##### 



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, 2003                                       
|  |  |                                                                                         
|  |  | OR                                                                                      
|  |  |                                                                                         
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From________ To________

Commission File Number: 0-20710

PeopleSoft, Inc.

(Exact name of registrant as specified in its charter)


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

4460 Hacienda Drive, Pleasanton, California 94588-8618(Address of principal executive offices, Zip Code)

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

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  o

Indicate by check mark whether Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes  x  No  o On

November 10, 2003, the Registrant had 374,937,532 shares of common stock
outstanding.





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##### 



TABLE OF CONTENTS

|           |  |                                                                                       |  |                                                                                                                               |    |  |   | 
|---------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- | -- |  | - | 
|           |  |                                                                                       |  | PART I  FINANCIAL INFORMATION                                                                                                |    |  |   | 
|Item 1.    |  | Condensed Consolidated Financial Statements                                           |  |                                                                                                                               |    | 
|           |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                                          |    |  | 2 | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and September 30, 2002 |    |  | 3 | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and September 30, 2002           |    |  | 4 | 
|           |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                                          |    |  | 5 | 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                                               | 18 | 
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                               | 30 | 
|Item 4.    |  | Controls and Procedures                                                               |  |                                                                                                                               | 32 | 
|           |  |                                                                                       |  | PART II  OTHER INFORMATION                                                                                                   |    |  |   | 
|Item 1.    |  | Legal Proceedings                                                                     |  |                                                                                                                               | 44 | 
|Item 2.    |  | Changes in Securities and Use of Proceeds                                             |  |                                                                                                                               | 46 | 
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  |                                                                                                                               | 46 | 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                               | 46 | 
|Item 5.    |  | Other Information                                                                     |  |                                                                                                                               | 46 | 
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                               | 46 | 
|SIGNATURES |  |                                                                                       |  |                                                                                                                               | 46 | 

1



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##### 



PART I  FINANCIAL INFORMATION

ITEM 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

|                                            |                                           |                                            |         |                    |           |                   |         |           |           | 
|------------------------------------------- | ----------------------------------------- | ------------------------------------------ | ------- | ------------------ | --------- | ----------------- | ------- | --------- | --------- | 
|                                            |                                           |                                            |         | September 30, 2003 |           | December 31, 2002
|                                            |                                           |                                            |         |                    |           |                  
|ASSETS                                      |                                           |                                            |         |                    |           |                   |         |          
|Current assets:                             |                                           |                                            |         |                    |           |                   |         |          
|                                            | Cash and cash equivalents                 |                                            | $       | 595,317            |           |                   | $       | 319,344   |          
|                                            | Short-term investments                    |                                            |         | 971,955            |           |                   |         | 1,588,172 |          
|                                            | Accounts receivable, net                  |                                            |         | 421,548            |           |                   |         | 357,353   |          
|                                            | Deferred tax assets                       |                                            |         | 26,164             |           |                   |         | 40,559    |          
|                                            | Prepaid expenses and other current assets |                                            |         | 76,368             |           |                   |         | 45,448    |          
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total current assets                       |         |                    | 2,091,352 |                   |         |           | 2,350,876 | 
|Property and equipment, net                 |                                           |                                            | 454,636 |                    |           |                   | 222,800 |          
|Long term investments and restricted cash   |                                           |                                            | 81,323  |                    |           |                   | 21,946  |          
|Deferred tax assets                         |                                           |                                            | 53,335  |                    |           |                   | 172,255 |          
|Capitalized software, net                   |                                           |                                            | 249,515 |                    |           |                   | 44,101  |          
|Goodwill                                    |                                           |                                            | 991,015 |                    |           |                   | 54,294  |          
|Intangible assets and other                 |                                           |                                            | 469,493 |                    |           |                   | 5,359   |          
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total assets                               |         | $                  | 4,390,669 |                   |         | $         | 2,871,631 | 
|                                            |                                           |                                            |         |                    |           |                   |         |           |          
|LIABILITIES AND STOCKHOLDERS EQUITY        |                                           |                                            |         |                    |           |                   |         |          
|Current liabilities:                        |                                           |                                            |         |                    |           |                   |         |          
|                                            | Accounts payable                          |                                            | $       | 58,875             |           |                   | $       | 23,356    |          
|                                            | Accrued liabilities                       |                                            |         | 256,401            |           |                   |         | 109,331   |          
|                                            | Accrued compensation and related expenses |                                            |         | 193,507            |           |                   |         | 172,566   |          
|                                            | Income taxes payable                      |                                            |         | 102,154            |           |                   |         | 71,163    |          
|                                            | Short-term deferred revenues              |                                            |         | 531,123            |           |                   |         | 422,657   |          
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total current liabilities                  |         |                    | 1,142,060 |                   |         |           | 799,073   | 
|Long-term deferred revenues                 |                                           |                                            | 117,459 |                    |           |                   | 95,460  |          
|Other liabilities                           |                                           |                                            | 36,552  |                    |           |                   | 21,486  |          
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total liabilities                          |         |                    | 1,296,071 |                   |         |           | 916,019   | 
|Commitments and contingencies (see note 10) |                                           |                                            |         |                    |           |                   |         |          
|Stockholders equity:                       |                                           |                                            |         |                    |           |                   |         |          
|                                            | Common stock                              |                                            |         | 3,745              |           |                   |         | 3,150     |          
|                                            | Additional paid-in capital                |                                            |         | 2,428,669          |           |                   |         | 1,382,442 |          
|                                            | Retained earnings                         |                                            |         | 667,471            |           |                   |         | 599,803   |          
|                                            | Treasury stock                            |                                            |         | (36,620            | )         |                   |         | (35,563   | )        
|                                            | Accumulated other comprehensive income    |                                            |         | 31,333             |           |                   |         | 5,780     |          
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total stockholders equity                 |         |                    | 3,094,598 |                   |         |           | 1,955,612 | 
|                                            |                                           |                                            |         |                    |           |                   |         |          
|                                            |                                           | Total liabilities and stockholders equity |         | $                  | 4,390,669 |                   |         | $         | 2,871,631 | 
|                                            |                                           |                                            |         |                    |           |                   |         |           |          

See accompanying notes to unaudited condensed consolidated financial statements.

2



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##### 



PEOPLESOFT, INC.

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

|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |         |           | 
|---------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------- | -------------------------------- | ------- | ------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | --------- | - | ------- | ------- | --------- | 
|                                                           |                                              |                          |         | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                                           |                                              |                          |         | 2003                             |         | 2002                            |         | 2003    |         | 2002
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |     
|Revenues:                                                  |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|                                                           | License fees                                 |                          | $       | 160,459                          |         |                                 | $       | 121,616 |         |      | $       | 353,026 |           |   | $       | 386,835 |          
|                                                           | Maintenance revenue                          |                          |         | 234,582                          |         |                                 |         | 176,874 |         |      |         | 640,066 |           |   |         | 512,774 |          
|                                                           | Professional services revenue                |                          |         | 229,053                          |         |                                 |         | 172,723 |         |      |         | 588,700 |           |   |         | 529,553 |          
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|                                                           |                                              | Service revenue          |         |                                  | 463,635 |                                 |         |         | 349,597 |      |         |         | 1,228,766 |   |         |         | 1,042,327 | 
|                                                           | Development and other service revenue        |                          |         |                                 |         |                                 |         |        |         |      |         |        |           |   |         | 7,530   |          
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|                                                           |                                              | Total revenues           |         |                                  | 624,094 |                                 |         |         | 471,213 |      |         |         | 1,581,792 |   |         |         | 1,436,692 | 
|Costs and expenses:                                        |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|                                                           | Cost of license fees                         |                          |         | 21,941                           |         |                                 |         | 11,484  |         |      |         | 40,230  |           |   |         | 33,103  |          
|                                                           | Cost of services                             |                          |         | 230,189                          |         |                                 |         | 159,369 |         |      |         | 560,356 |           |   |         | 495,058 |          
|                                                           | Cost of development and other services       |                          |         |                                 |         |                                 |         |        |         |      |         |        |           |   |         | 6,755   |          
|                                                           | Sales and marketing expense                  |                          |         | 168,554                          |         |                                 |         | 127,641 |         |      |         | 419,604 |           |   |         | 378,373 |          
|                                                           | Product development expense                  |                          |         | 127,711                          |         |                                 |         | 83,002  |         |      |         | 296,062 |           |   |         | 252,882 |          
|                                                           | General and administrative expense           |                          |         | 61,879                           |         |                                 |         | 27,209  |         |      |         | 135,918 |           |   |         | 84,851  |          
|                                                           | Restructuring, acquisition and other charges |                          |         | 23,273                           |         |                                 |         |        |         |      |         | 37,072  |           |   |         | 11,479  |          
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|                                                           |                                              | Total costs and expenses |         |                                  | 633,547 |                                 |         |         | 408,705 |      |         |         | 1,489,242 |   |         |         | 1,262,501 | 
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|Operating income (loss)                                    |                                              |                          | (9,453  | )                                |         |                                 | 62,508  |         |         |      | 92,550  |         |           |   | 174,191 |        
|Other income, net                                          |                                              |                          | 7,556   |                                  |         |                                 | 5,607   |         |         |      | 19,234  |         |           |   | 21,324  |        
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|Income (loss) before provision for income taxes            |                                              |                          | (1,897  | )                                |         |                                 | 68,115  |         |         |      | 111,784 |         |           |   | 195,515 |        
|Provision for income taxes                                 |                                              |                          | 4,243   |                                  |         |                                 | 23,500  |         |         |      | 42,911  |         |           |   | 70,336  |        
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|Income (loss) before minority interest                     |                                              |                          | (6,140  | )                                |         |                                 | 44,615  |         |         |      | 68,873  |         |           |   | 125,179 |        
|Minority interest in net income                            |                                              |                          | 1,205   |                                  |         |                                 |        |         |         |      | 1,205   |         |           |   |        |        
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |        
|Net income (loss)                                          |                                              | $                        | (7,345  | )                                |         | $                               | 44,615  |         |         | $    | 67,668  |         |           | $ | 125,179 |        
|                                                           |                                              |                          |         |                                  |         |                                 |         |         |         |      |         |         |           |   |         |         |          
|Basic income (loss) per share                              |                                              | $                        | (0.02   | )                                |         | $                               | 0.14    |         |         | $    | 0.21    |         |           | $ | 0.40    |        
|Shares used in basic income (loss) per share computation   |                                              |                          | 357,289 |                                  |         |                                 | 312,214 |         |         |      | 329,511 |         |           |   | 310,231 |        
|Diluted income (loss) per share                            |                                              | $                        | (0.02   | )                                |         | $                               | 0.14    |         |         | $    | 0.20    |         |           | $ | 0.39    |        
|Shares used in diluted income (loss) per share computation |                                              |                          | 357,289 |                                  |         |                                 | 315,367 |         |         |      | 333,673 |         |           |   | 321,060 |        

See accompanying notes to unaudited condensed consolidated financial statements.

3



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

|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |        |          |         |  
|--------------------------------------------------------------------------------- | -------------------------- | --------------------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------------------- | ------- | ---------- | ------ | -------- | ------- | -
|                                                                                  |                            |                                                                             |                                           |        | Nine Months Ended September 30,
|                                                                                  |                            |                                                                             |                                           |        | 2003                            |         | 2002      
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |           
|Operating activities:                                                             |                            |                                                                             |                                           |        |                                 |         |            |       
|Net income                                                                        |                            | $                                                                           | 67,668                                    |        |                                 | $       | 125,179    |       
|Adjustments to reconcile net income to net cash provided by
operating activities: |                            |                                                                             |                                           |        |                                 |         |            |       
|                                                                                  |                            | Depreciation and amortization                                               |                                           |        | 113,827                         |         |            |        | 71,966   |        
|                                                                                  |                            | Provision for doubtful accounts                                             |                                           |        | 7,151                           |         |            |        | 5,914    |        
|                                                                                  |                            | Tax benefits from employee stock transactions                               |                                           |        | 6,235                           |         |            |        | 23,263   |        
|                                                                                  |                            | Benefit for deferred income taxes                                           |                                           |        | (12,101                         | )       |            |        | (4,085   | )      
|                                                                                  |                            | Gain on sales of investments and disposition of property and
equipment, net |                                           |        | (3,535                          | )       |            |        | (3,251   | )      
|                                                                                  |                            | Non-cash stock compensation                                                 |                                           |        | 7,359                           |         |            |        | 5,831    |        
|                                                                                  |                            | Restructuring, acquisition and other charges                                |                                           |        | 17,519                          |         |            |        | 11,479   |        
|                                                                                  |                            | Changes in operating assets and liabilities:                                |                                           |        |                                 |         |            |        |          |        
|                                                                                  |                            |                                                                             | Accounts receivable                       |        |                                 | 106,963 |            |        |          | 53,219  |  
|                                                                                  |                            |                                                                             | Accounts payable and accrued liabilities  |        |                                 | (18,433 | )          |        |          | (33,461 | )
|                                                                                  |                            |                                                                             | Accrued compensation and related expenses |        |                                 | (28,074 | )          |        |          | (31,675 | )
|                                                                                  |                            |                                                                             | Income taxes, net                         |        |                                 | (8,831  | )          |        |          | 27,401  |  
|                                                                                  |                            |                                                                             | Deferred revenues                         |        |                                 | 41,607  |            |        |          | (24,080 | )
|                                                                                  |                            |                                                                             | Other                                     |        |                                 | 14,576  |            |        |          | 10,454  |  
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|                                                                                  |                            | Net cash provided by operating activities                                   |                                           |        | 311,931                         |         |            |        | 238,154  |        
|Investing activities:                                                             |                            |                                                                             |                                           |        |                                 |         |            |       
|Purchase of investments                                                           |                            |                                                                             | (8,540,083                                | )      |                                 |         | (7,022,567 | )     
|Proceeds from sales and maturities of investments                                 |                            |                                                                             | 9,159,986                                 |        |                                 |         | 6,810,089  |       
|Purchase of property and equipment                                                |                            |                                                                             | (231,365                                  | )      |                                 |         | (72,206    | )     
|Acquisitions, net of cash acquired                                                |                            |                                                                             | (519,934                                  | )      |                                 |         | (120,894   | )     
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|                                                                                  |                            | Net cash used in investing activities                                       |                                           |        | (131,396                        | )       |            |        | (405,578 | )      
|Financing activities:                                                             |                            |                                                                             |                                           |        |                                 |         |            |       
|Retirement of convertible debt                                                    |                            |                                                                             |                                          |        |                                 |         | (57,000    | )     
|Repurchase of stock                                                               |                            |                                                                             | (1,057                                    | )      |                                 |         |           |       
|Proceeds from employee stock transactions                                         |                            |                                                                             | 78,439                                    |        |                                 |         | 96,600     |       
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|                                                                                  |                            | Net cash provided by financing activities                                   |                                           |        | 77,382                          |         |            |        | 39,600   |        
|Effect of foreign exchange rate changes on cash and cash
equivalents              |                            |                                                                             | 18,056                                    |        |                                 |         | 5,775      |       
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|Net increase (decrease) in cash and cash equivalents                              |                            |                                                                             | 275,973                                   |        |                                 |         | (122,049   | )     
|Cash and cash equivalents at beginning of period                                  |                            |                                                                             | 319,344                                   |        |                                 |         | 433,700    |       
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|Cash and cash equivalents at end of period                                        |                            | $                                                                           | 595,317                                   |        |                                 | $       | 311,651    |       
|                                                                                  |                            |                                                                             |                                           |        |                                 |         |            |       
|Supplemental disclosures:                                                         |                            |                                                                             |                                           |        |                                 |         |            |       
|                                                                                  | Cash paid for
interest     |                                                                             | $                                         | 458    |                                 |         | $          | 3,331  |         
|                                                                                  | Cash paid for income taxes |                                                                             | $                                         | 55,882 |                                 |         | $          | 20,756 |         

See accompanying notes to unaudited condensed consolidated financial statements.

4



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PEOPLESOFT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying financial statements for the three and nine months ended
September 30, 2003 and 2002 have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP) and
are consistent in all material respects with those applied in the Companys
Annual Report on Form 10-K for the year ended December 31, 2002. These
financial statements are unaudited and in the opinion of management, include
all necessary adjustments for the fair presentation of the Companys financial
position, results of operations and changes in cash flows. The preparation of
financial statements in conformity with U.S. GAAP requires the Company to make
estimates and assumptions that may affect the amounts reported in the
accompanying financial statements. Despite the Companys best effort to make
these good faith estimates and assumptions, actual results may differ. Certain
prior period amounts have been reclassified to conform to the current period
presentation.

These interim financial statements are prepared in accordance with
Securities and Exchange Commission rules and regulations, which allow certain
information and footnote disclosures, normally included in annual financial
statements, to be condensed or omitted. As a result, these interim financial
statements should be read in conjunction with the Companys Annual Report on
Form 10-K for the year ended December 31, 2002.

2. Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the
period, excluding unvested restricted stock.
Diluted income (loss) per share is computed by dividing net income (loss) by
the sum of weighted average number of common shares outstanding and the number
of potential dilutive common shares outstanding during the period, if dilutive.
Potential dilutive common shares consist of shares issuable upon the exercise
of stock options, restricted stock not yet vested, and shares issuable
resulting from withholdings associated with the Companys employee stock
purchase plan, using the treasury stock method.

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

|                                |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |         |        | 
|------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ----- | -------------------------------- | - | ------------------------------- | ---- | ------- | ----- | ---- | ---- | ------- | ----- | - | ---- | ------- | ------ | 
|                                |                                                                                                                                     |                                  |       | Three Months Ended September 30, |   | Nine Months Ended September 30,
|                                |                                                                                                                                     |                                  |       | 2003                             |   | 2002                            |      | 2003    |       | 2002
|                                |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |     
|Numerator:                      |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |        
|                                | Net income (loss)                                                                                                                   |                                  | $     | (7,345                           | ) |                                 | $    | 44,615  |       |      | $    | 67,668  |       |   | $    | 125,179 |       
|                                |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |         |       
|Denominator:                    |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |        
|                                | Denominator for basic income (loss) per share -
Weighted average shares outstanding                                                 |                                  |       | 357,289                          |   |                                 |      | 312,214 |       |      |      | 329,511 |       |   |      | 310,231 |       
|                                |                                                                                                                                     | Employee stock options and other |       |                                  |  |                                 |      |         | 3,153 |      |      |         | 4,162 |   |      |         | 10,829 | 
|                                |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |        
|                                | Denominator for diluted income (loss) per
share -
Weighted average shares outstanding,
assuming exercise of potential common shares |                                  |       | 357,289                          |   |                                 |      | 315,367 |       |      |      | 333,673 |       |   |      | 321,060 |       
|                                |                                                                                                                                     |                                  |       |                                  |   |                                 |      |         |       |      |      |         |       |   |      |        
|Basic income (loss) per share   |                                                                                                                                     | $                                | (0.02 | )                                |   | $                               | 0.14 |         |       | $    | 0.21 |         |       | $ | 0.40 |        
|Diluted income (loss) per share |                                                                                                                                     | $                                | (0.02 | )                                |   | $                               | 0.14 |         |       | $    | 0.20 |         |       | $ | 0.39 |        

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

5



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##### 



|                          |  |                                  |      |                                 |  |      |      |      |  |  |      |  |  |  |      | 
|------------------------- |  | -------------------------------- | ---- | ------------------------------- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|                          |  | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                          |  | 2003                             |      | 2002                            |  | 2003 |      | 2002
|                          |  |                                  |      |                                 |  |      |      |     
|Employee stock options    |  |                                  | 88.5 |                                 |  |      | 52.8 |      |  |  | 44.5 |  |  |  | 25.5 | 
|Unvested restricted stock |  |                                  | 0.2  |                                 |  |      |     |      |  |  | 1.0  |  |  |  |     | 
|                          |  |                                  |      |                                 |  |      |      |      |  |  |      |  |  |  |      | 
|Total shares excluded     |  |                                  | 88.7 |                                 |  |      | 52.8 |      |  |  | 45.5 |  |  |  | 25.5 | 

The
weighted average exercise prices of the employee stock options that
are antidilutive for
the three months ended September 30, 2003 and 2002 were $21.98 and $26.69
per share, respectively, and for the nine months ended September 30, 2003 and
2002 were $28.72 and $33.29 per share, respectively.

On October 27, 2003, the Company implemented a stock repurchase program in
which up to $350 million of its common stock, par value $0.01 per share, is
eligible to be repurchased by the Company from time to time in the open market or through
privately negotiated purchases or otherwise, depending on market prices and
other conditions. As of November 10, 2003, the
Company had repurchased approximately 12 million shares of its common stock for $253.4 million.

3. Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB Opinion No. 25). The following table illustrates the effect
on net income (loss) and earnings per share as if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), to
stock-based employee compensation for the three and nine months ended September
30, 2003 and 2002 (in thousands, except per share amounts).

|                                |                                                                                                      |   |                                  |         |                                 |   |        |         |      |   |        |          |   |   |         |          |  
|------------------------------- | ---------------------------------------------------------------------------------------------------- | - | -------------------------------- | ------- | ------------------------------- | - | ------ | ------- | ---- | - | ------ | -------- | - | - | ------- | -------- | -
|                                |                                                                                                      |   | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                |                                                                                                      |   | 2003                             |         | 2002                            |   | 2003   |         | 2002
|                                |                                                                                                      |   |                                  |         |                                 |   |        |         |     
|Net income (loss), as reported  |                                                                                                      | $ | (7,345                           | )       |                                 | $ | 44,615 |         |      | $ | 67,668 |          |   | $ | 125,179 |         
|                                | Add: Stock-based employee
compensation expense included in
reported net income (loss), net of tax    |   |                                  | 2,910   |                                 |   |        | 1,786   |      |   |        | 6,975    |   |   |         | 5,111    |  
|                                | Deduct: Stock-based employee
compensation expense determined
under the fair value method, net of tax |   |                                  | (44,945 | )                               |   |        | (51,318 | )    |   |        | (119,831 | ) |   |         | (138,326 | )
|                                |                                                                                                      |   |                                  |         |                                 |   |        |         |      |   |        |          |   |   |         |         
|                                | Pro forma net loss                                                                                   |   | $                                | (49,380 | )                               |   | $      | (4,917  | )    |   | $      | (45,188  | ) |   | $       | (8,036   | )
|                                |                                                                                                      |   |                                  |         |                                 |   |        |         |      |   |        |          |   |   |         |         
|Basic income (loss) per share   |                                                                                                      |   |                                  |         |                                 |   |        |         |      |   |        |          |   |   |         |         
|                                | As reported                                                                                          |   | $                                | (0.02   | )                               |   | $      | 0.14    |      |   | $      | 0.21     |   |   | $       | 0.40     |  
|                                | Pro forma                                                                                            |   | $                                | (0.14   | )                               |   | $      | (0.02   | )    |   | $      | (0.14    | ) |   | $       | (0.03    | )
|Diluted income (loss) per share |                                                                                                      |   |                                  |         |                                 |   |        |         |      |   |        |          |   |   |         |         
|                                | As reported                                                                                          |   | $                                | (0.02   | )                               |   | $      | 0.14    |      |   | $      | 0.20     |   |   | $       | 0.39     |  
|                                | Pro forma                                                                                            |   | $                                | (0.14   | )                               |   | $      | (0.02   | )    |   | $      | (0.14    | ) |   | $       | (0.03    | )

4. Comprehensive Income (Loss)

Comprehensive income (loss) primarily includes unrealized gains or losses
on investments, mark-to-market adjustments on interest rate swap transactions,
and foreign currency translation adjustments, which are reflected as a
component of stockholders equity. The components of comprehensive income
(loss), net of tax, were as follows (in thousands):

6



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##### 



|                            |                                           |                                                                                                   |        |                    |   |                                 |        |        |      |      |        |        |       |   |         |        |        |  
|--------------------------- | ----------------------------------------- | ------------------------------------------------------------------------------------------------- | ------ | ------------------ | - | ------------------------------- | ------ | ------ | ---- | ---- | ------ | ------ | ----- | - | ------- | ------ | ------ | -
|                            |                                           |                                                                                                   |        | Three Months Ended |   |                                 |        |        |      |      |        |       
|                            |                                           |                                                                                                   |        | September 30,      |   | Nine Months Ended September 30,
|                            |                                           |                                                                                                   |        | 2003               |   | 2002                            |        | 2003   |      | 2002
|                            |                                           |                                                                                                   |        |                    |   |                                 |        |        |      |     
|Net income (loss)           |                                           | $                                                                                                 | (7,345 | )                  |   | $                               | 44,615 |        |      | $    | 67,668 |        |       | $ | 125,179 |       
|Other comprehensive income: |                                           |                                                                                                   |        |                    |   |                                 |        |        |      |      |        |        |       |   |         |       
|                            | Net unrealized gain (loss) on investments |                                                                                                   |        | 177                |   |                                 |        | (374   | )    |      |        | 1,494  |       |   |         | (676   | )     
|                            | Foreign currency translation adjustments  |                                                                                                   |        | 1,399              |   |                                 |        | (4,629 | )    |      |        | 21,130 |       |   |         | 10,335 |       
|                            | Interest rate swap transactions:          |                                                                                                   |        |                    |   |                                 |        |        |      |      |        |        |       |   |         |        |       
|                            |                                           | Net unrealized loss on cash flow hedges                                                           |        |                    |  |                                 |        |        | (296 | )    |        |        | (58   | ) |         |        | (1,151 | )
|                            |                                           | Reclassification adjustment for
earnings recognized during the period                             |        |                    |  |                                 |        |        | 870  |      |        |        | 2,106 |   |         |        | 2,960  |  
|                            |                                           | Reclassification adjustment for
realized loss on the termination of
interest rate swap agreements |        |                    |  |                                 |        |        |     |      |        |        | 881   |   |         |        |       |  
|                            |                                           |                                                                                                   |        |                    |   |                                 |        |        |      |      |        |        |       |   |         |       
|Comprehensive income (loss) |                                           | $                                                                                                 | (5,769 | )                  |   | $                               | 40,186 |        |      | $    | 93,221 |        |       | $ | 136,647 |       
|                            |                                           |                                                                                                   |        |                    |   |                                 |        |        |      |      |        |        |       |   |         |       

5. Derivative Financial Instruments

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

Forward Foreign Exchange Contracts

The Company has a foreign exchange hedging program principally designed to
mitigate the potential impact due to changes in foreign currency exchange
rates. Forward exchange contracts are primarily used to hedge foreign currency
exposures and generally have terms of two months or less. The derivatives used
in the foreign exchange hedging program are not designated as cash flow or fair
value hedges under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as
amended. These contracts are recorded on the balance sheet at fair value in
Accrued liabilities. Changes in fair value of the contracts and the amounts
being hedged are included in Other income, net.

During the three months ended September 30, 2003 and 2002, the Company
recorded net foreign currency transaction losses of $0.7 million and gains of
$0.3 million, respectively. During the nine months ended September 30, 2003 and
2002, the Company recorded net foreign currency transaction losses of $1.8
million and gains of $2.8 million, respectively. At September 30, 2003, each of
the foreign exchange contracts matured within 60 days and had a book value that
approximated fair value. Neither the cost nor the fair value of these forward
foreign exchange contracts was material at September 30, 2003.

At September 30, 2003, the Company had the following outstanding forward
foreign exchange contracts to exchange foreign currency for U.S. dollars (in
millions):

|                    |  |          |      | 
|------------------- |  | -------- | ---- | 
|                    |  | Notional
|Foreign Currency    |  | Amount  
|                    |  |         
|British pounds      |  | $        | 13.6 | 
|Singapore dollars   |  |          | 6.1  | 
|New Zealand dollars |  |          | 3.1  | 
|Australian dollars  |  |          | 1.6  | 
|Hong Kong dollars   |  |          | 1.0  | 
|Taiwanese dollars   |  |          | 0.9  | 
|Danish krone        |  |          | 0.8  | 
|Swiss francs        |  |          | 0.5  | 
|Swedish krona       |  |          | 0.4  | 
|                    |  |          |      | 
|                    |  | $        | 28.0 | 
|                    |  |          |      | 

At September 30, 2003, the Company had the following outstanding forward
foreign exchange contracts to exchange U.S. dollars for foreign currency (in
millions):

|                   |  |          |      | 
|------------------ |  | -------- | ---- | 
|                   |  | Notional
|Foreign Currency   |  | Amount  
|                   |  |         
|Euros              |  | $        | 20.0 | 
|Mexican pesos      |  |          | 10.1 | 
|Canadian dollars   |  |          | 6.4  | 
|Japanese yen       |  |          | 3.8  | 
|South African rand |  |          | 0.9  | 
|                   |  |          |      | 
|                   |  | $        | 41.2 | 
|                   |  |          |      | 

7



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##### 



At September 30, 2002, the Company had the following outstanding forward
foreign exchange contracts to exchange foreign currency for U.S. dollars (in
millions):

|                  |  |          |     | 
|----------------- |  | -------- | --- | 
|                  |  | Notional
|Foreign Currency  |  | Amount  
|                  |  |         
|Singapore dollars |  | $        | 5.3 | 
|                  |  |          |     | 

At September 30, 2002, the Company had the following outstanding forward
foreign exchange contracts to exchange foreign currency for Euros (in
millions):

|                   |  |          |     | 
|------------------ |  | -------- | --- | 
|                   |  | Notional
|Foreign Currency   |  | Amount  
|                   |  |         
|South African rand |  | $        | 2.5 | 
|                   |  |          |     | 

At September 30, 2002, the Company had the following outstanding forward
foreign exchange contracts to exchange U.S. dollars for foreign currency (in
millions):

|                    |  |          |      | 
|------------------- |  | -------- | ---- | 
|                    |  | Notional
|Foreign Currency    |  | Amount  
|                    |  |         
|Euros               |  | $        | 9.8  | 
|South African rand  |  |          | 2.5  | 
|Swiss francs        |  |          | 2.1  | 
|Canadian dollars    |  |          | 2.0  | 
|British pounds      |  |          | 1.0  | 
|New Zealand dollars |  |          | 0.9  | 
|Swedish krona       |  |          | 0.8  | 
|Japanese yen        |  |          | 0.7  | 
|Australian dollars  |  |          | 0.6  | 
|Brazilian reals     |  |          | 0.6  | 
|Chilean pesos       |  |          | 0.4  | 
|                    |  |          |      | 
|                    |  | $        | 21.4 | 
|                    |  |          |      | 

Interest Rate Swap Transactions

The Company used interest rate swap transactions to manage its exposure to
interest rate changes on synthetic lease obligations related to certain of its
headquarters facilities located in Pleasanton, California. The swaps had an
aggregate notional principal amount of $175.0 million and matured at various
dates in 2003, consistent with the expiration of the synthetic leases. Under
the swap agreements, the Company received a variable interest rate based on the
three month LIBOR rate and paid a weighted average fixed interest rate of 6.8%.
The swaps were designated under SFAS 133 as hedges against changes in the
amount of future cash flows. In February 2003, the Company exercised its option
under a synthetic lease agreement to purchase certain of its headquarters
facilities located in Pleasanton, California for $70.0 million, and
concurrently, swaps with an aggregate notional principal amount of $70.0
million matured. On June 30, 2003, the Company exercised its option under a
synthetic lease agreement to purchase certain of its headquarters facilities
located in Pleasanton, California for $105.0 million. As a result of this
transaction, the Company terminated its remaining interest rate swap agreements
with an aggregate notional principal amount of $105.0 million resulting in a
pretax charge of $1.4 million to Other income, net. Included in Accumulated
other comprehensive income at March 31, 2003 was a $1.8 million unrealized
loss (after-tax) related to these interest rate swaps. In the second quarter of
2003, $0.9 million (after-tax) was reclassified from other comprehensive income
into earnings by making scheduled swap payments and $0.9 million (after-tax)
was recognized as a realized loss that was reclassified from other
comprehensive income into earnings upon the termination of the remaining
interest rate swap agreements.

Concentrations of Credit Risk

8



---



##### 



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

6. Restructuring Reserves

During the third quarter of 2003, in connection with the acquisition of
J.D. Edwards & Company (J.D. Edwards), management approved and initiated
plans to restructure the operations of the Company to eliminate certain
duplicative activities and reduce the Companys cost structure. Consequently,
the Company recorded approximately $8.8 million of costs of which $5.6 million
relates to employee severance, $2.2 million relates to acquisition related employee retention, and $1.0 million
relates to contract terminations. These costs are accounted for under Statement
of Financial Accounting Standards No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146) and have been included as a charge
to the results of operations in Restructuring, acquisition and other charges.
As a result of the acquisition of J.D. Edwards, the Company recorded
approximately $88.5 million of restructuring costs in connection
with exiting certain pre-acquisition activities of J.D. Edwards
including severance costs, change in control payments, costs of
vacating duplicate facilities, contract termination costs, and other
costs. Change in control payments are made to employees covered by a
plan maintained by J.D. Edwards and subsequently assumed by
PeopleSoft upon the completion of the merger. That change in control
plan provides for specified severance and other change in
control-related benefits to participants in the plan. The plan covered
197 senior management employees. Terminated individuals who will
receive severance and change in control payments are primarily
general and administrative, consulting, and sales and marketing
employees. And accordingly, these costs have been recognized as a
liability assumed in the purchase business combination. Future cash
payments related to the restructuring reserves for future severance
payments are expected to be made through July 2004.

During the second quarter of 2003, the Company recorded pretax
restructuring charges of $13.8 million. The $13.8 million of restructuring
charges are included in Restructuring, acquisition and other charges and
consisted of $4.6 million for employee severance, $7.5 million for the fair
value of lease obligations associated with the closure of an office facility
and $1.7 million for the impairment of related leasehold improvements. These
costs are accounted for under SFAS 146.

The restructuring charges recorded in the third quarter are based on the
Companys restructuring plans that have been committed to by management and are
subject to refinement. Changes to the estimates of executing the currently
approved plans of restructuring the pre-acquisition J.D. Edwards operations
will be recorded as an adjustment to goodwill and any changes to the estimated
costs of restructuring the pre-acquisition PeopleSoft operations will be reflected in the
Companys results of operations.

Approximately
$7.5 million of the third quarter restructuring costs accounted
for under SFAS 146 is a
cash obligation. Approximately $88.3 million of third quarter
restructuring costs related to exiting certain pre-acquisition
activities of J.D. Edwards is a cash
obligation. These restructuring costs are expected to be funded through operating cash flow.

The following table sets forth the activity in the Companys restructuring
reserves, accounted for under SFAS 146, for the quarter ended September 30,
2003, which are included in Accrued liabilities (in thousands).

|                           |                     |   |          |        |             |   |                 |        |       |   |          |        |   |   |        |        |  
|-------------------------- | ------------------- | - | -------- | ------ | ----------- | - | --------------- | ------ | ----- | - | -------- | ------ | - | - | ------ | ------ | -
|                           |                     |   |          |        |             |   |                 |        |       |   | Contract |        |   |   |       
|                           |                     |   | Employee |        | Facilities  |   | Termination and |        |       |   |         
|                           |                     |   | Costs    |        | Obligations |   | Other           |        | Total
|                           |                     |   |          |        |             |   |                 |        |      
|Balance June 30, 2003      |                     | $ | 2,985    |        |             | $ | 8,211           |        |       | $ |         |        |   | $ | 11,196 |       
|                           | Restructuring costs |   |          | 7,480  |             |   |                 |       |       |   |          | 1,294  |   |   |        | 8,774  |  
|                           | Cash payments       |   |          | (2,446 | )           |   |                 | (1,204 | )     |   |          |       |   |   |        | (3,650 | )
|                           | Non-cash items      |   |          | (32    | )           |   |                 | (79    | )     |   |          | (1,294 | ) |   |        | (1,405 | )
|                           |                     |   |          |        |             |   |                 |        |       |   |          |        |   |   |        |       
|Balance September 30, 2003 |                     | $ | 7,987    |        |             | $ | 6,928           |        |       | $ |         |        |   | $ | 14,915 |       
|                           |                     |   |          |        |             |   |                 |        |       |   |          |        |   |   |        |       

Future cash payments related to the restructuring reserves accounted for
under SFAS 146, which consist of future employee costs and facilities
obligations
payments, are expected to be made through October 2005.

The following table sets forth the activity in the Companys restructuring
reserves, accounted for under EITF 95-3, for the quarter ended September 30,
2003, which are included in Accrued liabilities (in thousands).

9



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##### 



|                           |                     |   |          |         |             |   |                 |        |       |   |          |        |   |   |        |         |  
|-------------------------- | ------------------- | - | -------- | ------- | ----------- | - | --------------- | ------ | ----- | - | -------- | ------ | - | - | ------ | ------- | -
|                           |                     |   |          |         |             |   |                 |        |       |   | Contract |        |   |   |       
|                           |                     |   | Employee |         | Facilities  |   | Termination and |        |       |   |         
|                           |                     |   | Costs    |         | Obligations |   | Other           |        | Total
|                           |                     |   |          |         |             |   |                 |        |      
|Balance June 30, 2003      |                     | $ |         |         |             | $ |                |        |       | $ |         |        |   | $ |       |        
|                           | Restructuring costs |   |          | 48,391  |             |   |                 | 30,114 |       |   |          | 10,033 |   |   |        | 88,538  |  
|                           | Cash payments       |   |          | (12,929 | )           |   |                 | (233   | )     |   |          |       |   |   |        | (13,162 | )
|                           | Non-cash items      |   |          |        |             |   |                 |       |       |   |          | (219   | ) |   |        | (219    | )
|                           |                     |   |          |         |             |   |                 |        |       |   |          |        |   |   |        |        
|Balance September 30, 2003 |                     | $ | 35,462   |         |             | $ | 29,881          |        |       | $ | 9,814    |        |   | $ | 75,157 |        
|                           |                     |   |          |         |             |   |                 |        |       |   |          |        |   |   |        |        

Future
cash payments related to the restructuring of reserves for employee
costs are expected to be made through
July 2004. Future cash contract termination payments are expected to be made
through August 2007. Future cash payments related to facilities
obligations are expected to be made through January
2008.

7. Products and Service Warranty Reserve

The Company provides for the estimated cost of product and service
warranties based on specific warranty claims, provided that it is both probable
that a potential liability exists and that the amount can be reasonably
estimated. Additional information may become available in the future which may
result in changes to the originally estimated liability. In addition, if
estimated claims are settled for amounts differing from the Companys
estimates, or if the estimated value of warranty claims were to increase or
decrease, revisions to the estimated warranty liability may be required and
warranty expense may change from current levels.

The following table sets forth the activity in the Companys product and
service warranty reserve, which is included in Accrued liabilities, for the
three months ended September 30, 2003 (in thousands):

|                           |                                                      |   |        |        |  
|-------------------------- | ---------------------------------------------------- | - | ------ | ------ | -
|                           |                                                      |   | Total 
|                           |                                                      |   |       
|Balance at June 30, 2003   |                                                      | $ | 9,535  |       
|                           | Acquisition-related additions                        |   |        | 8,813  |  
|                           | Expense related to new claims                        |   |        | 1,798  |  
|                           | Reduction in expense related to changes in estimates |   |        | (1,216 | )
|                           | Settlement of claims                                 |   |        | (1,358 | )
|                           |                                                      |   |        |       
|Balance September 30, 2003 |                                                      | $ | 17,572 |       
|                           |                                                      |   |        |       

8. Business Combinations

Pursuant
to an Amended and Restated Agreement and Plan of Merger with J.D.
Edwards dated
June 16, 2003, the Company acquired approximately 85% of the outstanding stock
of J.D. Edwards on July 18, 2003 pursuant to an exchange offer and the
remaining shares on August 29, 2003 pursuant to a merger. J.D. Edwards results
have been included in the Companys results since July 18, 2003, and minority
interest in net income has been recorded from July 18, 2003 through August 29,
2003.

J.D. Edwards offers enterprise software as well as
consulting, education and support services. The Companys board of directors
approved the offer and the merger and determined that the offer and the merger
would provide the Company with increased breadth and depth across the Companys
products, market segments and industry coverage. The Companys board
determined that J.D. Edwards expertise in manufacturing and distribution
applications would strengthen the Companys enterprise application suite. In
addition, the board determined that J.D. Edwards mid-market focused
applications and AS/400 based solutions would be additive to the Companys
Internet-based enterprise application suite.

In the exchange offer, holders of J.D. Edwards common stock were entitled
to make an election to tender their shares for cash or shares of PeopleSoft
stock and such holders were entitled to receive cash, stock, or a combination
of cash and stock, in each case having a value, on a per share basis of $7.05
plus 0.43 of a share of the Companys common stock, allocated by prorating cash
and shares available in the exchange offer among the elections made by the
holders. At the completion
of the acquisition, a total of 124,108,566 shares of J.D. Edwards common stock
were tendered and accepted for exchange by PeopleSoft.

The Company exchanged options held by J.D. Edwards employees with
PeopleSoft options at a rate of 0.43 PeopleSoft options per J.D. Edwards
option. Each exchanged PeopleSoft option retained the same vesting
characteristics as the J.D. Edwards option it replaced and each J.D. Edwards
option holder will receive $7.05 per option upon exercise.

10



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##### 



The
aggregate purchase price was approximately $2 billion, which
consisted of approximately $875 million in cash, $962 million in PeopleSoft
common stock and options, $88.5 million in restructuring costs (see footnote 6)
and $27.5 million in deal costs and other incurred liabilities, which primarily
consist of fees paid for legal, accounting and financial advisory services. A
total of 53,312,015 PeopleSoft shares were issued in the transaction. The value
of the stock issued to tendering J.D. Edwards
shareholders was based upon the average of the closing prices of one share of the Companys
common stock during the five trading days ending June 18, 2003, which was $17.22. The fair value
of the Companys stock-based awards to employees was estimated using a
Black-Scholes option pricing model. The fair value of the stock-based awards to
employees was estimated assuming no expected dividends and the following
weighted-average assumptions:

|                         |  |  |        |  
|------------------------ |  |  | ------ | -
|Expected life (in years) |  |  | 1.90   |  
|Expected volatility      |  |  | 0.7468 |  
|Risk free interest rate  |  |  | 1.86   | %

The intrinsic value allocated to the unvested J.D. Edwards options assumed in
the exchange was approximately $6.7 million and has been recorded as deferred
compensation in the purchase price allocation. Option holders having options
with strike prices of $7.05 (J.D. Edwards pre-merger price) or less were given
0.43 shares of the Companys common stock plus $7.05 less the exercise price
and any applicable taxes, in order to retire these options. Approximately 5.0
million of the approximately 8.4 million options issued are fully vested.

In accordance with Statement of Financial Accounting Standards No. 141,
Business Combinations, the Company allocated the purchase price to the
tangible assets, deferred compensation, liabilities and intangible assets acquired, as well as
in-process research and development, based on their estimated fair values. The
excess purchase price over the fair values was recorded as goodwill. The fair
value assigned to intangible assets acquired was based on estimates and
assumptions determined by management. The assignment of goodwill to the
Companys reportable segments for this acquisition has not yet been completed.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
goodwill and purchased intangibles with indefinite lives acquired
after June 30, 2001 are not amortized but will be reviewed periodically for impairment.
Purchased intangibles with finite lives are amortized on a straight-line basis
over their respective useful lives. The total purchase price has initially been
allocated as follows (in thousands):

|                                      |                                                 |   |           |           | 
|------------------------------------- | ----------------------------------------------- | - | --------- | --------- | 
|Current assets                        |                                                 | $ | 545,984   |          
|Property and equipment                |                                                 |   | 75,349    |          
|Capitalized software                  |                                                 |   | 226,300   |          
|Goodwill                              |                                                 |   | 940,707   |          
|Intangible assets and other           |                                                 |   | 535,497   |          
|Acquired IPR&D                        |                                                 |   | 14,500    |          
|Deferred
compensation                 |                                                 |   | 6,766     |          
|                                      |                                                 |   |           |          
|                                      | Total
assets acquired and deferred compensation |   |           | 2,345,103 | 
|Current liabilities                   |                                                 |   | (187,729  | )        
|Short-term deferred revenue           |                                                 |   | (69,953   | )        
|Long term deferred revenues and other |                                                 |   | (5,142    | )        
|Long term deferred income taxes       |                                                 |   | (129,289  | )        
|                                      |                                                 |   |           |          
|Total Purchase Price                  |                                                 | $ | 1,952,990 |          
|                                      |                                                 |   |           |          

The
purchase price allocation is preliminary and a final determination of
required purchase accounting adjustments will be made upon the
completion of a final analysis of the total purchase cost primarily
related to estimating involuntary termination and facility related costs.

In performing this preliminary purchase price allocation, the Company
considered, among other factors, its intention for future use of the acquired
assets, analyses of historical financial performance and estimates of future
performance of J.D. Edwards products. The fair value of intangible assets was
primarily based on the income approach. The royalty savings approach and the
cost approach were also utilized when appropriate. The rates utilized to
discount the net cash flows to their present values were based upon the
Companys weighted average cost of capital and range from 12% to 14%. These
discount rates were determined after consideration of the Companys rate of
return on debt capital and equity, the weighted average return on invested
capital and the risk associated with achieving forecasted sales related to the
technology and assets acquired from J.D. Edwards. At September 30, 2003,
identifiable intangible assets purchased in the J. D. Edwards acquisition
consist of the following (in thousands, except for useful life):

11



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##### 



|                                                 |  |       |         |              |  |             |        |  |  |           |   | 
|------------------------------------------------ |  | ----- | ------- | ------------ |  | ----------- | ------ |  |  | --------- | - | 
|                                                 |  | Gross |         | Accumulated  |  |             |        | 
|Identifiable Intangible Assets                   |  | Value |         | Amortization |  | Useful Life
|                                                 |  |       |         |              |  |            
|Capitalized
software                             |  | $     | 226,300 |              |  | $           | 8,742  |  |  | 5 years  
|Patented technology                              |  |       | 60,300  |              |  |             | 2,246  |  |  | 5 years  
|Customer contracts and
related relationships     |  |       | 105,600 |              |  |             | 2,839  |  |  | 7 years  
|Maintenance agreements and
related relationships |  |       | 305,500 |              |  |             | 6,554  |  |  | 8.7 years
|Consulting contracts                             |  |       | 5,800   |              |  |             | 4,321  |  |  | 3 months 
|                                                 |  |       |         |              |  |             |        |  |  |           |   | 
|Balance September 30, 2003                       |  | $     | 703,500 |              |  | $           | 24,702 |  |  |           |  | 
|                                                 |  |       |         |              |  |             |        |  |  |           |   | 

|                                           |  |              |         | 
|------------------------------------------ |  | ------------ | ------- | 
|                                           |  | For the Year
|Estimated Amortization Expense             |  | Ended       
|                                           |  |             
|For the year ended 12/31/03                |  | $            | 53,145  | 
|For the year ended 12/31/04                |  |              | 107,677 | 
|For the year ended 12/31/05                |  |              | 107,677 | 
|For the year ended 12/31/06                |  |              | 107,677 | 
|For the year ended 12/31/07
and thereafter |  |              | 327,324 | 
|                                           |  |              |         | 
|                                           |  | $            | 703,500 | 
|                                           |  |              |         | 

In-process research and development (IPR&D) of $14.5 million was
expensed as Restructuring, acquisition and other charges in the accompanying
condensed consolidated statements of operations because the purchased research
and development had no alternative uses and had not reached technological
feasibility. Four in-process research and development projects were identified
relating to the JDE 5 product line. Two of the projects relate to enterprise
resource planning software and have a value of approximately $8.9 million. The
third project relates to customer relationship management software and has a
value of approximately $3.2 million. The fourth project relates
to technology designed to
enhance the functionality of enterprise resource planning software and has a
value of approximately $2.4 million. The value assigned to IPR&D was
determined utilizing the income approach by segregating cash flow projections
related to in process projects. The stage of completion of each in process
project was estimated to determine the discount rate to be applied to the
valuation of the in process technology. Based upon the level of completion and
the risk associated with in process technology, a discount rate of 25% was
deemed appropriate for valuing IPR&D.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the
combined results of operations of PeopleSoft and J.D. Edwards, on a pro forma
basis, as though the companies had been combined as of the beginning
of each period presented. The
impact of the IPR&D charge and restructuring charges associated with the
acquisition have been excluded. Investment banking fees relating to
the merger recorded by J.D. Edwards have also been excluded. This pro forma financial information is
presented for informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved had the acquisition
taken place at the beginning of each nine month period presented. The unaudited pro forma
condensed combined statement of operations for the three months ended
September 30, 2003 combines the historical results for PeopleSoft for the three months
ended September 2003 and the historical results for J.D. Edwards for the period
preceding the merger of July 1 through July 17. The unaudited pro forma
condensed combined statement of operations for the nine months ended
September 30, 2003 combines the historical results for PeopleSoft for the nine months
ended September 2003, the historical results for J.D. Edwards for the period of
July 1 through July 17, and the historical results for J.D. Edwards for the six
months ended April 30, 2003. The unaudited pro forma condensed combined
statement of operations for the three and nine months ended September 30, 2002
combines the historical results for PeopleSoft for the three and nine months
ended September 2002 and the historical results for J.D. Edwards for the three
and nine months ended July 31, 2002. The following amounts are in thousands,
except per share amounts.

|                         |  |                    |         |                   |  |      |         |      |  |   |           |  |  |   |           | 
|------------------------ |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | --------- |  |  | - | --------- | 
|                         |  | Three Months Ended |         | Nine Months Ended
|                         |  | September 30,      |         | September 30,    
|                         |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                         |  |                    |         |                   |  |      |         |     
|Revenues                 |  | $                  | 686,848 |                   |  | $    | 685,069 |      |  | $ | 1,962,787 |  |  | $ | 1,996,375 | 
|Net income               |  | $                  | 17,205  |                   |  | $    | 31,364  |      |  | $ | 13,931    |  |  | $ | 43,056    | 
|Basic income per share   |  | $                  | 0.05    |                   |  | $    | 0.09    |      |  | $ | 0.04      |  |  | $ | 0.12      | 
|Diluted income per share |  | $                  | 0.05    |                   |  | $    | 0.08    |      |  | $ | 0.04      |  |  | $ | 0.11      | 

12



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##### 



9.     Oracles
Unsolicited Tender Offer for PeopleSofts Common Stock and Customer Assurance Program

Unsolicited Tender Offer for
PeopleSofts Common Stock

On June 6, 2003, Oracle Corporation ("Oracle") announced that it intended to
commence an unsolicited cash tender offer to purchase all of the
outstanding shares of PeopleSoft for $16.00 per share, or
approximately $5.1 billion in the aggregate (the Oracle
Offer). The
tender offer was formally commenced June 9, 2003, and on
June 18, 2003 Oracle amended the offer to increase the purchase
price $16.00 to $19.50 per share.

The
Board of Directors of the Company has determined that the Oracle
Offer is not in the best interests of the stockholders and
unanimously recommended that the stockholders reject the Oracle Offer
and not tender their shares to Oracle for purchase. The expiration of
the Oracle Offer is currently December 31, 2003.

See Note
 10, Commitments and Contingencies for information about litigation
instituted by the Company and others related to the Oracle
Offer.

Customer Assurance Program

In
response to Oracles public statements about its intent to
discontinue the Company's products, and to minimize a potential loss
of business during the Oracle Offer, the Company implemented a
customer assurance program. This program incorporates a contingent
change in control provision to its standard perpetual licensing
arrangement. That provision provides customers purchasing
application licenses with financial protection in the event that an
acquirer discontinues or reduces (or with respect to certain
contracts, announces the intention to discontinue or reduce) the
licensing, development or support of PeopleSoft applications within a
specified period after an acquisition, as defined in the program
terms. That financial protection is in the form of a payment
generally equal to two to five times the total arrangement fees. The multiple increases as the
arrangement fees increase and  will be generally paid provided the
following events occur:



| |  |  | either within one year or two
years from the contract effective date, the Company is acquired or
merged, and the Company is not the acquirer, and                                                                                                                                                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | either within two or four years
from the contract effective date, the acquiring company announces
a) its intention to discontinue, or discontinues support services before
the end of the normal support term as defined by the Companys
standard policies, or b) announces its intention to discontinue
licensing PeopleSoft products to new customers, or c) announces its
intention not to, or does not, provide updates or new releases for supportable products for a
specified period; and
|
| |  |  | the customer requests the payment
in writing by a specified date and the customer has timely paid for
support services in accordance with the terms of the customers
agreement with the Company.                                                                                                                                                                                                                                                                                                

The
terms available under certain contracts also included additional
payment triggers after an acquisition, including:

| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) a reduction or the announced intention
to reduce the amount of money spent to develop updates for the
supportable modules or provide support services below the level spent
by the Company in the 12 months preceding the acquisition, or
|
| | b) a reduction or the announced intention to
reduce or limit the ability of the supportable modules to integrate
or operate with third party products such as databases, software,
products, and technologies.                              

Customers
retain rights to the licensed products whether or not the customer
assurance programs payments are triggered. No customer is entitled
to a refund of arrangement fees paid under the customers contract
with the Company, but the customer would be entitled to a payment
under the customer assurance program if all of the conditions stated
above are met.

The
customer assurance program has no financial statement impact on
PeopleSoft. A contingent liability would only be recognized in the
financial statements of the Company or its acquirer upon or after the
consummation of a business combination provided all the events listed
above occurred. As of September 30, 2003, the maximum potential
amount of future payments which may be required to be made under the
customer assurance program was approximately $807 million.

The
customer assurance program has expired. The Company is
currently considering whether and on what terms it will extend the
customer assurance program.

10. Commitments and Contingencies

Synthetic Leases

The Company acquired four office buildings in Denver, Colorado (the
Denver Campus) as a result of the acquisition of J.D. Edwards (see Note 8).
The Denver Campus was constructed on land originally owned by J.D. Edwards and is leased
under operating leases,

13



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##### 



which commenced in 1997 and 1998. The Company has six-year master lease
agreements with a lessor, a wholly owned subsidiary of a bank, which together
with a syndication of other banks provided financing of $121.2 million for the
purchase and construction costs of the buildings through a combination of debt
and equity. The lease payment obligations are based on a return on the lessors
costs. The Company also has an option to refinance or purchase the leased
properties at its sole discretion during the term of the lease for
approximately $121.2 million, the amount expended by the lessor and syndication
of banks for purchase and construction costs. In the event that the Company
does not exercise its option to refinance or purchase the leased properties, it
must guarantee the residual value of each building up to approximately 85% of
its original cost. The Company does not believe that it will be called upon to
perform under the residual guarantee to satisfy any financial obligations under
the leases. The Company has evaluated the fair value of the Denver Campus and
determined that at this point it is not probable that the value of the property
at the end of the lease term will be less than the residual value guaranteed by
the Company. The leases terminate between April and November of 2004. The
Company is currently considering alternatives that include a refinancing of the
existing arrangement or a cash purchase.

The Company can elect to reduce the interest rate used to calculate lease
expense by collateralizing the Denver Campus financing arrangements with investments. At
September 30, 2003, investments totaling $117.6 million were designated as
collateral for these leases. The Company may withdraw the funds used as
collateral, excluding restricted amounts, at its sole discretion provided that
it is not in default under the lease agreements. At September 30, 2003, funds
used as collateral in the amount of $81.7 million were available for
withdrawal. At September 30, 2003, the Company was in compliance with the
covenants, representations, and warranties required under the lease agreements.

Customer Indemnification

From time to time, the Company agrees to indemnify its customers against
liability if the Companys products infringe a third partys intellectual
property rights. As of September 30, 2003, the Company had no outstanding
claims and was not subject to any pending litigation alleging that the
Companys products infringe the intellectual property rights of any third
parties.

PeopleSoft Stockholder Actions  Delaware Court of Chancery

On June 6, 2003, Felix Ezeir (Case No. 20349-NC), Teresita Fay (Case No.
20350-NC), Robert Crescente (Case No. 20351-NC), Robert Corwin (Case No.
20352-NC) and Ernest Hack (Case No. 20353-NC), all of whom purport to be
stockholders of the Company, each filed a putative stockholder class action
suit in the Delaware Court of Chancery against the Company and several of its
officers and directors. The suits allege that defendants breached their
fiduciary duties in connection with the Companys response to Oracles
tender offer purportedly announced on June 6, 2003. Plaintiffs in
each of the actions seek injunctive relief and an accounting. On June 10, 2003,
an action was filed in the Delaware Court of Chancery against these same
defendants by Steven Padness (Case No. 20358-NC), making similar allegations
and seeking similar relief. On June 12, 2003, an action was filed in the
Delaware Court of Chancery against these same defendants by Thomas Nemes (Case
No. 20365-NC), making similar allegations and seeking similar relief (the
Nemes Action). The Nemes Action was amended on June 18, 2003, to include
allegations and seeking relief similar to those in the above-referenced
actions.

On June 25, 2003, on an application filed in the Nemes Action, the Court
consolidated the actions listed above under a single caption and case number:
In re PeopleSoft, Inc. Shareholder Litigation, Consol. C.A.
No. 20365-NC (the Delaware shareholder litigation).
Defendants filed their Answer on June 25, 2003.

On July 2, 2003, Richard Hutchings (Case No. 20403-NC) filed a putative
stockholder class action suit in the Delaware Court of Chancery against the
Company and several of its officers and directors. The suit alleges that
defendants breached their fiduciary duties in connection with the Companys
response to Oracles tender offer purportedly announced on June 6, 2003.
Plaintiff seeks injunctive relief, an accounting and damages. On July 22, 2003,
the Court ordered that this action be consolidated with the other putative
shareholder actions listed above.

On November 6, 2003, plaintiffs in the Delaware Shareholder Litigation, filed a motion for preliminary injunction seeking to
enjoin defendant PeopleSoft, and its directors, officers and
employees from continuing the Companys Customer Assurance
Program. In their motion, plaintiffs assert that the terms of the
revised Customer Assurance Program constitute a disproportionate and
unreasonable response to any perceived threat from Oracles outstanding
tender offer. Plaintiffs have moved for an order expediting consideration of their motion for a preliminary injunction.

Document discovery has commenced in these consolidated actions and is
coordinated with the discovery in the action filed against the Company by
Oracle, discussed below.

The Company believes that the claims and allegations asserted in each of
the foregoing putative class action suits are without merit, and intends to
vigorously defend against these lawsuits.

In the opinion of management, resolution of these matters is not expected
to have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Oracle v. PeopleSoft  Delaware Court of Chancery

14



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##### 



On June 18, 2003, Oracle filed a suit in the Delaware Court of Chancery
(Case No. 20377-NC) against the Company, several of the Companys directors
(the Director Defendants), and J.D. Edwards, alleging that the Director
Defendants breached their fiduciary duties in connection with the Companys
response to Oracles tender offer commenced on June 9 and amended June 18,
2003, and that J.D. Edwards aided and abetted such directors purported breach
of fiduciary duty. Oracle seeks injunctive, declaratory and rescissory relief.
On June 25, 2003, defendants filed their Answer. A hearing on a motion for
preliminary injunction was scheduled for July 16, 2003, but was postponed upon
the request of Oracle. On July 25, 2003, Oracle advised the Court that, in
light of the second request for further information it received from the
antitrust division of the United States Department of Justice regarding its
tender offer, it did not believe it was appropriate to set a hearing date at
this time. Document discovery has commenced in this litigation.

On November 10, 2003, Oracle filed a motion for preliminary injunction,
which is consolidated with the Delaware Shareholder Litigation in the Court of Chancery. In its motion for preliminary injunction,
Oracle similarly seeks to enjoin the PeopleSoft defendants from continuing to offer to customers the terms contained in the
revised Customer Assurance Program. On the same date, Oracle also filed motions seeking leave of Court to amend its Complaint and to
expedite its motion for a preliminary injunction. The Court of
Chancery has scheduled a hearing for November 19, 2003 to consider
plaintiffs and Oracles motions to expedite consideration of their preliminary injunction applications.

The Company believes that the claims and allegations asserted in this
action are without merit, and intends vigorously to defend against this
lawsuit.

In the opinion of management, resolution of this matter is not
expected to have a material adverse effect on the financial position, results of operations and cash flows of the Company.

PeopleSoft Stockholder Actions  California Superior Court for the County of
Alameda

On June 6, 2003, separate actions were filed in the California Superior
Court for the County of Alameda by Doris Staehr (Case No. RG03100291), the West
Virginia Laborers Pension Trust Fund (Case No. RG03100306), Lorrie McBride
(Case No. RG03100300), and Ray Baldi (Case No. RG03100696) (collectively the
Initial Alameda Stockholder Actions), all of whom purport to be stockholders
of the Company, against several of the Companys executive officers and
directors. The suits allege that defendants breached their fiduciary duties in
connection with (i) the Companys response to Oracles tender offer announced
on June 6, 2003, (ii) the Companys agreement to acquire J.D. Edwards, and
(iii) the implementation of the 2003 Directors Stock Plan, which was approved
by Company stockholders at the 2003 Annual Meeting. Plaintiffs seek injunctive,
rescissory and declaratory relief. On June 16, 2003, the Initial Alameda
Stockholder Actions were consolidated. On June 11, 2003, two additional actions
were filed by Moshe Panzer (Case No. RG03100876) and Arace Brothers (Case No.
RG03100830) asserting similar claims. By Order dated July 10, 2003, the Panzer
and Arace actions were consolidated with the Initial Alameda Stockholder
Actions (collectively the Alameda Stockholder Actions).

By Order dated June 18, 2003, the Alameda County Superior Court granted
the Companys Motion to Stay the Initial Alameda Stockholder Actions pending
resolution of the claims involving the duties of the defendant directors by the
Delaware Court of Chancery. By Order dated July 10, 2003, the Alameda County
Superior Court also stayed the Panzer and Arace Brothers cases pursuant to the
June 18, 2003 Order in the Initial Alameda Stockholder Actions. Accordingly,
all of the Alameda Stockholder Actions are stayed by order of the Court.

The Company believes that the claims and allegations asserted in each of
the foregoing putative class action suits are without merit, and intends to
vigorously defend against these lawsuits.

In the opinion of management, resolution of these matters is not expected to have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Other Matters

The Company is party to various legal disputes and proceedings arising
during the ordinary course of business. 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. An unfavorable resolution of some or all of these matters could
materially affect the Companys future results of operations or cash flows.

11. Segment Information

The Companys chief operating decision maker is its President and Chief
Executive Officer (CEO). While the CEO is apprised of a variety of financial
metrics and information, PeopleSoft is principally managed on a geographic
basis in terms of revenue and segment margin performance. The Companys two
geographic business segments are: North America, which includes the United
States and Canada, and International, which includes all other geographic
regions. Operating expenses are managed functionally on a global basis. Assets
are not identified with geographic segments because the CEO does not evaluate
that information to make resource allocation decisions.

Revenues are defined as revenues generated from unaffiliated customers.
Cost of revenues includes the cost of license, cost of services and the direct
selling cost included in sales and marketing expense. Development and other
services revenue is not considered segment revenue. Correspondingly, Cost of
development and other services is excluded from the cost of revenues for

15



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##### 



segment purposes. Operating expenses, which are managed functionally on a
global basis, include corporate marketing, product development, general and
administrative expenses as well as restructuring, acquisition and other
charges.

Accounting policies for each of the reportable segments are the same as
those used on a consolidated basis. The following table presents a summary of
operating information for the three and nine months ended September 30, 2003
and 2002 (in thousands):

|                   |  |                                  |         |               |  |       |         |       |  |   |         |  |  |   |         |  
|------------------ |  | -------------------------------- | ------- | ------------- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | ------- | -
|                   |  | Three Months Ended September 30,
|                   |  |                                 
|                   |  | Operating Segments               |         |               |  |       |         |       |  |  
|                   |  |                                  |         |               |  |       |         |       |  |  
|2003               |  | North America                    |         | International |  | Other |         | Total
|                   |  |                                  |         |               |  |       |         |      
|Revenues           |  | $                                | 449,404 |               |  | $     | 174,690 |       |  | $ |        |  |  | $ | 624,094 |  
|Cost of revenues   |  |                                  | 240,150 |               |  |       | 103,015 |       |  |   |        |  |  |   | 343,165 |  
|                   |  |                                  |         |               |  |       |         |       |  |   |         |  |  |   |         |  
|Segment margin     |  | $                                | 209,254 |               |  | $     | 71,675  |       |  | $ |        |  |  | $ | 280,929 |  
|                   |  |                                  |         |               |  |       |         |       |  |   |         |  |  |   |         |  
|Operating expenses |  |                                  |         |               |  |       |         |       |  | $ | 290,382 |  |  |   | 290,382 |  
|                   |  |                                  |         |               |  |       |         |       |  |   |         |  |  |   |         |  
|Operating loss     |  |                                  |         |               |  |       |         |       |  |   |         |  |  | $ | (9,453  | )
|                   |  |                                  |         |               |  |       |         |       |  |   |         |  |  |   |         |  

|                   |  |                    |         |               |  |       |         |       |  |   |         |  |  |   |         | 
|------------------ |  | ------------------ | ------- | ------------- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                   |  | Operating Segments |         |               |  |       |         |       |  |  
|                   |  |                    |         |               |  |       |         |       |  |  
|2002               |  | North America      |         | International |  | Other |         | Total
|                   |  |                    |         |               |  |       |         |      
|Revenues           |  | $                  | 356,668 |               |  | $     | 114,545 |       |  | $ |        |  |  | $ | 471,213 | 
|Cost of revenues   |  |                    | 164,795 |               |  |       | 69,204  |       |  |   |        |  |  |   | 233,999 | 
|                   |  |                    |         |               |  |       |         |       |  |   |         |  |  |   |         | 
|Segment margin     |  | $                  | 191,873 |               |  | $     | 45,341  |       |  | $ |        |  |  | $ | 237,214 | 
|                   |  |                    |         |               |  |       |         |       |  |   |         |  |  |   |         | 
|Operating expenses |  |                    |         |               |  |       |         |       |  | $ | 174,706 |  |  |   | 174,706 | 
|                   |  |                    |         |               |  |       |         |       |  |   |         |  |  |   |         | 
|Operating income   |  |                    |         |               |  |       |         |       |  |   |         |  |  | $ | 62,508  | 
|                   |  |                    |         |               |  |       |         |       |  |   |         |  |  |   |         | 

|                   |  |                                 |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|------------------ |  | ------------------------------- | --------- | ------------- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | --------- | 
|                   |  | Nine Months Ended September 30,
|                   |  |                                
|                   |  | Operating Segments              |           |               |  |       |         |       |  |  
|                   |  |                                 |           |               |  |       |         |       |  |  
|2003               |  | North America                   |           | International |  | Other |         | Total
|                   |  |                                 |           |               |  |       |         |      
|Revenues           |  | $                               | 1,167,517 |               |  | $     | 414,275 |       |  | $ |        |  |  | $ | 1,581,792 | 
|Cost of revenues   |  |                                 | 568,859   |               |  |       | 242,113 |       |  |   |        |  |  |   | 810,972   | 
|                   |  |                                 |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Segment margin     |  | $                               | 598,658   |               |  | $     | 172,162 |       |  | $ |        |  |  | $ | 770,820   | 
|                   |  |                                 |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Operating expenses |  |                                 |           |               |  |       |         |       |  |   | 678,270 |  |  |   | 678,270   | 
|                   |  |                                 |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Operating income   |  |                                 |           |               |  |       |         |       |  |   |         |  |  | $ | 92,550    | 
|                   |  |                                 |           |               |  |       |         |       |  |   |         |  |  |   |           | 

|                   |  |                    |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|------------------ |  | ------------------ | --------- | ------------- |  | ----- | ------- | ----- |  | - | ------- |  |  | - | --------- | 
|                   |  | Operating Segments |           |               |  |       |         |       |  |  
|                   |  |                    |           |               |  |       |         |       |  |  
|2002               |  | North America      |           | International |  | Other |         | Total
|                   |  |                    |           |               |  |       |         |      
|Revenues           |  | $                  | 1,088,858 |               |  | $     | 340,304 |       |  | $ | 7,530   |  |  | $ | 1,436,692 | 
|Cost of revenues   |  |                    | 509,855   |               |  |       | 204,963 |       |  |   | 6,755   |  |  |   | 721,573   | 
|                   |  |                    |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Segment margin     |  | $                  | 579,003   |               |  | $     | 135,341 |       |  | $ | 775     |  |  | $ | 715,119   | 
|                   |  |                    |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Operating expenses |  |                    |           |               |  |       |         |       |  |   | 540,928 |  |  |   | 540,928   | 
|                   |  |                    |           |               |  |       |         |       |  |   |         |  |  |   |           | 
|Operating income   |  |                    |           |               |  |       |         |       |  |   |         |  |  | $ | 174,191   | 
|                   |  |                    |           |               |  |       |         |       |  |   |         |  |  |   |           | 

Revenues from the Europe/Middle-East/Africa region represented 18% and 14%
of total revenues, respectively, for the three months ended September 30, 2003
and 2002. Revenues from the Europe/Middle-East/Africa region represented 15%
and 14% of total revenues, respectively, for the nine month periods ended
September 30, 2003 and 2002. No other international region had revenues equal
to or greater than 10% of total revenues for the three and nine months ended
September 30, 2003 or 2002. Revenues originating in each individual foreign
country were less than 10% of total revenues for each of the three and nine
months ended September 30, 2003 and 2002.

12. Recently Issued Accounting Standards

In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses the financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated retirement costs. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002.

16



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##### 



The adoption of SFAS No. 143 did not have a material effect on the
Companys results of operations or financial condition.

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57, and 107, and rescission of FASB
Interpretation No. 34 (FIN 45). FIN 45 requires that a guarantor recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken by issuing the guarantee. FIN 45 also requires additional
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees it has issued. The
accounting requirements for the initial recognition of guarantees are
applicable on a prospective basis for guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective during the first
quarter of fiscal 2003 for all guarantees outstanding, regardless of when they
were issued or modified. The adoption of FIN 45 did not have a material effect
on the Companys financial position, results of operations or cash flows.

In December 2002, the FASB issued Statement of Financial Accounting
Standards, Accounting for Stock Based Compensation Transition and
Disclosurean Amendment of SFAS No. 123, or SFAS 148, which amends SFAS No.
123 to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
The transition and annual disclosure provisions of SFAS 148 are effective for
fiscal years ending after December 15, 2002. In addition, SFAS No. 148 amends
the disclosure requirements of SFAS No.123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The interim disclosure provisions are effective for the first interim
period beginning after December 15, 2002 and have been included in these
consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46) that addresses the consolidation of
variable interest entities. FIN 46 provides guidance for determining when a
primary beneficiary should consolidate a variable interest entity, or
equivalent structure, that functions to support the activities of the primary
beneficiary. FIN 46 is effective after January 31, 2003 for newly created
variable interest entities. For variable interest entities created before
February 1, 2003, the interpretation is effective for the period ending after
December 15, 2003. On June 30, 2003, the Company exercised its option to
purchase certain of its headquarters facilities located in Pleasanton,
California for $105.0 million, prior to the maturity of the related synthetic
lease. Had the Company not terminated this synthetic lease prior to July 1,
2003, it would have been required to consolidate its financial position and
results of operations under the provisions of FIN 46. However, given the
termination of the lease, the provisions of FIN 46 did not apply. The Denver
Campus does not meet the definition of a variable interest entity for consolidated financial reporting. Accordingly, the Company has accounted for
the leases related to the Denver Campus as operating leases.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity (SFAS 150) that establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS 150 had no effect on the Companys
consolidated financial position, results of operations or cash flows.

17



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##### 



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

This Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements concerning non-historical facts or
matters that are subject to risks and uncertainties. These forward-looking
statements may be preceded by, followed by or include the words believes,
expects, anticipates, intends, plans, projections, estimates,
may, will, should, could or similar expressions. These forward-looking
statements represent our expectations or beliefs concerning future events, many
of which are outside of our control. Forward-looking statements contained
throughout this Quarterly Report include, but are not limited to, those
identified with a footnote (1) symbol. Many possible events or factors could
affect the actual financial results and performance of PeopleSoft. These
factors or events could cause those results or performance to differ
significantly from those expressed in our forward-looking statements.

We caution that these forward-looking statements are further qualified by
important factors, including those set forth below and elsewhere in this
Quarterly Report that could cause actual results to differ significantly.

These forward-looking statements and other forward-looking statements made
elsewhere in this Quarterly Report are made under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are not guarantees of performance. By their nature, they involve
risks, uncertainties and assumptions. The future results of PeopleSoft may
differ significantly from those expressed in these forward-looking statements.
Stockholders are cautioned not to put undue reliance on any forward-looking
statement. Any such statement speaks only as of the date of this Quarterly
Report. We do not assume any obligation to update or release any revisions to
any forward-looking statements, to report any new information, future event or
other circumstances after the date of this Quarterly Report or to reflect the
occurrence of unanticipated events, except as required by law. For a discussion
of factors that could affect future results, see Factors That May Affect Our
Future Results Or The Market Price Of Our Stock.

RESULTS OF OPERATIONS

The following table shows the percentage of period over period growth and
the percentage of total revenues represented by the line items in our condensed
consolidated statements of operations:

|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |    |     |    | 
|----------------------------------------------- | -------------------------------------------- | ------------------------ | --------------- | --- | -------------------------------- | -- | ------------------------------- | -- | ------ | -- | -------------- | -- | ---- | -- | ------------- | ---- | -- | -- | - | -- | --- | -- | -- | -- | --- | -- | 
|                                                |                                              |                          |                 |     | Percentage of                    |    |                                 |    |        |    |                |    |      |    | Percentage of |      |    |    |   |    |     |    |   
|                                                |                                              |                          |                 |     | Dollar                           |    | Percentage of                   |    | Dollar |    | Percentage of 
|                                                |                                              |                          |                 |     | Change                           |    | Total Revenues                  |    | Change |    | Total Revenues
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |               
|                                                |                                              |                          |                 |     | Three months ended September 30, |    | Nine months ended September 30,
|                                                |                                              |                          |                 |     | 2003/2002                        |    | 2003                            |    | 2002   |    | 2003/2002      |    | 2003 |    | 2002         
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |              
|Revenues:                                       |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|                                                | License fees                                 |                          |                 | 32  | %                                |    |                                 | 26 | %      |    |                | 26 | %    |    |               | (9   | )% |    |   | 22 | %   |    |    | 27 | %  
|                                                | Maintenance revenue                          |                          |                 | 33  |                                  |    |                                 | 37 |        |    |                | 37 |      |    |               | 25   |    |    |   | 41 |     |    |    | 36 |    
|                                                | Professional services revenue                |                          |                 | 33  |                                  |    |                                 | 37 |        |    |                | 37 |      |    |               | 11   |    |    |   | 37 |     |    |    | 37 |    
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|                                                |                                              |                          | Service revenue |     |                                  | 33 |                                 |    |        | 74 |                |    |      | 74 |               |      |    | 18 |   |    |     | 78 |    |    |     | 73 | 
|                                                | Development and other service revenue        |                          |                 |    |                                  |    |                                 |   |        |    |                |   |      |    |               | (100 | )  |    |   |   |     |    |    |   |    
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|                                                |                                              | Total revenues           |                 |     | 32                               |    |                                 |    | 100    |    |                |    | 100  |    |               |      | 10 |    |   |    | 100 |    |    |    | 100 |   
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Costs and expenses:                             |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|                                                | Cost of license fees                         |                          |                 | 91  |                                  |    |                                 | 3  |        |    |                | 2  |      |    |               | 22   |    |    |   | 3  |     |    |    | 2  |    
|                                                | Cost of services                             |                          |                 | 44  |                                  |    |                                 | 37 |        |    |                | 34 |      |    |               | 13   |    |    |   | 35 |     |    |    | 34 |    
|                                                | Cost of development and other services       |                          |                 |    |                                  |    |                                 |   |        |    |                |   |      |    |               | (100 | )  |    |   |   |     |    |    | 1  |    
|                                                | Sales and marketing expense                  |                          |                 | 32  |                                  |    |                                 | 27 |        |    |                | 27 |      |    |               | 11   |    |    |   | 26 |     |    |    | 26 |    
|                                                | Product development expense                  |                          |                 | 54  |                                  |    |                                 | 20 |        |    |                | 18 |      |    |               | 17   |    |    |   | 19 |     |    |    | 18 |    
|                                                | General and administrative expense           |                          |                 | 127 |                                  |    |                                 | 10 |        |    |                | 6  |      |    |               | 60   |    |    |   | 9  |     |    |    | 6  |    
|                                                | Restructuring, acquisition and other charges |                          |                 | 100 |                                  |    |                                 | 4  |        |    |                |   |      |    |               | 223  |    |    |   | 2  |     |    |    | 1  |    
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|                                                |                                              | Total costs and expenses |                 |     | 55                               |    |                                 |    | 101    |    |                |    | 87   |    |               |      | 18 |    |   |    | 94  |    |    |    | 88  |   
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Operating income (loss)                         |                                              |                          | (115            | )   |                                  |    | (1                              | )  |        |    | 13             |    |      |    | (47           | )    |    |    | 6 |    |     |    | 12 |   
|Other income, net                               |                                              |                          | 35              |     |                                  |    | 1                               |    |        |    | 1              |    |      |    | (10           | )    |    |    | 1 |    |     |    | 2  |   
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Income (loss) before provision for income taxes |                                              |                          | (103            | )   |                                  |    |                                |    |        |    | 14             |    |      |    | (43           | )    |    |    | 7 |    |     |    | 14 |   
|Provision for income taxes                      |                                              |                          | (82             | )   |                                  |    | 1                               |    |        |    | 5              |    |      |    | (39           | )    |    |    | 3 |    |     |    | 5  |   
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Income (loss) before minority interest          |                                              |                          | (114            | )   |                                  |    | (1                              | )  |        |    | 9              |    |      |    | (45           | )    |    |    | 4 |    |     |    | 9  |   
|Minority interest in net income                 |                                              |                          | 100             |     |                                  |    |                                |    |        |    |               |    |      |    | 100           |      |    |    |  |    |     |    |   |   
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Net income (loss)                               |                                              |                          | (117            | )%  |                                  |    | (1                              | )% |        |    | 9              | %  |      |    | (46           | )%   |    |    | 4 | %  |     |    | 9  | % 
|                                                |                                              |                          |                 |     |                                  |    |                                 |    |        |    |                |    |      |    |               |      |    |    |   |    |     |    |    |   
|Diluted income (loss) per share                 |                                              |                          | (114            | )%  |                                  |    |                                 |    |        |    |                |    |      |    | (49           | )%   |    |    |   |    |     |    |    |   

18



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##### 



The fluctuations in the operating results of the Company and its segments
for the three and nine-month periods ended September 30, 2003 as compared to
the three and nine-month periods ended September 30, 2002 reflect the
acquisition of J. D. Edwards. On July 17, 2003, we acquired approximately 85%
of the outstanding stock of J.D. Edwards. On
August 29, 2003, the Company acquired the remaining shares of J.D. Edwards,
completing the merger with J.D. Edwards. Accordingly, J.D. Edwards results
have been included in the Companys results since July 18, 2003, and minority
interest in earnings has been recorded from July 18, 2003 through August 29,
2003.

Net income decreased $52.0 million or 117% to a net loss of $7.3 million
for the third quarter of 2003 from net income of $44.6 million for the third
quarter of 2002. The diluted loss per share was $0.02 in the third quarter of
2003, compared to diluted income per share of $0.14 in the third quarter of
2002.

For the nine months ended September 30, 2003, net income decreased $57.5
million or 46% to $67.7 million from $125.2 million for the nine months ended
September 30, 2002. For the nine months ended September 30, 2003, diluted
income per share decreased to $0.20 from $0.39 for the nine months ended
September 30, 2002.

Net loss for the quarter ended September 30, 2003 includes restructuring,
acquisition and other charges totaling $23.3 million ($20.0 million after tax)
related to our acquisition of J.D. Edwards. These costs primarily result from
in-process research and development (IPR&D) charges, employee related
termination costs and contract termination costs. Net income for the nine
months ended September 30, 2003 also includes restructuring charges totaling
$13.8 million ($8.5 million after-tax) resulting from headcount reductions
within various worldwide administrative and support functions and the closure
of an underutilized office facility. Refer to Restructuring, Acquisition and
Other Charges below. Additionally, net income (loss) for the quarter and the
nine months ended September 30, 2003 includes costs associated with the
Companys response to the Oracle Corporation (Oracle) offer of $17.9 million
($11.0 million after tax) and $31.4 million ($19.3 million after tax),
respectively.

Net income for the nine months ended September 30, 2002 includes a first
quarter charge of $2.8 million ($1.7 million after-tax) for IPR&D related to
the Annuncio Software, Inc. (Annuncio) business combination and a second
quarter IPR&D charge of $8.7 million (no tax impact) related to the acquisition
of Momentum Business Applications, Inc. (Momentum).

Revenues

Our software products are generally licensed to end-user customers under
non-exclusive, perpetual license agreements. Revenue from license fees
increased by 32% to $160.5 million in the third quarter of 2003 from $121.6
million in the third quarter of 2002. The revenue increase is attributable to
our acquisition of J.D. Edwards in July 2003. Revenue from license fees
decreased by 9% to $353.0 million during the nine months ended September 30,
2003 from $386.8 million during the nine months ended September 30, 2002. The
decrease in license revenue reflects a slowdown in information
technology spending resulting
from the global economic downturn during the first half of the year, partially
offset by an increase in license fees due to the acquisition of J.D. Edwards in
July 2003.

Our service revenue consists of software maintenance revenue and
professional services revenue (consulting fees, customer training fees and
miscellaneous fees). Maintenance revenue was $234.6 million during the third
quarter of 2003 compared to $176.9 million during the third quarter of 2002.
The $57.7 million increase in maintenance revenue is primarily a result of the
continuing addition of new customers to our installed base combined with a high
renewal rate by existing customers and an increase in maintenance revenue
attributable to the acquisition of J.D. Edwards in July 2003. Professional
services revenue was $229.1 million during the third quarter of 2003 compared
to $172.7 million during the third quarter of 2002. The $56.4 million increase
in professional services revenue is primarily attributable to the acquisition
of J.D. Edwards in July 2003. For the nine months ended September 30, 2003,
maintenance revenue increased by 25% to $640.1 million from $512.8 million for
the nine months ended September 30, 2002. The increase in maintenance revenue
is primarily a result of the continuing addition of new customers to our
installed base combined with a high renewal rate by existing customers and an
increase in maintenance revenue attributable to the acquisition of J.D. Edwards
in July 2003. For the nine months ended September 30, 2003, professional
services revenue increased by 11% to $588.7 million from $529.6 million for the
nine months ended September 30, 2002. The increase in professional services
revenue is primarily attributable to the acquisition of J.D. Edwards in July
2003. As a result of our acquisition of J. D. Edwards, the deferred revenues
on J.D. Edwards balance sheet at the closing of the merger, which predominately
consists of maintenance revenue, has been reduced to fair value. The impact of
this fair value reduction will reduce the amount of deferred maintenance revenue
available to be recognized into earnings as a result of the J. D.
Edwards acquisition through the end of 2004. We anticipate that
maintenance revenue will increase in 2004 as customers renew their
maintenance contracts. (1)



---

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

19



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##### 



Development and other service revenue recognized in 2002 consisted of
revenue generated pursuant to a development agreement with Momentum
Development Corporation (Momentum).
On April 9, 2002, we acquired Momentum. As a result of this acquisition, no development
and other service revenue was subsequently generated. Revenue from development
and other services was zero for the nine months ended September 30, 2003 as
compared to $7.5 million for the same period in 2002. Cost of development and
other services was zero for the nine months ended September 30, 2003 as
compared to $6.8 million during the nine months ended September 30, 2002. Refer
to Business Combinations in our Annual Report on Form 10-K for the year ended
December 31, 2002 for further discussion about Momentum and the acquisition of
Momentum. We do not expect to have any further Development and other services
revenue or related costs.(1)

Revenues by Segment

At
September 30, 2003 the Company is 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.

Revenue
from the North America segment during the third quarter of 2003
increased by 26% to $449.4 million, or 72% of total revenues,
from $356.7 million, or 76% of total revenues during the third
quarter of 2002. The increase in revenue during the quarter ended
September 30, 2003 is primarily attributable to the inclusion of
J.D. Edwards in July of 2003, which resulted in increases in license and
service revenue. Revenues from the North America segment during the
nine months ended September 30, 2003 increased by 7% to
$1,167.5 million, or 74% of total revenues, from
$1,088.9 million, or 76% of total revenues during the nine
months ended September 30, 2002. The increase in revenue during
the year-to-date period ended September 30, 2003 primarily
reflects the increase in revenue during the third quarter of 2003,
partially offset by the impact of the slowdown in information
technology spending during the first half of the year.

Revenues
from the International segment during the third quarter of 2003
increased by 53% to $174.7 million, or 28% of total revenues,
from $114.5 million, or 24% of total revenue in the third
quarter of 2002. Revenues from the International segment increased by
22% to $414.2 million, or 26% of total revenues, during the nine
months ended September 30, 2003 from $340.3 million, or 24%
of total revenues, during the nine months ended September 30,
2002. The increase in revenue during the quarter and year-to-date
periods ended September 30, 2003 is primarily attributable to the
inclusion of J.D. Edwards in July of 2003, which resulted in
increases in service and license revenue.

Revenues
from the Europe/Middle-East/Africa region represented 18% and 14% of
total revenues, respectively, for the three months ended
September 30, 2003 and 2002. Revenues from the
Europe/Middle-East/Africa region represented 15% and 14% of total
revenues, respectively, for the nine month periods ended
September 30, 2003 and 2002. No other international region had
revenues equal to or greater than 10% of total revenues for the three
and nine months ended September 30, 2003 or 2002. Revenues
originating in each individual foreign country were less than 10% of
total revenues for each of the three and nine months ended
September 30, 2003 and 2002.

Costs and Expenses

Our software products are based on a combination of internally developed
and acquired technology, as well as bundled third party technology and
products. Cost of license fees consists principally of royalties, license fees
for certain third party software products, amortization of capitalized software
costs and product warranty costs. Cost of license fees increased to $21.9
million in the third quarter of 2003 from $11.5 million in the third quarter of
2002 representing 14% and 9% of license revenue respectively.
During the nine months ended September 30, 2003 and 2002, cost of license fees
increased to $40.2 million from $33.1 million, representing 11% and 9% of
license revenue in each of those nine month periods. The increase in the cost
of license fees for the three months ended September 30, 2003 is primarily a
result of amortization of capitalized software related to the J.D. Edwards
acquisition in the amount of $8.7 million, and $2.8 million due to the
inclusion of J.D. Edwards subsequent to July 2003, partially offset by a $1.1
million decrease in royalties due to a change in the mix of royalty bearing
license contracts. The increase in the cost of license fees for the nine months
ended September 30, 2003 is primarily a result of amortization of capitalized
software related to the J.D. Edwards acquisition in the amount of $8.7 million,
$2.8 due to the inclusion of J.D. Edwards subsequent to its acquisition in July
2003, and $2.3 million of amortization of capitalized software primarily from
the Momentum acquisition, partially offset by a $4.0 million decrease in
royalties due to a change in the mix of royalty bearing license contracts.

Cost of services consists primarily of employee costs and the related
infrastructure costs incurred in providing consulting services,
post-installation support and training. Cost of services increased to $230.2
million in the third quarter of 2003 from $159.4 million in the third quarter
of 2002, representing 50% and 46% of service revenues in each of those
quarters. The inclusion of J.D. Edwards since its acquisition in July 2003
accounted for $61.1 million of the increase in cost of services. The remaining
increase is primarily due to amortization of intangibles of
$10.9 million related to
maintenance agreements and related relationships and consulting contracts
acquired from J.D. Edwards. For the nine months ended September 30,
2003 cost of services increased to $560.4 million from $495.1 million during
the nine months ended September 30, 2002, representing 46% and 47% of service
revenues, respectively. The increase in cost of services
for the nine months ended September 30, 2003 is primarily due to the inclusion
of $61.1 million relating to J.D. Edwards subsequent to July 2003 and
amortization of intangibles related to maintenance agreements and consulting
contracts acquired from J.D. Edwards of $10.9 million.

Sales and marketing expenses increased to $168.6 million in the third
quarter of 2003 from $127.6 million in the third quarter of 2002, representing
27% of total revenues in each of those quarters. The increase in sales and
marketing expenses for the quarter is primarily due to the inclusion of J.D.
Edwards subsequent to its acquisition in July 2003 in the amount of $48.6
million and amortization of intangibles for customer contracts and related
relationships related to the acquisition of $2.8 million, and $2.6 million in
increased marketing costs associated with our response to the Oracle Offer,
partially offset by a $2.6 million decrease in salaries due to decreased
headcount from the restructuring that occurred during the second quarter of
2003, and a $2.1 million decrease in facilities expense and information systems
expense. Sales and marketing expenses increased to $419.6 million for the nine
months ended September 30, 2003 from $378.4 million for the nine months ended
September 30, 2002, representing 26% of total revenues in each of the nine
month periods. The increase in sales and marketing expenses for the nine
months is primarily due to the inclusion of J.D. Edwards subsequent to its
acquisition in July 2003 in the amount of $48.6 million and amortization of
intangibles related to the acquisition of $2.8 million, as well as $4.9 million
in increased marketing costs associated with our response to the Oracle Offer,
partially offset by a $6.5 million decrease in salaries and benefits due to
decreased headcount from the second quarter 2003 restructuring, a $4.5 million
decrease in commissions due to decreased software license sales, and a $3.5
million decrease in rent expense and information systems expense.

Product
development expenses consist of costs related primarily to our
software development and the associated infrastructure costs required to fund
product development initiatives. Product development expenses increased to
$127.7 million in the third quarter of 2003 from $83.0 million in the third
quarter of 2002, representing 20% and 18% of total revenues in each of those
quarters. The



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|-----------------------------

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increase in product development expenses is primarily attributable to the
inclusion of J.D. Edwards subsequent to its acquisition in July 2003 in the
amount of $32.2 million as well as a $5.4 million increase in employee bonuses,
$4.0 million increase in salaries expense due to increased headcount in 2003,
and a $2.2 million increase in amortization of patent intangibles related to
the acquisition. Product development expenses increased to $296.1 million
during the nine months ended September 30, 2003 from $252.9 million for the
nine months ended September 30, 2002, representing 19% and 18% of total
revenues, respectively. The increase in product development
expenses is primarily attributable to the inclusion of J.D. Edwards subsequent
to its acquisition in July 2003 in the amount of $32.2 million, and
amortization of patent intangibles related to the J.D. Edwards acquisition of $2.2 million,
a $5.9 million increase in development activities as developers were redeployed
from working on Momentum projects in the prior year, and a $4.8 million
increase in salaries and benefits expense due to increased headcount in 2003.
Our focus is to continue to extend our software offerings by delivering
enhanced functionality and to further develop new applications in our
integrated application suites: Human Capital Management, Financial Management
Solutions, Customer Relationship Management and Supply Chain Management.(1)

General and administrative expenses increased to $61.9 million during the
third quarter of 2003 from $27.2 million during the third quarter of 2002,
representing 10% and 6% of total revenues, respectively. The
increase is primarily attributable to the inclusion of J.D. Edwards general and
administrative expenses in the amount of $15.8 million subsequent to the
acquisition in July 2003 as well as $12.4 million in investment banking, legal
and other expenses incurred in the third quarter of 2003 related to our
response to the Oracle Offer and $3.2 million in integration fees, paid to third
parties, related to the J.D. Edwards acquisition. General and administrative
expenses increased to $135.9 million from $84.9 million for the nine months
ended September 30, 2003, representing 9% and 6% of total
revenues, respectively. The increase for the nine month period is primarily attributable
to $23.6 million in expenses incurred in the second and third quarter of 2003
related to our response to the Oracle Offer, the inclusion of J.D. Edwards
general and administrative expenses in the amount of $15.8 million subsequent
to the acquisition in July 2003, a $4.6 million increase in salaries and
benefits primarily relating to the redeployment of internal personnel, and $3.2
million in integration fees paid to third parties relating to the J.D. Edwards
acquisition.

Restructuring, Acquisition and Other Charges

During the third quarter of 2003, we recorded restructuring and
acquisition charges totaling $23.3 million that relate to the J.D. Edwards
acquisition which are included in Restructuring acquisition and other
charges. This consisted of $8.8 million in restructuring charges and a$14.5
million IPR&D write-off (see Business Combinations below). Restructuring
charges consisted $5.6 million for employee severance, $2.2 million for
acquisition related employee retention, and $1.0 million for contract
terminations. During the second quarter of 2003, we recorded pretax
restructuring charges of $13.8 million, which consisted of $4.6 million for
employee severance, $7.5 million for the fair value of lease obligations
associated with the closure of an office facility and $1.7 million for the
impairment of related leasehold improvements. Approximately $19.6 million of
the above restructuring charges are cash charges, which are expected to be
funded through operating cash flow. During the nine months ended September 30,
2002, we incurred a first quarter charge of $2.8 million related to the
write-off of in-process research and development costs associated with our
acquisition of Annuncio and a second quarter charge of $8.7 million related to
the write-off of in-process research and development costs related to the
acquisition of Momentum.

Restructuring, acquisition and other charges recorded in the third quarter
of 2003 are based on our restructuring plans that have been committed to by
management. The Company expects to record additional
Restructuring, acquisition and other charges of
approximately $4 to $6 million for employee related costs and
facility obligations during the fourth quarter of 2003.(1) Any changes to the estimates of executing the restructuring plans
will be reflected in our future results of operations as appropriate.(1)

Other Income, Net

Other income, net, which primarily includes interest income, increased to
$7.6 million in the third quarter of 2003 from $5.6 million in the third
quarter of 2002, and decreased to $19.2 million in the nine months ended
September 30, 2003 from $21.3 million during the nine months ended September
30, 2002. The increase for the third quarter of 2003 is primarily the result of
the inclusion of $1.6 million of other income and expense acquired in the J.D.
Edwards acquisition. The decrease for the nine month period ended September
30, 2003, is primarily due to a $1.6 million decrease in investment income due
to decrease in yields from prior year and the impairment of certain
investments, $4.7 million in foreign currency exchange losses primarily due to
the weakening of various Latin American currencies in the prior year and the
$1.4 million loss on the buyout of interest rate swaps in the second quarter of
2003, partially offset by the inclusion of $1.6 million of other income and
expense related to the J.D. Edwards acquisition, proceeds from the



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

21



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sale of an investment in marketable securities in the amount of $1.8
million and the exclusion of $1.8 million of interest expense on convertible
bonds which matured in the third quarter of 2002.

Provision for Income Taxes

Our income tax provision decreased to $4.2 million in the third quarter of
2003 from $23.5 million in the third quarter of 2002 and decreased to $42.9
million in the nine months ended September 30, 2003 from $70.3 million for the
same period in 2002. Our effective tax rate was 38.4% and 36.0% for the nine
months ended September 30, 2003 and 2002, respectively. Exclusive of
restructuring charges in the second quarter of 2003 and restructuring charges
and in-process research and development charges in the third quarter of 2003
and in-process research and development charges in the first and second
quarters of 2002, the effective tax rates for the nine months ended September
30, 2003 and 2002 were 34.6% and 34.5%, respectively. The net deferred tax
assets at September 30, 2003 were $79.5 million. In accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, the valuation of these net deferred tax assets is based upon an estimate
of both the timing and amount of future taxable income. Future taxable income
may be derived from future operations, subsequent reversals of deferred tax
liabilities and other sources.(1)

Business Combinations

Pursuant
to an Amended and Restated Agreement and Plan of Merger with J.D.
Edwards dated
June 16, 2003, the Company acquired approximately 85% of the outstanding stock
of J.D. Edwards on July 18, 2003 pursuant to an exchange offer and the
remaining shares on August 29, 2003 pursuant to a merger. J.D. Edwards results
have been included in the Companys results since July 18, 2003, and minority
interest in net income has been recorded from July 18, 2003 through August 29,
2003.

J.D. Edwards offers enterprise software as well as
consulting, education and support services. The Companys board of directors
approved the offer and the merger and determined that the offer and the merger
would provide the Company with increased breadth and depth across the Companys
products, market segments and industry coverage. The Companys board
determined that J.D. Edwards expertise in manufacturing and distribution
applications would strengthen the Companys enterprise application suite. In
addition, the board determined that J.D. Edwards mid-market focused
applications and AS/400 based solutions would be additive to the Companys
Internet-based enterprise application suite.

In the exchange offer, holders of J.D. Edwards common stock were entitled
to make an election to tender their shares for cash or shares of PeopleSoft
stock and such holders were entitled to receive cash, stock, or a combination
of cash and stock, in each case having a value, on a per share basis of $7.05
plus 0.43 of a share of the Companys common stock, allocated by prorating cash
and shares available in the exchange offer among the elections made by the
holders. At the completion
of the acquisition, a total of 124,108,566 shares of J.D. Edwards common stock
were tendered and accepted for exchange by PeopleSoft.

The Company exchanged options held by J.D. Edwards employees with
PeopleSoft options at a rate of 0.43 PeopleSoft options per J.D. Edwards
option. Each exchanged PeopleSoft option retained the same vesting
characteristics as the J.D. Edwards option it replaced and each J.D. Edwards
option holder will receive $7.05 per option upon exercise.

The
aggregate purchase price was approximately $2 billion, which
consisted of approximately $875 million in cash, $962 million in PeopleSoft
common stock and options, $88.5 million in restructuring costs (see footnote 6)
and $27.5 million in deal costs and other incurred liabilities, which primarily
consist of fees paid for legal, accounting and financial advisory services. A
total of 53,312,015 PeopleSoft shares were issued in the transaction. The value
of the stock issued to J.D. Edwards
shareholders was based upon the average of closing prices of one share of the Companys
common stock during the five trading days ending June 18, 2003, which was $17.22. The fair value
of the Companys stock-based awards to employees was estimated using a
Black-Scholes option pricing model. The fair value of the stock-based awards to
employees was estimated assuming no expected dividends and the following
weighted-average assumptions:

|                         |  |  |        |  
|------------------------ |  |  | ------ | -
|Expected life (in years) |  |  | 1.90   |  
|Expected volatility      |  |  | 0.7468 |  
|Risk free interest rate  |  |  | 1.86   | %



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

22



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The intrinsic value allocated to the unvested J.D. Edwards options assumed in
the exchange was approximately $6.7 million and has been recorded as deferred
compensation in the purchase price allocation. Option holders having options
with strike prices of $7.05 (J.D. Edwards pre-merger price) or less were given
0.43 shares of the Companys common stock plus $7.05 less the exercise price
and any applicable taxes, in order to retire these options. Approximately 5.0
million of the approximately 8.4 million options issued are fully vested.

As a
result of the acquisition of J.D. Edwards, the Company recorded
approximately $88.5 million of restructuring costs in connection
with exiting certain pre-acquisition activities of J.D. Edwards
including severance costs, change in control payments, costs of
vacating duplicate facilities, contract termination costs, and other
costs. Change in control payments are made to employees covered by a
plan maintained by J.D. Edwards and subsequently assumed by
PeopleSoft upon the completion of the merger. That change in control
plan provides for specified severance and other change in
control-related benefits to participants in the plan. The plan
covered 197 senior management employees. Terminated individuals who
will receive severance and change in control payments are primarily
general and administrative, consulting, and sales and marketing
employees. And accordingly, these costs have been recognized as a
liability assumed in the purchase business combination. Future cash
payments related to the restructuring reserves for employee costs are expected to be made through July 2004. Future cash
contract termination payments are expected to be made through August
2007. Future cash payments related to the restructuring reserves for
facilities obligations are expected to be made through January 2008.

In accordance with Statement of Financial Accounting Standards No. 141,
Business Combinations, the Company allocated the purchase price to the
tangible assets, deferred compensation, liabilities and intangible assets acquired, as well as
in-process research and development, based on their estimated fair values. The
excess purchase price over the fair values was recorded as goodwill. The fair
value assigned to intangible assets acquired was based on estimates and
assumptions determined by management. The assignment of goodwill to the
Companys reportable segments for this acquisition has not yet been completed.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
goodwill and purchased intangibles with indefinite lives acquired after June
30, 2001 are not amortized but will be reviewed periodically for impairment.
Purchased intangibles with finite lives are amortized on a straight-line basis
over their respective useful lives. The total purchase price has initially been
allocated as follows (in thousands):

|                                      |                                                 |   |           |           | 
|------------------------------------- | ----------------------------------------------- | - | --------- | --------- | 
|Current assets                        |                                                 | $ | 545,984   |          
|Property and equipment                |                                                 |   | 75,349    |          
|Capitalized software                  |                                                 |   | 226,300   |          
|Goodwill                              |                                                 |   | 940,707   |          
|Intangible assets and other           |                                                 |   | 535,497   |          
|Acquired IPR&D                        |                                                 |   | 14,500    |          
|Deferred
compensation                 |                                                 |   | 6,766     |          
|                                      |                                                 |   |           |          
|                                      | Total
assets acquired and deferred compensation |   |           | 2,345,103 | 
|Current liabilities                   |                                                 |   | (187,729  | )        
|Short-term deferred revenue           |                                                 |   | (69,953   | )        
|Long term deferred revenues and other |                                                 |   | (5,142    | )        
|Long term deferred income taxes       |                                                 |   | (129,289  | )        
|                                      |                                                 |   |           |          
|Total Purchase Price                  |                                                 | $ | 1,952,990 |          
|                                      |                                                 |   |           |          

The
purchase price allocation is preliminary and a final determination of
required purchase accounting adjustments will be made upon the
completion of a final analysis of the total purchase cost primarily
related to estimating involuntary termination and facility related costs.

In performing this preliminary purchase price allocation, the Company
considered, among other factors, its intention for future use of the acquired
assets, analyses of historical financial performance and estimates of future
performance of J.D. Edwards products. The fair value of intangible assets was
primarily based on the income approach. The royalty savings approach and the
cost approach were also utilized when appropriate. The rates utilized to
discount the net cash flows to their present values were based upon the
Companys weighted average cost of capital and range from 12% to 14%. These
discount rates were determined after consideration of the Companys rate of
return on debt capital and equity, the weighted average return on invested
capital and the risk associated with achieving forecasted sales related to the
technology and assets acquired from J.D. Edwards. At September 30, 2003,
identifiable intangible assets purchased in the J. D. Edwards acquisition
consist of the following (in thousands, except for useful life):

|                                                 |  |       |         |              |  |             |        |  |  |           |   | 
|------------------------------------------------ |  | ----- | ------- | ------------ |  | ----------- | ------ |  |  | --------- | - | 
|                                                 |  | Gross |         | Accumulated  |  |             |        | 
|Identifiable Intangible Assets                   |  | Value |         | Amortization |  | Useful Life
|                                                 |  |       |         |              |  |            
|Capitalized
software                             |  | $     | 226,300 |              |  | $           | 8,742  |  |  | 5 years  
|Patented technology                              |  |       | 60,300  |              |  |             | 2,246  |  |  | 5 years  
|Customer contracts and
related relationships     |  |       | 105,600 |              |  |             | 2,839  |  |  | 7 years  
|Maintenance agreements and
related relationships |  |       | 305,500 |              |  |             | 6,554  |  |  | 8.7 years
|Consulting contracts                             |  |       | 5,800   |              |  |             | 4,321  |  |  | 3 months 
|                                                 |  |       |         |              |  |             |        |  |  |           |   | 
|Balance September 30, 2003                       |  | $     | 703,500 |              |  | $           | 24,702 |  |  |           |  | 
|                                                 |  |       |         |              |  |             |        |  |  |           |   | 

23



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|                                           |  |              |         | 
|------------------------------------------ |  | ------------ | ------- | 
|                                           |  | For the Year
|Estimated Amortization Expense             |  | Ended       
|                                           |  |             
|For the year ended 12/31/03                |  | $            | 53,145  | 
|For the year ended 12/31/04                |  |              | 107,677 | 
|For the year ended 12/31/05                |  |              | 107,677 | 
|For the year ended 12/31/06                |  |              | 107,677 | 
|For the year ended 12/31/07
and thereafter |  |              | 327,324 | 
|                                           |  |              |         | 
|                                           |  | $            | 703,500 | 
|                                           |  |              |         | 

In-process research and development (IPR&D) of $14.5 million was
expensed as Restructuring, acquisition and other charges in the accompanying
condensed consolidated statements of operations because the purchased research
and development had no alternative uses and had not reached technological
feasibility. Four in-process research and development projects were identified
relating to the JDE 5 product line. Two of the projects relate to enterprise
resource planning software and have a value of approximately $8.9 million. The
third project relates to customer relationship management software and has a
value of approximately $3.2 million. The fourth project relates
to technology designed to
enhance the functionality of enterprise resource planning software and has a
value of approximately $2.4 million. The value assigned to IPR&D was
determined utilizing the income approach by segregating cash flow projections
related to in process projects. The stage of completion of each in process
project was estimated to determine the discount rate to be applied to the
valuation of the in process technology. Based upon the level of completion and
the risk associated with in process technology, a discount rate of 25% was
deemed appropriate for valuing IPR&D.

Oracles Unsolicited Tender Offer for PeopleSofts Common Stock

On June 6, 2003, Oracle announced that it intended to commence an
unsolicited cash tender offer to purchase all of the outstanding shares of
PeopleSoft for $16.00 per share, or approximately $5.1 billion in the aggregate
(the Oracle Offer). The tender offer was formally commenced June 9, 2003, and
on June 18, 2003 Oracle amended the offer to increase the purchase price $16.00
to $19.50 per share.

As more
fully described in the Companys amended Schedule 14D-9,
filed with the Securities and Exchange Commission (SEC), the Board
of Directors of the Company has determined that the Oracle Offer is not in the
best interests of the stockholders and unanimously recommended that the
stockholders reject the Oracle Offer and not tender their shares to Oracle for
purchase. The expiration of the Oracle Offer is currently
December 31, 2003.

See
Note 10, Commitments and Contingencies to the Consolidated
Financial Statements for information about
litigation instituted by the Company and others related to the Oracle Offer.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP)
requires us to utilize accounting policies and make estimates and assumptions
that affect our reported results. We believe our accounting policies and
estimates related to revenue recognition, business combinations, capitalized
software, allowance for doubtful accounts, product and service warranty reserve
and deferred tax asset valuation allowances represent our critical accounting
policies and estimates. Despite the Companys best effort to make good faith
estimates and assumptions, actual results may differ.

Revenue Recognition

We recognize revenue in accordance with the Securities and Exchange
Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, the American Institute of Certified Public Accountants
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect
to Certain Transactions, and other authoritative accounting literature. We
derive revenues from the following sources: license fee revenue, maintenance
revenue and professional services revenue.

License Fee Revenue.For software license agreements that do not require
significant modifications or customization of the software, we recognize
software license revenue when persuasive evidence of an agreement exists,
delivery of the product has occurred, the license fee is fixed or determinable
and collection is
probable. Our software license agreements generally include multiple
products and services, or elements. Consulting services, if included as an
element of software license agreements, generally

24



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do not involve significant modification or customization of the licensed
software. We use the residual method to recognize revenue when a license
agreement includes one or more elements to be delivered at a future date and
vendor specific evidence of the fair value of all undelivered elements exists.
The fair value of the undelivered elements is determined based on the
historical evidence of stand-alone sales of these elements to third parties.
Under the residual method, the fair value of the undelivered elements
is deferred and the remaining portion of the arrangement fee is recognized as
revenue. If evidence of the fair value of one or more undelivered elements does
not exist, the total revenue is deferred and recognized when delivery of those
elements occurs or when fair value can be established. If the license fee due
from the customer is not fixed or determinable, revenue is recognized as
payment becomes due, assuming all other revenue recognition criteria have been
met. We consider arrangements with extended payment terms not to be fixed or
determinable. Revenue associated with reseller arrangements is recognized when
we receive persuasive evidence that the reseller has sold the products to an
end user customer. Acceptance provisions included in a software license
agreement generally grant customers a right of refund or replacement only if
the licensed software does not perform in accordance with its published
specifications. Based on our history, the likelihood of non-acceptance in these
situations is remote, and we recognize revenue when all other criteria of
revenue recognition are met. If the likelihood of non-acceptance is determined
to be other than remote, revenue is recognized upon the earlier of receipt of
written acceptance or when the acceptance period has lapsed.

In
response to Oracles public statements about its intent to
discontinue the Companys products, and to minimize a potential loss
of business during the Oracle Offer, the Company implemented a
customer assurance program. This program incorporates a contingent
change in control provision to its standard perpetual licensing
arrangement. That provision provides customers purchasing application licenses with
financial protection in the event that an acquirer discontinues or
reduces (or with respect to certain contracts, announces the
intention to discontinue or reduce) the licensing, development or
support of PeopleSoft applications within a specified period after an
acquisition, as defined in the program terms. That financial
protection is in the form of a payment generally equal to two to five
times the total arrangement fees. The multiple increases as the arrangement fees
increase and will be generally paid provided the following events occur:



| |  |  | either within one year or two
years from the contract effective date, the Company is acquired or
merged, and the Company is not the acquirer, and                                                                                                                                                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | either within two or four years
from the contract effective date, the acquiring company announces
a) its intention to discontinue, or discontinues support services before
the end of the normal support term as defined by the Companys
standard policies, or b) announces its intention to discontinue
licensing PeopleSoft products to new customers, or c) announces its
intention not to, or does not, provide updates or new releases for supportable
products for a specified period; and
|
| |  |  | the customer requests the payment
in writing by a specified date and the customer has timely paid for
support services in accordance with the terms of the customers
agreement with the Company.                                                                                                                                                                                                                                                                                                

The
terms available under certain contracts also included additional
payment triggers after an acquisition, including:

| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) a reduction or the announced intention to
reduce the amount of money spent to develop updates for the
supportable modules or provide support services below the level spent
by the Company in the 12 months preceding the acquisition, or
|
| | b) a reduction or the announced intention to
reduce or limit the ability of the supportable modules to integrate
or operate with third party products such as databases, software,
products, and technologies.                              

Customers
retain rights to the licensed products whether or not the customer
assurance programs payments are triggered. No customer is entitled
to a refund of arrangement fees paid under the customers contract
with the Company, but the customer would be entitled to a payment
under the customer assurance program if all of the conditions stated
above are met.

The
customer assurance program has no financial statement impact on
PeopleSoft. A contingent liability would only be recognized in the
financial statements of the Company or its acquirer upon or after the
consummation of a business combination provided all the events listed
above occurred. As of September 30, 2003, the maximum potential
amount of future payments which may be required to be made under the customer
assurance program was approximately $807 million.

The
customer assurance program has expired. The Company is currently
considering whether and on what terms it will extend the customer
assurance program.

Maintenance Revenue.Maintenance revenue is recognized ratably over the
term of the maintenance agreement, typically one year.

Professional Services Revenue.Professional services revenue primarily
consists of consulting and customer training revenues, which are usually
charged on a time and materials basis and are recognized as the services are
performed. Revenue from certain fixed price contracts is recognized on a
percentage of completion basis, which involves the use of estimates. If we do
not have a sufficient basis to measure the progress towards completion, revenue
is recognized when the project is completed or when we receive final acceptance
from the customer.

25



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Business Combinations

We are required to allocate the purchase price of acquired companies to
the tangible and intangible assets acquired, liabilities assumed, as well as
IPR&D based on their estimated fair values. We engage independent third-party
appraisal firms to assist us in determining the fair values of assets acquired
and liabilities assumed. Such a valuation requires management to make
significant estimates and assumptions, especially with respect to intangible
assets.

Critical estimates in valuing certain of the intangible assets include but
are not limited to: future expected cash flows from license sales, maintenance
agreements, consulting contracts, customer contracts, and acquired developed
technologies and patents; expected costs to develop the IPR&D into commercially
viable products and estimating cash flows from the projects when completed; the
acquired companys brand awareness and market position, as well as assumptions
about the period of time the acquired brand will continue to be used in the
combined companys product portfolio; and discount rates. Managements
estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable. Assumptions may be
incomplete or inaccurate, and unanticipated events and circumstances may occur.

Other estimates associated with the accounting for these acquisitions may
change as additional information becomes available regarding the assets
acquired and liabilities assumed. In particular, restructuring liabilities that
have resulted from the J.D. Edwards purchase are subject to change as
management completes its assessment of the pre-merger operations and begins to
execute the approved plan.

Capitalized Software

We account for the development cost of software intended for sale in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS
86). SFAS 86 requires product development costs to be charged to expense as
incurred until technological feasibility is attained. Technological feasibility
is attained when our software has completed internal testing and has been
determined viable for its intended use. The time between the attainment of
technological feasibility and completion of software development has been short
with immaterial amounts of development costs incurred during this period.
Accordingly, we did not capitalize any significant development costs in the
nine month periods ended September 30, 2003 and 2002. We capitalize software
acquired through technology purchases and business combinations if the related
software under development has reached technological feasibility or if there
are alternative future uses for the software. We evaluate the recoverability of
capitalized software based on estimated future gross revenues reduced by the
estimated cost of completing the products and of performing maintenance and
customer support. If our gross revenues were to be significantly less than our
estimates, the net realizable value of our capitalized software intended for
sale would be impaired.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts at an amount we estimate to
be sufficient to provide adequate protection against losses resulting from
collecting less than full payment on our receivables. We record an allowance
for receivables based on a percentage of revenues. Individual overdue accounts
are reviewed, and an additional allowance is recorded when determined necessary
to state receivables at realizable value. In judging the adequacy of the
allowance for doubtful accounts, we consider multiple factors including
historical bad debt experience, the general economic environment, and the aging
of our receivables. A considerable amount of judgment is required when we
assess the realization of receivables, including assessing the probability of
collection and the current creditworthiness of each customer. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, an additional provision for doubtful accounts
may be required.

Product and Service Warranty Reserve

We provide for the estimated cost of product and service warranties based
on specific warranty claims, provided that it is probable that a liability
exists, and provided the amount can be reasonably estimated. Warranty expense
is equal to the costs to repair or otherwise satisfy the claim. As settlement
negotiations proceed, additional information becomes available which may result
in changes in the estimated liability. If claims are settled for amounts
differing from our estimates, or if the estimated value of warranty claims were
to increase or decrease, revisions to the estimated warranty liability may be
required and the warranty expense may change from current levels.

Deferred Tax Asset Valuation Allowance

26



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We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. We assess the
likelihood that our net deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is not likely, we
establish a valuation allowance against those deferred tax assets. We consider
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the amount of the valuation allowance. However, adjustments could
be required in the future if we determine that the amount to be realized is
greater or less than the amount we have recorded. We have established valuation
allowances for net operating losses incurred in foreign jurisdictions and other
foreign tax benefits as well as on operating loss carry-forwards in state
jurisdictions of acquired companies.

Liquidity and Capital Resources

At September 30, 2003, we had $595.3 million in cash and cash equivalents
and $972.0 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
securities of corporations and municipalities. At September 30, 2003, working
capital was $950 million. We believe that the combination of cash and cash
equivalents, short-term investment balances and potential cash flow from
operations will be sufficient, at least through the next twelve months, to
satisfy our cash requirements.(1)

Cash provided by operating activities increased $73.7 million to $311.9
million during the nine months ended September 30, 2003 from $238.2 million
during the same period in 2002. The increase was primarily due to an increase
associated with fluctuations in the deferred revenue and accounts receivable
balances and an increase in depreciation and amortization relating to the J.D.
Edwards acquisition, partially offset by lower net income and a decrease in the
fluctuation of income taxes primarily resulting from changes in temporary
differences for the nine months ended September 30, 2003 compared to the same
period in 2002.

Cash used in investing activities decreased $274.2 million to $131.4
million during the nine months ended September 30, 2003 from $405.6 million
during the same period in 2002. The decrease was primarily attributable to an
increase in net sales of investments of $832.4 million, partially offset by the
acquisition of J.D. Edwards for $519.9 million and greater purchases of
property and equipment, largely relating to exercising options under synthetic
lease agreements for $175.0 million in 2003 to purchase certain of our
headquarters facilities in Pleasanton, California.

Cash provided by financing activities increased $37.8 million to $77.4
million during the nine months ended September 30, 2003 from $39.6 million
during the nine months ended September 30, 2002. The increase was primarily due
to the retirement of convertible debt in 2002 for $57.0 million, partially
offset by a decrease in proceeds received from the exercise of common stock
options by employees of $18.2 million.

On October 27, 2003, the Company implemented a stock repurchase program in
which up to $350 million of its common stock, par value $0.01 per share, is
eligible to be repurchased by the Company from time to time in the open market or through
privately negotiated purchases or otherwise, depending on market prices and
other conditions. The Companys board of directors believes that the proposed
share repurchases are consistent with its goal of utilizing available cash for
the benefit of its stockholders, in that the reduction in the number of shares
outstanding following the share repurchase will increase the relative
percentage ownership of the Company by those stockholders who retain their
shares, and the reduction in the number of outstanding shares is expected to be
accretive to earnings per share. The Company intends to hold all shares
repurchased by it pursuant to the share repurchase program as treasury stock.
The Company intends to fund all share repurchases from cash surplus and general
corporate funds generated from its operations. As of November 10, 2003 the
Company had repurchased 12 million shares of its common stock for approximately
$253.4 million.

As part
of our business strategy, we may acquire companies or
products from time to time to enhance our product and service lines. These
acquisitions may be paid for with available cash, equity, debt or a combination
of these sources.(1)

Commercial Commitments

On February 27, 2003, we exercised our option under a synthetic lease
agreement to purchase certain of our headquarters facilities located in
Pleasanton, California for $70.0 million and on June 30, 2003, we exercised our
option under a synthetic lease agreement to purchase certain of our
headquarters facilities located in Pleasanton, California for $105.0 million,
prior to the agreements maturity date in September 2003.

The Company acquired four office buildings in Denver, Colorado (the
Denver Campus) as a result of the acquisition of J.D. Edwards (see Note 8
to Condensed Financial Statements). The Denver Campus was constructed on land
originally owned by J.D.



---

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

27



---



##### 



Edwards and is leased under operating leases, which
commenced in 1997 and 1998. The Company has six-year master lease agreements
with a lessor, a wholly owned subsidiary of a bank, which together with a
syndicate of other banks provided financing of $121.2 million for the purchase
and construction costs of the buildings through a combination of debt and
equity. The lease payment obligations are based on a return on the lessors
costs. The Company also has an option to refinance or purchase the leased
properties at its sole discretion during the term of the lease for
approximately $121.2 million, the amount expended by the lessor and syndicate
of banks for purchase and construction costs. In the event that the Company
does not exercise its option to refinance or purchase the leased properties, it
must guarantee the residual value of each building up to approximately 85% of
its original cost. The Company does not believe that it will be called upon to
perform under the residual guarantee to satisfy any financial obligations under
the leases. The Company has evaluated the fair value of the Denver Campus and
determined that at this point it is not probable that the value of the property
at the end of the lease term will be less than the residual value guaranteed by
the Company. The leases terminate between April and November of 2004. The
Company is currently considering alternatives that include a refinancing of the
existing arrangement or a cash purchase.(1)

Recently Issued Accounting Standards

In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses the financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated retirement costs. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 did not have a material effect on the Companys
results of operations or financial condition.

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57, and 107, and rescission of FASB
Interpretation No. 34 (FIN 45). The Interpretation requires that a guarantor
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken by issuing the guarantee. The Interpretation also
requires additional disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees it
has issued. The accounting requirements for the initial recognition of
guarantees are applicable on a prospective basis for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
during the first quarter of fiscal 2003 for all guarantees outstanding,
regardless of when they were issued or modified. The adoption of FIN 45 did not
have a material effect on the Companys consolidated financial position,
results of operations or cash flows.

In December 2002, the FASB issued Statement of Financial Accounting
Standards, Accounting for Stock Based Compensation Transition and
Disclosurean Amendment of SFAS No. 123, or SFAS 148, which amends SFAS No.
123 to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
The transition and annual disclosure provisions of SFAS 148 are effective for
fiscal years ending after December 15, 2002. In addition, SFAS No. 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The interim disclosure provisions are effective for the first interim
period beginning after December 15, 2002 and have been included in these
consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46) that addresses the consolidation of
variable interest entities. The interpretation provides guidance for
determining when a primary beneficiary should consolidate a variable interest
entity, or equivalent structure, that functions to support the activities of
the primary beneficiary. The interpretation is effective after January 31, 2003
for newly created variable interest entities. For variable interest entities
created before February 1, 2003, the interpretation is effective for the period
ending after December 15, 2003. On June 30, 2003, the Company exercised its
option to purchase certain of its headquarters facilities located in
Pleasanton, California for $105.0 million, prior to the maturity of the related
synthetic lease. Had the Company not terminated this synthetic lease prior to
July 1, 2003, it would have been required to consolidate its financial position
and results of operations under the provisions of FIN 46. However, given the
termination of the lease, the provisions of FIN 46 did not apply. The lessor
of the Denver Campus does not meet the definition of a variable interest entity
for our consolidated financial reporting. Accordingly, the Company has
accounted for these leases as operating leases.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity (SFAS 150) that establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 is effective for
financial



---

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

28



---



##### 



instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this statement had no effect on the
Companys consolidated financial position, results of operations or cash flows.

29



---



##### 



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

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

International sales are made mostly from our foreign subsidiaries in their
respective countries and are typically denominated in the local currency of
each country. Our foreign subsidiaries incur most of their expenses in local
currency as well.

Our exposure to foreign exchange rate fluctuations primarily arises from
intercompany transactions. We are also exposed to foreign exchange rate
fluctuations as the financial results of our foreign subsidiaries are
translated into U.S. dollars during consolidation. As exchange rates vary,
these results, when translated, may vary from expectations and may adversely
impact overall expected profitability.

We have a foreign exchange hedging program principally designed to
mitigate the future potential impact due to changes in foreign currency
exchange rates. Forward exchange contracts are primarily used to hedge foreign
currency exposures of the Company as well as the U.S. dollar denominated
exposures of our foreign subsidiaries. We operate in certain countries in Latin
America and Asia Pacific where there are limited forward currency exchange
markets, and thus we also have unhedged exposures in these countries. In
general, our forward foreign exchange contracts have terms of two months or
less, which approximate the expected settlement date of the underlying
exposure. 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.

At September 30, 2003, the Company had the following outstanding forward
foreign exchange contracts to exchange foreign currency for U.S. dollars (in
millions):

|                    |  |          |      |                  |  |                   |          | 
|------------------- |  | -------- | ---- | ---------------- |  | ----------------- | -------- | 
|                    |  |          |      |                  |  | Notional Weighted
|                    |  | Notional |      | Average Exchange
|Foreign Currency    |  | Amount   |      | Rate per US $   
|                    |  |          |      |                 
|British pound       |  | $        | 13.6 |                  |  |                   | 1.62332  | 
|Singapore dollars   |  |          | 6.1  |                  |  |                   | 1.73027  | 
|New Zealand dollars |  |          | 3.1  |                  |  |                   | 1.70608  | 
|Australian dollars  |  |          | 1.6  |                  |  |                   | 0.66469  | 
|Hong Kong dollars   |  |          | 1.0  |                  |  |                   | 7.78533  | 
|Taiwanese dollars   |  |          | 0.9  |                  |  |                   | 33.78800 | 
|Danish krone        |  |          | 0.8  |                  |  |                   | 6.46700  | 
|Swiss francs        |  |          | 0.5  |                  |  |                   | 1.35730  | 
|Swedish krona       |  |          | 0.4  |                  |  |                   | 8.05352  | 
|                    |  |          |      |                  |  |                   |          | 
|                    |  | $        | 28.0 |                  |  |                   |          | 
|                    |  |          |      |                  |  |                   |          | 

At September 30, 2003, the Company had the following outstanding forward
foreign exchange contracts to exchange U.S. dollars for foreign currency (in
millions):

|                   |  |          |      |                  |  |                   |           | 
|------------------ |  | -------- | ---- | ---------------- |  | ----------------- | --------- | 
|                   |  |          |      |                  |  | Notional Weighted
|                   |  | Notional |      | Average Exchange
|Foreign Currency   |  | Amount   |      | Rate per US $   
|                   |  |          |      |                 
|Euros              |  | $        | 20.0 |                  |  |                   | 0.88089   | 
|Mexican peso       |  |          | 10.1 |                  |  |                   | 10.60286  | 
|Canadian dollars   |  |          | 6.4  |                  |  |                   | 1.36726   | 
|Japanese yen       |  |          | 3.8  |                  |  |                   | 117.28634 | 
|South African rand |  |          | 0.9  |                  |  |                   | 7.42697   | 
|                   |  |          |      |                  |  |                   |           | 
|                   |  | $        | 41.2 |                  |  |                   |           | 
|                   |  |          |      |                  |  |                   |           | 

At September 30, 2003, each of these contracts matured within 60 days and
had a book value that approximated fair value. Neither the cost nor the fair
value of these forward foreign exchange contracts was material at September 30,
2003. During the nine months ended September 30, 2003, we recorded net foreign
currency transaction losses of $1.8 million.

30



---



##### 



Interest Rate Risk

Investments In Debt Securities

We invest in a variety of securities, consisting principally of
investments in interest-bearing demand deposit accounts with financial
institutions, tax-exempt money market funds and highly liquid debt securities
of corporations and municipalities. Cash balances in foreign currencies
overseas represent operating balances that are typically invested in short term
time deposits in local operating banks.

We classify debt securities based on maturity dates on the date of
purchase and reevaluate the classification as of each balance sheet date. As of
September 30, 2003 and December 31, 2002, all our investments were classified
as available-for-sale, which are carried at fair value. Fair value is
determined based on quoted market prices, with net unrealized gains and losses
included in Accumulated other comprehensive income net of tax, in the
accompanying condensed consolidated balance sheets.

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

At September 30, 2003, the average maturity of our investment securities
was less than three months and all investment securities had maturities of less
than eighteen months. At September 30, 2003, we invested heavily in tax-exempt
investments, which reduced our weighted average interest rate.

Below is a schedule that shows the maturity profile of our investment
securities held at September 30, 2003 and the related weighted average interest
rates. The weighted average rates include both taxable and tax-exempt
investments (in millions, except weighted average interest rates):

|                               |  |                   |       |             |  |           |      |            |  |       |         |  |  |   |         | 
|------------------------------ |  | ----------------- | ----- | ----------- |  | --------- | ---- | ---------- |  | ----- | ------- |  |  | - | ------- | 
|                               |  | Expected Maturity |       |             |  |           |      |            |  |      
|                               |  |                   |       |             |  |           |      |            |  |      
|                               |  |                   |       |             |  |           |      |            |  | Total |         |  |  |  
|                               |  | 1 Year or         |       | More than 1 |  | Principal |      | Total     
|                               |  | less              |       | year        |  | Amount    |      | Fair Value
|                               |  |                   |       |             |  |           |      |           
|Available-for-sale
investments |  | $                 | 969.4 |             |  | $         | 44.9 |            |  | $     | 1,014.3 |  |  | $ | 1,016.5 | 
|Weighted average
interest rate |  |                   | 1.07  | %           |  |           | 1.23 | %          |  |       |         |  |  |   |        

Interest Rate Swap Transactions

The Company used interest rate swap transactions to manage its exposure to
interest rate changes on its synthetic lease obligations related to certain of
its headquarters facilities located in Pleasanton, California. The swaps had an
aggregate notional principal amount of $175.0 million and matured at various
dates in 2003, consistent with the expiration of the synthetic leases. Under
the swap agreements, the Company received a variable interest rate based on the
three month LIBOR rate and paid a weighted average fixed interest rate of 6.8%.
The swaps were designated under SFAS 133 as hedges against changes in the
amount of future cash flows. In February 2003, the Company exercised its option
under a synthetic lease agreement to purchase certain of its headquarters
facilities located in Pleasanton, California for $70.0 million, and
concurrently swaps with an aggregate notional principal amount of $70.0 million
matured. On June 30, 2003 the Company exercised its option under a synthetic
lease agreement to purchase certain of its headquarters facilities located in
Pleasanton, California for $105.0 million. As a result of this transaction, the
Company terminated its remaining interest rate swap agreements with an
aggregate notional principal amount of $105.0 million resulting in a pretax
charge of $1.4 million to Other income, net. Included in Accumulated other
comprehensive income at March 31, 2003 was a $1.8 million unrealized loss
(after-tax) related to these interest rate swaps. In the second quarter of
2003, $0.9 million (after-tax) was reclassified into earnings by making
scheduled swap payments and $0.9 million (after-tax) was recognized as a
realized loss that was reclassified into earnings upon the termination of the
remaining interest rate swap agreements.

31



---



##### 



ITEM 4  CONTROLS AND PROCEDURES

As of the end of the third quarter ended September 30, 2003, the Company
carried out an evaluation, under the supervision and with the participation of
members of our management, including the Companys Chief Executive Officer
along with the Companys Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures
pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based upon
that evaluation, the Companys Chief Executive Officer and the Companys Chief
Financial Officer have concluded that the Companys disclosure controls and
procedures are effective in alerting them in a timely manner to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys periodic SEC filings.

During the most recent fiscal quarter, there has not occurred any change
in the Companys internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

The Company inherited J.D. Edwards internal controls over financial
reporting upon the closing of the merger with J.D. Edwards. The
Company evaluated the J.D. Edwards internal controls over financial
reporting and concluded that PeopleSofts existing internal controls
over financial reporting are sufficient and no material changes were
required to be made to PeopleSofts internal controls as a result of
the merger.

32



---



##### 



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

We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section describes some, but not
all, of these risks and uncertainties that may adversely affect our business,
financial condition or results of operations. This section should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements and
the accompanying Notes thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in this Quarterly Report
on Form 10-Q and the audited Consolidated Financial Statements and Notes
thereto, and Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in our 2002 Annual Report on Form 10-K.

We may not successfully complete the integration of our and J.D. Edwards
business operations into the Company. In addition, we may not achieve the anticipated benefits
of the merger, which could adversely affect the price of our common stock.

We entered into the merger agreement with J.D. Edwards, and completed the
merger on August 29, 2003, with the expectation that the acquisition would
result in benefits to the combined company. However, these expected benefits
may not be fully realized. The integration of both companies is in progress.
The remaining integration work related to PeopleSofts and J.D. Edwards
operations may be difficult, time consuming and costly, particularly in light
of the technical and complex nature of each companys products. The combined
company must successfully complete its integration of, among other things,
certain product and service offerings, product development, sales and
marketing, administrative and customer service functions, and management
information systems. In addition, we must retain the key management, key
employees, customers, distributors, vendors and other business partners of both
companies in order to achieve certain desired synergies. It is possible that
these integration efforts will not be completed as efficiently as planned or
will distract management from the operations of the combined companys
business.

The challenges remaining in this integration include the following:



| |  |  | managing software development activities to define a combined product
roadmap, ensure timely release of innovative products to market,
successfully provide key integration applications between J.D.
Edwards and the Companys products,
coordinating software development operations in an efficient manner to
ensure timely development of product roadmaps, and release of future
products to market;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | demonstrating to our existing and potential customers that the
business combination will not result in adverse changes in customer
service standards or business focus;                                                                                                                                                                                                                                  
|
| |  |  | obtaining any remaining required consents of suppliers, distributors,
system integrators, customers, licensors, facility owners and other
business partners in connection with the merger;                                                                                                                                                                                                               
|
| |  |  | retaining key alliances on attractive terms with partners and
suppliers;                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | coordinating and integrating sales and marketing efforts to
effectively communicate the capabilities of the combined company, cross
selling products to each others customers, and successfully managing
the combined sales force;                                                                                                                                                                      
|
| |  |  | managing an increased number of employees over large geographic distances;                                                                                                                                                                                                                                                                                                                               
|
| |  |  | creating and effectively implementing uniform standards, controls, procedures, policies and information systems; and                                                                                                                                                                                                                                                                                     
|
| |  |  | retaining or recruiting key personnel.                                                                                                                                                                                                                                                                                                                                                                   

The
execution of these post-merger activities will involve considerable risks and may not be successful. These risks include:



| |  |  | the failure to realize the anticipated synergies from our combination with J.D. Edwards;                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | the potential disruption of the combined companys ongoing business and distraction of its management;               
|
| |  |  | potential delays related to integration of the operations, technology and other components of the two companies;     
|
| |  |  | the impairment of relationships with suppliers, customers and business partners as a result of any integration of new

33



---



##### 





| |   |  | management personnel;                                                                                                                                                      
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the inability to successfully manage the substantially larger and geographically diverse organization;                                                                     
|
| |  |  | greater than anticipated costs and expenses related to restructuring,
including employee severance or relocation costs and costs related to
vacating leased facilities; and
|
| |  |  | potential unknown liabilities associated with J.D. Edwards, the
merger and the combined operations of the two companies.                                                   

The combined company may not successfully complete the integration of the
operations of PeopleSoft and J.D. Edwards in a timely manner, or at all, and
the combined company may not realize the anticipated benefits of the merger to
the extent, or in the timeframe, anticipated, which could significantly harm
our business and have a material adverse effect on the combined company.

Charges to earnings resulting from the acquisition of J.D. Edwards including
the application of the purchase method of accounting, and restructuring and
integration costs may materially adversely affect the market value of our
common stock.

In accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP), the combined company has accounted for the
acquisition using the purchase method of accounting. Accordingly, the combined
company has allocated the total estimated purchase price to J.D. Edwards net
tangible assets, amortizable intangible assets, and in-process research and
development based on their fair values as of the date of completion of the
merger,and recorded the excess of the purchase price over those fair values as
goodwill. The combined companys financial results, including earnings per
share, could continue to be adversely affected by a number of
purchase accounting
adjustments required by U.S. GAAP including the following:



| |  |  | The combined company will incur additional amortization expense over
the remainder of the estimated useful lives of certain of the intangible
assets acquired in connection with the merger.                                                                                                                                                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The value of goodwill may become
impaired and the combined
company may be required to incur material charges relating to the
impairment of those assets.                                                                                                                                                                                                                                                                                                 
|
| |  |  | Deferred revenues on J.D. Edwards balance sheet at the closing of
the merger, which predominately represents maintenance revenue, has been
reduced to fair value in the post acquisition balance sheet. The
impact of this fair value reduction will reduce the amount of
deferred maintenance revenue available to be recognized into earnings
as a result of the J.D. Edwards acquisition for the remaining term of the related
maintenance contracts.
|
| |  |  | The Company will incur charges to income to eliminate certain
PeopleSoft pre-acquisition activities that are duplicative in nature to
assumed J.D. Edwards activities or to reduce cost structure.                                                                                                                                                                                                                                                       

Managements estimates of fair value are based upon assumptions believed
to be reasonable, but which are inherently uncertain and unpredictable.
Assumptions may be incomplete or inaccurate, and unanticipated events and
circumstances may occur, which may adversely affect future financial results.

We expect to continue to incur additional costs associated with combining
the operations of the two companies, which may be substantial. Additional
costs that may be incurred relate to employee redeployment or relocation,
accelerated amortization of deferred equity compensation and
severance payments upon terminating
former J.D. Edwards management personnel, employee retention which could
include salary increases or bonuses, reorganization or closure of facilities,
relocation and disposition of excess equipment, termination of contracts with
third parties that provide redundant or conflicting services and other
integration costs. We expect to account for these costs either as purchase
related adjustments or as expenses that will decrease our net income for the
periods in which those adjustments are made.

These costs may negatively impact earnings, which could have a material
adverse effect on the price of our common stock.

Our stock price may remain volatile.

The trading price of our common stock has fluctuated significantly in the
past. Changes in our business, operations or prospects, ongoing market
assessments of the benefits of the merger, regulatory considerations, general
market and economic conditions, or other factors may affect the price of our
common stock. Many of these factors are beyond our control. The future trading
price of our common stock is likely to be volatile and could be subject to wide
price fluctuations in response to such factors, including:

34



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##### 





| |  |  | the impact of the pending unsolicited Oracle Offer (see below) or any
other proposed acquisition of us;                                                                                                                                                                                                                                                                                                                      
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | actual or anticipated fluctuations in revenues or operating results,
including revenue or results of operations in any quarter failing to
meet the expectations, published or otherwise, of the investment
community;                                                                                                                                                                                                        
|
| |  |  | announcements of technological innovations by us or our competitors;                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | introduction and success of new products or significant customer wins or losses by us or our competitors;                                                                                                                                                                                                                                                                                                                    
|
| |  |  | developments with respect to our intellectual property rights, including patents, or those of our competitors;                                                                                                                                                                                                                                                                                                               
|
| |  |  | changes in recommendations or financial estimates by securities analysts;                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | fluctuations in demand for and sales of our products, which will
depend on, among other things, the uncertainty regarding success of the
merger and operations of the combined company, our customer assurance
programCheck to see if this is a new disclosure. If so, we may need to
delete it. If old, keep., the acceptance of our products in the
marketplace and the general level of spending in the software industry;
|
| |  |  | rumors or dissemination of false and/or misleading information,
particularly through internet chat rooms, instant messaging and other
means;                                                                                                                                                                                                                                                                                 
|
| |  |  | changes in management;                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | proposed and completed acquisitions or other significant transactions by us or our competitors;                                                                                                                                                                                                                                                                                                                              
|
| |  |  | the mix of products and services sold by us;                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | the timing of significant orders received by us;                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | conditions and trends in the software industry, or consolidation
within the technology industry that may impact our customers, partners,
suppliers or competitors;                                                                                                                                                                                                                                                           
|
| |  |  | adoption of new accounting standards, including those affecting the software industry;                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | acts of war or terrorism; and                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | general market conditions.                                                                                                                                                                                                                                                                                                                                                                                                   

Oracle Corporations tender offer to purchase all of our outstanding common
stock is disruptive to our business and threatens to adversely affect the
Companys operations and results.

On June 6, 2003, Oracle announced that it intended to commence a cash
tender offer, referred to as the Oracle Offer, to purchase all of our
outstanding common stock. Oracle has extended the offering period several
times. The Oracle Offer currently expires December 31, 2003. We believe that
the Oracle Offer raises significant antitrust concerns that have resulted in a
lengthy regulatory review process and could result in protracted litigation. On
June 30, 2003, the Department of Justice requested additional information
regarding antitrust matters relating to Oracles proposed acquisition of
PeopleSoft. The delay and uncertainty associated with the continued regulatory
review and the uncertainty regarding the outcome of the Oracle Offer could
have a material adverse effect on our financial condition and operating
results.

Oracles initially stated intentions that were interpreted to reflect its
intent to discontinue the development, sale and support of PeopleSoft products
if the Oracle Offer is successful have adversely impacted and may continue to
adversely impact our ability to attract new customers and have caused and could
continue to cause potential or current customers to defer purchases or to
cancel existing orders. Oracles later statements that it would continue to
sell and support PeopleSoft products for some time have resulted in additional
confusion for our customers. Moreover, as a result of the Oracle Offer, certain
of our suppliers, distributors, and other business partners may seek to change
or terminate their relationships with us. These actions may adversely affect
our financial condition and results of operations.

35



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Additionally, as a consequence of the uncertainty surrounding the
Companys future, our key employees may seek other employment opportunities.
Moreover, the Companys ability to attract and retain new key management,
sales, marketing and technical personnel could be harmed. If key employees
leave as a result of the Oracle Offer, or the Company is unable to attract or
retain qualified personnel, there could be a material adverse effect on the
business and the results of operations for PeopleSoft.

Responding
to the Oracle Offer has been, and may continue to be, a major
distraction for management of PeopleSoft and require the Company to incur
significant costs. Management distraction created by the Oracle Offer may also
adversely impact our ability to successfully complete the integration of J.D.
Edwards with PeopleSoft. This distraction could adversely affect our business
and results of operations.

Litigation related to the J.D. Edwards merger and the Oracle Offer may result
in significant monetary damages or may otherwise negatively impact the business
and operation of PeopleSoft.

At least fifteen stockholder lawsuits have been filed in Delaware and
California state courts against PeopleSoft and certain of our directors and
officers alleging breaches of fiduciary duties in connection with the Oracle
Offer. The California stockholder lawsuits have been stayed and a motion for
preliminary injunction has been filed in one of the Delaware stockholder suits.
A purported class action stockholder lawsuit has also been filed against J.D.
Edwards former directors and officers in Delaware state court alleging
breaches of fiduciary duty. On June 18, 2003, Oracle filed a lawsuit against
PeopleSoft, the members of our board and J.D. Edwards in the Delaware Chancery
Court. The lawsuit alleges breaches of fiduciary duties against us and our
board and seeks to enjoin us from continuing to use a recently announced
customer assurance program. In addition, other potential lawsuits arising out
of the Oracle Offer or the merger could seek rescission of the merger, as well
as monetary damages. Fluctuation in the price of PeopleSoft common stock may
also expose the Company to the risk of securities class-action lawsuits. Any
conclusion of such litigation in a manner adverse to PeopleSoft could have a
material adverse effect on the combined companys businesses, financial
condition and results of operations. In addition, the cost of defending this
litigation, even if resolved favorably, will be substantial. Such litigation
could also substantially divert the attention of management and resources in
general. Furthermore, uncertainties resulting from the initiation and
continuation of any litigation could harm the ability of the combined company
to compete in the marketplace. For a more detailed description of the
litigation related to the merger and the Oracle Offer, see the discussions
under Item 1. Note 10 Commitments and Contingencies
and Part II - Item 1.
Legal Proceedings.

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

Certain provisions of our Certificate of Incorporation and Bylaws could
delay the removal of incumbent directors and could make a merger, tender offer
or proxy contest involving us more difficult. These provisions include
adoption of a Preferred Shares Rights Agreement (Rights Agreement), commonly
known as a poison pill and giving our board the ability to issue preferred
stock and determine the rights and designations of the preferred stock at any
time without stockholder approval. The rights of the holders of our common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of our outstanding voting stock. In addition, the
staggered terms of our board of directors could have the effect of delaying or
deferring a change in control. One of the conditions of the Oracle Offer is the
removal or amendment of our Rights Agreement. To date, our board of directors
has not agreed to such removal or amendment. We are currently involved in
litigation with Oracle and purported stockholders of the Company in which the
plaintiffs seek to redeem the Rights issuable under the Rights Agreement or to
render the Rights Agreement inapplicable to the proposed acquisition of
PeopleSoft by Oracle. In addition, certain provisions of the Delaware General
Corporation Law (DGCL), including Section 203 of the DGCL, may have the effect
of delaying or preventing changes in the control or management of PeopleSoft.
In its current litigation, Oracle also seeks to enjoin our board from taking
any action to enforce Section 203 of the DGCL. We can give no assurances as to
the ultimate outcome of such litigation.

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

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

36



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Our installed customer base has traditionally generated additional new
license, professional service and maintenance revenues. In future periods,
customers may not necessarily license additional products or contract for
additional services or maintenance. Maintenance is generally renewable annually
at a customers option, and there are no mandatory payment obligations or
obligations to license additional software. If our customers decide not to
renew their maintenance agreements or license additional products or contract
for additional services, or if they reduce the scope of the maintenance
agreements, our revenues could decrease and our operating results could be
adversely affected.

If we fail to introduce new or improved products and service offerings, our
results of operations and the financial condition of the business could suffer.

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



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

If we are unable to meet these challenges, our results of operations and
our financial condition may be adversely affected.

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

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

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

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

If competitors offer more favorable pricing, payment or other contractual
terms, warranties, or functionality which we do not currently provide, we may
need to lower prices or offer other favorable terms in order to successfully
compete.

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

37



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



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

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

Our revenue and profitability depend on the overall demand for our
software, professional services and maintenance. Regional and global changes in
the economy, governmental budget deficits and political instability in
geographic areas have resulted in companies, government agencies and
educational institutions reducing their spending for technology projects
generally and delaying or reconsidering potential purchases of our products and
related services. The uncertainty posed by the long-term effects of the war in
the Middle East and other geopolitical issues may impact the purchasing
decisions of current or potential customers. Future declines in demand for our
products and/or services could adversely affect our revenues and operating
results.

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

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

Increased complexity of our software may result in more difficult detection and
correction of errors, delays in the introduction of new products and more
costly performance and warranty claims.

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

Product software errors could subject us to litigation and liability based
on performance and/or warranty claims. Although our agreements contain
provisions designed to limit our exposure to potential liability claims, these
provisions could be invalidated by unfavorable judicial decisions or by
federal, state, local or foreign laws or regulations. If a claim against us
were to be successful, we might be required to incur significant expense and
pay substantial damages. Even if we were to prevail, the accompanying publicity
could adversely impact the demand for our products.

If we lose access to critical third party software or technology, our costs
could increase and the introduction of new products

38



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and product enhancements could be delayed.

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

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

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

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

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

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

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

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

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

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

We currently account for the issuance of stock options under APB Opinion
No. 25, Accounting for Stock Issued to Employees. Certain proposals related
to treating the grant of an employee stock option as an expense are currently
under consideration by accounting standards organizations and governmental
authorities. If such proposals are adopted, the Companys earnings could be

39



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negatively impacted. As a result, we may decide to reduce the number of
stock options granted to employees or to grant options to fewer employees. This
could affect our ability to retain existing employees and attract qualified
candidates, and increase the cash compensation we would have to pay to them.

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

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



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

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

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



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

These factors and other specific accounting requirements for software
revenue recognition, require that we have very precise terms in our license
agreements to allow us to recognize revenue when we initially deliver software
or perform services. Although we have a standard form of license agreement that
meets the criteria for current revenue recognition on delivered elements, we
negotiate and revise these terms and conditions in some transactions. Sometimes
we may license our software or provide service with terms and conditions that
do not permit revenue recognition at the time of delivery or even as work on
the project is completed.

40



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

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

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

Increases in service revenue as a percentage of total revenues may decrease
overall margins.

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

Our intellectual property and proprietary rights may offer only limited
protection.

We consider certain aspects of our internal operations and our software
and documentation to be proprietary, and we primarily rely on a combination of
patent, copyright, trademark and trade secret laws and other measures to
protect our proprietary rights. Patent applications or issued patents, as well
as trademark, copyright, and trade secret rights, may not provide significant
protection or competitive advantage. We also rely on contractual restrictions
in our agreements with customers, employees and others to protect our
intellectual property rights. There can be no assurance that these agreements
will not be breached, that we have adequate remedies for any breach, or that
our patents, copyrights, trademarks or trade secrets will not otherwise become
known. Moreover, the laws of some countries do not protect proprietary
intellectual property rights as effectively as do the laws of the United
States. Protecting and defending our intellectual property rights could be
costly regardless of venue.

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

Third parties may claim that our products infringe their intellectual property
rights, which could result in material costs.

Third parties may assert infringement claims against us more aggressively
in the future, especially in light of recent developments in patent law
expanding the scope of patents on software and business methods. These
assertions, regardless of their validity, could result in costly and
time-consuming litigation, including damage awards, or could require costly
redesign of products or present the need to enter into royalty arrangements
which would decrease margins and could adversely affect the results of
operations. Any such litigation or redesign of products could also negatively
impact customer confidence in our products and result in reduced licensing
revenue.

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

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

41



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

42



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

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

43



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PART II  OTHER INFORMATION

Item 1. Legal Proceedings



| |                                                            
| | -----------------------------------------------------------
| | PeopleSoft Stockholder Actions  Delaware Court of Chancery



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 6, 2003, Felix Ezeir (Case No. 20349-NC), Teresita Fay (Case
No. 20350-NC), Robert Crescente (Case No. 20351-NC), Robert Corwin (Case
No. 20352-NC) and Ernest Hack (Case No. 20353-NC), all of whom purport to
be stockholders of the Company, each filed a putative stockholder class
action suit in the Delaware Court of Chancery against the Company and
several of its officers and directors. The suits allege that defendants
breached their fiduciary duties in connection with the Companys response
to the tender offer purportedly announced by Oracle Corporation on June 6,
2003. Plaintiffs in each of the actions seek injunctive relief and an
accounting. On June 10, 2003, an action was filed in the Delaware Court of
Chancery against these same defendants by Steven Padness (Case No.
20358-NC), making similar allegations and seeking similar relief. On June
12, 2003, an action was filed in the Delaware Court of Chancery against
these same defendants by Thomas Nemes (Case No. 20365-NC), making similar
allegations and seeking similar relief (the Nemes Action). The Nemes
Action was amended on June 18, 2003, to include allegations and seeking
relief similar to those in the above-referenced actions.
|
| | On June 25, 2003, on an application filed in the Nemes Action, the
Court consolidated the actions listed above under a single caption and
case number: In re PeopleSoft, Inc. Shareholder Litigation, Consol. C.A.
No. 20365-NC. Defendants filed their Answer on June 25, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Document discovery has commenced in these consolidated actions and is
coordinated with the discovery in the action filed against the Company by
Oracle, discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | On July 2, 2003, Richard Hutchings (Case No. 20403-NC) filed a
putative stockholder class action suit in the Delaware Court of Chancery
against the Company and several of its officers and directors. The suit
alleges that defendants breached their fiduciary duties in connection with
the Companys response to Oracles tender offer purportedly announced on
June 6, 2003. Plaintiff seeks injunctive relief, an accounting and
damages. On July 22, 2003, the Court ordered that this action be
consolidated with the other putative shareholder actions listed above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | On June 27, 2003, Milton Pfeiffer (Case No. 20390-NC), who purports
to be a stockholder of J.D. Edwards, filed a putative class action against
J.D. Edwards and several of its officers and directors, alleging that
defendants breached their fiduciary duties in connection with the
amendment of the merger agreement between J.D. Edwards and the Company.
Plaintiff seeks injunctive relief, an accounting and damages. Defendants
moved to dismiss or stay the action on the grounds, inter alia, that
Pfeiffer is not a proper plaintiff. In response, on July 24, 2003,
Pfeiffer amended his complaint, adding as a plaintiff Ward Quarles, who
also purports to be a stockholder of J.D. Edwards. On August 28, 2003,
plaintiffs filed a Notice of Dismissal, dismissing Case No. 20390-NC.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | On November 6, 2003, plaintiffs in the Delaware Shareholder Litigation,
filed a motion for preliminary injunction seeking to enjoin defendant PeopleSoft, and its directors, officers and
employees from continuing the Companys Customer Assurance Program. In their motion, plaintiffs assert that the terms of the
revised Customer Assurance Program constitute a disproportionate and unreasonable response to any perceived threat from Oracles
outstanding tender offer. Plaintiffs have moved for an order expediting consideration of their motion for a preliminary injunction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The Company believes that the claims and allegations asserted in each
of the foregoing putative class action suits are without merit, and
intends to vigorously defend against these lawsuits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                                                  
| | -------------------------------------------------
| | Oracle v. PeopleSoft  Delaware Court of Chancery



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 18, 2003, Oracle filed a suit in the Delaware Court of
Chancery (Case No. 20377-NC) against the Company, several of the Companys
directors (the Director Defendants), and J.D. Edwards, alleging that the
Director Defendants breached their fiduciary duties in connection with the
Companys response to Oracles tender offer commenced on June 9 and
amended June 18, 2003, and that J.D. Edwards aided and abetted such
directors purported breach of fiduciary duty. Oracle seeks injunctive,
declaratory and rescissory relief. On June 25, 2003, defendants filed
their Answer. A hearing on a motion for preliminary injunction was
scheduled for July 16, 2003, but was postponed upon the request of Oracle.
On July 25, 2003, Oracle advised the Court that, in light of the second
request for further information it received from the antitrust division of
the United States Department of Justice regarding its tender offer, it did
not believe it appropriate to set a hearing date at this time. Document
discovery has commenced in this litigation.
|
| | The Company believes that the claims and allegations asserted in this
action are without merit, and intends vigorously to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

44



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | defend against this lawsuit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | On November 10, 2003, Oracle filed a motion for preliminary injunction, which is consolidated with the Delaware Shareholder Litigation in the Court of Chancery.
In its motion for preliminary injunction, Oracle similarly seeks to enjoin the PeopleSoft defendants from continuing to offer to customers the terms contained in the
revised Customer Assurance Program. On the same date, Oracle also filed motions seeking leave of Court to amend its Complaint and to expedite its motion for a
preliminary injunction. The Court of Chancery has scheduled a hearing
for November 19, 2003 to consider plaintiffs and Oracles motions to expedite consideration of their preliminary injunction applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | PeopleSoft Stockholder Actions  California Superior Court for the County
of Alameda                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | On June 6, 2003, separate actions were filed in the California
Superior Court for the County of Alameda by Doris Staehr (Case No.
RG03100291), the West Virginia Laborers Pension Trust Fund (Case No.
RG03100306), Lorrie McBride (Case No. RG03100300), and Ray Baldi (Case No.
RG03100696) (collectively the Initial Alameda Stockholder Actions), all
of whom purport to be stockholders of the Company, against several of the
Companys executive officers and directors. The suits allege that
defendants breached their fiduciary duties in connection with (i) the
Companys response to Oracles tender offer announced on June 6, 2003,
(ii) the Companys agreement to acquire J.D. Edwards, and (iii) the
implementation of the 2003 Directors Stock Plan, which was approved by
Company stockholders at the 2003 Annual Meeting. Plaintiffs seek
injunctive, rescissory and declaratory relief. On June 16, 2003, the
Initial Alameda Stockholder Actions were consolidated. On June 11, 2003,
two additional actions were filed by Moshe Panzer (Case No. RG03100876)
and Arace Brothers (Case No. RG03100830) asserting similar claims. By
Order dated July 10, 2003, the Panzer and Arace actions were consolidated
with the Initial Alameda Stockholder Actions (collectively the Alameda
Stockholder Actions).
|
| | By Order dated June 18, 2003, the Alameda County Superior Court
granted the Companys Motion to Stay the Initial Alameda Stockholder
Actions pending resolution of the claims involving the duties of the
defendant directors by the Delaware Court of Chancery. By Order dated July
10, 2003, the Alameda County Superior Court also stayed the Panzer and
Arace Brothers cases pursuant to the June 18, 2003 Order in the Initial
Alameda Stockholder Actions. Accordingly, all of the Alameda Stockholder
Actions are stayed by order of the Court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The Company believes that the claims and allegations asserted in each
of the foregoing putative class action suits are without merit, and
intends to vigorously defend against these lawsuits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |                                                                              
| | -----------------------------------------------------------------------------
| | J.D. Edwards v. Oracle  California Superior Court in the County of San
Mateo



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 12, 2003, J.D. Edwards filed a suit in California Superior
Court in the County of San Mateo against Oracle and two of its executives
(Case No. CIV 431969) alleging violations of Californias Business and
Professions Code Section 17200 et seq., intentional interference with
prospective economic advantage and negligent interference with prospective
economic advantage. The suit seeks compensatory damages and a preliminary
and permanent injunction enjoining defendants from proceeding with
Oracles proposed tender offer, taking or attempting to take any other
steps to acquire control of the Company or J.D. Edwards, and otherwise
interfering with the completion of the proposed merger acquisition of J.D.
Edwards by the Company. Pursuant to the agreement of the parties and
stipulated scheduling orders, discovery is being coordinated with
discovery in the Delaware actions described above. On August 12, 2003,
PeopleSoft announced that it intended to consolidate the J.D. Edwards
actions with PeopleSofts suit against Oracle filed in Alameda County and
that it intended to dismiss Case No. CIV 431969. On August 15, 2003, Case
No. CIV 431969 was dismissed.



| |                                              
| | ---------------------------------------------
| | J.D. Edwards v. Oracle  Colorado State Court



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 12, 2003, J.D. Edwards filed a suit in Colorado State Court
against Oracle and its wholly-owned subsidiary, Pepper Acquisition Corp.
(Case No. 03CV4270), alleging claims for tortious interference with
contract and prospective business relations. The suit seeks, among other
things, compensatory damages of $1.8 billion and an unspecified amount of
punitive damages. Oracle has moved to dismiss this complaint, and a
response from J.D. Edwards was due on August 18, 2003. Pursuant to the
agreement of the parties and stipulated scheduling orders, discovery is
being coordinated with discovery in the Delaware actions described above.
On August 12, 2003, PeopleSoft announced that it intended to consolidate
the J.D. Edwards actions with PeopleSofts suit against Oracle filed in
Alameda County and that it intended to dismiss Case No. 03CV4270. On
August 18, 2003, Case No. 03CV4270 was dismissed.



| |                                                                           
| | --------------------------------------------------------------------------
| | PeopleSoft v. Oracle  California Superior Court for the County of Alameda



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 13, 2003, the Company filed a suit in the California Superior
Court for the County of Alameda against Oracle and Pepper Acquisition
Corp. (Case No. RG03101434). The Company alleges that, in connection with
Oracles proposed tender offer, the defendants have engaged in: (i) false
advertising and unfair trade practices in violation of Californias
Business and Professions Code; (ii) acts of unlawful interference with the
Companys contracts with its customers; (iii) acts of unlawful
interference with the Companys relationships with its prospective
customers; and (iv) acts of unlawful

45



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | disparagement of the Companys products and services. The Company
seeks an injunction precluding defendants unfair trade practices and
other unlawful actions, and prohibiting the defendants from proceeding
further with the tender offer. The Company also requests restitution and
damages. On August 12, 2003, the Company filed an amended complaint,
alleging extensive new facts about Oracle managements ongoing acts of
unfair trade practices, including its efforts to disrupt PeopleSofts
customer relationships. The complaint contains new information concerning
Oracles alleged deliberate campaign to mislead PeopleSoft customers about
Oracles plans to support PeopleSoft products. The amended complaint
consolidated the Companys claims and those of J.D. Edwards against Oracle
and Pepper Acquisition Corp. into a single lawsuit. The amended complaint
continues to seek injunctive relief, restitution and damages. On
September 11, 2003, Oracle demurred to the amended complaint, seeking to
dismiss it, but was unsuccessful. Pursuant to a court order dated
November 5, 2003, a second amended complaint is due to be filed on
November 21, 2003. Discovery in this action is proceeding.



| |              
| | -------------
| | Other Matters



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are party to various legal disputes and proceedings arising during
the ordinary course of business. In the opinion of management, resolution
of these matters is not expected to have a material adverse effect on our
financial position, results of operations and cash flows. An unfavorable
resolution of some or all of these matters could materially affect our
future results of operations or cash flows.

Item 2. Changes in Securities and Use of Proceeds



|(a)     On November 5, 2003, the Companys bylaws were amended to change the
period of notice required to be given by all stockholders who wish to nominate
persons for election to the board of directors to not less than 120 days nor
more than 180 days prior to the one year anniversary of the preceding annual
meeting of stockholders.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults Upon Senior Securities



| |  | None.
| |  | -----

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



| |  | None.
| |  | -----

Item 5. Other Information



| |  | None.
| |  | -----

Item 6. Exhibits and Reports on
Form 8 - K



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

|     |  |                                                                                                                                                                                                                                                                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Amended and Restated Agreement and Plan of
Merger and Reorganization, dated as of June 16, 2003, by and
among PeopleSoft, Inc., J.D. Edwards & Company and Jersey
Acquisition Corporation (incorporated by reference to Exhibit
2.1 filed with PeopleSoft, Inc.s Registration Statement on
Form S-4 (No. 333-106269) filed with the Securities and
Exchange Commission on June 19, 2003).
|     |  |                                                                                                                                                                                                                                                                                                                                                                                           
|3.1  |  | Amendment No. 1 to the Bylaws of PeopleSoft,
Inc., dated November 5, 2003 (incorporated by reference to
Exhibit (e)(7) to PeopleSofts Schedule 14D-9/A filed on
November 14, 2003)                                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                                                           
|3.2  |  | Amended and Restated Bylaws of PeopleSoft, Inc.
dated November 5, 2003.                                                                                                                                                                                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                                                                                           
|10.1 |  | Assignment and Assumption Agreement and
Acknowledgement and Consent dated as of September 30, 2003,
by and among J.D. Edwards & Company, LLC (JDE LLC),
PeopleSoft, Inc. (PeopleSoft) and Selco Service Corporation
(Selco).                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                                                                           
|10.2 |  | Assignment and Assumption of Security Documents
and Amendment to Memorandum of Lease (including Lease
Supplement No. 1) (Phase I) dated as of September 30, 2003,
by and among JDE LLC, PeopleSoft and Selco.                                                                                                                                                                             

46



---



##### 



|     |  |                                                                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3 |  | Assignment and Assumption of Security
Documents, Amendment to Memorandum of Lease and Amendment to
Memorandum of Ground Lease (Phases II/III) dated as of
September 30, 2003, by and among JDE LLC, PeopleSoft and
Selco.                              
|     |  |                                                                                                                                                                                                                                                        
|10.4 |  | Assignment and Assumption of Security
Documents, Amendment to Memorandum of Lease (including Lease
Supplement No. 1) and Amendment to Memorandum of Ground Lease
(Phase IV) dated as of September 30, 2003, by and among JDE
LLC, PeopleSoft and Selco.
|     |  |                                                                                                                                                                                                                                                        
|10.5 |  | Second Amendment to Definitions Appendix (Phase
I) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank National Association (KeyBank).                                                                                        
|     |  |                                                                                                                                                                                                                                                        
|10.6 |  | Second Amendment to Definitions Appendix (Phase II/III) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank.                                                                                                                    
|     |  |                                                                                                                                                                                                                                                        
|10.7 |  | Second Amendment to Definitions Appendix (Phase IV) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank.                                                                                                                        
|     |  |                                                                                                                                                                                                                                                        
|31.1 |  | Certification by the Chief Executive Officer
Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities
Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                      
|     |  |                                                                                                                                                                                                                                                        
|31.2 |  | Certification by the Chief Financial Officer
Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities
Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                      
|     |  |                                                                                                                                                                                                                                                        
|32.1 |  | Certification by the Chief Executive Officer
and the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                 

47



---



##### 



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.

Date: November 13, 2003

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

48



---



##### 



INDEX TO EXHIBITS

|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|2.1            |  | Amended and Restated Agreement and Plan of
Merger and Reorganization, dated as of June 16, 2003, by and
among PeopleSoft, Inc., J.D. Edwards & Company and Jersey
Acquisition Corporation (incorporated by reference to Exhibit
2.1 filed with PeopleSoft, Inc.s Registration Statement on
Form S-4 (No. 333-106269) filed with the Securities and
Exchange Commission on June 19, 2003)
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|3.1            |  | Amendment No. 1 to the Bylaws of PeopleSoft,
Inc., dated November 5, 2003 (incorporated by reference to
Exhibit (e)(7) to PeopleSofts Schedule 14D-9/A filed on
November 14, 2003)                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|3.2            |  | Amended and Restated Bylaws of PeopleSoft, Inc.
dated November 5, 2003.                                                                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.1           |  | Assignment and Assumption Agreement and
Acknowledgement and Consent dated as of September 30, 2003,
by and among J.D. Edwards & Company, LLC (JDE LLC),
PeopleSoft, Inc. (PeopleSoft) and Selco Service Corporation
(Selco)                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.2           |  | Assignment and Assumption of Security Documents
and Amendment to Memorandum of Lease (including Lease
Supplement No. 1) (Phase I) dated as of September 30, 2003,
by and among JDE LLC, PeopleSoft and Selco.                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.3           |  | Assignment and Assumption of Security
Documents, Amendment to Memorandum of Lease and Amendment to
Memorandum of Ground Lease (Phases II/III) dated as of
September 30, 2003, by and among JDE LLC, PeopleSoft and
Selco.                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.4           |  | Assignment and Assumption of Security
Documents, Amendment to Memorandum of Lease (including Lease
Supplement No. 1) and Amendment to Memorandum of Ground Lease
(Phase IV) dated as of September 30, 2003, by and among JDE
LLC, PeopleSoft and Selco.                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.5           |  | Second Amendment to Definitions Appendix (Phase
I) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank National Association (KeyBank)                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.6           |  | Second Amendment to Definitions Appendix (Phase II/III) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank.                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|10.7           |  | Second Amendment to Definitions Appendix (Phase IV) dated as of September 30, 2003, by and among Selco,
PeopleSoft and KeyBank                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|31.1           |  | Certification by the Chief Executive Officer
Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities
Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|31.2           |  | Certification by the Chief Financial Officer
Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities
Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|32.1           |  | Certification by the Chief Executive Officer
and the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                          

49