Cadence Reports Third Quarter 2014 Financial Results

GAAP to Non-GAAP Reconciliation

To supplement Cadence's financial results presented on a generally accepted accounting principles, or GAAP, basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence's performance.  One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP, and is calculated by taking GAAP net income and excluding, as applicable, amortization and sale of intangible assets and debt discount related to our convertible notes, stock-based compensation expense, acquisition and integration-related costs including changes in fair value of contingent consideration and retention expenses for employees added from our 2013 and 2014 acquisitions, special charges (comprised of costs related to a voluntary retirement program and executive severance costs), investment gains or losses, income or expenses related to Cadence's non-qualified deferred compensation plan, restructuring and other significant items not directly related to Cadence's core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence's management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of the company's core business operations and therefore provides useful supplemental information to Cadence's management and investors regarding the performance of the company's business operations, facilitates comparisons to the company's historical operating results and enhances investors' ability to review Cadence's business from the same perspective as Cadence's management.  Cadence's management also uses non-GAAP net income internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.  Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.  Investors are encouraged to look at the GAAP results as the best measure of financial performance.

The following tables reconcile the specific items excluded from GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Net Income Reconciliation


Three Months Ended



September 27, 2014


September 28, 2013



(unaudited)

(in thousands)







Net income on a GAAP basis


$

37,535



$

38,500


Amortization and sale of acquired intangibles


16,387



13,027


Stock-based compensation expense


22,877



18,566


Non-qualified deferred compensation expenses (credits)


(104)



186


Restructuring and other charges


11,027



86


Acquisition and integration-related costs


4,435



8,041


Special charges*


459



745


Amortization of debt discount


4,370



5,693


Other income or expense related to investments and non-qualified deferred compensation plan assets**


1,944



(1,544)


Income tax effect of non-GAAP adjustments


(19,377)



(19,895)


Net income on a non-GAAP basis


$

79,553



$

63,405




*

Comprised of costs related to a voluntary retirement program and executive severance costs



**

Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.


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