ACTEL CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                 --------------------------------------------------------------------
                                                     2001          2000          1999          1998          1997
                                                 ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>
Consolidated Statements of Operations Data:
Net revenues................................     $    145,559  $    226,419  $    171,661  $    154,427  $    155,858
Costs and expenses:
   Cost of revenues.........................           62,210        84,680        66,387        61,642        64,244
   Research and development.................           38,172        36,599        32,338        31,220        26,465
   Selling, general, and administrative.....           41,464        47,960        45,903        40,558        40,317
   Amortization of goodwill and other
     acquisition-related intangibles........           14,757         8,056         2,226         1,185           877
   Restructuring charge (1).................               --            --         1,963            --            --
   Purchased in-process research and
     development (2)........................               --        10,646           600            --            --
                                                 ------------  ------------  ------------  ------------  ------------
         Total costs and expenses...........          156,603       187,941       149,417       134,605       131,903
                                                 ------------  ------------  ------------  ------------  ------------
Income (loss) from operations...............          (11,044)       38,478        22,244        19,822        23,955
Interest income and other, net of expense...            7,280         8,310         3,642         2,380         1,842
Gain on sale of Chartered common stock (3)..               --        28,329            --            --            --
                                                 ------------  ------------  ------------  ------------  ------------
Income (loss) before tax provision and equity
   interest in net (loss) of equity method
   investee.................................           (3,764)       75,117        25,886        22,202        25,797
Equity interest in net (loss) of equity method
   investee (4).............................               --        (2,445)         (193)           --            --
Tax provision...............................              937        31,227         8,055         7,215         9,029
                                                 ------------  ------------  ------------  ------------  ------------
Net income (loss)...........................     $     (4,701) $     41,445  $     17,638  $     14,987  $     16,768
                                                 ============  ============  ============  ============  ============
Net income (loss) per share:
   Basic....................................     $      (0.20) $       1.77  $       0.81  $       0.71  $       0.82
                                                 ============  ============  ============  ============  ============
   Diluted..................................     $      (0.20) $       1.58  $       0.76  $       0.68  $       0.76
                                                 ============  ============  ============  ============  ============
Shares used in computing net income (loss) per share:
   Basic....................................           23,743        23,447        21,664        21,251        20,370
                                                 ============  ============  ============  ============  ============
   Diluted..................................           23,743        26,233        23,058        21,921        21,968
                                                 ============  ============  ============  ============  ============
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                ACTEL CORPORATION

                SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
                      (in thousands, except per share data)


                                                                          As of December 31,
                                                 --------------------------------------------------------------------
                                                     2001          2000          1999          1998          1997
                                                 ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>
 Consolidated Balance Sheet Data:
 Working capital............................     $    161,871  $    146,952  $    108,818  $     85,858  $     76,279
 Total assets...............................          290,082       312,434       259,211       179,708       159,994
 Total shareholders' equity.................          237,680       230,101       178,630       127,054       109,010
</TABLE>

------------------------------------------------------------

     (1)  During the second  quarter of 1999,  Actel  completed a  restructuring
          plan that resulted in a reduction in force along with the  elimination
          of certain projects and non-critical  activities.  See Note 6 of Notes
          to  Consolidated   Financial  Statements  for  further  discussion  of
          components of this expense.

     (2)  The 2000  expenses  represent  charges  for  in-process  research  and
          development  arising from Actel's  acquisitions of Prosys  Technology,
          Inc. and GateField  Corporation.  The 1999 expense represents a charge
          for in-process research and development incurred in the fourth quarter
          of 1999 in connection with Actel's acquisition of AutoGate Logic, Inc.
          See Note 5 of Notes to Consolidated  Financial  Statements for further
          discussion of these expenses.

     (3)  During  the second  quarter  of 2000,  Actel sold all of its shares of
          Chartered  Semiconductor  Manufacturing Ltd. common stock for proceeds
          of $39.0 million, resulting in a one-time gain of $28.3 million before
          tax.  See Note 4 of Notes to  Consolidated  Financial  Statements  for
          further discussion of this gain.

     (4)  Represents Actel's equity share of net losses of GateField Corporation
          in  accordance  with the  equity  method  of  accounting  prior to the
          purchase  acquisition  completed on November  15, 2000.  See Note 5 of
          Notes to Consolidated  Financial  Statements for further discussion of
          this expense.


<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Actel Corporation (Actel) designs, develops, and markets field programmable
gate arrays (FPGAs) and associated development tools, intellectual property (IP)
cores, and services.  FPGAs are used by designers of  communications,  computer,
consumer,  industrial,  military and aerospace,  and other electronic systems to
differentiate their products and get them to market faster. Actel is the leading
supplier of FPGAs based on flash and antifuse technologies.

     The {bracketed  statements}  contained in this Management's  Discussion and
Analysis of Financial  Condition and Results of Operations  are  forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation  Reform Act of 1995.  Actual events and results may differ materially
from those  expressed or forecast in the  forward-looking  statements due to the
Risk  Factors  identified  in Part I of Actel's  Annual  Report on Form 10-K for
2001, which is incorporated herein by this reference, or for other reasons.

Results of Operations

     The following table sets forth certain financial data from the Consolidated
Statements of Operations expressed as a percentage of net revenues:

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
<S>                                                                             <C>           <C>           <C>
Net revenues............................................................         100.0%        100.0%        100.0%
Cost of revenues........................................................          42.7          37.4          38.7
                                                                             ------------  ------------  ------------
Gross margin............................................................          57.3          62.6          61.3
Research and development................................................          26.2          16.2          18.8
Selling, general, and administrative....................................          28.6          21.2          26.7
Amortization of goodwill and other acquisition-related   intangibles....          10.1           3.6           1.3
Restructuring charge....................................................            --            --           1.2
Purchased in-process research and development...........................            --           4.6           0.3
                                                                             ------------  ------------  ------------
Income (loss) from operations...........................................          (7.6)         17.0          13.0
Interest income and other, net of expense...............................           5.0           3.7           2.1
Gain on sale of Chartered common stock..................................            --          12.5            --
                                                                             ------------  ------------  ------------
Income (loss) before tax provision and equity interest in net (loss) of
    equity method investee..............................................          (2.6)         33.2          15.1
Equity interest in net (loss) of equity method investee.................            --          (1.1)         (0.1)
Tax provision...........................................................           0.6          13.8           4.7
                                                                             ------------  ------------  ------------
Net income (loss).......................................................          (3.2%)        18.3%         10.3%
                                                                             ============  ============  ============
</TABLE>

     Actel's  fiscal year ends on the first  Sunday after  December  30.  Fiscal
2001, 2000, and 1999 ended on January 6, 2002, December 31, 2000, and January 2,
2000, respectively. Accordingly, fiscal 2001 was a fifty-three week fiscal year,
rather than a normal  fifty-two  week  fiscal  year.  For ease of  presentation,
December  31  has  been  indicated  as  the  fiscal   year-end  for  all  years.

     Net Revenues

     Net revenues for 2001 were $145.6 million, a decline of 36% from 2000. This
compares  with an  increase  in net  revenues  of 32% for 2000 from 1999.  Actel
derives its revenues  primarily from the sale of FPGAs,  which accounted for 96%
of net revenues for 2001,  2000,  and 1999.  Non-FPGA  revenues are derived from
Actel's  Protocol  Design  Services  organization,  royalties,  and the  sale of
software, hardware, and maintenance.

     The decline in net revenues for 2001 compared with 2000 was due principally
to a decrease of 11% in the overall  average  selling price (ASP) of FPGAs and a
decrease of 28% in unit  shipments.  ASP was lower because of a shift in the mix
of products shipped toward newer products, which in general have lower ASPs than
more mature  products.  Unit shipments  were down due to lower  customer  demand
across all market  segments  and  geographic  regions as the result of a general
softening  in  the  world  economy,   with  the  most  notable  decline  in  the
communications market.

     The  increase  in  net  revenues  for  2000  compared  with  1999  was  due
principally to an increase of 12% in the overall ASP of FPGAs and an increase of
18% in unit  shipments.  ASP was higher due mostly to increased  sales of higher
ASP products to customers in the  communications  and  satellite  markets.  Unit
shipments were higher primarily because of increased sales of MX product.

     Actel  generates a majority of its  revenues  from the sale of its products
through  distributors.  Actel's principal  distributors are Unique Technologies,
Inc. (Unique) and  Pioneer-Standard  Electronics,  Inc. (Pioneer).  During 2001,
Actel  consolidated  its  distribution  channel by terminating  its  distributor
relationship  with Arrow  Electronics,  Inc.  (Arrow).  The following table sets
forth, for each of the last three years, the percentage of revenues derived from
all customers accounting for 10% or more of net revenues in any of such years:

                                    2001          2000          1999
                                ------------  ------------  ------------
Pioneer....................          20%           13%           12%
Unique.....................          19            15            13
Arrow......................          13            17            16
Nortel Networks............           2            11             9

     Actel does not recognize  revenue on product shipped to a distributor until
the distributor resells the product to its customer.

     Sales to customers  outside the United  States  accounted for 38%, 32%, and
29% of net  revenues  for 2001,  2000,  and  1999,  respectively.  Export  sales
increased as a percentage of total sales for 2001  compared with 2000  primarily
because sales to European  customers dropped only 6% while sales to customers in
the United States  declined by 42%. The largest  portion of export sales is made
to European customers, which accounted for 28%, 19%, and 17% of net revenues for
2001, 2000, and 1999, respectively.

     Gross Margin

     Gross margin for 2001 was 57% of net  revenues,  compared with 63% for 2000
and 61% for 1999.  Gross  margin for 2001 fell from a year ago due  primarily to
higher inventory write-offs in the second and third quarters of 2001, which were
taken  as  a  result  of  lower  forecasted  customer  demand.  Excess  capacity
associated  with lower net revenues also  contributed  to the  reduction.  Gross
margin for 2000  improved  from 1999  primarily as a result of a 12% increase in
ASP,  improved  sort  yields  (especially  on the newer  products),  and  better
utilization of manufacturing capacity associated with higher net revenues.

     Actel seeks to reduce costs by improving  wafer yields,  negotiating  price
reductions  with  suppliers,  increasing the level and efficiency of its testing
and  packaging  operations,  achieving  economies  of scale  by means of  higher
production  levels,  and  increasing  the  number  of die  produced  per  wafer,
principally by shrinking the die size of its products. No assurance can be given
that these efforts will be successful. The capability of Actel to shrink the die
size  of  its  FPGAs  is  dependent  on  the   availability   of  more  advanced
manufacturing  processes.  Due to the custom  steps  involved  in  manufacturing
antifuse and (to a lesser extent) flash FPGAs, Actel typically obtains access to
new   manufacturing   processes  later  than  its  competitors   using  standard
manufacturing processes.

     Research and Development (R&D)

     R&D  expenditures  for 2001 were  $38.2  million,  or 26% of net  revenues,
compared with $36.6 million, or 16% of net revenues, for 2000 and $32.3 million,
or 19% of net revenues,  for 1999.  R&D  expenditures  increased  primarily as a
result of spending on technologies acquired in Actel's acquisitions of GateField
Corporation  (GateField),  a developer of flash-based FPGA products, in November
2000 and of Prosys Technology (Prosys),  an embedded FPGA IP developer,  in June
2000. R&D spending on the acquired companies'  technologies was included for all
of 2001, part of 2000, and none of 1999.

     R&D expenditures for 2001 also increased due to $1.3 million of incremental
spending  on a  BridgeFPGA  initiative  that Actel  announced  during the second
quarter  of  2001  to   address   interoperability   problems   created  by  the
proliferation  of  high-performance  interface  standards.  In  support  of  the
BridgeFPGA initiative, Actel also announced a plan to increase R&D spending from
second  quarter  2001 levels by an  aggregate  of $8.0 to $10.0  million  over a
period of approximately six quarters.  {R&D spending as a percentage of sales is
expected to return to levels more consistent with Actel's historical  experience
in 2003.}

     Actel's R&D consists of circuit design,  software development,  and process
technology  activities.  Actel believes that continued substantial investment in
R&D is critical to maintaining a strong technological  position in the industry.
Since  Actel's  antifuse  and flash  FPGAs  are  manufactured  using  customized
processes,  Actel's  R&D  expenditures  will  probably  always  be  higher  as a
percentage of net revenues  than that of its major  competitors  using  standard
manufacturing processes.

     Selling, General, and Administrative (SG&A)

     SG&A expenses for 2001 were $41.5 million, or 29% of net revenues, compared
with $48.0 million, or 21% of net revenues for 2000 and $45.9 million, or 27% of
net  revenues,  for 1999.  SG&A  expenses for 2001 declined by 14% compared with
2000 primarily as the result of lower selling expenses  (primarily sales bonuses
and outside sales commissions) associated with the 36% decrease in net revenues.
The lower selling  expenses were  partially  offset by an increase of 12 in SG&A
headcount  during  2001,  mostly  in the  second  half  of the  year.  Headcount
increased in sales and marketing to support Actel's new products.  SG&A expenses
for 2000  increased  by 4%  compared  with  1999,  while  Actel's  net  revenues
increased  by 32%.  Selling  expenses  increased  in 2000  primarily  due to the
increase in net revenues.

     Amortization of Goodwill and Other Acquisition-Related Intangibles

     Amortization of goodwill and other acquisition-related intangibles for 2001
was $14.8  million,  compared  with $8.1  million for 2000 and $2.2  million for
1999.  The  increases  were  due  to the  timing  of the  Prosys  and  GateField
acquisitions,  which were  completed  on June 2, 2000,  and  November  15, 2000,
respectively. Amortization of goodwill and other acquisition-related intangibles
from the Prosys and GateField  acquisitions  were included for all of 2001, part
of 2000,  and none of 1999.  Amortization  expense  related to the  goodwill and
other  intangible  assets acquired in the GateField and Prosys  acquisitions was
$13.3  million in 2001,  $4.1  million in 2000,  and none in 1999.  Amortization
expense  for 2000 was also  impacted  by $2.4  million of  amortization  charges
through November 15, 2000, related to Actel's  pre-acquisition equity investment
in GateField.  Beginning in 2002,  goodwill will no longer be amortized but will
be subject to annual  impairment tests and written down only when impaired.  All
other intangible  assets with a finite useful life will continue to be amortized
over their estimated  useful lives.  See "Impact of Recently  Issued  Accounting
Standards" and Note 5 of Notes to Consolidated  Financial Statements for further
discussion of these expenses.

     Restructuring Charge

     During the second quarter of 1999,  Actel  completed a  restructuring  plan
that  resulted in a  reduction  in force as well as the  elimination  of certain
projects and non-critical activities. The total pretax restructuring charges for
these activities  amounted to $2.0 million.  These measures were taken to reduce
spending and sharpen  Actel's focus on new product  development.  As of December
31, 1999,  all  restructuring  reserves had been fully  utilized.  See Note 6 of
Notes  to  Consolidated  Financial  Statements  for  further  discussion  of the
restructuring charges.

     Purchased In-Process Research and Development Expenses

          GateField

          In November 2000,  Actel  completed its  acquisition of GateField in a
     transaction  accounted  for as a  purchase.  The  in-process  research  and
     development  (IPRD)  expense  associated  with this purchase  resulted in a
     one-time charge of $5.1 million during the fourth quarter of 2000.

          IPRD was  identified  and  valued  through  extensive  interviews  and
     analysis of data provided by GateField concerning  developmental  products,
     their  stage of  development,  the  time,  cost,  and  resources  needed to
     complete them, and associated  risks. The income approach,  which bases the
     value of an asset on its future earnings capacity,  was utilized in valuing
     the IPRD.  This  approach  values an asset  based on the future  cash flows
     projected to be generated by the asset over its  estimated  useful life. To
     estimate the value of the IPRD,  the future cash flows were  discounted  to
     their  present  value  utilizing a discount  rate (25%) that would  provide
     sufficient return to a potential investor. At the date of acquisition,  the
     in-process  technology had no alternative  future use and was not ready for
     commercial production.

          GateField commenced development efforts on the next-generation ProASIC
     product  beginning  in  2000.  The  development   efforts  included  adding
     features,  such as increased  input-output  speed, an improved  programming
     mechanism,  increasing  the  number of  routing  tracks  and the  number of
     available gates, and migrating the ProASIC technology from a 0.25-micron to
     a 0.22-micron  manufacturing  process.  GateField had invested  significant
     time and effort in  developing  this  product  family  but,  at the time of
     acquisition,  it had not yet reached technological feasibility. At the time
     of the acquisition,  GateField  estimated the project was approximately 50%
     complete and would be complete in the first quarter of 2001. The percentage
     was  based  on  GateField  having  expended  11.7  man-years  prior  to the
     acquisition  and the need to expend an estimated 11.5  man-years  following
     the  acquisition to complete the product.  Given that there was significant
     technological  risk  relating  to the  development  of the  next-generation
     ProASIC product and that not even the first-generation  ProASIC product had
     generated any revenue, this product family met the definition of in-process
     technology and was classified as such.

          The  fair  value  of  the  estimated  discounted  cash  flows  of  the
     next-generation  ProASIC was  calculated to be $5.1 million on November 15,
     2000. The fair value calculation was based on future cash flows anticipated
     in the years 2001 through 2005,  with  associated  gross margin and expense
     levels as a percentage  of revenues  gradually  improving to current  Actel
     operating levels by 2003.

          Actel introduced the next-generation ProASIC product (ProASIC Plus) in
     January 2002,  approximately  one year later than  estimated at the time of
     acquisition.  The delay in  introduction  confirms the  uncertainties  that
     existed at the time of acquisition and supports the initial  classification
     of the  technology  as IPRD.  {Management  does not believe the delay had a
     material  impact on the  value  attributed  to the  technology  because  no
     similar  competing  products were introduced and the  marketability  of the
     next-generation  product was not materially diminished.  Based on facts and
     circumstances  currently known, management believes the value attributed to
     the IPRD is still materially valid.}

          Prosys

          In June 2000,  Actel announced and completed its acquisition of Prosys
     in a transaction  accounted for as a purchase.  The IPRD expense associated
     with this purchase resulted in a one-time charge of $5.6 million during the
     second quarter of 2000.

          IPRD was  identified  and  valued  through  extensive  interviews  and
     analysis of data  provided  by Prosys  concerning  developmental  products,
     their  stage of  development,  the  time,  cost,  and  resources  needed to
     complete them,  and associated  risks.  The income  approach,  as discussed
     above,  and a discount rate of 25% was utilized in valuing the IPRD. At the
     date of acquisition,  the in-process  technology had no alternative  future
     use and had not reached technological feasibility.

          As of the  valuation  date,  Prosys had no  developed  products in the
     marketplace  and was in the  process of  developing  a 4x4  embedded  block
     SRAM-based FPGA core and had planned an 8x8 embedded block  SRAM-based FPGA
     core.  These  IP  cores  allow  other  semiconductor   companies  to  embed
     functional blocks of programmable logic into their silicon designs.  Prosys
     indicated  that the 4x4 embedded block was expected to be completed in late
     2000, following the development of key software features.  The 8x8 embedded
     block core was estimated to require  approximately  six- to  nine-months of
     additional  development  effort  after the  completion  of the 4x4 embedded
     block core. The planned  development  time of six- to nine-months was based
     on leveraging the technology available from the 4x4 embedded block core. As
     of  the  valuation  date,   Prosys  had  incurred   development   costs  of
     approximately  $3.1  million  related  to the 4x4  embedded  block core and
     estimated  that an additional  $1.3 million of R&D was required to complete
     the  development  of this product.  Thus, the in-process 4x4 embedded block
     core was estimated to be approximately 70% complete. Since the 8x8 embedded
     block core will  leverage  technology  from the 4x4 embedded  block core in
     process,  the 8x8 embedded  block core was  estimated to be 35% complete in
     its  development.  These  products  were  in  development  at the  time  of
     acquisition  and  there  was  significant  technological  risk at that time
     related to completing development of these products.  Accordingly,  the 4x4
     embedded  block core and the 8x8  embedded  block core were  classified  as
     in-process technology.

          The fair value of the  estimated  discounted  cash flows of the Prosys
     in-process  technology  was  calculated to be $5.6 million on June 2, 2000.
     The fair value  calculation  was based on future cash flows  anticipated in
     the years 2000  through  2005,  with  associated  gross  margin and expense
     levels as a percentage  of revenues  gradually  improving to current  Actel
     operating levels by 2002.

          The 4x4 embedded  block core was  introduced  in February  2001 as the
     VariCore Embedded Programmable Gate Array (EPGA) IP core. Due to the recent
     downturn in the  semiconductor  industry,  revenues from VariCore EPGAs are
     materializing slower than anticipated. Given the low level of demand during
     2001 for embedded cores,  the  development  effort on the 8x8 embedded core
     was  postponed.  Development of the 8x8 embedded block core may resume when
     demand for embedded cores increases.  {Management does not believe that the
     delay of one quarter in the  completion of the 4x4 embedded block core, the
     postponement  of the  development  of the 8x8 embedded  block core,  or the
     delay in the  realization  of  significant  revenues from the VariCore EPGA
     technology are  sufficient at this time to impact the values  attributed to
     the IPRD, goodwill, and intangible assets. Based on facts and circumstances
     current  known,  the lack of any  significant  revenues  is seen as a delay
     rather than a reduction in expected  revenues,  so management  believes the
     value attributed to the IPRD is still materially valid.}

     Interest Income and Other, Net of Expense

     Interest and other income for 2001, 2000, and 1999 were $7.3 million,  $8.3
million,  and $3.6  million,  respectively.  The  decrease in interest and other
income for 2001 was due mainly to lower  interest rates that Actel earned on its
cash, cash equivalents, and short-term investments. The decrease was also due to
a drop in  amounts  available  for  investment  by Actel  during  the year.  The
increase  in  interest  and other  income  for 2000  compared  with 1999 was due
primarily to increased  amounts  available  for  investment  by Actel during the
year. The combined balance of cash, cash equivalents, and short-term investments
was $128.8 million at the end of 2001 compared with $140.8 million at the end of
2000 and $107.1 million at the end of 1999.  Moreover,  the amount available for
investment during most of 2000 was significantly  higher than the ending balance
due to cash usage in the fourth  quarter for the  purchase of  GateField  ($24.0
million) and stock repurchases ($21.0 million).

     Gain on Sale of Chartered Common Stock

     During  the  second  quarter  of 2000,  Actel  sold all  515,000  shares of
Chartered  Semiconductor  Manufacturing Ltd. (Chartered) common stock that Actel
owned for a one-time gain of $28.3 million.

     Equity Interest in Net Loss of Equity Method Investee

     Prior to Actel's  acquisition  of GateField  on November  15,  2000,  Actel
accounted for its  investments in and agreements with GateField under the equity
method  of  accounting.  Actel  began  accounting  for its  equity  interest  in
GateField  under the equity  method of  accounting  during the third  quarter of
1999.  Actel  incurred  charges of $2.4 million in 2000 and $0.2 million in 1999
for its equity interest in the net loss of GateField.

     Tax Provision

     Excluding the effect of certain non-recurring  acquisition-related  charges
and investment gains,  Actel's effective tax rates for 2001, 2000, and 1999 were
8.9%,  31.3%, and 31.4%,  respectively.  Significant  components  affecting this
effective  tax  rate  include  federal  R&D  credits,   income  from  tax-exempt
securities,  the state composite  rate, and recognition of certain  deferred tax
assets subject to valuation allowances as of December 31, 2000, and December 31,
1999,  respectively.  The effective tax rate for 2001 decreased primarily due to
reduced  profitability,  which  increased  the  percentage  benefit from R&D tax
credits, and to tax exempt income.

Financial Condition, Liquidity, and Capital Resources

         Actel's total assets were $290.1 million at the end of 2001, compared
with $312.4 million at the end of 2000. The decrease in total assets was
attributable principally to decreases in cash, cash equivalents, short-term
investments, accounts receivable, and goodwill. The following table sets forth
certain financial data from the consolidated balance sheets expressed as
percentage change from December 31, 2000, to December 31, 2001:

Cash, cash equivalents, and short-term investments...........        (8.5)%
Accounts receivable, net.....................................       (42.7)
Inventories..................................................        42.5
Property and equipment, net..................................        20.8
Goodwill, net................................................       (20.6)
Other assets, net (primarily deferred income taxes
 and purchased intangible assets other than goodwill)........        (2.7)
Total assets.................................................        (7.2)
Total current liabilities....................................       (38.8)
Total liabilities............................................       (36.4)
Shareholders' equity.........................................         3.3

     Cash, Cash Equivalents, and Short-Term Investments

     Actel's cash,  cash  equivalents,  and short-term  investments  were $128.8
million at the end of 2001,  compared  with  $140.8  million at the end of 2000.
This decrease of $12.0 million,  or 8.5%, from the end of 2000 was due primarily
to  purchases  of property  and  equipment  of $9.5 million and net cash used in
operating  activities  of $10.3  million,  which were  partially  offset by cash
provided  from the issuance of common stock under  employee  stock plans of $7.7
million.

     The significant  components within operating  activities that provided cash
during 2001  included  $17.4  million from the net results for the year adjusted
for  non-cash  items  ($21.8  million  of  which  relates  to  depreciation  and
amortization)  and cash generated  through  decreases in accounts  receivable of
$12.5 million.  The  significant  components  within  operating  activities that
resulted in a reduction of cash from  operations  in 2001  included cash used in
the reduction of accounts payable,  accrued salaries and employee benefits,  and
other accrued liabilities of $14.1 million,  the reduction in deferred income of
$18.1 million, and an increase in inventories of $10.8 million.

     Actel meets all of its funding needs for ongoing operations with internally
generated  cash flows from  operations  and with  existing  cash and  short-term
investment  balances.  Revenues  declined  and  inventories  grew  during  2001,
resulting in a net use of cash from operations. As 2001 demonstrates,  sales can
decline more rapidly than expenses,  limiting the availability of cash generated
internally to fund ongoing operations.

     The following represents contractual  commitments associated with operating
leases and royalty and licensing agreements:

<TABLE>
<CAPTION>
                                                                        Payments Due by Period
                                                --------------------------------------------------------------------
                                                                                                             2005
                                                    Total          2002          2003          2004       and later
                                                ------------  ------------  ------------  ------------  ------------
<S>                                             <C>           <C>           <C>           <C>           <C>
Operating leases...........................     $      5,711  $      3,575  $      1,901  $        235  $         --
Royalty/licensing agreements...............           11,097         2,747         2,575         2,575         3,200
Total......................................     $     16,808  $      6,322  $      4,476  $      2,810  $      3,200
</TABLE>

Actel has entered into  royalty/licensing  agreements where Actel's  contractual
commitments  are  dependent  upon future  contingencies,  such as  technological
development by software vendors.  Management considers it reasonably likely that
the  development  will be  successfully  completed  during 2002 resulting in the
following additional contingent obligations:


<TABLE>
<CAPTION>
                                                                        Payments Due by Period
                                                --------------------------------------------------------------------
                                                                                                             2005
                                                    Total          2002          2003          2004       and later
                                                ------------  ------------  ------------  ------------  ------------
<S>                                             <C>           <C>           <C>           <C>           <C>
 Royalty/licensing agreements...............     $     11,611  $      2,820  $      2,999  $      2,842  $      2,950
</TABLE>

At December 31, 2001, Actel also had a number of purchase commitments from wafer
manufacturers  for raw  materials  orders that were expected to be filled within
ninety  days.  The  wafer  purchase  commitments  represent  a  normal  level of
outstanding orders and are not material.

     {Actel  believes that  existing  cash,  cash  equivalents,  and  short-term
investments, together with cash generated from operations, will be sufficient to
meet its cash  requirements  for 2002.} A portion of available  cash may be used
for investment in or  acquisition  of  complementary  businesses,  products,  or
technologies.  Wafer manufacturers are increasingly  demanding financial support
from  customers in the form of equity  investments  and advance  purchase  price
deposits,  which in some cases are substantial.  Should Actel require additional
capacity,  it may be required to incur  significant  expenditures to secure such
capacity.

     Actel believes that the availability of adequate  financial  resources is a
substantial  competitive  factor.  To take  advantage of  opportunities  as they
arise,  or to withstand  adverse  business  conditions  when they occur,  it may
become  prudent  or  necessary  for  Actel to raise  additional  capital.  Actel
monitors the availability  and cost of potential  capital  resources,  including
equity and debt with a view toward raising  additional capital on terms that are
acceptable  to Actel.  No assurance  can be given that  additional  capital will
become available on acceptable terms.

     Accounts Receivable

     Actel's  net  accounts  receivable  was $16.8  million  at the end of 2001,
compared with $29.3 million at the end of 2000.  This decrease was due primarily
to lower sales.  Accounts  receivable  for 2001  decreased by 43% compared  with
2000, while Actel's net revenues  decreased by 36%. Days sales  outstanding were
43 days at the end of 2001, compared with 41 days at the end of 2000.

     Inventories

     Actel's  inventories  were $36.3 million at the end of 2001,  compared with
$25.5  million at the end of 2000.  Inventories  increased  during 2001  because
sales  declined  at a more rapid  rate than  Actel's  receipt of raw  materials.
{Based on reductions in the orders for raw materials that Actel has implemented,
Actel  believes that net  inventory  levels will be lower at end of 2002 than at
the end of 2001.}  Inventory  days of supply  increased from 105 days in 2000 to
265 days in 2001.  Since Actel's FPGAs are  manufactured  using customized steps
that are added to the standard manufacturing  processes of its independent wafer
suppliers,  Actel's  manufacturing  cycle is  generally  longer  and hence  more
difficult  to adjust in  response to  changing  demands or  delivery  schedules.
Accordingly,  Actel's  inventory model (120 days) will probably always be higher
than that of its major competitors using standard processes.

     Property and Equipment

     Actel's net property and  equipment  was $14.7  million at the end of 2001,
compared with $12.1 million at the end of 2000 due to higher capital spending in
2001.  Actel  invested $9.5 million in property and equipment in 2001,  compared
with $6.2 million in 2000, to support the  development  and  introduction of new
products. Capital expenditures during the past two years have been primarily for
engineering,  manufacturing, and office equipment.  Depreciation of property and
equipment was $7.0 million in 2001, compared with $7.4 million for 2000.

     Goodwill

     Actel's  net  goodwill  decreased  to  $37.2  million  at the end of  2001,
compared with $46.8 million at the end of 2000. Net goodwill declined  primarily
because of  amortization  expense of $11.7 million  recorded  during 2001.  Also
during 2001,  $1.7 million in  additional  goodwill was recorded to reflect $1.1
million  of stock  issued and $0.6  million of cash paid to the former  security
holders  of Prosys  upon the  attainment  of  certain  technological  milestones
defined in the June 2000  purchase  agreement.  See "Impact of  Recently  Issued
Accounting  Standards" and Note 5 of Notes to Consolidated  Financial Statements
for further discussion of adjustments to goodwill.

     Goodwill is recorded when the consideration paid in an acquisition  exceeds
the fair value of the net tangible and intangible assets acquired.  Historically
and through 2001, goodwill and other  acquisition-related  intangibles have been
amortized on a  straight-line  basis over their useful lives. In accordance with
Statement of Financial  Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,"
Actel  recognizes  impairment  losses on  long-lived  assets when  indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than amounts at which the assets are carried on Actel's
books.  The impairment loss is measured by comparing the fair value of the asset
to its carrying value.  Fair value is estimated based on discounted  future cash
flows.  Reviews have been  regularly  performed to  determine  whether  facts or
circumstances exist indicating  impairment.  No impairment has been indicated to
date.  Beginning  in 2002,  goodwill  will no  longer be  amortized  but will be
subject to annual  impairment  tests and written  down only when  impaired.  All
other intangible  assets with a finite useful life will continue to be amortized
over their estimated useful lives.

     Other Assets

     Actel's  other  assets  decreased  to  $26.0  million  at the end of  2001,
compared with $26.7  million at the end of 2000.  The decrease was due primarily
to $3.1 million of amortization of intangible assets, which was partially offset
by the fair value of plan assets ($2.1 million) associated with Actel's deferred
compensation  plan. The plan is funded with  participant  contributions  through
payroll withholding.

     Current Liabilities

     Actel's  total current  liabilities  were $50.4 million at the end of 2001,
compared with $82.3 million at the end of 2000. The decrease was due principally
to a reduction  of $18.1  million in deferred  income  from lower  shipments  to
distributors and a reduction in accounts payable of $4.8 million associated with
lower inventory purchases.  Accrued salaries and employee benefits fell by $10.0
million as a result of lower  vacation  accruals and  management and sales bonus
accruals in 2001.  During the year,  vacation accruals were reduced by mandatory
vacation days implemented as a cost savings measure.  Management and sales bonus
accruals were lower during 2001 due to the lower operating results.

     Shareholders' Equity

     Shareholders'  equity was $237.7 million at the end of 2001,  compared with
$230.1  million  at the end of 2000.  The  increase  included  proceeds  of $7.7
million from the sale of common stock under employee  stock plans,  $2.7 million
of tax benefits  arising from  employee  stock plans,  and $1.1 million of stock
issued to  Prosys  security  holders  pursuant  to the  achievement  of  certain
technological  milestones  specified  in the Prosys  purchase  agreement.  These
increases were partially offset by a net loss of $4.7 million.

Employees

     At the end of 2001,  Actel had 521  full-time  employees,  including 143 in
marketing,  sales, and customer  support;  167 in R&D; 157 in operations;  17 in
Protocol Design Services;  and 37 in administration  and finance.  This compares
with 484 full-time employees at the end of 2000, an increase of 8%. Net revenues
were approximately  $279,000 per employee for 2001,  compared with approximately
$468,000 for 2000, which represents a decrease of 40%.

Impact of Recently Issued Accounting Standards

     In June 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
No.  141,  "Business  Combinations,"  and  SFAS No.  142,  "Goodwill  and  Other
Intangible  Assets." These standards become effective for fiscal years beginning
after December 15, 2001. Beginning in Actel's 2002 fiscal year, goodwill will no
longer be amortized but will be subject to annual  impairment  tests and written
down only when impaired.  All other intangible  assets with a finite useful life
will continue to be amortized over their estimated  useful lives. As of December
31, 2001,  unamortized  goodwill was $37.2  million.  The  amortization  expense
related to goodwill for the year ended December 31, 2001, was $11.7 million. For
2002,  goodwill  will  not  be  amortized,   resulting  in  the  elimination  of
approximately  $11.8 million of  amortization  expense that otherwise would have
been recognized as expense.  Other intangible  assets,  with a net book value of
$10.0  million at December 31, 2001,  will  continue to be amortized  over their
estimated  useful  lives.  The  amortization   expense   associated  with  other
intangible  assets  amounted  to $3.1  million in 2001.  Actel will carry out an
impairment  review of goodwill and other intangible assets during the first half
of 2002, as required by SFAS 142.  Accordingly,  management is still  evaluating
the  impact  that  the  adoption  of SFAS  142 will  have on  Actel's  financial
position, operating results, or cash flows.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets." This standard supersedes SFAS 121.
Although   retaining  many  of  the  fundamental   recognition  and  measurement
provisions  of SFAS 121, the new rules  significantly  change the criteria  that
must be met to classify an asset as held-for-sale.  The standard also supersedes
certain  provisions  of  Accounting  Principles  Board  Opinion  (APB)  No.  30,
"Reporting  the Results of  Operations -- Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions." SFAS 144 will require expected future operating losses
from discontinued  operations to be displayed in discontinued  operations in the
period(s)  in which the losses are  incurred  rather than as of the  measurement
date,  as  presently  required.  SFAS 144  becomes  effective  for fiscal  years
beginning  after  December  15,  2001.  Actel  will  adopt SFAS 144 in the first
quarter of 2002 and does not expect the  adoption of SFAS 144 to have a material
impact on Actel's financial position, operating results, or cash flows.

Critical Accounting Policies and Estimates

     Actel's  discussion and analysis of its financial  condition and results of
operations are based upon Actel's consolidated financial statements,  which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial  statements  requires Actel to
make  estimates  and  judgments  that  affect  the  reported  amounts of assets,
liabilities,  revenues,  and expenses and the related  disclosure  of contingent
assets and liabilities.  The U.S. Securities and Exchange Commission has defined
the most critical accounting policies as the ones that are most important to the
portrayal of Actel's financial condition and results, and requires management to
make our most difficult and subjective judgments,  often as a result of the need
to make  estimates of matters  that are  inherently  uncertain.  Based upon this
definition,  Actel's most critical policies include: Inventories,  Impairment of
Investments in Other Companies,  Intangible  Assets and Goodwill,  Income Taxes,
and Legal Matters.  These policies are discussed below, as well as the estimates
and judgments involved.  Actel bases its estimates on historical  experience and
on various  other  assumptions  that are  believed  to be  reasonable  under the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates.  Actel
also has other  key  accounting  policies,  such as  policies  for  Revenue  and
Accounts  Receivable.  These  other  policies  either do not  generally  require
management  to  make  estimates  and  judgments  that  are  as  difficult  or as
subjective,  or it is less  likely  that they would  have a  material  impact on
Actel's reported results of operations for a given period.

     Inventories

     As of December 31, 2001,  Actel had an inventory  balance of $36.3 million.
Management  believes  that a  certain  level of  inventory  must be  carried  to
maintain an adequate  supply of product for customers.  This inventory level may
vary based upon either orders  received from customers or internal  forecasts of
demand for these products.  Other considerations in determining inventory levels
include the stage of products in the product  life cycle,  design win  activity,
manufacturing  lead  times,  customer  demands,   strategic  relationships  with
foundries,  and competitive  situations in the marketplace.  Should any of these
factors have a result other than anticipated,  inventory levels may be adversely
and materially affected.

     Actel writes down its inventory for estimated  obsolescence or unmarketable
inventory  equal  to the  difference  between  the  cost  of  inventory  and the
estimated realizable value based upon assumptions about future demand and market
conditions. To address this difficult, subjective, and complex area of judgment,
Actel applies a methodology that includes assumptions and estimates to arrive at
the net realizable  value.  First,  Actel identifies any inventory that has been
previously  reserved in prior  periods.  This inventory  remains  reserved until
sold, destroyed, or otherwise  dispositioned.  Second, Actel's quality assurance
personnel  examine  inventory line items that may have some form of obsolescence
due to non-conformance  with electrical and mechanical  standards.  Third, Actel
assesses the inventory not otherwise  identified to be reserved  against product
history and forecasted demand, typically six months. Finally, the result of this
methodology is analyzed by management in light of the product life cycle, design
win activity, and competitive situations in the marketplace to derive an outlook
for  consumption  of the  inventory  and the  appropriateness  of the  resulting
inventory  levels.  If  actual  future  demand  or  market  conditions  are less
favorable than those projected by management,  additional inventory  write-downs
may be required.

     Impairment of Investments in Other Companies

     Actel  occasionally makes equity investments in public or private companies
for the  promotion  of business and  strategic  objectives.  Actel  monitors its
equity  investments  for impairment on a periodic  basis.  In the event that the
carrying value of the equity investment  exceeds its fair value, and the decline
in value is determined to be other than temporary, the carrying value is reduced
to its current fair value.

     At December 31, 2001, Actel held an investment in a publicly-traded  equity
security with a market value of $4.6 million included in short-term  investments
and  an  unrealized  loss  of  $1.0  million  included  in  other  comprehensive
income/(loss).  In  accordance  with  SFAS  No.  115,  "Accounting  for  Certain
Investments in Debt and Equity  Securities,"  if the decline in value below cost
is determined to be other than temporary, the unrealized losses will be realized
as expense on the income  statement  in the period  when that  determination  is
made.  Actel  determines  a decline in market  value to be other than  temporary
when, in the absence of other mitigating  factors, a stock has traded below cost
for a consecutive  six-month period. If this investment continues to trade below
cost for more than six  months,  and other  mitigating  factors  such as general
economic and industry specific trends were to adversely change,  this investment
will be evaluated for impairment and written down to a balance equal to the fair
value at the time of impairment,  with the amount of the write-down  realized as
expense on the income statement.  {Based on management's  assessment of industry
trends,  the volatility and trading volumes of this equity security,  as well as
the fact that the investment has traded at below original cost for less than six
consecutive months, management concluded that the decline in value was temporary
and no impairment existed at December 31, 2001.}

     At December 31, 2001,  Actel held an equity  investment that  represented a
14% equity interest in a company located in the United Kingdom.  This investment
is carried at its cost of $2.2  million  on the  balance  sheet as part of other
assets.  As this equity  security is not publicly  traded,  determining the fair
value of this  investment is judgmental in nature and dependant on  management's
assessment  of the  performance  of the  company,  which  includes,  among other
things, successfully developing and introducing a new technology into the market
as well as obtaining  additional  funding to finance these  activities until the
company can generate positive cash flows from the sale of the new products. This
investment is subject to a multitude of risks,  including but not limited to the
risks  that  the  company  may  not be  successful  in  developing  the  planned
technology,  that the  company  may not be able to secure  necessary  funding to
continue operations, that a suitable market for such technology may not develop,
or that a  competitor  may  develop a superior  product.  If any of these  risks
materialize,  or other indicators of possible  impairment  arise, the investment
will be evaluated for impairment and written down to a balance equal to the fair
value at the time of impairment,  with the amount of the write-down  realized as
an  expense  on the  income  statement.  {Based  on  the  progress  made  toward
technological  goals  and  the  expectation  of  future   marketability  of  the
technology under  development,  Actel concluded no impairment of this investment
existed at December 31, 2001.}

     Intangible Assets and Goodwill

     During 1999 and 2000,  Actel completed the  acquisitions of AutoGate Logic,
Prosys,  and  GateField,  resulting  in a  significant  amount of  goodwill  and
identified  intangible assets.  Goodwill is recorded when the consideration paid
in an  acquisition  exceeds the fair value of the net  tangible  and  intangible
assets acquired.  At December 31, 2001, Actel had $37.2 million of remaining net
book value  assigned to goodwill  from those  acquisitions  and $10.0 million of
remaining  net book value  assigned  to  identified  intangible  assets  such as
patents and completed  technology.  In accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,"  reviews  have been  regularly  performed  to  determine  whether  facts or
circumstances  exist  indicating that the assets are impaired.  In assessing the
recoverability  of goodwill and other  intangibles,  Actel must make assumptions
regarding  estimated  future cash flows and other  factors to determine the fair
value of the respective assets, including industry growth rates, estimated gross
margin  levels,  and estimates of the market share Actel will achieve.  If these
estimates or their related  assumptions change in the future, it could result in
lower  estimated  future cash flows that would not support the current  carrying
values of these assets,  which would require Actel to record impairment  charges
for these assets. {During the year ended December 31, 2001, Actel did not record
any impairment losses related to goodwill or other intangible assets.} Beginning
in 2002, Actel will adopt SFAS No. 142, "Goodwill and Other Intangible  Assets,"
which  requires Actel to analyze  goodwill for  impairment  during the first six
months of fiscal 2002 and on a periodic basis thereafter.

     Income Taxes

     Actel  accounts  for  income  taxes  in  accordance   with  SFAS  No.  109,
"Accounting  for Income  Taxes,"  which  requires  that  deferred tax assets and
liabilities  be  recognized  using enacted tax rates for the effect of temporary
differences  between the book and tax bases of recorded assets and  liabilities.
SFAS No. 109 also  requires  that  deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized.  Actel evaluates  annually the  realizability of
its deferred tax assets by assessing  its  valuation  allowance and by adjusting
the amount of such  allowance,  if  necessary.  The  factors  used to assess the
likelihood of  realization  are Actel's  forecast of future  taxable  income and
available tax planning  strategies  that could be implemented to realize the net
deferred tax assets.

     At December 31,  2001,  Actel had deferred tax assets in excess of deferred
tax liabilities of $63.0 million.  {For the reasons cited above, at December 31,
2001,  management  determined that it is more likely than not that $35.0 million
of such assets will be  realized,  resulting  in a valuation  allowance of $28.0
million.}  Failure  to  achieve  forecasted  taxable  income  might  affect  the
realization  of such net  deferred tax assets.  Factors that may affect  Actel's
ability to achieve  sufficient  forecasted  taxable income include,  but are not
limited to, increased competition, a decline in sales or margins, loss of market
share, delays in product availability, and technological obsolescence.

     Legal Matters

     As is typical in the semiconductor industry,  Actel has been and expects to
be notified from time to time of claims that it may be infringing  patents owned
by others.  During  2001,  Actel held  discussions  regarding  potential  patent
infringement issues with several third parties, some of which have significantly
greater financial and intellectual  property resources than Actel. When probable
and reasonably estimable,  Actel has made provision for the estimated settlement
costs of claims for alleged infringement. The provision is based on an estimated
royalty  rate  applied  to  shipments  made in the  periods  and to or from  the
geographic areas under dispute. In the absence of facts or circumstances  unique
to a  particular  dispute,  the  royalty  rate is  estimated  based  on  Actel's
understanding of royalty rates other technology companies typically agree to pay
in similar types of disputes.  As it has in the past,  Actel may obtain licenses
under  patents  that it is  alleged  to  infringe.  While  Actel  believes  that
reasonable  resolution  will occur,  there can be no assurance that these claims
will be  resolved  or that  the  resolution  of  these  claims  will  not have a
materially adverse effect on Actel's business,  financial condition,  or results
of operations.  In addition,  Actel's  evaluation of the impact of these pending
disputes could change based upon new information  learned by Actel.  {Subject to
the foregoing,  Actel does not believe that any pending patent dispute is likely
to have a materially adverse effect on Actel's business, financial condition, or
results of operations.}

     Revenues

     A  significant  portion of Actel's  revenue is derived  from  shipments  to
distributors.  Shipments  to  distributors  are made under  agreements  allowing
certain rights of return and price adjustments on unsold  merchandise.  For that
reason,  Actel  defers  recognition  of revenues and related cost of revenues on
sales  of  products  to  distributors  until  such  products  are  sold  by  the
distributor and title transfers to the end user.

     Actel  records a  provision  for price  adjustments  on unsold  merchandise
shipped to distributors in the same period as the related revenues are recorded.
If market  conditions  were to  decline,  Actel may need to take action with its
distributors  to ensure the  sell-through  of inventory  already in the channel.
These actions  during a market  downturn could result in  incrementally  greater
reductions to net revenues than otherwise would be expected.  Actel also records
a provision for estimated sales returns on products  shipped to end customers in
the same period as the related  revenues are  recorded.  The provision for sales
returns is based on historical sales returns,  analysis of credit memo data, and
other  known  factors.  If the  historical  data Actel uses to  calculate  these
estimates  does not properly  reflect  future  returns,  net  revenues  could be
materially different.

     Accounts Receivable

     As of December 31, 2001, Actel had an accounts  receivable balance of $16.8
million,  net of an allowance for doubtful  accounts of $1.3  million.  If sales
levels were to increase,  it is likely that the level of receivables  would also
increase.  In the event that customers delay their payments to Actel, the levels
of accounts  receivable  would also  increase.  Actel  maintains  allowances for
doubtful  accounts for  estimated  losses  resulting  from the  inability of its
customers to make required  payments.  The  allowance  for doubtful  accounts is
based on past payment  history  with the  customer,  analysis of the  customer's
current financial condition,  outstanding invoices older than 90 days, and other
known  factors.  If  the  financial  condition  of  Actel's  customers  were  to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances may be required.

Market Risk

     As of December 31, 2001, Actel's investment  portfolio  consisted primarily
of corporate bonds, floating rate notes, and federal and municipal  obligations.
The  principal  objectives  of Actel's  investment  activities  are to  preserve
principal,  meet liquidity needs, and maximize yields. To meet these objectives,
Actel invests excess  liquidity only in high credit quality debt securities with
average  maturities of less than two years.  Actel also limits the percentage of
total investments that may be invested in any one issuer.  Corporate investments
as a group  are also  limited  to a maximum  percentage  of  Actel's  investment
portfolio.

     Actel's debt  security  investments  are subject to interest  rate risk. An
increase in interest  rates could subject Actel to a decline in the market value
of its  investments.  These risks are  mitigated by the ability of Actel to hold
these  investments  to  maturity.  A  hypothetical  100 basis point  increase in
interest rates would result in a reduction of approximately  $1.3 million in the
fair value of Actel's  available-for-sale  debt  securities held at December 31,
2001.

     Actel's  marketable  equity securities are subject to equity price risk. At
December  31,  2001,  there is an  unrealized  loss of $1.0  million  on Actel's
marketable equity  securities.  A decrease in equity prices of 10% would subject
Actel to an  additional  decline in the market  value of its  marketable  equity
securities of $0.5 million from the fair value at December 31, 2001.

     The  potential  changes  noted  above are based upon  sensitivity  analyses
performed  on  Actel's  financial  position  and  expected  operating  levels at
December 31, 2001. Actual results may differ materially.

Other Risks

     Actel's operating results are subject to general economic  conditions and a
variety of risks characteristic of the semiconductor industry (including booking
and shipment  uncertainties,  wafer supply  fluctuations,  and price erosion) or
specific to Actel, any of which could cause Actel's  operating results to differ
materially from past results.  See the Risk Factors set forth at the end of Part
I of Actel's  Annual  Report on Form 10-K for the fiscal  year ended  January 6,
2002.

Quarterly Information

     The table on the next page presents certain unaudited quarterly results for
each of the eight quarters in the period ended December 31, 2001. In the opinion
of  management,  this  information  has been  presented on the same basis as the
audited  consolidated  financial  statements  appearing elsewhere in this Annual
Report  and all  necessary  adjustments  (consisting  only of  normal  recurring
accruals)  have been included in the amounts  stated below to present fairly the
unaudited   quarterly   results  when  read  in  conjunction  with  the  audited
consolidated  financial  statements of Actel and notes thereto.  However,  these
quarterly  operating  results are not  indicative  of the results for any future
period.

<PAGE>

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                          ----------------------------------------------------------------------------------------
                                          Dec. 31,    Sep. 30,     July 1,     Apr. 1,   Dec. 31,   Oct. 1,    July 2,    Apr. 2,
                                            2001        2001        2001        2001       2000       2000       2000       2000
                                          --------    --------    --------    --------   --------   --------   --------   --------
                                                                   (unaudited, in thousands except per share amounts)
<S>                                       <C>         <C>         <C>         <C>        <C>        <C>        <C>        <C>
Statements of Operations Data:
Net revenues ..........................   $ 32,059    $ 32,006    $ 36,460    $ 45,034   $ 60,129   $ 60,080   $ 55,544   $ 50,666
Gross profit ..........................     19,567      16,734      18,888      28,160     38,060     37,626     34,595     31,458
Income (loss) from operations .........     (4,086)     (6,188)     (4,233)      3,463      7,497     13,648      6,778     10,555
Net income (loss) .....................   $ (2,531)   $ (2,334)   $ (2,631)   $  2,795   $  3,455   $  9,779   $ 20,112   $  8,099
Net income (loss) per share:
   Basic ..............................   $  (0.11)   $  (0.10)   $  (0.11)   $   0.12   $   0.14   $   0.41   $   0.86   $   0.36
                                          ========    ========    ========    ========   ========   ========   ========   ========
   Diluted* ...........................   $  (0.11)   $  (0.10)   $  (0.11)   $   0.11   $   0.13   $   0.36   $   0.77   $   0.32
                                          ========    ========    ========    ========   ========   ========   ========   ========
Shares used in computing net income
 (loss) per share:
   Basic ..............................     23,987      23,852      23,642      23,472     23,890     23,869     23,263     22,767
                                          ========    ========    ========    ========   ========   ========   ========   ========
   Diluted* ...........................     23,987      23,852      23,642      25,126     26,107     26,999     26,186     25,467
                                          ========    ========    ========    ========   ========   ========   ========   ========
</TABLE>
------------------------------------------

     *    For the  second  through  fourth  quarters  of  2001,  Actel  incurred
          quarterly  net losses and the inclusion of stock options in the shares
          used  for  computing  diluted  earnings  per  share  would  have  been
          anti-dilutive and reduced the loss per share. Accordingly,  all common
          stock  equivalents (such as stock options) have been excluded from the
          shares  used  to  calculate  diluted  earnings  per  share  for  these
          respective periods.

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                          ----------------------------------------------------------------------------------------
                                          Dec. 31,    Sep. 30,     July 1,     Apr. 1,   Dec. 31,   Oct. 1,    July 2,    Apr. 2,
                                            2001        2001        2001        2001       2000       2000       2000       2000
                                          --------    --------    --------    --------   --------   --------   --------   --------
                                                                   (unaudited, in thousands except per share amounts)
<S>                                       <C>         <C>         <C>         <C>        <C>        <C>        <C>        <C>
As a Percentage of Net Revenues:
Net revenues...........................     100.0%      100.0%      100.0%       100.0%    100.0%     100.0%     100.0%     100.0%
Gross profit...........................      61.0        52.3        51.8         62.5      63.3       62.6       62.3       62.1
Income (loss) from operations..........     (12.7)      (19.3)      (11.6)         7.7      12.5       22.7       12.2       20.8
Net income (loss)......................      (7.9)       (7.3)       (7.2)         6.2       5.7       16.3       36.2       16.0
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                             ACTEL CORPORATION
                                          CONSOLIDATED BALANCE SHEETS
                                (in thousands, except share and per share amounts)

                                                                                                  December 31,
                                                                                           --------------------------
                                                                                               2001          2000
                                                                                           ------------  ------------
<S>                                                                                        <C>           <C>
                                                       ASSETS
Current assets:
   Cash and cash equivalents...........................................................    $      7,912  $      9,266
   Short-term investments..............................................................         120,923       131,544
   Accounts receivable, net............................................................          16,759        29,256
   Inventories, net....................................................................          36,338        25,503
   Deferred income taxes...............................................................          26,096        26,118
   Prepaid expenses and other current assets...........................................           4,251         5,098
                                                                                           ------------  ------------
         Total current assets..........................................................         212,279       226,785
Property and equipment, net............................................................          14,665        12,137
Goodwill, net..........................................................................          37,180        46,820
Other assets, net......................................................................          25,958        26,692
                                                                                           ------------  ------------
                                                                                           $    290,082  $    312,434
                                                                                           ============  ============


                                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable....................................................................    $     10,129  $     14,921
   Accrued salaries and employee benefits..............................................           7,189        17,200
   Other accrued liabilities...........................................................           6,332         5,354
   Deferred income.....................................................................          26,758        44,858
                                                                                           ------------  ------------
         Total current liabilities.....................................................          50,408        82,333
   Deferred compensation plan liability................................................           1,994            --
                                                                                           ------------  ------------
         Total liabilities.............................................................          52,402        82,333
Commitments and contingencies
Shareholders' equity:
   Preferred stock, $.001 par value; 5,000,000 shares authorized; 1,000,000 issued and
     converted to common stock, and none outstanding...................................              --            --

   Common stock, $.001 par value; 55,000,000 shares authorized; 24,055,949 and
     23,331,162 shares issued and outstanding at December 31, 2001 and 2000,
     respectively .....................................................................              24            23
   Additional paid-in capital..........................................................         162,324       150,709
   Retained earnings ..................................................................          75,207        79,908
   Note receivable from officer .......................................................            (368)         (368)
   Unearned compensation cost .........................................................            (314)         (922)
   Accumulated other comprehensive income .............................................             807           751
                                                                                           ------------  ------------
         Total shareholders' equity....................................................         237,680       230,101
                                                                                           ------------  ------------
                                                                                           $    290,082  $    312,434
                                                                                           ============  ============
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>


<TABLE>
<CAPTION>
                                ACTEL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
<S>                                                                          <C>           <C>           <C>
Net revenues............................................................     $    145,559  $    226,419  $    171,661
Costs and expenses:
   Cost of revenues.....................................................           62,210        84,680        66,387
   Research and development.............................................           38,172        36,599        32,338
   Selling, general, and administrative.................................           41,464        47,960        45,903
   Amortization of goodwill and other acquisition-related intangibles              14,757         8,056         2,226
   Restructuring charge.................................................               --            --         1,963
   Purchased in-process research and development........................               --        10,646           600
                                                                             ------------  ------------  ------------
         Total costs and expenses.......................................          156,603       187,941       149,417
                                                                             ------------  ------------  ------------
Income (loss) from operations...........................................          (11,044)       38,478        22,244
Interest income and other, net of expense...............................            7,280         8,310         3,642
Gain on the sale of Chartered common stock..............................               --        28,329            --
                                                                             ------------  ------------  ------------
Income (loss) before tax provision and equity interest in net (loss) of
   equity method investee...............................................           (3,764)       75,117        25,886
Equity interest in net (loss) of equity method investee.................               --        (2,445)         (193)
Tax provision...........................................................              937        31,227         8,055
                                                                             ------------  ------------  ------------
Net income (loss).......................................................     $     (4,701) $     41,445  $     17,638
                                                                             ============  ============  ============
Net income (loss) per share:
   Basic................................................................     $      (0.20) $       1.77  $       0.81
                                                                             ============  ============  ============
   Diluted..............................................................     $      (0.20) $       1.58  $       0.76
                                                                             ============  ============  ============
Shares used in computing net income (loss) per share:
   Basic................................................................           23,743        23,447        21,664
                                                                             ============  ============  ============
   Diluted..............................................................           23,743        26,233        23,058
                                                                             ============  ============  ============
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>

                                                         ACTEL CORPORATION
                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME/(LOSS)
                                               (in thousands, except share amounts)

                                                                               Notes                  Accumulated
                                                   Additional               Receivable    Unearned       Other        Total
                                       Common       Paid-In      Retained      From     Compensation Comprehensive Shareholders'
                                        Stock       Capital      Earnings     Officer       Cost        Income       Equity
                                      ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>          <C>
Balance at December 31, 1998 ......   $      21    $  92,092    $  34,763    $    --      $    --      $     178    $ 127,054
                                      =========    =========    =========    =========    =========    =========    =========
Net income ........................        --           --         17,638         --           --           --         17,638
Other comprehensive income:
   Change in unrealized gain on
    investments ...................        --           --           --           --           --         15,883       15,883
   Comprehensive income ...........                                                                                    33,521
Issuance of  954,569 shares of
 common stock under employee
 stock plans ......................           1        9,003         --           --           --           --          9,004
Issuance of 285,943 shares of
 common stock for purchase of
 AutoGate Logic ...................        --          6,858         --           --           --           --          6,858
Tax benefit from exercise of stock
 options ..........................        --          2,193         --           --           --           --          2,193
                                      ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance at December 31, 1999 ......   $      22    $ 110,146    $  52,401    $    --      $    --      $  16,061    $ 178,630
                                      =========    =========    =========    =========    =========    =========    =========
Net income ........................        --           --         41,445         --           --           --         41,445
 Other comprehensive income:
   Change in unrealized gain on
    investments ...................        --           --           --           --           --        (15,310)     (15,310)
   Comprehensive income ...........                                                                                    26,135
 Issuance of 1,574,334 shares of
  common stock under employee
  stock plans .....................           2       16,363         --           (368)        --           --         15,997
Repurchase of common stock ........          (1)      (7,077)     (13,938)        --           --           --        (21,016)
Issuance of 220,518 shares of
 common stock for purchase of
 Prosys ...........................        --          7,525         --           --           --           --          7,525
Assumption of stock options in
 connection with acquisitions of
 GateField and Prosys including
 unearned compensation expense for
 those options ....................        --         13,665         --           --           (922)        --         12,743
Tax benefit from exercise of stock
 options ..........................        --         10,087         --           --           --           --         10,087
                                      ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance at December 31, 2000 ......   $      23    $ 150,709    $  79,908    $    (368)   $    (922)   $     751    $ 230,101
                                      =========    =========    =========    =========    =========    =========    =========
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                                        ACTEL CORPORATION
                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME/(LOSS)(Continued)
                                             (in thousands, except share amounts)

                                                                               Notes                  Accumulated
                                                   Additional               Receivable    Unearned       Other        Total
                                       Common       Paid-In      Retained      From     Compensation Comprehensive Shareholders'
                                        Stock       Capital      Earnings     Officer       Cost        Income       Equity
                                      ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>          <C>
Balance at December 31, 2000 ......   $      23    $ 150,709    $  79,908    $    (368)   $    (922)   $     751    $ 230,101
                                      =========    =========    =========    =========    =========    =========    =========
Net loss ..........................        --           --         (4,701)        --           --           --         (4,701)
Other comprehensive income/(loss):
   Change in unrealized gain on
    investments ...................        --           --           --           --           --             56           56
   Comprehensive income/(loss) ....                                                                                    (4,645)
Issuance of 670,499 shares of
 common stock under employee
 stock plans, net of repurchases ..           1        7,675         --           --           --           --          7,676
Issuance of 54,290 shares to Prosys
 security holders in connection
 with achievement of technological
 milestones .......................        --          1,132         --           --           --           --          1,132
Issuance of stock options to
 consultant .......................        --            116         --           --           --           --            116
Amortization of unearned
 compensation cost ................        --           --           --           --            225         --            225
Purchase price adjustment related
 to GateField employees' unvested
 stock options originally assumed
 in connection with the GateField
 acquisition ......................        --           --           --           --            383         --            383
Tax benefit from exercise of stock
 options ..........................        --          2,692         --           --           --           --          2,692
                                      ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance at December 31, 2001 ......   $      24    $ 162,324    $  75,207    $    (368)   $    (314)   $     807    $ 237,680
                                      =========    =========    =========    =========    =========    =========    =========
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                ACTEL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
<S>                                                                          <C>           <C>           <C>
Operating activities:
    Net income (loss)...................................................     $     (4,701) $     41,445  $     17,638
    Adjustments to reconcile net income (loss) to net cash provided by
       (used in) operating activities:
       Depreciation and amortization....................................           21,755        15,463        10,294
       Stock compensation cost recognized...............................              341            --            --
       Non-cash portion of restructuring and other charges..............               --            --         2,695
       Gain on sale of Chartered stock..................................               --       (28,329)           --
       Purchased in-process research and development....................               --        10,646           600
       Equity interest in net loss of equity method investee............               --         2,445           193
       Loss on disposal of fixed assets.................................               --            --           136
       Changes in operating assets and liabilities:
          Accounts receivable...........................................           12,497        (6,609)       (1,933)
          Inventories...................................................          (10,835)         (179)          345
          Deferred income taxes.........................................              (47)         (384)       (3,775)
          Prepaid expenses and other current assets.....................              237        (5,466)          429
          Accounts payable, accrued salaries and employee benefits, and
              other accrued liabilities.................................          (14,109)        6,573         9,769
          Tax benefits from exercise of stock options...................            2,692        10,087         2,193
          Deferred income...............................................          (18,100)        4,464         7,925
                                                                             ------------  ------------  ------------
    Net cash provided by (used in) operating activities.................          (10,270)       50,156        46,509
Investing activities:
    Purchases of property and equipment.................................           (9,526)       (6,173)       (6,407)
    Purchases of available-for-sale securities..........................         (135,016)     (396,325)     (178,616)
    Sales and maturities of available for sale securities...............          145,878       367,835       132,342
    Cash paid in business acquisitions..................................               --       (30,853)          281
    Issuance of notes receivable from GateField prior to acquisition ...               --        (7,000)       (8,000)
    Cash received from sale of Chartered stock..........................               --        39,009            --
    Changes in other long term assets...................................              (96)       (7,303)       (1,928)
                                                                             ------------  ------------  ------------
    Net cash provided by (used in) investing activities.................            1,240       (40,810)      (62,328)
Financing activities:
    Common stock issuance under employee stock plans....................            7,676        15,997         6,811
    Repurchase of common stock..........................................               --       (21,016)           --
                                                                             ------------  ------------  ------------
    Net cash provided by (used in) financing activities.................            7,676        (5,019)        6,811
Net increase (decrease) in cash and cash equivalents....................           (1,354)        4,327        (9,008)
Cash and cash equivalents, beginning of year............................            9,266         4,939        13,947
                                                                             ------------  ------------  ------------
Cash and cash equivalents, end of year..................................     $      7,912  $      9,266  $      4,939
                                                                             ============  ============  ============
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                ACTEL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                 (in thousands)
                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
<S>                                                                          <C>           <C>           <C>
Supplemental disclosures of cash flow information and non-cash investing
 and financing activities:
    Cash paid during the year for taxes.................................     $        473  $     32,989  $     10,195
    Issuance of common stock for acquisitions...........................            1,132        17,389         6,858
    Receipt of note receivable from officer.............................               --           368            --
</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
                                ACTEL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Summary of Significant Accounting Policies

     Actel Corporation  (Actel) was incorporated under the laws of California on
October 16, 1985. Actel designs,  develops,  and markets field programmable gate
arrays  (FPGAs) and associated  development  tools,  intellectual  property (IP)
cores,  and services.  Net revenues from the sale of FPGAs  accounted for 96% of
Actel's net revenues for 2001,  2000,  and 1999.  The Protocol  Design  Services
organization, which Actel acquired from GateField Corporation (GateField) in the
third  quarter of 1998,  accounted  for 1% of  Actel's  net  revenues  for 2001,
compared  with 2% for 2000 and 1999.  Royalties and sales of  development  tools
accounted for 3% of net revenues for 2001, compared with 2% for 2000 and 1999.

     FPGAs are logic  integrated  circuits that adapt the  processing and memory
capabilities of electronic systems to specific  applications.  FPGAs are used by
designers  of  communications,  computer,  consumer,  industrial,  military  and
aerospace,  and other electronic systems to differentiate their products and get
them to market faster. Actel is the leading supplier of FPGAs based on flash and
antifuse  technologies.  See  Note  12  for  information  on  Actel's  sales  by
geographic area.

     Advertising and Promotion Costs

     Actel's policy is to expense  advertising  and promotion  costs as they are
incurred.  Actel's  advertising and promotion  expenses were  approximately $3.8
million, $3.9 million, and $3.3 million for 2001, 2000, and 1999 respectively.

     Basis of Presentation

     The consolidated financial statements include the accounts of Actel and its
wholly owned subsidiaries. Actel uses the U.S. Dollar as the functional currency
in  its  foreign   operations.   All  significant   intercompany   accounts  and
transactions have been eliminated in consolidation.

     Actel's  fiscal year ends on the first  Sunday after  December  30.  Fiscal
2001, 2000, and 1999 ended on January 6, 2002, December 31, 2000, and January 2,
2000, respectively. Accordingly, fiscal 2001 was a fifty-three week fiscal year,
rather than a normal  fifty-two  week  fiscal  year.  For ease of  presentation,
December 31 has been  indicated  as the fiscal  year end for all years.  Certain
prior  year  balances  have  been   reclassified  to  conform  to  current  year
presentation.

     Cash Equivalents and Investments

     For financial  statement  purposes,  Actel considers all highly liquid debt
instruments with insignificant interest rate risk and a maturity of three months
or  less  when  purchased  to be  cash  equivalents.  Cash  equivalents  consist
primarily  of cash  deposits  in  money  market  funds  that are  available  for
withdrawal without  restriction.  Short-term  investments consist principally of
federal,  state,  and  local  municipal  obligations.  See  Note  3 for  further
information regarding short-term investments.

<PAGE>
                                ACTEL CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Actel  accounts for its  investments  in accordance  with the provisions of
Statement of Financial  Accounting  Standards  (SFAS) No. 115,  "Accounting  for
Certain  Investments in Debt and Equity Securities."  Management  determines the
appropriate  classification  of debt  securities  at the  time of  purchase  and
re-evaluates  such  designation  as of each balance  sheet date. At December 31,
2001, all debt securities are designated as available-for-sale. Actel also makes
equity investments for the promotion of business and strategic  objectives.  The
marketable  portion of these  strategic  investments  is included in  short-term
investments  at their market  value on December  31,  2001,  of $4.6 million and
designated as available-for-sale.  Non-marketable equity investments with a cost
of $2.2 million are included in other assets and are valued at the lower of cost
or market. See Note 3 for further information regarding investments.

     Available-for-sale   securities  are  carried  at  fair  value,   with  the
unrealized   gains  and  losses   reported  as  a  component  of   comprehensive
income/(loss) in shareholders'  equity. The amortized cost of debt securities in
this  category  is  adjusted  for  amortization  of premiums  and  accretion  of
discounts  to  maturity.  Such  amortization  is included in interest  and other
income.  Realized gains and losses and declines in value judged to be other than
temporary on  available-for-sale  securities are included in interest income and
other.  The cost of  securities  sold is based  on the  specific  identification
method.  Interest and dividends on securities  classified as  available-for-sale
are included in interest income and other.

     Actel maintains  trading assets to generate  returns that offset changes in
liabilities  related to Actel's deferred  compensation  plan. The trading assets
consist of  insurance  contracts  and Actel  common stock and are stated at fair
value.  Both realized and  unrealized  gains and losses are included in interest
income  and  other,  net,  and  generally  offset  the  change  in the  deferred
compensation  liability,  which is also  included in interest  income and other,
net. Net gains (losses) on the trading asset  portfolio were not significant for
2001. The deferred  compensation  assets and  liabilities  were $2.1 million and
$2.0 million, respectively, at December 31, 2001.

     Actel monitors its equity  investments  for impairment on a periodic basis.
In the event that the carrying value of the equity  investment  exceeds its fair
value,  and the decline in value is determined to be other than  temporary,  the
carrying value is reduced to its current fair value.

     At December 31, 2001, Actel held an investment in a publicly-traded  equity
security with a market value of $4.6 million included in short-term  investments
and  an  unrealized  loss  of  $1.0  million  included  in  other  comprehensive
income/(loss).  In  accordance  with  SFAS  No.  115,  "Accounting  for  Certain
Investments in Debt and Equity  Securities,"  if the decline in value below cost
is determined to be other than temporary, the unrealized losses will be realized
as expense on the income  statement  in the period  when that  determination  is
made.  Actel  determines  a decline in market  value to be other than  temporary
when, in the absence of other mitigating  factors, a stock has traded below cost
for a consecutive  six-month period. If this investment continues to trade below
cost for more than six  months,  and other  mitigating  factors  such as general
economic and industry specific trends were to adversely change,  this investment
will be evaluated for impairment and written down to a balance equal to the fair
value at the time of impairment,  with the amount of the write-down  realized as
expense on the income  statement.  Based on management's  assessment of industry
trends,  the volatility and trading volumes of this equity security,  as well as
the fact that the investment has traded at below original cost for less than six
consecutive months, management concluded that the decline in value was temporary
and no impairment existed at December 31, 2001.

     At December 31, 2001,  Actel held an equity  investment that  represented a
14% equity interest in a company located in the United Kingdom.  This investment
is carried at its cost of $2.2  million  on the  balance  sheet as part of other
assets.  As this equity  security is not publicly  traded,  determining the fair
value of this  investment is judgmental in nature and dependant on  management's
assessment  of the  performance  of the  company,  which  includes,  among other
things, successfully developing and introducing a new technology into the market
as well as obtaining  additional  funding to finance these  activities until the
company can generate positive cash flows from the sale of the new products. This
investment is subject to a multitude of risks,  including but not limited to the
risks  that  the  company  may  not be  successful  in  developing  the  planned
technology,  that the  company  may not be able to secure  necessary  funding to
continue operations, that a suitable market for such technology may not develop,
or that a  competitor  may  develop a superior  product.  If any of these  risks
materialize,  or other indicators of possible  impairment  arise, the investment
will be evaluated for impairment and written down to a balance equal to the fair
value at the time of impairment,  with the amount of the write-down  realized as
an  expense  on  the  income  statement.  Based  on  the  progress  made  toward
technological  goals  and  the  expectation  of  future   marketability  of  the
technology under  development,  Actel concluded no impairment of this investment
existed at December 31, 2001.

     Concentration of Credit Risk

     Financial  instruments that potentially  subject Actel to concentrations of
credit risk consist principally of cash investments and trade receivables. Actel
limits  its  exposure  to credit  risk by  investing  excess  liquidity  only in
securities of A, A1, or P1 grade.  Actel is exposed to credit risks in the event
of default by the financial institutions or issuers of investments to the extent
of amounts recorded on the balance sheet.

     Actel sells its products to customers in diversified  industries.  Actel is
exposed to credit risks in the event of  non-payment  by customers to the extent
of amounts  recorded on the balance  sheet.  Actel limits its exposure to credit
risk by  performing  ongoing  credit  evaluations  of its  customers'  financial
condition but generally requires no collateral. Actel is exposed to credit risks
in the  event of  insolvency  by its  customers  and  limits  such  exposure  to
accounting  losses by limiting  the amount of credit  extended  whenever  deemed
necessary.  Three of Actel's  distributors  accounted for  approximately  52% of
Actel's net  revenues  for 2001.  The same three  distributors  accounted in the
aggregate  for  approximately  45% of Actel's net  revenues for 2000 and 41% for
1999.  During 2001, Actel  consolidated its distribution  channel by terminating
one of the  distributors.  One of Actel's  direct  customers  (Nortel  Networks)
accounted  for 2% of Actel's net revenues for 2001,  compared with 11% and 9% of
net  revenues  for 2000  and  1999,  respectively.  The loss of any one of these
customers  could  have  a  materially  adverse  effect  on  Actel's  results  of
operations and financial position. See Note 12 for further information regarding
these customers.

     As of December 31, 2001, Actel had an accounts  receivable balance of $16.8
million,  net of an allowance for doubtful  accounts of $1.3  million.  If sales
levels were to increase,  it is likely that the level of receivables  would also
increase.  In the event that customers delay their payments to Actel, the levels
of accounts  receivable  would also  increase.  Actel  maintains  allowances for
doubtful  accounts for  estimated  losses  resulting  from the  inability of its
customers to make required  payments.  The  allowance  for doubtful  accounts is
based on past payment  history  with the  customer,  analysis of the  customer's
current financial condition,  outstanding invoices older than 90 days, and other
known  factors.  If  the  financial  condition  of  Actel's  customers  were  to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances may be required.

     Fair Value of Financial Instruments

     The following  methods and assumptions were used by Actel in estimating its
fair value disclosures for financial instruments:

          Accounts  Payable.  The carrying amount reported in the balance sheets
     for accounts payable approximates fair value.

          Cash  and Cash  Equivalents.  The  carrying  amounts  reported  in the
     balance sheets for cash and cash equivalents approximate fair value.

          Foreign Currency Exchange Contracts. The fair value of Actel's foreign
     currency  exchange  forward  contracts are estimated based on quoted market
     prices of comparable contracts.

          Insurance  Contracts.  The fair value of Actel's  insurance  contracts
     (entered into in connection  with Actel's  deferred  compensation  plan) is
     based upon cash surrender value.

          Investment Securities.  The fair values for marketable debt and equity
     securities are based on quoted market prices.  Strategic equity investments
     in non-public  companies with no readily available market value are carried
     on the  balance  sheet at cost as adjusted  for  potential  impairment.  If
     reductions in the market value of marketable equity securities to an amount
     that is below cost are deemed by management to be other than temporary, the
     reduction  in market  value will be realized,  with the  resulting  loss in
     market value reflected on the income statement.

     Goodwill and other Acquisition-Related Intangibles

     Goodwill is recorded when the consideration paid in an acquisition  exceeds
the fair value of the net tangible and intangible  assets  acquired.  See Note 2
for further  information on goodwill  values.  Through 2001,  goodwill and other
acquisition-related  intangibles  have been amortized on a  straight-line  basis
over their useful lives.

     During 1999 and 2000,  Actel completed the  acquisitions of AutoGate Logic,
Prosys,  and  GateField,  resulting  in a  significant  amount of  goodwill  and
identified  intangible assets.  Goodwill is recorded when the consideration paid
in an  acquisition  exceeds the fair value of the net  tangible  and  intangible
assets acquired.  At December 31, 2001, Actel had $37.2 million of remaining net
book value  assigned to goodwill  from those  acquisitions  and $10.0 million of
remaining  net book value  assigned  to  identified  intangible  assets  such as
patents and  completed  technology.  In accordance  with  Statement of Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed  Of," reviews have
been  regularly  performed to determine  whether  facts or  circumstances  exist
indicating that the assets are impaired.  Actel recognizes  impairment losses on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows  estimated  to be generated by those assets are less than the assets'
carrying amounts. The impairment loss is measured by comparing the fair value of
the asset to its carrying  amount.  Fair value is estimated  based on discounted
future  cash flows.  In  assessing  the  recoverability  of  goodwill  and other
intangibles,  Actel must make assumptions  regarding estimated future cash flows
and  other  factors  to  determine  the  fair  value of the  respective  assets,
including industry growth rates, estimated gross margin levels, and estimates of
the market  share  Actel  will  achieve.  If these  estimates  or their  related
assumptions change in the future, it could result in lower estimated future cash
flows that would not support the current carrying values of these assets,  which
would require Actel to record  impairment  charges for these assets.  During the
year ended December 31, 2001, Actel did not record any impairment losses related
to goodwill or other intangible assets. Beginning in 2002, Actel will adopt SFAS
No. 142, "Goodwill and Other Intangible Assets," which requires Actel to analyze
goodwill  for  impairment  during the first six  months of fiscal  2002 and on a
periodic basis thereafter.

     Impact of Recently Issued Accounting Standards

     In June 2001, the FASB issued SFAS No. 141,  "Business  Combinations,"  and
SFAS No. 142,  "Goodwill and Other  Intangible  Assets." These standards  become
effective  for fiscal years  beginning  after  December  15, 2001.  Beginning in
Actel's  2002 fiscal  year,  goodwill  will no longer be  amortized  but will be
subject to annual  impairment  tests and written  down only when  impaired.  All
other intangible  assets with a finite useful life will continue to be amortized
over their estimated useful lives. As of December 31, 2001, unamortized goodwill
was $37.2 million.  The  amortization  expense  related to goodwill for the year
ended  December 31, 2001,  was $11.7  million.  For 2002,  goodwill  will not be
amortized,  resulting  in the  elimination  of  approximately  $11.8  million of
amortization expense that otherwise would have been recognized as expense. Other
intangible assets,  with a net book value of $10.0 million at December 31, 2001,
will  continue  to  be  amortized  over  their  estimated   useful  lives.   The
amortization  expense  associated with other intangible  assets amounted to $3.1
million in 2001. Actel will carry out an impairment review of goodwill and other
intangible  assets  during  the first  half of 2002,  as  required  by SFAS 142.
Accordingly, management is still evaluating the impact that the adoption of SFAS
142 will have on Actel's financial position, operating results, or cash flows.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets." This standard supersedes SFAS 121.
Although   retaining  many  of  the  fundamental   recognition  and  measurement
provisions  of SFAS 121, the new rules  significantly  change the criteria  that
must be met to classify an asset as held-for-sale.  The standard also supersedes
certain  provisions  of  Accounting  Principles  Board  Opinion  (APB)  No.  30,
"Reporting  the Results of  Operations -- Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions." SFAS 144 will require expected future operating losses
from discontinued  operations to be displayed in discontinued  operations in the
period(s)  in which the losses are  incurred  rather than as of the  measurement
date,  as  presently  required.  SFAS 144  becomes  effective  for fiscal  years
beginning  after  December  15,  2001.  Actel  will  adopt SFAS 144 in the first
quarter of 2002 and does not expect the  adoption of SFAS 144 to have a material
impact on Actel's financial position, operating results, or cash flows.

     Income Taxes

     Actel  accounts  for  income  taxes  in  accordance   with  SFAS  No.  109,
"Accounting  for Income  Taxes,"  which  requires  that  deferred tax assets and
liabilities  be  recognized  using enacted tax rates for the effect of temporary
differences  between the book and tax bases of recorded assets and  liabilities.
Under SFAS No. 109, the liability method is used in accounting for income taxes.
Deferred tax assets and  liabilities  are  determined  based on the  differences
between financial reporting and the tax basis of assets and liabilities, and are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences  are expected to reverse.  SFAS No. 109 also  requires that deferred
tax assets be reduced by a  valuation  allowance  if it is more  likely than not
that some portion or all of the  deferred tax asset will not be realized.  Actel
evaluates annually the realizability of its deferred tax assets by assessing its
valuation allowance and by adjusting the amount of such allowance, if necessary.
The factors used to assess the likelihood of realization are Actel's forecast of
future  taxable  income and  available  tax  planning  strategies  that could be
implemented to realize the net deferred tax assets.

     At December 31,  2001,  Actel had deferred tax assets in excess of deferred
tax  liabilities of $63.0 million.  For the reasons cited above, at December 31,
2001,  management  determined that it is more likely than not that $35.0 million
of such assets will be  realized,  resulting  in a valuation  allowance of $28.0
million.   Failure  to  achieve  forecasted  taxable  income  might  affect  the
realization  of such net  deferred tax assets.  Factors that may affect  Actel's
ability to achieve  sufficient  forecasted  taxable income include,  but are not
limited to, increased competition, a decline in sales or margins, loss of market
share, delays in product availability, and technological obsolescence.

     Inventories

     As of December 31, 2001,  Actel had an inventory  balance of $36.3 million,
stated at the lower of cost  (first-in,  first-out)  or market  (net  realizable
value). Management believes that a certain level of inventory must be carried to
maintain an adequate  supply of product for customers.  This inventory level may
vary based upon either orders  received from customers or internal  forecasts of
demand for these products.  Other considerations in determining inventory levels
include the stage of products in the product  life cycle,  design win  activity,
manufacturing  lead  times,  customer  demands,   strategic  relationships  with
foundries,  and competitive  situations in the marketplace.  Should any of these
factors have a result other than anticipated,  inventory levels may be adversely
and materially affected.

     Actel writes down its inventory for estimated  obsolescence or unmarketable
inventory  equal  to the  difference  between  the  cost  of  inventory  and the
estimated realizable value based upon assumptions about future demand and market
conditions. To address this difficult, subjective, and complex area of judgment,
Actel applies a methodology that includes assumptions and estimates to arrive at
the net realizable  value.  First,  Actel identifies any inventory that has been
previously  reserved in prior  periods.  This inventory  remains  reserved until
sold, destroyed, or otherwise  dispositioned.  Second, Actel's quality assurance
personnel  examine  inventory line items that may have some form of obsolescence
due to non-conformance  with electrical and mechanical  standards.  Third, Actel
assesses the inventory not otherwise  identified to be reserved  against product
history and forecasted demand, typically six months. Finally, the result of this
methodology is analyzed by management in light of the product life cycle, design
win activity, and competitive situations in the marketplace to derive an outlook
for  consumption  of the  inventory  and the  appropriateness  of the  resulting
inventory  levels.  If  actual  future  demand  or  market  conditions  are less
favorable than those projected by management,  additional inventory  write-downs
may be required. See Note 2 for further information on Inventory amounts.

     Legal Matters

     As is typical in the semiconductor industry,  Actel has been and expects to
be notified from time to time of claims that it may be infringing  patents owned
by others.  During  2001,  Actel held  discussions  regarding  potential  patent
infringement issues with several third parties, some of which have significantly
greater financial and intellectual  property resources than Actel. When probable
and reasonably estimable,  Actel has made provision for the estimated settlement
costs of claims for alleged infringement. The provision is based on an estimated
royalty  rate  applied  to  shipments  made in the  periods  and to or from  the
geographic areas under dispute. In the absence of facts or circumstances  unique
to a  particular  dispute,  the  royalty  rate is  estimated  based  on  Actel's
understanding of royalty rates other technology companies typically agree to pay
in similar types of disputes.  As it has in the past,  Actel may obtain licenses
under  patents  that it is  alleged  to  infringe.  While  Actel  believes  that
reasonable  resolution  will occur,  there can be no assurance that these claims
will be  resolved  or that  the  resolution  of  these  claims  will  not have a
materially adverse effect on Actel's business,  financial condition,  or results
of operations.  In addition,  Actel's  evaluation of the impact of these pending
disputes could change based upon new  information  learned by Actel.  Subject to
the foregoing,  Actel does not believe that any pending patent dispute is likely
to have a materially adverse effect on Actel's business, financial condition, or
results of operations.

     Off-Balance-Sheet Risk

     On January 1, 2001, Actel adopted SFAS No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities."  SFAS 133 requires that all derivatives be
recognized on the balance sheet at fair market value.  Derivatives  that are not
hedges must be adjusted to fair value through  earnings.  If the derivative is a
hedge, changes in the fair value of the derivative are either offset against the
change in the fair value of the hedged item through  earnings  or,  depending on
the nature of the hedge,  recognized  in other  comprehensive  income  until the
hedged item is recognized in earnings. The ineffective portion of a derivative's
change in fair value is immediately recognized in earnings. The adoption of SFAS
133 did not have a material impact on Actel's consolidated financial position or
operating results.

     Actel  purchases a portion of its wafers used in production from a Japanese
supplier  denominated  in  Japanese  Yen.  The amount of U.S.  Dollars  that are
necessary  to purchase  wafers is subject to  fluctuations  in foreign  currency
exchange  rates  between the U.S.  Dollar and Yen.  Actel  enters  into  foreign
exchange  forward  contracts  to reduce  the  variability  in the amount of U.S.
Dollars that will be required to settle  forecasted wafer purchases  denominated
in Yen.

     Actel's  accounting  policies  for  these  forward  contracts  are based on
Actel's  designation of the Yen forward  contracts as foreign currency cash flow
hedges.  The  criteria  Actel  uses for  designating  an  instrument  as a hedge
includes its effectiveness in exposure reduction and one-to-one  matching of the
derivative  financial  instrument with the underlying  transaction being hedged.
Hedge  effectiveness  is assessed by  comparing  the change in fair value of the
forward contract with the change in fair value of the forecasted payments. Gains
and losses on these contracts are recognized upon usage of the contracts and are
included  in  cost  of  sales  along  with  the  offsetting  gain or loss on the
underlying  transactions  being hedged. If the criteria for designation of these
instruments as hedging  transactions are not met, then the instruments  would be
marked to market,  with gains and losses  recognized on the income  statement in
that period.

     Actel limits the amount of forward foreign exchange  contract to the amount
sufficient to hedge forecasted Yen-based payments for a maximum of three months.
Actel does not use forward foreign exchange contracts for speculative or trading
purposes.

     During fiscal 2001, 2000, and 1999, all foreign exchange  contracts entered
into by Actel met the criteria for  designation  as foreign  currency  cash flow
hedges.  Amounts  recognized on the income  statement for hedge  ineffectiveness
were not material in 2001,  2000, or 1999. At December 31, 2001 and 2000,  Actel
had no forward foreign exchange contracts outstanding.

     Property and Equipment

     Property and  equipment are carried at cost less  accumulated  depreciation
and amortization (see Note 2).  Depreciation and amortization have been provided
on a straight-line basis over the following estimated useful lives:

Equipment......................    2 to 5 years
Furniture and fixtures.........    3 to 5 years
Leasehold improvements.........    Estimated useful life or lease term,
                                   whichever is shorter

     Revenue Recognition

     In  accordance  with SAB No.  101,  revenue  is  recognized  when  there is
evidence  of an  arrangement,  delivery  has  occurred  or  services  have  been
completed,  the price is fixed or determinable,  and  collectability is assured.
Revenue from product  shipped to end customers is recorded when risk of loss and
title passes to the customer.  Revenue  related to products  shipped  subject to
customers'  evaluation  is  recognized  upon  final  acceptance.   Shipments  to
distributors  are made under  agreements  allowing  certain rights of return and
price  protection  on  unsold  merchandise.   For  that  reason,   Actel  defers
recognition  of revenues  and  related  cost of revenues on sales of products to
distributors until such products are sold by the distributor and title transfers
to the end user.  Royalty income is recognized  upon notice to Actel of the sale
by others of products subject to royalties.  Revenues  generated by the Protocol
Design Services organization are recognized as the services are performed.

     Actel  records a  provision  for price  adjustments  on unsold  merchandise
shipped to distributors in the same period as the related revenues are recorded.
If market  conditions  were to  decline,  Actel may need to take action with its
distributors  to ensure the  sell-through  of inventory  already in the channel.
These actions  during a market  downturn could result in  incrementally  greater
reductions to net revenues than otherwise would be expected.  Actel also records
a provision for estimated sales returns on products  shipped to end customers in
the same period as the related  revenues are  recorded.  The provision for sales
returns is based on historical sales returns,  analysis of credit memo data, and
other  known  factors.  If the  historical  data Actel uses to  calculate  these
estimates  does not properly  reflect  future  returns,  net  revenues  could be
materially different.

     Research and Development

     Research and development  expenditures  are charged to expense as incurred.
SFAS No. 86,  "Accounting for the Costs of Computer  Software to Be Sold, Leased
or  Otherwise   Marketed,"  requires  the  capitalization  of  certain  software
development costs subsequent to the establishment of technological  feasibility.
Through December 31, 2001, software development has been completed  concurrently
with the establishment of technological  feasibility and, as a result, Actel has
charged all costs to research and development expense in the periods incurred.

     Stock-Based Compensation

     Actel  accounts for  stock-based  awards to employees  using the  intrinsic
value method in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and Financial  Standards  Accounting  Board (FASB)  Interpretation
(FIN)  No.  44,   "Accounting   for   Certain   Transactions   Involving   Stock
Compensation."  Accordingly,  no  compensation  cost has been recognized for its
fixed-cost  stock  option  plans or its stock  purchase  plan.  In Note 9, Actel
provides  additional  pro forma  disclosures  as  required  under SFAS No.  123,
"Accounting   for  Stock  Based   Compensation."   Actel   accounts  for  equity
compensation issued to non-employees in accordance with EITF 96-18,  "Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services," and FASB Interpretation No. 44,
"Accounting  for  Certain  Transactions   Involving  Stock  Compensation  --  an
Interpretation of APB Opinion No. 25."

     Use of Estimates

     The  preparation of the financial  statements in conformity with accounting
principals  generally accepted in the United States requires  management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues,  and  expenses and the related  disclosure  of  contingent  assets and
liabilities.  Actel bases its estimates on historical  experience and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  invariably  differ  from  these  estimates,  and such
differences could be material.  In addition, if these estimates or their related
assumptions  change in the future, it could have a materially  adverse effect on
Actel's operating results.

2.   Balance Sheet Detail

                                                             December 31,
                                                      -------------------------
                                                        2001          2000
                                                      -----------   -----------
                                                            (in thousands)
 Accounts receivable:
    Trade accounts receivable....................    $     16,388  $     27,915
    Interest receivable..........................           1,699         2,411
    Allowance for doubtful accounts..............          (1,328)       (1,070)
                                                      -----------   -----------
                                                     $     16,759  $     29,256
                                                      ===========   ===========
 Inventories:
    Purchased parts and raw materials............    $      6,972  $      5,334
    Work-in-process..............................          26,670        11,443
    Finished goods...............................           2,696         8,726
                                                      -----------   -----------
                                                     $     36,338  $     25,503
                                                      ===========   ===========
 Property and equipment:
    Equipment....................................    $     57,888  $     50,190
    Furniture and fixtures.......................           2,431         2,371
    Leasehold improvements.......................           5,658         5,593
                                                      -----------   -----------
                                                           65,977        58,154
    Accumulated depreciation and amortization....         (51,312)      (46,017)
                                                      -----------   -----------
                                                      $    14,665   $    12,137
                                                      ===========   ===========

Depreciation  expense was  approximately  $7.0 million,  $7.4 million,  and $8.1
million  for  2001,  2000,  and  1999,   respectively,   and  is  included  with
amortization expense in the Consolidated Statement of Cash Flows.


                                                             December 31,
                                                      -------------------------
                                                          2001          2000
                                                      -----------   -----------
                                                            (in thousands)
Goodwill:
    Goodwill.......................................   $    53,613   $    51,561
    Less accumulated amortization..................       (16,433)       (4,741)
                                                      -----------   -----------
                                                      $    37,180   $    46,820
                                                      ===========   ===========
Other Assets:
    Prepaid long-term license fees.................   $     1,999   $     2,500
    Deferred compensation plan assets..............         2,082            --
    AutoGate Logic identifiable intangible assets..         2,950         2,950
    Prosys identifiable intangible assets..........           273           273
    GateField identifiable intangible assets.......         9,505         9,505
    Acquired patents...............................         1,842         1,692
    Strategic equity investments...................         2,198         2,198
    Non-current deferred tax asset (net of related
     deferred tax liability of $3,927 in 2001 and
     $5,067 in 2000)...............................         8,935         8,441
    Other..........................................           776           669
    Accumulated amortization expenses..............        (4,602)       (1,536)
                                                      -----------   -----------
                                                      $    25,958   $    26,692
                                                      ===========   ===========

     Amortization expense for goodwill and other acquisition related intangibles
was approximately $14.8 million,  $8.1 million, and $2.2 million for 2001, 2000,
and  1999,   respectively.   Amortization  expense  from  goodwill  acquired  in
connection with the GateField, Prosys, and AutoGate Logic acquisitions was $11.7
million in 2001  compared with $4.2 million in 2000.  Amortization  expense from
other  acquisition-related  intangible  assets was $3.1 million in 2001 compared
with $1.5 million in 2000.  Additional  goodwill was  recognized  during 2001 in
connection  with  consideration  issued  to  Prosys  security  holders  upon the
achievement of certain technological milestones specified in the Prosys purchase
agreement.  See Note 5 for further  discussion of intangible  assets acquired in
connection with the GateField, Prosys, and AutoGate Logic acquisitions. From the
third  quarter  of 1999 and  through  November  15,  2000,  Actel  held  certain
investments  in GateField  that were  accounted  for under the equity  method of
accounting.   Amortization  expense  related  to  equity  accounting  for  those
investments  was $2.4  million in 2000.  On November 15,  2000,  Actel  acquired
GateField and accounted for the  transaction as a purchase.  As a result,  these
previous  investments  in  GateField  were  eliminated  from "Other  Assets" and
included in the purchase price.

3.   Available-for-Sale Securities

     The following is a summary of available-for-sale securities at December 31,
2001 and 2000:

<TABLE>
<CAPTION>
                                                                                Gross         Gross
                                                                              Unrealized    Unrealized    Estimated
                                                                   Cost         Gains         Losses     Fair Values
                                                               ------------  ------------  ------------  ------------
                                                                                   (in thousands)
<S>                                                            <C>           <C>           <C>                 <C>
December 31, 2001
Corporate bonds...........................................     $     41,926  $      1,085  $        (31)       42,980
Corporate preferred stock.................................            1,900            --            --         1,900
U.S. government securities................................           16,098           400           (37)       16,461
Floating rate notes.......................................            9,400            --            --         9,400
Municipal obligations.....................................           45,628           976            (3)       46,601
Weekly floater............................................               --            --            --            --
                                                               ------------  ------------  ------------  ------------
Total available-for-sale securities.......................          114,952         2,461           (71)      117,342
Less amounts classified as cash equivalents...............           (1,008)           --            --        (1,008)
                                                               ------------  ------------  ------------  ------------
Total short-term available-for-sale debt securities.......          113,944         2,461           (71)      116,334
                                                               ------------  ------------  ------------  ------------
Short-term marketable strategic equity investment.........            5,634            --        (1,045)        4,589
                                                               ------------  ------------  ------------  ------------
Total available-for-sale securities.......................     $    119,578  $      2,461  $     (1,116) $    120,923
                                                               ============  ============  ============  ============

December 31, 2000
Corporate bonds...........................................     $     54,139  $        600  $         --  $     54,739
U.S. government securities................................           18,160           210            --        18,370
Floating rate notes.......................................           10,600            --            --        10,600
Municipal obligations.....................................           44,156           215            (4)       44,367
Weekly floater............................................            3,000            --            --         3,000
                                                               ------------  ------------  ------------  ------------
Total available-for-sale securities.......................          130,055         1,025            (4)      131,076
Less amounts classified as cash equivalents...............               --            --            --            --
                                                               ------------  ------------  ------------  ------------
Total short-term available-for-sale debt securities.......          130,055         1,025            (4)      131,076
                                                               ------------  ------------  ------------  ------------
Short-term marketable strategic equity investments........              385            83            --           468
                                                               ------------  ------------  ------------  ------------
Total available-for-sale securities.......................     $    130,440  $      1,108  $         (4) $    131,544
                                                               ============  ============  ============  ============
</TABLE>

     Actel also makes private equity  investments  for the promotion of business
and strategic objectives. Non-marketable private equity investments are included
in  "Other  Assets"  and are  valued at a cost of $2.2  million.  See Note 1 for
discussion of Actel's  policy on accounting  for  investments  and the manner in
which  fair  values  were  determined.  See  Note  10 for  discussion  of  Other
Comprehensive Income/(Loss).

     The  adjustments  to net  unrealized  gains  and  (losses)  on  investments
included as a separate component of shareholders'  equity totaled  approximately
$0.1 million,  ($15.3 million),  and $15.9 million,  net of taxes, for the years
ended  December  31,  2001,  2000,  and 1999,  respectively.  The $15.3  million
adjustment  during  2000 was due to the  liquidation  of Actel's  investment  in
Chartered.  Realized  gains were $0.4 million and $28.3 million  during 2001 and
2000, respectively. Realized gains and losses during 1999 were not material. The
realized  gain of $28.3  million  during  2000  was  from  the  sale of  Actel's
investment in Chartered.

     The expected  maturities of Actel's  investments  at December 31, 2001, are
shown below. Expected maturities can differ from contractual  maturities because
the issuers of the securities may have the right to prepay  obligations  without
prepayment penalties.

Available-for-sale debt securities (in thousands):
   Due in less than one year...................................    $     43,343
   Due in one to five years....................................          59,581
   Due in five to ten years....................................           1,071
   Due after ten years.........................................          12,339
                                                                   ------------
                                                                   $    116,334
                                                                   ============

     A portion of Actel's  securities  represent  investments  in floating  rate
municipal bonds with contractual maturities greater than ten years. However, the
interest rates on these debt  securities  generally  reset every ninety days, at
which time Actel has the option to sell the security or roll over the investment
at the new  interest  rate.  Since it is not  Actel's  intention  to hold  these
securities  until  their  contractual   maturities,   these  amounts  have  been
classified as short-term investments.

4.   Gain on Sale of Chartered Stock

     At  December  31,  1999,  Actel  held an  equity  investment  in  Chartered
Semiconductor Manufacturing Ltd. (Chartered), a semiconductor company located in
Singapore  that  completed an initial  public  offering in the fourth quarter of
1999.  Actel's  investment  in Chartered was less than 1% of the total equity of
Chartered  and  was  held as an  available-for-sale  investment.  The  Chartered
investment  was valued at its market value of $37.6  million at the end of 1999.
During the second  quarter  of 2000,  Actel sold all of its shares of  Chartered
common stock for a one-time gain of $28.3 million.

5.   Business Acquisitions

     GateField

     During 1998,  Actel entered into a product  marketing rights agreement with
GateField Corporation (GateField) and made investments in GateField common stock
and GateField  convertible  preferred stock,  which were valued at cost.  During
1999,  Actel made additional  investments in GateField,  which resulted in Actel
accounting for its investments in GateField under the equity method,  commencing
July 1, 1999.  From July 1, 1999 through  December 31, 1999,  the impact of this
was a $1.1 million charge to Actel's  pre-tax  income ($0.9 million  included in
amortization  of goodwill  and $0.2 million  included in equity  interest in net
losses of equity method investee).

     On May 31, 2000,  GateField and Actel announced the signing of a definitive
agreement to merge.  On November 15, 2000,  the  acquisition  was  completed and
Actel paid cash  consideration of $5.25 for each share of GateField common stock
not already owned by Actel.  From January 1, 2000,  to November 15, 2000,  Actel
recorded  charges of $4.8 million to pre-tax  income under the equity  method of
accounting  ($2.4 million  included in amortization of goodwill and $2.4 million
included  in  equity  interest  in  net  losses  of  equity  method   investee).
GateField's  results of operations are included in Actel's income  statement for
the period from November 15 to December 31, 2000, and succeeding years.

     The GateField  acquisition  was accounted for using the purchase  method of
accounting and the total purchase price was approximately  $45.7 million.  Actel
paid total cash consideration of $24.0 million,  or $5.25 per share, for the 4.6
million  shares of GateField  Common Stock not already  owned by Actel.  The net
book value of Actel  investments  in GateField  at November  15,  2000,  is also
included in the purchase price. These investments included 1.6 million shares of
GateField  common stock that Actel already owned,  which had a net book value of
$5.4 million;  outstanding notes receivable from GateField, which had a net book
value of $6.5 million;  and the capitalized  value of Actel's product  marketing
agreement with GateField, which had a net book value of $6.0 million. Actel also
incurred $0.1 million of acquisition expenses,  including financial advisory and
direct  transaction  costs,  which are  included as a component  of the purchase
price.

     In accordance with FIN 44, all vested and unvested GateField employee stock
options  assumed by Actel are  included  in the  purchase  price for  accounting
purposes based on their fair value of $3.8 million as of the announcement  date.
The portion of the intrinsic  value of the unvested  options that will be deemed
to be earned over the remaining  vesting period (total value of $0.9 million) is
allocated as part of the purchase  price to unearned  compensation  and is being
amortized to operating  expenses over the  remaining  vesting  period.  The fair
value of the options assumed was calculated  based on the  Black-Scholes  option
pricing model.

     In  accordance  with  the  provisions  of APB  Opinion  No.  16,  "Business
Combinations,"  all identifiable  assets and liabilities were assigned a portion
of the total  consideration  on the basis of their  respective fair values as of
November 15, 2000.  The  consideration  was  allocated,  based on the  valuation
report of an independent valuation specialist, as follows (in thousands):

Net tangible assets (liabilities) of GateField.................    $     (1,083)
In-process research and development............................           5,088
Acquired work-force............................................             475
Developed technology...........................................           5,808
Core Technology................................................           2,896
Tradename......................................................             326
Patents........................................................             976
Goodwill.......................................................          26,680
Unearned compensation costs....................................             922
Net deferred tax asset.........................................           3,647
                                                                   ------------
                                                                   $     45,735
                                                                   ============

     The purchase price  allocation is preliminary and subject to change pending
finalization of Actel's  analysis  regarding the  realizability of the operating
losses  acquired in the GateField  acquisition.  A valuation  allowance of $27.2
million  was  reflected  in  the  purchase  price  allocation  above  due to the
uncertainty   surrounding   the   realizablity   of  these  net  operating  loss
carryforwards.  Upon completion of this study, which is expected to occur in the
first  half  of  2002,  there  could  be  material  subsequent  reclassification
adjustments  between  deferred  tax  assets  and  goodwill  from  the  GateField
acquisition, if these acquired net operating losses become realizable.

     IPRD was identified and valued through extensive interviews and analysis of
data provided by GateField  concerning  developmental  products,  their stage of
development,  the time,  cost,  and  resources  needed  to  complete  them,  and
associated risks. The income approach,  which bases the value of an asset on its
future earnings capacity, was utilized in valuing the IPRD. This approach values
an asset based on the future cash flows  projected  to be generated by the asset
over its estimated  useful life.  To estimate the value of the IPRD,  the future
cash flows were  discounted  to their  present  value  utilizing a discount rate
(25%) that would provide sufficient return to a potential investor.  At the date
of acquisition,  the in-process technology had no alternative future use and was
not ready for commercial production.

     GateField  commenced  development  efforts on the  next-generation  ProASIC
product  beginning in 2000. The development  efforts  included adding  features,
such  as  increased  input-output  speed,  an  improved  programming  mechanism,
increasing the number of routing tracks and the number of available  gates,  and
migrating  the  ProASIC   technology   from  a  0.25-micron   to  a  0.22-micron
manufacturing  process.  GateField had invested  significant  time and effort in
developing this product family but, at the time of  acquisition,  it had not yet
reached  technological  feasibility.  At the time of the acquisition,  GateField
estimated  the project was  approximately  50% complete and would be complete in
the first quarter of 2001. The percentage was based on GateField having expended
11.7 man-years prior to the acquisition and the need to expend an estimated 11.5
man-years  following the  acquisition to complete the product.  Given that there
was  significant   technological   risk  relating  to  the  development  of  the
next-generation  ProASIC product and that not even the first-generation  ProASIC
product had generated  any revenue,  this product  family met the  definition of
in-process technology and was classified as such.

     The  fair   value  of  the   estimated   discounted   cash   flows  of  the
next-generation  ProASIC was calculated to be $5.1 million on November 15, 2000.
The fair value  calculation  was based on future cash flows  anticipated  in the
years 2001 through 2005,  with  associated  gross margin and expense levels as a
percentage of revenues gradually  improving to current Actel operating levels by
2003.

     Actel  introduced the  next-generation  ProASIC  product  (ProASIC Plus) in
January  2002,  approximately  one  year  later  than  estimated  at the time of
acquisition.  The delay in introduction  confirms the uncertainties that existed
at the time of  acquisition  and  supports  the  initial  classification  of the
technology as IPRD.  Management does not believe the delay had a material impact
on the value attributed to the technology  because no similar competing products
were introduced and the  marketability  of the  next-generation  product was not
materially  diminished.  Based  on  facts  and  circumstances  currently  known,
management believes the value attributed to the IPRD is still materially valid.

     The value of the assembled  workforce was estimated  using a cost approach.
This approach  identifies the employees that would require  significant  cost to
replace  and train.  This  analysis  then  estimates  the  fully-burdened  costs
(locating,  interviewing,  and hiring) attributed to each employee.  These costs
are aggregated and tax-effected to estimate the value of the acquired workforce.
The value assigned to the acquired workforce was $0.5 million, which Actel fully
amortized on a straight-line basis over the estimated useful life of six months.

     The amounts  attributed to developed  technology and core  technology  were
valued using the income approach  described above with discount rates of 15% for
developed  technology and 20% for core technology.  The value of core technology
represents technology from previously  discontinued products that can be applied
to  future  revenue  generating  products.   The  value  assigned  to  developed
technology is based on technology that has achieved  technological  feasibility.
The amounts  assigned to developed  and core  technology,  $5.8 million and $2.9
million,  respectively,  is being  amortized  on a  straight-line  basis over an
estimated useful life of five years.

     The value  assigned to tradename  represents  the value  attributed  to the
ProASIC  tradename owned by GateField.  The relief from royalty  methodology was
utilized to value the tradename.  This methodology assumes that the value of the
asset  equals the amount a third  party  would pay for the asset.  Therefore,  a
revenue stream for the asset is estimated,  and then an appropriate royalty rate
is applied to the forecasted  revenue to estimate the pre-tax income  associated
with the  asset.  The  pre-tax  income  is then  tax-effected  to  estimate  the
after-tax  net income  associated  with the asset.  Finally,  the  after-tax net
income is discounted to the present  value using an  appropriate  rate of return
(20%) that  considers  both the risk of the asset and the  associated  cash flow
estimates.  Actel is amortizing the $0.3 million value assigned to the tradename
on a straight-line basis over an estimated useful life of five years.

     To value the patent  applications,  the  relief  from  royalty  methodology
described  above was  utilized  using a 25% rate of  return  for  present  value
discounting.  Actel is amortizing  the $1.0 million value assigned to the patent
applications  on a  straight-line  basis over an  estimated  useful life of five
years.

     Goodwill,  which  represents  the excess of the purchase price of GateField
over the fair value of the underlying  net  identifiable  assets,  was amortized
during 2001 based on a straight-line  basis and an estimated useful life of five
years.  In  accordance  with SFAS No. 142,  beginning  with the first quarter of
2002,  goodwill  will no longer  be  amortized,  but will  instead  be  reviewed
annually for impairment and adjusted to the extent that impairment  exists.  See
Note 1 for further discussion of the impact of adopting SFAS No. 142.

     Deferred  tax assets and  liabilities  have been  recorded  to reflect  the
future benefits and obligations  associated with the  deductibility of GateField
net operating  loss  carryforwards  and the  non-deductibility  of  amortization
related to acquired goodwill and intangible  assets.  Approximately $3.7 million
of net deferred tax assets were recorded as part of the purchase price.

     Prosys

     On June 2, 2000,  Actel  announced and completed the  acquisition of Prosys
Technology,  Inc. (Prosys), a developer of embedded FPGA cores, in a transaction
accounted for as a purchase.  Total consideration for the Prosys acquisition was
$24.5 million.  In connection with the  acquisition,  Actel paid $6.9 million in
cash and issued 220,518  shares of Actel common stock,  at a value of $34.13 per
share, for all outstanding shares of Prosys stock. The price per share of common
stock was based on an  average  of five days  closing  market  prices  for Actel
common  stock during the period of June 1 through  June 7, 2000.  Actel  assumed
$0.1 million of  liabilities  and incurred  $0.1 million of  acquisition  costs.
Actel also assumed all outstanding Prosys options, all of which were vested. The
outstanding  options  were  estimated to have a fair value equal to $9.9 million
(using the Black-Scholes  option pricing model) and are included in the purchase
price.  Prosys's  results of operations are included in Actel's income statement
for the period from June 2 to December 31, 2000, and succeeding years.

     In accordance  with the provisions of APB Opinion No. 16, all  identifiable
assets and liabilities were assigned a portion of the total consideration on the
basis of their respective fair values. The consideration was allocated, based on
the valuation  report of an  independent  valuation  specialist,  as follows (in
thousands):

In-process research and development............................    $      5,558
Acquired work-force............................................             273
Patent applications............................................             349
Cash & other current assets....................................              57
Deferred tax liability.........................................            (249)
Goodwill.......................................................          18,534
                                                                   ------------
                                                                   $     24,522
                                                                   ============

     IPRD was identified and valued through extensive interviews and analysis of
data  provided  by Prosys  concerning  developmental  products,  their  stage of
development,  the time,  cost,  and  resources  needed  to  complete  them,  and
associated  risks. The income approach,  as discussed above, and a discount rate
of 25% was  utilized  in  valuing  the  IPRD.  At the date of  acquisition,  the
in-process  technology  had no  alternative  future  use  and  had  not  reached
technological feasibility.

     As of  the  valuation  date,  Prosys  had  no  developed  products  in  the
marketplace and was in the process of developing a 4x4 embedded block SRAM-based
FPGA core and had planned an 8x8 embedded block  SRAM-based FPGA core.  These IP
cores  allow  other  semiconductor  companies  to  embed  functional  blocks  of
programmable  logic into their silicon  designs.  Prosys  indicated that the 4x4
embedded  block  was  expected  to be  completed  in late  2000,  following  the
development of key software features.  The 8x8 embedded block core was estimated
to require  approximately  six- to nine-months of additional  development effort
after the  completion of the 4x4 embedded  block core.  The planned  development
time of six- to nine-months  was based on leveraging  the  technology  available
from the 4x4 embedded block core. As of the valuation date,  Prosys had incurred
development  costs of  approximately  $3.1  million  related to the 4x4 embedded
block  core and  estimated  that an  additional  $1.3  million of  research  and
development was required to complete the development of this product.  Thus, the
in-process  4x4  embedded  block  core was  estimated  to be  approximately  70%
complete.  Since the 8x8 embedded block core will leverage  technology  from the
4x4 embedded block core in process, the 8x8 embedded block core was estimated to
be 35% complete in its  development.  These  products were in development at the
time of acquisition  and there was significant  technological  risk at that time
related  to  completing  development  of these  products.  Accordingly,  the 4x4
embedded  block  core  and  the 8x8  embedded  block  core  were  classified  as
in-process technology.

     The fair  value  of the  estimated  discounted  cash  flows  of the  Prosys
in-process  technology  was  calculated to be $5.6 million on June 2, 2000.  The
fair value  calculation was based on future cash flows  anticipated in the years
2000  through  2005,  with  associated  gross  margin  and  expense  levels as a
percentage of revenues gradually  improving to current Actel operating levels by
2002.

     The 4x4 embedded block core was introduced in February 2001 as the VariCore
Embedded  Programmable  Gate Array (EPGA) IP core. Due to the recent downturn in
the  semiconductor  industry,  revenues  from VariCore  EPGAs are  materializing
slower than anticipated.  Given the low level of demand during 2001 for embedded
cores,  the  development   effort  on  the  8x8  embedded  core  was  postponed.
Development  of the 8x8 embedded  block core may resume when demand for embedded
cores  increases.  Management  does not believe that the delay of one quarter in
the  completion  of  the  4x4  embedded  block  core,  the  postponement  of the
development of the 8x8 embedded  block core, or the delay in the  realization of
significant  revenues from the VariCore EPGA  technology  are sufficient at this
time to impact the  values  attributed  to the IPRD,  goodwill,  and  intangible
assets.  Based  on  facts  and  circumstances  current  known,  the  lack of any
significant  revenues is seen as a delay  rather  than a  reduction  in expected
revenues,  so  management  believes  the value  attributed  to the IPRD is still
materially valid.

     The value of the assembled  workforce was estimated  using a cost approach.
Actel  amortized the $0.3 million value assigned to the acquired  workforce on a
straight-line basis over the estimated useful life of six months.

     To value the patent  applications,  the relief from royalty methodology was
utilized with a discount rate of 25%. Actel is amortizing the $0.3 million value
assigned to the patent  applications on a straight-line  basis over an estimated
useful life of five years.

     $18.5  million of  goodwill,  which  represents  the excess of the purchase
price of Prosys over the fair value of the underlying net  identifiable  assets,
was amortized during 2001 based on a straight-line basis and an estimated useful
life of five years.  In accordance  with SFAS No. 142,  beginning with the first
quarter  of 2002,  goodwill  will no longer be  amortized,  but will  instead be
reviewed  annually for  impairment  and  adjusted to the extent that  impairment
exists.  See Note 1 for further  discussion  of the impact of adopting  SFAS No.
142.

     During 2001, additional  consideration of $1.7 million was issued to Prosys
security holders. The additional consideration, which consisted of 54,290 shares
of Actel  common  stock  valued at $1.1  million and $0.6  million of cash,  was
issued to  Prosys  security  holders  pursuant  to the  achievement  of  certain
technological  milestones  specified in the Prosys June 2000 purchase agreement,
and was distributed to all shareholders of Prosys based on their relative equity
interests at the date of acquisition.  Accordingly,  additional goodwill of $1.7
million was recorded during 2001.

     AutoGate Logic

     On December 21, 1999,  Actel  completed the  acquisition of AutoGate Logic,
Inc.  (AutoGate  Logic) in a transaction  accounted for as a purchase.  AutoGate
Logic developed a wide range of very large scale integration  development tools,
including FPGA and custom integrated circuit place and route and timing analysis
software.  In connection  with the  acquisition,  Actel issued 285,943 shares of
common  stock  valued at $18.29 per share and assumed  options  exercisable  for
89,057  shares of Actel  common  stock.  The price per share of common stock was
based on an average of five days  closing  market  prices for Actel common stock
during the period of October 1 through  October 7, 1999,  when the  Agreement to
acquire AutoGate Logic was announced. Amounts prepaid by Actel for a source code
license and accounts receivable held by AutoGate Logic from Actel were netted to
arrive at a total purchase price of $7.2 million.

     In  accordance  with  provisions  of APB Opinion  No. 16, all  identifiable
assets and liabilities were assigned a portion of the total consideration on the
basis of their respective fair values. The consideration was allocated, based on
the valuation  report of an  independent  valuation  specialist,  as follows (in
thousands):

In-process research and development............................    $        600
Completed technology...........................................           2,100
Assembled work force...........................................             200
Cash...........................................................             281
Deferred tax liability.........................................            (920)
Goodwill.......................................................           4,938
                                                                   ------------
                                                                   $      7,199
                                                                   ============

     The acquired completed technology,  comprised of products that were already
technologically  feasible upon  acquisition,  includes  product neutral software
tools for place and route and architecture evaluation. Actel expects to amortize
the  acquired   completed   technology  of  approximately   $2.1  million  on  a
straight-line basis over an average estimated useful life of five years.

     The acquired  assembled  workforce  consisted of  employees  from  AutoGate
Logic's  engineering  group. Actel amortized the value assigned to the assembled
workforce  of  approximately  $0.2  million  on a  straight-line  basis over the
estimated useful life of six months.

     Goodwill,  which  represents  the excess of the purchase  price of AutoGate
Logic over the fair value of the underlying net  identifiable  assets,  is being
amortized on a  straight-line  basis over its estimated  life of five years.  In
accordance with SFAS No. 142, beginning with the first quarter of 2002, goodwill
will no  longer  be  amortized,  but  will  instead  be  reviewed  annually  for
impairment  and adjusted to the extent that  impairment  exists.  See Note 1 for
further discussion of the impact of adopting SFAS No. 142.

6.   Restructuring Charges

     During the second quarter of 1999,  Actel  completed a  restructuring  plan
that  resulted in a reduction  in force  along with the  elimination  of certain
projects and non-critical activities.  The total pretax restructuring charge for
these activities  amounted to $2.0 million.  These measures were taken to reduce
spending and sharpen Actel's focus on new product development.


<TABLE>
<CAPTION>
                                                                               Restruc-                   Balance at
                                                                  Cash/         turing                     Dec. 31,
                         Description                            Non-Cash        Charge       Activity        1999
----------------------------------------------------------     ----------    ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Employee severance and outplacement.......................     Cash          $        586  $        586  $         --
Write-off of prepaid license..............................     Non-cash               734           734            --
Abandoned capital assets..................................     Non-cash               643           643            --
                                                                             ------------  ------------  ------------
                                                                             $      1,963  $      1,963  $         --
                                                                             ============  ============  ============
</TABLE>

     Employee  Severance and Outplacement  Expenses were comprised  primarily of
severance  packages for 31 employees across all functions who were terminated as
part of a reduction in force.  The severance was computed  based upon  severance
compensation, benefits, and related employer payroll taxes.

     Write-Off of Prepaid  License was  associated  with the  cancellation  of a
certain product and related development project. The product was eliminated from
Actel's  future  revenue stream and therefore the license for the product had no
future economic benefit to Actel.

     Abandoned  Capital Assets  consisted of the write-off of capitalized  costs
associated  with a new building  project that was  abandoned and fixed assets no
longer  utilized by Actel that were  scrapped.  The  abandonment of the building
project and  scrapping of the fixed assets were a direct result of the reduction
in force and elimination of certain non-critical activities.

7.   Commitments

     Actel leases its facilities  under  non-cancelable  lease  agreements.  The
current  primary  facilities  lease  agreement  expires  in  June  2003,  with a
five-year renewal option. The equipment lease terms are month-to-month.  Actel's
facilities  and  equipment  leases are  accounted  for as  operating  leases and
require Actel to pay property taxes, insurance and maintenance and repair costs.
At December 31, 2001,  Actel had no capital lease  obligations.  At December 31,
2000, Actel's capital lease obligations were not material.

     Actel has entered into  non-cancelable  licensing  agreements with external
software  developers to enable Actel to include their proprietary  technology in
Actel design and  programming  software.  The following  represents  contractual
commitments   associated  with  operating   leases  and  royalty  and  licensing
agreements:

<TABLE>
<CAPTION>
                                                                        Payments Due by Period
                                                 --------------------------------------------------------------------
                                                                                                             2005
                                                     Total         2002          2003          2004       and later
                                                 ------------  ------------  ------------  ------------  ------------
<S>                                              <C>           <C>           <C>           <C>           <C>
Operating leases...........................      $      5,711  $      3,575  $      1,901  $        235  $         --
Royalty/licensing agreements...............            11,097         2,747         2,575         2,575         3,200
Total.......................................     $     16,808  $      6,322  $      4,476  $      2,810  $      3,200
</TABLE>


At December 31, 2001, Actel also had a number of purchase commitments from wafer
manufacturers  for raw  materials  orders that were expected to be filled within
ninety  days.  The  wafer  purchase  commitments  represent  a  normal  level of
outstanding orders and are not material.

     Rental expense under operating leases was approximately $4.4 million,  $4.3
million, and $4.2 million for 2001, 2000, and 1999, respectively.

8.   Retirement Plan

     Effective  December 10, 1987, Actel adopted a tax deferred savings plan for
the benefit of qualified  employees.  The plan is designed to provide  employees
with an accumulation of funds at retirement.  Employees may elect at any time to
have salary reduction contributions made to the plan.

     Actel may make  contributions to the plan at the discretion of the Board of
Directors.   Actel  made  no  contributions  to  the  plan  for  2001  and  made
contributions of $0.5 million and $0.4 million for 2000 and 1999,  respectively.
Contributions  were based on net revenues  and net income for the fiscal  years.
The contributions vest annually,  retroactively from an eligible employee's date
of hire,  at the rate of 25% per year. In addition,  contributions  become fully
vested upon  retirement  from Actel at age 65. There is no guarantee  Actel will
make any  contributions  to the plan in the future,  regardless of its financial
performance.  If Actel, in its discretion,  chooses to make a contribution again
in the future, the amount could be higher or lower.

9.   Shareholders' Equity

     Stock Option Exchange Program

     Actel offered its United States employees the opportunity to cancel options
that were outstanding on June 29, 2001, in exchange for the grant of a new stock
option six months and one day later.  Under the stock option  exchange  program,
approximately  510,000  stock  options  were granted to employees at an exercise
price of $19.91,  the closing  price of Actel common stock on December 31, 2001.
The weighted average exercise price of the options cancelled in the stock option
exchange program was $35.23.

     Stock Repurchase

     Actel authorized a stock repurchase program in September 1998 whereby up to
1,000,000  shares of Actel's  common stock may be purchased from time to time in
the open market at the discretion of management.  An additional 1,000,000 shares
were  authorized  for  repurchase in 1999.  During 2001 and 1999,  Actel did not
repurchase any common stock.  During 2000, Actel  repurchased  886,108 shares of
common stock for $21.0 million.  Actel reissues  repurchased  shares through its
employee stock option and purchase plans.

     Stock Option Plans

     Actel has adopted stock option plans under which officers,  employees,  and
consultants may be granted  incentive  stock options or nonqualified  options to
purchase  shares of Actel's common stock.  In connection with the acquisition of
Prosys  and  GateField,  Actel  assumed  the stock  option  plans of Prosys  and
GateField and the related  options are  incorporated  in the amounts  below.  At
December 31, 2001,  13,311,453 shares of common stock were reserved for issuance
under these plans,  of which  478,628 were  available  for grant.  Actel's stock
option plan provides  that the  aggregate  number of shares that may be optioned
and sold under the plan is  increased  annually  on the first day of each fiscal
year by such amount as is necessary to make the total number of shares available
for grant under the option  plan equal to 5% of Actel  Common  Stock  issued and
outstanding  at the  close  of  business  on  the  last  day of the  immediately
preceding fiscal year (Annual Replenishment). Following the Annual Replenishment
on January 7, 2002, a total of  14,513,942  shares of Common Stock were reserved
for issuance under the option plan, of which 1,681,117 shares were available for
future option grants.  Options  granted to  consultants in 2001,  2000, and 1999
were recorded at fair value using the  Black-Scholes  model in  accordance  with
EITF 96-18,  "Accounting  for Equity  Instruments  that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" and were not material.

     Actel  has also  adopted  a  Directors'  Stock  Option  Plan,  under  which
directors who are not employees of Actel may be granted  nonqualified options to
purchase shares of Actel's common stock. At December 31, 2001, 292,500 shares of
common stock were  reserved for issuance  under such plan,  of which 75,000 were
available for grant.

     Actel  grants  stock  options  under its plans at a price equal to the fair
value of  Actel's  common  stock  on the date of  grant.  Subject  to  continued
service, options generally vest over a period of four years and expire ten years
from the date of grant.

     The following  table  summarizes  Actel's stock option activity and related
information for the three years ended December 31, 2001:

<TABLE>
<CAPTION>
                                              2001                        2000                        1999
                                   --------------------------  --------------------------  --------------------------
                                                   Weighted                    Weighted                    Weighted
                                                    Average                     Average                     Average
                                    Number of      Exercise     Number of      Exercise     Number of      Exercise
                                      Shares        Price         Shares        Price         Shares        Price
                                   ------------  ------------  ------------  ------------  ------------  ------------
<S>                                  <C>        <C>             <C>         <C>             <C>         <C>
Outstanding at January 1......        6,840,991  $      19.08     5,862,933  $      12.62     5,051,840  $      11.41
Granted.......................        2,472,715         21.21     3,264,468         26.44     2,339,561         14.34
Exercised.....................         (514,574)         9.86    (1,189,898)        10.49      (620,226)         9.94
Cancelled.....................       (1,290,840)        29.00    (1,096,512)        15.72      (908,242)        12.14
                                   ------------                ------------                ------------
Outstanding at December 31....        7,508,292  $      18.70     6,840,991  $      19.08     5,862,933  $      12.62
                                   ============                ============                ============
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                                                          December 31, 2001
                                                 --------------------------------------------------------------------
                                                           Options Outstanding                Options Exercisable
                                                 ----------------------------------------  --------------------------
                                                                Weighted
                                                                 Average
                                                                Remaining      Weighted                    Weighted
                                                                 Contract      Average                     Average
                                                  Number of        Life        Exercise     Number of      Exercise
           Range of Exercise Prices                 Shares      (in years)      Price         Shares        Price
--------------------------------------------     ------------  ------------  ------------  ------------  ------------
<S>                                              <C>          <C>            <C>           <C>           <C>
$   0.07 - 10.63............................          975,934          5.05  $       8.91       578,094  $       8.66
   10.88 - 13.06............................        1,116,783          5.91         12.16       866,879         12.06
   13.56 - 15.00............................          799,682          7.18         14.06       477,969         14.11
   15.13 - 19.91............................        1,059,501          8.91         18.66       274,089         17.16
   20.13 - 21.88............................          618,775          8.81         20.81       146,112         20.69
   21.90 - 21.90............................        1,032,323          9.56         21.90        14,375         21.90
   21.93 - 25.00............................          739,717          8.99         23.60       119,286         23.70
   26.06 - 27.13............................           81,750          8.89         26.26         6,670         27.13
   27.50....................................          764,245          8.12         27.50        84,467         27.50
   28.13 - 54.45............................          319,582          8.44         34.54        66,590         32.95
                                                 ------------                              ------------
                                                    7,508,292          7.77         18.70     2,634,531         14.35
                                                 ============                              ============
</TABLE>
At December 31, 2000,  1,761,989  outstanding  options were exercisable;  and at
December 31, 1999, 1,701,538 outstanding options were exercisable.

     Employee Stock Purchase Plan

     Actel has adopted an  Employee  Stock  Purchase  Plan  (ESPP),  under which
eligible employees may designate not more than 15% of their cash compensation to
be deducted each pay period for the purchase of common stock (up to a maximum of
$25,000  worth of common stock in any year).  At December  31,  2001,  3,019,680
shares of common stock were  authorized for issuance under the ESPP. The ESPP is
administered in  consecutive,  overlapping  offering  periods of up to 24 months
each, with each offering period divided into four consecutive six-month purchase
periods beginning August 1 and February 1 of each year. On the last business day
of each purchase  period,  shares of common stock are purchased with  employees'
payroll deductions  accumulated during the prior six months at a price per share
equal to 85% of the  market  price of the  common  stock on the first day of the
applicable offering period or the last day of the purchase period,  whichever is
lower. There were 223,311,  384,436, and 364,163 shares issued under the ESPP in
2001, 2000, and 1999,  respectively,  and 993,593 shares remained  available for
issuance at December 31, 2001.

     Pro Forma Disclosures

     Pro forma  information  regarding  net  income  and net income per share is
required by SFAS 123, which also requires that the  information be determined as
if  Actel  had  accounted  for  its  stock-based  awards  to  employees  granted
subsequent to December 31, 1994,  under the fair value  method.  The stock based
awards consist of options and employee stock purchase rights. The fair value for
these  stock-based  awards to employees was estimated at the date of grant using
the Black-Scholes pricing model with the following weighted-average  assumptions
for 2001, 2000, and 1999:  risk-free interest rates of 4.06%,  6.13%, and 5.55%,
respectively;  no dividend yield; volatility factor of the expected market price
of  Actel's   common  stock  of  67%,   65%,  and  54%,   respectively;   and  a
weighted-average  expected  life for the options  and  employee  stock  purchase
rights of four  years and two years,  respectively.  The  weighted-average  fair
value of options granted during 2001,  2000, and 1999 were $10.49,  $15.07,  and
$7.17, respectively.  The weighted-average fair value of employee stock purchase
rights  granted  during  2001,  2000,  and 1999 were  $8.14,  $6.64,  and $5.76,
respectively.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions,  including  the  expected  stock price
volatility. Because Actel's stock-based awards to employees have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion the existing models do not necessarily  provide a reliable
single measure of the fair value of Actel's stock-based awards to employees.

     For purposes of pro forma disclosures,  the estimated fair value of Actel's
stock-based  awards to employees is amortized to expense over the vesting period
for options and during the purchase  periods for employee stock purchase rights.
Actel's pro forma information is as follows:

                                               Years Ended December 31,
                                       ----------------------------------------
                                           2001          2000          1999
                                       -----------   ------------  ------------
                                       (in thousands, except per share amounts)
Pro forma net income (loss).......     $    (19,712) $     31,597  $      9,186
Pro forma earnings per share:
   Basic..........................     $     (0.83)  $       1.35  $       0.42
   Diluted........................     $     (0.83)  $       1.22  $       0.41

The effects on pro forma disclosures of applying SFAS 123 are not likely to be
representative of the effects on pro forma disclosures in future years.

10.  Comprehensive Income (Loss)

     The components of comprehensive income (loss), net of tax, are as follows:

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Net income (loss).......................................................     $     (4,701) $     41,445  $     17,638
Change in gain on available-for-sale securities, net of tax of $185 in
   2001, $172 in 2000, and $10,595 in 1999 .............................              276           853        15,892
Less reclassification adjustment for gains included in net income/(loss)             (220)      (16,163)           (9)
                                                                             ------------  ------------  ------------
Other comprehensive income (loss).......................................               56       (15,310)       15,883
                                                                             ------------  ------------  ------------
Total comprehensive income (loss).......................................     $     (4,645) $     26,135  $     33,521
                                                                             ============  ============  ============
</TABLE>
Accumulated other comprehensive  income for 2001, 2000, and 1999 is presented in
the accompanying  consolidated  balance sheets,  and consists of the accumulated
net unrealized gain on available-for-sale securities.


11.  Tax Provision

     The tax provision/(benefit) consists of:

                                              Years Ended December 31,
                                       ----------------------------------------
                                          2001          2000          1999
                                       ------------  ------------  ------------
                                                   (in thousands)
Federal - current.................     $       (146) $     31,554  $     11,709
Federal - deferred................            1,917        (5,402)       (5,073)
State - current...................              (84)        5,078         1,720
State - deferred..................           (1,045)         (299)         (591)
Foreign - current.................              295           296           290
                                       ------------  ------------  ------------
                                       $        937  $     31,227  $      8,055
                                       ============  ============  ============

The tax provision reconciles to the amount computed by multiplying income before
tax by the U.S. statutory rate as follows:


<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
                                                                                          (in thousands)
<S>                                                                          <C>           <C>           <C>
Provision/(benefit) at federal statutory rate                                $     (1,317) $     25,435  $      8,993
Change in valuation allowance...........................................             (440)         (440)         (440)
Tax exempt interest income..............................................             (910)       (1,050)         (770)
Federal research credits................................................           (1,100)       (1,600)       (1,031)
State taxes, net of federal benefit.....................................             (420)        3,106           734
Write-down of deferred tax asset due to state tax rate reduction........            1,044            --            --
Non-deductible impact of amortization of intangibles/investments........            4,092         3,183           341
Non-deductible impact of in-process research and development............               --         3,726           210
Other...................................................................              (12)       (1,133)           18
                                                                             ------------  ------------  ------------
Tax provision...........................................................     $        937  $     31,227  $      8,055
                                                                             ============  ============  ============
</TABLE>

     Significant  components of Actel's  deferred tax assets and liabilities for
federal and state income taxes are as follows:
                                                            December 31,
                                                     --------------------------
                                                         2001          2000
                                                     ------------  ------------
                                                           (in thousands)
Deferred tax assets:
        Depreciation.............................    $      2,228  $      1,968
        Deferred income..........................          10,243        17,159
        Intangible assets........................           4,422         4,994
        Inventories..............................           7,284         3,802
        Net operating losses of acquired
         companies...............................          34,139        34,714
        Other, net...............................           8,645         5,432
                                                     ------------  ------------
                                                           66,961        68,069
        Valuation allowance......................         (28,003)      (28,443)
                                                     ------------  ------------
                Net deferred tax assets..........    $     38,958  $     39,626
                                                     ============  ============
Deferred tax liabilities:
         Intangible assets.......................    $      3,927  $      5,067
                                                     ============  ============

     The valuation  allowance declined by approximately $0.4 million during 2001
and 2000. Approximately $27.2 million of the valuation allowance at December 31,
2001 will be allocated to reduce goodwill or other non-current intangible assets
from the acquisition of GateField when realized.

     Actel has a net operating  loss  carryforward  as a result of the GateField
acquisition  of  approximately  $90 million,  which will expire at various times
beginning in 2006 and ending in 2020. In addition, Actel has California research
and development and  manufacturer's  investment  credits of  approximately  $0.8
million  and $0.2  million,  respectively,  which will  expire in 2006.  Pre-tax
income from foreign subsidiaries is immaterial.

12.  Segment Disclosures

     Actel operates in a single operating segment:  designing,  developing,  and
marketing FPGAs. FPGA sales accounted for 96% of net revenues for the end of the
years ended December 31, 2001,  2000, and 1999. Actel also derives revenues from
the sale of software and hardware systems,  which are used to design and program
FPGAs.  In addition,  Actel  derives  revenues  from the  performance  of design
services,  including  FPGA,  ASIC, and system design;  software  development and
implementation;  and  development of  prototypes,  first articles and production
units.  The Protocol  Design  Services  organization,  which Actel acquired from
GateField  in the third  quarter  of 1998,  accounted  for 1%, 2%, and 2% of net
revenues for the years ended December 31, 2001, 2000, and 1999, respectively.

     Actel  markets its products in the United  States and in foreign  countries
through   its  sales   personnel,   independent   sales   representatives,   and
distributors. Actel's geographic sales are as follows:

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                   ----------------------------------------------------------------------------------
                                              2001                        2000                        1999
                                   --------------------------  --------------------------  --------------------------
                                                           (in thousands, except percentages)
<S>                                <C>           <C>           <C>           <C>           <C>           <C>
United States.................     $     89,847       62%      $    153,847       68%      $    121,819       71%
Export:
     Europe...................           40,652       28             43,282       19             29,010       17
     Japan....................            6,630        4             16,561        7              9,562        6
     Other international......            8,430        6             12,729        6             11,270        6
                                   ------------  ------------  ------------  ------------  ------------  ------------
                                   $    145,559      100%      $    226,419      100%      $    171,661      100%
                                   ============  ============  ============  ============  ============  ============
</TABLE>

     Actel  generates a majority of its  revenues  from the sale of its products
through  distributors.  As of December 31, 2001, Actel's principal  distributors
were Unique Technologies,  Inc. (Unique) and Pioneer-Standard  Electronics, Inc.
(Pioneer).   During  2001,  Actel  consolidated  its  distribution   channel  by
terminating Arrow Electronics, Inc. (Arrow). The following table sets forth, for
each of the last three  years,  the  percentage  of  revenues  derived  from all
customers accounting for 10% or more of net revenues in any of such years:


                                           2001          2000          1999
                                       ------------  ------------  ------------
Pioneer...........................          20%           13%           12%
Unique............................          19            15            13
Arrow.............................          13            17            16
Nortel Networks...................           2            11             9

     Actel   estimates   that  sales  of  its   products  to  customers  in  the
communications  market and the military and aerospace  markets accounted for 49%
and 26% of net revenues for 2001, respectively.  Actel has experienced,  and may
again in the future  experience,  substantial  period-to-period  fluctuations in
operating results due to conditions in the communications  market or the general
economy and no  assurance  can be given that future  sales to  customers  in the
military and aerospace industries will continue at current volume.

     Actel's  property,  plant and equipment are located primarily in the United
States.  Property,  plant and equipment  located outside of the United States is
not material.

13.  Patent Infringement

     On March 29, 2000, Unisys  Corporation  (Unisys) brought suit in the United
States District Court for the Northern District of California, San Jose Division
(Court), against Actel seeking monetary damages and injunctive relief. Actel and
Unisys  orally  agreed to settle  the case on April 25,  2001,  and  executed  a
definitive  written  settlement  agreement on June 29, 2001. The Court dismissed
the case with  prejudice on July 13, 2001.  The  settlement  was  immaterial  to
Actel's business, financial condition, and operating results.

     As is typical in the semiconductor industry,  Actel has been and expects to
be notified from time to time of claims that it may be infringing  patents owned
by others.  During  2001,  Actel held  discussions  regarding  potential  patent
infringement issues with several third parties, some of which have significantly
greater financial and intellectual  property resources than Actel. When probable
and reasonably estimable,  Actel has made provision for the estimated settlement
costs of claims for alleged infringement. The provision is based on an estimated
royalty  rate  applied  to  shipments  made in the  periods  and to or from  the
geographic areas under dispute. In the absence of facts or circumstances  unique
to a  particular  dispute,  the  royalty  rate is  estimated  based  on  Actel's
understanding of royalty rates other technology companies typically agree to pay
in similar types of disputes.  As it has in the past,  Actel may obtain licenses
under  patents  that it is  alleged  to  infringe.  While  Actel  believes  that
reasonable  resolution  will occur,  there can be no assurance that these claims
will be  resolved  or that  the  resolution  of  these  claims  will  not have a
materially adverse effect on Actel's business,  financial condition,  or results
of operations.  In addition,  Actel's  evaluation of the impact of these pending
disputes could change based upon new  information  learned by Actel.  Subject to
the foregoing,  Actel does not believe that any pending patent dispute is likely
to have a materially adverse effect on Actel's business, financial condition, or
results of operations.

14.  Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                             ----------------------------------------
                                                                                 2001          2000          1999
                                                                             ------------  ------------  ------------
                                                                                          (in thousands,
                                                                                     except per share amounts)
<S>                                                                          <C>           <C>           <C>
Basic:
Weighted-average common shares outstanding..............................           23,743        23,447        21,664
                                                                             ------------  ------------  ------------
Shares used in computing net income per share...........................           23,743        23,447        21,664
                                                                             ============  ============  ============
Net income (loss).......................................................     $     (4,701) $     41,445  $     17,638
                                                                             ============  ============  ============
Net income (loss) per share.............................................     $      (0.20) $       1.77  $       0.81
                                                                             ============  ============  ============
Diluted:
Weighted-average common shares outstanding..............................           23,743        23,447        21,664
Net effect of dilutive stock options, warrants, and convertible preferred
   stock - based on the treasury stock method...........................               --         2,786         1,394
                                                                             ------------  ------------  ------------
Shares used in computing net income per share...........................           23,743        26,233        23,058
                                                                             ============  ============  ============
Net income (loss).......................................................     $     (4,701) $     41,445  $     17,638
                                                                             ============  ============  ============
Net income (loss) per share.............................................     $      (0.20) $       1.58  $       0.76
                                                                             ============  ============  ============
</TABLE>

     For 2001,  Actel was in a net loss  position and the inclusion of any stock
options in the shares used for  computing  diluted net loss per share would have
been  anti-dilutive  (reduced  the loss  per  share).  Therefore,  approximately
1,381,000 common stock equivalent shares which would have been included if Actel
had achieved a net income and  2,635,000  options  which were  excluded from the
calculation because their inclusion would have had an anti-dilutive  effect were
excluded from the calculation to derive the net loss per share for 2001. Options
outstanding under Actel's stock option plans to purchase  approximately  361,000
and 218,000  shares of Actel common stock were excluded from the  calculation to
derive  diluted  income  per share for the  years  2000 and 1999,  respectively,
because their inclusion would have had an anti-dilutive effect.

<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS
ACTEL CORPORATION

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Actel
Corporation  as of  December  31, 2001 and 2000,  and the  related  consolidated
statements  of  operations,   shareholders'   equity  and  other   comprehensive
income/(loss),  and cash flows for each of the three  years in the period  ended
December 31, 2001. These financial  statements are the responsibility of Actel's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Actel Corporation
at December, 31 2001 and 2000 and the consolidated results of its operations and
its cash flows for each of the three  years in the  period  ended  December  31,
2001, in conformity with accounting  principles generally accepted in the United
States.



                                                           /s/ ERNST & YOUNG LLP

San Jose, California
January 21, 2002