CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES  (a)

(In thousands, except per-share data)

(Unaudited)

Three Months Ended

January 3,

% of

September 27,

% of

December 28,

% of

2016

Revenue

2015

Revenue

2014

Revenue

GAAP Revenues

$        450,128

$          463,810

$         184,097

Revenue from intellectual property license (b)

6,250

6,250

—

Non-GAAP Revenues

$        456,378

$          470,060

$         184,097

GAAP gross margin

$        144,309

32.1%

$          160,376

34.6%

$           93,702

50.9%

Stock-based compensation expense

4,460

1.0%

4,357

0.9%

2,759

1.5%

Changes in value of deferred compensation plan

53

0.0%

(326)

-0.1%

(44)

—%

Ramtron acquisition related expense

—

(—)%

—

0.0%

22

—%

Impairment of assets, restructuring and other charges

—

(—)%

(372)

-0.1%

—

0.0%

Effect of Non-GAAP revenue from intellectual property license

6,250

0.9%

6,250

0.8%

—

0.0%

Spansion merger costs and related amortization

26,361

5.9%

23,164

5.0%

—

Non-GAAP gross margin

$        181,433

39.8%

$          193,449

41.2%

$           96,439

GAAP research and development expenses

$          75,195

$            75,960

$           39,677

Stock-based compensation expense

(7,782)

(7,346)

(2,553)

Changes in value of deferred compensation plan

(103)

1,105

128

Impairment of assets, restructuring and other charges

(87)

(81)

(252)

Spansion merger costs and related amortization

(893)

(831)

—

Non-GAAP research and development expenses

$          66,330

$            68,807

$           37,000

GAAP selling, general and administrative expenses

$          86,112

$            74,627

$           46,376

Stock-based compensation expense

(14,796)

(13,253)

(1,436)

Changes in value of deferred compensation plan

(313)

1,959

229

Ramtron acquisition related expense

—

—

(8,602)

Impairment of assets, restructuring and other charges

—

—

(72)

Legal and other

(102)

(443)

(1,330)

Spansion merger costs and related amortization

(7,701)

(2,376)

—

Non-GAAP selling, general and administrative expenses

$          63,200

$            60,514

$           35,165

GAAP operating income (loss)

$         (56,114)

$            40,978

$             7,649

Stock-based compensation expense

27,038

24,956

6,748

Gain from divestiture transaction

—

(66,472)

Ramtron acquisition-related expense

1,305

1,305

8,622

Changes in value of deferred compensation plan

468

(3,389)

(402)

Impairment of assets, restructuring and other charges

—

—

328

Legal and other

188

150

—

Effect of Non-GAAP revenue from intellectual property license

6,250

6,250

—

Spansion merger costs and related amortization

72,766

60,350

—

Non-GAAP operating income (loss)

$          51,901

$            64,128

$           22,945

GAAP pretax profit (loss)

$         (62,000)

-13.8%

$            32,094

6.9%

$             4,890

2.7%

Stock-based compensation expense

27,038

6.0%

24,956

5.4%

6,748

3.7%

Gain from divestiture transaction

—

(—)%

(66,472)

-14.3%

(—)%

Ramtron acquisition-related expense

1,305

0.3%

1,305

0.3%

8,622

4.7%

Changes in value of deferred compensation plan

(317)

-0.1%

(50)

0.0%

(1,048)

(0.6)%

Impairment of assets, restructuring and other charges

—

0.0%

—

0.0%

327

0.2%

Legal and other

188

0.0%

151

0.0%

1,330

0.7%

Effect of Non-GAAP revenue from intellectual property license

5,791

1.2%

6,250

1.2%

—

(—)%

Investment related losses (gains)

291

0.1%

2,709

0.6%

1,495

0.8%

Tax-related, interest income, interest expense and other expenses

741

0.2%

(1,157)

-0.2%

(618)

(0.3)%

Losses from equity method investment

2,330

0.5%

1,800

0.4%

1,403

0.8%

Spansion merger costs and related amortization

72,766

16.2%

60,350

13.0%

—

(—)%

Non-GAAP pretax profit (loss)

$          48,133

10.6%

$            61,936

13.2%

$           23,149

12.6%

GAAP net income (loss) attributable to Cypress

$         (77,259)

$            30,312

$             3,502

Stock-based compensation expense

27,038

24,956

6,748

Gain from divestiture transaction

—

(66,472)

—

Ramtron acquisition-related expense

1,305

1,305

8,622

Changes in value of deferred compensation plan

(317)

(50)

(1,048)

Impairment of assets, restructuring and other charges

—

—

327

Legal and other

188

151

1,330

Effect of Non-GAAP revenue from intellectual property license

5,791

6,250

—

Investment related losses (gains)

291

2,709

1,495

Tax-related, interest income, interest expense and other expenses

13,395

(1,271)

(324)

Losses from equity method investment

2,330

1,800

1,403

Spansion merger costs and related amortization

72,766

60,350

—

Non-GAAP net income attributable to Cypress

$          45,528

$            60,040

$           22,055

GAAP net income (loss) per share attributable to
   Cypress - diluted

$             (0.23)

$                0.08

$               0.02

Stock-based compensation expense

0.08

0.07

0.04

Gain from divestiture transaction

—

(0.18)

—

Ramtron acquisition-related expense

—

—

0.05

Changes in value of deferred compensation plan

—

—

(0.01)

Impairment of assets, restructuring and other charges

—

—

—

Effect of Non-GAAP revenue from intellectual property license

0.02

0.02

—

Investment related losses (gains)

—

0.01

0.01

Tax-related, interest income, interest expense and other expenses

0.04

—

—

Losses from equity method investment

0.01

0.01

0.01

Legal and other

—

—

0.01

Spansion merger costs and related amortization

0.21

0.17

—

Non-GAAP net income per share attributable to Cypress - diluted

$              0.13

$                0.17

$               0.13

(a) Refer to the accompanying "Notes to Non-GAAP Financial Measures" for a detailed discussion of management's use of non-GAAP financial measures.

(b) Non-GAAP revenue includes $6.25 million of Samsung intellectual property licensing revenue, not included in GAAP revenue as a result of the effects of purchase accounting for the Spansion merger.