<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the quarterly period ended March 31, 1999 or

[ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the transition period from ______ to ______.

                         Commission File Number: 0-20710

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

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

    4460 Hacienda Drive, Pleasanton, CA                           94588
 (Address of principal executive officers)                     (Zip Code)

               Registrant's telephone number, including area code:
                                 (925) 694-3000

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

                                                   Yes  [X]   No  [ ]

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

                 CLASS                             OUTSTANDING AT May 12, 1999
     Common Stock, par value $.01                          240,742,623      


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

<PAGE>   2

                                PEOPLESOFT, INC.

                                TABLE OF CONTENTS

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

              ITEM 1 - Financial Statements (unaudited)

              Condensed Consolidated Balance Sheets as of December
              31, 1998 and March 31. 1999                                   3

              Condensed Consolidated Statements of Operations for the
              Three Months Ended March 31, 1998 and March 31, 1999          4

              Condensed Consolidated Statements of Cash Flows for the
              Three Months Ended March 31, 1998 and March 31, 1999          5

              Notes to Condensed Consolidated Financial Statements          6

              ITEM 2 - Management's Discussion and Analysis of
              Financial Condition and Results of Operations                 9

PART II       OTHER INFORMATION

              ITEM 1 - Legal Proceedings                                   29
              ITEM 2 - Changes in Securities and Use of Proceeds           30
              ITEM 3 - Defaults upon Senior Securities                     30
              ITEM 4 - Submission of Matters to a Vote of Security
                       Holders                                             30
              ITEM 5 - Other Information                                   30
              ITEM 6 - Exhibits and Reports on Form 8-K                    30

SIGNATURES                                                                 31
</TABLE>



                                       2
<PAGE>   3

                         PART 1 - FINANCIAL INFORMATION

                          ITEM 1 - FINANCIAL STATEMENTS

                                PEOPLESOFT, INC.

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

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                         DECEMBER 31,       MARCH 31,
                                                            1998              1999
                                                         ------------      -----------
<S>                                                      <C>               <C>        
           ASSETS
Current assets:
     Cash and cash equivalents                           $   480,086       $   211,404
     Short term investments                                  206,242           210,094
     Accounts receivable, net                                385,413           387,920
     Deferred income taxes                                    53,346            54,848
     Other current assets                                     38,428            40,495
                                                         -----------       -----------
        Total current assets                               1,163,515           904,761

Property and equipment, at cost                              314,765           317,071
     Less accumulated depreciation and amortization         (128,509)         (139,663)
                                                         -----------       -----------
                                                             186,256           177,408

Investments                                                   31,616            43,163
Deferred income taxes                                          7,814             7,814
Acquired intangible assets and capitalized
software, less accumulated amortization                       37,393            35,873
Other assets                                                  14,011            15,551
                                                         -----------       -----------
                                                         $ 1,440,605       $ 1,184,570
                                                         ===========       ===========
           LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities            $   110,475       $    90,406
     Accrued compensation and related expenses               109,284           113,433
     Income taxes payable                                     22,587                46
     Deferred revenue                                        426,141           440,830
                                                         -----------       -----------
        Total current liabilities                            668,487           644,715

Long term deferred revenue                                    89,393            91,142
Other long term liabilities                                   18,433            16,785

Stockholders' equity:
     Common stock                                              2,339             2,446
     Additional paid-in capital                              324,332           343,055
     Cumulative translation adjustment                        (2,951)           (4,025)
     Dividend declared of Momentum Business             
       Applications shares                                    78,622                --
     Retained earnings                                       261,950            90,452
                                                         -----------       -----------
                                                             664,292           431,928
                                                         -----------       -----------
                                                         $ 1,440,605       $ 1,184,570
                                                         ===========       ===========
</TABLE>


       See notes to condensed consolidated unaudited financial statements



                                       3
<PAGE>   4

                                PEOPLESOFT, INC.

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

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                                                         MARCH 31,
                                                  ------------------------
                                                    1998           1999
                                                  ---------      ---------
<S>                                               <C>            <C>      
Revenues:
   License fees                                   $ 136,934      $  76,571
   Services                                         140,740        228,258
   Development and other services                        --            552
                                                  ---------      ---------
      Total revenues                                277,674        305,381

Costs and expenses:
   Cost of license fees                              11,196         11,934
   Cost of services                                  86,704        125,214
   Cost of development services                          --            411
   Sales and marketing                               72,690         79,897
   Product development                               42,861         63,177
   General and administrative                        13,228         19,283
   Restructuring charge                                  --          4,355
   Contribution to Momentum Business Applications        --        176,409
                                                  ---------      ---------
      Total costs and expenses                      226,679        480,680
                                                  ---------      ---------

Operating income (loss)                              50,995       (175,299)
Other income, interest expense and other              3,486          6,874
                                                  ---------      ---------

      Income (loss) before income taxes              54,481       (168,425)
Provision for income taxes                           20,727          3,073
                                                  ---------      ---------
Net income (loss)                                 $  33,754      $(171,498)
                                                  =========      =========

Basic income (loss) per share                     $    0.15      $   (0.73)
                                                  =========      =========
Shares used in basic per share computation          225,402        236,537
                                                  =========      =========

Diluted income(loss) per share                    $    0.13      $   (0.73)
                                                  =========      =========
Shares used in diluted per share computation        256,331        236,537
                                                  =========      =========
</TABLE>


       See notes to condensed consolidated unaudited financial statements



                                        4
<PAGE>   5

                                PEOPLESOFT, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                    MARCH 31,
                                                            -------------------------
                                                              1998            1999
                                                            ---------       ---------
<S>                                                         <C>             <C>       
OPERATING ACTIVITIES
Net income (loss)                                           $  33,754       $(171,498)
Adjustments:
   Depreciation and amortization                               12,760          15,482
   Provision for doubtful accounts                              1,771           1,756
   Provision for deferred income taxes                          1,163          (1,502)
   Changes in operating assets and liabilities:
      Accounts receivable                                     (65,244)        (18,897)
      Cash received from sales of accounts receivable          26,986          14,634
      Other current assets and noncurrent assets               (8,673)         (4,617)
      Accounts payable and accrued liabilities                 13,895         (20,069)
      Accrued compensation and related expenses                 4,620           4,149
      Deferred revenue                                         31,417          16,438
      Income taxes payable                                    (13,835)        (22,541)
      Long term liabilities                                        --          (1,648)
      Tax benefits from employee stock transactions             2,177             899
                                                            ---------       ---------
   Net cash provided by (used in) operating activities         40,791        (187,414)

INVESTING ACTIVITIES
Purchase of investments                                       (66,185)       (123,915)
Sale of investments                                            53,652         108,516
Purchase of property and equipment                            (12,875)         (3,141)
Additions to capitalized software                                (736)           (963)
                                                            ---------       ---------
   Net cash used in investing activities                      (26,144)        (19,503)

FINANCING ACTIVITIES
Net proceeds from exercise of common stock options
  and issuances under stock purchase plan                      18,382          17,931
Distribution of Momentum Business
  Applications shares to PeopleSoft shareholders                   --         (78,622)
                                                            ---------       ---------
   Net cash provided by (used in) financing activities         18,382         (60,691)
Effect of foreign exchange rate changes on cash                  (291)         (1,074)
                                                            ---------       ---------
Net increase (decrease) in cash and cash equivalents           32,738        (268,682)

Cash and cash equivalents at beginning of period              267,897         480,086
                                                            ---------       ---------
Cash and cash equivalents at end of period                  $ 300,635       $ 211,404
                                                            =========       =========
</TABLE>


       See notes to condensed consolidated unaudited financial statements



                                       5
<PAGE>   6

                                PEOPLESOFT, INC.
         NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
                                 MARCH 31, 1999
                                   (UNAUDITED)

1.      BASIS OF PRESENTATION

        The information at March 31, 1998 and 1999 and for the three month
periods then ended is unaudited, but includes all adjustments (consisting only
of normal, recurring adjustments) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Despite management's best effort to establish good faith estimates and
assumptions, and to manage the achievement of the same, actual results may
differ. Certain prior period amounts have been reclassified to conform to the
current period presentation.

        Momentum Business Applications was consolidated with the Company's
results through March 15, 1999. The Consolidated Statement of Operations
includes Momentum Business Application's results through that date. The
Consolidated Balance Sheet as of March 31, 1999 excludes the accounts of
Momentum Business Applications.

        The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's Annual Report to Stockholders (Form 10-K) for the year ended December
31, 1998. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations. Interim results of operations for
the three month period ended March 31, 1999 are not necessarily indicative of
operating results or performance levels that can be expected for the full fiscal
year.


2.      PER SHARE DATA

        Basic income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded from
the computation for the three month period ended March 31, 1999 as their effect
is antidilutive. The following table sets forth the computation of basic and
diluted income per share (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                     ------------------------
                                                       1998           1999
                                                     ---------      ---------
<S>                                                  <C>            <C>       
Numerator:
     Net income (loss)                               $  33,754      $(171,498)
                                                     ========================

Denominator:
     Denominator for basic income per share -
          weighted average shares                      225,402        236,537

      Employee stock options                            27,026             --
      Warrants                                           3,903             --
                                                     ------------------------

     Denominator for diluted income per share -
          adjusted weighted average shares and
          assumed exercises                            256,331        236,537
                                                     ========================

Basic income (loss) per share                        $    0.15      $   (0.73)
                                                     ========================

Diluted income (loss) per share                      $    0.13      $   (0.73)
                                                     ========================
</TABLE>



                                       6
<PAGE>   7

3.      ACCOUNTS RECEIVABLE

        Accounts receivable are comprised of billed receivables arising from
recognized and deferred revenues, and unbilled receivables, which include
accrued license fees for payments not yet due and accrued services. The Company
does not require collateral for its receivables. Reserves are maintained for
potential losses. For the three month periods ended March 31, 1998 and 1999
actual loss experience has been within management's estimates. Future credit
losses may differ from the Company's estimates and could have a material impact
on the Company's future results of operations. The principal components of
accounts receivable at December 31, 1998 and March 31, 1999 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                            DECEMBER 31,     MARCH 31,
                                               1998            1999
                                            ------------     ---------
<S>                                         <C>              <C>      
        Billed receivables                   $ 306,995       $ 322,778
        Unbilled  receivables                  118,419         106,899
                                             ---------       ---------
                                               425,414         429,677
        Allowance for doubtful accounts        (40,001)        (41,757)
                                             ---------       ---------
                                             $ 385,413       $ 387,920
                                             =========       =========
</TABLE>

4.      DEFERRED REVENUE

        Deferred revenue is comprised of deferrals for license fees,
maintenance, training and other services. Long term deferred revenue represents
amounts received for maintenance and support services to be provided beginning
in periods on or after April 1, 2000. The principal components of deferred
revenue at December 31, 1998 and March 31, 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
                                             DECEMBER 31,   MARCH 31,
                                                1998          1999
                                             ------------   --------
<S>                                          <C>            <C>     
        License fees                          $ 67,765      $ 65,722
        Maintenance                            310,049       341,500
        Training                                76,696        71,456
        Other services                          61,024        53,294
                                              --------      --------
                                               515,534       531,972
        Less: Long term deferred revenue        89,393        91,142
                                              --------      --------
                                              $426,141      $440,830
                                              ========      ========
</TABLE>

5.      TRANSFER OF FINANCIAL ASSETS

        The Company transfers the accounts receivable under certain software
license and service agreements with customers to financing institutions, on a
non-recourse basis. The Company records such transfers as sales of the related
accounts receivable when it is considered to have surrendered control of such
receivables under the provisions of Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Company does not maintain any servicing
obligations under these arrangements.

6.      FOREIGN CURRENCY TRANSLATION

        The Company has determined that the functional currency of each foreign
operation is the local currency. The effects of translation rate changes related
to assets and liabilities located outside the United States are included as a
component of stockholders' equity. Foreign currency transaction gains and losses
are included in Other income, interest expense and other on the Condensed
Consolidated Statements of Operations. Through the first quarter of 1999, such
gains and losses have not been significant.

        The Company has a hedging program designed to mitigate the potential for
future adverse impact on intercompany balances due to changes in foreign
exchange rates. The program uses forward foreign exchange contracts as the
vehicle for hedging these intercompany balances. In general, these forward
foreign exchange contracts have terms of three months or less. The Company
currently settles all of its hedge contracts on the last day of the second month
of each quarter and concurrently opens new contracts to cover the upcoming
quarter. Gains and losses on the settled contracts are recognized as other
income or expense in the current period, consistent with the period in which the
gain or loss of the underlying transaction is recognized. The Company recorded
net losses from these settled contracts and underlying foreign currency
exposures of approximately $0.9 million and $0.4 million for the three month
periods ended March 31, 1998 and 1999, respectively. At December 31, 1998 and
March 31, 1999, hedge positions totaled $11.0 million and $23.2 million,
respectively. At March 31, 1999, the Company had forward foreign exchange
contracts denominated in Euros, Singapore dollars and New Zealand dollars. Each
of these contracts had a maturity date in June 1999 and had book values that
approximated market 



                                       7
<PAGE>   8

values. The foreign exchange hedging program is managed in accordance with a
corporate policy approved by the Company's Board of Directors.

        In addition to hedging existing transaction exposures, the Company's
foreign exchange management policy allows for the hedging of anticipated
transactions, and exposures resulting from the translation of foreign subsidiary
financial results into U.S. dollars. Such hedges can only be undertaken to the
extent that the exposures are highly certain, reasonably estimable, and
significant in amount. No such hedges have occurred through March 31, 1999.
These hedges will only be undertaken should the Company deem them necessary to
protect the U.S. dollar value of the underlying exposure. The Company expects
that hedges of such anticipated transactions and translation exposures will be
done in the future using forward and option contracts.

7.      SEGMENT INFORMATION

        The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131") on January 1, 1998. SFAS 131 establishes standards for the way in which
public companies disclose certain information about operating segments in the
Company's financial reports.

        Based on the criteria of SFAS 131, the Company identified its operating
committee as the chief operating decision-makers. The Company's operating
committee evaluated revenue performance based on three segments: domestic,
international and middle market. The middle market segment does not meet
materiality requirements of the statement and thus is not required to be
separately disclosed. Data for the two remaining segments is presented below.
Within the operating committee, employee headcount and operating costs are
managed by functional areas, rather than by revenue segments, and are only
reviewed by the operating committee on a company-wide basis. In addition, the
Company does not account for or report to the operating committee its assets or
capital expenditures by any segment other than the geographic segments, as
disclosed below.

<TABLE>
<CAPTION>
                                                                 MARCH 31,        MARCH 31,
                                                                   1998             1999
                                                                -----------      -----------
<S>                                                             <C>              <C>        
               Revenues from unaffiliated customers
                 Domestic operations .....................      $   236,502      $   251,260
                 International operations ................           41,172           54,121
                                                                -----------      -----------
                 Consolidated ............................      $   277,674      $   305,381
                                                                ===========      ===========
               Operating income (loss)
                 Domestic operations .....................      $    46,922      $  (182,340)
                 International operations ................            4,073            7,041
                                                                -----------      -----------
                 Consolidated ............................      $    50,995      $  (175,299)
                                                                ===========      ===========
               Identifiable assets
                 Domestic operations .....................      $   858,722      $ 1,016,472
                 International operations ................          132,058          168,098
                                                                -----------      -----------
                 Consolidated ............................      $   990,780      $ 1,184,570
                                                                ===========      ===========
</TABLE>


8.    SUBSEQUENT EVENTS

        The acquisition of TriMark Systems, Inc. ("TriMark") was completed in
early May 1999 with the Company acquiring all of TriMark's outstanding equity
interests for approximately $26 million in common stock. The transaction will be
recorded in the Company's second quarter and will be accounted for under the
purchase method of accounting. Under the purchase method of accounting, the
purchase price is allocated to the net assets acquired, including in-process
research and development, based on their fair values. The valuation to determine
the fair value of the net assets acquired has not been completed. Accordingly,
the Company cannot estimate the amount of the in-process research and
development but believes it could be a significant portion of the purchase
price.



                                       8
<PAGE>   9

                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Forward-looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.

STATEMENT OF FUTURE DIRECTION: THIS DOCUMENT CONTAINS STATEMENTS OF FUTURE
DIRECTION CONCERNING POSSIBLE FUNCTIONALITY FOR THE COMPANY'S SOFTWARE PRODUCTS
AND TECHNOLOGY. ALL FUNCTIONALITY AND SOFTWARE PRODUCTS WILL BE AVAILABLE FOR
LICENSE AND SHIPMENT FROM THE COMPANY ONLY IF AND WHEN GENERALLY COMMERCIALLY
AVAILABLE. THE COMPANY DISCLAIMS ANY EXPRESS OR IMPLIED COMMITMENT TO DELIVER
FUNCTIONALITY OR SOFTWARE UNLESS OR UNTIL ACTUAL SHIPMENT OF THE FUNCTIONALITY
OR SOFTWARE OCCURS. THE STATEMENTS OF POSSIBLE FUTURE DIRECTION ARE FOR
INFORMATIONAL PURPOSES ONLY AND THE COMPANY MAKES NO EXPRESS OR IMPLIED
COMMITMENTS OR REPRESENTATIONS CONCERNING THE TIMING AND CONTENT OF ANY FUTURE
FUNCTIONALITY OR RELEASES.

RESULTS OF OPERATIONS

        The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain line items in the Company's
statements of operations:

<TABLE>
<CAPTION>
                      FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
   PERCENTAGE OF   
  TOTAL REVENUES       
                                                                     PERCENTAGE
                                                                    DOLLAR CHANGE
1998           1999                                                YEAR OVER YEAR
----           ----                                                --------------
<S>            <C>         <C>                                     <C>
                           Revenues:
  49%            25%          License fees                                (44)%
  51             75           Services                                     62 
 N/A              0           Development services                        N/A 
----           ----                                                      ---- 
 100            100                Total revenues                          10 
                           Costs and expenses:
   4              4           Cost of license fees                          7 
  31             41           Cost of services                             44 
 N/A              0           Cost of development services                N/A 
  26             26           Sales and marketing                          10 
  16             21           Product development                          47 
   5              6           General and administrative                   46 
 N/A              1           Restructuring charge                        N/A
                              Contribution to Momentum Business 
 N/A             58             Applications                              N/A
----           ----                                                      ----
                                                                  
  82            157                Total costs and expenses               112
----           ----                                                      ----
  18            (57)       Operating income (loss)                       (444)
   1              2        Other income                                    97
----           ----                                                      ----
  19            (55)          Income (loss) before income taxes          (409)

   7              1        Provision for income taxes                     (85)
----           ----                                                      ----
  12%           (56)%      Net income (loss)                             (608)%
====           ====                                                      ====

</TABLE>

                                       9
<PAGE>   10

   A substantial portion of the Company's cost structure is employee-related.
The breakdown of employees by functional area is as follows:

<TABLE>
<CAPTION>
      EMPLOYEE COUNT                                                    PERCENTAGE OF
                                                                       TOTAL EMPLOYEES
                                                                                                      PERCENTAGE
                                                                                                        CHANGE
12/31/98           3/31/99                                       12/31/98            3/31/99         SINCE 12/31/98
--------           -------                                       --------            -------         --------------
<S>               <C>               <C>                          <C>                <C>              <C>
   3,601             3,468          Services                           51%                52%                (4)%
   1,509             1,189          Sales and marketing                22                 18                (21)
   1,332             1,475          Product development                19                 22                 11
     590               558          General and administrative          8                  8                 (5)
--------          --------                                       --------           --------           --------
   7,032             6,690          Total                             100%               100%                (5)%
========          ========                                       ========           ========           ========
</TABLE>


REVENUES

        The Company licenses software under non-cancelable license agreements
and provides services including training, installation, consulting and
maintenance, consisting of product support services and periodic updates.
License fee revenues are generally recognized when a non-cancelable license
agreement has been signed, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, and collection is considered probable. For customer license
agreements, which meet these recognition criteria, the portion of fees related
to software licenses will generally be recognized in the current period, while
the portion of the fees related to services is recognized as the services are
performed. When the Company enters into a license agreement with a customer
requiring significant customization of the software products, the Company
recognizes revenue related to the license agreement using contract accounting.
The Company allocates a portion of contractual license fees to post-contract
support activities covered under its contracts including first year maintenance,
installation assistance and limited training services. Revenues from maintenance
agreements are recognized ratably over the maintenance period, which in most
instances is one year.

        Revenues from licensing fees decreased by 44% from $136.9 million in the
three month period ended March 31, 1998 to $76.6 million for the same period in
1999. The decrease in license fee revenues was attributable to an industry wide
slowdown in customer license sales, in part as a result of Year 2000 projects in
process at many organizations, as well as those other factors described in
Factors That May Affect Future Results. In the first quarter, the Company's
deferred license revenue decreased by $2.0 million.

        The reported deferred license revenue amounts do not include items which
are both deferred and unbilled. The Company's practice is to net such deferred
items against the related receivables balances. As of December 31, 1998 and
March 31, 1999, $29.2 million and $49.0 million in unbilled receivables was
netted against deferred license revenue, respectively.

        Revenues from services increased by 62% from $140.7 million in the three
month period ended March 31, 1998 to $228.3 million for the same period in 1999.
Service revenues as a percentage of total revenues were 51% and 75% for the
quarters ended March 31, 1998 and 1999, respectively. The increase in the
relative percentage of service revenues to total revenues in these periods was
attributable to three primary factors: increases in the installed base of
customers receiving ongoing maintenance, training and other support services
from approximately 2,380 customers as of March 31, 1998 to 3,000 as of March 31,
1999; $57.2 million increase in consulting revenue, as a result of expanded
demand for the Company's consulting services in enterprise implementation
projects; and a $60.4 million decrease in license revenue.

        Per the terms of the development contract with Momentum Business
Applications, the Company performed development services on behalf on Momentum
Business Applications during the first quarter of 1999. The Company recognized
$.6 million for such services. Momentum Business Applications pays the Company
one hundred and ten percent (110%) of the Company's fully burdened costs
relating to the research and development provided by the Company. The Company
recognized this as revenue from development services.

        Total revenues increased from $277.7 million in the three month period
ended March 31, 1998 to $305.4 million for the same period in 1999. Total
revenue growth quarter over quarter was 10%. For the quarters ended March 31,
1998 and 1999, the Company's international revenues were approximately 15% and
18% of total revenues, respectively. No single region had revenues that
represented more than 10% of total revenue. Revenues



                                       10
<PAGE>   11

from international operations increased 31% from $41.2 million in the three
month period ended March 31, 1998 to $54.1 million in the same quarter in 1999.
The dollar increase in international revenues resulted from expanded
international operations and the introduction of Release 7.5, which incorporated
additional global features and functionality. The Company expects international
revenues to continue to grow in absolute dollar terms during 1999, and
accordingly, continues to invest in international infrastructure, global product
functionality and translated versions of financial and other products(1). In the
event international expansion and/or product globalization efforts are not
successful, the Company's business operating results and financial condition may
be adversely affected.

COSTS AND EXPENSES

        Cost of license fees consists principally of royalties, technology
access fees for certain third party software products and amortization of
capitalized software development costs. Cost of license fees increased 7% from
$11.2 million in the three month period ended March 31, 1998 to $11.9 million
for the same period in 1999, representing 4% of total revenues in both quarters,
and 8% and 16% of license fee revenues in each quarter, respectively. Royalty
costs in the first quarter of 1998 included a one time $2.5 million buy out of
royalty fees related to providing certain technology embedded in Release 7.5 to
its existing customer installed base. Included in the March 31, 1999 cost of
license fees amount is $1.4 million in amortization of purchased software
acquired through the business combination with Intrepid Systems, Inc. in October
1998. The Company expects to amortize approximately $1.4 million per quarter
through the third quarter of 2003 for this software. However, in the event the
related forecasted revenues are not realized, the related capitalized amounts
may be expensed over a shorter period. Cost of license fees has grown as a
percentage of license revenues due to royalty agreements related to OLAP tools
embedded within the Company's products and royalties related to the Student
Administration and Treasury products. The Company's system solutions are based
on a combination of internally developed technology and application software
products, as well as bundled third party software products and technology. Cost
of license fees as a percentage of license fee revenues may fluctuate from
period to period due principally to the mix of sales of royalty-bearing software
products in each period and seasonal fluctuations in revenues contrasted with
certain fixed expenses such as the amortization of capitalized software
development and purchase costs and fixed dollar royalty agreements. Royalties
associated with certain software products currently under development by joint
business arrangements and charges associated with software products and
technologies acquired from various third party vendors may cause the cost of
license fees as a percentage of license fee revenues to increase in future
periods.

        Cost of services consists principally of expenses relating to
consulting, customer care center administrative support, account management
field support, training, and product support. These costs increased 44% from
$86.7 million in the three month period ended March 31, 1998 to $125.2 million
for the same period in 1999, representing 31% and 41% of total revenues in each
quarter, respectively; and 62% and 55% of service revenues in each of those
quarters, respectively. The increase in cost of services is due to significant
expansion of the Company's customer service resources, including consulting,
telephone support, training, and customer care center administrative support. In
particular, the Company has made a significant investment in its professional
consulting services organization which has grown substantially over the past two
years in response to customer demand. The decrease of cost of services as a
percentage of service revenues is due to cost containment and efficiency
initiatives. The Company anticipates cost of services will increase in dollar
amount, and may increase as a percentage of total revenues and service revenues,
in future periods.

        Sales and marketing expenses increased by 10% from $72.7 million in the
three month period ended March 31, 1998 to $79.9 million for the same period in
1999, representing 26% of total revenues in each period. The increase in sales
and marketing expenses is largely attributable to the increase in the Company's
domestic and international direct sales force. Sales and marketing expenses may
increase as a percentage of total revenues in future periods as the Company
increases its direct sales and marketing expenditures to address certain
international and industry specific markets and as the Company establishes
dedicated sales personnel and initiatives for certain new product areas,
particularly eWorkplace Communities and Enterprise Performance Management(1).

        Software product development expenses increased by 47% from $42.9
million in the three month period ended March 31, 1998 to $63.2 million for the
same period in 1999, representing 16% and 21% of total revenues in each quarter,
respectively. Software product development expenditure consists of costs related
to the Company's staff of software developers and outside consultants, and the
associated infrastructure costs required to support software product development
initiatives in the following areas: (i) expansion and enhancement of the
Company's core software product offerings in the areas of eWorkplace
Communities, Enterprise Performance Management, internet focused enhancements to
the eBackbone such as eCommerce capabilities and HTML client, HRMS, 



--------

(1) Forward-Looking Statement



                                       11
<PAGE>   12

Financial Management Systems, and Distribution/Materials Management Systems and
Supply Chain Management software; (ii) the enhancement of the Company's platform
development, certification, software product testing and overall release
management capabilities; (iii) the continued enhancement of the Company's
client/server architecture including its software development tools and the
integration of these tools with various third party purchased or licensed
technologies; (iv) the localization and translation of certain versions of the
Company's software products for specific foreign markets; and (v) the
development of certain industry market products and versions of its core
products suitable to the unique needs of customers within certain industries.
The Company intends to continue to invest significant resources in upcoming
releases, and anticipates software product development expenditures will
significantly increase in future periods due to continued incremental investment
in all of the above areas, and overall development expenditures may increase as
a percentage of revenues.

        General and administrative expenses increased 46% from $13.2 million in
the three month period ended March 31, 1998 to $19.3 million for the same period
in 1999, representing 5% and 6% of total revenues in each quarter, respectively.
The increase in general and administrative expenses resulted primarily from the
22% increase in the staffing to support the Company's growth compared to the
March 31, 1998 quarter. Additionally, included in the first quarter of 1999
are legal expenses, facilities project costs, and additional bad debt write 
offs.

        During the first quarter of 1999, the Company redeployed approximately
100 employees to new product development, global product support, and other
strategic customer value added programs. Additionally, PeopleSoft eliminated
approximately 430 staff from other redundant and unnecessary positions primarily
in the administration, sales support, and marketing support areas. This action
will allow the Company to hire more staff in support of its eBusiness, analytic
applications and ERP development as well as customer support programs. The
reduction in staff represented approximately 6 percent of the Company's total
workforce with over 90 percent of the reductions in North America. The Company
incurred a one-time charge of $4.4 million for the separation arrangements.

        During 1998, PeopleSoft formed a new company, Momentum Business
Applications, Inc., to select and develop certain software application products,
and to commercialize such products, most likely through licensing to the
Company. The Company contributed $250.0 million to Momentum Business
Applications and distributed all of the outstanding shares of Momentum Business
Applications Class A Common Stock to the Company's shareholders. At December 31,
1998, the Company recorded a dividend for the stock distribution based on the
fair value of Momentum Business Applications stock on the date of the
distribution. Momentum Business Applications was consolidated with the Company's
financial position, results of operations and cash flows as of December 31,
1998. During the first quarter of 1999, Momentum Business Applications no longer
met the requirements for consolidation. As a result, the Company incurred a
charge of $176.4 million, which represents the $250.0 million contribution less
the $78.6 million dividend recorded as of December 31, 1998, investment banker
fees of $2.9 million and other expenses related to the formation of Momentum
Business Applications, and expenses incurred by Momentum Business Applications
while consolidated with the Company.

        Operating margins for the three month period ended March 31, 1999
decreased to 1.8% (excluding the impact of the charges related to Momentum
Business Applications and the reduction in force) compared to 18.4% for the same
period last year.

        Other income, consisting primarily of interest, increased from $3.5
million in the three month period ended March 31, 1998 to $6.9 million for the
same quarter in 1999. The increase was due to higher average cash balances and
higher pre-tax return on investments based on a shift into higher yield taxable
securities. The Company expects other income to decrease in the future due to
the large cash contribution to Momentum Business Applications, which was
consolidated with the Company's results through March 15, 1999 but is excluded
from the Company's consolidated financial position after that date.

PROVISION FOR INCOME TAXES

        The Company's income tax provision decreased from $20.7 million in the
three month period ended March 31, 1998 to $3.1 million for the same quarter in
1999. The effective tax rate was 38% and 38.5% for the three months ended March
31, 1998 and 1999 respectively, excluding the impact of non-recurring write offs
and adjustments related to Momentum Business Applications and the staff
reductions completed in the first quarter. The net deferred tax assets at March
31, 1999 were $62.7 million. The valuation of these net deferred tax assets is
based on historical tax positions and expectations about future taxable income.



                                       12
<PAGE>   13

EARNINGS PER SHARE

              The Company's earnings (loss) per share amounts are calculated in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", which requires calculation of both a basic earnings per share and a
diluted earnings per share. The basic earnings per share excludes the dilutive
effect of common stock equivalents such as stock options and warrants, while the
diluted earnings per share includes such dilutive effects. Basic earnings (loss)
per share decreased from $0.15 in the three month period ended March 31, 1998 to
($ 0.73) for the same period in 1999. Diluted earnings (loss) per share was the
same as basic earnings (loss) per share for the first quarter of 1999 since all
stock options and warrants were antidilutive. Excluding the impact of the
charges related to Momentum Business Applications and the reduction in force,
diluted earnings per share would have been $0.03 for the first quarter of 1999
compared to $0.13 for same quarter in 1998. Earnings per share decreased as a
result of the decrease in net income from $33.8 million for the three month
period ended March 31, 1998 to $7.6 million for the same period of 1999
(excluding the impact of the charges related to Momentum Business Applications
and the reduction in force net of the related tax impact of these charges) and
the 3% decrease in the number of shares used in the diluted per share
computation from 256.3 million shares for the three month period ended March 31,
1998 to 248.8 million shares (including the effect of stock options and
warrants) for the same period in 1999. Shares outstanding during the remainder
of 1999 will be impacted by the following factors: (i) the ongoing issuance of
common stock associated with stock option exercises; (ii) the potential exercise
during the fourth quarter of 1999 of warrants for approximately 3.2 million
shares; (iii) any fluctuations in the Company's stock price, which could cause
changes in the number of common stock equivalents included in the diluted
earnings per share computation; and, (iv) the issuance of common stock to
complete the acquisitions of TriMark Technologies, Inc. and Distinction Software
(see BUSINESS COMBINATIONS below), and to affect other business combinations
should the Company enter into such transactions.


LIQUIDITY AND CAPITAL RESOURCES

        The Company's operating activities used cash of $187.4 million during
the three month period ended March 31, 1999, compared to generating $40.8
million in the same period in 1998. Excluding the cash contribution to Momentum
Business Applications (net of the dividend), the cash used by operations for the
first quarter of 1999 would have been $11.0 million. From December 31, 1998 to
March 31, 1999, deferred revenues increased from $515.5 million to $532.0
million. The Company's expanded installed base of customers and emphasis on
selling prepaid maintenance and training contracts has resulted in an increase
in deferred revenues related to ongoing maintenance and other services.
Additionally, the accounts payable balance decreased from December 31, 1998 due
to the timing of the payments and lower royalties owed at March 31, 1999.

        The Company calculates accounts receivable days sales outstanding
("DSO") as the ratio of the quarter-end accounts receivable to the sum of
quarterly revenues and the net change in quarter-end current deferred revenues,
multiplied by 90. The Company believes this calculation is appropriate because
license fees are typically billable regardless of whether revenue has been
recognized or deferred. Under this method, DSO was 98 days as of March 31, 1998,
88 days as of December 31, 1998 and 110 days as of March 31, 1999. The increase
in the DSO was primarily due to the decline in customer financing from $27.0
million and $76.2 million in the first and fourth quarters of 1998, respectively
to $14.6 million in the first quarter of 1999. Additionally the change in the
revenue mix towards services and more timely billing of upcoming maintenance
periods has resulted in higher accounts receivable and deferred maintenance.
Since billing terms of the Company's agreements typically are spread out over a
sequence of events (including contract execution through standard acceptance) or
dates that generally span four to nine months, and contracting activity is
concentrated at the end of each quarter, the Company anticipates that its DSO
will continue to be substantial in future periods.

        During the first three months of 1998 and 1999, the Company's principal
use of cash for investing activities included net purchases of investments and
property and equipment, comprised of computer and network equipment, to
accommodate employee and facility expansions and to support the Company's
growing training capacity requirements. During 1998, the Company entered into
agreements to sell one of its Pleasanton, California office buildings and
related land, and lease back a substantial portion of the premises.
Additionally, the Company purchased two parcels of land for $50.0 million during
1998. These transactions were structured as a like-kind exchange for tax
purposes and, therefore do not impact immediate cash flow. The Company is
committed to lease facilities worth $110.0 million, which will be constructed on
one of the sites. The construction is expected to be completed in the first
quarter of 2000. The lease term is for five years with the option to purchase
the building for $110.0 million at the end of the lease term. The Company also
entered into a five year lease for a new facility in Pleasanton, California in
1998. The lessor funded $70.0 million for the construction of this facility,
which was completed in the fourth quarter of 1998. The Company has an option to
purchase the building at the end of the lease 



                                       13
<PAGE>   14

term for $70.0 million. In the event the Company exercises either or both of the
options to purchase these buildings at the end of the terms of the respective
arrangements, the Company plans on utilizing cash flow from operations to fund
the purchase(s), however there can be no assurance that in the future the
Company will have sufficient cash flows from operations.

        Financing activity for the first three months of 1998 and 1999 related
to the proceeds from the exercise of common stock options by employees and
issuance of stock under the employee stock purchase program. The Company
believes granting stock options is essential to its ability to attract and
retain key employees who are critical to the Company's success. The Company
anticipates that it will continue to grant a significant number of options each
year. The actual number of options granted each year is based on a variety of
factors including the Company's historical and anticipated employee count, the
level of hiring activity, competitive factors associated with the labor market,
and comparison of the Company's compensation philosophy and practice to other
similar technology companies. However, as of March 31, 1999, 14,296,550
exercisable options were outstanding of which 10,959,236 options had exercise
prices below the market value of the stock, therefore, if the stock price stays
the same or decreases in value, there can be no assurance that employee stock
activity will continue to generate substantial funds in the future.
Additionally, during the first three months of 1999, the distribution of
Momentum Business Applications shares was made to PeopleSoft shareholders.

        As of March 31, 1999, the Company had $260.0 million in working capital,
including $211.4 million in cash and cash equivalents, and $210.1 million in
short term investments, consisting principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt and equity securities
of corporations, municipalities and the U.S. Government. The Company believes
that existing cash and short term investment balances, proceeds from sales of
stock under the employee purchase plan and stock option exercises, potential
proceeds from issuance of stock for warrants, and potential cash flow from
operations will be sufficient to meet its operating cash requirements, at least
through 1999(1).

BUSINESS COMBINATIONS

          During June 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of TriMark Technologies, Inc.
("TriMark"), a leading provider of software solutions for the life insurance
industry. The Company and TriMark are taking initial steps toward the life
insurance industry's first single-source, integrated enterprise solution. The
Company issued approximately $26.0 million in common stock and options for all
of the outstanding equity interests of TriMark in a transaction that closed
during the second quarter of 1999. Prior to closing the transaction, the Company
and TriMark operated independently within a development, marketing, sales and
support relationship.

         In December 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of Distinction Software, Inc.
("Distinction"), a supply chain management software company, by issuing between
$5.0 million and $10.0 million in common stock and options. The transaction is
expected to close in the second half of 1999. Prior to closing the transaction,
the Company and Distinction will operate independently within a development,
marketing, sales and support relationship.

YEAR 2000

        The Company has established a Year 2000 Program Management Office
("PMO") to ensure that it has adequately addressed exposures related to the Year
2000 and is Year 2000 Ready. "Year 2000 Ready" means that the performance or
functionality of the Company's internal systems will not be significantly
affected by the dates prior to, during, and after the Year 2000, to include leap
year calculations and specific day-of-the-week calculations. Through an
extensive risk analysis the Company has identified critical processes that will
require Level One Year 2000 Readiness testing. Level One testing will involve
full Year 2000 system and end-to-end testing. In cases where Level One testing
is not feasible, Level Two Readiness testing at the vendor site will be
employed. Additionally, all hardware and software associated with the Company's
identified critical business processes will be subject to Level Three Readiness
certification which consists of verification from the vendor indicating that the
item is Year 2000 Ready. The building of the environment and testing is based on
a comprehensive methodology, a collaborative effort between the Company and
Compuware. Testing of critical processes began during the fourth quarter of
1998.



--------

(1) Forward-Looking Statement



                                       14
<PAGE>   15

        Costs directly attributed to the Company's internal Year 2000
initiative, are currently estimated at approximately $4.0 million. The amount
spent to date is approximately $2.0 million. This estimate is comprised
primarily of hardware and software required to complete Year 2000 testing within
the enterprise and consulting fees. This cost estimate excludes internal
resource costs for individuals outside of the PMO, however, these costs are not
considered to be material.

        The Company, which was established in 1987, is a relatively new company
that does not have the level of exposure to Year 2000 issues as many older
companies. There are no legacy mainframe applications within the organization.
The Company's commercial application software products generally offered for
license by the Company are also used to develop internal business information
systems within the enterprise. In addition, third party software, hardware, and
telecommunication products are also used for the development of the Company's
systems. As a matter of strategic direction, the Company attempts to utilize the
most recent release versions/models of in-house and third party products. With
respect to embedded systems consisting of facilities, utilities, and third-party
interfaces on which the enterprise is dependent but does not have direct
control, the Company is in the process of developing detailed contingency plans
for its core support centers. The Company currently anticipates that the
approach described above will enable it to achieve Year 2000 readiness with
respect to its critical internal processes and therefore, the Company does not
expect that Year 2000 issues will have a material adverse impact on the
Company's financial condition. However, because of the vast scope of potential
Year 2000 issues, the Company cannot be certain to what extent the Company may
be impacted.

        Although the Company feels confident that its internal critical
processes will be Year 2000 Ready, the Company does recognize that it is
vulnerable, as are most organizations, to the inability of significant
suppliers, third-party external interface suppliers, and utility organizations
to achieve Year 2000 Readiness. In light of these possibilities, the Company is
in the process of developing detailed contingency plans for its core support
centers to ensure the continuity of its operations.

FINANCIAL RISK MANAGEMENT

Foreign Exchange

        The Company's revenue originating outside the United States was 18% of
total revenues in the first three months of 1999 and 15% for the same period in
1998. International sales from each geographic region were less than 10% of
total revenues. International sales are made mostly from the Company's foreign
sales subsidiaries in the local countries and are typically denominated in the
local currency of each country. These subsidiaries also incur most of their
expenses in the local currency. Accordingly, all foreign subsidiaries use the
local currency as their functional currency.

        The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.

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

        The Company initiated a hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign exchange rates. The program uses forward foreign exchange contracts as
the vehicle for hedging these intercompany balances. In general, these forward
foreign exchange contracts have terms of three months or less. The Company
settles all of its hedges on the last day of the second month of each quarter
and concurrently opens new contracts to cover the upcoming quarter. Gains and
losses on the settled contracts are recognized as other income or expense in the
current period, consistent with the period in which the gain or loss of the
underlying transaction is recognized. The Company recorded net losses from these
settled contracts and underlying foreign currency exposures of approximately
$0.9 million and $0.4 million for the three



                                       15
<PAGE>   16

months ended March 31, 1998 and 1999, respectively. The foreign exchange hedging
program is managed in accordance with a corporate policy approved by the
Company's Board of Directors.

        At March 31, 1998 and 1999, hedge positions totaled $11.6 million and
$23.2 million, respectively. All hedge positions are carried at fair value,
which approximates book value at March 31, 1998 and 1999, respectively.

        For the three month periods ended March 31, 1998 and 1999, the Company's
revenues in the Asia/Pacific region, which includes Far East countries and
Australia and New Zealand, were less than 5% of total revenues. As of March 31,
1999, less than 5% of the Company's assets are in the Asia/Pacific region. To
date, the Company's operations in the region are generating losses and negative
cash flows. As the Asia/Pacific currencies devalue, the translated loss reported
on the consolidated financial statements decreases. In addition, such currency
devaluations cause the Company's U.S. dollar cash funding requirements of these
foreign subsidiaries to decrease.

Interest Rates

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

        The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash
equivalent, short term, and long term investments are treated as
"available-for-sale" under SFAS 115.

        Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.

        The Company's investments are made in accordance with an investment
policy approved by the Board of Directors. At March 31, 1999, the average
maturity of the Company's investment securities was approximately five months.
No investment securities had maturities exceeding two years. The following table
presents certain information about the Company's financial instruments at March
31, 1999 that are sensitive to changes in interest rates. These instruments are
not leveraged and are held for purposes other than trading. For
available-for-sale investment securities, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The Company believes its available-for-sale securities, comprised of highly
liquid debt securities of corporations, municipalities, and the U.S. Government,
are similar enough to aggregate. Because of the Company's effective tax rate,
the Company finds it advantageous to invest largely in tax-advantaged
securities. The average interest rates below reflect a weighted average rate for
both taxable investments and tax-exempt investments. Below is a tabular
presentation of the maturity profile of the available-for-sale investment
securities held by the Company at March 31, 1999:

                            INTEREST RATE SENSITIVITY
                      PRINCIPAL AMOUNT BY EXPECTED MATURITY
                         WEIGHTED AVERAGE INTEREST RATE

<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)                 1 YEAR OR        MORE THAN          TOTAL       FAIR VALUE
                                         LESS            1 YEAR                          3/31/99
------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>                <C>         <C>   
Available-for-sale securities           $265.9           $ 43.2           $309.1          $309.3
Weighted average interest rate             3.6%             4.1%
</TABLE>

        The Company is not an issuer of any corporate debt nor does it have any
bank borrowings outstanding.



                                       16
<PAGE>   17

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

            The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations with a footnote (1) symbol. The Company may also make oral
forward-looking statements from time to time. Actual results may differ
materially from those projected in any such forward-looking statements due to a
number of factors, including those set forth below and elsewhere in this Form
10-Q.

            The Company operates in a dynamic and rapidly changing environment
that involves numerous risks and uncertainties. The following section lists
some, but not all, of these risks and uncertainties that may have a material
adverse effect on the Company's business, financial condition or results of
operations. This section should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and Notes thereto included in Part I
-- Item 1 of this Quarterly Report and the audited Consolidated Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1998, contained in the Company's 1998 Annual Report to Stockholders (Form 10-K).

PEOPLESOFT COULD EXPERIENCE FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

        PeopleSoft's revenues and results of operations are difficult to predict
and may fluctuate substantially from quarter to quarter. License fee revenues in
any quarter depend substantially upon PeopleSoft's total contracting activity
and its ability to recognize revenue in that quarter in accordance with its
revenue recognition policies. PeopleSoft's contracting activity is difficult to
forecast for a variety of reasons, including the following:

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

        -       PeopleSoft's sales cycle is relatively long and increasingly
                variable since PeopleSoft has broadened its marketing emphasis
                to include software product solutions for each customer's
                overall business, thus increasing the financial value of
                individual transactions and the complexity of the customer
                selection, negotiation and approval process;

        -       the size of license transactions can vary significantly;

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

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

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

        In addition, each customer's evaluation of its need to achieve Year 2000
compliance may affect the purchase decision. PeopleSoft believes that many
customers and potential customers are heavily engaged in testing and correcting
system Year 2000 problems, and therefore such customers may choose to defer
system investments during 1999, negatively impacting the Company's revenues. In
addition, prior year sales may have been increased due to customers' urgent need
to address Year 2000 issues. Such Year 2000 related demand should be eliminated
in 1999 due to the lead time required to implement new systems, negatively
impacting the Company's revenues. In addition, the Company's sales cycles may
lengthen in 1999 and future years due to lessened urgency of customers' system
investment decisions. Because Year 2000 related impacts on customer purchasing
decisions are unprecedented, PeopleSoft has a limited ability to forecast
accurately the impact of the Year 2000 issue on its quarter-to-quarter revenues.

         In addition, changes in PeopleSoft's sales incentive plans have had and
may continue to have an unpredictable impact on seasonal business patterns.
Finally, changes in economic, political and market conditions may adversely
impact PeopleSoft's business opportunities at any time.

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



                                       17
<PAGE>   18

        -       whether the license agreement relates entirely to then currently
                undeliverable software products;

        -       whether enterprise transactions include both software products
                that are then currently deliverable and software products that
                are still under development or other undeliverable elements (If
                PeopleSoft enters into a license agreement to provide both
                software product categories, then, in order to recognize revenue
                on currently delivered products under the license agreement, it
                must be able to establish separate values for all elements under
                the license agreement, and the license agreement and supporting
                schedules must contain precise contractual provisions consistent
                with generally accepted accounting principles ("GAAP"));

        -       whether the customer demands services that include significant
                modifications, customizations or complex interfaces;

        -       whether the license agreement includes non-standard acceptance
                criteria that may preclude revenue recognition prior to customer
                acceptance; and

        -       whether the license agreement includes fees with extended
                payment terms or fees that depend upon acceptance of services or
                other contingencies.

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

        Variances or slowdowns in PeopleSoft's prior quarter contracting
activity may impact its current and future service revenues since service
revenues typically lag license fee revenues. PeopleSoft's ability to increase
service revenue (such as fees derived from consulting, training and maintenance
services) primarily depends on its ability to increase the number of its
licensing agreements. Additionally, PeopleSoft may not be able to recruit, hire
and train sufficient numbers of qualified consultants to perform these services.

PEOPLESOFT DEPENDS ON THIRD PARTY TECHNOLOGY

        PeopleSoft licenses numerous critical third-party software products that
it incorporates into its own software products. The termination of any of
PeopleSoft's licenses to this third-party software could have a material adverse
effect on PeopleSoft's business, financial condition and results of operations.
These adverse effects include, for example, PeopleSoft's products becoming
inoperable or their performance being materially reduced. If any of the
third-party software vendors change their product offerings, PeopleSoft may need
to incur additional development costs to ensure continued performance of its
products. In addition, if the cost of licensing any of these third-party
software products materially increases, PeopleSoft's gross margin levels could
materially decrease.

        PeopleSoft relies on existing partnerships with certain other software
vendors who are also competitors. For example, PeopleSoft partners with
Oraclewhen PeopleSoft customers select an Oracle database to run in conjunction
with PeopleSoft's financial package. However, Oracle competes with PeopleSoft in
the enterprise software area. If these partners/competitors change their
business practices in the future, PeopleSoft may be compelled to find
alternative vendors of complementary software, which may not be as popular or
provide the same functionality as the software provided by PeopleSoft's existing
partners/competitors.

THERE ARE RISKS ASSOCIATED WITH CREATION OF MOMENTUM BUSINESS APPLICATIONS

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

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



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<PAGE>   19

                and Momentum will be responsible for overseeing the actual
                product development.

        -       PeopleSoft contributed a substantial portion of its cash
                reserves to Momentum. As a result, PeopleSoft's credit rating
                may be adversely affected and its ability to raise additional
                funds may be impaired. In addition, the Company has increased
                risk of having insufficient cash resources to address adverse
                conditions that may impact its business results.

        -       PeopleSoft may lose the tax benefits associated with the
                research and development expenditures on the projects pursued by
                Momentum. Though PeopleSoft may be able to recapture these
                benefits if it chooses to acquire Momentum, it will likely face
                restrictions on the amount and timing of its utilization of
                these tax benefits.

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


RECENT ACCOUNTING PRONOUNCEMENTS COULD ADVERSELY IMPACT PEOPLESOFT

        The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition",
and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" in October 1997, March 1998, and December 1998,
respectively. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede an earlier Statement of Position and, in
part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on its reading and interpretation of SOPs 97-2
and 98-4, PeopleSoft believes that it is currently in compliance with these
standards. However, the American Institute of Certified Public Accountants has
only issued some implementation guidelines for these standards and the
accounting profession is discussing a wide range of potential interpretations.
Once available, these implementation guidelines could lead to unanticipated
changes in PeopleSoft's current revenue accounting practices that could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations.

        PeopleSoft has not fully assessed its ability to comply with SOP 98-9
using current contracting and business practices. However, PeopleSoft believes
that SOP 98-9 may require significantly more revenue to be deferred for certain
types of transactions. Although this new standard is not effective until the
year 2000, PeopleSoft, in accordance with its historical practice of complying
with new revenue recognition standards as soon as issued, may choose to adopt
the standard in 1999, requiring either changes in revenue recognition practices
or changes in PeopleSoft's sales and contracting practices in order to comply.
Such changes may have a significant adverse impact on revenues and margins in
the quarter and year they are implemented.

        The implementation guidelines for these standards, when issued, may also
require PeopleSoft to change significantly its business practices in order to
continue to recognize a substantial portion of its license fee revenue when it
delivers its software products. These changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect
PeopleSoft's business, financial condition and results of operations.

PEOPLESOFT MAY CHANGE PRICING PRACTICES

        We may choose in 1999, or a future year, to make changes to our pricing
practices, including additional discounts to customers, reduction of
transactions that involve a perpetual use license to its software products,
changes in maintenance pricing, or other changes which may negatively impact
revenues in the quarter and year implemented, and for succeeding quarters and
years. Such changes may have a material adverse impact on revenues, income, and
financial condition.

THERE IS A HIGH DEGREE OF OPERATING LEVERAGE

        Like many of its competitors, PeopleSoft's business model is
characterized by a very high degree of operating leverage. A substantial portion
of PeopleSoft's operating costs and expenses consist of employee and facility
related costs, which are relatively fixed over the short term. In addition,
PeopleSoft's expense levels and hiring plans are based substantially on
PeopleSoft's projections of future revenue. If PeopleSoft's actual revenues



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<PAGE>   20

fall below expectations, its net income is likely to be disproportionately
adversely affected. PeopleSoft may be unable to increase or even maintain its
current level of profitability on a quarterly or annual basis in the future.

FUTURE OPERATING RESULTS ARE UNCERTAIN AND THE BUSINESS IS SEASONAL

        Segments of the software industry have in the past, and are expected in
the future, to experience significant economic downturns characterized by
decreased product demand, price erosion, technological shifts, work slowdowns
and layoffs. PeopleSoft's operations may, in the future, fluctuate substantially
from period to period because of these industry patterns, general economic
conditions affecting the timing of orders from customers and other factors
affecting capital spending.

        PeopleSoft has been, and expects to continue to be, affected by seasonal
trends in the software industry. PeopleSoft's revenues historically have
followed a pattern of being relatively weak in the first and second quarters and
relatively strong in the third and fourth quarters. This seasonality has been
caused by a variety of factors, including sales incentives, customer demand
based on available capital budgets and release of new technologies. However, we
can not assure you that results in the third and fourth quarters will be
stronger than, or even equal to, results in the first half of our fiscal year.

THERE IS INTENSE COMPETITION IN THE INDUSTRY

        The market for business application software has been intensely
competitive for the past year and is currently intensifying. PeopleSoft competes
with a variety of software vendors. Although PeopleSoft believes its success has
been due in part to its early emphasis on the client/server architecture,
virtually all of PeopleSoft's competitors now offer software products based on a
client/server architecture. Consequently, PeopleSoft must differentiate itself
through different or more subtle architectural and technological factors,
including: internet focused application development; enterprise software product
breadth and individual product features; service reputation; product
flexibility; ease of implementation; international software product version
availability and support; and price. Price competition has significantly
increased over the past year and this trend may continue in the future.

        In the enterprise application software market, PeopleSoft faces
significant competition from SAP and Oracle and, to a lesser degree, J.D.
Edwards, Dun & Bradstreet Software (now operating as two separate divisions of
Geac Computer Systems, Inc.), Computer Associates International, Inc. and other
companies such as System Software Associates who previously focused primarily on
the AS/400 marketplace. In addition, the Company faces increasing competition
from internet focused application vendors. In this market, the chief competitive
factors include:

        -       the breadth and completeness of the enterprise solution offered
                by each vendor, and the competitive advantages the solution
                offers to its customers;

        -       the extent of software product integration across the enterprise
                solution; and

        -       the availability of localized software products and technical
                support in key markets outside the United States.

        Both SAP and Oracle have certain competitive advantages over PeopleSoft
in these areas primarily due to their significant worldwide presence and longer
operating and product development history. Both SAP and Oracle have
substantially greater financial, technical and marketing resources than
PeopleSoft. In addition, SAP has a larger installed base than PeopleSoft.
Furthermore, Oracle's RDBMS (relational database management system) underlies a
significant portion of PeopleSoft's installed applications.

        PeopleSoft entered the manufacturing software application markets in
1996. In these markets, PeopleSoft's existing competitors include those listed
immediately above, and others such as Baan, QAD, Ross Systems and a large number
of niche competitors already in the manufacturing market.

        In addition, since it acquired Red Pepper Software in the fourth quarter
of 1996, PeopleSoft has competed in the emerging enterprise resource
optimization software solutions market. PeopleSoft's current and potential
competitors in this market include:



                                       20
<PAGE>   21

        -       companies such as i2 Technologies, Manugistics and Numetrix
                Software, which have developed or are attempting to develop
                advanced planning and scheduling software products that
                complement or compete with MRP (material requirements planning)
                solutions;

        -       other companies that provide specialized planning and scheduling
                software for niche markets, including Chesapeake Systems,
                Waterloo Manufacturing Software, MAPICS, Inc., and Marcam
                Solutions, Inc.;

        -       other business application software vendors that may broaden
                their product offerings by internally developing (such as SAP's
                initiatives in this area), acquiring (such as Baan's
                acquisitions of Berclain Group, Inc. and Antalys, Inc.) or
                partnering with independent developers of advanced planning and
                scheduling software;

        -       internal development efforts by potential customers' corporate
                information technology departments; and

        -       companies offering standardized or customized products on
                mainframe and/or mid-range computer systems.

        PeopleSoft also competes with: providers of HRMS software products,
including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower,
Inc. and Ceridian: and providers of financial management systems software
products, including Computron Software, Inc., Flexiware International, Hyperion
Software, Lawson Associates and other smaller companies.

        In addition, as the Year 2000 approaches, potential customers may
consider outsourcing options, including data center outsourcing and service
bureaus, as viable alternatives to purchasing PeopleSoft's software products.
This may result in increased competition from outsource services such as
Computer Science Corporation ("CSC"), Electronic Data Systems Corporation
("EDS"), IBM, ADP, Ceridian and other smaller companies. During the third
quarter of 1998, PeopleSoft signed agreements with IT service providers CIBER,
Inc., CSC, Corio, KPMG Peat Marwick, reSOURCE PARTNER, and USinternetworking to
provide industry-specific outsourcing solutions encompassing software
implementation and management services. Although PeopleSoft is pursuing an
outsourcing partner program that it believes will address the needs of the
marketplace, this program may not be successful.

        Intense competition could lead to increased price competition in the
market, forcing PeopleSoft to reduce prices. As a result, PeopleSoft's gross
margins may decline and it may lose market share which, in turn, could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. During 1998 certain competitors became more aggressive
with their product pricing reductions, payment terms and/or issuance of
contractual implementation terms or guarantees. PeopleSoft may be unable to
continue to compete successfully with its existing competitors or to compete
successfully with new competitors.

THERE ARE RISKS ASSOCIATED WITH BUSINESS COMBINATIONS

        As part of its overall strategy, PeopleSoft plans to continue to acquire
or invest in complementary companies, products, and technologies and to enter
into joint ventures and strategic alliances with other companies. Risks commonly
encountered in such transactions include:

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

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

        -       the potential disruption of PeopleSoft's ongoing business;

        -       the inability to retain key technical and managerial personnel;

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



                                       21
<PAGE>   22

        -       decreases in reported earnings as a result of charges for
                in-process research and development and amortization of acquired
                intangible assets;

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

        -       dilution of existing equity holders;

        -       difficulty in maintaining controls, procedures, and policies;
                potential adverse impact on the PeopleSoft's relationships with
                partner companies or third party providers of technology or
                products; and

        -       the impairment of relationships with employees and customers as
                a result of any integration of new personnel.

        In addition, PeopleSoft may not qualify for pooling of interests
accounting for acquisitions of companies, and thus may need to account for
acquistions of other companies using the purchase method, in addition to using
the purchase method for acquisitions of technologies or products. The purchase
method of accounting for acquisitions would require large write-offs of any in
process research and development costs related to companies acquired, as well as
ongoing amortization costs for goodwill and other intangible assets valued in
the acquisition of companies, products, or technologies. Such writeoffs and
ongoing amortization charges may have a material adverse impact on operating
margins and net income in the quarter of the acquisition and for several
subsequent years. PeopleSoft may not be successful in overcoming these risks or
any other problems encountered in connection with such transactions.

PEOPLESOFT RELIES ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS

        Our software products include a suite of proprietary software
development tools, known as PeopleTools, which are fundamental to the effective
use of PeopleSoft's software products. While no industry standard exists for
software development tools, several companies have focused on providing software
development tools and each of them is attempting to establish its software
development tools as the accepted industry standard. In addition, Microsoft is
attempting to establish several standards in the marketplace. If a software
product other than PeopleTools becomes the clearly established and widely
accepted industry standard, PeopleSoft may be compelled to abandon or modify
PeopleTools in favor of such an established standard; be forced to redesign its
software products to operate with such third party's software development tools;
or face the potential sales obstacle of marketing a proprietary software product
against other vendors' software products that incorporate a standardized
software development toolset. PeopleSoft may not be able to respond
appropriately or sufficiently rapidly to the emergence of an industry standard.

THERE ARE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

        PeopleSoft has committed, and expects to continue to commit, substantial
resources and funding to build its international service and support
infrastructure. Operating costs in many countries, including many of those in
which PeopleSoft operates, are higher than in the United States. In order to
increase international sales in 1998 and subsequent periods, PeopleSoft must:

        -       continue to globalize its software product lines;

        -       expand existing and establish additional foreign operations;

        -       hire additional personnel;

        -       identify suitable locations for sales, marketing, customer
                service and development; and

        -       recruit international distributors and resellers in selected
                territories.

If PeopleSoft's international expansion and/or product globalization efforts are
not successful, its operating results will likely be negatively affected.



                                       22
<PAGE>   23

        Generally, PeopleSoft's foreign sales are denominated in its foreign
subsidiaries' currencies. If these foreign currency exchange rates change
unexpectedly, PeopleSoft's could have significant gains or losses. PeopleSoft
has a hedging program designed to mitigate the potential impact of exchange rate
fluctuations. Under this foreign exchange management policy, PeopleSoft may
hedge existing transaction exposures, anticipated transactions and exposure
resulting from the translation of foreign financial results into U.S. Dollars.
PeopleSoft can hedge anticipated transactions and translation exposures only if
they are highly certain, reasonably estimable and significant in amount.
PeopleSoft's inability to hedge potential significant exposures due to
uncertainty or inability to estimate reasonably its foreign exchange exposure
could materially adversely affect its operating results.

WE RELY ON THIRD PARTIES FOR SALES AND MARKETING

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

OUR SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT ARE COMPLEX

        The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements.
PeopleSoft's future success will depend in part upon its ability to; (i)
continue to enhance and expand its core applications; (ii) continue to provide
enterprise solutions; (iii) enter new markets; and (iv) develop and introduce
new products that keep pace with technological developments, including
developments related to the internet, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. PeopleSoft may not be able
to enhance existing products or develop and introduce new products in a timely
manner.

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

        Beginning with Release 6, PeopleSoft integrated certain features of
BEA's Tuxedo product into its applications. Over the next several releases,
PeopleSoft will continue to integrate Tuxedo features to allow applications to
run on a distributed basis using a multi-tiered client/server architecture.
PeopleSoft also will bundle Cognos' Powerplay product and Arbor's Essbase
product to incorporate desktop OLAP capabilities, and will bundle products from
Informatica and Information Advantage into its Enterprise Performance Management
products. These third party products may be critical to the competitiveness of
PeopleSoft's software products in the future. Integration of these and other
products is complex and PeopleSoft's efforts may not be successful or may not
result in significant software product enhancements.

        Despite testing by PeopleSoft and by third-parties, software programs as
complex as those offered by PeopleSoft are likely to contain a number of
undetected errors or "bugs" when they are first introduced or as new releases
are subsequently released. This may result in reduced acceptance of PeopleSoft's
software products in the marketplace. The effort and expense of developing,
testing and maintaining software product lines will increase with the increasing
number of possible combinations of: (i) vendor hardware platforms; (ii)
operating systems and updated versions; (iii) PeopleSoft application software
products and updated versions; and (iv) RDBMS platforms and updated versions.
Developing consistent software product performance characteristics across all of
these combinations could place a significant strain on PeopleSoft's development
resources and software product release schedules.



                                       23
<PAGE>   24

PEOPLESOFT RELIES ON CLIENT INTERFACES

        Currently, PeopleSoft supports client platforms using browsers certified
to run its Java-based Web client, or Microsoft's Windows family of software
products, including Windows 3.1 (PeopleSoft releases prior to Release 6 only),
Windows NT and Windows 95. If Microsoft fundamentally changes the architecture
of its software product so that users of PeopleSoft's software applications
experience significant performance degradation or become incompatible with
future versions of Microsoft's Windows Operating System, it could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. The use of a Web client as a primary user interface is
emerging as an alternative to the traditional desktop access through Microsoft
Windows based personal computers. This client access via the Internet or
intranet involves numerous risks inherent in using the Internet, including
security, availability and reliability. PeopleSoft may wish to offer its
applications on future or existing client platforms that achieve popularity
within the business application marketplace. These future or existing client
platforms may or may not be architecturally compatible with PeopleSoft's current
software product design. PeopleSoft may not be able to support new client
interfaces and achieve market acceptance of new client interfaces which it does
support.

PEOPLESOFT RELIES ON JOINT BUSINESS ARRANGEMENTS

        PeopleSoft has in the past entered into, and may in the future enter
into, various development or joint business arrangements to develop new software
products or extensions to its existing software products. Under these
arrangements, PeopleSoft has in the past and expects in the future to be the
exclusive remarketer of the developed software products and pays a royalty to
the business partner based on end user license fees for the developed products.
Under these joint business arrangements, PeopleSoft may distribute or jointly
sell with its business partner an integrated software product. While PeopleSoft
intends to develop business applications that are integrated with its software
products, these software products may not in fact be integrated or the market
may not accept an integrated enterprise solution. Also, these arrangements may
require additional investments from third parties or business partners to
complete development or to enhance the software product. These investments may
not be available on terms mutually acceptable to PeopleSoft and its business
partner or the existing or other potential third-party funding source(s).

        If PeopleSoft acquires title to the software products or technology from
its business partner, it may account for this acquisition using the purchase
method, which is likely to result in either or both of the following accounting
treatments: (i) a charge to earnings for in-process research and development
which PeopleSoft would record in its statement of income in the period it
completed the acquisition; or (ii) allocation of a substantial portion of the
purchase price to acquired technology or other intangible assets, creating
significant intangible assets. These intangible assets would be amortized in
future periods as a cost of operations. If either of these scenarios occur,
PeopleSoft's results of operations in one or more future periods could be
materially adversely affected.

POTENTIAL SECURITY BREACHES ARE POSSIBLE

        PeopleSoft's application software products incorporate extensive
security features designed to prevent unauthorized retrieval or modification of
sensitive data. PeopleSoft has developed a security architecture using: the
capabilities of its own applications; the client operating system software; some
of the security features contained in the RDBMS platforms on which the
applications run; and certain third party security products. To date, PeopleSoft
is not aware of any violations of its application security architecture within
its installed base. Although these security features are subject to constant
review and enhancement, they may not be successfully implemented or may not be
effective within a particular customer's operating environment. If a breach of
security or a suspected breach of security occurs, the accompanying publicity or
any subsequent claims against PeopleSoft could adversely impact the demand for
PeopleSoft's software products and/or could cause a decline in the market price
of PeopleSoft's stock and/or could adversely impact PeopleSoft's financial
results due to lost or delayed closing of software licensing opportunities.

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

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



                                       24
<PAGE>   25

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

        -       frequent software product enhancements; and

        -       timeliness and quality of support services.

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

        PeopleSoft does not believe that its software products, software
products acquired from previous acquisitions, third party software products
PeopleSoft offers under sublicense agreements, PeopleSoft trademarks or other
PeopleSoft proprietary rights infringe the property rights of any third parties.
However, third parties may assert infringement claims against PeopleSoft and its
products. These assertions could require PeopleSoft to enter into royalty
arrangements or could result in costly litigation.

PEOPLESOFT MAY EXPERIENCE PRODUCT LIABILITY CLAIMS

        PeopleSoft's license agreements contain provisions designed to limit its
exposure to potential product liability claims. However, these provisions could
be invalidated by unfavorable judicial decisions or by federal, state or local
laws or ordinances. Although PeopleSoft has not experienced any product
liability claims to date, use of its software in mission critical applications
creates the risk that a third party may pursue a claim against PeopleSoft. If a
product liability claim against PeopleSoft were successful, the resulting
damages or injunctive relief could have a material adverse affect on
PeopleSoft's business, financial condition and results of operations. In
addition, as PeopleSoft begins to compete in the manufacturing software
application market, the mission critical nature of these products may increase
PeopleSoft's exposure to product liability claims.

THERE ARE RISKS ASSOCIATED WITH MANAGING GROWTH

        PeopleSoft has experienced an extended period of growth in the following
areas: revenue; customer base; software product lines and supported platforms;
employees; and international operations. In addition, we have experienced
increased pressure on the viability and scope of our operating and financial
systems. This growth has resulted in new and increased responsibilities for
management personnel and has placed a significant strain upon PeopleSoft's
management, operating and financial controls and resources, including its
services and development organizations. To accommodate recent growth, compete
effectively and manage potential future growth, PeopleSoft must continue to
implement and improve the speed and quality of its information decision support
systems, management decisions, reporting systems, procedures and controls.
PeopleSoft's personnel, procedures, systems and controls may not be adequate to
support its future operations.

PEOPLESOFT MAY BE DEPENDENT ON KEY PERSONNEL

        PeopleSoft believes that its future prospects will depend in large part
upon its ability to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel. PeopleSoft continues to hire
additional sales, services and technical personnel. However, competition for
personnel in the software industry is intense, and, at times, PeopleSoft has had
difficulty locating candidates with appropriate qualifications within various
desired geographic locations, or with certain industry-specific domain
expertise. If PeopleSoft's competitors increase their use of non-compete
agreements, the pool of available technical personnel may further narrow in
certain jurisdictions, even if the non-compete agreements are ultimately
unenforceable. The failure to attract, train, retain and manage productive sales
and sales support personnel would have a material adverse effect on PeopleSoft's
business, financial condition and results of operations.

        If PeopleSoft loses the services of one or more of its key employees,
its business, operating results, financial condition or business prospects could
be materially adversely affected. PeopleSoft has several programs in place to
retain key personnel, including granting of stock options that vest annually
over four or five years. A



                                       25
<PAGE>   26

number of key employees have vested stock options with exercise prices lower
than PeopleSoft's current stock price. These potential gains provide these
employees the economic freedom to explore personal objectives both within and
outside PeopleSoft, which may result in the loss of one or more key employees
during the coming years.

        It is widely recognized that the software industry in which PeopleSoft
competes is at or beyond a condition of full employment. PeopleSoft may not be
able to attract, train and retain the personnel it requires to develop, market,
sell and support new or existing software or to continue to grow. Also, to
penetrate successfully key vertical markets, PeopleSoft must attract, train and
retain personnel with industry-specific domain expertise.

        Since the fourth quarter of 1998, PeopleSoft has experienced turnover of
several senior executives. PeopleSoft has hired or promoted qualified candidates
to fill these positions. However, since the employees are new to the positions,
it is possible that the newly hired or promoted employees will not easily
transition into these leadership roles or be able to successfully lead
PeopleSoft as it continues to grow.

CERTAIN THIRD PARTY PRODUCTS MAY NOT BE YEAR 2000 COMPLIANT

        PeopleSoft's internal business information systems are comprised
primarily of the same commercial application software products it generally
offers for license to customers. These applications have been tested for Year
2000 compliance and are certified by the Information Technology Association of
America as Year 2000 compliant. Therefore, PeopleSoft does not expect any Year
2000 compliance issues to arise related to its primary internal business
information systems. Costs directly attributable to PeopleSoft's internal year
2000 initiative as currently estimated to at approximately $4.0 million. The
amount spent to date is approximately $2.0 million. This estimate is comprised
primarily of hardware and software required to complete Year 2000 testing within
the enterprise and consulting fees.

        However, PeopleSoft uses other third party vendor network equipment,
telecommunication products, and software products that may or may not be Year
2000 compliant. PeopleSoft currently is taking steps to address the impact, if
any, of the Year 2000 issue surrounding these third party products. The failure
of any critical technology components to operate properly in the Year 2000 could
have a material adverse effect on PeopleSoft's business, financial condition and
results of operations, and PeopleSoft may incur unanticipated expenses to remedy
any problems.

THERE ARE RISKS ASSOCIATED WITH THE EUROPEAN MONETARY UNION ("EMU")

        Our internal business information systems are primarily comprised of the
same commercial application software products generally offered for license by
the Company to end user customers. PeopleSoft's latest software release (Release
7.5) contains EMU functionality that allows for dual currency reporting and
information management. We are not aware of any material operational issues or
costs that were incurred in preparing internal systems in advance of the EMU.
However, since the Euro is not the sole legally required currency in any of the
member nations until the year 2002, it is possible that all issues related to
conversion to EMU have not surfaced yet, and may not have been adequately
addressed. In addition, we utilize third party vendor network equipment and
software products that may or may not yet be EMU compliant. Although PeopleSoft
continues to take steps to address the impact, if any, of EMU compliance for
such third party products, failure of any critical technology components to
operate properly under EMU may adversely affect business operations or require
us to incur unanticipated expenses to remedy any problems.

        Our foreign exchange exposures to legacy sovereign currencies of the
participating countries in the EMU became foreign exchange exposures to the Euro
upon its introduction. Therefore, hedging transactions entered for exposures
after January 1, 1999, are denominated in Euros and hedges to legacy currencies
which were entered prior to December 31, 1998 were converted to Euros as
applicable. Although we are not aware of any material adverse financial risk
consequences of the change from legacy sovereign currencies to the Euro, since
complete conversion with the elimination of legacy currencies will not occur
until 2002, it is possible conversion may yet result in problems, which may have
an adverse impact on our business since we may be required to incur
unanticipated expenses to remedy these problems.

THERE ARE RISKS ASSOCIATED WITH FACILITY EXPANSION

        PeopleSoft's continued growth has led to a significant increase in its
number of employees. Commercial building vacancy rates have dropped
significantly in many of the markets where PeopleSoft has significant
operations. As a consequence, we expect to experience increasing difficulty in
obtaining additional space to expand 



                                       26
<PAGE>   27

operations. The failure to either obtain space, or to obtain it on reasonably
attractive commercial terms, may inhibit our ability to grow, or may otherwise
adversely affect operations and financial results.

        Additionally, PeopleSoft may commit to real estate projects in order to
expand operations to accommodate expected growth. These real estate projects
typically have a lead time of over one year from the commitment date to
occupancy. PeopleSoft's anticipated growth projections may not be realized, and
therefore, PeopleSoft may incur increased fixed costs that cannot be recovered
from operations, resulting in material reductions to net income and cash flows.

OUR STOCK PRICE IS VOLATILE AND THERE IS A RISK OF LITIGATION

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

        -       revenue or results of operations in any quarter failing to meet
                the expectations (published or otherwise) of the investment
                community;

        -       announcements of technological innovations by PeopleSoft or our
                competitors;

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

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

        -       changes in recommendations or financial estimates by securities
                analysts;

        -       conditions and trends in the software industry generally;

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

        -       general market conditions and other factors.


        Further, the stock market has experienced in recent months and may
continue in the future to experience extreme price and volume fluctuations that
particularly affect the market prices of equity securities of high technology
companies that often are not related to or are disproportionate to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political and market conditions have, and may continue to
have, a material adverse effect on the trading price of PeopleSoft common stock.
Fluctuations in the price of our common stock may expose PeopleSoft to the risk
of securities class action lawsuits. As a result of the significant declines in
the price of our common stock during the second half of fiscal 1998 and the
first quarter of fiscal 1999, several such lawsuits were filed against
PeopleSoft. Though PeopleSoft believes that these lawsuits are without merit,
defending against them could result in substantial costs and a diversion of
management's attention and resources. In addition, any settlement or adverse
determination of these lawsuits could subject PeopleSoft to significant
liabilities. We cannot assure you that there will not be additional lawsuits in
the future or that current or future lawsuits will not have a material adverse
effect on our business, financial condition and results of operations.

THERE COULD BE ADVERSE EFFECTS OF POTENTIAL SECURITIES ISSUANCES

        If holders of warrants and/or options to purchase our common stock
exercise any significant number of these securities and resell the underlying
shares, the market price of our common stock could be materially adversely
affected. At May 10, 1999, warrants to purchase 3,200,000 shares of our common
stock were outstanding. As of May 10, 1999, these warrants had exercise prices
above the current market price of PeopleSoft common stock. In addition, at March
31, 1999, there were outstanding exercisable options to purchase 14,296,550
shares of PeopleSoft common stock issued under employee stock plans, of which
10,959,236 had exercise prices below the current market price of PeopleSoft
common stock.

PEOPLESOFT MAY NEED ADDITIONAL FINANCING

        PeopleSoft's short-term and long-term investments in marketable
securities consist primarily of high quality municipal bonds, U.S. government
securities, corporate debt securities and tax-advantaged money market



                                       27
<PAGE>   28

funds. Although these investments have favorable credit ratings, it is possible
that the issuers will default on their obligations, and PeopleSoft may lose
principal and accrued interest. In times of growth, PeopleSoft's operating and
investing activities may use more cash than they provide, thus requiring
PeopleSoft to obtain additional sources of financing. In addition, PeopleSoft
may need additional sources of financing for capital expenditures and material
acquisitions of complementary businesses, products or technologies. PeopleSoft
may be unable to obtain additional sources of financing on favorable terms, if
at all.



                                       28
<PAGE>   29

                           PART II - OTHER INFORMATION

   Item 1. Legal Proceedings

   Securities Class Actions: Beginning on January 29, 1999, a series of class
actions have been filed alleging that the Company and various of its officers
and directors violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. As of this date, the Company is aware of
sixteen such actions, all filed in the United States District Court for the
Northern District of California, the first of which is entitled Gulio Suttovia
v. David Duffield et al., No. C 99-0472 MJJ. It is likely that all of the
subsequent actions will be consolidated with Suttovia. There are varying
combinations of defendants named in these actions, but the universe of
defendants named in one or more actions, all of whom are represented by Gibson,
Dunn & Crutcher LLP is: PeopleSoft, Inc., David A. Duffield, Ronald E.F. Codd,
Albert W. Duffield, Kenneth R. Morris, George J. Still, Jr., Margaret L. Taylor,
Aneel Bhusri, Cyril Yansouni and Momentum Business Applications.

   The class periods alleged in the complaints vary slightly, but generally run
from early February 1997, when the Company's 1996 financial results were
released, until late January 1999, when its 1998 results were announced. The
allegations of the complaints focus on three general areas. First, the
complaints allege that the Company improperly accounted for the acquisition of
PeopleMan, L.P., which was acquired by the Company in 1996. The complaints
allege that, instead of writing off approximately $22 million of in-process
research and development ("IPR&D") in 1996 as a one-time charge, the Company
should have written off a lesser amount in 1996, capitalized the remainder and
amortized such amount over its useful life, which would have increased reported
earnings in 1996 but reduced reported operating earnings in later years. The
allegations in this regard appear to be based on the Company's announcement, on
January 28, 1999, that the Securities and Exchange Commission was reviewing the
Company's accounting treatment for this transaction (as well as for the
acquisition of Intrepid Systems. Inc. in 1998, which resulted in a $13.9 million
charge for IPR&D in the fourth quarter), and that the Company may be required to
restate its 1996 and 1997 financial statements with respect to the accounting
for IPR&D on the PeopleMan transaction (and take a lesser charge than expected
for the Intrepid acquisition in the fourth quarter of 1998). The Company has
subsequently been advised by the SEC that it will not require restatement of the
1996 or 1997 financial statements with respect to the PeopleMan transaction and
that it does not take exception to the accounting for IPR&D with respect to the
Intrepid transaction.

   Second, certain of the complaints allege that the Company has improperly
accounted for (or intends improperly to account for) the spin-off of its
subsidiary, Momentum Business Applications, Inc. ("Momentum Business
Applications"). In late 1998, the Company transferred $250 million to Momentum
Business Applications pursuant to a contract under which Momentum Business
Applications is to conduct research and development. The Company has a right of
first refusal with respect to the products generated by such research and
development and has an option to purchase the outstanding shares of Momentum
Business Applications in the future. Momentum Business Applications has one
employee, the former CFO of the Company, and contracts with the Company to
provide personnel to conduct its operations and for administrative services. On
December 31, 1998, the Company, pursuant to a Registration Statement filed with
the SEC, distributed the shares of Momentum Business Applications to the holders
of the Company's shares which resulted in a dividend of approximately $79
million being segregated in the Company's equity accounts in December 1998. Upon
the election of independent directors of Momentum Business Applications, which
occurred in the first quarter of 1999, Momentum Business Applications no longer
meets the requirements for consolidation with the Company. This resulted in a
one-time charge of approximately $177 million by the Company in the first
quarter of 1999. The complaints allege that this structure is designed to
artificially inflate future operating earnings by allegedly converting what
would be ongoing research and development charges into a one-time write-off.
This structure was disclosed in detail in the above-referenced Registration
statement, and the SEC has not taken exception to the deconsolidation of the
financial statements upon the election of independent Momentum Business
Applications directors.

   Third, the complaints allege that the Company misled the investing public as
to the Company's future prospects and failed to disclose facts that it knew
would result in decreased demand for its products and/or decreased operating
margins. The complaints allege further that various officers and directors
intended to profit thereby by artificially inflating the price of the Company's
stock so that they could sell significant amounts of their stock at inflated
prices. The allegations appear to have been triggered by the Company's 1999
forecast issued on January 28, 1999, which indicated lower growth than
experienced in prior years. The Company also announced that it was reducing its
workforce by approximately 6%. Due to uncertainties in the current business
environment, the Company no longer is forecasting financial results for 1999 or
subsequent fiscal years.



                                       29
<PAGE>   30

    The hearing for the appointment of plaintiff's lead counsel is scheduled for
May 4, 1999.

    The Company believes these actions to be without merit and intends to
vigorously defend them. However depending on the amount and timing, an
unfavorable resolution of some or all these matters could materially affect the
Company's future financial position or results of operations or cash flows in a
particular period.

   Item 2. Changes in Securities and Use of Proceeds

        None

   Item 3. Defaults Upon Senior Securities

        None

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

         None


   Item 5. Other Information

          None

   Item 6. Exhibits and Reports on Form 8 - K

           (a)   Exhibits

             10.1    Amended and Restated 1989 Stock Option Plan and forms of
                     option agreements thereunder 

             10.2    1992 Employee Stock Purchase Plan as amended to date, and 
                     form of subscription agreement thereunder

             27.1    Financial Data Schedule -March 31, 1999

           (b)   Reports on Form 8 - K

            No reports on Form 8 - K were filed during the quarter ended March
31, 1999.



                                       30
<PAGE>   31

   SIGNATURES

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

   Dated:  May 14, 1999


                                PEOPLESOFT, INC.


                                By: /s/ ALFRED J. CASTINO
                                    --------------------------------------------
                                    Alfred J. Castino
                                    Senior Vice President of Finance and 
                                    Administration, and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                       31
<PAGE>   32

                                PEOPLESOFT, INC.

                                INDEX OF EXHIBITS


<TABLE>
<CAPTION>
   EXHIBIT #                        EXHIBIT TITLE
   ---------                        -------------
<S>                 <C>                                
   10.1             Amended and Restated 1989 Stock Option Plan and form of 
                    option agreements thereunder

   10.2             1992 Employee Stock Purchase Plan as amended to date, and 
                    form of subscription agreement thereunder

   27.1             Financial Data Schedule - March 31, 1999
</TABLE>



                                       32