|                                        |  |         |         |   |        |   |         |       |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ------- | ------- | - | ------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|                                        |  | Quarter |        
|                                        |  | First   |         |   | Second |   |         | Third |  |   | Fourth  |  
|FY 2008                                 |  |         |         |   |        |   |         |       |  |   |         |   |  |   |         |  
|Revenue                                 |  | $       | 50,165  |   |        | $ | 53,493  |       |  | $ | 55,747  |   |  | $ | 55,014  |  
|Gross profit                            |  | $       | 37,571  |   |        | $ | 41,519  |       |  | $ | 43,607  |   |  | $ | 42,368  |  
|Net loss                                |  | $       | (11,269 | ) |        | $ | (6,395  | )     |  | $ | (5,943  | ) |  | $ | (7,228  | )
|Net loss per shareBasic and diluted(1) |  | $       | (0.29   | ) |        | $ | (0.16   | )     |  | $ | (0.14   | ) |  | $ | (0.17   | )
|                                        | 
|                                        |  | Quarter |        
|                                        |  | First   |         |   | Second |   |         | Third |  |   | Fourth  |  
|FY 2007                                 |  |         |         |   |        |   |         |       |  |   |         |   |  |   |         |  
|Revenue                                 |  | $       | 40,959  |   |        | $ | 41,962  |       |  | $ | 45,094  |   |  | $ | 50,138  |  
|Gross profit                            |  | $       | 28,393  |   |        | $ | 28,751  |       |  | $ | 31,075  |   |  | $ | 35,355  |  
|Net loss                                |  | $       | (10,713 | ) |        | $ | (12,421 | )     |  | $ | (13,561 | ) |  | $ | (24,490 | )
|Net loss per shareBasic and diluted(1) |  | $       | (0.30   | ) |        | $ | (0.34   | )     |  | $ | (0.37   | ) |  | $ | (0.65   | )



|(1) | Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings per share in fiscal 2008 and 2007 does not equal the total
computed for the year due to rounding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

Not applicable.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures.    Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period
covered by this report (the Evaluation Date).

The evaluation of our disclosure controls and procedures included a review of
our processes and implementation and the effect on the information generated for use in this Annual Report on Form 10-K. In the course of this evaluation, we sought to identify any significant deficiencies or material weaknesses in our internal
control over financial reporting, which is part of our disclosure controls and procedures, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures, and to
confirm that any necessary corrective action, including process improvements, was taken. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to
maintain these disclosure controls and procedures, modifying them as circumstances warrant.

Based on this evaluation, our principal
executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that information relating to us, including our consolidated subsidiaries, required to be disclosed
in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure, particularly during the period in which this Annual Report on Form 10-K was being prepared.

Inherent Limitations on Effectiveness of Controls.In designing and evaluating our disclosure controls and
procedures, our management, including our principal executive officer and our principal financial officer, recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met. Further, the design of a control system must take into account the benefits of controls relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any
disclosure controls and procedures also is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. However,
our disclosure controls and procedures have been designed to meet, and our management believes that they meet, reasonable assurance levels.

Managements Report on Internal Control over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in
accordance with generally accepted accounting principles.



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We assessed the effectiveness of our internal control over financial reporting as of April 6, 2008.
In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Based on our assessment using those criteria, we
concluded that our internal control over financial reporting was effective as of April 6, 2008.

Our independent registered public
accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting as of April 6, 2008. This report appears under Item 8 of this Annual Report.

Changes in Internal Control over Financial Reporting.There were no changes in our internal control or to our knowledge, in
other factors that could significantly affect our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

Not applicable.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Information relating to our directors and our compliance with Section 16(a) of the Exchange Act, will be presented under the captions Election of Directors and Section 16(a) Beneficial Ownership Reporting
Compliance, respectively, in our definitive proxy statement to be filed with the Securities and Exchange Commission and mailed to our stockholders in connection with our 2008 Annual Meeting of Stockholders to be held on August 29, 2008.
That information is incorporated into this report by reference. Certain information required by this item concerning executive officers is set forth in Part I of this Report under the caption Executive Officers of the Registrant.

We have adopted a Code of Conduct and Ethics that applies to our principal executive officer, principal financial officer, controller and
all of our other employees. This Code of Conduct and Ethics is posted on our website at http://investor.magma-da.com/governance.cfm. If applicable, we intend to satisfy our disclosure obligations regarding our amendment to, or waiver from, a
provision of this Code of Conduct and Ethics by posting such information on our website at http://investor.magma-da.com/governance.cfm.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Information relating to
executive compensation will be presented under the caption Executive Compensation in our definitive proxy statement. That information is incorporated into this report by reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Information relating to the security ownership of our common stock by our management and other beneficial owners will be presented under the caption
Security Ownership of Certain Beneficial Owners and Management in our definitive proxy statement. That information is incorporated into this report by reference. Information relating to securities authorized for issuance under equity
compensation plans will be presented under the caption Securities Authorized for Issuance under Equity Compensation Plans in our definitive proxy statement. That information is incorporated into this report by reference.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ------------------------------------------------------------------------

Information required by this Item 13 is incorporated by reference from the information contained under the caption Certain Relationships and Related Transactions in our definitive proxy statement.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information required by this item is incorporated by reference from the information contained under the caption Ratification of Independent Registered Public AccountantsAudit and Non-Audit Fees and Ratification of Independent
Registered Public AccountantsPre-Approval Policies and Procedures contained in our definitive proxy statement.



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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|(a) | The following documents are filed as part of this report on Form 10-K:
|--- | ----------------------------------------------------------------------



| | (1) | Consolidated Financial Statements.    Reference is made to the Index to Registrants Consolidated Financial Statements under Item 8 in Part II
of this Form 10-K.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Financial Statement Schedules.    Reference is made to the Index to Registrants Consolidated Financial Statements under Item 8 in Part II of
this Form 10-K.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Exhibits.    Reference is made to Item 15(b) below.
| | --- | ---------------------------------------------------



|(b) | Exhibits.
|--- | ---------

The exhibit list in the Exhibit Index is
incorporated herein by reference as the list of exhibits required as part of this item.



|(c) | Financial statements schedules.
|--- | -------------------------------

Reference is made to
Item 15(a)(2) above.



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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.

Dated: June 16, 2008



MAGMA DESIGN AUTOMATION, INC.By

/s/    RAJEEV MADHAVANRajeev Madhavan, Chief Executive Officer


By

/s/    PETER S. TESHIMAPeter S. Teshima, Corporate Vice President, Finance and Chief Financial Officer


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.



|                                         |  |                                                                                                                              |  |              
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Name                                     |  | Title                                                                                                                        |  | Date         
|                                         |  |                                                                                                                             
|/s/    RAJEEV
MADHAVAN Rajeev Madhavan   |  | Chief Executive Officer and Director (Principal Executive Officer)                                                           |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    PETER S.
TESHIMA Peter S. Teshima |  | Corporate Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    ROY E.
JEWELL Roy E. Jewell       |  | President, Chief Operating Officer and Director                                                                              |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    KEVIN C.
EICHLER Kevin C. Eichler |  | Director                                                                                                                     |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    SUSUMU
KOHYAMA Susumu Kohyama     |  | Director                                                                                                                     |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    THOMAS
ROHRS Thomas Rohrs         |  | Director                                                                                                                     |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    TIMOTHY J.
NG Timothy J. Ng       |  | Director                                                                                                                     |  | June 16, 2008
|                                         |  |                                                                                                                             
|/s/    CHET
SILVESTRI Chet Silvestri     |  | Director                                                                                                                     |  | June 16, 2008



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EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |               |  |             |  |                  |  |  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------- |  | ----------- |  | ---------------- |  | -
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                          |  | Incorporated by Reference |  | FiledHerewith
|               |  | Form                                                                                                                                                                                                                                                                         |  | File No.                  |  | Exhibit       |  | Filing Date | 
|2.1            |  | Agreement and Plan of Reorganization, dated February 23, 2004, by and among the Registrant, Motorcar Acquisition Corp., Auto Acquisition Corp., Mojave, Inc. and Vivek Raghavan, as
Representative                                                                           |  | 8-K                       |  | 000-33213     |  | 2.1         |  | May 14,2004      |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|2.2            |  | Agreement and Plan of Merger Dated as of December 20, 2007 by and among Magma Design Automation, Inc., Sabio Labs, Inc., Sabio Acquisition Corp., Sabio Labs, LLC and David Colleran, as
Representative                                                                      |  | 8-K                       |  | 000-33213     |  | 2.1         |  | February 27,2008 |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|3.1            |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                            |  | 10-K                      |  | 000-33213     |  | 3.1         |  | June 28,2002     |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|3.2            |  | Certificate of Correction to the Amended and Restated Certificate of Incorporation                                                                                                                                                                                           |  | 10-K                      |  | 000-33213     |  | 3.2         |  | June 28,2002     |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|3.3            |  | Amended and Restated Bylaws                                                                                                                                                                                                                                                  |  | 10-K                      |  | 000-33213     |  | 3.3         |  | June 28,2002     |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|4.1            |  | Form of Common Stock Certificate                                                                                                                                                                                                                                             |  | S-1/A                     |  | 333-60838     |  | 4.1         |  | November 15,2001 |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|4.2            |  | Form of Indenture, dated March 5, 2007, by and between Magma Design Automation, Inc. and U.S. Bank National Association, as Trustee (including form of 2.00% Convertible Senior Note due
May 15, 2010)                                                                       |  | 8-K                       |  | 000-33213     |  | 10.3        |  | March 5,2007     |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|4.3            |  | Form of Registration Rights Agreement, dated March 5, 2007, by and between Magma Design Automation, Inc. and certain other parties thereto                                                                                                                                   |  | 8-K                       |  | 000-33213     |  | 10.2        |  | March 5,2007     |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|4.4            |  | Form of First Supplemental Indenture, dated March 15, 2007, by and between Magma Design Automation, Inc. and U.S. Bank National Association, as Trustee (form of note is the same as the form of
2.00% Convertible Senior Note due May 15, 2010 and included in Exhibit 4.2) |  | 8-K                       |  | 000-33213     |  | 10.3        |  | March 16,2007    |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|4.5            |  | Form of Registration Rights Agreement Amendment, dated March 15, 2007, by and between Magma Design Automation, Inc. and certain other parties thereto                                                                                                                        |  | 8-K                       |  | 000-33213     |  | 10.2        |  | March 16,2007    |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|10.1#          |  | Registrants 2001 Stock Incentive Plan, as amended                                                                                                                                                                                                                           |  |                           |  |               |  |             |  |                  |  | X
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|10.2#          |  | Form Notice of Grant of Stock Options pursuant to Magmas 2001 Stock Incentive Plan for Executive Officers                                                                                                                                                                   |  | 10-Q                      |  | 000-33213     |  | 10.2        |  | November 14,2005 |  |  
|               |  |                                                                                                                                                                                                                                                                              |  |                           |  |              
|10.3#          |  | Registrants 2001 Employee Stock Purchase Plan, as amended                                                                                                                                                                                                                   |  |                           |  |               |  |             |  |                  |  | X



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##### Table of Contents

|               |  |                                                                                                                                                                                 |  |                           |  |               |  |             |  |                  |  |  
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------- |  | ----------- |  | ---------------- |  | -
|Exhibit Number |  | Exhibit Description                                                                                                                                                             |  | Incorporated by Reference |  | FiledHerewith
|               |  | Form                                                                                                                                                                            |  | File No.                  |  | Exhibit       |  | Filing Date | 
|10.4#          |  | Registrants 2004 Employment Inducement Award Plan, as amended                                                                                                                  |  | 8-K                       |  | 000-33213     |  | 10.1        |  | January 30,2006  |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.5#          |  | 1998 Stock Incentive Plan                                                                                                                                                       |  | S-1                       |  | 333-60838     |  | 10.4        |  | May 14, 2001     |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.6#          |  | Form of Stock Option Agreement in connection with the Registrants 1998 Stock Incentive Plan                                                                                    |  | S-1/A                     |  | 333-60838     |  | 10.10       |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.7#          |  | Form of Amendment to Stock Option Agreement in connection with the Registrants 1998 Stock Incentive Plan                                                                       |  | S-1/A                     |  | 333-60838     |  | 10.11       |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.8#          |  | Moscape, Inc. 1997 Incentive Stock Plan                                                                                                                                         |  | S-1                       |  | 333-60838     |  | 10.6        |  | May 14, 2001     |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.9#          |  | Stock Option Agreement entered into between the Registrant and Rajeev Madhavan dated September 29, 2000                                                                         |  | S-1/A                     |  | 333-60838     |  | 10.8        |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.10#         |  | Stock Option agreement entered into between the Registrant and Rajeev Madhavan dated September 29, 2000                                                                         |  | S-1/A                     |  | 333-60838     |  | 10.9        |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.11#         |  | Stock Option Agreement entered into between the Registrant and Roy E. Jewell dated March 30, 2001                                                                               |  | S-1/A                     |  | 333-60838     |  | 10.13       |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.12#         |  | Form of Stock Option Agreement for agreements between the Registrant and Roy E. Jewell dated March 30, 2001                                                                     |  | S-1/A                     |  | 333-60838     |  | 10.14       |  | August 14,2001   |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.13          |  | Lease for corporate headquarters dated June 19, 2003, between Registrant and 3Com Corporation (assumed by Marvell Semiconductor from 3Com)                                      |  | 10-Q                      |  | 000-33213     |  | 10.2        |  | November 14,2003 |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.14#         |  | Summary of Standard Director Compensation Arrangements for Non-Employee Directors                                                                                               |  |                           |  |               |  |             |  |                  |  | X
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.15#         |  | Form of Indemnification Agreement Between the Registrant and certain directors and officers                                                                                     |  | S-1                       |  | 333-60838     |  | 10.1        |  | May 14, 2001     |  |  
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.16(a)#      |  | Summary of Compensation Arrangement for Certain Executive Officers                                                                                                              |  |                           |  |               |  |             |  |                  |  | X
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.16(b)#      |  | Schedule of Certain Executive Officers for the Summary of Compensation Arrangement Set Forth in Exhibit 10.27(a)                                                                |  |                           |  |               |  |             |  |                  |  | X
|               |  |                                                                                                                                                                                 |  |                           |  |              
|10.17          |  | Office Lease Agreement between Registrant and CA-Skyport I Limited Partnership dated December 28, 2006, for the premises located at 1650 Technology Drive, San Jose, California |  | 10-Q                      |  | 0-33213       |  | 10.1        |  | February 8,2007  |  |  



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |               |  |              |  |                 |  |  
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------- |  | ------------ |  | --------------- |  | -
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                 |  | Incorporated by Reference |  | FiledHerewith
|               |  | Form                                                                                                                                                                                                                                                                                                                                                                                                |  | File No.                  |  | Exhibit       |  | Filing Date  | 
|10.18          |  | Sub-Sub Lease Agreement between Registrant and Siemens Communications Inc. dated November 15, 2006 and becoming effective on December 28, 2006                                                                                                                                                                                                                                                      |  | 10-Q                      |  | 0-33213       |  | 10.2         |  | February 8,2007 |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.19          |  | Amendment Number One dated January 24, 2007 to Lease dated June 19, 2003, between Registrant and 3Com Corporation (assumed by Marvell Semiconductor from 3Com)                                                                                                                                                                                                                                      |  | 10-K                      |  | 000-33213     |  | 10.30        |  | June 6,2007     |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.20          |  | Settlement Agreement dated March 29, 2007 by and between Synopsys, Inc. and Registrant (Portions of this Settlement Agreement Exhibit have been omitted pursuant to a request for
confidential treatment.)                                                                                                                                                                                          |  | 10-K                      |  | 000-33213     |  | 10.37        |  | June 6,2007     |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.21#         |  | Form Notice of Grant of Stock Options and Stock Option Agreement in connection with the Registrants 2001 Stock Incentive Plan                                                                                                                                                                                                                                                                      |  |                           |  |               |  |              |  |                 |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.22#         |  | Form Notice of Grant of Award and Stock Unit Agreement in connection with the Registrants 2001 Stock Incentive Plan                                                                                                                                                                                                                                                                                |  |                           |  |               |  |              |  |                 |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.23#         |  | Form Notice of Grant of Award and Restricted Share Agreement in connection with the Registrants 2001 Stock Incentive Plan                                                                                                                                                                                                                                                                          |  |                           |  |               |  |              |  |                 |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.24#         |  | Form of Notice of Stock Option Award and Stock Option Agreement (U.S. employees) for replacement options under the Registrants 2001 Stock Incentive Plan in connection with the
Registrants Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)                                                                                       |  | SC TO-I/A                 |  | 005-77999     |  | 99(a)(10)(A) |  | August 5,2005   |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                     |  |                           |  |              
|10.25#         |  | Form of Notice of Stock Option Award and Stock Option Agreement (for international employees other than those residing in China, Israel, India and the United Kingdom) for replacement options
under the Registrants 2001 Stock Incentive Plan in connection with the Registrants Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005) |  | SC TO-I/A                 |  | 005-77999     |  | 99(a)(10)(B) |  | August 5,2005   |  |  



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|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |               |  |              |  |               |  |  
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | ------------- |  | ------------ |  | ------------- |  | -
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                              |  | Incorporated by Reference |  | FiledHerewith
|               |  | Form                                                                                                                                                                                                                                                                                                                                             |  | File No.                  |  | Exhibit       |  | Filing Date  | 
|10.26          |  | Form of Notice of Stock Option Award and Stock Option Agreement (for employees residing in China, Israel and India) for replacement options under the Registrants 2001 Stock Incentive Plan
in connection with the Registrants Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005) |  | SC TO-I/A                 |  | 005-77999     |  | 99(a)(10)(C) |  | August 5,2005 |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|10.27#         |  | Form of Notice of Stock Option Award and Stock Option Agreement (for employees residing in the United Kingdom) for replacement options under the Registrants 2001 Stock Incentive Plan in
connection with the Registrants Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)      |  | SC TO-I/A                 |  | 005-77999     |  | 99(a)(10)(D) |  | August 5,2005 |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|21.1           |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                             |  | 10-K                      |  | 000-33213     |  | 21.1         |  | June 6,2007   |  |  
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|23.1           |  | Consent of Grant Thornton LLP                                                                                                                                                                                                                                                                                                                    |  |                           |  |               |  |              |  |               |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                |  |                           |  |               |  |              |  |               |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                |  |                           |  |               |  |              |  |               |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|32.1*          |  | Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                      |  |                           |  |               |  |              |  |               |  | X
|               |  |                                                                                                                                                                                                                                                                                                                                                  |  |                           |  |              
|32.2*          |  | Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                      |  |                           |  |               |  |              |  |               |  | X



|# | Indicates management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------

|* | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange
Commission and are not incorporated by reference in any filing of Magma Design Automation, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general
incorporation language in any filings.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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