Cadence's non-GAAP net income for the fourth quarter of 2017 excludes the effect of the transition tax expense and income tax expense related to the reduction in value of the deferred tax assets caused by the U.S. corporate tax rate reduction. Cadence management believes it is useful to exclude these tax expenses since it does not expect these tax expenses to be recorded frequently.

The following tables reconcile the specific items excluded from GAAP net income (loss) and GAAP net income (loss) 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 (Loss) Reconciliation		Three Months Ended
		December 30, 2017				December 31, 2016
		(unaudited)
(in thousands)
Net income (loss) on a GAAP basis		$	(14,442	)		$	38,477
Amortization of acquired intangibles		13,741				14,474
Stock-based compensation expense		36,015				29,231
Non-qualified deferred compensation expenses		1,295				544
Restructuring and other charges		12,178				26,342
Acquisition and integration-related costs		5,712				1,433
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(1,368		)		(655		)
Income tax related to transition tax		67,188				—
Income tax related to tax rate change		25,292				—
Income tax effect of non-GAAP adjustments		(34,328		)		(14,672		)
Net income on a non-GAAP basis		$	111,283			$	95,174

*	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.

Net Income Reconciliation		Years Ended
		December 30, 2017				December 31, 2016
		(unaudited)
(in thousands)
Net income on a GAAP basis		$	204,101			$	203,086
Amortization of acquired intangibles		56,497				60,482
Stock-based compensation expense		130,023				109,217
Non-qualified deferred compensation expenses		6,145				1,741
Restructuring and other charges		9,406				40,955
Acquisition and integration-related costs		8,468				11,268
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(15,693		)		(4,672		)
Income tax related to transition tax		67,188				—
Income tax related to tax rate change		25,292				—
Income tax effect of non-GAAP adjustments		(98,810		)		(70,847		)
Net income on a non-GAAP basis		$	392,617			$	351,230

*	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.

Diluted Net Income (Loss) per Share Reconciliation		Three Months Ended
		December 30, 2017				December 31, 2016
		(unaudited)
(in thousands, except per share data)
Diluted net income (loss) per share on a GAAP basis		$	(0.05	)		$	0.14
Amortization of acquired intangibles		0.05				0.05
Stock-based compensation expense		0.13				0.10
Non-qualified deferred compensation expenses		—				—
Restructuring and other charges		0.04				0.09
Acquisition and integration-related costs		0.02				0.01
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.01		)		—
Income tax related to transition tax		0.24				—
Income tax related to tax rate change		0.09				—
Income tax effect of non-GAAP adjustments		(0.12		)		(0.05		)
Diluted net income per share on a non-GAAP basis		$	0.39			$	0.34
Shares used in calculation of diluted net income (loss) per share — GAAP**		273,157				278,917
Shares used in calculation of diluted net income per share — non-GAAP**		282,206				278,917

*	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.

**	Shares used in the calculation of GAAP net income (loss) per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

Diluted Net Income per Share Reconciliation		Years Ended
		December 30, 2017				December 31, 2016
		(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis		$	0.73			$	0.70
Amortization of acquired intangibles		0.20				0.21
Stock-based compensation expense		0.46				0.37
Non-qualified deferred compensation expenses		0.02				0.01
Restructuring and other charges		0.03				0.14
Acquisition and integration-related costs		0.03				0.04
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.05		)		(0.02		)
Income tax related to transition tax		0.24				—
Income tax related to tax rate change		0.09				—
Income tax effect of non-GAAP adjustments		(0.35		)		(0.24		)
Diluted net income per share on a non-GAAP basis		$	1.40			$	1.21
Shares used in calculation of diluted net income per share — GAAP**		280,221				291,256
Shares used in calculation of diluted net income per share — non-GAAP**		280,221				291,256

*	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.

**	Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

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