Xilinx Inc. and Subsidiaries - Page 12

              B.   Accounting Principles Board Opinion No. 25, “Accounting            
                   for Stock Issued to Employees” (APB 25)                            
              In 1972, FASB authorized APB 25, which required ESOs to be              
         valued using the “intrinsic value method” (IVM).  From 1972 to               
         December 15, 1995, the IVM was the only authorized financial                 
         accounting method for valuing ESOs.  Under the IVM, the value of             
         ESOs is the excess of the stock’s market price on the grant date             
         over the exercise price.  This value is reported directly on the             
         employer’s income statement relating to the year in which the                
         ESOs are granted.  ESOs granted at-the-money have no intrinsic               
         value because the stock’s market price on the grant date is equal            
         to the exercise price.                                                       
              C.   Statement of Financial Accounting Standard No. 123,                
                   “Accounting for Stock-Based Compensation” (SFAS 123)               
              In October of 1995, FASB issued SFAS 123, which is effective            
         for fiscal years ending after December 15, 1995.  SFAS 123 added             
         the “fair value method” (FVM) as the preferred method for valuing            
         ESOs.  Pursuant to SFAS 123, companies continuing to use the IVM             
         were required to “make pro forma disclosures of net income and,              
         if presented, earnings per share, as if the * * * [FVM] had been             
              The value of an ESO is composed of two components:  the                 
         intrinsic value and the call premium.  While the intrinsic value             
         is equal to the stock’s market price on the grant date over the              

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