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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q



|[X]   |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
quarterly period ended September 30, 2002
or
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|     
|[   ] |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the
transition period from ______ to ______.   

Commission File Number: 0-20710

PEOPLESOFT, INC.(Exact name of registrant as specified in its charter)

|                                                                              |  |                                                
|----------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)       |  | 68-0137069
(I.R.S. Employer Identification No.)
|                                                                             
|4460 Hacienda Drive, Pleasanton, CA
(Address of principal executive officers) |  | 94588
(Zip Code)                               

Registrants telephone number, including area code: (925) 225-3000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

|                              |  |                                 
|----------------------------- |  | --------------------------------
|Class                         |  | Outstanding at November 12, 2002
|                              |  |                                 
|Common Stock, par value $0.01 |  | 312,986,688                     



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TABLE OF CONTENTS

|                                     |  |                                                                                                                                               |  |     
|------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                     |  |                                                                                                                                               |  | PAGE
|                                     |  |                                                                                                                                               |  |     
|PART I FINANCIAL
        INFORMATION | 
|                                    
|ITEM 1                              |  | Condensed Consolidated Financial
        Statements                                                                                           |  |     
|                                    
|                                     |  | Condensed Consolidated Balance
        Sheets as of September 30, 2002 and December 31, 2001                                                  |  | 2   
|                                    
|                                     |  | Condensed Consolidated Statements
        of Operations for the Three and Nine Months Ended September 30, 2002
        and September 30, 2001 |  | 3   
|                                    
|                                     |  | Condensed Consolidated Statements
        of Cash Flows for the Nine Months Ended September 30, 2002 and September 30,
        2001           |  | 4   
|                                    
|                                     |  | Notes to Condensed Consolidated
        Financial Statements                                                                                  |  | 5   
|                                    
|ITEM 2                              |  | Managements Discussion
        and Analysis of Financial Condition and Results of Operations                                                 |  | 13  
|                                    
|ITEM 3                              |  | Quantitative and Qualitative
        Disclosures About Market Risk                                                                            |  | 23  
|                                    
|ITEM 4                              |  | Controls and Procedures                                                                                                                       |  | 26  
|                                    
|PART II OTHER
        INFORMATION    | 
|                                    
|ITEM 1                              |  | Legal Proceedings                                                                                                                             |  | 35  
|                                    
|ITEM 2                              |  | Changes in Securities and
        Use of Proceeds                                                                                             |  | 35  
|                                    
|ITEM 3                              |  | Defaults Upon Senior Securities                                                                                                               |  | 35  
|                                    
|ITEM 4                              |  | Submission of Matters to a
        Vote of Security Holders                                                                                   |  | 35  
|                                    
|ITEM 5                              |  | Other Information                                                                                                                             |  | 35  
|                                    
|ITEM 6                              |  | Exhibits and Reports on Form 8-K                                                                                                              |  | 35  
|                                    
|SIGNATURES                           |  | 36                                                                                                                                           
|                                    
|CERTIFICATIONS                       |  | 37                                                                                                                                           

1



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PART I  FINANCIAL INFORMATION

ITEM 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


PEOPLESOFT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

|                                          |                                           |                                            |         |                    |           |                   |         |           |           | 
|----------------------------------------- | ----------------------------------------- | ------------------------------------------ | ------- | ------------------ | --------- | ----------------- | ------- | --------- | --------- | 
|                                          |                                           |                                            |         | September 30, 2002 |           | December 31, 2001
|                                          |                                           |                                            |         |                    |           |                  
|Assets:                                   |                                           |                                            |         |                    |           |                   |         |          
|Current assets:                           |                                           |                                            |         |                    |           |                   |         |          
|                                          | Cash and cash equivalents                 |                                            | $       | 311,651            |           |                   | $       | 433,700   |          
|                                          | Short-term investments                    |                                            |         | 1,385,358          |           |                   |         | 1,199,046 |          
|                                          | Accounts receivable, net                  |                                            |         | 315,367            |           |                   |         | 375,437   |          
|                                          | Income taxes receivable                   |                                            |         | 34,092             |           |                   |         | 7,288     |          
|                                          | Deferred tax assets                       |                                            |         | 48,627             |           |                   |         | 58,088    |          
|                                          | Other current assets                      |                                            |         | 50,067             |           |                   |         | 59,309    |          
|                                          |                                           |                                            |         |                    |           |                   |         |          
|                                          |                                           | Total current assets                       |         |                    | 2,145,162 |                   |         |           | 2,132,868 | 
|Property and equipment, net               |                                           |                                            | 225,501 |                    |           |                   | 214,162 |          
|Investments                               |                                           |                                            | 66,732  |                    |           |                   | 40,587  |          
|Deferred tax assets                       |                                           |                                            | 115,218 |                    |           |                   | 94,932  |          
|Capitalized software, net                 |                                           |                                            | 48,312  |                    |           |                   | 16,213  |          
|Goodwill                                  |                                           |                                            | 54,130  |                    |           |                   | 32,203  |          
|Other assets                              |                                           |                                            | 20,953  |                    |           |                   | 17,040  |          
|                                          |                                           |                                            |         |                    |           |                   |         |          
|                                          |                                           | Total assets                               |         | $                  | 2,676,008 |                   |         | $         | 2,548,005 | 
|                                          |                                           |                                            |         |                    |           |                   |         |          
|Liabilities and Stockholders Equity:     |                                           |                                            |         |                    |           |                   |         |          
|Current liabilities:                      |                                           |                                            |         |                    |           |                   |         |          
|                                          | Accounts payable                          |                                            | $       | 29,277             |           |                   | $       | 37,115    |          
|                                          | Accrued liabilities                       |                                            |         | 117,479            |           |                   |         | 144,646   |          
|                                          | Accrued compensation and related expenses |                                            |         | 148,838            |           |                   |         | 184,237   |          
|                                          | Income taxes payable                      |                                            |         | 18,046             |           |                   |         | 6,236     |          
|                                          | Convertible debt                          |                                            |         |                   |           |                   |         | 57,000    |          
|                                          | Short-term deferred revenues              |                                            |         | 391,984            |           |                   |         | 409,316   |          
|                                          |                                           |                                            |         |                    |           |                   |         |          
|                                          |                                           | Total current liabilities                  |         |                    | 705,624   |                   |         |           | 838,550   | 
|Long-term deferred revenues               |                                           |                                            | 93,138  |                    |           |                   | 98,025  |          
|Other liabilities                         |                                           |                                            | 20,857  |                    |           |                   | 19,490  |          
|Commitments and contingencies (see notes) |                                           |                                            |         |                    |           |                   |         |          
|Stockholders equity:                     |                                           |                                            |         |                    |           |                   |         |          
|                                          | Common stock                              |                                            |         | 3,137              |           |                   |         | 3,068     |          
|                                          | Additional paid-in capital                |                                            |         | 1,354,017          |           |                   |         | 1,226,155 |          
|                                          | Retained earnings                         |                                            |         | 542,393            |           |                   |         | 417,214   |          
|                                          | Treasury stock                            |                                            |         | (35,543            | )         |                   |         | (35,414   | )        
|                                          | Accumulated other comprehensive loss      |                                            |         | (7,615             | )         |                   |         | (19,083   | )        
|                                          |                                           |                                            |         |                    |           |                   |         |          
|                                          |                                           | Total stockholders equity                 |         |                    | 1,856,389 |                   |         |           | 1,591,940 | 
|                                          |                                           |                                            |         |                    |           |                   |         |          
|                                          |                                           | Total liabilities and stockholders equity |         | $                  | 2,676,008 |                   |         | $         | 2,548,005 | 
|                                          |                                           |                                            |         |                    |           |                   |         |          

See accompanying notes to unaudited condensed consolidated financial statements.

2



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PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |           |           | 
|--------------------------------------------------- | -------------------------------------------- | ------------------------ | ------- | ------------------ | ------- | ----------------- | ------- | ------- | ------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                    |                                              |                          |         | Three Months Ended |         | Nine Months Ended
|                                                    |                                              |                          |         | September 30,      |         | September 30,    
|                                                    |                                              |                          |         |                    |         |                  
|                                                    |                                              |                          |         | 2002               |         | 2001              |         | 2002    |         | 2001
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |     
|Revenues:                                           |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|                                                    | License fees                                 |                          | $       | 121,616            |         |                   | $       | 151,763 |         |      | $       | 386,835   |           |   | $       | 471,346   |          
|                                                    | Services                                     |                          |         | 349,597            |         |                   |         | 344,846 |         |      |         | 1,042,327 |           |   |         | 1,024,086 |          
|                                                    | Development and other services               |                          |         |                   |         |                   |         | 24,127  |         |      |         | 7,530     |           |   |         | 83,999    |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|                                                    |                                              | Total revenues           |         |                    | 471,213 |                   |         |         | 520,736 |      |         |           | 1,436,692 |   |         |           | 1,579,431 | 
|Costs and expenses:                                 |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|                                                    | Cost of license fees                         |                          |         | 11,484             |         |                   |         | 12,022  |         |      |         | 33,103    |           |   |         | 46,523    |          
|                                                    | Cost of services                             |                          |         | 159,369            |         |                   |         | 180,491 |         |      |         | 495,058   |           |   |         | 561,202   |          
|                                                    | Cost of development and other services       |                          |         |                   |         |                   |         | 21,842  |         |      |         | 6,755     |           |   |         | 76,202    |          
|                                                    | Sales and marketing expense                  |                          |         | 127,641            |         |                   |         | 126,009 |         |      |         | 378,373   |           |   |         | 383,629   |          
|                                                    | Product development expense                  |                          |         | 83,002             |         |                   |         | 70,939  |         |      |         | 252,882   |           |   |         | 223,812   |          
|                                                    | General and administrative expense           |                          |         | 27,209             |         |                   |         | 40,940  |         |      |         | 84,851    |           |   |         | 116,484   |          
|                                                    | Restructuring, acquisition and other charges |                          |         |                   |         |                   |         | 750     |         |      |         | 11,479    |           |   |         | 12        |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|                                                    |                                              | Total costs and expenses |         |                    | 408,705 |                   |         |         | 452,993 |      |         |           | 1,262,501 |   |         |           | 1,407,864 | 
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|Operating income                                    |                                              |                          | 62,508  |                    |         |                   | 67,743  |         |         |      | 174,191 |           |           |   | 171,567 |          
|Other income, net                                   |                                              |                          | 5,607   |                    |         |                   | 7,751   |         |         |      | 21,324  |           |           |   | 29,810  |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|Income before provision for income taxes            |                                              |                          | 68,115  |                    |         |                   | 75,494  |         |         |      | 195,515 |           |           |   | 201,377 |          
|Provision for income taxes                          |                                              |                          | 23,500  |                    |         |                   | 25,149  |         |         |      | 70,336  |           |           |   | 67,593  |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|Net income                                          |                                              | $                        | 44,615  |                    |         | $                 | 50,345  |         |         | $    | 125,179 |           |           | $ | 133,784 |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|Basic income per share                              |                                              | $                        | 0.14    |                    |         | $                 | 0.17    |         |         | $    | 0.40    |           |           | $ | 0.45    |          
|Shares used in basic income per share computation   |                                              |                          | 312,214 |                    |         |                   | 302,153 |         |         |      | 310,231 |           |           |   | 296,036 |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          
|Diluted income per share                            |                                              | $                        | 0.14    |                    |         | $                 | 0.16    |         |         | $    | 0.39    |           |           | $ | 0.42    |          
|Shares used in diluted income per share computation |                                              |                          | 315,367 |                    |         |                   | 322,323 |         |         |      | 321,060 |           |           |   | 322,199 |          
|                                                    |                                              |                          |         |                    |         |                   |         |         |         |      |         |           |           |   |         |          

See accompanying notes to unaudited condensed consolidated financial statements.

3



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PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |       |          |         |  
|--------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------------------------- | ------- | ---------- | ----- | -------- | ------- | -
|                                                                                  |                            |                                                                              |                                                     |        | Nine Months Ended September 30,
|                                                                                  |                            |                                                                              |                                                     |        |                                
|                                                                                  |                            |                                                                              |                                                     |        | 2002                            |         | 2001      
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |           
|Operating activities:                                                             |                            |                                                                              |                                                     |        |                                 |         |            |      
|Net income                                                                        |                            | $                                                                            | 125,179                                             |        |                                 | $       | 133,784    |      
|Adjustments to reconcile net income to net cash
provided by operating activities: |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  |                            | Depreciation and amortization                                                |                                                     |        | 71,966                          |         |            |       | 73,783   |        
|                                                                                  |                            | Provision for doubtful accounts                                              |                                                     |        | 5,914                           |         |            |       | 15,863   |        
|                                                                                  |                            | Tax benefits from exercise of stock options                                  |                                                     |        | 23,263                          |         |            |       | 68,394   |        
|                                                                                  |                            | Benefit from deferred income taxes                                           |                                                     |        | (4,085                          | )       |            |       | (22,621  | )      
|                                                                                  |                            | Gain on sales of investments and disposition of property and
equipment, net  |                                                     |        | (3,251                          | )       |            |       | (3,116   | )      
|                                                                                  |                            | In-process research and development, acquisition and other non-cash charges  |                                                     |        | 11,479                          |         |            |       | 12       |        
|                                                                                  |                            | Non-cash stock compensation                                                  |                                                     |        | 5,831                           |         |            |       | 2,131    |        
|                                                                                  |                            | Changes in operating assets and liabilities, net of effects of acquisitions: |                                                     |        |                                 |         |            |       |          |        
|                                                                                  |                            |                                                                              | Accounts receivable                                 |        |                                 | 53,219  |            |       |          | 75,910  |  
|                                                                                  |                            |                                                                              | Accounts payable and accrued liabilities            |        |                                 | (33,461 | )          |       |          | 7,399   |  
|                                                                                  |                            |                                                                              | Accrued compensation and related expenses           |        |                                 | (31,675 | )          |       |          | (2,547  | )
|                                                                                  |                            |                                                                              | Income taxes receivable, net                        |        |                                 | 27,401  |            |       |          | 23,582  |  
|                                                                                  |                            |                                                                              | Deferred revenues                                   |        |                                 | (24,080 | )          |       |          | (27,223 | )
|                                                                                  |                            |                                                                              | Other current and noncurrent assets and liabilities |        |                                 | 10,454  |            |       |          | (13,721 | )
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  |                            | Net cash provided by operating activities                                    |                                                     |        | 238,154                         |         |            |       | 331,630  |        
|Investing activities:                                                             |                            |                                                                              |                                                     |        |                                 |         |            |      
|Purchase of investments                                                           |                            |                                                                              | (7,022,567                                          | )      |                                 |         | (5,776,371 | )    
|Proceeds from maturities and sales of investments                                 |                            |                                                                              | 6,810,089                                           |        |                                 |         | 5,100,079  |      
|Purchase of property and equipment                                                |                            |                                                                              | (72,206                                             | )      |                                 |         | (69,907    | )    
|Acquisitions, net of cash acquired                                                |                            |                                                                              | (120,894                                            | )      |                                 |         | (26,388    | )    
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  |                            | Net cash used in investing activities                                        |                                                     |        | (405,578                        | )       |            |       | (772,587 | )      
|Financing activities:                                                             |                            |                                                                              |                                                     |        |                                 |         |            |      
|Proceeds from sale of common stock and exercise of stock options                  |                            |                                                                              | 96,600                                              |        |                                 |         | 215,359    |      
|Purchase of treasury stock                                                        |                            |                                                                              |                                                    |        |                                 |         | (20,040    | )    
|Repurchases of convertible debt, net                                              |                            |                                                                              |                                                    |        |                                 |         | (10,542    | )    
|Retirement of convertible debt                                                    |                            |                                                                              | (57,000                                             | )      |                                 |         |           |      
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  |                            | Net cash provided by financing activities                                    |                                                     |        | 39,600                          |         |            |       | 184,777  |        
|Effect of foreign exchange rate changes on cash and cash equivalents              |                            |                                                                              | 5,775                                               |        |                                 |         | (446       | )    
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|Net decrease in cash and cash equivalents                                         |                            |                                                                              | (122,049                                            | )      |                                 |         | (256,626   | )    
|Cash and cash equivalents at beginning of period                                  |                            |                                                                              | 433,700                                             |        |                                 |         | 646,605    |      
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|Cash and cash equivalents at end of period                                        |                            | $                                                                            | 311,651                                             |        |                                 | $       | 389,979    |      
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      
|Supplemental disclosures:                                                         |                            |                                                                              |                                                     |        |                                 |         |            |      
|                                                                                  | Cash paid for interest     |                                                                              | $                                                   | 2,975  |                                 |         | $          | 3,187 |         
|                                                                                  | Cash paid for income taxes |                                                                              | $                                                   | 20,756 |                                 |         | $          | 460   |         
|                                                                                  |                            |                                                                              |                                                     |        |                                 |         |            |      

See accompanying notes to unaudited condensed consolidated financial statements.

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PEOPLESOFT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The information for the three and nine months ended September 30, 2002 and
September 30, 2001, is unaudited but includes all adjustments that the Company
believes to be necessary for the fair presentation of the financial position,
results of operations, and changes in cash flows for the periods presented. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP) requires the
Company to make estimates and assumptions that may affect the reported amounts
of assets and liabilities at the date of the financial statements as well as
the reported amounts of revenues and expenses during the reported periods.
Despite the Companys best effort to make these good faith estimates and
assumptions, actual results may differ.

The accompanying interim condensed consolidated financial statements
should be read in conjunction with the financial statements and related notes
included in the Companys Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2001. Certain information and footnote disclosures
normally included in the Companys annual financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations. Interim results of
operations for the three and nine months ended September 30, 2002 are not
necessarily indicative of operating results or performance levels that can be
expected for the full fiscal year. Certain prior period amounts have been
reclassified to conform to the current period presentation.

2. Per Share Data

Basic income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted income
per share is computed by dividing net income by the sum of weighted average
number of common shares outstanding and potential dilutive common shares
outstanding during the period. Potential common shares consist of the shares
issuable upon the exercise of stock options and from withholdings associated
with the Companys employee stock purchase plan, using the treasury stock
method and the conversion of convertible subordinated notes, using the
if-converted method.

The following table sets forth the computation of basic and diluted income
per share (in thousands, except per share amounts):

|                         |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |         | 
|------------------------ | ------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------- | ----------------- | - | ---- | ------- | ---- | - | ---- | ------- |  | - | ---- | ------- | 
|                         |                                                                                                                           |   | Three Months Ended |         | Nine Months Ended
|                         |                                                                                                                           |   | September 30,      |         | September 30,    
|                         |                                                                                                                           |   |                    |         |                  
|                         |                                                                                                                           |   | 2002               |         | 2001              |   | 2002 |         | 2001
|                         |                                                                                                                           |   |                    |         |                   |   |      |         |     
|Numerator:               |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                         | Net income                                                                                                                |   | $                  | 44,615  |                   |   | $    | 50,345  |      |   | $    | 125,179 |  |   | $    | 133,784 | 
|Denominator:             |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                         | Denominator
for basic income per share 
Weighted average shares outstanding                                              |   |                    | 312,214 |                   |   |      | 302,153 |      |   |      | 310,231 |  |   |      | 296,036 | 
|                         | Dilutive effect of potential common shares                                                                                |   |                    | 3,153   |                   |   |      | 20,170  |      |   |      | 10,829  |  |   |      | 26,163  | 
|                         |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        
|                         | Denominator
for diluted income per share  Weighted average shares outstanding
including potential dilutive common shares |   |                    | 315,367 |                   |   |      | 322,323 |      |   |      | 321,060 |  |   |      | 322,199 | 
|                         |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        
|Basic income per share   |                                                                                                                           | $ | 0.14               |         |                   | $ | 0.17 |         |      | $ | 0.40 |         |  | $ | 0.45 |        
|                         |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        
|Diluted income per share |                                                                                                                           | $ | 0.14               |         |                   | $ | 0.16 |         |      | $ | 0.39 |         |  | $ | 0.42 |        
|                         |                                                                                                                           |   |                    |         |                   |   |      |         |      |   |      |         |  |   |      |        

5



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##### 



The following table sets forth the potential common shares that were
excluded from the net income per share computations because the exercise or
conversion prices were greater than the average market price of the common
shares during the period and were therefore not dilutive (in millions):

|                                   |  |                    |      |                   |  |      |      |      |  |  |      |  |  |  |      | 
|---------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|                                   |  | Three Months Ended |      | Nine Months Ended
|                                   |  | September 30,      |      | September 30,    
|                                   |  |                    |      |                  
|                                   |  | 2002               |      | 2001              |  | 2002 |      | 2001
|                                   |  |                    |      |                   |  |      |      |     
|Employee stock options outstanding |  |                    | 52.8 |                   |  |      | 12.0 |      |  |  | 25.5 |  |  |  | 12.0 | 
|Convertible debt                   |  |                    |     |                   |  |      | 1.1  |      |  |  |     |  |  |  | 1.1  | 
|                                   |  |                    |      |                   |  |      |      |      |  |  |      |  |  |  |      | 
|Total                              |  |                    | 52.8 |                   |  |      | 13.1 |      |  |  | 25.5 |  |  |  | 13.1 | 
|                                   |  |                    |      |                   |  |      |      |      |  |  |      |  |  |  |      | 

The weighted average exercise price of the employee stock options with
exercise prices exceeding the average fair value of the Companys common stock
for the three and nine months ended September 30, 2002 and September 30, 2001
was $26.69 and $37.13 per share and $33.29 and $37.13 per share.

3. Financial Instruments

Derivative financial instruments are utilized by the Company to reduce
foreign currency exchange and interest rate risks. Derivative transactions are
restricted to foreign currency hedges and interest rate swaps. The Company
does not hold any derivative financial instruments for trading or speculative
purposes.

Forward Foreign Exchange Contracts

The Company has a foreign currency hedging program principally designed to
mitigate the future potential impact due to changes in foreign currency
exchange rates. The program uses forward exchange contracts to hedge
significant balances due to the parent company, as well as significant
non-functional currency balances due to one foreign subsidiary. The
derivatives used in the foreign exchange hedging program are not designated as
cash flow or fair value hedges under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), as amended. In general, the forward exchange
contracts have terms of two months or less. These contracts are recorded on the
balance sheet at fair value in Accrued liabilities. Changes in the fair
value of the contracts and the amounts being hedged are included in Other
income, net in the accompanying condensed consolidated statements of
operations.

During the three months ended September 30, 2002 and September 30, 2001,
the Company recorded net foreign currency gains of $0.3 million and net foreign
currency losses of $1.9 million. During the nine months ended September 30,
2002 and September 30, 2001, the Company recorded net foreign currency gains of
$2.8 million and net foreign currency losses of $2.7 million. At September 30,
2002, the Company had outstanding forward foreign exchange contracts to
exchange Singapore dollars ($5.3 million) for U.S. dollars, to exchange U.S.
dollars for Euros ($9.8 million), South African rand ($2.5 million), Swiss
francs ($2.1 million), Canadian dollars ($2.0 million), British pounds ($1.0
million), New Zealand dollars ($0.9 million), Swedish krona ($0.8 million),
Japanese yen ($0.7 million), Australian dollars ($0.6 million), Brazilian reals
($0.6 million) and Chilean pesos ($0.4 million) and to exchange South African
rand ($2.5 million) for Euros. At September 30, 2002, each of these contracts
matured within 60 days and had a book value that approximated fair value.
Neither the cost nor the fair value of these forward foreign exchange contracts
were material at September 30, 2002. At September 30, 2001, the Company had
outstanding forward exchange contracts to exchange U.S. dollars for Euros ($8.6
million), Swiss francs ($3.2 million), South African rand ($3.1 million),
British pounds ($2.0 million), Japanese yen ($1.2 million), Swedish krona ($1.1
million), New Zealand dollars ($0.9 million), and Canadian dollars ($0.6
million) and to exchange Australian dollars ($9.0 million), Singapore
dollars ($3.7 million), Hong Kong dollars ($2.2 million) and Chilean
pesos ($0.6 million) for U.S. dollars. At September 30, 2001, each of these contracts matured within 60 days
and had a book value that approximated fair value. Neither the cost nor the
fair value of these forward exchange contracts was material at September 30,
2001.

In addition to hedging existing transaction exposures, the Companys
foreign exchange hedging policy allows for the hedging of anticipated
transactions and for hedging the exposure resulting from the translation of
foreign subsidiary financial results into U.S. dollars. Such hedges can only be
undertaken by

6



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##### 



the Company to the extent that the exposures are highly certain,
reasonably estimable and significant in amount. No such hedges have occurred
through September 30, 2002.

Interest Rate Swap Transactions

The Company has entered into interest rate swap transactions to manage its
exposure to interest rate changes on certain facility lease obligations. At
September 30, 2002, the swaps had an aggregate notional amount of $175.0
million and a fair value of $168.2 million. The swaps mature at various dates
in 2003, consistent with the maturity dates of the facility leases. Under these
agreements, the Company receives a variable rate based on the three month LIBOR
set on the last day of the previous quarter and pays a weighted average fixed
rate of 6.80%. The swaps involve the exchange of variable interest rate
payments for fixed interest rate payments without exchanging the notional
principal amount. These swaps are designated under SFAS 133 as hedges against
changes in amount of future cash flows. Included in Accumulated other
comprehensive loss as of September 30, 2002 is a $4.2 million unrealized loss
(after-tax) related to these interest rate swaps. Derivative losses included in
Accumulated other comprehensive loss in the accompanying condensed
consolidated balance sheets of $4.2 million (after-tax) are estimated to be
reclassified into earnings over the remaining life of the swaps based upon a 9
month forward LIBOR rate.

Concentrations of Credit Risk

The Company does not believe that it has a significant concentration of
credit or operating risk in any one investment, industry or geographic region
within or outside of the United States.

4. Comprehensive Income

The components of comprehensive income, net of tax, were as follows (in
thousands):

|                                   |                                                                      |                                                                       |        |                    |      |                   |        |       |        |      |         |        |        |   |         |        |        |  
|---------------------------------- | -------------------------------------------------------------------- | --------------------------------------------------------------------- | ------ | ------------------ | ---- | ----------------- | ------ | ----- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                   |                                                                      |                                                                       |        | Three Months Ended |      | Nine Months Ended
|                                   |                                                                      |                                                                       |        | September 30,      |      | September 30,    
|                                   |                                                                      |                                                                       |        |                    |      |                  
|                                   |                                                                      |                                                                       |        | 2002               |      | 2001              |        | 2002  |        | 2001
|                                   |                                                                      |                                                                       |        |                    |      |                   |        |       |        |     
|Net income                         |                                                                      | $                                                                     | 44,615 |                    |      | $                 | 50,345 |       |        | $    | 125,179 |        |        | $ | 133,784 |       
|Other comprehensive income (loss): |                                                                      |                                                                       |        |                    |      |                   |        |       |        |      |         |        |        |   |         |       
|                                   | Net change in unrealized gain/loss on
available-for-sale investments |                                                                       |        | (374               | )    |                   |        | (416  | )      |      |         | (676   | )      |   |         | (1,098 | )     
|                                   | Foreign currency translation adjustments                             |                                                                       |        | (4,629             | )    |                   |        | 5,394 |        |      |         | 10,335 |        |   |         | (3,384 | )     
|                                   | Interest rate swap transactions:                                     |                                                                       |        |                    |      |                   |        |       |        |      |         |        |        |   |         |        |       
|                                   |                                                                      | Cumulative effect of accounting change                                |        |                    |     |                   |        |       |       |      |         |        |       |   |         |        | (2,648 | )
|                                   |                                                                      | Net unrealized loss on cash flow hedges                               |        |                    | (296 | )                 |        |       | (3,306 | )    |         |        | (1,151 | ) |         |        | (5,542 | )
|                                   |                                                                      | Reclassification adjustment for
earnings recognized during the period |        |                    | 870  |                   |        |       | 840    |      |         |        | 2,960  |   |         |        | 1,452  |  
|                                   |                                                                      |                                                                       |        |                    |      |                   |        |       |        |      |         |        |        |   |         |       
|Comprehensive income               |                                                                      | $                                                                     | 40,186 |                    |      | $                 | 52,857 |       |        | $    | 136,647 |        |        | $ | 122,564 |       
|                                   |                                                                      |                                                                       |        |                    |      |                   |        |       |        |      |         |        |        |   |         |       

7



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5. Restructuring Reserves

The following table sets forth the Companys remaining restructuring
reserves as of December 31, 2001 and September 30, 2002, which are included in
Accrued liabilities (in thousands). Future cash payments related to the
remaining lease obligations are expected to be made through October 2005.

|                           |               |   |        |      |       |   |       |      |   |   |       |        |  
|-------------------------- | ------------- | - | ------ | ---- | ----- | - | ----- | ---- | - | - | ----- | ------ | -
|                           |               |   | Leases |      | Other |   | Total
|                           |               |   |        |      |       |   |      
|Balance December 31, 2001  |               | $ | 3,268  |      |       | $ | 820   |      |   | $ | 4,088 |       
|                           | Cash payments |   |        | (656 | )     |   |       | (820 | ) |   |       | (1,476 | )
|                           |               |   |        |      |       |   |       |      |   |   |       |       
|Balance September 30, 2002 |               | $ | 2,612  |      |       | $ |      |      |   | $ | 2,612 |       
|                           |               |   |        |      |       |   |       |      |   |   |       |       

6. Commitments and Contingencies

From time to time in the course of general business activities, the
Company may become involved in legal disputes and proceedings. The Company
does not expect the resolution of any one of these matters to have a material
adverse affect on the financial position or on the results of operations and
cash flows of the Company. However, depending on the amounts involved and the
timing of the resolution of these matters, an unfavorable resolution of some or
all of them could materially affect the Companys future results of operations
or cash flows in a particular period.

7. Segment Information

The Company identified its chief executive officer (CEO) as the chief
operating decision maker. The Companys CEO evaluates revenue performance based
on two segments: North America, which includes operations in the U.S. and
Canada, and International, which includes operations in all other geographic
regions. Financial data for the two segments is presented below. Employee
headcount and operating costs are managed by functional areas, rather than by
revenue segments, and are primarily reviewed by the CEO on a company-wide basis. In
addition, the Company accounts for and reports to the CEO its assets and
capital expenditures by the North American and
International segments. The accounting policies for each reportable segment are
the same as those described in the summary of significant accounting policies
included in the Companys Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2001.

The following table presents a summary of operating information by
operating segment (in thousands):

|                  |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |           | 
|----------------- | ------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | --------- |  |  | - | --------- | 
|                  |               |  | Three Months Ended |         | Nine Months Ended
|                  |               |  | September 30,      |         | September 30,    
|                  |               |  |                    |         |                  
|                  |               |  | 2002               |         | 2001              |  | 2002 |         | 2001
|                  |               |  |                    |         |                   |  |      |         |     
|Revenues:         |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          
|                  | North America |  | $                  | 356,668 |                   |  | $    | 403,059 |      |  | $ | 1,096,388 |  |  | $ | 1,223,463 | 
|                  | International |  |                    | 114,545 |                   |  |      | 117,677 |      |  |   | 340,304   |  |  |   | 355,968   | 
|                  |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          
|                  | Consolidated  |  | $                  | 471,213 |                   |  | $    | 520,736 |      |  | $ | 1,436,692 |  |  | $ | 1,579,431 | 
|                  |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          
|Operating income: |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          
|                  | North America |  | $                  | 55,559  |                   |  | $    | 50,394  |      |  | $ | 140,406   |  |  | $ | 112,503   | 
|                  | International |  |                    | 6,949   |                   |  |      | 17,349  |      |  |   | 33,785    |  |  |   | 59,064    | 
|                  |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          
|                  | Consolidated  |  | $                  | 62,508  |                   |  | $    | 67,743  |      |  | $ | 174,191   |  |  | $ | 171,567   | 
|                  |               |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |          

Revenues from the Europe/Middle-East/Africa region represented 14% of
total revenues for the three and nine months ended September 30, 2002 and 13%
of total revenues for the three and nine months ended September 30, 2001. No
other international region had revenues equal to or greater than 10% of total
revenues for the three or nine months ended September 30, 2002 or September 30,
2001. Revenues originated in each individual foreign country were less than
10% of total revenues for the three and nine months ended September 30, 2002 or
September 30, 2001.

8



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##### 



8. Business Combinations

During the nine months ended September 30, 2002, the Company completed the
acquisition of Momentum Business Applications, Inc. (Momentum) and acquired
technology from Annuncio Software, Inc. (Annuncio). Additionally, the
Company completed two other acquisitions which were not significant to the
Companys financial statements. The Annuncio and Momentum transactions were
accounted for using the purchase method of accounting and, accordingly, the
results of operations subsequent to the acquisition date are included in the
accompanying condensed consolidated financial statements, and the assumed
assets and liabilities were recorded based upon their relative fair values at
the date of acquisition.

Annuncio Software, Inc.

In January 2002, the Company purchased the intellectual property and
certain assets of Annuncio, a privately held company, for $25.0 million in
cash. The transaction was treated as an acquisition of a business and was
accounted for using the purchase method of accounting. The intellectual
property of Annuncio consisted of marketing automation software solutions for
email and web-based customer interactions.

The Company allocated the excess purchase price over the fair value of the
net tangible liabilities acquired of $0.7 million to the following intangible
assets: $16.6 million to goodwill, $3.2 million to capitalized software, $2.8
million to in-process research and development, $1.5 million to non-compete
agreements, $1.0 million to customer relationships and $0.6 million to other
intangible assets. Amounts allocated to in-process research and development
were expensed as Restructuring, acquisition, and other charges in the
accompanying condensed consolidated statements of operations, because the
purchased research and development had no alternative uses, and had not reached
technological feasibility. The capitalized intangible assets are being
amortized on a straight-line basis over estimated useful lives of one to three
years.

In performing this purchase price allocation, the Company considered,
among other factors, its intention for future use of the acquired assets and
analyses of historical financial performance and estimates of future
performance of Annuncios products. The projected incremental cash flows were
discounted to their present value using discount rates of 14% and 25% for
developed and in-process technology. These discount rates were determined
after consideration of the Companys rate of return on debt capital and equity,
the weighted average return on invested capital and the risk associated with
achieving forecasted sales related to the technology acquired from
Annuncio. Associated risks included achieving anticipated
levels of market acceptance and penetration, successful completion of various
research and development efforts, market growth rates and risks related to the
impact of potential changes in future target markets.

Pro forma results of operations have not been presented for this
acquisition because the effects of this acquisition were not significant to the
Company.

Momentum Business Applications, Inc.

In April 2002, the Company completed its purchase of one hundred percent
of the outstanding Class A Common Stock of Momentum for $90.0 million in cash.
This transaction was accounted for using the purchase method of accounting.

The Company allocated the excess purchase price over the fair value of the
net tangible liabilities acquired of $0.2 million to the following assets and
liabilities: $63.1 million to tax loss carryforwards, $29.5 million to
capitalized software, $8.7 million to in-process research and development and
$11.1 million to deferred tax liabilities. Amounts allocated to in-process
research and development were expensed as Restructuring, acquisition and other
charges in the accompanying condensed consolidated statements of operations,
because the purchased research and development had no alternative uses, and had
not reached technological feasibility. Fourteen in-process research and
development projects were identified. Five projects related to Human Resources
application suites and accounted for 63% of the amount allocated to in-process
research and development. A portal applications project accounted for 23%

9



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##### 



of the amount allocated to in-process research and development. The
capitalized software is being amortized on a straight-line basis over estimated
useful lives of five years.

In performing this purchase price allocation, the Company considered,
among other factors, its intention for future use of the acquired assets,
analyses of historical financial performance and estimates of future
performance of Momentums products, and an analysis of future royalty payments
payable to Momentum by the Company. An estimation of the future royalty
payments that would not be required to be paid by the Company was the basis for
the valuation analysis. The projected after-tax royalty savings was discounted
to its present value using discount rates of 12% and 20% for developed and
in-process technology. These discount rates were determined after
consideration of the Companys rate of return on debt capital and equity, the
weighted average return on invested capital and the risk associated with
achieving forecasted sales related to the technology acquired from
Momentum. Associated risks included achieving anticipated
levels of market acceptance and penetration, successful completion of various
research and development efforts, market growth rates and risks related to the
impact of potential changes in future target markets.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the
combined results of operations of PeopleSoft and Momentum, on a pro forma
basis, as though the companies had been combined as of the beginning of the
period being presented below. The impact of the $8.7 million charge (no tax
impact) for in-process research and development associated with the acquisition
of Momentum has been excluded. This pro forma financial information is
presented for informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved had the acquisition
actually taken place as of the beginning of the period being presented below.
The following amounts are in thousands, except per share amounts.

|                         |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |           | 
|------------------------ |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | --------- |  |  | - | --------- | 
|                         |  | Three Months Ended |         | Nine Months Ended
|                         |  | September 30,      |         | September 30,    
|                         |  |                    |         |                  
|                         |  | 2002               |         | 2001              |  | 2002 |         | 2001
|                         |  |                    |         |                   |  |      |         |     
|Revenues                 |  | $                  | 471,213 |                   |  | $    | 496,609 |      |  | $ | 1,429,162 |  |  | $ | 1,495,432 | 
|Net income               |  | $                  | 44,615  |                   |  | $    | 33,623  |      |  | $ | 127,651   |  |  | $ | 79,010    | 
|Basic income per share   |  | $                  | 0.14    |                   |  | $    | 0.11    |      |  | $ | 0.41      |  |  | $ | 0.27      | 
|Diluted income per share |  | $                  | 0.14    |                   |  | $    | 0.10    |      |  | $ | 0.40      |  |  | $ | 0.25      | 
|                         |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |           | 

9. Recently Issued Accounting Standards

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142). SFAS
142 requires that goodwill no longer be amortized and that it be assessed for
impairment on an annual basis. The application of the provisions of SFAS 142
resulted in a reduction of goodwill amortization expense of $3.8 million and
$9.1 million for the three and nine month periods ended September 30, 2002.
During the three month period ending June 30, 2002, the Company completed its
transitional goodwill impairment test (comparing the fair value of each of the
reporting units as of January 1, 2002 to the carrying value, which includes
goodwill) and determined that the carrying amount of goodwill was not impaired.
At September 30, 2002, the Company had goodwill of $54.1 million.

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, (SFAS 144). SFAS 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, and
elements of APB 30, Reporting the Results of OperationsReporting the Effects
on Disposal of a Segment of a Business and Extraordinary, Unusual or
Infrequently Occurring Events and Transactions. SFAS 144 establishes a
single-accounting model for long-lived assets to be disposed of

10



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##### 



while maintaining many of the provisions relating to impairment testing
and valuation. Upon adoption, the Company determined that it did not have any
long-lived assets which were impaired.

On January 1, 2002, the Company adopted Financial Accounting Standards
Board Emerging Issues Task Force No. 01-14, Income Statement Characterization
of Reimbursements Received for Out-of-Pocket Expenses Incurred, (EITF
01-14). EITF 01-14 requires companies to characterize reimbursements received
for out-of-pocket expenses incurred as revenue and to reclassify prior period
financial statements to conform to current year presentation for comparative
purposes. The Companys Services revenues now include reimbursable
out-of-pocket expenses and Cost of services expenses include the costs
associated with reimbursable out-of-pocket expenses. Prior to the adoption of
EITF 01-14, the Companys historical financial statements recorded these
expenses as net amounts in Cost of services. The adoption of EITF 01-14 did
not have a significant impact on the services gross margin percentage and had
no effect on net income. Reimbursable out-of-pocket expenses reclassified as
service revenue was $11.4 million and $34.3 million for the three and nine
months ended September 30, 2001.

In April 2002, Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, was issued. This statement provides
guidance on the classification of gains and losses from the extinguishment of
debt and on the accounting for certain specified lease transactions. The
adoption of this statement did not have a material impact on the Companys
consolidated financial position, results of operations or cash flows.

In June 2002, Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, (SFAS
146) was issued. This statement provides guidance on the recognition and
measurement of liabilities associated with disposal activities and is effective
for the Company on January 1, 2003. Under SFAS 146, companies will record the
fair value of exit or disposal costs when they are incurred rather than at the
date of a commitment to an exit or disposal plan. The adoption of SFAS 146
could result in the Company recognizing the cost of future restructuring
activities, if any, over a period of time rather than in one reporting period.

10. Goodwill

The changes in the carrying amount of goodwill during the nine months
ended September 30, 2002 are as follows (in thousands):

|                                 |                                                  |   |         |        |               |   |       |      |   |   |        |        |  
|-------------------------------- | ------------------------------------------------ | - | ------- | ------ | ------------- | - | ----- | ---- | - | - | ------ | ------ | -
|                                 |                                                  |   | North   |        |               |   |       |      |   |   |       
|                                 |                                                  |   | America |        | International |   | Total
|                                 |                                                  |   |         |        |               |   |      
|Balance as of January 1, 2002    |                                                  | $ | 29,743  |        |               | $ | 2,460 |      |   | $ | 32,203 |       
|                                 | Annuncio acquisition goodwill                    |   |         | 16,630 |               |   |       |     |   |   |        | 16,630 |  
|                                 | Teamscape acquisition goodwill                   |   |         | 1,473  |               |   |       |     |   |   |        | 1,473  |  
|                                 | Goodwill from contingent consideration and other |   |         | 4,773  |               |   |       |     |   |   |        | 4,773  |  
|                                 | Foreign currency fluctuation                     |   |         |       |               |   |       | (949 | ) |   |        | (949   | )
|                                 |                                                  |   |         |        |               |   |       |      |   |   |        |       
|Balance as of September 30, 2002 |                                                  | $ | 52,619  |        |               | $ | 1,511 |      |   | $ | 54,130 |       
|                                 |                                                  |   |         |        |               |   |       |      |   |   |        |       

Summarized below are the effects on net income and net income per share if
the Company had followed the non-amortization provisions of SFAS 142 for all
periods presented (in thousands, except per share amounts):

11



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##### 



|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |         | 
|------------------------- | --------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                          |                                   |  | Three Months Ended |        | Nine Months Ended
|                          |                                   |  | September 30,      |        | September 30,    
|                          |                                   |  |                    |        |                  
|                          |                                   |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                          |                                   |  |                    |        |                   |  |      |        |     
|Net income:               |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | As reported                       |  | $                  | 44,615 |                   |  | $    | 50,345 |      |  | $ | 125,179 |  |  | $ | 133,784 | 
|                          | Add goodwill amortization         |  |                    |       |                   |  |      | 3,832  |      |  |   |        |  |  |   | 9,062   | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | Adjusted net income               |  | $                  | 44,615 |                   |  | $    | 54,177 |      |  | $ | 125,179 |  |  | $ | 142,846 | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|Basic income per share:   |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | As reported                       |  | $                  | 0.14   |                   |  | $    | 0.17   |      |  | $ | 0.40    |  |  | $ | 0.45    | 
|                          | Add goodwill amortization         |  |                    |       |                   |  |      | 0.01   |      |  |   |        |  |  |   | 0.03    | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | Adjusted basic income per share   |  | $                  | 0.14   |                   |  | $    | 0.18   |      |  | $ | 0.40    |  |  | $ | 0.48    | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|Diluted income per share: |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | As reported                       |  | $                  | 0.14   |                   |  | $    | 0.16   |      |  | $ | 0.39    |  |  | $ | 0.42    | 
|                          | Add goodwill amortization         |  |                    |       |                   |  |      | 0.01   |      |  |   |        |  |  |   | 0.02    | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        
|                          | Adjusted diluted income per share |  | $                  | 0.14   |                   |  | $    | 0.17   |      |  | $ | 0.39    |  |  | $ | 0.44    | 
|                          |                                   |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        

11. Capitalized Software

Capitalized software and accumulated amortization at September 30, 2002
and December 31, 2001 were as follows (in thousands):

|                               |  |                    |         |                   |  |   |         |  
|------------------------------ |  | ------------------ | ------- | ----------------- |  | - | ------- | -
|                               |  | September 30, 2002 |         | December 31, 2001
|                               |  |                    |         |                  
|Capitalized software           |  | $                  | 84,241  |                   |  | $ | 41,934  |  
|Less: accumulated amortization |  |                    | (35,929 | )                 |  |   | (25,721 | )
|                               |  |                    |         |                   |  |   |         |  
|Capitalized software, net      |  | $                  | 48,312  |                   |  | $ | 16,213  |  
|                               |  |                    |         |                   |  |   |         |  

The increase in capitalized software during the nine months ended
September 30, 2002 was related solely to capitalized software obtained through
business combinations. See footnote 8 Business Combinations above for
further information.

Amortization expense related to the capitalized software was $4.2 million
and $10.5 million for the three and nine months ended September 30, 2002 and
$2.4 million and $4.6 million for the three and nine months ended September 30,
2001.

Expected future capitalized software amortization expense for the fourth
quarter of 2002 and each of the fiscal years thereafter is as follows (in
thousands):

|                          |  |   |        | 
|------------------------- |  | - | ------ | 
|Period ended December 31, |  |   |        | 
|                          |  |   |        | 
|2002 (fourth quarter)     |  | $ | 4,211  | 
|2003                      |  |   | 16,437 | 
|2004                      |  |   | 12,714 | 
|2005                      |  |   | 7,576  | 
|2006                      |  |   | 5,899  | 
|2007                      |  |   | 1,475  | 
|                          |  |   |        | 
|Total                     |  | $ | 48,312 | 
|                          |  |   |        | 

12



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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Discussion and Analysis of Financial Condition and Results of
Operations contains descriptions of our expectations regarding future trends
affecting our business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Future results are subject to risks and uncertainties, which could
cause actual results and performance to differ significantly from those
contemplated by the forward-looking statements. For a discussion of factors
that could affect future results, see Factors That May Affect Our Future
Results or The Market Price of Our Stock. Forward-looking statements
contained throughout this Report include, but are not limited to, those
identified with a footnote (1) symbol. We undertake no obligation to update the
information contained in this Item 2.

RESULTS OF OPERATIONS

The following table shows the percentage of period over period growth and
the percentage of total revenues represented by certain line items in our
condensed consolidated statements of operations, for the three and nine months
ended September 30, 2002 and September 30, 2001:

|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |    |     | 
|-------------------------- | -------------------------------------------- | ------------------------ | --- | -------------------------------- | --- | ------------------------------- | -- | ------ | --- | -------------- | -- | ---- | --- | ------------- | --- | --- | --- | - | -- | -- | --- |  | -- | -- | --- | 
|                           |                                              |                          |     | Percentage of                    |     |                                 |    |        |     |                |    |      |     | Percentage of |     |     |     |   |    |    |     | 
|                           |                                              |                          |     | Dollar                           |     | Percentage of                   |    | Dollar |     | Percentage of 
|                           |                                              |                          |     | Change                           |     | Total Revenues                  |    | Change |     | Total Revenues
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |               
|                           |                                              |                          |     | Three months ended September 30, |     | Nine months ended September 30,
|                           |                                              |                          |     |                                  |     |                                
|                           |                                              |                          |     | 2002/2001                        |     | 2002                            |    | 2001   |     | 2002/2001      |    | 2002 |     | 2001         
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |              
|Revenues:                  |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|                           | License fees                                 |                          |     | (20                              | )%  |                                 |    | 26     | %   |                |    | 29   | %   |               |     | (18 | )%  |   |    | 27 | %   |  |    | 30 | %  
|                           | Services                                     |                          |     | 1                                |     |                                 |    | 74     |     |                |    | 66   |     |               |     | 2   |     |   |    | 73 |     |  |    | 65 |    
|                           | Development and other services               |                          |     | (100                             | )   |                                 |    |       |     |                |    | 5    |     |               |     | (91 | )   |   |    | <1 |     |  |    | 5  |    
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|                           |                                              | Total revenues           |     |                                  | (10 | )                               |    |        | 100 |                |    |      | 100 |               |     |     | (9  | ) |    |    | 100 |  |    |    | 100 | 
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Costs and expenses:        |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|                           | Cost of license fees                         |                          |     | (4                               | )   |                                 |    | 2      |     |                |    | 2    |     |               |     | (29 | )   |   |    | 2  |     |  |    | 3  |    
|                           | Cost of services                             |                          |     | (12                              | )   |                                 |    | 34     |     |                |    | 35   |     |               |     | (12 | )   |   |    | 34 |     |  |    | 36 |    
|                           | Cost of development and other services       |                          |     | (100                             | )   |                                 |    |       |     |                |    | 4    |     |               |     | (91 | )   |   |    | <1 |     |  |    | 5  |    
|                           | Sales and marketing expense                  |                          |     | 1                                |     |                                 |    | 27     |     |                |    | 24   |     |               |     | (1  | )   |   |    | 26 |     |  |    | 24 |    
|                           | Product development expense                  |                          |     | 17                               |     |                                 |    | 18     |     |                |    | 14   |     |               |     | 13  |     |   |    | 18 |     |  |    | 14 |    
|                           | General and administrative expense           |                          |     | (34                              | )   |                                 |    | 6      |     |                |    | 8    |     |               |     | (27 | )   |   |    | 6  |     |  |    | 7  |    
|                           | Restructuring, acquisition and other charges |                          | NM  |                                  |     |                                |    |        |     |               |    |      | NM  |               |     | 1   |     |   |    |   |    
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|                           |                                              | Total costs and expenses |     |                                  | (10 | )                               |    |        | 87  |                |    |      | 87  |               |     |     | (10 | ) |    |    | 88  |  |    |    | 89  | 
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Operating income           |                                              |                          | (8  | )                                |     |                                 | 13 |        |     |                | 13 |      |     |               | 2   |     |     |   | 12 |    |     |  | 11 |   
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Other income, net          |                                              |                          | (28 | )                                |     |                                 | 1  |        |     |                | 1  |      |     |               | (29 | )   |     |   | 1  |    |     |  | 2  |   
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Provision for income taxes |                                              |                          | (7  | )                                |     |                                 | 5  |        |     |                | 5  |      |     |               | 4   |     |     |   | 5  |    |     |  | 4  |   
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Net income                 |                                              |                          | (11 | )%                               |     |                                 | 9  | %      |     |                | 10 | %    |     |               | (6  | )%  |     |   | 9  | %  |     |  | 8  | % 
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   
|Diluted income per share   |                                              |                          | (13 | )%                               |     | NM                              |    | NM     |     |                | (7 | )%   |     | NM            |     | NM 
|                           |                                              |                          |     |                                  |     |                                 |    |        |     |                |    |      |     |               |     |     |     |   |    |    |     |  |    |   

NM  Not Meaningful

Net income decreased $5.7 million or 11% to $44.6 million for the third
quarter of 2002 as compared to $50.3 million for the third quarter of 2001.
Diluted income per share decreased to $0.14 for the third quarter of 2002
compared to $0.16 for the third quarter of 2001. For the nine months ended
September 30, 2002, net income decreased $8.6 million or 6% to $125.2 million
as compared to $133.8 million for the nine months ended September 30, 2001. For
the nine months ended September 30, 2002, diluted income per share decreased to
$0.39 compared to $0.42 for the nine months ended September 30, 2001.

Net income for the nine months ended September 30, 2002 include a first
quarter charge of $1.7 million (after-tax) for in-process research and
development related to the acquisition of technology from Annuncio Software,
Inc. (Annuncio) and a second quarter in-process research and development
charge of $8.7 million (no tax impact) related to the acquisition of Momentum
Business Applications, Inc. (Momentum). Refer to Business Combinations
under Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations.

13



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##### 



Net income for the three months ended September 30, 2001, includes a $2.3
million (no tax impact) favorable adjustment to restructuring reserves to
reflect current estimates and a $1.9 million (after-tax) charge for in-process
research and development related to an acquisition of assets which was
otherwise insignificant to the Company. Net income for the nine months ended
September 30, 2001, includes a $4.9 million (no tax impact) favorable
adjustment to restructuring reserves to reflect current estimates, a $1.2
million (after-tax) charge for in-process research and development related to
the acquisition of SkillsVillage in the second quarter of 2001 and a $1.9
million (after-tax) charge for in-process research and development related to
an acquisition of assets which was otherwise insignificant to the Company.

Revenues

Our software products are generally licensed to end-user customers under
non-exclusive, perpetual license agreements. Revenue from license fees
decreased by 20% to $121.6 million in the third quarter of 2002 from $151.8
million in the third quarter of 2001. Revenue from license fees decreased by
18% to $386.8 million during the nine months ended September 30, 2002 from
$471.3 million during the nine months ended September 30, 2001. The decrease
in license revenue is primarily due to a global economic slowdown during 2002.
We expect license revenue to be slightly higher in the fourth quarter of 2002
relative to the third quarter of 2002.(1)

Our services revenue consists of software maintenance fees, consulting
fees, customer training fees and other miscellaneous fees. Revenue from
services increased by 1% to $349.6 million in the third quarter of 2002 from
$344.8 million in third quarter of 2001. The growth in services revenue during
the third quarter of 2002 as compared to the third quarter of 2001 resulted
from an increase in maintenance revenue of $26.0 million offset by a decrease
in consulting revenue of $20.0 million and a decrease in training revenue of
$1.2 million. The increase in maintenance revenue is primarily attributable to
the growth of our installed base of software applications, arising from sales
to both new and existing customers, while the decrease in consulting and
training revenue is primarily attributable to the global economic slowdown
which also negatively impacted our license revenues. Revenue from services as
a percentage of total revenues was 74% and 66% for the quarters ended September
30, 2002 and 2001. For the nine months ended September 30, 2002, revenue from
services increased by 2% to $1,042.3 million, or 73% of total revenues from
$1,024.1 million, or 65% of total revenue for the nine months ended September
30, 2001. The change in services revenue during the nine months ended September
30, 2002, compared to the nine months ended September 30, 2001, primarily
resulted from an increase in maintenance revenue of $75.0 million offset by a
decrease in consulting revenue of $49.6 million and a decrease in training
revenue of $7.1 million. The increase in maintenance revenue is primarily
attributable to the growth of our installed customer base, consisting of sales
to new and existing customers, while the decrease in consulting and training
revenue is primarily attributable to the global economic slowdown. Reductions
or slowdowns in our license contracting activity during a given quarter may
adversely impact our future services revenues since these revenues typically
trail license contracting activity.

On April 9, 2002, we completed the purchase of one hundred percent of the
outstanding Class A Common Stock of Momentum. Refer to Business Combinations
under Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations. Subsequent to the first quarter of 2002, we ceased
performing development services for Momentum and, accordingly, have not
recognized any revenue from development services after March 31, 2002. Prior
to that date and pursuant to the terms of the development agreement with
Momentum, we billed Momentum one hundred ten percent (110%) of our fully
burdened costs relating to the research and development services that we
performed on behalf of Momentum. Revenue from development and other services
decreased by 91% to $7.5 million during the nine months ended September 30,
2002 from $84.0 million during the nine months ended September 30, 2001. Cost
of development and other services decreased by 91% to $6.8 million during the
nine months ended September 30, 2002 from $76.2 million during the nine months
ended September 30, 2001.



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|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

14



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Costs and Expenses

Our software products are based on a combination of internally developed
and third party technology and products. Cost of license fees consists
principally of royalties, technology access fees for certain third-party
software products, amortization of capitalized software costs and product
warranty costs. Cost of license fees decreased to $11.5 million in the third
quarter of 2002 from $12.0 million in the third quarter of 2001, representing
2% of total revenues in each of those quarters. Cost of license fees
represented 9% of license fee revenues in the third quarter of 2002 and 8% of
license fee revenues in the third quarter of 2001. During the nine months ended
September 30, 2002 and 2001, cost of license fees decreased to $33.1 million
from $46.5 million, representing 2% and 3% of total revenues and 9% and 10% of
license revenues. The decrease in the cost of license fees for the nine months
ended September 30, 2002, over the nine months ended September 30, 2001, is
primarily a result of a $12.4 million decrease in royalties to third parties
resulting from decreased license fee revenue on which such royalties are
calculated and a $6.2 million decrease in product warranty costs resulting from
a decline in the number of warranty claims. These decreases are partially
offset by a $7.1 million increase in amortization related to software obtained
through acquisitions subsequent to September 30, 2001.

Cost of services consists primarily of employee-related costs and the
related infrastructure costs incurred to provide installation and consulting
services, post-installation support and training. Cost of services decreased
to $159.4 million in the third quarter of 2002 from $180.5 million in the third
quarter of 2001, representing 34% and 35% of total revenues and 46% and 52% of
service revenues in each of those quarters. The decrease in cost of services
for the third quarter of 2002 over the third quarter of 2001 is primarily due
to an $8.2 million decrease in incentive compensation resulting from a decrease
in consulting and training revenues, a $4.8 million expense decrease related to
the reduction in the utilization of outside consultants, a $2.7 million
decrease in salaries due to a reduction in the number of our consultants and
general expense reductions associated with improved cost management in the
consulting organization. Cost of services decreased to $495.1 million during
the nine months ended September 30, 2002 from $561.2 million during the nine
months ended September 30, 2001, representing 34% and 36% of total revenues and
47% and 55% of service revenues in each of those nine month periods. The
decrease in cost of services for the nine months ended September 30, 2002 over
the nine months ended September 30, 2001 is primarily due to a $25.8 million
decrease in incentive compensation resulting from a decrease in consulting
revenue and training revenue, a $13.5 million expense decrease related to the
reduction in the utilization of outside consultants, a $6.0 million decrease in
salaries due to a reduction in the number of consultants and general expense
reductions associated with improved cost management in the consulting
organization. If the demand for services from new and existing customers for
installation, consulting, support and training services increases over the next
several quarters, we anticipate that our cost of services may increase.(1)

Sales and marketing expenses increased slightly to $127.6 million in the
third quarter of 2002 from $126.0 million in the third quarter of 2001,
representing 27% and 24% of total revenues in each of those quarters. The
increase in sales and marketing expenses is primarily due to a $4.0 million
increase in salaries due to sales and marketing headcount increases, partially
offset by a $3.8 million decrease in sales commissions related to decreased
license fee revenue. Sales and marketing expense decreased to $378.4 million
for the nine months ended September 30, 2002 from $383.6 million for the nine
months ended September 30, 2001, representing 26% and 24% of total revenues.
The decrease for the nine months ended September 30, 2002 is primarily
attributable to a $16.0 million decrease in marketing programs and advertising
and a $16.1 million decrease in sales commissions related to decreased license
fee revenue, partially offset by a $22.0 million increase in salaries due to
sales and marketing headcount increases. Sales and marketing expenses may
increase in future periods as we increase our sales force and marketing and
advertising expenses in support of PeopleSoft 8 to improve our competitive
positioning in the marketplace and to promote brand awareness and global
recognition of our products.(1)

Product development expenses consist of costs related to software
developers and outside consultants, and the associated infrastructure costs
required to support software product development initiatives.



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

15



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##### 



Product development expenses increased to $83.0 million in the third
quarter of 2002 from $70.9 million in the third quarter of 2001, representing
18% and 14% of total revenues in each of those quarters. Product development
expenses increased to $252.9 million during the nine months ended September 30,
2002 from $223.8 million for the nine months ended September 30, 2001,
representing 18% and 14% of total revenues. The increase in product development
expenses is primarily attributable to an increase in internal development
activities. Our current focus in application development is to extend our
software offerings by delivering enhanced functionality and to develop new
applications in our integrated application suites: Human Resources, Financials,
Customer Relationship Management and Supply Chain Management.(1)

General and administrative expenses decreased to $27.2 million during the
third quarter of 2002 from $40.9 million during the third quarter of 2001,
representing 6% and 8% of total revenues. The decrease for the quarter is
primarily attributable to a $4.3 million decrease in non-product related
litigation expense, a $3.8 million decrease in amortization of goodwill in
connection with the adoption of Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, (SFAS 142) on January 1, 2002,
and general expense reductions associated with improved cost management.
General and administrative expenses decreased to $84.9 million for the nine
months ended September 30, 2002 from $116.5 million for the nine months ended
September 30, 2001, representing 6% and 7% of total revenues. The decrease for
the nine month period is primarily attributable to a $9.4 million decrease in
non-product related litigation expense, a $9.1 million decrease in amortization
of goodwill in connection with the adoption of SFAS 142 on January 1, 2002, and
general expense reductions associated with improved cost management. SFAS 142
requires that goodwill no longer be amortized but must be assessed for
impairment on an annual basis. During the three month period ended June 30,
2002, we completed the transitional goodwill impairment test (comparing the
fair value of each of the reporting units as of January 1, 2002 to the carrying
value, which includes goodwill) and determined that the carrying amount of our
goodwill was not impaired. See footnote 9 Recently Issued Accounting
Standards in the Notes to Condensed Consolidated Financial Statements.

Restructuring, Acquisition and Other Charges

The third quarter of 2001 includes a favorable adjustment of $2.3 million
to restructuring reserves to reflect current estimates and a $3.0 million
charge for in-process research and development related to the acquisition of
assets which was otherwise insignificant to the Company. The restructuring,
acquisition and other charges for the nine months ended September 30, 2001 also
includes a favorable adjustment of $2.6 million to restructuring reserves to
reflect current estimates and a $1.9 million charge for in-process research and
development related to the acquisition of SkillsVillage. The restructuring,
acquisition and other charges for the nine months ended September 30, 2002
includes the second quarter charge of $8.7 million associated with the
write-off of in-process research and development attributable to the
acquisition of Momentum and the first quarter charge of $2.8 million related to
the write-off of in-process research and development from the Annuncio business
combination. For additional discussion of the Momentum and Annuncio
transactions see Business Combinations. In the future, if we consummate
business combinations and technology purchases, we may incur additional
in-process research and development charges which may impact our results of
operations.(1)

Other Income, Net

Other income, net, which primarily includes interest income and interest
expense, decreased to $5.6 million in the third quarter of 2002 from $7.8
million in the third quarter of 2001, and decreased to $21.3 million in the
nine months ended September 30, 2002 from $29.8 million during the nine months
ended September 30, 2001. The decrease in other income, net, for the three and
nine month periods was primarily a result of a decrease in interest income due
to lower interest rates.



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

16



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##### 



Provision for Income Taxes

Our income tax provision decreased to $23.5 million in the third quarter
of 2002 from $25.1 million in the third quarter of 2001 and increased to $70.3
million in the nine months ended September 30, 2002 from $67.6 million for the
same period in 2001. The effective tax rate, exclusive of in-process research
and development and adjustments to restructuring reserves, was 34.5% for both
of the nine month periods ended September 30, 2002 and September 30, 2001. The
net deferred tax assets at September 30, 2002 were $163.8 million. In
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, (SFAS 109), the valuation of the deferred tax
assets is based upon an estimate of both the timing and amount of future
taxable income. Future taxable income may be derived from future operations,
subsequent reversals of deferred tax liabilities and other sources.(1)

Business Combinations

During the nine months ended September 30, 2002, we completed the
acquisition of Momentum and acquired technology from Annuncio. The Annuncio
and Momentum transactions were accounted for using the purchase method of
accounting and, accordingly, the results of operations subsequent to the
acquisition date are included in the accompanying condensed consolidated
statements of operations, and the assumed assets or liabilities were recorded
based upon their relative fair values at the date of acquisition.
Additionally, we completed two other acquisitions that were not significant to
our financial statements. As part of our strategy, we anticipate additional
acquisition activity, which may be significant to us on either an individual or
an aggregate basis.(1)

Annuncio Software, Inc.

In January 2002, we purchased the intellectual property and certain assets
of Annuncio, a privately held company, for $25.0 million in cash. The
transaction was treated as an acquisition of a business and was accounted for
using the purchase method of accounting. The intellectual property of Annuncio
consists of marketing automation software solutions for email and web-based
customer interactions.

We allocated the excess purchase price over the fair value of the net
tangible liabilities acquired of $0.7 million to the following intangible
assets: $16.6 million to goodwill, $3.2 million to capitalized software, $2.8
million to in-process research and development, $1.5 million to non-compete
agreements, $1.0 million to customer relationships and $0.6 million to other
intangible assets. The capitalized intangible assets are being amortized on a
straight-line basis over estimated useful lives of one to three years.

Amounts allocated to in-process research and development were expensed as
Restructuring, acquisition and other charges in the accompanying condensed
consolidated statements of operations, because the purchased research and
development had no alternative uses, and had not reached technological
feasibility. The in-process research and development relates to additional
functionality on Annuncios marketing automation software. At the date of the
acquisition, the Annuncio product under development was approximately 90%
complete and was subsequently completed during the first quarter of 2002 at a
cost of approximately $0.5 million.

In performing this allocation, we considered, among other factors, our
intention for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Annuncios
products. We estimated that we would recognize revenue on the projects
related to the in-process technology from 2002 to 2005. The projected
incremental cash flows were discounted to their present value using discount
rates of 14% and 25% for developed and in-process technology. These discount
rates were determined after consideration of our rate of return on debt capital
and equity, the weighted average return on invested capital and the risk
associated with achieving forecasted sales related to the technology
acquired from Annuncio. Associated risks included
achieving anticipated levels of market acceptance and penetration, successful
completion of various research and development efforts, market growth rates and
risks related to the impact of potential changes in future target markets.



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

17



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##### 



Our projections may ultimately prove to be incomplete or inaccurate, and
unanticipated events and circumstances may occur. Therefore, no assurance can
be given that the underlying assumptions used to forecast revenues and costs to
develop such projects will transpire as estimated.

Momentum Business Applications, Inc.

In April 2002, we completed the transaction to purchase one hundred
percent of the outstanding Class A Common Stock of Momentum for $90.0 million
in cash. This transaction was accounted for using the purchase method of
accounting.

We allocated the excess purchase price over the fair value of the net
tangible liabilities acquired of $0.2 million to the following assets and
liabilities: $63.1 million to tax loss carryforwards, $29.5 million to
capitalized software, $8.7 million to in-process research and development and
$11.1 million to deferred tax liabilities. The capitalized software is being
amortized on a straight-line basis over estimated useful lives of five years.

Amounts allocated to in-process research and development were expensed as
Restructuring, acquisition and other charges in the accompanying condensed
consolidated statements of operations, because the purchased research and
development had no alternative uses and had not reached technological
feasibility. Fourteen in-process research and development projects were
identified. Five projects related to Human Resources application suites and
accounted for 63% of the amount allocated to in-process research and
development. A portal applications project accounted for 23% of the amount
allocated to in-process research and development. At the date of the
acquisition, the Momentum products in process averaged approximately 45%
complete and were expected to be completed during the fourth quarter of 2002
and the first half of 2003 at a cost of approximately $35.0 million. The
remaining efforts include completion of coding and system and platform testing.

In performing this allocation, we considered, among other factors, our
intention for future use of the acquired assets, analyses of historical
financial performance and estimates of future performance of Momentums
products, and an analysis of future royalty payments payable to Momentum by us.
An estimation of the future royalty payments that we would not be required to
pay was the basis for the valuation analysis. We estimated that we would
avoid royalty payments on the projects related to the in-process technology
from 2002 to 2006. The after-tax royalty savings was discounted to its present
value using discount rates of 12% and 20% for developed and in-process
technology. These discount rates were determined after consideration of our
rate of return on debt capital and equity, the weighted average return on
invested capital and the risk associated with achieving forecasted
sales related to the technology acquired from Momentum.
Associated risks included achieving anticipated levels of market acceptance and
penetration, successful completion of various research and development efforts,
market growth rates and risks related to the impact of potential changes in
future target markets.

Our projections may ultimately prove to be incomplete or inaccurate, and
unanticipated events and circumstances may occur. Therefore, no assurance can
be given that the underlying assumptions used to forecast revenues and costs to
develop such projects will transpire as estimated.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP
requires us to utilize accounting policies and make estimates and assumptions
that affect our reported amounts. We believe policies and estimates related to
revenue recognition, capitalized software, allowance for doubtful accounts,
product and service warranty reserve and deferred tax asset valuation allowance
represent our critical accounting policies and estimates. Future results may
differ from these estimates under different assumptions or conditions.

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Revenue Recognition

We derive revenues from two primary sources: software license revenues
and services revenues, which primarily include maintenance, consulting, and
training. We recognize our revenue in accordance with the Securities and
Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, the American Institute of Certified Public Accountants
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended
by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactions, and other authoritative accounting guidance.

License Revenue. For software license agreements that do not require
significant modification or customization of the software, we recognize revenue
when persuasive evidence of an agreement exists, delivery of the product has
occurred, the fee is fixed or determinable, and collection is probable. Our
consulting services generally do not involve significant modification or
customization of the licensed software. We use the residual method to
recognize revenue when a license agreement includes one or more elements to be
delivered at a future date and vendor specific evidence of the fair value of
all undelivered elements exists. Under the residual method, the fair value of
the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue. If evidence of the fair value of one
or more undelivered elements does not exist, the revenue is deferred and
recognized when delivery of those elements occurs or when fair value can be
established.

If the fee due from the customer is not fixed or determinable, revenue is
recognized as payment becomes due, assuming all other revenue recognition
criteria have been met. We consider arrangements with extended payment terms
not to be fixed or determinable. Revenue arrangements with resellers are
recognized on a sell-through basis, that is, when we receive persuasive
evidence that the reseller has sold the products to an end user customer.

If provided in a license agreement, acceptance provisions generally grant
customers a right of refund or replacement only if the licensed software does
not perform in accordance with its published specifications. We believe the
likelihood of non-acceptance in these situations is remote and generally
recognize revenue when all other criteria of revenue recognition are met. If
such a determination cannot be made, revenue is recognized upon the earlier of
receipt of written acceptance or the acceptance period has lapsed.

Services Revenue. Revenue from maintenance agreements is recognized
ratably over the term of the maintenance agreement, typically one year.
Consulting and training revenues are usually charged on a time and materials
basis and are recognized as the services are performed. Revenues from certain
fixed price contracts are recognized on a percentage of completion basis, which
involves the use of estimates. If we do not have a sufficient basis to measure
the progress towards completion, revenue is recognized when the project is
completed or we receive final acceptance from the customer.

Capitalized Software

We capitalize the development cost of software, other than software
developed for internal use, in accordance with Statement of Financial
Accounting Standards No. 86, Accounting for Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed,  (SFAS 86). Our policy is to
capitalize the costs associated with development of new products. We
capitalize software acquired through technology purchases and business
combinations if the related software under development has reached
technological feasibility or if there are alternative future uses for the
software. As of September 30, 2002, net capitalized software consisted of $46.9
million related to software acquired through technology purchases and business
combinations, and $1.4 million related to internally developed software.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts at an amount we estimate to
be sufficient to provide adequate protection against losses resulting from
collecting less than full payment on our receivables. We record an allowance
to reduce specific receivables to the amount that we reasonably believe to be
collectible. We also record an allowance for all other receivables based on
multiple factors including

19



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historical experience with bad debts, the general economic environment and
the aging of such receivables. A considerable amount of judgment is required
when we assess the realization of receivables, including assessing the
probability of collection and the current credit-worthiness of each customer.
If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, an additional provision for
doubtful accounts may be required.

Product and Service Warranty Reserve

We provide for estimated cost of product and service warranties based on
specific warranty claims and claim history. If actual warranty experience
differs from our estimates, revisions to the estimated warranty liability would
be required.

Deferred Tax Asset Valuation Allowance

We account for income taxes in accordance with SFAS 109. We assess the
likelihood that our deferred tax asset will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we establish a
valuation allowance. We consider future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the amount of the valuation
allowance. However, adjustments could be required in the future if we
determine that the amount to be realized is greater or less than the amount we
have recorded. As of September 30, 2002, the valuation allowance was $26.7
million related to established allowances on net operating losses incurred in
foreign jurisdictions and other foreign tax benefits as well as on operating
loss carryforwards in state jurisdictions of acquired companies.

20



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LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2002, we had $311.7 million in cash and cash equivalents
and $1.4 billion in short-term investments, consisting principally of
investments in interest-bearing demand deposit accounts with various financial
institutions, tax-advantaged money market funds and highly liquid debt
securities of corporations and municipalities. At September 30, 2002, working
capital was $1.4 billion. Given the current interest rate environment, we have
determined that in certain situations it is more advantageous to invest in
longer term debt securities. Long-term investments increased to $66.7 million
at September 30, 2002 from $40.6 million at December 31, 2001. We believe that
the combination of cash and cash equivalents and short-term investment balances
and potential cash flow from operations will be sufficient to satisfy our cash
requirements, including the expected purchases of property and equipment, at
least through the next twelve months.(1)

Cash provided by operating activities was $238.2 million during the nine
months ended September 30, 2002 compared to $331.6 million during the nine
months ended September 30, 2001. This decrease is primarily due to the
decrease in the tax benefits from the exercise of stock options, the decrease
in accounts payable and accrued liabilities, the decrease in accrued
compensation and related expenses, and the increase in accounts receivable,
partially offset by the increase in the benefit from deferred income taxes and
the net change in other current and noncurrent assets and liabilities.

Cash used in investing activities was $405.6 million during the nine
months ended September 30, 2002 compared to $772.6 million during the nine
months ended September 30, 2001. Our principal use of cash in investing
activities during the nine months ended September 30, 2002 resulted from net
purchases of investments, principally of a short-term duration, of $212.5
million, purchases of property and equipment of $72.2 million and acquisitions
of $120.9 million, net of cash acquired. Our principal use of cash in
investing activities during the nine months ended September 30, 2001 resulted
from net purchases of investments of $676.3 million, purchases of property and
equipment of $69.9 million and acquisitions of $26.4 million.

Cash provided by financing activities was $39.6 million during the nine
months ended September 30, 2002 compared to $184.8 million during the nine
months ended September 30, 2001. The source of cash provided by financing
activities during the nine months ended September 30, 2002 was related to
proceeds from the exercise of common stock options by employees and issuance of
stock under the employee stock purchase program of $96.6 million, partially
offset by retirement of debt of $57.0 million. The source of cash provided by
financing activities during the nine months ended September 30, 2001 was
related to proceeds from the exercise of common stock options by employees and
issuance of stock under the employee stock purchase program of $215.4 million
partially offset by $20.0 million used to purchase treasury stock and $10.5
million cash used to repurchase convertible subordinated long-term notes.

Synthetic Leases

We lease certain buildings in Pleasanton, California under synthetic lease
arrangements, which are currently accounted for as operating leases. The
combined cost for the construction of the facilities was $175 million and we
pay interest to the lessors based on LIBOR plus a margin. We have options to
renew the leases that are exercisable in February and September of 2003. If at
the end of the lease terms, we do not purchase the properties, we have
guaranteed residual values equal to 85% of the lessors cost of construction.
Based on current real estate market conditions, we do not believe that it is
probable that we will incur a loss related to these guarantees. Under these
leases, we are required to maintain compliance with certain financial
covenants, are prohibited from making certain payments, including cash
dividends, and are subject to various other restrictions. As of September 30,
2002, we were in compliance with all covenants.

In July 2002, the Financial Accounting Standards Board issued a proposed
accounting interpretation that addresses the consolidation of special purpose
entities. The lessors associated with our synthetic lease agreements are deemed
to be special purpose entities or equivalent structures. The proposed
interpretation provides guidance for determining when an entity (such as us),
the primary beneficiary, should consolidate



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

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another entity, a special purpose entity or equivalent structure (such as
the lessor), that functions to support the activities of the primary
beneficiary. If we do not purchase the properties for $175 million or
effectively restructure the leases, the new accounting guidance may result in
us having to consolidate the financial position and operating results of the
special purpose entities and equivalent structures. If we are required to consolidate the financial position and
operating results of the special purpose entity, we do not anticipate that it
will have a material impact on our results of
operations. If issued, the provisions
of the final interpretation would be applied as of the beginning of the
first fiscal period beginning after June 15, 2003 to special purpose entities
created before the issuance date of the interpretation and still existing on
June 15, 2003.

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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Revenue recognized outside the United States was 29% and 27% of total
revenues during the nine months ended September 30, 2002 and September 30,
2001. Revenues generated in the Europe/Middle-East/Africa region were 14% and
13% of total revenues during the same periods. Revenues from all other
geographic regions were less than 10% of total revenues. International sales
are made mostly from our foreign subsidiaries in their respective countries and
are typically denominated in the local currency of each country. These
subsidiaries incur most of their expenses in local currency as well.

Our international business is subject to risks, including, but not limited
to: unique economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, our future results may be materially adversely
impacted by changes in these or other factors.(1)

Our exposure to foreign exchange rate fluctuations arises in part from
intercompany transactions in which certain costs incurred in the United States
are charged to our foreign subsidiaries. Intercompany transactions are
typically denominated in the functional currency of the foreign subsidiaries in
order to centralize foreign exchange risk with the parent company in the United
States. We are also exposed to foreign exchange rate fluctuations as the
financial results of our foreign subsidiaries are translated into U.S. dollars
during consolidation. As exchange rates vary, these results, when translated,
may vary from expectations and may adversely impact overall expected
profitability.

We have a foreign exchange hedging program principally designed to
mitigate the future potential impact due to changes in foreign exchange rates.
The program uses forward exchange contracts to hedge significant balances due
to the parent company, as well as significant non-functional currency balances
due to one foreign subsidiary. We operate in certain countries in Latin
America and Asia Pacific where there are limited forward currency exchange
markets, and thus we have unhedged exposures in these countries. In general,
these forward foreign exchange contracts have terms of two months or less.
Gains and losses on the settled contracts are included in Other income, net
in the accompanying condensed consolidated statements of operations and are
recognized in the current period, consistent with the period in which the gain
or loss of the underlying transaction is recognized. The foreign currency
hedging program is managed in accordance with a corporate policy approved by
our Board of Directors.

In addition to hedging existing transaction exposures, our foreign
exchange management policy allows for the hedging of anticipated transactions,
and exposure resulting from the translation of foreign subsidiary financial
results into U.S. dollars. Such hedges can only be undertaken to the extent
that the exposures are highly certain, reasonably estimable and significant in
amount. No such hedges have occurred through September 30, 2002.

At September 30, 2002, we had the following outstanding forward foreign
exchange contract to exchange foreign currency for U.S. dollars:

|                  |  |                 |  |               |       |                   |  | 
|----------------- |  | --------------- |  | ------------- | ----- | ----------------- |  | 
|                  |  |                 |  |               |       | Notional Weighted
|Functional        |  |                 |  |               |       | Average Exchange 
|Currency          |  | Notional Amount |  | Rate per US $
|                  |  |                 |  |              
|Singapore dollars |  | $5.3 million    |  |               | 1.784 |                  



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

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We had the following outstanding forward foreign exchange contracts to
exchange U.S. dollars for foreign currency:

|                              |  |                 |              |               |  |                   |         | 
|----------------------------- |  | --------------- | ------------ | ------------- |  | ----------------- | ------- | 
|                              |  |                 |              |               |  | Notional Weighted
|Functional                    |  |                 |              |               |  | Average Exchange 
|Currency                      |  | Notional Amount |              | Rate per US $
|                              |  |                 |              |              
|Euros                         |  | $               | 9.8 million  |               |  |                   | 1.024   | 
|South
          African rand  |  |                 | 2.5 million  |               |  |                   | 10.583  | 
|Swiss
          francs        |  |                 | 2.1 million  |               |  |                   | 1.500   | 
|Canadian
          dollars    |  |                 | 2.0 million  |               |  |                   | 1.576   | 
|British
          pounds      |  |                 | 1.0 million  |               |  |                   | 0.646   | 
|New Zealand
          dollars |  |                 | 0.9 million  |               |  |                   | 2.126   | 
|Swedish
          krona       |  |                 | 0.8 million  |               |  |                   | 9.349   | 
|Japanese
          yen        |  |                 | 0.7 million  |               |  |                   | 122.540 | 
|Australian
          dollars  |  |                 | 0.6 million  |               |  |                   | 1.833   | 
|Brazilian
          reals     |  |                 | 0.6 million  |               |  |                   | 3.780   | 
|Chilean
          pesos       |  |                 | 0.4 million  |               |  |                   | 746.500 | 
|                              |  |                 |              |               |  |                   |         | 
|                              |  | $               | 21.4 million |               |  |                   |         | 
|                              |  |                 |              |               |  |                   |         | 

We had the following cross currency forward foreign exchange contract:

|                   |  |           |  |                 |  |                  |        |  |  |                   |  | 
|------------------ |  | --------- |  | --------------- |  | ---------------- | ------ |  |  | ----------------- |  | 
|                   |  |           |  |                 |  |                  |        |  |  | Notional Weighted
|                   |  | Currency  |  | Notional Amount |  | Average Exchange
|Currency Sold      |  | Purchased |  | in US $         |  | Rate per US $   
|                   |  |           |  |                 |  |                 
|South African rand |  | Euros     |  | $2.5 million    |  |                  | 10.583 | 

At September 30, 2002, each of these contracts matured within 60 days and
had a book value that approximated fair value. Neither the cost nor the fair
value of these forward foreign exchange contracts was material at September 30,
2002. During the three months ended September 30, 2002 and 2001, we recorded
net foreign currency gains of $0.3 million and net foreign currency losses of
$1.9 million. During the nine months ended September 30, 2002 and 2001, we
recorded a net foreign currency gain of $2.8 million and a net foreign currency
loss of $2.7 million.

Interest Rate Risk

Investments in debt securities

We invest our cash in financial instruments, consisting principally of
investments in interest-bearing demand deposit accounts with financial
institutions, tax-exempt money market funds and highly liquid debt securities
of corporations, and municipalities. Our investments are made in accordance
with an investment policy approved by the Board of Directors. Cash balances in
foreign currencies overseas represent operating balances that are typically
invested in short term time deposits of the local operating bank.

We classify debt securities based on managements intention on the date of
purchase and reevaluate such designation as of each balance sheet date. Debt
securities which management has the intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost. All other debt
securities are classified as available-for-sale and carried at fair value with
net unrealized gains and losses included in Accumulated other comprehensive
loss, net of tax in the accompanying condensed consolidated balance sheets.
As of September 30, 2002 and 2001, all our investments were classified as
available-for-sale.

Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities, that typically have a shorter duration,
may produce less income than expected if interest rates fall. Due in part to
these factors, our investment income may decrease in the future due to changes
in interest rates.(1)



---

|(1) |  | Forward-Looking Statement
|--- |  | -------------------------

24



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At September 30, 2002, the average maturity of our investment securities
was less than three months and all investment securities had maturities of less
than eighteen months. The following table presents certain information about
our financial instruments held at September 30, 2002 that are sensitive to
changes in interest rates. Due to our tax rate, it is presently advantageous
for us to invest largely in tax-exempt securities. The average interest rates
shown below reflect a weighted average rate for both taxable and tax-exempt
investments. At September 30, 2002, we invested heavily in tax-exempt
investments which reduced our weighted average interest rate.

Below is a presentation of the maturity profile of our investment
securities held at September 30, 2002 (in millions, except interest rates):

|                               |  |                   |         |             |  |           |      |            |  |   |         |  |  |   |         | 
|------------------------------ |  | ----------------- | ------- | ----------- |  | --------- | ---- | ---------- |  | - | ------- |  |  | - | ------- | 
|                               |  | Expected Maturity |         |             |  |           |      |            |  |  
|                               |  |                   |         | Total       |  |           |      |           
|                               |  | 1 Year or         |         | More than 1 |  | Principal |      | Total     
|                               |  | less              |         | year        |  | Amount    |      | Fair Value
|                               |  |                   |         |             |  |           |      |           
|Available-for-sale securities  |  | $                 | 1,384.9 |             |  | $         | 66.5 |            |  | $ | 1,451.4 |  |  | $ | 1,452.1 | 
|Weighted average interest rate |  |                   | 1.7     | %           |  |           | 1.8  | %          |  |   |         |  |  |   |         | 

Interest rate swaps

We have entered into interest rate swap transactions to manage our
exposure to interest rate changes on our facility lease obligations. The swaps
involve the exchange of fixed interest rate payments for variable interest rate
payments without exchanging the notional principal amount. At September 30,
2002, the swaps had an aggregate notional amount of $175.0 million and a fair
value of $168.2 million. The swaps mature at various dates in 2003,
consistent with the maturity dates of the facility leases. Under these
agreements, we receive a variable rate based on the three month LIBOR set on
the last day of the previous quarter and pay a weighted average fixed rate of
6.80%. These swaps are designated under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), as amended, as hedges against changes in amount of
future cash flows. Included in Accumulated other comprehensive loss as of
September 30, 2002 is a $4.2 million unrealized loss (after-tax) related to
these interest rate swaps. Derivative losses included in Accumulated other
comprehensive loss in the accompanying condensed consolidated balance sheets
of $4.2 million (after-tax) are estimated to be reclassified into earnings over
the remaining life of the swaps based upon a 9 month forward LIBOR rate.

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ITEM 4   CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report (the Evaluation
Date), the Company carried out an evaluation, under the supervision and with
the participation of our management, including the Companys Chief Executive
Officer along with the Companys Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-14 of the Securities Exchange
Act of 1934. Based upon that evaluation, the Companys Chief Executive
Officer and the Companys Chief Financial Officer have concluded that the
Companys disclosure controls and procedures are effective in alerting them
in a timely manner to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Companys
periodic SEC filings.

There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to
the Evaluation Date.

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FACTORS THAT MAY AFFECT OUR FUTURE RESULTS OR THE MARKET
PRICE OF OUR STOCK

We have identified certain forward-looking statements in the Managements
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Form 10-Q with a footnote (1) symbol. We may also make other
forward-looking statements from time to time, both written and oral.
Forward-looking statements give our expectations about the future and are not
guarantees. Forward-looking statements apply as of the date they are made and
we do not undertake any obligations to update them to reflect changes that
occur after that date. The actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors,
including those set forth below and elsewhere in this Form 10-Q.

We operate in a dynamic and rapidly changing environment that involves
numerous significant risks and uncertainties. The following section describes
some, but not all, of these risks and uncertainties that we believe may
adversely affect our future business, financial condition or results of
operations. This section should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and Notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in this report on Form 10-Q and the audited Consolidated Financial
Statements and Notes thereto, and Managements Discussion and Analysis of
Financial Condition and Results of Operations for the years ended December 31,
2001, 2000 and 1999 contained in our 2001 Annual Report to Stockholders on Form
10-K.

Continued regional and/or global economic, political and market conditions may
cause a decrease in demand for our software and related services which may
negatively affect our revenue and operating results.

Our revenue and profitability depend on the overall demand for our
software and related services. Regional and/or global changes in the economy
and financial markets have resulted in companies reducing spending for
technology projects generally and the delay or reconsideration of potential
purchases of our products and related services. Future declines in demand for
our products and/or services could adversely affect our operating results.

Our quarterly operating results may be difficult to predict and may fluctuate
substantially, which may adversely affect our net income.

Our revenues and results of operations can be difficult to predict and may
fluctuate substantially from quarter to quarter. Our expense levels, operating
costs and hiring plans are based on projections of future revenues. If our
actual revenues fall below expectations, our net income may be adversely
affected. Factors that affect the predictability of actual revenues include
the following:



| |  | our sales cycle can vary as a result of the complexity of a customers overall business needs and may extend over one or more
quarters;                                                                                                          
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the complexity and size of license transactions can result in protracted negotiations;                                                                                                                                                           
| 
| |  | a significant number of our license agreements are typically completed within the last few weeks of the quarter and purchasing
decisions may be delayed to future quarters;                                                                      
| 
| |  | the effect of economic downturns and global political conditions may result in decreased product demand, price erosion, and
other factors that may substantially reduce license and service revenue;                                             
| 
| |  | customers may unexpectedly postpone or cancel anticipated system replacement or new system implementation due to changes in
strategic priorities, project objectives, budgetary constraints, internal purchasing processes or company management;
| 
| |  | changes in our competitors and our own pricing policies and discount plans may affect customer purchasing patterns and
decisions; and                                                                                                           

27



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| |  | the number, timing and significance of our competitors and our own software product enhancements and new software product
announcements may affect purchasing decisions.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may be required to defer recognition of license revenue for a significant
period of time after entering into a license agreement, which could negatively
impact our results of operations.

We may have to delay recognizing license or service related revenue for a
significant period of time for a variety of types of transactions, including:



| |  | transactions that include both currently deliverable software products
and software products that are under development or contain other
currently undeliverable elements;    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | transactions where the customer demands services that include significant
modifications, customizations or complex interfaces that could delay
product delivery or acceptance;
| 
| |  | transactions that involve non-standard acceptance criteria or identified
product-related performance issues; and                                                              
| 
| |  | transactions that include contingency-based payment terms or fees.                                                                                                            

These factors and other specific accounting requirements for software
revenue recognition, require that we have very precise terms in our license
agreements to allow us to recognize revenue when we initially deliver software
or perform services. Although we have a standard form of license agreement
that meets the criteria for current revenue recognition on delivered elements,
we negotiate and revise these terms and conditions in some transactions.
Sometimes we are unable to negotiate terms and conditions that permit revenue
recognition at the time of delivery or even as work on the project is
completed.

If accounting interpretations relating to revenue recognition change, our
reported revenues could decline or we could be forced to make changes in our
business practices.

Over the past several years, the American Institute of Certified Public
Accountants has issued Statement of Position (SOP) 97-2, Software Revenue
Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. In addition, in December
1999, the Securities and Exchange Commission staff issued Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which
explains how the SEC staff believes existing revenue recognition rules should
be applied to or interpreted for transactions not specifically addressed by
existing rules. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. We believe that our revenue has been recognized in compliance with
SOP 97-2, SOP 98-9 and SAB 101.

However, the accounting profession and regulatory agencies continue to
discuss various provisions of these pronouncements with the objective of
providing additional guidance on their application. These discussions and the
issuance of new interpretations, once finalized, could lead to unanticipated
reductions in recognized revenue. They could also drive significant
adjustments to our business practices which could result in increased
administrative costs, lengthened sales cycles and other changes which could
adversely affect our results of operations.

Our future revenue is dependent in part upon our installed customer base
continuing to license additional products, renew maintenance agreements and
purchase additional services.

Our installed customer base has traditionally generated additional new
license and service revenues. Maintenance agreements are generally renewable
annually at a customers option and there are no mandatory payment obligations
or obligations to license additional software. In addition, customers may not
necessarily license additional products or contract for additional services.
If our customers fail to renew their maintenance agreements or license
additional products or contract for additional services, our revenues could
decrease.

28



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##### 



Increases in services revenues as a percentage of total revenues could decrease
overall margins and adversely affect our operating results.

We realize lower margins on service revenues than on license revenues. In
addition, we may contract with certain third parties to supplement the services
we provide to customers, which generally yields lower gross margins than our
service business overall. As a result, if service revenues increase as a
percentage of total revenue or if we increase our use of third parties to
provide such services, our gross margins will be lower and our operating
results may be adversely affected.

Future acquisitions may present risks, and we may be unable to achieve the
financial and strategic goals intended at the time of any acquisition.

As a component of our strategy, we may acquire or invest in companies,
products or technologies, and may enter into joint ventures and strategic
alliances with other companies. The risks we commonly encounter in such
transactions include:



| |  | we may have difficulty assimilating the operations and personnel of the acquired company;                                                                                                        
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | we may have difficulty effectively integrating the acquired technologies or products with our current products and
technologies;                                                                 
| 
| |  | our ongoing business may be disrupted by transition and integration issues;                                                                                                                      
| 
| |  | we may not be able to retain key technical and managerial personnel from the acquired business;                                                                                                  
| 
| |  | we may be unable to achieve the financial and strategic goals for the acquired and combined businesses;                                                                                          
| 
| |  | we may have difficulty in maintaining controls, procedures and policies during the transition and integration;                                                                                   
| 
| |  | our relationships with partner companies or third-party providers of technology or products could be adversely affected;                                                                         
| 
| |  | our relationships with employees and customers could be impaired;                                                                                                                                
| 
| |  | our due diligence process may fail to identify significant issues with product quality, product architecture, legal and
financial contingencies, and product development, among other things; and
| 
| |  | we may be required to sustain significant exit charges if products acquired in business combinations are unsuccessful.                                                                           

Our margins may be reduced if we need to lower prices or offer other favorable
terms on our products and services to meet competitive pressures in our
industry.

We compete with a variety of software vendors in all of our major product
lines, including vendors of enterprise application software, manufacturing
software applications, CRM applications, human capital management software and
financial management solutions software. In addition, we compete with numerous
small firms that offer products with new or advanced features. Some of our
competitors may have advantages over us due to their significant worldwide
presence, longer operating and product development history, and substantially
greater technical and marketing resources, or exclusive intellectual property
rights. At least one competitor has a larger installed base than we do.

If competitors offer more favorable pricing, payment terms, contractual
implementation terms, or product or service warranties, or offer product
functionality which we do not currently provide, we may need to lower prices or
offer other favorable terms in order to compete successfully. Any such changes
would be likely to reduce margins and may adversely affect operating results.

If we fail to compete effectively and introduce new products and service
offerings, our results of operations and financial condition of the business
will suffer.

29



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The market for our software products is intensely competitive and is
characterized by rapid technological change, evolving industry standards,
changes in customer requirements and frequent new product introductions and
enhancements. The competitive environment demands that we constantly improve
our existing products and create new products. Our future success may depend in
part upon our ability to:



| |  | enhance and expand our existing applications;                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | successfully integrate third-party products;                                                                                                    
| 
| |  | enter new markets;                                                                                                                              
| 
| |  | improve our existing products and develop new ones to keep pace with
technological developments, including developments related to the
internet;
| 
| |  | satisfy increasingly sophisticated customer requirements; and                                                                                   
| 
| |  | maintain market acceptance.                                                                                                                     

If we are unable to meet these challenges, our results of operations and
our financial condition will be adversely affected. Our failure to drive or
adapt to new and changing industry standards or third party interfaces could
adversely affect sales of our products and services.

Market acceptance of new platforms and operating environments may require us to
undergo the expense of developing and maintaining compatible product lines.

Although our software products can be licensed for use with a variety of
popular industry standard relational database management system platforms,
there may be future or existing platforms that achieve popularity in the
marketplace which may not be architecturally compatible with our software
product design. Moreover, future or existing user interfaces that achieve
popularity within the business application marketplace may or may not be
architecturally compatible with our current software product design.
Developing and maintaining consistent software product performance
characteristics across all of these combinations could place a significant
strain on our resources and software product release schedules which could
adversely affect revenue and results of operations. If we are unable to
maintain software performance across accepted platforms and operating
environments, or to achieve market acceptance of user interfaces that we
support or adapt to popular new user interfaces that we do not support, our
sales and revenues may be adversely affected.

As our international business grows, we will become increasingly subject to
currency risks and other costs and contingencies that could adversely affect
our results.

We continue to invest in the expansion of our international operations.
The global reach of our business could cause us to be subject to unexpected,
uncontrollable and rapidly changing economic and political conditions that
could adversely affect our results of operations. The following factors, among
others, present risks that could have an adverse impact on our business:



| |  | conducting business in currencies other than United States dollars subjects us to currency controls and fluctuations in
currency exchange rates;                                                                                                                                      
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | inability to hedge the currency risk in some transactions because of uncertainty or the inability to reasonably estimate our
foreign exchange exposure;                                                                                                                               
| 
| |  | increased cost and development time required to adapt our products to local markets;                                                                                                                                                                                                  
| 
| |  | lack of experience in a particular geographic market;                                                                                                                                                                                                                                 
| 
| |  | legal, regulatory, social, political, labor or economic uncertainties in a specific country or region, including loss or
modification of exemptions for taxes and tariffs, import and export license requirements, trade tariffs or restrictions, war,
terrorism and civil unrest; and
| 
| |  | higher operating costs due to local laws or regulation.                                                                                                                                                                                                                               

30



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Our future success depends on our ability to continue to retain and attract
qualified employees.

We believe that our future success depends upon our ability to continue to
train, retain, effectively manage and attract highly skilled technical,
managerial, sales and marketing personnel. If our efforts in these areas are
not successful, our costs may increase, development and sales efforts may be
hindered and our customer service may be degraded. Although we invest
significant resources in recruiting and retaining employees, there is intense
competition for personnel in the software industry. From time to time, we
experience difficulties in locating enough highly qualified candidates in
desired geographic locations, or with required industry-specific expertise.

The loss of key personnel could have an adverse effect on our operations and
stock price.

We believe that there are certain key employees within the organization,
primarily in the senior management team, who are necessary for us to meet our
objectives. Due to the competitive employment nature of the software industry,
there is a risk that we will not be able to retain these key employees. The
loss of one or more key employees could adversely affect our continued growth.
In addition, uncertainty created by turnover of key employees could result in
reduced confidence in our financial performance which could cause fluctuations
in our stock price and result in further turnover of our employees.

We may be required to undertake a costly redesign of our products if
third-party software development tools become an industry standard.

Our software products include a suite of proprietary software development
tools, known as PeopleTools®, which are fundamental to the effective use of our
software products. While no industry standard exists for software development
tools, several companies have focused on providing software development tools
and each of them is attempting to establish its own as the accepted industry
standard. If a software product other than PeopleTools were to emerge as a
clearly established and widely accepted industry standard, we may not be able
to adapt PeopleTools appropriately or rapidly enough to satisfy market demand.
In addition, we could be forced to abandon or modify PeopleTools or to redesign
our software products to accommodate the new industry standard. This would be
expensive and time consuming and may adversely affect results of operations and
the financial condition of the business.

A decline in customers ability or willingness to migrate software applications
to an internet architecture could adversely affect continued market acceptance
and sales of PeopleSoft 8 and future internet-based products.

With PeopleSoft 8, use of a web browser as the user interface replaces the
traditional desktop access through networked Microsoft
Windows®-based personal
computers. Dependable access to software applications via the internet or an
intranet involves numerous risks, including security, availability and
reliability. There is a risk that some customers will not be willing or able to
implement internet-based applications. If they do not, revenues may be reduced
and operating results may be adversely affected.

As our software offerings increase in scope and complexity, detection and
correction of errors may become more difficult, may increase costs, may slow
the introduction of new products and may result in more costly performance and
warranty claims.

Our software programs, like all software programs generally, may contain a
number of undetected errors despite internal and third party testing.
Increased complexity of the software and more sophisticated expectations of
customers may result in higher costs to correct such errors and delay the
introduction of new products or enhancements in the marketplace.

Product software errors could subject us to product liability, performance
and/or warranty claims. Although our agreements contain provisions designed to
limit our exposure to potential liability claims, these provisions could be
invalidated by unfavorable judicial decisions or by federal, state, local or
foreign

31



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##### 



laws or regulations. If a claim against us were to be successful, we
might be required to incur significant expense and pay substantial damages.
Even if we were to prevail, the accompanying publicity could adversely impact
the demand for our products.

If we lose access to critical third-party software or technology, our costs
could increase and the introduction of new products and product enhancements
could be delayed, potentially hurting our competitive position.

We license software and technology from third parties, including some
competitors, and incorporate it into our own software products, some of which
is critical to the operation of our software. If any of the third-party
software vendors were to change product offerings, increase prices or terminate
our licenses, we might need to seek alternative vendors and incur additional
internal or external development costs to ensure continued performance of our
products. Such alternatives may not be available on attractive terms, or may
not be as widely accepted or as effective as the software provided by our
existing vendors. If the cost of licensing or maintaining these third-party
software products or other technology significantly increases, our gross margin
levels could significantly decrease. In addition, interruption in
functionality of our products could adversely affect future sales of licenses
and services.

Disruption of our relationships with third-party systems integrators could
adversely affect revenues and results of operations.

We build and maintain strong working relationships with businesses that we
believe play an important role in the successful marketing and deployment of
our software application products. Our current and potential customers often
rely on third-party system integrators to develop, deploy and manage
applications. We believe that our relationships with these companies enhance
our marketing and sales efforts. However, if these system integrators are
unable to recruit and adequately train a sufficient number of consulting
personnel to support the successful implementation of our software products, we
may lose customers. Moreover, our relationships with these companies are not
exclusive, and they are free to start, or in some cases increase, the marketing
of competitive business application software, or to otherwise discontinue their
relationships with us. In addition, integrators who generate consulting fees
from customers by providing implementation services may be less likely to
recommend our software if our products are more difficult or costly to install
than competitors similar product offerings. Disruption of our relationships
with these companies could adversely affect sales, revenues and results of
operations.

We may be unable to achieve the benefits we anticipate from joint software
development or marketing arrangements with our business partners.

We enter into various development or joint business arrangements to
develop new software products or extensions to our existing software products.
We may distribute ourselves or jointly sell with our business partners an
integrated software product and pay a royalty to the business partner based on
end-user license fees under these joint business arrangements. While we intend
to develop business applications that are integrated with our software
products, these software products may in fact not be integrated or brought to
market or the market may reject the integrated enterprise solution. As a
result, we may not achieve the revenues that we anticipated at the time we
entered into the joint business arrangement.

Our intellectual property and proprietary rights may offer only limited
protection. Our products may infringe third-party intellectual property
rights, which could result in material costs.

We consider certain aspects of our internal operations, and our software
and documentation to be proprietary, and we primarily rely on a combination of
contract, patent, copyright, trademark and trade secret laws and other measures
to protect our proprietary rights. Pending patent applications may not result
in issued patents and, even if issued, the patents may not provide any
meaningful protection or competitive advantage. We also rely on contractual
restrictions in our agreements with customers, employees and others to protect
our intellectual property rights. However, there can be no assurances that
these agreements will not be breached, that we have adequate remedies for any
breach or that our trade secrets will not otherwise

32



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##### 



become known. Moreover, the laws of some countries do not protect
proprietary intellectual property rights as effectively as do the laws of the
United States. Protecting and defending our intellectual property rights could
be costly regardless of venue.

Through an escrow arrangement, we have granted some of our customers a
contingent future right to use our source code solely for internal maintenance
services. If our source code is accessed through an escrow, the likelihood of
misappropriation or other misuse of our intellectual property may increase.

Third parties may assert
infringement claims against us more aggressively in the future, especially in
light of recent developments in patent law expanding the scope of patents on
software. These assertions could result in costly and time-consuming
litigation, including damage awards or present the need to enter into royalty
arrangements which would decrease margins and could adversely affect the
results of operations.

Potential terrorist activity may interfere with our ability to conduct
business.

Potential terrorist attacks on United States interests similar to those of
September 11, 2001, present a threat to communication systems, information
technology and security, damage to buildings and their contents and injury to
or death of key employees. We continue to take steps to increase security and
add protections against terrorist threats. This may require adjustment or
change of business practice which could involve significant capital
expenditure and result in loss of focus and distraction of management and
development and sales employees. Moreover, an actual or perceived increase in
risk of travel due to further terrorist activity may reduce our ability to
demonstrate products and meet with prospective customers, which may adversely
affect our ability to close sales and meet projected forecasts. Although built
to state of the art structural standards, our data center near our Pleasanton
headquarters could be vulnerable to attack using large explosives or
sophisticated or unorthodox weapons. Significant structural damage to the data
center could cause a disruption of our information systems and loss of
financial data and certain customer data, which could adversely impact results
of operations and business financial conditions.

Our stock price may remain volatile.

The trading price of our common stock has in the past and may in the
future be subject to wide fluctuations in response to factors such as the
following:



| |  | revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment
community;                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | announcements of technological innovations by us or our competitors;                                                                                               
| 
| |  | acquisitions of new products or significant customers by us or our competitors;                                                                                    
| 
| |  | developments with respect to our patents, copyrights or other proprietary rights of or our competitors;                                                            
| 
| |  | changes in recommendations or financial estimates by securities analysts;                                                                                          
| 
| |  | rumors or dissemination of false and/or misleading information, particularly through internet chat rooms, instant messaging
and by other rapid dissemination means;
| 
| |  | changes in management;                                                                                                                                             
| 
| |  | conditions and trends in the software industry;                                                                                                                    
| 
| |  | announcement of acquisitions or other significant transactions by us or our competitors;                                                                           
| 
| |  | adoption of new accounting standards affecting the software industry; and                                                                                          
| 
| |  | general market conditions.                                                                                                                                         

In addition, fluctuations in the price of our common stock may expose us
to the risk of securities class action lawsuits. Defending against such
lawsuits could result in substantial costs and divert managements

33



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##### 



attention and resources. Furthermore, any settlement or adverse
determination of these lawsuits could subject us to significant liabilities.

If requirements relating to accounting treatment for employee stock options are
changed, we may be forced to change our business practices.

We currently account for the issuance of stock options under APB Opinion
No. 25, Accounting for Stock Issued to Employees. If proposals currently
under consideration by accounting standards organizations and governmental
authorities are adopted, we may be required to treat the value of the stock
options granted to employees as a compensation expense. As a result, we could
decide to reduce the number of stock options granted to employees or to grant
options to fewer employees. This could affect our ability to retain existing
employees and attract qualified candidates, and increase the cash compensation
we would have to pay to them. In addition, such a change could have a negative
effect on the Companys earnings.

It may become increasingly expensive to obtain and maintain liability insurance
at current levels.

We contract for insurance to cover a variety of potential risks and
liabilities. In the current market, insurance coverage is becoming more
restrictive, and when insurance coverage is offered, the deductible for which
we are responsible is larger. In light of these circumstances, it may become
more difficult to maintain insurance coverage at historical levels, or if such
coverage is available, the cost to obtain or maintain it may increase
substantially. This may result in our being forced to bear the burden of an
increased portion of risks for which we have traditionally been covered by
insurance, which could negatively impact the Companys results of operations.

We have adopted anti-takeover defenses that could make it difficult for another
company to acquire control of PeopleSoft or limit the price investors might be
willing to pay for our stock.

Certain provisions of our Certificate of Incorporation and Bylaws could
delay the removal of incumbent directors and could make a merger, tender offer
or proxy contest involving us more difficult, even if such events would be
beneficial to the interests of the stockholders. These provisions include
adoption of a Preferred Shares Rights Agreement, commonly known as a poison
pill and giving our board the ability to issue preferred stock and determine
the rights and designations of the preferred stock at any time without
stockholder approval. The rights of the holders of our common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. In addition, the
staggered terms of our Board of Directors could have the effect of delaying or
deferring a change in control.

The above factors and certain provisions of the Delaware General
Corporation Law may have the effect of deterring hostile takeovers or otherwise
delaying or preventing changes in the control or management of PeopleSoft,
including transactions in which our stockholders might otherwise receive a
premium over the fair market value of PeopleSofts common stock.

34



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##### 



PART II  OTHER INFORMATION

Item 1. Legal Proceedings

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are party to various legal disputes and proceedings arising from the
ordinary course of general business activities. In the opinion of
management, resolution of these matters is not expected to have a
material adverse affect on our financial position, results of
operations or cash flows. However, depending on the amount and the
timing, an unfavorable resolution of some or all of these matters could
materially affect our future results of operations or cash flows in a
particular period.

Item 2. Changes in Securities and Use of Proceeds

| |     
| | ----
| | None

Item 3. Defaults Upon Senior Securities

| |     
| | ----
| | None

Item 4. Submission of Matters to a Vote of Security Holders

| |     
| | ----
| | None

Item 5. Other Information

| |     
| | ----
| | None

Item 6. Exhibits and Reports on
Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------



| | 99.1 |  | Certification by the Chief Executive Officer and
the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|
|
|
|

35



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|Dated: November 14, 2002 | 
|------------------------ | 



| | PEOPLESOFT, INC.
| | ----------------



| | By: | /S/ KEVIN T. PARKER                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------
| |     | Kevin T. Parker
Executive Vice President,
Finance and Administration, Chief Financial Officer
(Principal Financial and Accounting Officer)

36



---



##### 



CERTIFICATIONS

I, Craig A. Conway, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PeopleSoft,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal controls;
and
|
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Dated: November 14, 2002 | By: | /S/ CRAIG A. CONWAY                                  
|------------------------ | --- | -----------------------------------------------------
|                         |     | Craig A. Conway
President and Chief Executive Officer

37



---



##### 



I, Kevin T. Parker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PeopleSoft,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal controls;
and

| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Dated: November 14, 2002 | By: | /S/ KEVIN T. PARKER                                                                          
|------------------------ | --- | ---------------------------------------------------------------------------------------------
|                         |     | Kevin T. Parker
Executive Vice President, Finance and
Administration, Chief Financial Officer

38



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##### 



INDEX TO EXHIBITS

|               |  |                                                                                                                                                                                      
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                          
|               |  |                                                                                                                                                                                      
|99.1           |  | Certification by the Chief Executive Officer and the Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

39