CYPRESS SEMICONDUCTOR CORPORATION

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

(In thousands, except per-share data)

(Unaudited)

Twelve Months Ended

January 3,

% of

December 28,

% of

2016

Revenue

2014

Revenue

GAAP Revenues

$                     1,607,853

$              725,497

Revenue from intellectual property license (b)

18,750

—

Non-GAAP Revenues

$                     1,626,603

$              725,497

GAAP gross margin

$                        401,064

24.9%

$              363,677

50.1%

Stock-based compensation expense

16,838

1.0%

13,209

1.8%

Changes in value of deferred compensation plan

(37)

0.0%

427

0.1%

Ramtron acquisition related expense

0.0%

(86)

0.0%

Impairment of assets, restructuring and other charges

73

0.0%

4,489

0.6%

Effect of Non-GAAP revenue from intellectual property license

18,750

0.8%

—

0.0%

Spansion merger costs and related amortization

136,830

8.5%

—

0.0%

Non-GAAP gross margin

$                        573,518

35.3%

$              381,716

52.6%

GAAP research and development expenses

$                        282,904

$              164,560

Stock-based compensation expense

(27,885)

(16,187)

Changes in value of deferred compensation plan

232

(793)

Impairment of assets, restructuring and other charges

(326)

(482)

Spansion merger costs and related amortization

(2,681)

—

Non-GAAP research and development expenses

$                        252,244

$              147,098

GAAP selling, general and administrative expenses

$                        297,721

$              176,244

Stock-based compensation expense

(53,735)

(20,774)

Changes in value of deferred compensation plan

260

(1,855)

Ramtron acquisition related expense

(14,330)

Impairment of assets, restructuring and other charges

(36)

(97)

Legal and other

(1,198)

(1,330)

Spansion merger costs and related amortization

(11,814)

—

Non-GAAP selling, general and administrative expenses

$                        231,198

$              137,858

GAAP operating income (loss)

$                      (341,834)

$                22,873

Stock-based compensation expense

98,458

50,170

Gain from divestiture transaction

(66,472)

—

Ramtron acquisition-related expense

5,220

14,244

Changes in value of deferred compensation plan

(531)

3,075

Impairment of assets, restructuring and other charges

182

5,067

Legal and other

1,450

1,330

Effect of Non-GAAP revenue from intellectual property license

18,750

—

Spansion merger costs and related amortization

374,852

—

Non-GAAP operating income (loss)

$                          90,075

$                96,759

GAAP pretax profit (loss)

$                      (369,107)

(23.0)%

$                15,345

2.1%

Stock-based compensation expense

98,458

6.1%

50,170

6.9%

Gain from divestiture transaction

(66,472)

(4.1)%

0.0%

Ramtron acquisition-related expense

5,220

0.3%

14,244

2.0%

Changes in value of deferred compensation plan

820

0.1%

61

0.0%

Impairment of assets, restructuring and other charges

455

0.0%

3,737

0.5%

Legal and other

1,452

0.1%

1,330

0.2%

Effect of Non-GAAP revenue from intellectual property license

18,291

1.1%

0.0%

Investment related losses (gains)

4,058

0.3%

1,495

0.2%

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

3,039

0.2%

(263)

0.0%

Losses from equity method investment

7,148

0.3%

5,068

0.7%

Spansion merger costs and related amortization

374,852

23.3%

—

0.0%

Non-GAAP pretax profit (loss)

$                          78,214

4.8%

$                91,187

12.6%

GAAP net income (loss) attributable to Cypress

$                      (383,796)

$                17,936

Stock-based compensation expense

98,458

50,170

Gain from divestiture transaction

(66,472)

-

Ramtron acquisition-related expense

5,220

14,244

Changes in value of deferred compensation plan

821

61

Impairment of assets, restructuring and other charges

455

3,737

Legal and other

1,451

1,330

Effect of Non-GAAP revenue from intellectual property license

18,291

-

Investment related losses (gains)

4,058

1,495

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

10,046

(6,750)

Losses from equity method investment

7,148

5,068

Spansion merger costs and related amortization

374,852

—

Non-GAAP net income attributable to Cypress

$                          70,532

$                87,291

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

$                            (1.27)

$                    0.11

Stock-based compensation expense

0.33

0.30

Gain from divestiture transaction

(0.22)

—

Ramtron acquisition-related expense

0.02

0.08

Changes in value of deferred compensation plan

—

—

Impairment of assets, restructuring and other charges

—

0.02

Effect of Non-GAAP revenue from intellectual property license

0.06

—

Investment related losses (gains)

0.01

0.01

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

0.02

(0.04)

Losses from equity method investment

0.02

0.03

Legal and other

—

0.01

Spansion merger costs and related amortization

1.24

—

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

$                    0.52

(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.