Notes:

(1) Research and development expense as a percentage of Net sales includes amortization of acquisition-related intangible assets.

(2) We define operating margin as gross margin less research and development expense, selling, general and administrative expense and amortization of acquisition-related intangible assets, as presented above. This presentation differs from income from operations as defined by U.S. Generally Accepted Accounting Principles ("GAAP"), as it excludes the effect of compensation associated with the deferred compensation plan obligations. Since the effect of compensation associated with our deferred compensation plan obligations is offset by losses/(gains) from related securities, we believe this presentation provides a more meaningful representation of our ongoing operating performance. A reconciliation of operating margin to income from operations follows:

Three Months Ended

(In thousands, except per share amounts)

March 27,
 2015

December 31,
 2014

March 28,
 2014

Operating margin (non-GAAP)

$

103,021

$

120,878

$

134,595

Compensation expense — deferred compensation plan

27

1,934

1,454

Income from operations (GAAP)

$

102,994

$

118,944

$

133,141

ALTERA CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value amount)

March 27,
 2015

December 31,
 2014

Assets

Current assets:

Cash and cash equivalents

$

2,207,101

$

2,426,367

Short-term investments

168,849

151,519

        Total cash, cash equivalents, and short-term investments

2,375,950

2,577,886

Accounts receivable, net

433,690

377,964

Inventories

155,353

153,387

Deferred income taxes — current

62,144

56,048

Deferred compensation plan — marketable securities

65,075

69,367

Deferred compensation plan — restricted cash equivalents

20,226

14,412

Other current assets

42,336

39,479

        Total current assets

3,154,774

3,288,543

Property and equipment, net

215,309

194,840

Long-term investments

2,139,810

1,942,343

Deferred income taxes — non-current

20,258

20,077

Goodwill

74,341

74,341

Acquisition-related intangible assets, net

69,827

72,291

Other assets, net

92,746

81,791

        Total assets

$

5,767,065

$

5,674,226

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

46,918

$

49,140

Accrued liabilities

33,727

28,384

Accrued compensation and related liabilities

60,234

69,837

Deferred compensation plan obligations

85,301

83,779

Deferred income and allowances on sales to distributors

411,558

344,168

        Total current liabilities

637,738

575,308

Income taxes payable — non-current

326,700

313,447

Long-term debt

1,493,082

1,492,759

Other non-current liabilities

6,798

6,886

        Total liabilities

2,464,318

2,388,400

Stockholders' equity:

Common stock: $.001 par value; 1,000,000 shares authorized; outstanding - 301,025 shares at March 27, 2015 and 302,430 shares at December 31, 2014

301

302

Capital in excess of par value

1,170,315

1,165,259

Retained earnings

2,108,201

2,110,620

Accumulated other comprehensive income

23,930

9,645

        Total stockholders' equity

3,302,747

3,285,826

        Total liabilities and stockholders' equity

$

5,767,065

$

5,674,226

ALTERA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three Months Ended

 (In thousands)

March 27,
 2015

March 28,
 2014

Cash Flows from Operating Activities:

Net income

$

94,852

$

116,514

Adjustments to reconcile net income to net cash provided by operating activities:

    Depreciation and amortization

14,453

14,628

    Amortization of acquisition-related intangible assets

2,464

2,465

    Amortization of debt discount and debt issuance costs

779

779

    Stock-based compensation

20,325

23,347

    Net gain on sale of available-for-sale securities

(2,506)

(48)

    Amortization of investment discount/premium

2,129

685

    Deferred income tax benefit

(651)

(1,711)

    Tax effect of employee stock plans

—

(217)

    Excess tax benefit from employee stock plans

(203)

(326)

    Changes in assets and liabilities:

      Accounts receivable, net

(55,726)

39,623

      Inventories

(1,966)

5,743

      Other assets

(9,098)

(5,185)

      Accounts payable and other liabilities

(2,998)

(3,425)

      Deferred income and allowances on sales to distributors 

67,390

(73,227)

      Income taxes payable and receivable, net

5,894

10,111

      Deferred compensation plan obligations

1,495

674

    Net cash provided by operating activities

136,633

130,430

Cash Flows from Investing Activities:

      Purchases of property and equipment

(38,593)

(12,622)

      Purchases of deferred compensation plan securities, net

(1,495)

(674)

      Purchases of available-for-sale securities

(625,960)

(103,982)

      Proceeds from sale of available-for-sale securities

387,985

35,562

      Proceeds from maturity of available-for-sale securities

37,472

41,548

      Purchases of intangible assets

(257)

—

      Purchases of other investments

(2,000)

—

    Net cash used in investing activities

(242,848)

(40,168)

Cash Flows from Financing Activities:

      Proceeds from issuance of common stock through stock plans

1,408

6,082

      Shares withheld for employee taxes

(2,994)

(3,048)

      Payment of dividends to stockholders

(54,161)

(47,554)

      Long-term debt and credit facility issuance costs

—

(1,321)

      Repurchases of common stock

(57,507)

(161,794)

      Excess tax benefit from employee stock plans

203

326

    Net cash used in financing activities

(113,051)

(207,309)

Net decrease in cash and cash equivalents

(219,266)

(117,047)

Cash and cash equivalents at beginning of period

2,426,367

2,869,158

Cash and cash equivalents at end of period

$

2,207,101

$

2,752,111