Discussion of Non-GAAP Financial Measures

Stock-Based Compensation Related Items: Stock-based compensation expense relates primarily to equity awards, such as stock options and restricted stock units. Stock-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond our control. As such, management excludes this item from our internal operating forecasts and models. Management believes that non-GAAP measures adjusted for stock-based compensation expense provide investors with a basis to measure our core performance against the performance of other companies without the variability created by stock-based compensation expense as a result of the variety of equity awards used by companies and the varying methodologies and subjective assumptions used in determining such non-cash expense.

Strategic Initiative and Acquisition Related Items: We exclude certain expense items resulting from our strategic initiative and acquisitions including the following, when applicable: (i) amortization of purchased intangible assets associated with our acquisitions; or relating to our unconsolidated affiliate, (ii) strategic initiative and acquisition-related charges, (iii) gain from business acquisition and (iv) gain from sale of a privately held company investment. The amortization of purchased intangible assets associated with our acquisitions results in our recording expenses in our GAAP financial statements that were already expensed by the acquired company before the acquisition and for which we have not expended cash. Moreover, had we internally developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses. In addition, our strategic initiatives and acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. In the second quarter of fiscal 2014, we finalized the acquisition of the remaining ownership interest in UpdateLogic, Inc., resulting in acquisition-related charges and gain from business acquisition. In the third quarter of fiscal 2014, we finalized the sale of our minority interest in a privately held company to another entity resulting in a gain. We do not expect expenses of similar nature to be paid or gain of similar nature to be received in our normal course of business and consider it infrequent and non-recurring. We believe that providing non-GAAP information for strategic initiatives and acquisition-related expense items, gain from business acquisition and gain from sale of a privately held company investment in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons to less acquisitive peer companies.

Other Items: We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) restructuring and related costs, (ii) other than temporary impairment of a privately held company investment, (iii) impairment of intangible assets, (iv) recovery related to previously written-down inventory, (v) proceeds from a legal settlement and (vi) other income from prepaid royalty settlement. It is difficult to estimate the amount or timing of these items in advance. Restructuring charges result from events which arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Other than temporary impairment of a privately held company investment was recorded due to the conclusion that the possibility is remote that we will exercise our warrants to purchase the entity’s preferred stock or that we will realize any other value from these investments. We recognized impairment of an intangible asset because the sum of its estimated future undiscounted cash flows used to test for recoverability is less than its carrying value. We entered into a settlement with a vendor and received a recovery related to previously written-down inventory. Proceeds from a legal settlement relates to our acquisition of SiBEAM, Inc. on May 16, 2011. Other income from prepaid royalty settlement relates to the termination of an HDMI rebate agreement with one of the HDMI adopters. We do not expect other income or proceeds of similar nature to be recognized or received in our normal course of business and consider it infrequent and non-recurring. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. As such, we believe that these expenses do not accurately reflect the underlying performance of our continuing operations for the period in which they are incurred. We assess our operating performance both with these amounts included and excluded, and by providing this information, we believe the users of our financial statements are better able to understand the financial results of what we consider our continuing operations.

Tax adjustments: For the three and twelve months ended December 31, 2014 and 2013 and the three months ended September 30, 2014, our non-GAAP tax rate was approximately 30% of non-GAAP pre-tax income. Non-GAAP tax rate is primarily based on net expected cash flow for income taxes. During the fourth quarter of 2014, we recognized a non-recurring, non-cash tax benefit of $30.1 million related to the valuation allowance reversal.

Unrealized loss on available-for-sale securities