<PAGE>   1

================================================================================

                                  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, 2000
        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                               68-0137069
       (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)

          4460 HACIENDA DRIVE, PLEASANTON, CA                94588
       (Address of principal executive officers)           (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (925) 694-3000

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 3, 2000
                  -----                         -------------------------------
  Common Stock, par value $.01..........                  285,447,517

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<PAGE>   2


                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                       PAGE NO.
                                                                                       --------
<S>         <C>                                                                        <C>
PART I  FINANCIAL INFORMATION

        ITEM 1 - Financial Statements

        Condensed Consolidated Balance Sheets as of December 31,                           2
        1999 and September 30, 2000

        Condensed Consolidated Statements of Operations for the
        Three and Nine Months Ended September 30, 1999 and September 30, 2000
                                                                                           3
        Condensed Consolidated Statements of Cash Flows for the
        Nine Months Ended September 30, 1999 and September 30, 2000                        4

        Notes to Condensed Consolidated Financial Statements                               5

        ITEM 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                           14

        ITEM 3 - Financial Risk Management                                                24

PART II OTHER INFORMATION

        ITEM 1 -  Legal Proceedings                                                       37

        ITEM 2 -  Changes in Securities and Use of Proceeds                               37

        ITEM 3 -  Defaults upon Senior Securities                                         37

        ITEM 4 -  Submission of Matters to a Vote of Security Holders                     37

        ITEM 5 -  Other Information                                                       37

        ITEM 6 -  Exhibits and Reports on Form 8 - K                                      37

SIGNATURES                                                                                38
</TABLE>


                                       1
<PAGE>   3


                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
                                                                 DECEMBER           SEPTEMBER
                                                                 31, 1999           30, 2000
                                                               -----------         -----------
<S>                                                            <C>                 <C>
ASSETS
Current assets:
     Cash and cash equivalents                                 $   414,019         $   386,881
     Short-term investments                                        290,122             458,734
     Accounts receivable, net                                      331,104             394,900
     Investments in corporate equity securities                    260,664              16,357
     Deferred income taxes                                               -              85,945
     Other current assets                                           63,467              86,416
                                                               -----------         -----------
         Total current assets                                    1,359,376           1,429,233
Property and equipment, at cost                                    359,549             405,904
         Less accumulated depreciation and amortization           (187,056)           (217,901)
                                                               -----------         -----------
                                                                   172,493             188,003
Investments                                                         67,852             155,505
Deferred income taxes                                               18,774              39,259
Capitalized software, less accumulated amortization                 27,286               6,123
Other assets                                                        42,097              22,445
                                                               -----------         -----------
         Total assets                                          $ 1,687,878         $ 1,840,568
                                                               -----------         -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                          $    27,555         $    43,171
     Accrued liabilities                                           121,434             121,296
     Accrued compensation and related expenses                     130,245             134,160
     Income taxes payable                                           19,055              68,280
     Deferred income taxes                                          23,945                   -
     Deferred revenues                                             429,929             425,132
                                                               -----------         -----------
         Total current liabilities                                 752,163             792,039
Long-term debt                                                      69,000              69,000
Other long-term liabilities                                         14,050               7,720
Long-term deferred revenues                                         88,046              96,299
Commitments and contingencies (see notes)
Stockholders' equity:
     Common stock                                                    2,709               2,833
     Additional paid-in capital                                    538,643             693,754
     Accumulated other comprehensive income (loss)                 143,298              (2,511)
     Retained earnings                                              79,969             181,434
                                                               -----------         -----------
         Total stockholders' equity                                764,619             875,510
                                                               -----------         -----------
         Total liabilities and stockholders' equity            $ 1,687,878         $ 1,840,568
                                                               -----------         -----------
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   4

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


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED SEPTEMBER 30,       NINE MONTHS ENDED SEPTEMBER 30,
                                                 1999                2000                1999                2000
                                              -----------         -----------         -----------         -----------
<S>                                           <C>                 <C>                 <C>                 <C>
REVENUES:
     License fees                             $    65,684         $   131,520         $   244,390         $   331,588
     Services                                     271,757             274,619             797,640             817,634
     Development and other services                 8,638              36,981              14,839              89,471
                                              -----------         -----------         -----------         -----------
          Total revenues                          346,079             443,120           1,056,869           1,238,693
COSTS AND EXPENSES:
     Cost of license fees                          10,303               8,485              32,447              26,746
     Cost of services                             136,108             152,825             422,270             445,547
     Cost of development services                   7,852              33,566              13,499              81,307
     Sales and marketing                           92,589             116,617             296,906             315,206
     Product development                           72,701              76,714             215,802             240,850
     General and administrative                    27,160              29,143              73,218              78,579
     Product exit charges                               -              35,923                   -              35,923
     Restructuring charges                          1,286                   -               8,730                   -
     Contribution to Momentum Business
      Applications                                      -                   -             176,409                   -
                                              -----------         -----------         -----------         -----------
          Total costs and expenses                347,999             453,273           1,239,281           1,224,158
                                              -----------         -----------         -----------         -----------
Operating income (loss)                            (1,920)            (10,153)           (182,412)             14,535
Other income, net                                   4,405             130,094              16,378             155,958
                                              -----------         -----------         -----------         -----------
     Income (loss) before income taxes              2,485             119,941            (166,034)            170,493
Provision for income taxes                          2,928              51,209               6,167              69,028
                                              -----------         -----------         -----------         -----------
Net income (loss)                             $      (443)        $    68,732         $  (172,201)        $   101,465
                                              -----------         -----------         -----------         -----------
Basic income (loss) per share                 $     (0.00)        $      0.24         $     (0.66)        $      0.37

Shares used in basic per share
computation                                       266,089             281,438             262,310             277,690
                                              -----------         -----------         -----------         -----------
Diluted income (loss) per share               $     (0.00)        $      0.23         $     (0.66)        $      0.35

Shares used in diluted per share
computation                                       266,089             304,895             262,310             291,723
                                              -----------         -----------         -----------         -----------
</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>   5



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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,                                 1999              2000
                                                                     ---------         ---------
<S>                                                                  <C>               <C>
OPERATING ACTIVITIES:
Net income (loss)                                                    $(172,201)        $ 101,465
Adjustments to reconcile net income to net cash provided by
   (used in) operating activities:
     Depreciation and amortization                                      74,164            59,806
     Provision for doubtful accounts                                     5,798               271
     Loss (gain) on sales of investments and disposition of
       property and equipment, net                                       2,633          (131,962)
     Product exit charges                                                    -            35,923
     Other non-cash items                                                  489            (1,334)
     Changes in operating assets and liabilities:
       Accounts receivable                                              36,909           (95,810)
       Cash received from sales of accounts receivable                  36,534            47,735
       Accounts payable and accrued liabilities                        (13,133)           (1,301)
       Accrued compensation and related expenses                        14,293             3,915
       Income taxes payable                                            (21,437)           49,225
       Tax benefits from exercise of stock options                       7,402            27,453
       Deferred income taxes                                           (13,161)          (43,220)
       Deferred revenues                                               (19,435)            3,456
       Other assets and liabilities                                    (33,396)          (25,622)
                                                                     ---------         ---------
     Net cash (used in) provided by operating activities               (94,541)           30,000

INVESTING ACTIVITIES:
Purchase of available-for-sale investments                            (320,548)         (951,475)
Proceeds from the sales of available-for-sale investments              292,854           792,809
Purchase of held-to-maturity investments                               (12,425)                -
Proceeds from maturities of held-to-maturity investments                22,521            46,610
Purchase of property and equipment                                     (38,036)          (60,199)
Proceeds from disposition of property and equipment                        252               378
Additions to capitalized software                                       (2,055)           (2,124)
Proceeds from sale of acquired software                                      -             5,878
Acquisitions, net of cash acquired                                           -            (7,941)
                                                                     ---------         ---------
     Net cash used in investing activities                             (57,437)         (176,064)

FINANCING ACTIVITIES:
Net proceeds from sale of common stock and exercise of
  stock options                                                         56,035           122,046
Distribution of Momentum Business Applications shares                  (78,622)                -
Payments on capital leases                                                (144)             (132)
                                                                     ---------         ---------
     Net cash (used in) provided by financing activities               (22,731)          121,914
Effect of foreign exchange rate changes on cash                         (1,749)           (2,988)
                                                                     ---------         ---------
Net decrease in cash and cash equivalents                             (176,458)          (27,138)
Cash and cash equivalents at beginning of period                       531,722           414,019
                                                                     ---------         ---------
Cash and cash equivalents at end of period                           $ 355,264         $ 386,881
                                                                     ---------         ---------
SUPPLEMENTAL DISCLOSURES:
   Cash paid for interest                                            $   2,756         $   2,789
   Cash paid for income taxes, net of refunds                        $  30,607         $  27,323
                                                                     ---------         ---------
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   6

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


1. BASIS OF PRESENTATION

    The information for the three- and nine-month periods ended September 30,
1999 and September 30, 2000, is unaudited, but includes all adjustments
(consisting only of normal, recurring adjustments) that the Company's management
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 generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported periods. Despite management's best effort to establish good faith
estimates and assumptions, and to manage the achievement of the same, actual
results may differ. Certain prior-period amounts have been reclassified to
conform to the current period presentation.

    PeopleSoft, Inc. ("PeopleSoft" or the "Company") merged with The Vantive
Corporation ("Vantive") on December 31, 1999. This merger was accounted for
using the pooling of interest method of accounting and therefore the condensed
consolidated financial statements reflect the combined financial position,
operating results and cash flows of PeopleSoft and Vantive as if they had been
combined for all periods presented.

    The results of operations of Momentum Business Applications, Inc. ("Momentum
Business Applications") were consolidated with the results of operations of
PeopleSoft through March 15, 1999. The Condensed Consolidated Statement of
Operations for the nine-month period ended September 30, 1999 includes Momentum
Business Application's results through March 15, 1999.

    The accompanying interim financial statements should be read in conjunction
with the financial statements and related notes included in the Company's Annual
Report to Stockholders (Form 10-K) for the year ended December 31, 1999. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. Interim results of operations for the three-
and nine-month periods ended September 30, 2000 are not necessarily indicative
of operating results or performance levels that can be expected for the full
fiscal year.


2. PER SHARE DATA

    Basic income (loss) per share is computed by dividing net income (loss) 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 dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon exercise of stock options, warrants and
convertible subordinated notes, using the treasury stock method.


                                       5
<PAGE>   7


    The following table sets forth the computation of basic and diluted income
(loss) per share.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)                           THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                      SEPTEMBER 30,                      SEPTEMBER 30,
                                                                  1999              2000             1999              2000
                                                               ---------         ---------        ---------         ---------
<S>                                                            <C>               <C>              <C>               <C>
Numerator:
      Net income (loss)                                        $    (443)        $  68,732        $(172,201)        $ 101,465
Denominator:
     Denominator for basic income (loss) per share -
          weighted average shares outstanding                    266,089           281,438          262,310           277,690
      Employee stock options                                           -            23,457                -            14,033
                                                               ---------         ---------        ---------         ---------
     Denominator for diluted income (loss) per share -
          adjusted weighted average shares outstanding
          assuming exercise of common equivalent shares          266,089           304,895          262,310           291,723
                                                               ---------         ---------        ---------         ---------
Basic income (loss) per share                                  $   (0.00)        $    0.24        $   (0.66)        $    0.37
                                                               ---------         ---------        ---------         ---------
Diluted income (loss) per share                                $   (0.00)        $    0.23        $   (0.66)        $    0.35
                                                               ---------         ---------        ---------         ---------
</TABLE>


    An insignificant amount of weighted average common stock equivalents at
prices ranging from $25.88 to $46.50 and 2.4 million weighted average common
stock equivalents at prices ranging from $21.31 to $46.50 were excluded in the
computation of diluted earnings per share during the three- and nine-month
periods ended September 30, 2000 because the options' exercise prices were
greater than the average market price of the common shares during the period.
Common stock equivalents were not included in the calculation of diluted loss
per share during the three- and nine-month periods ended September 30, 1999
because they would have a dilutive effect on the loss per share. Approximately
53.6 million and 50.0 million weighted average common stock equivalents at
prices ranging from $0.001 and $46.50 were outstanding during the three- and
nine-month periods ended September 30, 1999.


3. COMPREHENSIVE INCOME (LOSS)

     The components of comprehensive income (loss), net of taxes, were as
follows.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
(In thousands)                                  THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                   SEPTEMBER 30,                      SEPTEMBER 30,
                                              1999              2000              1999              2000
                                            ---------         ---------         ---------         ---------
<S>                                         <C>               <C>               <C>               <C>
Net income (loss)                           $    (443)        $  68,732         $(172,201)        $ 101,465
Other comprehensive income (loss):
   Net change in unrealized gain on
      Investments available-for-sale           29,067           (57,790)           29,067          (142,824)
  Foreign currency translation                    377            (1,296)           (1,747)           (2,985)
                                            ---------         ---------         ---------         ---------
 Comprehensive income (loss)                $  29,001         $   9,646         $(144,881)        $ (44,344)
                                            ---------         ---------         ---------         ---------
</TABLE>


4. INVESTMENTS IN CORPORATE EQUITY SECURITIES

    Investments in Corporate Equity Securities includes the Company's
investments in privately held or publicly traded start-up companies. The Company
classifies investments in publicly traded companies as investments available for
sale and accounts for them under Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." All
other investments, which consist of investments of privately held companies for
which the Company does not have the ability to exercise significant influence,
are accounted for under the cost method of accounting. The aggregate fair value
of investments in corporate equity securities held at December 31, 1999 and
September 30, 2000, was $260.7 million and $16.4 million. Realized gains on the
sale of available-for-sale investments for the three- and nine-month periods
ended September 30, 2000, were $120.1 million and $129.6 million. Gross
unrealized gains were $241.0 million and $8.2 million as of December 31, 1999
and September 30, 2000, and are included, net of deferred income taxes of $92.8
million and $3.1 million, respectively, as a component of "Accumulated other
comprehensive income (loss)." The unrealized gains as of September 30, 2000
relate


                                       6
<PAGE>   8
to an investment in equity securities of a company that completed its public
offering in July 2000. These equity securities are subject to lock up
provisions, which expire in January 2001.


5. FINANCIAL INSTRUMENTS

     The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters into
forward exchange contracts and interest rate swaps to manage certain exposures
to fluctuations in foreign exchange and interest rates. The Company has written
policies that place all forward exchange contracts under the direction of
Corporate Treasury and restrict all derivative transactions to those intended
for hedging purposes.

Forward Exchange Contracts

     The Company has a foreign exchange hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign currency exchange rates. The program uses forward exchange contracts as
the vehicle for hedging these intercompany balances. The Company uses two
multinational banks for substantially all of these contracts. In general, these
contracts have terms of three months or less. Gains and losses on the settled
contracts are included in "Other income, net" and are recognized in the current
period, consistent with the period in which the gain or loss of the underlying
transaction is recognized. During the three-month periods ended September 30,
1999 and September 30, 2000 the Company recorded a net gain of $0.3 million and
a net loss of $(0.4) million from these settled contracts and underlying foreign
currency exposures. During the nine-month periods ended September 30, 1999 and
September 30, 2000 the Company recorded net gains of $0.2 million and $2.0
million from these settled contracts and underlying foreign currency exposures.
At September 30, 2000, the Company had outstanding forward exchange contracts
totaling $36.5 million, to sell Euros ($27.8 million), Singapore dollars ($1.4
million), Swiss francs ($2.8 million), New Zealand dollars ($0.3 million), Hong
Kong dollars ($1.4 million), Canadian dollars ($0.05 million), Australian
dollars ($0.1) and British pounds ($2.6 million). Each of these contracts had
maturity dates to November 30, 2000 and a book value that approximates fair
value. Both the cost and the fair value of these forward exchange contracts was
not material at September 30, 2000.

Interest Rate Contracts

     The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its $70.0 million and $105.0 million
floating rate synthetic lease obligations. The interest rate on the synthetic
lease obligations is a LIBOR based floating rate, currently LIBOR plus 1% on the
$70.0 million obligation, LIBOR plus 1% on $101.8 million of the $105.0 million
obligation and LIBOR plus 2% on the other $3.2 million. The interest rate on the
synthetic lease obligations resets on a 1,2,3, or 6-month interval at the
Company's election. At September 30, 2000, the Company had entered into interest
rate swap agreements, having a total notional principle amount of $120.0
million, with three commercial banks. The agreements effectively change the
Company's interest rate exposure on the $120.0 million due 2003, to fixed rates
ranging from 6.7183% to 7.1225%. The interest rate agreements match the
underlying terms of the synthetic lease obligations.

Concentrations of Credit Risk

     The Company does not have a concentration of credit or operating risk in
any one industry or any one geographic region within or outside of the United
States.


                                       7
<PAGE>   9

6. TRANSFER OF FINANCIAL ASSETS

     The Company transfers accounts receivable under certain software license
agreements with customers to financial institutions. The Company records such
transfers as sales of the related accounts receivable when it is considered to
have surrendered control of such receivables under the provisions of Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
As of September 30, 2000, the Company had servicing obligations related to
approximately $25.1 million of accounts receivable that had been sold under
these arrangements. In the event that these receivables are not fully repaid to
the financial institution, the Company could be obligated to pay up to ten
percent of the amount of the accounts receivable.


7. PRODUCT EXIT CHARGES

    During the third quarter of 2000, PeopleSoft recorded non-cash pretax
product exit charges in the amount of $35.9 million related to the impairment
and write-off of the unamortized cost of capitalized software, customer list and
goodwill related to two products abandoned during the quarter. See also footnote
"Business Combinations."

    PeopleSoft periodically evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill and other
long-lived assets may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill and other long-lived assets
should be evaluated for possible impairment, PeopleSoft uses an estimate of
undiscounted future net cash flows over the remaining life of the asset to
determine if impairment has occurred. Assets are grouped at the lowest level for
which there are identifiable cash flows that are largely independent from other
asset groups. An impairment in the carrying value of an asset is assessed when
the undiscounted, expected future operating cash flows derived from the asset
are less than its carrying value.


8. RESTRUCTURING AND EXIT CHARGES

    In the first quarter of 1999, the Company adopted a restructuring plan and
incurred a pretax restructuring charge of $4.4 million. PeopleSoft eliminated
approximately 430 redundant and unnecessary positions, primarily in the U.S., in
the administration, sales support, and marketing support areas. All severance
costs associated with this restructuring were paid in 1999 and were funded
through operating cash flow.

    During the second and third quarters of 1999, Vantive, which subsequently
merged with PeopleSoft, adopted a restructuring plan and incurred pretax charges
of $4.3 million to implement a restructuring program aimed at reducing its cost
structure. The restructuring charges consisted primarily of write-offs of
operating assets associated with the termination of certain projects and
relationships that were inconsistent with changes in the operational direction
of Vantive. Additional charges were associated with employee severance. As a
result of these restructuring actions, five U.S. employees separated from
Vantive, including the former chief executive officer and chief operating
officer. Approximately $0.7 million of the restructuring charges were cash
charges, substantially paid in 1999 and funded through operating cash flow. The
remaining $3.7 million represented fixed asset write-downs in the amount of $3.0
million, non-cash compensation expense in the amount of $0.5 million and
write-off of the remaining unamortized goodwill attributable to the Wayfarer
acquisition in the amount of $0.2 million.

    In the fourth quarter of 1999, the Company incurred a pretax exit charge of
$34.1 million resulting from the merger of PeopleSoft and Vantive. The exit
charge included employee severance, write-off of duplicative equipment and other
fixed assets, costs associated with the elimination of excess facilities, and
costs to terminate contracts with third parties that provide redundant or
conflicting services. Approximately 44 redundant positions in the U.S.,
primarily in the management and administration areas, were eliminated. At
September 30, 2000, a total of 43 employees had separated from the Company.


                                       8
<PAGE>   10


    The following table sets forth the components of the Company's restructuring
reserves as of September 30, 2000, which are included in "Accrued liabilities."

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
(In thousands)                    EMPLOYEE           ASSET
                                   COSTS          WRITE-DOWNS        LEASES            OTHER           TOTAL
--------------------------------------------------------------------------------------------------------------
<S>                               <C>              <C>              <C>              <C>              <C>
Balance December 31, 1999         $  4,168         $  1,536         $  5,870         $ 11,535         $ 23,109
   Cash payments                    (3,219)               -           (1,058)          (2,914)          (7,191)
   Non-cash items                        -           (1,536)               -                -           (1,536)
                                  --------         --------         --------         --------         --------
Balance September 30, 2000        $    949         $      -         $  4,812         $  8,621         $ 14,382
                                  --------         --------         --------         --------         --------
</TABLE>


9. COMMITMENTS AND CONTINGENCIES

   Facilities

    In September 1998, the Company purchased two parcels of land for $50.0
million and entered into a five-year lease agreement for facilities to be
constructed on one of the parcels. The lease was structured as an operating
lease with rental payments due beginning upon completion of the construction,
which occurred during the first quarter of 2000. The cost for the construction
of the facility totaled $105.0 million including interest costs during the
construction, which was added to the balance rather than paid by the Company.
The interest rate on the lease obligation is a LIBOR based floating rate, which
resets on a 1,2,3, or 6-month interval at the Company's election. The rental
payments equal the amount of interest under the agreement. The Company has an
option to renew the lease for an additional five years, subject to certain
conditions, or purchase the building for $105.0 million. If at the end of the
lease term the Company does not purchase the property, the Company would
guarantee a residual value to the lessor equal to 85% of the lessor's cost of
the facility. Under this lease, the Company is required to maintain compliance
with certain financial covenants, is prohibited from making certain payments,
including cash dividends, and is subject to various other restrictions.

   Litigation

    Beginning on January 29, 1999, a series of class action lawsuits were filed
in the United States District Court for the Northern District of California
against the Company and certain of its officers and directors, alleging
violations of Section 10(b) of the Securities Exchange Act of 1934. The actions
were consolidated in June 1999 under the name of the lead case Suttovia v.
Duffield, et al., C 99-0472. Following appointment of lead plaintiffs under the
provisions of the Private Securities Litigation Reform Act, a consolidated
amended complaint was filed on December 6, 1999 ("the Consolidated Complaint").
The Consolidated Complaint named the Company and David Duffield, Albert
Duffield, Ronald Codd, Kenneth Morris, Margaret Taylor, Aneel Bhusri, James
Bozzini, Cyril Yansouni and George Still as defendants.

    The Consolidated Complaint purported to bring claims on behalf of all
purchasers of PeopleSoft common stock during the period April 22, 1997 to
January 28, 1999. The Consolidated Complaint alleged that PeopleSoft
misrepresented, inter alia, the degree of market acceptance of its products, the
technical capabilities of its products, the success of certain acquisitions it
had made, and the anticipated financial performance of the Company in fiscal
1999. The Consolidated Complaint abandoned all of the allegations in the
original complaints concerning alleged accounting improprieties, including
claims of improper accounting related to the Company's write-downs for "in
process research and development" in connection with various acquisitions, and
improper accounting related to the Company's spin-off of Momentum Business
Applications, Inc. (Momentum had been a named defendant in the original actions,
but was eliminated as a defendant when the Consolidated Complaint was filed).

    On February 10, 2000, the defendants filed motions to dismiss the
Consolidated Complaint. The motions were heard on May 4, 2000. On May 26, 2000,
following post-hearing submissions, the Court entered an order: a) dismissing
all claims against defendants Albert Duffield, Kenneth Morris, Margaret Taylor,
Aneel Bhusri, James Bozzini, George Still and Cyril Yansouni, without leave to
amend; b) dismissing all claims relating to the time period prior to May 27,
1998; c) denying the motion to dismiss as


                                       9
<PAGE>   11


to various forward-looking statements allegedly made by the Company between May
27, 1998 and January 28, 1999; and d) limiting the class period for which claims
may be asserted to the same time period. A First Amended Complaint was filed on
June 12, 2000. The Court has set a case management schedule pursuant to which
the Company will be required to provide discovery to plaintiffs prior to
December 29, 2000. A final pre-trial conference will be held on March 12, 2001.
The Company believes it has valid defenses to the claims that have not already
been dismissed by the Court. However, no assurance can be given that if there is
an unfavorable resolution of the litigation, there would not be a material
adverse impact on the Company's future financial position or results of
operations or cash flows. However, the Company has in place insurance that would
be available in the event of an adverse result to cover at least a portion of
any amounts determined to be payable, subject to a deductible.

    On June 30, 2000, a shareholder derivative lawsuit was filed in the
California Superior Court, County of Alameda, entitled Marble v. Duffield, et
al., naming as defendants David Duffield, Kenneth Morris, Margaret Taylor,
Albert Duffield, Ronald Codd, Cyril Yansouni, Aneel Bhusri, George Still, James
Bozzini and George Battle. The action alleges that the defendants breached their
fiduciary duties and engaged in alleged acts of insider trading when they sold
stock while failing to disclose material adverse information allegedly in their
possession. The suit seeks unspecified damages, treble damages and attorneys
fees. The action is based on many of the same allegations that are the subject
of the securities class action litigation pending in federal district court,
including many allegations that already have been dismissed in the federal
action. The Company believes that the derivative claims are not proper due to
plaintiffs' failure to make pre-suit demand on the Company as required by law,
and intends to file a motion to dismiss the litigation on those grounds.

    The Company is 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 effect on the financial position, results of the operations and cash
flows of the Company. However, depending on the amount and the timing, an
unfavorable resolution of some or all of these matters could materially affect
the Company's future results of operations or cash flows in a particular period.


10. BUSINESS COMBINATIONS

   TriMark Technologies, Inc.

       In May 1999, PeopleSoft acquired the assets and assumed certain
liabilities of TriMark Technologies, Inc. ("TriMark"), through a business
combination accounted for as a purchase. The assets acquired included Transcend,
TriMark's UNIX based client/server administration solution for annuity and life
insurance processing. Significant components of the aggregate purchase price of
$29.9 million included issuance of shares of common stock with a fair value of
$18.1 million, issuance to TriMark employees of options to purchase common stock
with a fair value of $8.2 million, and forgiveness of debt of $3.6 million.

       PeopleSoft allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $10.6
million to completed products and technology, $4.9 million to customer list,
$0.4 million to assembled workforce, and $14.1 million to goodwill. The
capitalized intangible assets were to be amortized over their estimated useful
lives of three to five years.

    In performing this allocation, PeopleSoft considered, among other factors,
its intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of TriMark's product.
PeopleSoft determined that technological feasibility had been reached for the
Transcend product prior to the date of acquisition and therefore, none of the
purchase price was allocated to in-process research and development. The
projected incremental cash flows were discounted back to their present value
using a discount rate of 20% for developed technology. This discount rate was
determined after consideration of PeopleSoft's cost of capital, the weighted
average return on assets, venture capital rates of return, and revenue growth
assumptions. Associated risks included achieving anticipated levels of market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets.


                                       10
<PAGE>   12


    The Company integrated the completed products and technology acquired from
TriMark into its PeopleSoft Insurance Administration (IA) product, which became
available during June of 1999. However, PeopleSoft has not been able to conclude
any sales of the IA product since the TriMark acquisition. Reasons for this
include poor marketing and sales execution and poor market acceptance of the new
product, partially due to the lack of internet functionality/design in the IA
product.

    During the third quarter of 2000, PeopleSoft decided that it would i) cease
any further development effort on the IA product, ii) redeploy the IA
development resources to other areas, iii) cease any further marketing and sales
effort on the IA product, and iv) abandon the IA product. Thus, PeopleSoft did
not expect any future cash flows from the IA product, which resulted in an
impairment of the unamortized cost of the following intangible assets acquired
during the TriMark acquisition: capitalized software ($7.5 million), customer
list ($3.8 million) and goodwill ($12.9 million). As a result, PeopleSoft
recorded non-cash product exit charges in the amount of $24.2 million.

   Intrepid Systems, Inc.

    In October 1998, PeopleSoft acquired the assets and assumed certain
liabilities of Intrepid Systems, Inc. ("Intrepid"). The acquired products
consisted of applications that streamline, automate, and augment business
processes and decision support for the merchandise management and store
operations of medium and large retail companies. PeopleSoft paid an aggregate
purchase price of $51.5 million. Significant components of the $51.5 million
purchase price included cash payments of $35.3 million, assumption of net
current liabilities of $8.3 million, which included $2.2 million to close the
Intrepid facility, forgiveness of debt of $6.2 million, and transaction expenses
of $1.7 million.

    PeopleSoft allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $27.8
million to completed products and technology, $2.2 million to assembled
workforce, $13.9 million to in-process research and development and $7.1 million
to goodwill. As of the acquisition date, technological feasibility of the
in-process technology had not been established and the technology had no
alternative future use; therefore, PeopleSoft expensed the amount of the
purchase price allocated to in-process research and development of approximately
$13.9 million as of the date of the acquisition in accordance with generally
accepted accounting principles. The capitalized intangible assets were to be
amortized over their estimated useful lives of five years.

    In performing this allocation, PeopleSoft 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 Intrepid's products
and the research and development projects in process at the date of the
acquisition. With regard to the in-process research and development projects,
PeopleSoft considered, among other factors, the stage of completion of each
project, the importance of each project to the overall development plan, and the
projected incremental cash flows from the projects when completed and any
associated risks. The projected incremental cash flows were discounted back to
their present value using discount rates of 20% and 30% for developed and
in-process technology. These discount rates were determined after consideration
of PeopleSoft's cost of capital, the weighted average return on assets, venture
capital rates of return, and revenue growth assumptions. Associated risks
included the inherent difficulties and uncertainties in completing each project
and thereby achieving technological feasibility, achieving anticipated levels of
market acceptance and penetration, market growth rates and risks related to the
impact of potential changes in future target markets.

    In connection with the Intrepid acquisition, PeopleSoft acquired two
products: Evolution and Decision Master. Development plans for the Evolution
product were terminated during the fourth quarter of 1999. During the 2000
annual budget process, it was determined that the market for the Evolution
product did not grow as estimated at the time of the Intrepid acquisition. With
this knowledge and the fact that PeopleSoft could not commit to fund all of the
product initiatives being proposed for 2000, PeopleSoft decided not to pursue
Evolution's development past the fourth quarter of 1999. Without future
development, Evolution was not a viable, marketable product and thus no future
cash flows were expected to be realized from this product. As a result, in the
fourth quarter of 1999, PeopleSoft recorded a product exit charge in the amount
of $10.4 million, consisting primarily of the unamortized cost of the
capitalized software related to the Evolution product.


                                       11
<PAGE>   13

    The Decision Master ("DM") product was completed and released in the fourth
quarter of 1999 as part of PeopleSoft's Business Intelligence product offering.
The DM product competes in the end-user reporting tools market, which is an
extremely competitive market dominated by several companies. During the third
quarter of 2000, PeopleSoft determined that its Business Intelligence offering
is better able to compete in the market if it is offered with multiple end-user
reporting tools rather than with only one. In addition, PeopleSoft determined
that the Decision Master product is no longer a competitive, marketable product
and thus decided that it would i) replace the DM product in its Business
Intelligence offering with multiple end-user reporting tools, ii) cease any
further development effort on the DM product, iii) redeploy the DM development
resources to other areas, and iv) abandon the DM product. Consequently,
PeopleSoft did not expect any future cash flows from the DM product, which
resulted in an impairment of the unamortized cost of the capitalized software
($7.5 million) and related goodwill ($3.8 million) acquired during the Intrepid
acquisition, and capitalized internal software costs ($0.4 million) associated
with the DM product. As a result, PeopleSoft recorded non-cash product exit
charges in the amount of $11.7 million.


11. SEGMENT AND GEOGRAPHIC AREAS

    Based on the criteria of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131"), which establishes standards for the way in which public companies
disclose certain information about operating segments in the Company's financial
reports, the Company identified its chief executive officer ("CEO") as the chief
operating decision maker. During the nine-month period ended September 30, 2000,
the Company's CEO evaluated revenue performance based on two segments: North
America, which includes the U.S. and Canada, and International, which includes
all other geographic regions. Employee headcount and operating costs are managed
by functional areas, rather than by revenue segments, and are only reviewed by
the CEO on a company-wide basis. In addition, the Company does not account for
or report to the CEO its assets or capital expenditures by any other segment.
Thus, the Company is not required to disclose any additional information
pursuant to SFAS 131. The accounting policies for each of the reportable
segments shown below are the same as those described in the summary of
significant accounting policies.

    The following table presents a summary of operating information and certain
balance sheet information by operating segment for the periods presented.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
(In thousands)                                   THREE MONTHS ENDED                      NINE MONTHS ENDED
                                                    SEPTEMBER 30,                           SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------------------
                                               1999                2000                1999                2000
                                            -----------         -----------         -----------         -----------
<S>                                         <C>                 <C>                 <C>                 <C>
Revenues from unaffiliated customers
  North America                             $   280,925         $   344,511         $   858,464         $   973,272
  International                                  65,154              98,609             198,405             265,421
                                            -----------         -----------         -----------         -----------
  Consolidated                              $   346,079         $   443,120         $ 1,056,869         $ 1,238,693
                                            -----------         -----------         -----------         -----------
Operating (loss) income
  North America                             $   (14,492)        $   (28,554)        $  (212,933)        $   (39,664)
  International                                  12,572              18,401              30,521              54,199
                                            -----------         -----------         -----------         -----------
  Consolidated                              $    (1,920)        $   (10,153)        $  (182,412)        $    14,535
                                            -----------         -----------         -----------         -----------
Identifiable assets
  North America                             $ 1,296,019         $ 1,611,790         $ 1,296,019         $ 1,611,790
  International                                 163,376             228,778             163,376             228,778
                                            -----------         -----------         -----------         -----------
  Consolidated                              $ 1,459,395         $ 1,840,568         $ 1,459,395         $ 1,840,568
                                            -----------         -----------         -----------         -----------
</TABLE>


    Revenues from Europe represented 12% of total revenues for the three- and
nine-month periods ended September 30, 1999 and September 30, 2000.



                                       12
<PAGE>   14

12. REVENUE RECOGNITION

    PeopleSoft adopted Statement of Position ("SOP") 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions", on
January 1, 2000 and has changed certain business policies to meet the
requirements of this SOP.

    In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which explains how the SEC staff believes existing
revenue recognition rules should be applied or analogized to for transactions
not addressed by existing rules. In addition, in October 2000, the SEC staff
issued a Frequently Asked Questions and Answers ("FAQ") document, which further
elaborates on the SEC staff's views regarding issues addressed in SAB 101.
PeopleSoft is required to adopt the provisions of SAB 101 in its fourth fiscal
quarter of 2000 and believes that adopting SAB 101 will not have a material
impact on its financial position or results of operations.



                                       13
<PAGE>   15


                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 PeopleSoft's expectations regarding future
trends affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon 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 Future Results and Market Price of
Stock." Forward-looking statements contained throughout this Report include but
are not limited to those identified with a footnote (1) symbol. PeopleSoft
undertakes no obligation to update the information contained in this Item 2.

    As more fully described in the "Merger" section of the Management's
Discussion and Analysis of financial condition and Results of Operations
included in the 1999 Annual Report on Form 10-K, PeopleSoft, Inc. ("PeopleSoft")
merged with The Vantive Corporation ("Vantive") on December 31, 1999. The
condensed consolidated financial statements for the three- and nine-month
periods ended September 30, 1999 included in this report on Form 10-Q have been
prepared following the pooling of interests method of accounting and therefore
reflect the combined operating results and cash flows of PeopleSoft and Vantive
as if they had been combined for the prior-year periods presented. Certain prior
period amounts have been reclassified to conform to the current period
presentation. The management's discussion and analysis of financial condition
and results of operations that follows is also based on the assumption that
PeopleSoft and Vantive were combined for the three- and nine-month periods ended
September 30, 1999.

                              RESULTS OF OPERATIONS

    The following table sets forth, the percentage of dollar change period over
period and the percentage of total revenues represented by certain line items in
PeopleSoft's condensed consolidated statements of operations, for the three- and
nine-month periods ended September 30, 1999 and September 30, 2000.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                       THREE MONTHS ENDED SEPTEMBER 30,          NINE MONTHS ENDED SEPTEMBER 30,

                                      PERCENTAGE OF       PERCENTAGE OF         PERCENTAGE OF       PERCENTAGE OF
                                      DOLLAR CHANGE       TOTAL REVENUES        DOLLAR CHANGE       TOTAL REVENUES
                                      -------------     ------------------      -------------     ------------------
                                       2000/1999        1999          2000       2000/1999        1999          2000
                                       ---------        ----          ----       ---------        ----          ----
<S>                                   <C>               <C>           <C>       <C>               <C>           <C>
Revenues:
  License fees                             100%           19%           30%           36%           23%           27%
  Services                                   1            79            62             3            75            66
  Development and other services             *             2             8             *             1             7
                                          ----          ----          ----          ----          ----          ----
          Total revenues                    28           100           100            17           100           100
                                          ----          ----          ----          ----          ----          ----
Costs and expenses:
  Cost of license fees                     (18)%           3%            2%          (18)%           3%            2%
  Cost of services                          12            39            34             6            40            36
  Cost of development services               *             2             8             *             1             7
  Sales and marketing                       26            27            26             6            28            25
  Product development                        6            21            17            12            20            19
  General and administrative                 7             8             7             7             7             6
  Restructuring charges                    n/a             *             8           n/a             1             3
  Contribution to Momentum
       Business Applications               n/a           n/a           n/a           n/a            17           n/a
                                          ----          ----          ----          ----          ----          ----
       Total costs and expenses             30           101           102            (1)          117            99
                                          ----          ----          ----          ----          ----          ----
Operating income (loss)                      *            (1)%          (2)%        (108)%         (17)%           1%
                                          ----          ----          ----          ----          ----          ----
Other income, net                            *             1            29             *             2            13
                                          ----          ----          ----          ----          ----          ----
Provision for income taxes                   *             1            12             *             1             6
                                          ----          ----          ----          ----          ----          ----
</TABLE>
   *Not meaningful


                                       14
<PAGE>   16


REVENUES

    Revenue from license fees increased by 100% from $65.7 million in the third
quarter of 1999 to $131.5 million in the third quarter of 2000. During 2000, the
quarter-over-quarter increase in revenues from license fees, which reflects
increases in licenses fees in most product lines, resulted primarily from the
general availability of PeopleSoft 8 in September of 2000, which also allowed
PeopleSoft to recognize more deferred revenues than in the prior-year quarter.
In addition, during 1999, revenue from license fees had been decreasing due to
an industry wide decline in demand for ERP products, partially attributed to
customer's focus on year 2000 projects. The impact of this decline was
especially felt during the third quarter of 1999 when PeopleSoft's revenues from
license fees decreased by 61% when compared to the previous-year quarter and had
decreased by 51% on a year-to-date basis. Because the third quarter of 1999
reflects the lowest amount of revenue from license fees experienced by
PeopleSoft during the last two years, and because license revenues have been
steadily increasing since then, PeopleSoft does not expect that the
year-over-year percentage growth of revenue from license fees during the fourth
quarter will be at the same level as that experienced during the third quarter
of 2000(1). For the nine months ended September 30, 2000 revenue from license
fees increased by 36% from $244.4 million during the prior year-to-date period
to $331.6 million during the current year-to-date period. The increase in
revenue from license fees during the year-to-date period reflects increases in
license fees from all of the Company's product lines, except learning solutions.

    At December 31, 1999 and September 30, 2000, PeopleSoft had deferred license
revenue in the amount of $70.8 million and $77.6 million. The deferred license
revenue balances do not include items which are both deferred and unbilled.
PeopleSoft's practice is to net such deferred and unbilled items against the
related receivable balances. As of December 31, 1999 and September 30, 2000,
$37.0 million and $18.3 million in unbilled receivables was netted against
deferred license revenue.

    Revenue from services increased by 1% from $271.8 million in the third
quarter of 1999 to $274.6 million in the third quarter of 2000. Increases in
revenue from maintenance in the amount of $16.3 million were partially offset by
decreases in consulting revenue of $9.9 million and training revenue of $3.5
million. On a sequential basis, revenue from training services was essentially
flat; revenue from consulting services decreased by 7%. Revenue from services as
a percentage of total revenues was 79% and 62% for the quarters ended September
30, 1999 and September 30, 2000. The decrease in service revenue as a percentage
of total revenues during the third quarter of 2000 reflects primarily the change
in revenue mix during the quarter, which includes an increase of $65.8 million
in revenue from license fees and an increase of $28.3 million in revenue from
development services. For the year-to-date period, revenue from services
increased by 3% from $797.6 million, or 75% of total revenues, in the prior-year
period to $817.6 million, or 66% of total revenues, in the current year-to-date
period. An increase in revenue from maintenance services in the amount of $56.6
million was partially offset by decreases in revenue from training services in
the amount of $24.2 million and consulting services in the amount of $12.4
million. With the shipment of PeopleSoft 8 in September, PeopleSoft expects that
demand from its installed base and new customers for consulting and training
services will increase over the next several quarters(1). However, PeopleSoft
cannot give you assurance that it will be successful in expanding its consulting
and training services(1).

    Revenue from development services increased from $8.6 million during the
third quarter of 1999 to $37.0 million during the third quarter of 2000. Per the
terms of the development agreement with Momentum Business Applications, Inc.
("Momentum"), PeopleSoft performs development services on behalf of Momentum;
Momentum pays one hundred and ten percent (110%) of PeopleSoft's fully burdened
costs relating to the research and development provided by PeopleSoft. Cost of
development services increased from $7.9 million during the third quarter of
1999 to $33.6 million during the third quarter of 2000. The first quarter of
1999 was the first quarter of Momentum's existence and since then, many more
projects have been undertaken by Momentum. PeopleSoft also charges Momentum a
quarterly administrative fee of $0.1 million. For the year-to-date period,
revenue from development services increased from $14.8 million during the nine
months ended September 30, 1999 to $89.5 million


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


                                       15
<PAGE>   17


during the nine months ended September 30, 2000; cost of development services
increased from $13.5 million during the nine-month period ended September 30,
1999 to $81.3 million during the same period in the current year. Cost of
development services for the nine months ended September 30, 2000 includes
approximately $2.7 million of third-party royalty costs for technology that will
be incorporated into products developed by Momentum. With the general
availability of PeopleSoft 8 in the third quarter of 2000, PeopleSoft expects
revenues from development services to decrease over the next several
quarters(1).

    Total revenues increased by 28% from $346.1 million in the third quarter of
1999 to $443.1 million in the third quarter of 2000. The increase in total
revenues during the quarter is primarily attributable to the $65.8 million
increase in revenue from license fees and the $28.3 million increase in revenue
from development services. For the year-to-date period, total revenues increased
by 17% from $1,056.9 million during the nine months ended September 30, 1999 to
$1,238.7 million during the nine months ended September 30, 2000. The
year-to-date increase is attributable to an increase in revenue from license
fees of $87.2 million, an increase of $74.6 million in revenue from development
services and an increase in revenue from services of $20.0 million.

Revenues by Segment

    At September 30, 2000, PeopleSoft was organized by geographic areas, in two
operating segments: North America, which includes operations in the U.S. and
Canada, and International, which includes operations in all other regions.

    Revenues from the North America segment increased by 23% from $280.9
million, or 81% of total revenues, in the third quarter of 1999 to $344.5
million, or 78% of total revenues, in the third quarter of 2000. The
quarter-over-quarter increase was primarily attributable to an increase in
license revenues in the amount of $45.7 million and an increase in revenues from
development services in the amount of $28.3 million, partially offset by a
decrease in revenue from services in the amount of $10.4 million. For the
year-to-date period, revenues from the North America segment increased by 13%
from $858.5 million, or 81% of total revenues during the nine months ended
September 30, 1999, to $973.3 million, or 79% of total revenues during the same
period in the current year. The year-to-date increase in revenues from the North
America segment is primarily the result of the increase in revenues from
development services in the amount of $74.6 million and an increase in license
revenues in the amount of $49.6 million, partially offset by a decrease in
revenues from services in the amount of $9.4 million. PeopleSoft expects revenue
from development services to decrease over the next several quarters(1).

    Revenues from the International segment increased by 51% from $65.2 million,
or 19% of total revenues, in the third quarter of 1999 to $98.6 million, or 22%
of total revenues, in the third quarter of 2000. Within the International
segment, revenues from Europe represented 12% of total revenues during the third
quarter of 1999 and the third quarter of 2000. For the year-to-date period,
revenues from the International segment increased by 34% from $198.4 million, or
19% of total revenues, during the nine months ended September 30, 1999 to $265.4
million, or 21% of total revenues, during the same period in the current year.
Revenues from Europe represented 12% of total revenues during both year-to-date
periods. The quarter- and year-to-date increase in revenues from the
International segment reflects revenue growth in all geographic regions from
both license fees and services.

COSTS AND EXPENSES

    Cost of license fees consists principally of royalties, technology access
fees for certain third-party software products and amortization of capitalized
software costs. Cost of license fees decreased from $10.3 million in the third
quarter of 1999 to $8.5 million in the third quarter of 2000, representing 3%
and 2% of total revenues and 16% and 6% of license fees revenues. The dollar
decrease during the quarter was primarily the result of decreased capitalized
software amortization expense in the amount of $3.5 million, due in part to the
abandonment of the products acquired in the Intrepid and TriMark acquisitions,
partially offset by increased royalties expense resulting from the increase in
license fee revenue during the quarter. The decrease in cost of license fees as
a percentage of license fee revenues was primarily the result of the 100%
increase in license fees during the quarter. During the nine months ended
September 30, 1999 and

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


                                       16
<PAGE>   18



September 30, 2000, cost of license fees decreased from $32.4 million to $26.7
million, representing 3% and 2% of total revenues and 13% and 8% of license fees
revenue. The year-to-date decrease in cost of license fees was due in part to
decreased capitalized software amortization expense in the amount of $3.5
million and the resolution of a royalty liability of $2.4 million in the second
quarter of 2000, where payment was no longer required. Royalties associated with
certain software products currently under development by joint business
arrangements and charges associated with software products and technologies
acquired from various third-party vendors may cause the cost of license fees to
increase in future periods in dollar amount and as a percentage of license fee
revenues(1). PeopleSoft's products are based on a combination of internally
developed technology and application products, as well as bundled third-party
products and technology. Cost of license fees as a percentage of license fee
revenues will likely fluctuate from period to period due principally to the mix
of sales of royalty-bearing software products in each period and seasonal
fluctuations in revenues contrasted with certain fixed expenses such as the
amortization of capitalized software.

    Cost of services consists primarily of employee-related costs and other
expenses incurred to provide consulting and installation services, customer care
center administrative support, account management field support, training, and
product support. These costs increased from $136.1 million in the third quarter
of 1999 to $152.8 million in the third quarter of 2000, representing 39% and 34%
of total revenues and 50% and 56% of service revenues. The dollar increase
during the quarter was primarily due to increased headcount in the services
organization. The Company hired employees assuming a higher level of departures
than actually occurred. PeopleSoft's services organization consisted of 3,498
employees as of September 30, 1999 and 3,744 employees as of September 30, 2000.
Cost of services for the year-to-date period increased from $422.3 million
during the nine months ended September 30, 1999 to $445.5 million during the
nine months ended September 30, 2000, representing 40% and 36% of total revenues
and 53% and 54% of service revenues in those periods. The dollar increase in
cost of services during the quarter- and year-to-date periods is primarily the
result of increased headcount in the services organization. With the shipment of
PeopleSoft 8 in September, PeopleSoft expects that demand from its installed
base and new customers for consulting and training services will increase over
the next several quarters and consequently, anticipates that cost of services
will increase in dollar amount, and may increase as a percentage of service
revenues and total revenues in future periods(1).

    Sales and marketing expenses increased from $92.6 million in the third
quarter of 1999 to $116.6 million in the third quarter of 2000, representing 27%
and 26% of total revenues in each of those quarters. The quarter-to-date
increase was primarily attributable to increased sales compensation costs as
PeopleSoft increases its sales force and to increased spending in advertising
expenses. Sales and marketing headcount was 1,212 and 1,321 employees as of
September 30, 1999 and September 30, 2000. For the year-to-date period, sales
and marketing expense increased from $296.9 million for the nine months ended
September 30, 1999 to $315.2 million during the nine months ended September 30,
2000. The increase during the year-to-date period is primarily the result of
increased advertising expenses and increases in sales compensation costs,
partially offset by a decrease in facilities related expenses. Sales and
marketing expenses may increase in dollar amount and as a percentage of total
revenues in future periods as PeopleSoft increases its sales force and marketing
and advertising expenses in support of PeopleSoft 8(1).

    Software product development expenditures consist of costs related to
PeopleSoft's staff of software developers and outside consultants, and the
associated infrastructure costs required to support software product development
initiatives. Software product development expenses increased from $72.7 million
in the third quarter of 1999 to $76.7 million in the third quarter of 2000,
representing 21% and 17% of total revenues in each of those quarters.
PeopleSoft's research and development staff consisted of 1,610 and 2,098
employees as of September 30, 1999 and September 30, 2000. For the year-to-date
period, product development expenses increased from $215.8 million during the
nine months ended September 30, 1999 to $240.9 million during the nine months
ended September 30, 2000. The quarter- and year-to-date dollar increase in
product development expenses are primarily the result of PeopleSoft's focus
during 2000 to complete its next major release, PeopleSoft 8, which became
available in September of 2000. With the completion of PeopleSoft 8, the Company
expects that the dollar amount invested in software product development expenses
will remain flat or may decrease in future periods when



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


                                       17
<PAGE>   19


compared to the current quarter(1). PeopleSoft continues to invest in expanded
functionality across all of its software product offerings, including global
product requirements and industry specific requirements(1). However, PeopleSoft
can not give assurance that such development efforts will result in products,
features or functionality or that software products, features or functionality
that are developed will be accepted by the market.

    General and administrative expenses increased from $27.2 million during the
third quarter of 1999 to $29.1 million during the third quarter of 2000,
representing 8% and 7% of total revenues in those quarters. PeopleSoft's general
and administrative staff consisted of 636 and 771 employees as of September 30,
1999 and September 30, 2000. The quarter-over-quarter increase was primarily due
to increases in employee compensation costs in the amount of $4.3 million,
resulting from increased headcount to support expanded business operations,
partially offset by miscellaneous decreases, including facilities, legal
expenses and depreciation and amortization expense. General and administrative
expenses were $73.2 million for the nine months ended September 30, 1999
compared to $78.6 million for the nine months ended September 30, 2000. The
year-to-date dollar increase is primarily due to increases in employee
compensation costs of approximately $10.5 million and increases in amortization
of goodwill and other intangibles in the amount of $3.3 million, both of which
were partially offset by miscellaneous decreases, including facilities,
depreciation expense, legal fees and the favorable resolution of a contract
liability with a business partner during the second quarter of 2000.

PRODUCT EXIT CHARGES

    During the third quarter of 2000, PeopleSoft recorded non-cash product exit
charges in the amount of $35.9 million related to the impairment and write off
of the unamortized cost of capitalized software, customer list and goodwill
related to two products abandoned during the quarter. See also "Business
Combinations."

    PeopleSoft periodically evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill and other
long-lived assets may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill and other long-lived assets
should be evaluated for possible impairment, PeopleSoft uses an estimate of
undiscounted future net cash flows over the remaining life of the asset to
determine if impairment has occurred. Assets are grouped at the lowest level for
which there are identifiable cash flows that are largely independent from other
asset groups. An impairment in the carrying value of an asset is assessed when
the undiscounted, expected future operating cash flows derived from the asset
are less than its carrying value.

RESTRUCTURING AND EXIT CHARGES

    During the first quarter of 1999, PeopleSoft adopted a restructuring plan
and incurred a pretax restructuring charge of $4.4 million. PeopleSoft
eliminated approximately 430 redundant and unnecessary positions, primarily in
the U.S. in the administration, sales support, and marketing support areas. All
severance costs associated with this restructuring were paid in 1999 and were
funded through operating cash flow.

    During the second and third quarters of 1999, Vantive, which subsequently
merged with PeopleSoft, adopted a restructuring plan and incurred pretax charges
of $4.3 million to implement a restructuring program aimed at reducing its cost
structure. The restructuring charges consisted primarily of write-offs of
operating assets associated with the termination of certain projects and
relationships that were inconsistent with changes in the operational direction
of Vantive. Additional charges were associated with employee severance. As a
result of these restructuring actions, five U.S. employees separated from
Vantive, including the former chief executive officer and chief operating
officer. Approximately $0.7 million of the restructuring charges were cash
charges, substantially paid in 1999 and funded through operating cash flow. The
remaining $3.7 million represented fixed asset write-downs in the amount of $3.0
million, non-cash compensation expense in the amount of $0.5 million and
write-off of the remaining unamortized goodwill attributable to the Wayfarer
acquisition in the amount of $0.2 million.

----------------
(1) Forward-Looking Statements



                                       18
<PAGE>   20


    In the fourth quarter of 1999, PeopleSoft incurred a pretax exit charge of
$34.1 million resulting from the merger of PeopleSoft and Vantive. The exit
charge included employee severance, write-off of duplicative equipment and other
fixed assets, costs associated with the elimination of excess facilities, and
costs to terminate contracts with third parties that provide redundant or
conflicting services. Approximately 44 redundant positions in the U.S.,
primarily in the management and administration areas, were eliminated. At
September 30, 2000, a total of 43 employees had separated from the Company.

    The following table sets forth the components of PeopleSoft's restructuring
reserves as of September 30, 2000, which are included in "Accrued liabilities"
in the accompanying condensed consolidated balance sheets.


<TABLE>
<CAPTION>
(in millions)                    EMPLOYEE      ASSET
                                  COSTS     WRITE-DOWNS       LEASES        OTHER         TOTAL
                                 --------   -----------       -----         -----         -----
<S>                              <C>        <C>               <C>           <C>           <C>
Balance December 31, 1999         $ 4.2        $  1.5         $ 5.9         $11.5         $23.1
   Cash payments                   (3.2)            -          (1.1)         (2.9)         (7.2)
   Non-cash items                     -          (1.5)            -             -          (1.5)
                                  -----        ------         -----         -----         -----
Balance September 30, 2000        $ 1.0        $    -         $ 4.8         $ 8.6         $14.4
                                  -----        ------         -----         -----         -----
</TABLE>

CONTRIBUTION TO MOMENTUM BUSINESS APPLICATIONS

     During 1998, PeopleSoft formed Momentum Business Applications, Inc.
("Momentum"), a research and development company designed to develop eBusiness,
analytic applications and industry-specific software products. All of the
outstanding shares of Momentum Class A Common Stock were transferred to a
custodian on December 31, 1998 and distributed as a dividend to holders of
PeopleSoft Common Stock during January 1999. Prior to the distribution,
PeopleSoft contributed $250.0 million to Momentum. PeopleSoft consolidated
Momentum into its financial statements for the fourth quarter of 1998. However,
during the first quarter of 1999, Momentum no longer met the requirements for
consolidation. As a result, PeopleSoft incurred a charge of $176.4 million,
which represents the $250.0 million contribution less a $78.6 million dividend
recorded as of December 31, 1998, investment banker fees of $2.9 million, other
expenses related to the formation of Momentum, and expenses incurred by Momentum
while consolidated with PeopleSoft.

OTHER INCOME, NET

    "Other income, net," which includes interest income, interest expense, gains
on sale of corporate equity securities and other, increased from $4.4 million in
the third quarter of 1999 to $130.1 million in the third quarter of 2000, and
from $16.4 million during the nine months ended September 30, 1999 to $156.0
million during the nine months ended September 30, 2000. The increase during the
quarter was primarily the result of $120.1 million in gains on the sale of
corporate equity securities. The year-to-date increase was primarily the result
of $129.6 million in gains on the sale of corporate equity securities. See also
"Investments in Corporate Equity Securities and Unrealized Gains."

PROVISION FOR INCOME TAXES

    PeopleSoft's income tax provision increased from $2.9 million in the
three-month period ended September 30, 1999 to $51.2 million for the same period
in the current year and increased from $6.2 million in the nine-month period
ended September 30, 1999 to $69.0 million for the same period in the current
year. The effective tax rate was 47.9% and 34.5% for the nine months ended
September 30, 1999 and September 30, 2000, excluding the impact of the charges
related to Momentum and the restructuring costs occurring in the first nine
months of 1999 as well as the impact of the gains on marketable equity
securities and the product exit charges occurring in the first nine months of
2000. The 2000 rate is lower than the 1999 rate mainly due to the merger with
Vantive and the statutory extension of the research and development credit. The
net deferred tax assets at September 30, 2000 were $125.2 million. The valuation
of these net deferred tax assets is based on historical tax positions and
expectations about future taxable income.


                                       19
<PAGE>   21

NET INCOME (LOSS) PER SHARE

    Diluted net income (loss) per share increased from an insignificant net loss
per share in the third quarter of 1999 to net income of $0.23 per share in the
third quarter of 2000. Weighted average shares outstanding used in the
calculation of diluted net income (loss) per share were 266.1 million for the
three months ended September 30, 1999 compared to 304.9 million for the third
quarter of 2000. Net loss for the third quarter of 1999 included pretax
restructuring charges in the amount of $1.3 million. Diluted net income (loss)
per share for the year-to-date period increased from a net loss of $(0.66) per
share for the nine months ended September 30, 1999 to net income of $0.35 per
share for the nine months ended September 30, 2000. Net loss for the nine months
ended September 30, 1999 included pretax charges of $176.4 million for the
contribution to Momentum Business Applications and $8.7 million for
restructuring charges. Net income for the nine months ended September 30, 2000
included a pretax gain on the sale of corporate equity securities in the amount
of $129.6 million. Weighted average shares outstanding, used in the calculation
of diluted net income (loss) per share, were 262.3 million for the nine months
ended September 30, 1999 compared to 291.7 million for the nine months ended
September 30, 2000. Shares outstanding may be impacted by the following factors:
(i) any fluctuations in PeopleSoft's stock price, which could cause changes in
the number of common stock equivalents included in the earnings per share
computation; (ii) the issuance of common stock associated with stock option
exercises and the employee stock purchase plan; (iii) the issuance of common
stock to effect business combinations, should PeopleSoft enter into such
transactions; (iv) potential conversion of subordinated notes into common stock
of PeopleSoft; and (v) Company repurchases of outstanding shares of common
stock.

INVESTMENTS IN CORPORATE EQUITY SECURITIES AND UNREALIZED GAINS

    Investments in Corporate Equity Securities includes the Company's
investments in privately held or publicly traded start-up companies. PeopleSoft
classifies investments in publicly traded companies as investments available for
sale and accounts for them under Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." All
other investments, which consist of investments of privately held companies for
which the Company does not have the ability to exercise significant influence,
are accounted for under the cost method of accounting. The aggregate fair value
of investments in corporate equity securities held at December 31, 1999 and
September 30, 2000, was $260.7 million and $16.4 million. Realized gains on the
sale of available-for-sale investments for the three- and nine-month periods
ended September 30, 2000, were $120.1 million and $129.6 million. Gross
unrealized gains were $241.0 million and $8.2 million as of December 31, 1999
and September 30, 2000, and are included, net of deferred income taxes of $92.8
million and $3.1 million, respectively, as a component of "Accumulated other
comprehensive income (loss)." The unrealized gains as of September 30, 2000
relate to an investment in equity securities of a company that completed its
public offering in July 2000. These equity securities are subject to lock up
provisions, which expire in January 2001. The stock market is highly volatile,
as a result, PeopleSoft cannot give assurance that the unrealized gains as of
September 30, 2000 will be realized, or that losses on the investment will not
occur(1).

BUSINESS COMBINATIONS

   TriMark Technologies, Inc.

    In May 1999, PeopleSoft acquired the assets and assumed certain liabilities
of TriMark Technologies, Inc. ("TriMark"), through a business combination
accounted for as a purchase. The assets acquired included Transcend, TriMark's
UNIX based client/server administration solution for annuity and life insurance
processing. Significant components of the aggregate purchase price of $29.9
million included issuance of shares of common stock with a fair value of $18.1
million, issuance to TriMark employees of options to purchase common stock with
a fair value of $8.2 million, and forgiveness of debt of $3.6 million.



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


                                       20
<PAGE>   22


    PeopleSoft allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $10.6
million to completed products and technology, $4.9 million to customer list,
$0.4 million to assembled workforce, and $14.1 million to goodwill. The
capitalized intangible assets were to be amortized over their estimated useful
lives of three to five years.

    In performing this allocation, PeopleSoft considered, among other factors,
its intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of TriMark's product.
PeopleSoft determined that technological feasibility had been reached for the
Transcend product prior to the date of acquisition and therefore, none of the
purchase price was allocated to in-process research and development. The
projected incremental cash flows were discounted back to their present value
using a discount rate of 20% for developed technology. This discount rate was
determined after consideration of PeopleSoft's cost of capital, the weighted
average return on assets, venture capital rates of return, and revenue growth
assumptions. Associated risks included achieving anticipated levels of market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets.

    PeopleSoft integrated the completed products and technology acquired from
TriMark into its PeopleSoft Insurance Administration (IA) product, which became
available during June of 1999. However, PeopleSoft has not been able to conclude
any sales of the IA product since the TriMark acquisition. Reasons for this
include poor marketing and sales execution and poor market acceptance of the new
product, partially due to the lack of internet functionality/design in the IA
product.

    During the third quarter of 2000, PeopleSoft decided that it would i) cease
any further development effort on the IA product ii) redeploy the IA development
resources to other areas, iii) cease any further marketing and sales effort on
the IA product, and iv) abandon the IA product. Thus, PeopleSoft did not expect
any future cash flows from the IA product, which resulted in an impairment of
the unamortized cost of the following intangible assets acquired during the
TriMark acquisition: capitalized software ($7.5 million), customer list ($3.8
million) and goodwill ($12.9 million). As a result, PeopleSoft recorded non-cash
product exit charges in the amount of $24.2 million.

   Intrepid Systems, Inc.

    In October 1998, PeopleSoft acquired the assets and assumed certain
liabilities of Intrepid Systems, Inc. ("Intrepid"). The acquired products
consisted of applications that streamline, automate, and augment business
processes and decision support for the merchandise management and store
operations of medium and large retail companies. PeopleSoft paid an aggregate
purchase price of $51.5 million. Significant components of the $51.5 million
purchase price included cash payments of $35.3 million, assumption of net
current liabilities of $8.3 million, which included $2.2 million to close the
Intrepid facility, forgiveness of debt of $6.2 million, and transaction expenses
of $1.7 million.

    PeopleSoft allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $27.8
million to completed products and technology, $2.2 million to assembled
workforce, $13.9 million to in-process research and development and $7.1 million
to goodwill. As of the acquisition date, technological feasibility of the
in-process technology had not been established and the technology had no
alternative future use; therefore, PeopleSoft expensed the amount of the
purchase price allocated to in-process research and development of approximately
$13.9 million as of the date of the acquisition in accordance with generally
accepted accounting principles. The capitalized intangible assets were to be
amortized over their estimated useful lives of five years.

    In performing this allocation, PeopleSoft 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 Intrepid's products
and the research and development projects in process at the date of the
acquisition. With regard to the in-process research and development projects,
PeopleSoft considered, among other factors, the stage of completion of each
project, the importance of each project to the overall development plan, and the
projected incremental cash flows from the projects when completed and any
associated risks. The projected incremental cash flows were discounted back to
their present value using discount rates of 20%

                                       21
<PAGE>   23

and 30% for developed and in-process technology. These discount rates were
determined after consideration of PeopleSoft's cost of capital, the weighted
average return on assets, venture capital rates of return, and revenue growth
assumptions. Associated risks included the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, achieving anticipated levels of market acceptance and penetration,
market growth rates and risks related to the impact of potential changes in
future target markets.

    In connection with the Intrepid acquisition, PeopleSoft acquired two
products: Evolution and Decision Master. Development plans for the Evolution
product were terminated during the fourth quarter of 1999. During the 2000
annual budget process, it was determined that the market for the Evolution
product did not grow as estimated at the time of the Intrepid acquisition. With
this knowledge and the fact that PeopleSoft could not commit to fund all of the
product initiatives being proposed for 2000, PeopleSoft decided not to pursue
Evolution's development past the fourth quarter of 1999. Without future
development, Evolution was not a viable, marketable product and thus no future
cash flows were expected to be realized from this product. As a result, in the
fourth quarter of 1999, PeopleSoft recorded a product exit charge in the amount
of $10.4 million, consisting primarily of the unamortized cost of the
capitalized software related to the Evolution product.

    The Decision Master ("DM") product was completed and released in the fourth
quarter of 1999 as part of PeopleSoft's Business Intelligence product offering.
The DM product competes in the end-user reporting tools market, which is an
extremely competitive market dominated by several companies. During the third
quarter of 2000, PeopleSoft determined that its Business Intelligence offering
is better able to compete in the market if it is offered with multiple end-user
reporting tools rather than with only one. In addition, PeopleSoft determined
that the Decision Master product is no longer a competitive, marketable product
and thus decided that it would i) replace the DM product in its Business
Intelligence offering with multiple end-user reporting tools, ii) cease any
further development effort on the DM product iii) redeploy the DM development
resources to other areas, and iv) abandon the DM product. Consequently,
PeopleSoft did not expect any future cash flows from the DM product, which
resulted in an impairment of the unamortized cost of the capitalized software
($7.5 million) and related goodwill ($3.8 million) acquired during the Intrepid
acquisition, and capitalized internal software costs ($0.4 million) associated
with the DM product. As a result, PeopleSoft recorded non-cash product exit
charges in the amount of $11.7 million.

NEWLY ISSUED ACCOUNTING STANDARDS

    In March 2000 the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"), an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain provisions cover
specific events that occur after either December 15, 1999 or January 12, 2000.
Adopting FIN 44 did not have a material impact on PeopleSoft's financial
position or results of operations.

    In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which explains how the SEC staff believes existing
revenue recognition rules should be applied or analogized to for transactions
not addressed by existing rules. In addition, in October 2000, the SEC staff
issued a Frequently Asked Questions and Answers ("FAQ") document, which further
elaborates on the SEC staff's views regarding issues addressed in SAB 101.
PeopleSoft is required to adopt the provisions of SAB 101 in its fourth quarter
of 2000 and believes that adopting SAB 101 will not have a material impact on
its financial position or results of operations.


                                       22
<PAGE>   24


    In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
which provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As amended, this statement is
effective for fiscal years beginning after June 15, 2000. PeopleSoft will apply
the new rules prospectively to transactions beginning in the first quarter of
2001. Based on current circumstances, PeopleSoft believes the application of the
new rules will not have a material impact on its financial position or results
of operations.

                         LIQUIDITY AND CAPITAL RESOURCES

    At September 30, 2000, PeopleSoft had $386.9 million in cash and cash
equivalents and $458.7 million 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
and equity securities of corporations, municipalities and the U.S. Government.
Working capital at September 30, 2000 was $637.2 million. PeopleSoft believes
that the combination of cash and cash equivalents and short-term investment
balances, issuance of stock under the employee purchase plan and stock option
exercises, proceeds from sale of strategic equity security investments, and
potential cash flow from operations will be sufficient to satisfy its operating
cash requirements and expected purchases of property and equipment at least
through the next twelve months(1).

    The following table summarizes PeopleSoft's cash flows from operating,
investing and financing activities.


<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,                                  1999            2000
(in millions)
                                                              -------         -------
<S>                                                           <C>             <C>
Net cash (used in) provided by:
   Operating activities ..............................        $ (94.6)        $  30.0
   Investing activities ..............................          (57.4)         (176.1)
   Financing activities ..............................          (22.7)          121.9
   Effect of exchange rate changes on cash and
   cash equivalents ..................................           (1.8)           (2.9)
                                                              -------         -------
Decrease in cash and cash equivalents ................        $(176.5)        $ (27.1)
                                                              -------         -------
</TABLE>

        During the nine-month period ended September 30, 1999 net cash used in
operating activities was $(94.6) million compared to net cash provided by
operating activities of $30.0 million during the nine-month period ended
September 30, 2000. Cash used in operating activities during the first
nine-months of 1999 resulted primarily from the net loss of $(172.2) million
plus non-cash charges of $83.1 million, which include amortization and
depreciation of $74.2 million, minus decreases in income taxes payable of
$(21.4) million, deferred revenues of $(19.4) million and accounts payable and
accrued liabilities of $(13.1) million, increases in deferred income taxes of
$(13.2) million and other assets and liabilities of $(33.4) million, all of
which were partially offset by decreases in accounts receivable of $73.4
million, increases in accrued compensation and related expenses of $14.3 million
and tax benefits from exercise of stock options of $7.4 million. Excluding the
$(176.4) million contribution to Momentum Business Applications, operating
activities would have provided cash of $81.9 million. During the nine months
ended September 30, 2000, cash provided by operating activities resulted
primarily from the net income of $101.5 million minus non-cash items of $(37.3)
million, which include depreciation and amortization of $59.8 million, product
exit charges in the amount of $35.9 million, and gains on the sale of equity
investments of $(129.6) million, plus increases in income taxes payable of $49.2
million, tax benefits from exercise of stock options of $27.5 million, all of
which were partially offset by increases in accounts receivable of $(48.1)
million, deferred income taxes of $(43.2) million and other assets and
liabilities of $(25.6) million.

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


                                       23
<PAGE>   25
    Net cash used in investing activities was $(57.4) million during the
nine-month period ended September 30, 1999 and $(176.1) million during the
nine-month period ended September 30, 2000. PeopleSoft's principal use of cash
in investing activities in the nine-month period ended September 30, 1999
included net purchases of investments in the amount of $(17.6) million and
purchases of property and equipment in the amount of $(38.0) million.
PeopleSoft's principal use of cash in investing activities in the nine-month
period ended September 30, 2000 included net purchases of investments in the
amount of $(112.1) million and purchases of property and equipment in the amount
of $(60.2) million.

    Net cash used in financing activities was $(22.7) million during the
nine-month period ended September 30, 1999 compared to net cash provided by
financing activities in the amount of $121.9 million during the nine-month
period ended September 30, 2000. The principal use of cash for financing
activities during the nine-month period ended September 30, 1999 was
PeopleSoft's distribution of $(78.6) million in Momentum Business Applications
shares to PeopleSoft stockholders, which was partially offset by proceeds from
the exercise of common stock options by employees and issuance of stock under
the employee stock purchase program in the amount of $56.0 million. The
principal source of cash provided by financing activities during the nine-month
period ended September 30, 2000 was proceeds from the exercise of common stock
options by employees and issuance of stock under the employee stock purchase
program in the amount of $122.0 million. In August 2000, the Board of Directors
authorized a $100 million share repurchase plan. PeopleSoft expects to
repurchase up to $100 million of its common stock in open market transactions
over the next 12 months(1).


                       ITEM 3 - FINANCIAL RISK MANAGEMENT

    PeopleSoft has only limited involvement with derivative financial
instruments and does not use them for trading purposes. PeopleSoft enters into
forward exchange contracts and interest rate swaps to manage certain exposures
to fluctuations in foreign exchange and interest rates. PeopleSoft has written
policies that place all forward exchange contracts under the direction of
Corporate Treasury and restrict all derivative transactions to those intended
for hedging purposes.

FOREIGN EXCHANGE RISK

    During the nine months ended September 30, 1999 and September 30, 2000,
PeopleSoft's revenue originating outside the United States was 23% and 26% of
total revenues, including revenues generated in Europe of 12% 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
PeopleSoft's foreign sales subsidiaries in the local countries and are typically
denominated in the local currency of each country. These subsidiaries incur most
of their expenses in the local currency as well.

    PeopleSoft's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, local
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
PeopleSoft could experience a material adverse effect on its business and
results of operations arising from its foreign operations.

    PeopleSoft's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which the cost of software, including certain
development costs, incurred in the United States is charged to PeopleSoft's
foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
PeopleSoft is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability(1).


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


                                       24
<PAGE>   26


     PeopleSoft has a foreign exchange hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign currency exchange rates. The program uses forward exchange contracts as
the vehicle for hedging these intercompany balances. PeopleSoft uses two
multinational banks for substantially all of these contracts. In general, these
contracts have terms of three months or less. Gains and losses on the settled
contracts are included in "Other income, net" and are recognized in the current
period, consistent with the period in which the gain or loss of the underlying
transaction is recognized. During the three-month periods ended September 30,
1999 and September 30, 2000 the Company recorded a net gain of $0.3 million and
a net loss of $(0.4) million from these settled contracts and underlying foreign
currency exposures. During the nine-month periods ended September 30, 1999 and
September 30, 2000 the Company recorded net gains of $0.2 million and $2.0
million from these settled contracts and underlying foreign currency exposures.
At September 30, 2000, the Company had outstanding forward exchange contracts
totaling $36.5 million, to sell Euros ($27.8 million), Singapore dollars ($1.4
million), Swiss francs ($2.8 million), New Zealand dollars ($0.3 million), Hong
Kong dollars ($1.4 million), Canadian dollars ($0.05 million), Australian
dollars ($0.1) and British pounds ($2.6 million). Each of these contracts had
maturity dates to November 30, 2000 and a book value that approximates fair
value. Both the cost and the fair value of these forward exchange contracts was
not material at September 30, 2000.

    The foreign exchange hedging program is managed in accordance with a
corporate policy approved by PeopleSoft's Board of Directors. In addition to
hedging existing transactional exposures, PeopleSoft's 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 been undertaken through September 30, 2000.

INTEREST RATE RISK

    PeopleSoft invests its cash in a variety of financial instruments,
consisting principally of investments in interest-bearing demand deposit
accounts with financial institutions, tax-advantaged money market funds and
highly liquid debt and equity securities of corporations, municipalities and the
U.S. Government. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances and are only
invested in short-term time deposits of the local operating bank.

    PeopleSoft accounts for its cash equivalents and investments under Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). PeopleSoft classifies debt and
preferred equity securities based on management's intention on the date of
purchase and reevaluates 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
and equity securities are classified as available for sale and carried at fair
value with net unrealized gains and losses included in "Accumulated other
comprehensive income (loss)", net of tax.

    Investments in both fixed rate and floating rate interest earning
instruments carries 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 may produce less income than expected if interest
rates fall. Due in part to these factors, PeopleSoft's future investment income
may fall short of expectations due to changes in interest rates or PeopleSoft
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.

    PeopleSoft's investments are made in accordance with an investment policy
approved by the Board of Directors. At September 30, 2000, the average maturity
of PeopleSoft's investment securities was approximately nine months. All
investment securities had maturities of less than two years. The following table
presents certain information about the financial instruments held by PeopleSoft
as of September 30, 2000 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading.
PeopleSoft believes its investment securities, comprised of highly liquid debt
securities of corporations, municipalities, and the U.S. Government, are similar
enough to aggregate. Because of PeopleSoft's effective tax rate, PeopleSoft
finds it advantageous to invest largely in tax-


                                       25
<PAGE>   27


advantaged securities. The average interest rates below reflect a weighted
average rate for both taxable investments and tax-exempt investments. Below is a
tabular presentation of the maturity profile of PeopleSoft's investment
securities held at September 30, 2000:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, 2000                    EXPECTED MATURITY
(in millions)                           ------------------------
                                        ONE YEAR       MORE THAN       PRINCIPAL        FAIR
                                        OR LESS        ONE YEAR         AMOUNT          VALUE
                                        --------       ---------       ---------       -------
<S>                                     <C>             <C>             <C>            <C>
Available-for-sale securities           $ 481.9         $ 155.6         $ 637.5        $ 637.4
Weighted average interest rate              4.56%           4.22%
                                        --------        --------        -------        -------
</TABLE>

     PeopleSoft has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its $70.0 million and $105.0 million
floating rate synthetic lease obligations. The interest rate on the synthetic
lease obligations is a LIBOR based floating rate, currently LIBOR plus 1% on the
$70.0 million obligation, LIBOR plus 1% on $101.8 million of the $105.0 million
obligation and LIBOR plus 2% on the other $3.2 million. The interest rate on the
synthetic lease obligation resets on a 1,2,3, or 6-month interval at the
Company's election. At September 30, 2000, the Company had entered into interest
rate swap agreements, having a total notional principle amount of $120.0
million, with three commercial banks. The agreements effectively change the
Company's interest rate exposure on the $120.0 million due 2003, to fixed rates
ranging from 6.7183% to 7.1225%. The interest rate agreements match the
underlying terms of the synthetic lease obligations.

    In August 1997, PeopleSoft issued an aggregate of $69.0 million in principal
amount of convertible subordinated notes, due August 2002, to certain investors.
These notes bear interest at a rate of 4.75% per annum and are convertible into
PeopleSoft's common stock at the investor's option at any time at a conversion
price equal to $50.82 per share. Based on the traded yield to maturity, the
approximate fair market value of the convertible subordinated notes was $59.3
million and $61.2 million as of December 31, 1999 and September 30, 2000.

EQUITY INVESTMENT RISK

    Investments in Corporate Equity Securities includes the Company's
investments in privately held or publicly traded start-up companies. PeopleSoft
classifies investments in publicly traded companies as investments available for
sale and accounts for them under Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." All
other investments, which consist of investments of privately held companies for
which the Company does not have the ability to exercise significant influence,
are accounted for under the cost method of accounting. The aggregate fair value
of investments in corporate equity securities held at December 31, 1999 and
September 30, 2000, was $260.7 million and $16.4 million. Realized gains on the
sale of available-for-sale investments for the three- and nine-month periods
ended September 30, 2000, were $120.1 million and $129.6 million. Gross
unrealized gains were $241.0 million and $8.2 million as of December 31, 1999
and September 30, 2000, and are included, net of deferred income taxes of $92.8
million and $3.1 million, respectively, as a component of "Accumulated other
comprehensive income (loss)." The unrealized gains as of September 30, 2000
relate to an investment in equity securities of a company that completed its
public offering in July 2000. These equity securities are subject to lock up
provisions, which expire in January 2001. The stock market is highly volatile,
as a result, PeopleSoft cannot give assurance that the unrealized gains as of
September 30, 2000 will be realized, or that losses on the investment will not
occur(1).

--------------
(1) Forward-Looking Statement.

                                       26
<PAGE>   28


        FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

    PeopleSoft has 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.
PeopleSoft may also make oral forward-looking statements from time to time.
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.

    PeopleSoft operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some, but
not all, of these risks and uncertainties that may have a material adverse
effect on PeopleSoft's business, financial condition or results of operations.
This section should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes included in this report on Form 10-Q
and Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1999 contained in PeopleSoft's 1999
Annual Report to Stockholders on Form 10-K.

MARKET ACCEPTANCE AND SUPPORT OF PEOPLESOFT 8 MAY NOT OCCUR OR BE SUCCESSFUL

    Over the past two years, PeopleSoft concentrated most of its product
development efforts on PeopleSoft 8, the Company's next release of its core
Enterprise Management applications, which became generally available in
September of 2000. PeopleSoft 8 marks a fundamental, generational change in
architecture from traditional client-server architecture to PeopleSoft's new
internet architecture, the first pure HTML server-centric development platform
delivered by a major enterprise application company. If PeopleSoft 8 was
released with significant undetected problems, PeopleSoft may need to spend
additional resources to modify the product or withdraw the product and only have
its prior client server based Enterprise Management products available for sale.
Even though PeopleSoft completed development of PeopleSoft 8, PeopleSoft cannot
give you assurance that the market will accept 100 percent internet based
Enterprise Management applications. PeopleSoft is at risk for low or slow
acceptance of this new type of software. If the marketplace does not accept
PeopleSoft 8, PeopleSoft will only have its prior client server based Enterprise
Management products available for sale, and PeopleSoft's revenues could be
adversely impacted.

    In addition to the significant resources utilized in the development of
PeopleSoft 8, PeopleSoft has spent and committed significant resources to plan
and implement programs to market, sell, install and support PeopleSoft 8. If
market acceptance of PeopleSoft 8 is low, the Company's profitability in future
periods may be adversely impacted.

    If demand for PeopleSoft 8 is greater than expected, PeopleSoft cannot give
you assurance that our services organization will be able to implement and
support PeopleSoft 8 in a timely manner and as a result, revenue opportunities
could be lost and services revenue growth may not occur or may be adversely
impacted.

PEOPLESOFT COULD EXPERIENCE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS WHICH
COULD ADVERSELY IMPACT ITS STOCK PRICE.

    PeopleSoft's revenues and results of operations are difficult to predict and
may fluctuate substantially from quarter to quarter. License revenues in any
quarter depend substantially upon PeopleSoft's total contracting activity and
its ability to recognize revenues in that quarter in accordance with its revenue
recognition policies.

    PeopleSoft's contracting activity is difficult to forecast for a variety of
reasons, including the following:

        -   a significant portion of PeopleSoft's license agreements are
            completed within the last few weeks of each quarter;

        -   PeopleSoft's sales cycle is relatively long and increasingly
            variable since PeopleSoft has broadened its marketing emphasis to
            include software product solutions for a customer's overall
            business;



                                       27
<PAGE>   29
        -   the size of license transactions can vary significantly;

        -   the possibility of economic downturns that are characterized by
            decreased product demand, price erosion, technological shifts, work
            slowdowns and layoffs may substantially reduce contracting activity;

        -   customers may unexpectedly postpone or cancel system replacement or
            new system evaluations due to changes in their strategic priorities,
            project objectives, budgetary constraints or company management;

        -   customer evaluations and purchasing processes vary significantly
            from company to company, and a customer's internal approval and
            expenditure authorization process can be difficult and time
            consuming, even after selection of a vendor;

        -   changes in PeopleSoft's sales incentive plans have had and may
            continue to have an unpredictable impact on purchasing patterns; and

        -   the number, timing and significance of software product enhancements
            and new software product announcements by PeopleSoft and its
            competitors may affect purchase decisions.

        Several factors may require PeopleSoft to defer recognition of license
revenue for a significant period of time after entering into a license
agreement, including:

        -   whether the license agreement relates partially or entirely to then
            unavailable software products;

        -   whether enterprise transactions include both currently deliverable
            software products and software products that are under development
            or other undeliverable elements;

        -   whether the customer demands services that include significant
            modifications, customizations or complex interfaces that could delay
            product delivery or acceptance;

        -   whether the transaction involves acceptance criteria that may
            preclude revenue recognition or if there are identified
            product-related issues, such as known defects; and

        -   whether the transaction involves payment terms or fees that depend
            upon contingencies.

    Because of the factors listed above and other specific requirements under
GAAP for software revenue recognition, PeopleSoft must have very precise terms
in its license agreements in order to recognize revenue when it initially
delivers software or performs services. Although PeopleSoft has a standard form
of license agreement that meets the criteria under GAAP for current revenue
recognition on delivered elements, it negotiates and revises these terms and
conditions in some transactions. Negotiation of mutually acceptable terms and
conditions can extend the sales cycle, and sometimes PeopleSoft does not obtain
terms and conditions that permit revenue recognition at the time of delivery or
even as work on the project is completed.

    Variances or slowdowns in PeopleSoft's prior quarter contracting activity
may impact its consulting, training and maintenance service revenues since these
revenues typically follow license fee revenues. PeopleSoft's ability to maintain
or increase service revenue primarily depends on its ability to increase the
number of its licensing agreements. In particular, the significant
year-over-year decrease in license revenues in 1999 and the first quarter of
2000 has had and may continue to have a significant impact on service revenues
and earnings in fiscal 2000.

    In addition, PeopleSoft's expense levels, operating costs and hiring plans
are based on projections of future revenues and are relatively fixed. If
PeopleSoft's actual revenues fall below expectations, its net income is likely
to be disproportionately adversely affected.


                                       28
<PAGE>   30

PEOPLESOFT'S CONTINUED SUCCESS DEPENDS UPON ITS ABILITY TO RETAIN AND ATTRACT A
SUFFICIENT NUMBER OF QUALIFIED EMPLOYEES.

    PeopleSoft believes that its future success will depend in large part upon
its ability to attract, train and retain highly skilled technical, managerial,
sales and marketing personnel. Although PeopleSoft invests significant resources
in recruiting and retaining employees, competition for personnel in the software
industry is intense, and, at times, PeopleSoft has had difficulty locating
highly qualified candidates within desired geographic locations, or with certain
industry-specific domain expertise. If PeopleSoft's competitors increase their
use of non-compete agreements, the pool of available sales and technical
personnel may further narrow in certain areas, even if the non-compete
agreements are ultimately unenforceable. PeopleSoft may grant large numbers of
options or other stock-based incentives to attract and retain personnel, which
could be highly dilutive to PeopleSoft stockholders. The failure to attract,
train, retain and effectively manage employees could increase PeopleSoft's
costs, hurt PeopleSoft's development and sales efforts and cause a degradation
of PeopleSoft's customer service.

    During the last two years, PeopleSoft has experienced turnover of several
senior executives. PeopleSoft has hired or promoted qualified candidates to fill
these positions. However, since the employees are new to the positions, it is
possible that the newly hired or promoted employees will not easily transition
into these leadership roles or be able to successfully lead PeopleSoft in its
efforts to grow the company. In addition, uncertainty created by turnover of key
employees could cause fluctuations in PeopleSoft's stock price and further
turnover of PeopleSoft employees.

PEOPLESOFT HAS RECENTLY EXPANDED ITS TECHNOLOGY INTO SEVERAL NEW BUSINESS AREAS
AND CANNOT BE CERTAIN THAT ITS EXPANSION WILL BE SUCCESSFUL.

    PeopleSoft's future success depends on the internet being accepted and
widely used for commerce. PeopleSoft has recently expanded its technology into a
number of new business areas to foster long-term growth, including electronic
commerce, on-line business services and other products and services that can be
offered over the internet. These areas are relatively new to PeopleSoft's
product development, sales and marketing personnel and PeopleSoft cannot give
you assurance that the markets for these products will develop or that it will
be able to compete effectively or will generate significant revenues in these
new areas making PeopleSoft's success in this area difficult to predict.

PEOPLESOFT'S RECENT AND FUTURE ACQUISITIONS MAY NOT BE SUCCESSFUL.

    PeopleSoft may acquire or invest in complementary companies, products and
technologies, and enter into joint ventures and strategic alliances with other
companies. Risks commonly encountered in such transactions include:

        -   the difficulty of assimilating the operations and personnel of the
            combined companies;

        -   the risk that PeopleSoft may not be able to integrate the acquired
            technologies or products with its current products and technologies;

        -   the potential disruption of PeopleSoft's ongoing business;

        -   the inability to retain key technical and managerial personnel;

        -   the inability of management to maximize the financial and strategic
            position of PeopleSoft through the successful integration of
            acquired businesses;

        -   adverse impact on PeopleSoft's annual effective tax rate;

        -   dilution of existing equity holders caused by capital stock
            issuances to the stockholders of acquired companies or to retain
            employees of the acquired companies;

        -   difficulty in maintaining controls, procedures and policies;


                                       29
<PAGE>   31

        -   potential adverse impact on PeopleSoft's relationships with partner
            companies or third-party providers of technology or products;

        -   the impairment of relationships with employees and customers; and

        -   issues with product quality, product architecture, legal
            contingencies, product development issues, or other significant
            issues that may not be detected through PeopleSoft's due diligence
            process.

    In addition, some combinations with other companies may not qualify for
pooling of interests accounting, which would require PeopleSoft to use the
purchase method of accounting for all combinations. The purchase method of
accounting for business combinations may require large write-offs of any
in-process research and development costs related to companies being acquired,
as well as ongoing amortization costs for goodwill and other intangible assets
valued in the combinations with companies. Such write-offs and ongoing
amortization charges may have a significant negative impact on operating margins
and net income in the quarter of the combination and for several subsequent
years. PeopleSoft may not be successful in overcoming these risks or any other
problems encountered in connection with such transactions.

RECENT ACCOUNTING PRONOUNCEMENTS COULD ADVERSELY IMPACT PEOPLESOFT'S
PROFITABILITY BY DELAYING SOME REVENUE RECOGNITION INTO FUTURE PERIODS.

    Over the past several years, the American Institute of Certified Public
Accountants issued Statement of Position, or SOP 97-2, "Software Revenue
Recognition," SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," and SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." These
standards address software revenue recognition matters primarily from a
conceptual level and do not include specific implementation guidance. PeopleSoft
believes that it is currently in compliance with SOPs 97-2, 98-4 and SOP 98-9.
PeopleSoft adopted SOP 98-9 on January 1, 2000 and has changed certain business
policies to meet the requirements of this SOP.

    In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which explains how the SEC staff believes existing
revenue recognition rules should be applied or analogized to for transactions
not addressed by existing rules. In addition, in October 2000, the SEC staff
issued a Frequently Asked Questions and Answers ("FAQ") document, which further
elaborates on the SEC staff's views regarding issues addressed in SAB 101.
PeopleSoft is required to adopt the provisions of SAB 101 in its fourth quarter
of 2000 and believes that adopting SAB 101 will not have a material impact on
its financial position or results of operations.

    The accounting profession continues to discuss certain provisions of SOP No.
97-2 and SAB 101 with the objective of providing additional guidance on
potential interpretations. These discussions and the issuance of implementation
guidelines and interpretations, once finalized, could lead to unanticipated
changes in PeopleSoft's current revenue accounting practices, which could cause
PeopleSoft to recognize lower revenues. As a result, PeopleSoft may change its
business practices significantly in order to continue to recognize a substantial
portion of its license revenues. These changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect PeopleSoft.

PEOPLESOFT DEPENDS ON THIRD-PARTY TECHNOLOGY THAT COULD RESULT IN INCREASED
COSTS OR DELAYS IN THE PRODUCTION AND IMPROVEMENT OF PEOPLESOFT'S PRODUCTS.

    PeopleSoft licenses numerous critical third-party software products that it
incorporates into its own software products. If any of the third-party software
vendors were to change their product offerings or terminate PeopleSoft's
licenses, PeopleSoft might need to incur additional development costs to ensure
continued performance of its products. In addition, if the cost of licensing any
of these third-party software products significantly increases, PeopleSoft's
gross margin levels could significantly decrease.


                                       30
<PAGE>   32

    PeopleSoft relies on existing partnerships with other software vendors who
are also competitors. If these vendors change their business practices in the
future, PeopleSoft may be compelled to find alternative vendors with
complementary software, which may not be available on attractive terms, or may
not be as widely accepted or as effective as the software provided by
PeopleSoft's existing vendors.

THE RELATIONSHIP WITH MOMENTUM BUSINESS APPLICATIONS MAY NEGATIVELY IMPACT
PEOPLESOFT BECAUSE PEOPLESOFT GAVE UP SOME CONTROL OVER RESEARCH AND
DEVELOPMENT.

    PeopleSoft faces a number of risks as a result of its relationship with
Momentum Business Applications and the distribution of the Momentum Business
Applications Class A Common Stock to PeopleSoft stockholders. These include:

        -   PeopleSoft has less control over important research and development
            projects. PeopleSoft and Momentum must agree on project selection,
            budgets, timetables and specifications for each project, and
            Momentum has oversight responsibilities for the actual product
            development;

        -   PeopleSoft could face restrictions on the amount and timing of its
            utilization of, or could lose, the tax benefits associated with the
            research and development expenditures on the projects pursued by
            Momentum; and

        -   if PeopleSoft chooses to acquire Momentum, it will likely be
            required to record significant accounting charges relating to
            acquisition of in-process research and development and amortization
            of goodwill, which would decrease earnings.

THERE IS INTENSE COMPETITION IN THE INDUSTRY, WHICH REQUIRES THAT PEOPLESOFT
CONSTANTLY CREATE NEW PRODUCTS, IMPROVE ITS EXISTING PRODUCTS AND SELL ITS
PRODUCTS AT COMPETITIVE PRICES.

    PeopleSoft competes with a variety of software vendors, including internet
application vendors in the enterprise application software market segment,
vendors in the manufacturing software application market segment, vendors in the
emerging enterprise resource optimization software solutions market segment,
providers of human resource management system software products, providers of
financial management systems software products, and numerous small firms that
offer products with new or advanced features. As a result, the market for
business application software has been and continues to be intensely
competitive. Some competitors have become more aggressive with their payment
terms and/or issuance of contractual implementation terms or guarantees.
PeopleSoft may be unable to continue to compete successfully with new and
existing competitors without lowering prices or offering other favorable terms.

    In addition, PeopleSoft believes it must differentiate itself through
different or more subtle architectural and technological factors.

    Some of PeopleSoft's competitors may have an advantage over PeopleSoft due
to their significant worldwide presence, longer operating and product
development history, and substantially greater financial, technical and
marketing resources than PeopleSoft. At least one competitor has a larger
installed base. In addition, Oracle Corporation is a competitor whose relational
database management system underlies a significant portion of PeopleSoft's
installed applications.

    Furthermore, potential customers may consider outsourcing options, including
data center outsourcing and service bureaus, as viable alternatives to licensing
PeopleSoft's software products. PeopleSoft began an outsourcing partner program
in 1999 and began hosting its own service bureau in early 2000, both of which
PeopleSoft believes address the needs of the marketplace; however, these
programs may not be successful.


                                       31
<PAGE>   33


PEOPLESOFT MAY CHANGE PRICING PRACTICES WHICH COULD IMPACT OPERATING MARGINS OR
CUSTOMER ORDERING PATTERNS.

    In the future, PeopleSoft may choose to make changes to its pricing
practices. For example, PeopleSoft may offer additional discounts to customers,
reduce transactions that involve a perpetual use license to its software
products, or change maintenance pricing. Such changes could reduce margins or
inhibit PeopleSoft's ability to sell its products.

SERVICES REVENUES CARRY LOWER GROSS MARGINS THAN LICENSE REVENUES AND AN OVERALL
INCREASE IN SERVICES REVENUE AS A PERCENTAGE OF TOTAL REVENUES COULD HAVE AN
ADVERSE IMPACT ON PEOPLESOFT'S BUSINESS.

    Because service revenues have lower gross margins than license revenues, an
increase in the percentage of total revenue represented by service revenues
could have a detrimental impact on our overall gross margins and could adversely
affect operating results. In addition, PeopleSoft sub-contracts certain
consulting services to third parties which generally carry lower gross margins
than PeopleSoft's service business overall. As a result, PeopleSoft's gross
margins can be negatively impacted based on the percentage of service revenues
as a percentage of total revenue and the mix between services which are provided
by PeopleSoft employees versus services provided by third party consultants.

IF AN INDUSTRY STANDARD DEVELOPMENT TOOL IS ESTABLISHED, CONFORMANCE TO THE
STANDARD COULD REQUIRE A COSTLY REDESIGN OF EXISTING SOFTWARE PRODUCTS.

    PeopleSoft's software products include a suite of proprietary software
development tools, known as PeopleTools, which are fundamental to the effective
use of PeopleSoft's 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 software
development tools as the accepted industry standard. If a software product other
than PeopleTools becomes the clearly established and widely accepted industry
standard, PeopleSoft may not be able to respond appropriately or rapidly to the
emergence of an industry standard or might be compelled to abandon or modify
PeopleTools in favor of such an established standard; be forced to redesign its
software products to operate with such third party's software development tools;
or face the potential sales obstacle of marketing a proprietary software product
against other vendors' software products that incorporate a standardized
software development toolset.

PEOPLESOFT'S SIGNIFICANT INTERNATIONAL OPERATIONS AND SALES SUBJECT IT TO RISKS
ASSOCIATED WITH RAPID AND UNEXPECTED GROWTH OUTSIDE OF THE UNITED STATES.

    PeopleSoft continues to invest in an effort to enhance its international
operations. The global reach of PeopleSoft's business could cause it to be
subject to unexpected, uncontrollable and rapidly changing events and
circumstances in addition to those experienced in United States locations.
Changes in the following factors, among others, could have an adverse impact on
PeopleSoft's business and earnings:

        -   conducting business in currencies other than United States dollars
            subjects PeopleSoft to factors such as currency controls and
            fluctuations in currency exchange rates;

        -   PeopleSoft may be unable to hedge some transactions because of
            uncertainty or the inability to reasonably estimate its foreign
            exchange exposure;

        -   PeopleSoft may hedge some anticipated transactions and transaction
            exposures, but could experience losses if exchange rates move in the
            opposite direction;

        -   differing foreign technical standards;

        -   increased cost and development time required to localize PeopleSoft
            products;

        -   lack of experience in a particular geographic market;


                                       32
<PAGE>   34

        -   regulatory, social, political, labor or economic conditions in a
            specific country or region;

        -   laws, policies and other regulatory requirements affecting trade and
            investment including loss or modification of exemptions for taxes
            and tariffs, and import and export license requirements;

        -   exposure to different legal standards; and

        -   operating costs in many countries are higher than in the United
            States.

THE EURO CREATES UNCERTAINTY FOR PEOPLESOFT'S PRODUCT DEVELOPMENT AND AS A
RESULT COULD IMPACT SALES.

    PeopleSoft's latest software release contains European Monetary Union, or
EMU, functionality that allows for dual currency reporting and information
management. However, since the Euro will not be the sole legally required
currency in any of the member nations until 2002, it is possible that all issues
related to conversion to EMU have not surfaced yet, and may not have been
adequately addressed. In addition, PeopleSoft's products may be used with
third-party products that may or may not be EMU compliant. Although PeopleSoft
continues to take steps to address the impact, if any, of EMU compliance for
such third-party products, failure of any critical technology components to
operate properly under EMU may adversely affect sales or require PeopleSoft to
incur unanticipated expenses to remedy any problems.

PEOPLESOFT'S CONTINUED GROWTH DEPENDS UPON ITS ABILITY TO BUILD AND MAINTAIN
RELATIONSHIPS WITH THIRD PARTIES.

    A key aspect of PeopleSoft's sales and marketing strategy is to build and
maintain strong working relationships with businesses that PeopleSoft believes
play an important role in the successful marketing of its software products.
PeopleSoft's current and potential customers often rely on third-party system
integrators to develop, deploy and manage client/server applications. PeopleSoft
believes that its marketing and sales efforts are enhanced by the worldwide
presence of these companies. However, these companies, most of which have
significantly greater financial and marketing resources than PeopleSoft, may
start, or in some cases increase, the marketing of business application software
in competition with PeopleSoft, or may otherwise discontinue their relationships
with or support of PeopleSoft. If PeopleSoft's partners are unable to recruit
and adequately train a sufficient number of consulting personnel to support the
implementation of PeopleSoft's software products, PeopleSoft may lose customers.
In addition, integrators who generate consulting fees from customers by
providing implementation services may be less likely to recommend PeopleSoft's
software application architecture, including PeopleTools, if these products are
more difficult to install and maintain than competitors' similar product
offerings.

    Also, PeopleSoft has in the past, and may in the future, enter into various
development or joint business arrangements to develop new software products or
extensions to its existing software products. Under these joint business
arrangements, PeopleSoft may distribute itself or jointly sell with its business
partners an integrated software product and pay a royalty to the business
partner based on end-user license fees. While PeopleSoft intends to develop
business applications that are integrated with its software products, these
software products may in fact not be integrated or brought to market or the
market may not accept the integrated enterprise solution. As a result,
PeopleSoft may not achieve the revenues that it anticipated at the time it
entered into the joint business arrangement.

PEOPLESOFT'S SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT ARE COMPLEX, WHICH MAKES
IT INCREASINGLY DIFFICULT TO INNOVATE, EXTEND ITS PRODUCT OFFERINGS, AND TO
AVOID COSTS RELATED TO CORRECTION OF PROGRAM ERRORS.

    The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements.
PeopleSoft's future success will depend in part upon its ability to:

        -   continue to enhance and expand its core applications;

        -   continue to provide enterprise solutions;


                                       33
<PAGE>   35

        -   continue to successfully integrate third-party products;

        -   enter new markets; and

        -   develop and introduce new products that keep pace with technological
            developments, including developments related to the internet,
            satisfy increasingly sophisticated customer requirements and achieve
            market acceptance. PeopleSoft may not be able to enhance existing
            products or develop and introduce new products in a timely manner.

    PeopleSoft's software products can be licensed for use with a variety of
popular industry standard relational database management systems. There may be
future or existing relational database management system platforms that achieve
popularity within the business application marketplace and on which PeopleSoft
may desire to offer its applications. These future or existing relational
database management system products may or may not be architecturally compatible
with PeopleSoft's software product design. PeopleSoft may not be able to develop
software products on additional platforms with the specifications and within the
time frame necessary for market success.

    Despite testing by PeopleSoft and by third parties, PeopleSoft's software
programs, like all software programs generally, may contain a number of
undetected errors when they are first introduced or as new releases are
subsequently released. This may result in increased costs to correct such errors
and reduced acceptance of PeopleSoft's software products in the marketplace. The
effort and expense of developing, testing and maintaining software product lines
will increase with the increasing number of possible combinations of:

        -   vendor hardware platforms;

        -   operating systems and updated versions;

        -   PeopleSoft application software products and updated versions; and

        -   relational database management system platforms and updated
            versions.

    Developing consistent software product performance characteristics across
all of these combinations could place a significant strain on PeopleSoft's
development resources and software product release schedules.

PEOPLESOFT RELIES ON CLIENT INTERFACES, WHICH COULD NEGATIVELY IMPACT PEOPLESOFT
IF CURRENT OR FUTURE CLIENT INTERFACES ARE NOT COMPATIBLE WITH PEOPLESOFT'S
CURRENT SOFTWARE PRODUCT DESIGN.

    For releases prior to PeopleSoft 8, PeopleSoft supports client platforms
using browsers certified to run its Java-based Web client, or Microsoft's
Windows family of software products, including Windows 3.1 (for PeopleSoft
releases prior to Release 6 only), Windows NT, Windows 95, Windows 98 and
Windows 2000. If Microsoft fundamentally changes the architecture of its
software products so that users of PeopleSoft's software applications experience
significant performance degradation or PeopleSoft's software applications become
incompatible with future versions of Microsoft's Windows operating system, it
could cause PeopleSoft to expend significant resources to reconfigure its
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. Web browser access via the internet or an intranet involves
numerous risks inherent in using the internet, including security, availability
and reliability. PeopleSoft may wish to offer its applications on future or
existing user interfaces that achieve popularity within the business application
marketplace. These future or existing user interfaces may or may not be
architecturally compatible with PeopleSoft's current software product design.
PeopleSoft may not be able to support new user interfaces and achieve market
acceptance of new user interfaces that it does support.


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<PAGE>   36

PEOPLESOFT HAS LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS AND MAY POTENTIALLY INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS.

    PeopleSoft considers certain aspects of its internal operations, software
and documentation to be proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
this information. Outstanding applications may not result in issued patents and,
even if issued, the patents may not provide any meaningful competitive
advantage. Existing copyright laws afford only limited protection. PeopleSoft
believes that the rapid pace of technological change in the computer software
industry has made trade secret and copyright protection less significant than
factors such as:

        -   knowledge, ability and experience of PeopleSoft's employees;

        -   frequent software product enhancements; and

        -   timeliness and quality of support services.

    PeopleSoft's competitors may independently develop technologies that are
substantially equivalent or superior to PeopleSoft's technology. Through an
escrow arrangement, PeopleSoft has granted many of its customers a contingent
future right to use PeopleSoft's source code solely for internal maintenance
services. This possible access to PeopleSoft's source code may increase the
likelihood of misappropriation or other misuse of PeopleSoft's intellectual
property. Finally, the laws of some countries in which PeopleSoft's software
products are or may be licensed do not protect PeopleSoft's software products
and intellectual property rights to the same extent as the laws of the United
States. Defending PeopleSoft's rights could be costly.

    Third parties may assert infringement claims against PeopleSoft. These
assertions could distract management, require PeopleSoft to enter into royalty
arrangements, and could result in costly and time consuming litigation,
including damage awards.

PEOPLESOFT MAY EXPERIENCE LIABILITY CLAIMS ARISING OUT OF THE LICENSING OF ITS
SOFTWARE AND PROVISION OF SERVICES.

    PeopleSoft's agreements contain provisions designed to limit its exposure to
potential liability claims. However, these provisions could be invalidated by
unfavorable judicial decisions or by federal, state, local or foreign laws or
ordinances. For example, PeopleSoft might not be able to avoid or limit
liability for disputes relating to product performance or the provision of
services. If a claim against PeopleSoft were successful, PeopleSoft might be
required to incur significant expense and pay substantial damages. Even if
PeopleSoft was to prevail, the accompanying publicity could adversely impact the
demand for PeopleSoft's software.

PEOPLESOFT'S STOCK PRICE IS VOLATILE AND THERE IS A RISK OF LITIGATION.

    The trading price of PeopleSoft 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 PeopleSoft or its
            competitors;

        -   new products or the acquisition of significant customers by
            PeopleSoft or its competitors;

        -   developments with respect to patents, copyrights or other
            proprietary rights of PeopleSoft or its competitors;

        -   changes in recommendations or financial estimates by securities
            analysts;


                                       35
<PAGE>   37

        -   changes in management;

        -   conditions and trends in the software industry generally;

        -   the announcement of acquisitions or other significant transactions
            by PeopleSoft or its competitors;

        -   adoption of new accounting standards affecting the software
            industry; and

        -   general market conditions and other factors.

    Fluctuations in the price of PeopleSoft's common stock may expose PeopleSoft
to the risk of securities class action lawsuits. As a result of the significant
declines in the price of its common stock during the second half of fiscal 1998
and the first half of fiscal 1999, several such lawsuits were filed against
PeopleSoft. Although PeopleSoft believes that these lawsuits are without merit,
defending against them could result in substantial costs and divert management's
attention and resources. In addition, any settlement or adverse determination of
these lawsuits could subject PeopleSoft to significant liabilities. PeopleSoft
cannot assure you that there will not be additional lawsuits in the future.


                                       36
<PAGE>   38


                           PART II - OTHER INFORMATION

        Item 1. Legal Proceedings

            There have not been any significant developments since the filing of
the last quarterly report on Form 10-Q on August 14, 2000.

        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

        On October 17, 2000, PeopleSoft announced the following changes to its
senior executive management team. Steve Hill, PeopleSoft's prior Senior Vice
President and Chief Financial Officer, has been promoted to Senior Vice
President of Business Development. Kevin T. Parker, has joined PeopleSoft as
Senior Vice President, Finance, and Chief Financial Officer.

        Mr. Hill will focus on pursuing mergers and acquisitions, joint ventures
and venture capital funding of strategic initiatives worldwide. Mr. Parker will
manage PeopleSoft's financial reporting and information systems. He was
previously Senior Vice President and Chief Financial Officer ("CFO") for Aspect
Communications Corp., a Customer Relationship Management (CRM) software company
based in San Jose, California. Prior to Aspect, Mr. Parker was Senior Vice
President of Finance and Administration at Fujitsu Computer Products of America
in San Jose, California from 1996 through 1999. Earlier he held Chief Financial
Officer, Controller and other financial management positions at the Systems
Product Division of Standard Microsystems, O'Neil Data Systems, Toshiba America
Information Systems, CALCOMP Inc. and PriceWaterhouseCoopers LLP.

        Item 6. Exhibits and Reports on Form 8-K

        (a)    Exhibits

               27.1   Financial Data Schedule

        (b)    Reports on Form 8-K

               None


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<PAGE>   39


                                   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, 2000


                           PEOPLESOFT, INC.


                           By:     /s/ KEVIN T. PARKER
                                 -----------------------------------------------
                                 Kevin T. Parker
                                 Sr. Vice President and Chief Financial Officer
                                 (Principal Financial and Accounting Officer)


                                       38
<PAGE>   40

                                 EXHIBIT INDEX

               Exhibits

               27.1   Financial Data Schedule

               Reports on Form 8-K

               None


                                       39