NATURE OF OPERATIONS
	RESULTS OF OPERATIONS
	FACTORS AFFECTING FUTURE RESULTS
	FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
	REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Cautionary Statement. The statements in this Management's Discussion and Analysis that are forward looking involve numerous risks and uncertainties and are based on current expectations. Actual results may differ materially. Such risks and uncertainties are discussed under "Factors Affecting Future Results." Forward looking statements can often be identified by the use of forward looking words, such as "may," "will," "could," "should," "expect," "believe," "anticipate," "estimate," "continue," "plan," "intend," "project," or other similar words.

NATURE OF OPERATIONS

Xilinx, Inc. (Xilinx or the Company) designs, develops and markets CMOS (complementary metal-oxide-silicon) programmable logic devices and related design software. The Company's programmable logic product lines include field programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs). These components are standard integrated circuits (ICs) programmed by Xilinx's customers to perform desired logic operations. Xilinx introduced the first FPGA device in 1985, holds patents on certain programmable logic device (PLD) architecture and technology, and continues to be the leading supplier of programmable logic solutions. Xilinx also markets HardWire devices, which are mask-programmed ICs functionally equivalent to programmed FPGAs. The Company's products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers in the computer, peripheral, telecommunications, networking, industrial control, instrumentation, high-reliability/military and consumer markets. The Company markets its products throughout the world through a direct sales organization, direct sales to manufacturers by independent sales representative firms, sales through licensed domestic distributors and sales through foreign distributors. Xilinx's products have provided effective solutions to a wide range of customer logic requirements.

[Top of Page]

Revenue. Revenues for fiscal 1997 increased to $568.1 million, representing an increase of 1.3% from $560.8 million for 1996 and 60% from the $355.1 million reported for 1995. The level of revenues in fiscal 1997 was significantly impacted by a semiconductor industry inventory correction which reduced customer demand. The Company's revenue increase in 1997 was primarily attributable to the revenue growth of the XC5200 product family, introduced in fiscal 1996, as well as the growth of the Company's XC4000 product family, offset by decreased revenues derived from the Company's first generation products including the XC2000 family and non-proprietary products in the Company's XC3000 product family, where there is a second source competitor. Revenues from the XC4000 and XC4000X family increased 5.9% between 1996 and 1997 to $264.5 million, and revenues for the XC5200 family increased from $9.1 million in 1996 to $37.5 million in 1997.

Revenue contribution by programmable logic product line reflected a mix between increased customer demand for low cost, medium range density programmable logic devices and the functionality and performance provided by the Company's higher density and higher speed programmable logic devices. Revenues from proprietary products, for which there is no second source competitor, increased from 84.9% of aggregate revenues in 1996 to 91% in 1997. In the fourth quarter of 1997, proprietary products accounted for 93.3% of total revenues as compared to 88.1% for the comparable 1996 quarter. Deriving revenues from proprietary products has been emphasized by the Company as an effective corporate pricing strategy that has as its aim to expand the market for its products by reducing sales prices coincident with and commensurate with reductions in the cost of manufacturing these products. The Company currently intends to continue actively pursuing a strategy of broadening the markets it serves through the enhancement of software design tools, the introduction of architectures offering new functionality, and the reduction of IC prices through continuous advancements in the silicon manufacturing process.

Revenues for the Company's first generation products, which include the XC2000, XC3000 and XC3100 families, represented 33.2% of aggregate component revenues in fiscal 1997, as compared to 40.3% in fiscal 1996. The Company's second generation products, including the XC4000, XC4000X and XC5200 families, represented 54.8% of aggregate component revenues in fiscal 1997, as compared to 47.8% in fiscal 1996. Revenues from other products, which include the CPLD families, HardWire and serial proms, were relatively comparable between 1997 and 1996. During 1997, all second generation product families experienced increases in unit volume. The average selling price for PLDs decreased approximately 6% in 1997 relative to the previous year, although the average selling price of a PLD product family decreased by up to 33% during the year. Individual products within certain families decreased in price as much as 40% during the past year, as prices were reduced in order to expand market share while realizing acceptable returns. Price erosion of this magnitude has been common in the semiconductor industry, as advances in both architecture and manufacturing process technology have permitted continual reductions in cost. The Company relies upon introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable despite the price erosion on mature product lines.

Xilinx's design software is used by the Company's customers to implement designs in the Company's programmable logic devices. Software revenues remained relatively comparable from 1996 to 1997 at $17.1 million as compared to $12.6 million in 1995. Cumulative licenses for proprietary design software distributed to customers through the end of 1997 totaled approximately 35,500 units, as compared to 26,700 and 21,000 units at the end of 1996 and 1995, respectively. Software sales as a percentage of total revenues represented 3% of revenues in 1997 and 1996 and 4% in 1995.

No single end customer accounted for more than 5% of revenues in 1997 or 6% of revenues in 1996 or 1995.

International revenues constituted approximately 36%, 35% and 31% of total revenues for 1997, 1996 and 1995, respectively. International revenues continue to be primarily to customers in Europe and Japan. Revenue growth in these international markets over the past year was 3.3% and 2.7%, respectively. The Company's manufacturing facility in Dublin, Ireland, continues to increase production levels and has enhanced the Company's ability to meet the needs of its international customers. The Company believes that international revenues will continue to grow at a faster rate in the future than domestic sales, and projects that such revenues will eventually comprise 50% of the worldwide total. However, there can be no assurances that international revenues will reach this level in the future. Sales to Pacific Rim, Middle East and other regions outside North America, Europe and Japan represented approximately 4% of revenues in 1997, 1996 and 1995.

The Company believes that the semiconductor industry inventory correction has ended, as the Company experienced sequential quarterly increases in orders and revenues during the last two quarters of fiscal 1997.

Gross Margin. Gross margin as a percentage of revenues was 62.3% for 1997, excluding the impact of a $5 million write-off of the XC8100 product family of one-time programmable antifuse devices (see below). Gross margins in 1996 and 1995 were 63.8% and 61%, respectively. The increase in the cost of revenues as a percentage of revenues in 1997 was primarily attributable to selling price reductions and increased inventory reserves relating to an expanded level of inventory, partially offset by the favorable impact of lower wafer costs, reflecting reduced prices from wafer suppliers and the impact of the strengthened U.S. dollar exchange rate against the yen, and improved yields. Over the past three years, Xilinx has also been able to offset much of the erosion in gross margin percentages on more mature integrated circuits with increased volumes of newer, proprietary, higher margin products, although no assurance can be given that the Company will do so in the future. The Company recognizes that ongoing price reductions for its integrated circuits are a significant element in expanding the market for its products. Company management believes that future gross margin objectives in the range of 60% to 62% of revenues are more consistent with expanding market share while realizing acceptable returns, although there can be no assurance that future gross margins will be in this range.

During fiscal 1997, the Company discontinued the XC8100 family of one-time programmable antifuse devices. As a result, the Company recorded a pretax charge against earnings of $5 million. This charge primarily related to the write-off of inventory and for termination charges related to purchase commitments to foundry partners for work-in-process wafers which had not completed the manufacturing process.

Research and Development. The Company has increased the amount spent on research and development each year in its thirteen year history. Research and development expenses in 1997 exceeded those of the prior year by 10% and those of 1995 by 56.8%. Research and development expenses as a percentage of revenue increased from 11.5% in 1996 to 12.5% in 1997, and was impacted by the level of revenues experienced in 1997. The increase in research and development expenses is primarily attributable to increased headcount and labor expenses, increased purchases of engineering wafers and increased facility and support costs associated with an expanded scope of operations. The Company remains committed to a significant level of research and development effort in order to continue to compete aggressively in the programmable logic marketplace. Through March 31, 1997, the Company has received 143 U.S. patents and maintains an active program of filing for additional patents in the areas of software, IC architecture and design. As of March 31, 1997, research and development personnel were split approximately 40% for software development and 60% for IC design and process development. Xilinx has not capitalized any of the costs associated with its software development.

Marketing, General and Administrative. Marketing, general and administrative costs represented 20.9%, 19.2% and 21.6% of revenues in 1997, 1996, and 1995, respectively. The increase in costs as a percentage of revenue in 1997 over 1996 is a reflection of the level of revenues experienced in 1997. Sales and support expenses have increased each year due to increased personnel and labor costs and increased commissions due to changes in the revenue channel mix. The Company has twenty-two sales offices located throughout the United States and Canada, including the metropolitan areas of San Jose, Los Angeles, Denver, Dallas, Chicago, Minneapolis, Atlanta, Raleigh, Philadelphia and Boston as well as eight international sales offices located in the metropolitan areas of London, Munich, Paris, Stockholm, Tokyo, Taipei, Seoul and Hong Kong. There was a 10% increase in marketing, general and administrative expenses during 1997, as compared to 1996. This was primarily attributable to increases in headcount and employee expenses, partially offset by reduced discretionary spending. The Company remains committed to controlling administrative expenses. However, the timing and extent of future legal costs associated with the ongoing enforcement of the Company's intellectual property rights are not readily predictable and may significantly increase the level of general and administrative expenses in the future.

Non-Recurring Charges. During fiscal 1996, the Company incurred a $19.4 million non-recurring write-off of in-process technology relating to the acquisition of NeoCAD, Inc. See Note 3 of Notes to Consolidated Financial Statements. During 1995, the Company incurred a $2.5 million write-off of a minority investment in Star Semiconductor Corporation.

Operating Income. Operating income of $159.1 million decreased from the prior year's $165.8 million but increased from 1995's $92 million. Operating income in 1997 was $164.1 million before consideration of the write-off of the XC8100 product family. Operating income as a percentage of revenues was 28%, 29.6% and 25.9% in 1997, 1996 and 1995, respectively. Before consideration of non-recurring charges and write-offs, operating income as a percentage of revenues was 28.9%, 33.1% and 26.6% in 1997, 1996 and 1995, respectively. The decrease in 1997 from 1996 is primarily a result of the 1.3% revenue growth in 1997 in comparison to 10% increases year to year in research and development spending and marketing, general and administrative spending. Operating income as a percentage of revenues could be adversely impacted in future years by the factors noted herein.

Interest and Other Income, Net. The Company incurs interest expense on the $250 million of 5G% convertible subordinated notes issued in November 1995. The Company earns interest income on its cash, cash equivalents, short-term investments and restricted investments. The amount of interest earned is a function of the balance of cash invested as well as prevailing interest rates. The Company also records 25% of the net income of United Silicon Inc. (USI) , a wafer fabrication joint venture in which the Company participates, as joint venture equity income. To date, USI's net income has resulted primarily from interest earned on its investment portfolio. Net interest and other income for 1997 increased by $1.6 million over 1996. In 1997, the increased interest and other income is primarily attributable to higher investment portfolio balances and joint venture equity income. The Company expects that the USI joint venture will begin to ramp up operations over the next year, and that the Company may incur joint venture equity losses during the start-up phase. The Company's investment portfolio contains tax-advantaged municipal securities which have pretax yields which are less than the interest rate on the convertible subordinated notes. For financial reporting purposes, the Company effectively records the difference between the pretax and tax-equivalent yields as a reduction in provision for taxes on income. As a result of the difference in yields, future uses of the investment portfolio and operating results for USI, levels of net interest and other income could decrease in the future.

Provision for Income Taxes. Xilinx's effective tax rate was 33.4% for 1997 as compared to 40.6% and 37.5% for 1996 and 1995, respectively. The tax rate for fiscal 1997 was favorably impacted by legislation reinstating the R&D Tax Credit as well as increased profits in foreign operations where the tax rate is lower than the U.S. rate. Excluding the write-off of in-process technology, in fiscal 1996 the Company's effective tax rate was 36.5%.

Inflation. To date, the effects of inflation upon the Company's financial results have not been significant.

[Top of Page]

FACTORS AFFECTING FUTURE RESULTS

Dependence Upon Independent Manufacturers and Subcontractors. The Company does not manufacture the wafers used for its products. In 1997, most of the Company's wafers were manufactured by Seiko Epson Corporation (Seiko Epson) and United microelectronics Corporation (UMC). The Company has depended upon these suppliers and others to produce wafers with competitive performance and cost attributes, including transitioning to advanced process technologies, producing wafers at acceptable yields, and delivering them to the Company in a timely manner. While the timeliness, yield and quality of wafer deliveries have met the Company's requirements to date, there can be no assurance that the Company's wafer suppliers will not experience future manufacturing problems, including delays in the realization of advanced process technologies. The Company is also dependent on subcontractors to provide semiconductor assembly services. Any prolonged inability to obtain wafers or assembly services with competitive performance and cost attributes, adequate yields or timely deliveries from these manufacturers/subcontractors, or any other circumstance that would require the Company to seek alternative sources of supply, could delay shipments, and have an adverse effect on the Company's financial condition and results of operations.

The Company's long-term growth will depend in large part on the Company's ability to obtain increased wafer fabrication capacity from suppliers. A significant increase in general industry demand or any interruption of supply could reduce the Company's supply of wafers or increase the Company's cost of such wafers, thereby materially adversely affecting the Company's financial condition and results of operations.

In order to secure additional wafer capacity, the Company from time to time considers alternatives, including, without limitation, equity investments in, or loans, deposits, or other financial commitments to, independent wafer manufacturers to secure production capacity, or the use of contracts which commit the Company to purchase specified quantities of wafers over extended periods. Although the Company is currently able to obtain wafers from existing suppliers in a timely manner, the Company has at times been unable, and may in the future be unable, to fully satisfy customer demand because of production constraints, including the ability of suppliers and subcontractors to provide materials and services in satisfaction of customer delivery dates, as well as the ability of the Company to process products for shipment. The Company's future growth will depend in part on its ability to locate and qualify additional suppliers and subcontractors and to increase its own capacity to ship products, and there can be no assurance that the Company will be able to do so. Any increase in these constraints on the Company's production could result in a material adverse impact on the Company's financial condition and results of operations. In this regard, the Company has entered into the USI joint venture with UMC and other parties to obtain wafer capacity from a new wafer fabrication facility. See Notes 4 and 6 of Notes to Consolidated Financial Statements and the 'Commitments' discussion within "Financial Condition, Liquidity and Capital Resources." However, there are many risks associated with the construction of a new facility, and there can be no assurance that such facility will become operational and/or cost effective in a timely manner. In addition, the Company has entered into an agreement with Seiko Epson to obtain additional capacity from a facility currently under construction and expected to provide wafers in calendar 1998. See Note 6 of Notes to Consolidated Financial Statements and the 'Commitments' discussion within "Financial Condition, Liquidity and Capital Resources." If the Company requires additional capacity and such capacity is unavailable, or unavailable on reasonable terms, the Company's financial condition and results of operations could be materially adversely affected.

Impact of Currency. The Company's purchases of the processed silicon wafers used in its integrated circuits from Japanese foundries have been denominated in yen. To reduce the Company's exposure for yen denominated liabilities, the Company's sales into Japan are denominated in yen. In the past, the Company has periodically limited its net exposure to fluctuations in the yen-to-U.S. dollar exchange rates through the use of forward exchange or option contracts. Based on existing agreements with wafer suppliers, which should result in decreased yen denominated wafer receipts in the future, the Company believes that its net exposure relating to fluctuations in the yen-to-U.S. dollar exchange rate could decline, although there can be no assurance that this will be the case. As a result, the Company may need to adjust its future hedging strategy. In addition, the Company has entered into foreign exchange forward contracts to minimize the impact of future exchange fluctuations relating to the New Taiwan dollar USI joint venture investment.

Litigation. The Company is currently involved in patent litigation with Altera Corporation (see Note 10 of Notes to Consolidated Financial Statements). The ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to the claims asserted against it and is defending them vigorously. The foregoing is a forward looking statement subject to risks and uncertainties, and the future outcome could differ materially due to the uncertain nature of the litigation with Altera and because the lawsuits are still in the pre-trial stage.

Other Factors Affecting Operating Results. The semiconductor industry is characterized by rapid technological change, intense competitive pressure and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, conditions relating to technology companies, conditions specific to the semiconductor industry, decreases in average selling prices over the life of any particular product, the timing of new product introductions (by the Company, its competitors and others), the ability to manufacture in a timely manner sufficient quantities of a given product, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property from competitors, and the impact of new technologies resulting in rapid escalation of demand for some products in the face of equally steep decline in demand for others. Market demand for the Company's products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers' demands to shorten product lead times and minimize inventory levels. Unpredictable market demand could lead to revenue volatility if the Company were unable to provide sufficient quantities of specified products in a given quarter. In addition, any difficulty in achieving targeted wafer production yields could adversely impact the Company's financial condition and results of operations. The Company attempts to identify changes in market conditions as soon as possible; however, the dynamics of the market make prediction of and timely reaction to such events difficult. Due to the foregoing and other factors, past results, including those described in this report, are a much less reliable predictor of the future than is the case in many older, more stable and less dynamic industries. Based on the factors noted herein, the Company may experience substantial period-to-period fluctuations in future operating results.

The Company's future success depends in large part on its ability to develop and introduce on a timely basis new products which address customer requirements and compete effectively on the basis of price and performance. The success of new product introductions is dependent upon several factors, including timely completion of new product designs, the ability to utilize advanced process technologies, achievement of acceptable yields, availability of supporting design software and market acceptance. No assurance can be given that the Company's product development efforts will be successful or that its new products will achieve market acceptance. Revenues relating to the Company's first generation FPGA products are expected to continue to decline in the future as a percentage of aggregate component revenues, and the Company will be increasingly dependent on revenues derived from second generation FPGAs and future generation products. In addition, the average selling price for any particular product tends to decrease rapidly over the product's life. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors such that higher average selling prices and higher margins are achievable relative to mature product lines. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or the Company's products do not achieve market acceptance at prices with higher margins, the Company's financial condition and results of operations could be adversely affected.

The Company's FPGA and CPLD products compete in the programmable logic marketplace, with a substantial majority of the Company's revenues derived from its FPGA product families. The industries in which the Company competes are intensely competitive and are characterized by rapid technological change, rapid product obsolescence and continuous price erosion. The Company expects significantly increased competition both from existing competitors and from a number of companies that may enter its market.

Xilinx believes that important competitive factors in the programmable logic market include price, product performance and reliability, adaptability of products to specific applications, ease of use and functionality of design software, and the ability to provide timely customer service and support. The Company's strategy for expansion in the programmable logic market includes continued price reductions commensurate with the ability to lower the cost of manufacture for established products and continued introduction of new product architectures which address high volume, low cost applications as well as high performance, leading edge density applications. However, there can be no assurance that the Company will be successful in achieving these strategies.

The Company's major sources of competition are comprised of three elements: the manufacturers of custom CMOS gate arrays, providers of high density programmable logic products characterized by FPGA-type architectures and other providers of programmable logic products. The Company competes with custom gate array manufacturers on the basis of lower design costs, shorter development schedules and reduced inventory risks. The primary attributes of custom gate arrays are high density, high speed and low production costs in high volumes. The Company continues to develop lower cost architectures intended to narrow the gap between current custom gate array production costs (in high volumes) and FPGA production costs. The Company competes with high density programmable logic suppliers on the basis of performance, the ability to deliver complete solutions to customers and customer support, taking advantage of the primary characteristics of flexible, high speed implementation and quick time-to-market capabilities of the Company's PLD product offerings. In addition, the Company competes with manufacturers of other programmable logic products on the basis of price, performance, design and software utility. To the extent that such efforts to compete are not successful, the Company's financial condition and results of operations could be materially adversely affected.

The Company relies upon patent, trademark, trade secret and copyright law to protect its intellectual property. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including competitors of the Company, have asserted exclusive patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially, adversely affect the Company's financial condition and results of operations.

The Company's future success depends in large part on the continued service of its key technical, sales, marketing and management personnel and on its ability to continue to attract and retain qualified employees. Particularly important are those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material, adverse effect on the Company's financial condition and results of operations.

Sales outside of the United States carry a number of inherent risks, including risks of currency exchange fluctuations, government regulation of exports, tariffs and other potential trade barriers, reduced protection for intellectual property rights in some countries, the impact of recessionary environments in economies outside the United States and generally longer receivable collection periods. The Company's business is also subject to the risks associated with the imposition of legislation and regulations relating specifically to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States or other countries upon the importation or exportation of the Company's products in the future or what, if any, effect such actions would have on the Company's financial condition and results of operations.

In order to expand international sales and service, the Company will need to maintain and expand existing foreign operations or establish new foreign operations. This entails hiring additional personnel and maintaining or expanding existing relationships with international distributors and sales representatives. This will require significant management attention and financial resources and could adversely affect the Company's financial condition and results of operations. There can be no assurance that the Company will be successful in its maintenance or expansion of existing foreign operations, in its establishment of new foreign operations or in its efforts to maintain or expand its relationships with international distributors or sales representatives.

Many of the Company's operations are centered in an area of California that has been seismically active. Should there be a major earthquake in this area, the Company's operations may be disrupted resulting in the inability of the Company to ship products in a timely manner, thereby materially adversely affecting the Company's financial condition and results of operations.

In addition, the securities of many high technology companies have historically been subject to extreme price and volume fluctuations which may adversely affect the market price of the Company's common stock.

[Top of Page]

FINANCIAL CONDITION,

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial condition at March 31, 1997 remained strong. Total current assets exceeded total current liabilities by 6.2 times, compared to 5.2 times at March 31, 1996. Since its inception, the Company has used a combination of equity and debt financing and cash flow from operations to support on-going business activities, make acquisitions and investments in complementary technologies, obtain facilities and capital equipment and finance inventory and accounts receivable.

Total assets have grown from $720.9 million in 1996 to $847.7 million in 1997. The percentage changes of selected balance sheet items from March 1996 to March 1997 are shown below:

Cash, Cash Equivalents and Short-Term Investments. Xilinx's cash, cash equivalents and short-term investments increased by $47.9 million in 1997 to $425.8 million. The Company generated cash flow of approximately $140 million from operating activities in 1997, offset by $30.3 million of cash used for investing activities, including the net proceeds from maturity of investments, investments in property, plant and equipment and advances for wafer purchases. In addition, the Company used $4.7 million for financing activities, of which $32 million was used to acquire Treasury Stock offset by $28.3 million in proceeds from sales of common stock under employee option and stock purchase plans. At March 31, 1997, cash, cash equivalents and short-term investments represented 50.2% of total assets.

Receivables. Receivables decreased 9.2% from $79.5 million at the end of 1996 to $72.2 million at the end of 1997. The decrease is primarily due to relatively even product shipments throughout the fourth quarter of 1997. Days sales outstanding decreased from 48 days in 1996 to 43 days in 1997.

Inventories. Inventories increased 58.9% from $39.2 million at March 1996 to $62.4 million at March 1997. Inventory levels at March 31, 1997 represent 96 days of inventory, which is higher than the Company's objective of 70 to 90 days, compared to 69 days at March 31, 1996. The semiconductor industry inventory correction contributed to the increase in inventory, as the Company's customers focused on reducing their existing inventory levels. Additionally, inventory levels were impacted by improved yields and planned build of inventory to support the introduction of new product families. The Company seeks to balance two contradictory objectives with regard to inventory management. On the one hand, the Company believes that its standard, off-the-shelf products should be available for prompt shipment to customers. Accordingly, it attempts to maintain sufficient levels of inventory in various product, package and speed configurations to meet estimates of customer demand. At the same time, the Company also wishes to minimize the handling costs associated with maintaining higher inventory levels and to realize fully the opportunities for cost reductions associated with manufacturing process advancements. The Company continually strives to balance these two objectives so as to provide excellent customer response at a competitive cost.

Advances for Wafer Purchases. See discussion under 'Commitments,' below.

Property, Plant and Equipment. During 1997, Xilinx invested $26.8 million in property and equipment, as compared to $60.5 million in 1996. During 1997, the Company completed construction of an $8.5 million facility in Boulder, Colorado and continues to invest in software development tools and semiconductor design, test and manufacturing equipment in each of its manufacturing locations. As the Company's $32.3 million Ireland manufacturing facility was completed in fiscal 1996, capital expenditures in fiscal 1997 were significantly lower than in the prior year.

Current Liabilities. Current liabilities decreased by 5.2% to $97.3 million at the end of 1997. The decrease was primarily attributable to a decrease in trade payables due to the timing of payments near year end.

Line of Credit. The Company has credit line facilities for up to $46.2 million (see Note 5 of Notes to Consolidated Financial Statements), of which $6.2 million is intended to meet occasional working capital requirements for the Company's Ireland manufacturing facility. At March 31, 1997 and 1996, no borrowings were outstanding under the lines of credit.

Long-Term Debt. In November 1995, the Company issued $250 million in convertible subordinated notes. See Note 5 of Notes to Consolidated Financial Statements.

Stockholders' Equity. Stockholders' equity grew by 33.2% in 1997 to $490.7 million. The increase of $122.4 million was primarily attributable to $110.4 million in net income and $45.1 million related to the issuance of common stock in accordance with the Company's stock plans and the tax benefit from stock options, offset by the $32 million used to acquire 877,500 shares of Treasury Stock. Stockholders' equity as a percentage of total assets was 57.9% for 1997 and 51.1% for 1996.

Commitments. The Company entered into a series of agreements with UMC pursuant to which the Company, UMC and other parties formed the USI joint venture for the purpose of building and managing an advanced semiconductor manufacturing facility in Taiwan. See Notes 4 and 6 of Notes to Consolidated Financial Statements. Under the terms of the agreement, the Company invested approximately $34 million in fiscal 1996 and expects to invest additional amounts totaling approximately $102 million, for a 25% equity interest in the venture. As a result of its equity ownership, the Company has rights to purchase a percentage of the facility's wafer production at current market prices. During fiscal 1997, the Board of Directors of USI voted to delay the wafer fabrication facility construction schedule. As a result, the additional payments were also delayed and are now expected to be made in fiscal 1998. The revised schedule for construction of the facility and the related payments are subject to further change based on overall semiconductor industry conditions and other factors. UMC has committed to and is supplying the Company with wafers manufactured in an existing facility until capacity is available in the new facility.

In fiscal 1997, the Company signed an agreement with Seiko Epson, a primary wafer supplier. See Note 6 of Notes to Consolidated Financial Statements. The agreement provides for an advance to Seiko Epson of up to $200 million to be used in the construction of a wafer fabrication facility in Japan, which will provide access to eight-inch sub-micron wafers. In conjunction with the agreement, $30 million installments were paid in May 1996, November 1996 and May 1997 (subsequent to fiscal 1997), and further $30 million installments are scheduled for November 1, 1997 and February 1, 1998 or upon the start of mass production, whichever is later. The final installment for the advance payment of $50 million is due on or after the later of April 1, 1998 or the date the outstanding balance of the advance payment is less than $125 million. As a result, the maximum outstanding amount of the advance payment at any time is $175 million. Repayment of this advance will be in the form of wafer deliveries expected to begin in the first half of calendar 1998. Specific wafer pricing will be based upon the prices of similar wafers manufactured by other, specifically identified, leading-edge foundry suppliers. The advance payment provision also provides for interest to be paid to the Company in the form of free wafers. In addition to the advance payments, the Company may also provide further funding to Seiko Epson in the amount of $100 million. This additional funding would be paid after the final installment of the advance and the form of the additional funding will be negotiated at that time.

Employees. During 1997, Xilinx experienced a 6% increase in the number of employees. The Company had 1,277 employees at the end of 1997 as compared to 1,201 at the end of the prior year.

The Company anticipates that existing sources of liquidity and cash flow from operations will be sufficient to satisfy the Company's cash needs for the foreseeable future. The Company will continue to evaluate opportunities for investments to obtain additional wafer supply capacity, procurement of additional capital equipment and facilities, development of new products, and potential acquisitions of businesses, products or technologies that would complement the Company's businesses and may use available cash or other sources of funding for such purposes.

[Top of Page]

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Xilinx, Inc.

We have audited the accompanying consolidated balance sheets of Xilinx, Inc. as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Xilinx, Inc. at March 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles.

San Jose, California
April 23, 1997

[Top of Page]

| Annual Report 1997 |
| Letter to Shareholders | Financial Highlights | MD&A | Consolidated Statements |
| Notes to Consolidated Statements | Selected Consolidated Information |