<PAGE>   1
================================================================================


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

                                    FORM 10-Q

[X]    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the quarterly period ended September 30, 1998 or

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

                         Commission File Number: 0-20710

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

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

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

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

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

                                                              Yes  [X]   No  [ ]

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

           CLASS                           OUTSTANDING AT OCTOBER 31, 1998
           -----                           -------------------------------
Common Stock, par value $.01                         233,017,263


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



<PAGE>   2



                                PEOPLESOFT, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

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

                           ITEM 1 - Financial Statements (unaudited)

                           Condensed Consolidated Balance Sheets as of                   3
                           December 31,  1997 and September 30, 1998

                           Condensed Consolidated Statements of Income for the           4
                           Three Months Ended September 30, 1997 and September
                           30, 1998; and Nine Months Ended September 30, 1997
                           and September 30, 1998                              

                           Condensed Consolidated Statements of Cash Flows for           5
                           the Nine Months Ended September 30, 1997 and
                           September 30, 1998                                           

                           Notes to Condensed Consolidated Financial Statements          6

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

              PART II      OTHER INFORMATION

                           ITEM 1 -  Legal Proceedings                                  31
                           ITEM 2 -  Changes in Securities and Use of Proceeds          31
                           ITEM 3 -  Defaults upon Senior Securities                    31
                           ITEM 4 -  Submission of Matters to a Vote of Security        31
                                     Holders                                              
                           ITEM 5 -  Other Information                                  31
                           ITEM 6 -  Exhibits and Reports on Form 8 - K                 31

              SIGNATURES                                                                32
</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,    SEPTEMBER 30,
                                                                1997             1998
                                                             -----------      -----------
<S>                                                          <C>              <C>        
           ASSETS
Current assets:
     Cash and cash equivalents                                  $267,897       $  474,905
     Short term investments                                      124,565          150,974
     Accounts receivable, net                                    299,243          351,612
     Deferred income taxes                                        25,320           39,613
     Other current assets                                          9,021           38,504
                                                                --------       ----------
        Total current assets                                     726,046        1,055,608

Property and equipment, at cost                                  195,667          282,633
     Less accumulated depreciation and amortization              (78,492)        (112,236)
                                                                --------       ---------- 
                                                                 117,175          170,397

Investments                                                       26,783           51,742
Deferred income taxes                                              7,371            7,371
Capitalized software, less accumulated amortization                9,706            8,878
Other assets                                                      11,255           12,110
                                                                --------       ----------
                                                                $898,336       $1,306,106
                                                                ========       ==========     
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities                   $ 63,508       $   80,894
     Accrued compensation and related expenses                    67,486          102,584
     Income taxes payable                                         22,370           28,781
     Deferred revenue                                            327,668          397,648
                                                                --------       ----------
        Total current liabilities                                481,032          609,907

Long term deferred revenue
                                                                      --           58,537
Long term deferred gain
                                                                      --           19,529

Stockholders' equity:
     Common stock                                                  2,237            2,502
     Additional paid-in capital                                  219,005          303,767
     Accumulated foreign currency translation adjustment          (1,292)          (2,611)
     Retained earnings                                           197,354          314,475
                                                                --------       ----------
                                                                 417,304          618,133
                                                                --------       ----------
                                                                $898,336       $1,306,106
                                                                ========       ==========
</TABLE>

       See notes to condensed consolidated unaudited financial statements


                                       3
<PAGE>   4



                                PEOPLESOFT, INC.

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

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                   THREE MONTHS ENDED          NINE MONTHS ENDED
                                                      SEPTEMBER 30,              SEPTEMBER 30,
                                                 ---------------------     ---------------------
                                                   1997         1998          1997         1998
                                                 --------     --------     --------     --------
<S>                                              <C>          <C>          <C>          <C>     
Revenues:
   License fees                                  $112,977     $147,273     $293,418     $432,732
   Services                                       104,073      204,032      261,662      516,769
                                                 --------     --------     --------     --------
      Total revenues                              217,050      351,305      555,080      949,501

Costs and expenses:
   Cost of license fees                             6,113        8,184       15,440       30,420
   Cost of services                                59,805      116,254      158,350      301,206
   Sales and marketing                             61,495       90,033      155,967      247,302
   Product development                             34,851       54,478       89,689      148,377
   General and administrative                      10,978       17,029       30,548       47,608
                                                 --------     --------     --------     --------
      Total costs and expenses                    173,242      285,978      449,994      774,913
                                                 --------     --------     --------     --------

Operating income                                   43,808       65,327      105,086      174,588
Other income, interest expense and other            2,480        5,909        6,955       14,317
                                                 --------     --------     --------     --------

      Income before income taxes                   46,288       71,236      112,041      188,905
Provision for income taxes                         17,589       27,070       43,233       71,784
                                                 --------     --------     --------     --------
Net income                                       $ 28,699     $ 44,166     $ 68,808     $117,121
                                                 ========     ========     ========     ========

Basic income per share                           $   0.13     $   0.19     $   0.31     $   0.51
                                                 ========     ========     ========     ========
Shares used in basic per share computation        221,010      231,078      218,793      228,479
                                                 ========     ========     ========     ========

Diluted income per share                         $   0.11     $   0.17     $   0.27     $   0.45
                                                 ========     ========     ========     ========
Shares used in diluted per share computation      253,830      257,518      250,389      259,439
                                                 ========     ========     ========     ========
</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>

                                                              NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                            1997            1998
                                                          ---------      ---------
<S>                                                       <C>            <C>      
OPERATING ACTIVITIES
Net income                                                $  68,808      $ 117,121
Adjustments:
   Depreciation and amortization                             28,673         40,953
   Provision for doubtful accounts                            6,935         29,130
   Provision for deferred income taxes                        7,952        (14,293)
   Changes in operating assets and liabilities:
      Accounts receivable                                  (155,371)      (245,075)
      Cash received from sales of accounts receivable        53,894        163,576
      Other current assets and noncurrent assets             (3,635)       (28,766)
      Accounts payable and accrued liabilities                1,808         12,324
      Accrued compensation and related expenses              20,930         35,098
      Deferred revenue                                      100,564        128,517
      Income taxes payable                                    7,537          6,411
      Tax benefits from employee stock transactions           9,343         24,741
                                                          ---------      ---------
   Net cash provided by operating activities                147,438        269,737

INVESTING ACTIVITIES
Purchase of investments                                    (127,971)      (180,728)
Sale of investments                                          50,044        129,360
Purchase of property and equipment                          (43,019)       (68,090)
Proceeds from sale of property and equipment                     --            147
Additions to capitalized software, net                       (1,557)        (2,385)
                                                          ---------      ---------
   Net cash used in investing activities                   (122,503)      (121,696)

FINANCING ACTIVITIES
Net proceeds from sale of common stock and
  exercise of common stock options                           28,753         60,286
                                                          ---------      ---------
   Net cash provided by financing activities                 28,753         60,286

Effect of foreign exchange rate changes on cash              (1,194)        (1,319)
                                                          ---------      ---------
Net increase in cash and cash equivalents                    52,494        207,008

Cash and cash equivalents at beginning of period            169,875        267,897
                                                          ---------      ---------
Cash and cash equivalents at end of period                $ 222,369      $ 474,905
                                                          =========      =========
</TABLE>


       See notes to condensed consolidated unaudited financial statements

                                       5

<PAGE>   6



                                PEOPLESOFT, INC.
         NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

        The information at September 30, 1997 and 1998 and for the three and
nine 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.

        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, 1997. 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 nine month period ended September 30, 1998 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). 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        NINE MONTHS ENDED
                                                        SEPTEMBER 30,              SEPTEMBER 30,
                                                    ---------------------     ---------------------
                                                        1997         1998         1997         1998
                                                    --------     --------     --------     --------
<S>                                                 <C>          <C>          <C>          <C>     
Numerator:
     Net income                                     $ 28,699     $ 44,166     $ 68,808     $117,121
                                                    ========     ========     ========     ========

Denominator:
     Denominator for basic income per share -
          weighted average shares                    221,010      231,078      218,793      228,479

      Employee stock options                          29,339       23,065       28,692       27,219
      Warrants                                         3,481        3,375        2,904        3,741
                                                    --------     --------     --------     --------
     Denominator for diluted income per share -
          adjusted weighted average shares and
          assumed conversions                        253,830      257,518      250,389      259,439
                                                    ========     ========     ========     ========

Basic income per share                              $   0.13     $   0.19     $   0.31     $   0.51
                                                    ========     ========     ========     ========

Diluted income per share                            $   0.11     $   0.17     $   0.27     $   0.45
                                                    ========     ========     ========     ========
</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
principal components of accounts receivable at December 31, 1997 and September
30, 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                      DEC. 31,        SEPT. 30,
                                                        1997           1998
                                                      ---------      ---------
<S>                                                   <C>            <C>      
Billed receivables                                    $ 200,081      $ 304,600
Unbilled  receivables                                   118,655         80,230
                                                      ---------      ---------
                                                        318,736        384,830
Allowance for doubtful accounts                         (19,493)       (33,218)
                                                      ---------      ---------
                                                      $ 299,243      $ 351,612
                                                      =========      =========
</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 October 1, 1999. The principal components of deferred
revenue at December 31, 1997 and September 30, 1998 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                               DEC. 31,      SEPT. 30,
                                                 1997          1998
                                              ---------     ---------
<S>                                           <C>           <C>      
License fees                                  $  71,168     $  66,217
Maintenance                                     184,171       262,925
Training                                         46,201        70,239
Other services                                   26,128        56,804
                                              ---------     ---------
                                                327,668       456,185
Less: Long term deferred revenue                     --       (58,537)
                                              ---------     ---------
                                              $ 327,668     $ 397,648
                                              =========     =========
</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 typically does not maintain any
servicing obligations under these arrangements and any servicing assets or
liabilities resulting from the arrangements are insignificant.

6.  HEDGING OF INTERCOMPANY BALANCES

        In the first quarter of 1998, 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 three months
or less to maturity. Gains and losses on hedges are recorded in Other income and
offset against losses and gains on the underlying exposures. Management of the
foreign exchange hedging program is done in accordance with a corporate policy
approved by the Company's Board of Directors.

7.    COMMITMENTS AND CONTINGENCIES

        During the third quarter of 1998, the Company entered into agreements to
sell one of its Pleasanton, California office buildings and related land, and to
simultaneously lease back a substantial portion of the office space contained
therein. The initial lease term is for 5 years. The Company has options to
terminate up to 50% of the space as early as 4 years and the remaining 50% at
the 5th year; or alternatively, the Company may extend the term of the lease in
five year increments up to 20 years. Fees due upon termination, if applicable,
are not significant to the overall lease payments but are being expensed over
the initial term of the agreement. The sales price of approximately $50.0
million resulted in a book gain of approximately $20.0 million, which will be
amortized over the lease period. The monthly lease charge over the term is
equivalent to prevailing market rates for similar office space in the area. The
Company holds a right of first refusal to additional space within the site as
other tenants' leases expire.

                                       7
<PAGE>   8

        Additionally, the Company purchased two parcels of land for $50.0
million during the third quarter. The Company has entered into an operating
lease agreement on a building that will be constructed on one of the parcels.
The monthly lease amount will be determined at the end of construction when the
final construction cost is known. The estimated construction costs for the
facilities of $110.0 million includes interest costs during construction that
are added to the lease balance rather than paid by the Company during
construction. The expected interest rate during construction is LIBOR plus
0.75%; this rate may change depending on certain financial ratios. The lease
term is for 5 years with the option to purchase the building for $110.0 million
at the end of the lease term. If at the end of the lease term the Company does
not purchase the property, the Company would guarantee a residual value to the
lessor equal to a specified percentage of the lessor's cost of the facility.
Under this lease, the Company is required to maintain compliance with certain
financial covenants, is prohibited from making certain payments, including cash
dividends, and is subject to various other restrictions.

        For tax purposes, the above transactions qualified as a tax deferred
like-kind exchange. There is no impact on immediate cash flow.

        In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. The lease is structured as an
operating lease and rental payments will begin when the construction on the
facility is completed, which the Company anticipates to be in the fourth quarter
of 1998. The available financing (or the maximum lease balance) for the
construction of the facility totals $70.0 million of which $64.1 million has
been drawn as of September 30, 1998. The interest rate charged on amounts funded
is LIBOR plus .0625% as measured on the date of each funding rollover. At each
funding rollover date, the Company has its choice of term and LIBOR rate (1
month, 2 months, 3 months, 6 months, 9 months or 12 months) applicable to each
tranche at the date the respective funding amount is requested and approved.
Each subsequent funding rollover date is the corresponding maturity of the
chosen LIBOR term. The Company began accruing interest concurrent with the
lessor's first drawdown of the construction commitment in January 1997.
Throughout the construction period, the accrued interest amount, which was
approximately $1.1 million as of December 31, 1997 and $3.5 million as of
September 30, 1998, has been and will continue to be added to the outstanding
lease balance. The Company has the option to renew the lease for an additional
three years, subject to certain conditions, or purchase the building for $70.0
million. If at the end of the lease term the Company does not purchase the
property, the Company would guarantee a residual value to the lessor equal to a
specified percentage of the lessor's cost of the facility. Under this lease, the
Company is required to maintain compliance with certain financial covenants, is
prohibited from making certain payments, including cash dividends, and is
subject to various other restrictions.

        Due to the above real estate transactions, the following represents
additional future minimum operating lease payments beyond those presented in the
Company's 1997 Annual Report on Form 10K for the years ending December 31 (in
thousands):
<TABLE>
<S>                     <C>     
        1999            $ 10,226
        2000              16,868
        2001              17,464
        2002              18,252
        2003              11,278
        Thereafter         7,746
                        --------
                        $ 81,834
</TABLE>

8.   SUBSEQUENT EVENTS

        The acquisition of Intrepid Systems, Inc. ("Intrepid") was completed in
early October 1998 with the Company acquiring all of Intrepid's outstanding
equity interests for approximately $45 million in cash and other consideration.
Although initially structured as a stock-for-stock exchange, the transaction was
consummated as a cash-for-stock transaction to facilitate a more rapid close.
The transaction will be recorded in the Company's fourth 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
portion of the purchase price allocated to in-process research and development
will be charged to expense during the fourth quarter, the period in which the
transaction closed. 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 charge 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 SEPTEMBER 30,
----------------------------------------------------------------------------------------
              PERCENTAGE OF
             TOTAL REVENUES
                                                                         PERCENTAGE
                                                                       DOLLAR INCREASE
       1997                 1998                                       YEAR OVER YEAR
-----------------  ---------------------                              ------------------
<S>                <C>                                                <C>
                                         Revenues:
        52%                  42%             License fees                     30%
        48                   58             Services                          96
       ---                  ---                                              --- 
       100                  100                  Total revenues               62
                                         Costs and expenses:
         3                    2             Cost of license fees              34
        28                   33             Cost of services                  94
        28                   26             Sales and marketing               46
        16                   15             Product development               56
         5                    5             General and administrative        55
       ---                  ---                                              ---
        80                   81                  Total costs and expenses     65
       ---                  ---                                              ---
        20                   19          Operating income                     49
         1                    2          Other income                        138
       ---                  ---                                              ---
        21                   21             Income before income taxes        54
         8                    8          Provision for income taxes           54
       ---                  ---                                              ---
        13%                  13%         Net income                           54%
       ===                  ===                                              ===
</TABLE>


                                       9
<PAGE>   10



<TABLE>
<CAPTION>


                      FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
              PERCENTAGE OF
             TOTAL REVENUES
                                                                         PERCENTAGE
                                                                       DOLLAR INCREASE
       1997                 1998                                       YEAR OVER YEAR
-----------------  ---------------------                              ----------------
                                         Revenues:
<S>                <C>                                                 <C>
        53%                  46%            License fees                        47%
        47                   54             Services                            97
       ---                  ---                                                ---
       100                  100                  Total revenues                 71
                                         Costs and expenses:
         3                    3             Cost of license fees                97
        29                   32             Cost of services                    90
        28                   26             Sales and marketing                 59
        16                   16             Product development                 65
         5                    5             General and administrative          56
       ---                  ---                                                ---
        81                   82                  Total costs and expenses       72
       ---                  ---                                                ---
        19                   18          Operating income                       66
         1                    2          Other income                          106
       ---                  ---                                                ---
        20                   20             Income before income taxes          69
         8                    8          Provision for income taxes             66
       ---                  ---                                                ---
        12%                  12%         Net income                             70%
       ===                  ===                                                ===
</TABLE>

   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
                                                                                            INCREASE
         12/31/97        9/30/98                            12/31/97         9/30/98     SINCE 12/31/97
         --------        -------                            --------         -------     -------------- 
<S>                     <C>         <C>                     <C>              <C>         <C>
         2,114           3,336      Services                   47%             51%             58%
         1,006           1,458      Sales and marketing        23              22              45
           918           1,211      Product development        21              19              32
           414             557      General and                
         -----            ----        administrative            9               8              35        
                                                              ---             ---             ---

         4,452           6,562     Total                      100%            100%             47%
         =====           =====                                ===             ===             ===
</TABLE>



REVENUES

        The Company generally recognizes revenue 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 that meet the Company's revenue recognition policy, the portion
allocated to software license fees will generally be recognized in the current
period, while the portion allocated 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 or is obligated to
perform other substantial implementation efforts, the Company recognizes revenue
related to the license agreement using contract accounting.

        Revenues from licensing fees increased by 30% from $113.0 million in the
three month period ended September 30, 1997 to $147.3 million for the same
period in 1998. Year to date, licensing fees increased 47% from $293.4 million
in 1997 to $432.7 million in 1998. The increase in license fee revenues was
attributable to increased market acceptance of, and expanded breadth of, the
Company's software product offerings, the increased capacity created by
continued growth in the Company's sales, marketing and customer service
organizations, and achievement of specific contract related milestones or other
conditions which allowed the Company to recognize more deferred license revenue
than in the prior year period. In the third quarter, the Company's deferred
license revenue declined by $9.8 million versus the prior quarter.

        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. In the third quarter, both the
net deferred license fees and the gross (before netting unbilled items) deferred
license fees declined sequentially from the prior quarter. The decline in gross
deferred license fees is due to all of the following factors: (i) considerable
efforts made by the Company during the third quarter on converting previously
deferred revenue to recognizable revenue through the satisfaction or elimination
of certain contingencies or additional obligations, the existence of which had
previously caused such revenue to be deferred; (ii) a higher than normal
percentage of the Company's current quarter contracting activity qualified for
immediate recognition of revenue, reflecting the Company's increased efforts to
move its business to standard software license terms and conditions; (iii) the

                                       10


<PAGE>   11

cancellation during the third quarter of a significant unbilled contract which
was effected consistent with a cancellation clause in the contract, reflecting a
decision made by the customer based entirely on the customer's fiscal spending
constraints. No revenues had previously been recognized under this agreement;
and (iv) the elimination of deferred revenue associated with the SMS
distribution agreement, which was mutually terminated by the parties during the
third quarter.

        Revenues from services increased by 96% from $104.1 million in the three
month period ended September 30, 1997 to $204.0 million for the same period in
1998. Year to date, service revenues increased by 97% from $261.7 million in
1997 to $516.8 million in the same period in 1998. The Company's customer
license agreements provide for initial maintenance, training, and installation
services for specified periods or amounts. Therefore increases in customer
licensing agreements have resulted in increases in revenues from these services.
Service revenues as a percentage of total revenues were 48% and 58% for the
quarters ended September 30, 1997 and 1998, respectively and 47% and 54% for the
nine months ended September 30, 1997 and 1998, respectively. The increase in the
relative percentage of service revenues to total revenues in these periods was
attributable to two primary factors: increases in the installed base of
customers receiving ongoing maintenance, training and other support services
from 1,900 customers as of September 30, 1997 to 2,545 as of June 30, 1998 to
3,060 as of September 30, 1998; and a $50.6 million and $110.4 million increase
in consulting revenue, for the three month and nine month periods, respectively,
as a result of expanded demand for the Company's consulting services in
enterprise implementation projects. In response to strong market demand for
single vendor product and implementation service solutions, the Company
continues to expand its service delivery capacity, particularly for consulting
services.

        Total revenues increased from $217.1 million in the three month period
ended September 30, 1997 to $351.3 million for the same period in 1998. Year to
date, total revenues increased 71% from $555.1 million in 1997 to $949.5 million
in 1998. Total revenue growth quarter over quarter of 62% exceeded the Company's
previously forecasted growth of 60%, and on a sequential basis, increased
approximately 10% over the total revenues recorded in the second quarter of
1998. The higher than forecasted growth rate over the prior year was due
primarily to service revenues. During each of the quarters ended September 30,
1997 and 1998, the Company's international revenues were approximately 16% of
total revenues. Revenues from international operations increased 58% from $34.8
million in the three month period ended September 30, 1997 to $55.0 million in
the same quarter in 1998. The dollar increase in international revenues resulted
from expanded international operations and the introduction of Release 6 in
December 1996 that incorporated additional global features and functionality.
The Company expects international revenues to continue to grow in absolute
dollar terms during 1998, and accordingly, continues to invest heavily in
international infrastructure, global product functionality and translated
versions of financial and other products(1). PeopleSoft 7.5, which was released
in the second quarter of 1998, provides stronger international functionality for
European businesses, including both new country specific functionality and
support for the European monetary unit. In the event international expansion
and/or product globalization are not successful, the Company's business
operating results and financial condition may be materially adversely affected.

COSTS AND EXPENSES

        Cost of license fees increased 34% from $6.1 million in the three month
period ended September 30, 1997 to $8.2 million for the same period in 1998,
representing 3% and 2% of total revenues in each quarter, respectively and 5%
and 6% of license fee revenues in each quarter, respectively. Cost of license
fees in the nine month periods ended September 30, 1997 and 1998 were $15.4
million and $30.4 million, respectively and represented 3% of total revenues for
each quarter and 5% and 7% of license fee revenues in the nine month periods
ended September 30, 1997 and 1998, 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. In addition, 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 owed on 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. 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 (1).


--------

(1) Forward-Looking Statement

                                       11

<PAGE>   12

        Cost of services consists principally of consulting, account management
field support, training, and product support. These costs increased 94% from
$59.8 million in the three month period ended September 30, 1997 to $116.3
million for the same period in 1998, representing 28% and 33% of total revenues
in each quarter, respectively, and 57% of service revenues in each of those
quarters. Costs increased by 90% from $158.4 million in the nine month period
ended September 30, 1997 to $301.2 million for the same period in 1998,
representing 29% and 32% of total revenues and 61% and 58% of service revenues
in those periods, respectively. The increase in cost of services is due to
significant expansion of the Company's customer service resources across all
categories, including consulting, telephone support, training and account
management staff. 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
Company anticipates cost of services will increase in dollar amount, and may
increase as a percentage of total revenues, in future periods (1).

        Sales and marketing expenses increased by 46% from $61.5 million in the
three month period ended September 30, 1997 to $90.0 million for the same period
in 1998, representing 28% and 26% of total revenues in each period,
respectively. These expenses increased by 59% from $156.0 million in the nine
month period ended September 30, 1997 to $247.3 million for the same period in
1998, representing 28% and 26% of total revenues, respectively. The increase in
sales and marketing expenses is largely attributable to the increase in the
Company's direct sales force, both domestic and international. Sales and
marketing expenses as a percentage of total revenues have declined versus the
prior year due to the relatively lower expense levels associated with both
maintenance and other services, both of which are growing more quickly than
license sales. However, such expenses may increase as a percentage of total
revenues in future periods as the Company continues to increase its direct sales
and marketing expenditures to address certain international markets, grow its
industry focused enterprise sales force structure, expand its middle market
sales organization and fund both cross industry and industry specific marketing
and sales activities (1).

        Software product development expenses increased by 56% from $34.9
million in the three month period ended September 30, 1997 to $54.5 million for
the same period in 1998, representing 16% and 15% of total revenues in each
quarter, respectively. These expenses increased by 65% from $89.7 million in the
nine month period ended September 30, 1997 to $148.4 million for the same period
in 1998, representing 16% of total revenues in each period. Software product
development expenditure consists of costs related to the Company's staff of
software engineers and 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 HRMS, 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 (1).

        General and administrative expenses increased 55% from $11.0 million in
the three month period ended September 30, 1997 to $17.0 million for the same
period in 1998, representing 5% of total revenues in each quarter. These
expenses increased by 56% from $30.5 million in the nine month period ended
September 30, 1997 to $47.6 million for the same period in 1998, representing 5%
of total revenues in each period. The increase in general and administrative
expenses resulted primarily from the increase in the staffing to support the
Company's growth. These expenses include one-time charges of $3.4 million and
$2.9 million during the second and third quarters of 1998, respectively, related
to a contractual dispute and associated termination of the Company's arrangement
with a distributor. Excluding the one-time charges, general and administrative
expenses would be 4% of total revenues for the three and nine month periods
ended September 30, 1998.

        Operating margins for the three month period ended September 30, 1998
decreased to 18.6% compared to 20.2% for the same period last year and increased
slightly from 18.2% for the second quarter of 1998. The year over year decline
in operating margin reflects a comparison with the prior year percentage that
exceeded the Company's target range and normal seasonal level for the third
quarter. By way of illustration, the operating margin for the third quarter of
1996 was 17.7%. Operating margins for the nine month period ended September 30,
1998 decreased slightly to 18.4% compared to 18.9% for the same period in 1997.


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

                                       12

<PAGE>   13

        During the fourth quarter of 1998 the Company formed a new company,
Momentum Business Applications, Inc. ("Momentum"), to select and develop certain
software application products, and to commercialize such products, most likely
through licensing to the Company. In exchange for all of the shares of Momentum
Common Stock outstanding prior to the distribution, the Company will contribute
up to $300.0 million to Momentum to be used for the development of these
software application products. The Company, as the sole holder of the Momentum
Class B Common Stock following the distribution, will have the option to
repurchase all, but not less than all, of the outstanding shares of Momentum
Class A Common Stock under specified conditions. In addition, in exchange for
technology licenses granted by the Company to Momentum and a commitment by the
Company to make specified payments on sales of certain products, the Company
will have the option to license any products and technology developed by
Momentum.

        Momentum's software application development activities will take place
under a development and license agreement with the Company. It is anticipated
that substantially all of Momentum's funds will be directed toward developing
the following software application products: (i) electronic business
("e-business") applications; (ii) analytic applications; and (iii) software
applications designed for specific industry segments.

        The goal of providing e-business applications, analytic applications and
industry-specific software applications for a number of different industries
involves an ambitious product development effort that requires market specific
domain expertise significantly different from the Company's existing skill base.
The Company believes that it should form Momentum to pursue this opportunity
because of time to market considerations and the unique skills and technologies
needed to develop these new software application products.

        Therefore, the Company will contribute up to $300.0 million to Momentum
for development of such new products. Shares of Momentum Class A Common Stock
will be distributed to the Company's stockholders as a taxable dividend. By
creating Momentum and distributing the Momentum Class A Common Stock to the
Company's stockholders, the Company will separate the risks associated with
developing these new software application products from the risks associated
with the Company's traditional cross-industry enterprise resource planning
("ERP") applications. Thus, the transaction will provide an opportunity for the
Company's stockholders to increase or decrease their level of participation in
this new business by varying their level of investment in Momentum.

         The Company will file a registration statement with the Securities and
Exchange Commission on behalf of Momentum relating to a proposed special
distribution of callable Class A Common Stock to the Company's stockholders.
Each stockholder will receive one share of callable Class A Common Stock for
every fifty shares of the Company's common stock held as of a specified date.
The Company's stockholders are not required to pay any cash or other
consideration for the Momentum shares received. The distribution is taxable as a
dividend to each holder in the amount of the fair market value of the Momentum
shares distributed to each shareholder.

        The Company will record a dividend for the amount of the market value of
Momentum stock on the date of distribution. The remainder of the contribution
will be recorded as a one-time charge against operating income during the fourth
quarter.

        Other income, consisting primarily of interest, increased from $2.5
million in the three month period ended September 30, 1997 to $5.9 million for
the same quarter in 1998, and increased from $7.0 million in the nine month
period ended September 30, 1997 to $14.3 million for the same period in 1998.
The increase was due to higher cash balances based upon improved cash
collections and higher pre-tax return on investments based on a shift into
higher yield taxable securities. In January 1998, the Company initiated a
foreign currency transaction hedging program. The hedging transactions were
effective in offsetting foreign currency transaction gains and losses in the
quarter ending September 30, 1998.

PROVISION FOR INCOME TAXES

        The Company's income tax provision increased from $17.6 million in the
three month period ended September 30, 1997 to $27.1 million for the same
quarter in 1998 and increased from $43.2 million in the nine month period ended
September 30, 1997 to $71.8 million for the same period in 1998. The provision
for income taxes was 38% of income before taxes for the nine months ended
September 30, 1998, which represents a .5% decline from the 1997 annual
effective income tax rate of 38.5%. The effective tax rate is based on
management's current estimates and forecasts of the Company's taxable income in
multiple domestic and foreign taxing jurisdictions. The estimated annual
effective tax 

                                       13


<PAGE>   14

rate is relatively sensitive to the results of operations in various
jurisdictions, and because actual results may differ from such projections in
future periods, the actual effective tax rate could differ from this estimate.
As permitted by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", the Company has recorded $47.0 million in net deferred tax
assets as of September 30, 1998.

EARNINGS PER SHARE

              The Company's earnings per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This
method 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. Diluted earnings per share
increased from $0.11 in the three month period ended September 30, 1997 to $
0.17 for the same period in 1998 and from $0.27 for the nine month period ended
September 30, 1997 to $0.45 for the same period in 1998. Earnings per share for
the nine months ended September 30, 1998 increased as a result of the 70%
increase in net income from $68.8 million for the nine month period ended
September 30, 1997 to $117.1 million for the same period of 1998, partially
offset by a 4% increase in the number of shares used in the diluted per share
computation from 250.4 million shares for the nine month period ended September
30, 1997 to 259.4 million shares for the same period in 1998. The increase in
weighted average shares outstanding was due to the exercise of stock options,
the exercise of warrants in the fourth quarter of 1997, and the issuance of
shares under the employee stock purchase plan. Shares outstanding during the
remainder of 1998 will be impacted by the following factors: (i) the ongoing
issuance of common stock associated with stock option exercises; (ii) the
anticipated exercise during the fourth quarter of 1998 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 earnings per share computation; and, (iv) the issuance of common
stock to affect business combinations should the Company enter into such
transactions.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's operating activities provided cash of $269.7 million
during the nine month period ended September 30, 1998, compared to $147.4
million in the same period in 1997. In both periods, cash provided by operating
activities was due principally to earnings plus non-cash expenses, increases in
deferred revenues and accrued compensation and tax benefits related to employee
stock transactions that were partially offset by increases in other assets and
receivables. From December 31, 1997 to September 30, 1998, net accounts
receivable increased from $299.2 million to $351.6 million, respectively, and
deferred revenues increased from $327.7 million to $456.2 million over the same
period. The increase in net accounts receivable resulted from the growth in
customer licensing and service activity offset by cash collections. The
Company's expanded installed base of customers and emphasis on selling prepaid
maintenance and training contracts has resulted in a significant increase in
deferred revenues related to ongoing maintenance and other services. Increases
in payables and other assets were due to general growth in the Company's
operations.

        As discussed under "Cost and Expenses", during the fourth quarter of
1998 the Company formed a new company, Momentum Business Applications, Inc.
("Momentum"), to select and develop certain software application products
outside the Company's core business. The Company will contribute up to $300.0
million during the fourth quarter to Momentum for development of new products.
The Company will file a registration statement with the Securities and Exchange
Commission on behalf of Momentum relating to a proposed special distribution of
callable Class A Common Stock to the Company's stockholders. Each stockholder
will receive one share of callable Class A Common Stock for every fifty shares
of the Company's common stock held as of a specified date. The Company's
stockholders are not required to pay any cash or other consideration for the
Momentum shares received. The distribution is taxable as a dividend to each
holder in the amount of the fair market value of the Momentum shares distributed
to each stockholder. The Company will record a dividend for the amount of the
market value of Momentum stock on the date of distribution. The remainder of the
contribution will be recorded as a one-time charge against operating income 
during the fourth quarter.

        In November 1995, PeopleSoft issued stock warrants with annual exercise
dates through 1999. The November 1998 maturity consists of 1,600,000 warrants
with an exercise price of $13.75 per share and 1,600,000 warrants with an
exercise price of $16.875 per share. Upon the annual notice of exercise by the
holders of the warrants, the Company, at its option, may settle such exercise by
either issuing the full amount of shares and receiving cash proceeds, issuing a
net amount of shares with no cash proceeds, or purchasing the warrants for an
amount equal to the difference between the then fair market value of the common
stock and the warrant exercise price. The Company has received notice that the
holders intend on exercising their 1998 warrants; by mutual consent of the
Company and the warrant holder, the maturity date for the warrants has been
extended to early December. The Company has elected the gross exercise provision
and thus will receive $49.0 million in the fourth quarter related to these
warrants.

                                       14
<PAGE>   15


        The Company calculates accounts receivable days sales outstanding
("DSO") as the ratio of a 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 86 days as of September 30,
1997, 88 days as of December 31, 1997 and 84 days as of September 30, 1998.
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 nine months of 1997 and 1998, 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. As discussed in footnote 7 in the
condensed consolidated unaudited financial statements, during the third quarter
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 the quarter. 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 a $110.0 million building 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 six 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. The lessor has agreed to fund $70.0 million for the construction of
this facility that is expected to be completed in the fourth quarter of 1998.
The Company has an option to purchase the building at the end of the lease term
for $70.0 million. In the event the Company exercises the options to purchase
these buildings, the Company plans on utilizing cash flow from operations to
fund the purchase(s), however there can be no assurance that the Company will
maintain its levels of cash flows from operations. (1)

        Financing activity for the first nine months of 1997 and 1998 related to
the proceeds from the exercise of common stock options by employees and stock
issuances under the employee stock purchase program. The Company believes
granting stock options is essential in attracting and retaining 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. There can be no assurance that employee stock activity
will continue to generate substantial funds in the future.

        As of September 30, 1998, the Company had $445.7 million in working
capital, including $474.9 million in cash and cash equivalents, and $151.0
million in short term investments, consisting primarily of high quality
municipal bonds and money market funds. 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 September
1999(1).

ACQUISITIONS

        The acquisition of Intrepid was completed in early October 1998 with the
Company acquiring all of Intrepid's outstanding equity interests for
approximately $45 million in cash and other consideration. Although initially
structured as a stock-for-stock exchange, the transaction was modified to a
cash-for-stock transaction to facilitate a more rapid close. The transaction
will be recorded in the Company's fourth 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 portion of the
purchase price allocated to in-process research and development will be charged
to expense during the fourth quarter, the period in which the transaction
closed. 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 charge but believes it could be a
significant portion of the purchase price and may result in a significant charge
to earnings in the fourth quarter.


--------

(1) Forward-Looking Statement


                                       15

<PAGE>   16

          During June 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of TriMark Technologies, Inc., 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 will issue shares of
common stock and options for all of the outstanding equity interests of TriMark
in a transaction that is expected to be accounted for as a pooling of interests.
The transaction is expected to close prior to the end of the first half of 1999.
Prior to closing the transaction, the Company and TriMark will operate
independently within a development, marketing, sales and support relationship
that will streamline the eventual merging of the two companies.

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. At present, the PMO is in the process of establishing
dedicated test environments for Year 2000 Readiness testing. The building of the
environment and testing is based on a comprehensive methodology, a collaborative
effort between the Company and Compuware. The Year 2000 PMO anticipates that
testing of critical processes will commence during the fourth quarter of 1998.

        Costs directly attributed to the Company's internal Year 2000
initiative, are currently estimated at approximately $2 million. This estimate
is comprised primarily of consulting fees and the cost of hardware and software
required to complete Year 2000 testing within the enterprise. 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 15% of
total revenues in the first nine months of 1998 and 16% for the same period in
1997. 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.


                                       16

<PAGE>   17

        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.

        In the first quarter of 1998, 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 three months
or less to maturity. Gains and losses on hedges are recorded in Other income and
offset against losses and gains on the underlying exposures. Management of the
foreign exchange hedging program is done in accordance with a corporate policy
approved by the Company's Board of Directors.

        At September 30, 1998, hedge positions totaled U.S. Dollar 11.6 Million
equivalent. All hedge positions are carried at fair value and all hedge
positions had maturity dates within three months.

        For the nine month periods ended September 30, 1997 and 1998, 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
September 30, 1998, less than 5% of the Company's assets are in the Asia/Pacific
region. the Company's operations in the region are relatively new and to date
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 cash
funding requirements of these foreign subsidiaries to decrease.

Interest Rates

        The Company invests its cash in a variety of financial instruments,
including bank time deposits, and taxable and tax-advantaged variable rate and
fixed rate obligations of corporations, municipalities, and local, state and
national governmental entities and agencies. 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.

        Interest income on the Company's investments is recorded in Other
income. 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 September 30, 1998, the average
maturity of the Company's investment securities was approximately four months.
No investment securities had maturities exceeding two years. The following table
presents certain information about the Company's financial instruments at
September 30, 1998 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading. For


                                       17

<PAGE>   18

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, therefore the average interest rates below are most comparable to
tax-exempt interest rates. Below is a tabular presentation of the maturity
profile of the available-for-sale investment securities held by the Company at
September 30, 1998:


                            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                        9/30/98
--------------------------------- ------------    ------------    ----------    ---------
<S>                               <C>             <C>             <C>           <C>      
Available-for-sale securities        $324.0          $51.7          $375.7       $376.2
                                  
Weighted average interest rate        3.9%             3.9%
</TABLE>


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

                                BUSINESS OUTLOOK

              The following forward-looking statements are based on current
expectations which are subject to material change due to a variety of factors
including but not limited to, those which are listed below and in the section
titled "Factors That May Affect Future Results". 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. 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.

o   Based on the Company's current expectations of contracting activity, a
    review of the Company's deferred license fee revenue position, and an
    analysis of the Company's service delivery capacity and the expected
    customer utilization of such services, the Company forecasts total revenues
    for 1998 to increase approximately 60% over total revenues recorded in the
    prior year (1). For the 1999 calendar year, the Company forecasts total
    revenues to increase in the range of 25% to 35% over the total revenues
    currently expected to be recorded for 1998 (1). As with any forecast, actual
    results could vary within a few percentage points on either side of these
    estimates even if there are no material changes to the underlying
    assumptions, and longer term forecasts can be expected to have relatively
    higher variability. The Company's confidence level in its forecasts are
    lower than in the recent past due to economic uncertainties, the potential
    impact of the Year 2000 problem on the enterprise market, increasing levels
    of competition in the enterprise market, and the potential maturation of the
    enterprise applications market. Moreover, the Company experienced a
    difficult third quarter period for license sales, including a number of
    large contracts which were anticipated to close in the quarter but were
    pushed out or canceled by the customers due apparently to economic
    uncertainties. In addition, the Company opens the fourth quarter with lower
    than planned deferred license fees, which reduces the amount to flow into
    revenue in future periods. The key assumptions on which this forecast is
    based include, but are not limited to, the following: (i) total actual
    available market opportunities in the range of those forecasted by certain
    major information technology market research firms; (ii) the preservation of
    the Company's ability to generate a sufficient number of qualified leads
    through its ongoing marketing programs; (iii) an increase in the Company's
    direct sales capacity through the successful recruitment, hiring, training
    and retention of additional sales and sales support personnel; (iv) a
    competitive environment consistent with recent experience rather than a
    competitive environment that may increase in intensity of pricing and terms
    and conditions; (v) no significant change in U.S. and worldwide IT budgets
    and activities versus recent experience as the Year 2000 approaches; and
    (vi) no significant deterioration in the global economic environment or
    associated general reduction in capital investment due to economic
    uncertainty. In addition, the achievement of expected contracting activity
    and total revenues is highly dependent upon the Company's ability to
    successfully manage the potential risks detailed below in the section titled
    "Factors That May Affect Future Results" including, but not limited to,
    increasing economic uncertainty across all geographies in which the Company
    operates; potential for increasing intensity of market competition, the
    potential slowdown to the Year 2000 problem; fluctuations in quarterly


                                       18

<PAGE>   19

    operating results; changes in customer demand; the timing and complexity of
    large transactions including the bundling of significant amounts of
    professional services; ability to recognize contracting activity in the
    current quarter under revenue recognition accounting rules; success of
    international operations; reliance on third parties for sales, marketing and
    implementation assistance; timing and acceptance of software products and
    product development; and the ability to execute hiring and facility
    expansion plans.

o   The Company's current operating model is based on a rolling four quarter
    target operating margin of between 18% and 20%. The Company forecasts that
    the 1998 full year results will fall within this range and that the fourth
    quarter operating margin is likely to be at the lower end of this range (1).
    These operating margin forecasts exclude the one-time charges associated
    with the purchase of Intrepid Systems, Inc. and the Momentum transaction,
    both charges are expected to be incurred in the fourth quarter. Due to the
    significant operating leverage which is characteristic of the software
    industry, any deviation in the expected revenues could significantly impact
    the Company's ability to meet the target operating margins. Achievement of
    forecasted operating margins is highly dependent upon the Company's ability
    to successfully manage the potential risks detailed below in the section
    titled "Factors That May Affect Future Results" including, but not limited
    to, achievement of revenue forecasts as discussed above; continued
    introduction and marketing of new and enhanced versions of software
    products; successful penetration of international markets; continued
    acceptance of the Company's software products, particularly its proprietary
    software development tools; successful porting and acceptance of its
    software products on a variety of platforms; continued acceptance of its
    application security architecture and intellectual property, preservation of
    its proprietary rights and product liability protections; and continued
    success in hiring, training and retaining key personnel and completing
    expansion of facilities.

o   Based on projected cash and investment balances, the expected distribution
    of cash to Momentum, current interest rates (which have declined recently)
    and no unusual items of other income or expense, the Company expects other
    income for the fourth quarter of 1998 to be slightly down compared to the
    level of other income recorded in the third quarter of 1998 (1). The
    achievement of forecasted other income targets is dependent on: (i) stable
    financial markets which preclude a significant overall decline in investment
    yields, or a significant fluctuation in foreign currency exchange rates, and
    (ii) avoidance of default on any individual significant investment. Should
    the Company decide to utilize a significant portion of its current cash and
    investments to acquire complementary businesses, products, technologies,
    additional facilities through purchase of land and/or buildings, repurchase
    shares of stock, or pay dividends, interest income may decline significantly
    causing other income to deviate from forecasted amounts.

o   Based on current tax law and the Company's present forecast of operating
    results by country, the Company expects its effective tax rate in 1998 to be
    38%, excluding the impact on this rate, if any, of the purchase of Intrepid
    Systems, Inc. and the anticipated Momentum transaction (1). The estimated
    annual effective tax rate is relatively sensitive to the results of
    operations in various foreign legal entities, and because such projections
    may change in future periods, the actual effective tax rate could differ
    from this estimate.

              Please read the section below titled "Factors That May Affect
Future Results" for additional information and discussion of conditions which
the Company believes could cause actual results to differ materially from those
contemplated by forward-looking statements.

                     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 (which includes the Business Outlook Section) 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 


--------

(1) Forward-Looking Statement



                                       19
<PAGE>   20

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,
1997, contained in the Company's 1997 Annual Report to Stockholders (Form 10-K).

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

        The Company's revenues and operating results can vary substantially from
quarter to quarter. License revenues in any quarter are substantially dependent
on the aggregate contracting activity and the Company's ability to recognize
revenue in that quarter in accordance with its revenue recognition policies.
Contracting activity is difficult to forecast for a variety of reasons
including: (i) increasing economic uncertainty across all geographies in which
the Company operates; (ii) potential maturation of the enterprise software
market; (iii) a significant portion of the Company's license agreements are
completed within the last few weeks of each quarter; (iv) the duration of the
Company's sales cycle is relatively long and increasingly variable because the
Company has broadened its marketing emphasis to encompass software product
solutions for each customer's overall business, thereby increasing the financial
value of individual transactions and the complexity of the customer selection,
negotiation and approval process; (v) the size of license transactions can vary
significantly; (vi) system replacement projects and new system evaluations may
be postponed or canceled at any time due to changes in a customer's project,
customer company management, budgetary constraints or strategic priorities;
(vii) customer evaluations and procurement processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be arduous, even after selection of a vendor; (viii)
the number, timing and significance of software product enhancements and new
software product announcements by the Company and its competitors; (ix)
potential customer evaluations of their legacy systems and their decisions
whether to repair or replace existing applications which have Year 2000
operability issues; (x) changes in the Company's sales incentive plans have had
and may continue to have an unpredictable impact on seasonal business patterns;
and (xi) changes in economic, political and market conditions can adversely
impact business opportunities without reasonable notice. With respect to
potential customer evaluations of their Year 2000 operability issues, while the
Company believes that such evaluations through early 1998 have, on balance,
increased demand for its applications, such demand is subject to change as the
Year 2000 draws closer since lead times required to complete systems
implementations preclude system replacement as a timely solution to the Year
2000 issue. More recently, and in particular with respect to the third quarter
of 1998, the Company believes that Year 2000 issues have actually decreased
demand for its applications. Given the lack of precedent for an issue of this
magnitude, the Company's ability to accurately forecast the impact of the issue
on quarter to quarter revenue achievement is limited.

        The Company's recognition of license fee revenue can be deferred for a
significant period of time after execution of the related license agreements as
a result of several factors, including the following: (i) the license agreement
may be entirely related to then currently undeliverable software products; and
(ii) enterprise transactions may include software products that are then
currently deliverable, as well as software products that are still under
development. To the extent that Company enters into a license agreement for the
provision of both software product categories, the Company must have established
separate values for all elements under the license agreement, and the license
agreement and supporting schedules to the license agreement must contain very
precise contractual provisions consistent with generally accepted accounting
principles to permit any revenue recognition under the license agreement. Other
factors in determining the Company's recognition of license fee revenue include
the following: (i) whether the customer demands services that include
significant modifications, customizations or complex interfaces; (ii) whether
the license agreement includes non-standard acceptance criteria which may
preclude revenue recognition prior to customer acceptance; and (iii) whether the
license agreement includes fees with extended payment terms or fees that are
dependent upon acceptance of services or other contingencies. All of the above
factors, as well as other specific requirements under recently published
generally accepted accounting standards for software revenue recognition, create
circumstances under which the Company must have very precise contractual
agreements in order to recognize revenue upon initial software product delivery.
Although the Company has a standard form of license agreement that meets the
demanding criteria under generally accepted accounting principles, the Company
must often negotiate and revise certain terms and conditions in large enterprise
transactions. Negotiation of mutually acceptable language can extend the sales
cycle, and in certain situations, the Company does not always obtain terms and
conditions that permit recognition of revenue at the time of delivery or even
allow the recognition of revenue using percentage of completion contract
accounting. These factors arising from contract negotiations, coupled with the
reduction of the deferred license fees at the end of the third quarter increase
the Company's dependence on signing contracts in the future that generate
revenue in the same quarter as a means to avoid quarterly fluctuations of
revenue.

        Service revenues may vary from quarter to quarter due to variances in
prior quarter contracting activity because service revenue typically lags
license fee revenue. The Company's ability to increase services revenue is
dependent on its ability to increase the number of its licensing agreements that
provide opportunities for consulting, 


                                       20
<PAGE>   21

training, and subsequent maintenance revenues. Additionally the Company may not
be able to recruit, hire, and train sufficient numbers of qualified consultants
to perform such services.

POSSIBLE ADVERSE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT

         Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and
SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" were issued by the American Institute of Certified Public
Accountants in October 1997 and March 1998, respectively and address software
revenue recognition matters. These standards supersede SOP 91-1 and are
effective for transactions entered into for fiscal years beginning after
December 15, 1997. The Company believes its current revenue recognition policies
and practices are materially consistent with these standards. However, complete
implementation guidelines for these standards have not yet been issued and a
wide range of potential interpretations is being discussed within the accounting
profession. Once available, such implementation guidance could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could materially adversely affect the Company's future revenue and
net income.

        In addition, such implementation guidance may necessitate substantial
changes in the Company's business practices in order for the Company to continue
to recognize a substantial portion of its license fee revenue upon delivery of
its software products. Such changes may reduce demand, extend sales cycles,
increase administrative costs and otherwise adversely affect operations. In
addition, the Company could become competitively disadvantaged relative to
foreign-based competitors not subject to U.S. generally accepted accounting
principles.

        An accounting committee of the AICPA is currently considering
implementation guidance for these standards and may issue such guidance in the
near future. Depending on the nature of the guidance issued by the committee,
such guidance may cause adverse changes in the Company's revenue recognition
practices, which may significantly impact the Company's revenues and earnings.

OPERATING LEVERAGE

        Like many of its competitors, the Company's business model is
characterized by a very high degree of operating leverage. Employee and facility
related expenditures comprise a significant portion of the Company's operating
costs and expenses, and over the short term are relatively fixed. In addition,
the Company's expense levels and hiring plans are based, in significant part, on
the Company's projections of future revenue. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected.
There can be no assurance that the Company will be able to increase or even
maintain its current level of profitability on a quarterly or annual basis in
the future.

FUTURE OPERATING RESULTS UNCERTAIN

        Segments of the software industry have experienced significant economic
downturns characterized by decreased product demand, price erosion,
technological shifts, work slowdowns and layoffs. The Company's operations may,
in the future, experience substantial fluctuations from period to period as a
consequence of such industry patterns, general economic conditions affecting the
timing of orders from customers, and other factors affecting capital spending.
There can be no assurance that any one or more of such factors will not have a
materially adverse effect on the Company's business, operating results,
financial condition, or business prospects. Although the Company's 1998
operating budget is based on projections of a material increase in total
revenues over the corresponding actual results for 1997, the Company does not
believe that the percentage increases in revenues achieved in prior periods
should be anticipated in future periods.

        The operating results of many software companies reflect seasonal
trends, and the Company has been, and expects to continue to be, affected by
such trends in the future. The Company's seasonal revenue patterns, which are
typically characterized by relatively weak first and second quarters and
relatively strong third and fourth quarters, can be caused by a variety of
factors, including sales incentives, customer demand based on available capital
budgets and release of new technologies. However, there can be no assurance that
the fourth quarter of the current fiscal year will produce stronger revenues or
earnings than those recorded in the first three quarters.

INTERNATIONAL OPERATIONS

        The Company has committed, and will 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 the Company operates, are higher than in the United States. In order to
increase international sales in 1998 

                                       21


<PAGE>   22

and subsequent periods, the Company 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 the Company's international expansion and/or product
globalization is not successful, it is likely to have a negative impact on the
Company's operating results.

        The Company's sales through its foreign operations are generally
denominated in the functional currency of each of its foreign subsidiaries.
Unexpected changes in the exchange rates for these foreign currencies could
result in significant fluctuations in the foreign currency transaction and
translation gains and losses in future periods. In January 1998, the Company
implemented a hedging program designed to mitigate the potential impact of
exchange rate fluctuations. In addition to hedging existing transaction
exposures, the Company's foreign exchange management policy allows for the
hedging of anticipated transactions, and exposure resulting from the translation
of foreign 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. 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 began hedges of existing foreign currency
transaction exposures in the first quarter of 1998. However, if the Company is
unable to hedge potential significant exposures due to lack of certainty or
ability to reasonably estimate its foreign exchange exposure, there could be a
material adverse impact to the Company's operating results.


COMPETITION

        The market for business application software has been intensely
competitive for the past three years and is currently intensifying. The Company
faces competition from a variety of software vendors including enterprise
application software vendors, manufacturing application software vendors,
enterprise resource optimization application software vendors, financial
management systems and HRMS application software vendors and software tools
vendors. Although the Company believes its success has been due in part to its
early emphasis on the client/server architecture, virtually all of the Company's
competitors now offer software products based on a client/server architecture.
Consequently, competitive differentiators now include more subtle architectural
and technological factors, such as web enablement, enterprise software product
breadth and individual product features, service reputation, product
flexibility, ease of implementation, international software product version
availability and support, and price.

        Intense competition could potentially lead to increased price
competition in the market, forcing the Company to reduce prices which may result
in reduced gross margins and loss of market share by the Company which in turn,
could materially adversely affect the Company's business, operating results,
financial condition, and business prospects.

        In recent quarters, the Company has observed increasingly aggressive
pricing practices and/or unusual terms and conditions offered to customers by or
on the part of its competitors. There can be no assurance that the Company will
continue to compete successfully with its existing competitors or will be able
to compete successfully with all new competitors that may enter into the
enterprise application software market, the Company faces significant
competition from SAP AG and Oracle Corporation, and to a lesser degree, 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 this market, the chief competitive factors include the breadth
and completeness of the enterprise solution offered by each vendor, the extent
of software product integration across the enterprise solution, the viability
and reputation of the software vendors, and the availability of localized
software products and technical support in key markets outside the United
States. Primarily due to their significant worldwide presence and longer
operating and product development history, both SAP and Oracle have certain
competitive advantages over the Company in each of these areas. In addition,
both SAP and Oracle have substantially greater financial, technical and
marketing resources, and a larger installed base than the Company. Furthermore,
Oracle's RDBMS (relational database management system) is a supported platform
underlying a significant share of the Company's installed applications.

        The Company entered the manufacturing software application markets in
1996. In these markets, the Company faces competition from several of its
existing competitors including those listed immediately above and others such as
Baan Company N.V., QAD, Ross Systems, J.D. Edwards and a large number of niche
competitors already in the manufacturing market.


                                       22

<PAGE>   23

        In addition, since its acquisition of Red Pepper Software in the fourth
quarter of 1996, the Company has competed in the emerging enterprise resource
optimization software solutions market. the Company faces several current and
potential competitors in this market including: (i) companies such as i2
Technologies, Manugistics and Numetrix Software which have developed or are
attempting to develop advanced planning and scheduling software products which
complement or compete with MRP (material requirements planning) solutions; (ii)
other companies that provide specialized planning and scheduling software for
niche markets, including Chesapeake Systems, Waterloo Manufacturing Software,
MAPICS, Inc. (formerly Marcam Corporation), Marcam Solutions, Inc. and Cap
Logistics; (iii) 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; (iv) internal development efforts by corporate
information technology departments; and (v) companies offering standardized or
customized products on mainframe and/or mid-range computer systems.

        The Company also faces competition from providers of HRMS software
products including Cyborg Systems, Lawson Associates, Integral Systems, Inc.,
InPower, Inc. and Ceridian, and from providers of financial management systems
software products including Computron Software, Inc., Flexiware International,
Hyperion Software, Lawson Associates and other smaller companies. During the
third quarter of 1998, the Company mutually terminated a distribution agreement
with Shared Medical Systems, Inc. ("SMS"). SMS had the right to sublicense
selected the Company's software products in competition with the Company's
marketing efforts in the healthcare market.

        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 the Company's software products
which in turn 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, the Company 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 the Company is pursuing an
outsourcing partner program which the Company believes will address the
potential requirements of the marketplace, no assurance can be given to the
ultimate success, or the significance of any revenue to be generated from such
program


CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS

        As part of its overall strategy, the Company plans to continue to
acquire or invest in complementary companies, products, or 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 potential disruption
of the Company's ongoing business, the inability to retain key technical and
managerial personnel, the inability of management to maximize the financial and
strategic position of the Company through the successful integration of acquired
businesses, decreases in reported earnings as a result of charges for in-process
research and development and amortization of acquired intangible assets,
decrease in earnings as a result of additional costs associated with the
acquired entity, adverse impact on the Company's annual effective tax rate,
dilution of existing equity holders, difficulty in maintaining controls,
procedures, and policies, and the impairment of relationships with employees and
customers as a result of any integration of new personnel. There can be no
assurance that the Company would be successful in overcoming these risks or any
other problems encountered in connection with such business combinations,
investments, or joint ventures, or that such transactions will not materially
adversely affect the Company's business, financial condition, or operating
results.

        In the fourth quarter, the Company completed its acquisition of Intrepid
Systems, Inc., which will be accounted for under the purchase method of
accounting. The Company is currently evaluating the purchase price and the
related accounting treatment. Potential writedowns associated with the
acquisition may significantly impact fourth quarter earnings. In addition,
depreciation and amortization charges associated with Intrepid's acquired assets
may impact earnings in 1999 and thereafter.

RELIANCE ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS

        The Company's software products include a suite of proprietary software
development tools known as "PeopleTools," which are fundamental to the effective
use of the Company's software products. While no industry standard exists for
software development tools, several companies have focused on providing software
development 


                                       23
<PAGE>   24


tools and are attempting to establish their software development tools as
accepted industry standard. In the event that a software product other than
PeopleTools becomes the clearly established and widely accepted industry
standard, the Company may need to abandon or modify PeopleTools in favor of such
an established standard, may be forced to redesign its software products to
operate with such third party's software development tools, or may be faced with
the potential sales obstacle of marketing a proprietary software product against
other vendors' software products incorporating a standardized software
development toolset. Accordingly, in any of these cases, the Company's results
of operations could be materially adversely affected.

RELIANCE ON THIRD PARTIES FOR SALES AND MARKETING

        A key aspect of the sales and marketing strategy for the Company is to
build and maintain strong working relationships with businesses the Company
believes play an important role in the successful marketing of its software
products. The Company's customers and potential customers often rely on third
party system integrators to develop, deploy and manage client/server
applications. These include: (i) RDBMS software vendors; (ii) hardware vendors
which offer both hardware platforms and, in the case of IBM, proprietary RDBMS
products on which the Company's software products run; (iii) technology
consulting firms and systems integrators, some of which are active in the
selection and implementation of large information systems for the
information-intensive organizations that comprise the Company's principal
customer base; and (iv) benefits consulting firms that are active in the
implementation of HRMS. The Company believes that its marketing and sales
efforts are enhanced by the worldwide presence of these companies. However,
there can be no assurance that these companies, most of which have significantly
greater financial and marketing resources than the Company, will not start, or
in some cases increase, the marketing of business application software in
competition with the Company, or will not otherwise discontinue their
relationships with or support of the Company. If the Company or its partners are
unable to recruit and adequately train a sufficient number of consulting
personnel to support the implementation of the Company's software products,
demand for these software products could subsequently be materially adversely
affected. In addition, the Company's software application architecture,
including PeopleTools, may facilitate reduced implementation efforts for
customers compared to the competitive alternatives. Consequently, the Company's
software products may be a less desirable recommendation alternative for
integrators who both provide selection advice and generate consulting fees from
customers by providing implementation services. Due to the foregoing factors,
the Company's results of operations could be materially adversely affected.



DEPENDENCE ON THIRD PARTY TECHNOLOGY

        The Company incorporates numerous critical third party software products
into its software product offerings under reseller license agreements with third
parties. In the event that any of the Company's licenses to such software are
terminated, there could be a material adverse effect to the Company including
its products becoming inoperable or their performance being materially reduced.
If any of the third party software vendors change their product offerings, the
Company may need to incur additional engineering costs to ensure continued
performance of its products. In addition, material increases in the cost to
license any of these third party software products could result in a material
adverse change from the Company's historical gross margin levels.

         The Company relies on existing partnerships with certain other software
vendors who are also competitors. For example, the Company partners with Oracle
when the Company's customers select an Oracle database to run in conjunction
with the Company's financial package. However, Oracle is a competitor of the
Company in the financial data management area. These partners/competitors may
change their business practices in the future resulting in the Company's need to
find alternative vendors of complementary software.

COMPLEXITY OF SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT

        The market for the Company's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements. The
Company's future success will depend in part upon its ability to continue to
enhance and expand its core applications, to continue to provide enterprise
solutions, to enter new markets and to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. If the Company is unable to
enhance existing products or develop and introduce new products in a timely
manner, the Company's business and results of operations could be materially
adversely affected.


                                       24


<PAGE>   25

          The Company's software products can be licensed for use with a variety
of popular industry standard RDBMSs. There may be future or existing RDBMS
platforms which achieve popularity within the business application marketplace
and on which the Company may desire to offer its applications. Such future or
existing RDBMS products may or may not be architecturally compatible with the
Company's software product design. No assurance can be given concerning the
successful development of the Company's software products on additional
platforms, the specific timing of the releases of any future software products,
the performance characteristics of PeopleSoft applications on additional
platforms or their acceptance in the marketplace.

        Beginning with Release 6, the Company integrated certain features of
BEA's Tuxedo product into its applications. Over the next several releases,
additional Tuxedo features will be integrated to allow applications to run on a
distributed basis using a multi-tiered client/server architecture. Cognos'
Powerplay product and Arbor's Essbase product will be bundled to incorporate
desktop on-line analytical processing ("OLAP") capabilities. Such enhancements
may be critical to the competitiveness of the Company's software products in the
future. Integration of these and other products is complex and no assurance can
be made that these efforts will be successful or result in significant software
product enhancements.

        Software programs as complex as those offered by the Company are likely
to contain a number of undetected errors or "bugs" when they are first
introduced or as new releases are thereafter released. Despite testing by the
Company and by third-parties, errors or system performance issues may arise with
the possible result of reduced acceptance of the Company's software products in
the marketplace. Due to the increasing number of possible combinations of vendor
hardware platforms, operating systems and updated versions, PeopleSoft
application software products and updated versions, and RDBMS platforms and
updated versions, the effort and expense of developing, testing and maintaining
these software product lines in an increasing number of combinations will
increase, and the ability to develop consistent software product performance
characteristics across all of these combinations could place a significant
strain on the Company's development resources and software product release
schedules.

RELIANCE ON CLIENT PLATFORMS

        At the present time, the Company supports client platforms utilizing
browsers certified to run 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 were to fundamentally
change the architecture of its software product such that users of the Company's
software applications experienced significant performance degradation or were
rendered incompatible with future versions of Microsoft's Windows Operating
System, the Company's results of operations could be materially adversely
affected. The use of a Web browser (running on either a PC or network computer)
to access client/server systems is emerging as an alternative client to the
traditional desktop access through Microsoft Windows based personal computers.
Such client access via the Internet will be subject to numerous risks inherent
in utilizing the Internet including security, availability and reliability.
There may be future or existing client platforms which achieve popularity within
the business application marketplace and on which the Company may desire to
offer its applications. Such future or existing client platforms may or may not
be architecturally compatible with the Company's software product design. No
assurance can be given concerning the Company's successful support for new
client platforms, the specific timing of their availability or their acceptance
in the marketplace.

RELIANCE ON JOINT BUSINESS ARRANGEMENTS

        The Company has entered, and may in the future enter, into various
development or joint business arrangements for the purpose of developing new
software products or extensions to existing software products. Under these
development arrangements, the Company is generally the exclusive remarketer of
the developed software products and pays a royalty to the funding entities based
on license fees received from end user licenses of these software products.
Under joint business arrangements, the Company may distribute or jointly sell
with its business partner an integrated software product. While the intent of
such arrangements is to develop business applications that are integrated with
the Company's software products, there can be no assurance that such software
products will in fact be integrated or that an integrated enterprise solution
will be accepted by the market. In addition, should such arrangements require
additional investments from third parties or business partners to complete
development or enhance the software product, there can be no assurance that
investments will be available on terms mutually acceptable to the Company and
the business partner, or the existing or other potential third party funding
source(s). Should the Company acquire title to the software products or
technology from the third party entity, such an acquisition might be accounted
for 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 would be recorded in the Statement of Income in
the period such acquisition was completed; or (ii) the creation of 


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<PAGE>   26

significant intangible assets by virtue of an allocation of a substantial
portion of the purchase price to the acquired technology or other intangible
assets. Such intangible assets would be amortized in future periods as a cost of
operations. Should either of these scenarios occur, the results of operations of
one or more future periods could be materially adversely impacted. For example,
in connection with its acquisition of PMI in 1996, the Company incurred a charge
to earnings of $22.5 million for in-process research and development.

APPLICATION SECURITY ARCHITECTURE

        The Company's application software products incorporate extensive
security features designed to protect certain sensitive data managed by these
applications from unauthorized retrieval or modification. The Company has
developed a security architecture utilizing 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, as well
as certain third party security products. To date, the Company 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, no assurances can be given concerning the successful implementation
of these security features and their effectiveness within a particular
customer's operating environment. Should a breach of security or a suspected
breach of security occur, the accompanying publicity or any subsequent claims
against the Company could have an adverse impact on the demand for the Company's
software products and/or cause a decline in the market price of the Company's
stock and/or adversely impact the Company's financial results due to lost or
delayed closing of software licensing opportunities.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

        The Company regards certain aspects of its internal operations, software
and documentation as proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
its proprietary information. The Company has title to five software patents. In
July of 1998, the Company received title to another software patent relating to
Iterative Repair Optimization. This patent, in addition to an earlier issued
patent relating to the Red Pepper Software, also have pending continuation
applications. There can be no assurance that any issued patents will result from
such applications or that, even if issued, such patents will provide any
meaningful competitive advantage or protection. Existing copyright laws afford
only limited protection. The Company believes that, because of the rapid pace of
technological change in the computer software industry, patent, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent software product
enhancements and the timeliness and quality of support services. There can be no
assurance that these protections will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Many customers of the
Company are beneficiaries of a source code escrow arrangement to enable the
customer to acquire a future limited right to use the Company's source code
solely for their internal provision of maintenance services. This possible
access to the Company's source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. In
addition, the laws of certain countries in which the Company's software products
are or may be licensed do not protect the Company's software products and
intellectual property rights to the same extent as the laws of the United
States.

        The Company does not believe that its software products, software
products acquired from acquisitions, third party software products the Company
offers under sublicense agreements, Company trademarks or other Company
proprietary rights infringe the property rights of any third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future software
products or that any such assertion may not require the Company to enter into
royalty arrangements or result in costly litigation.

PRODUCT LIABILITY

        The Company's license agreements contain provisions designed to limit
the exposure to potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in such license agreements
may not be valid as a result of federal, state, local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the license and support of its software for
use in mission critical applications creates the risk of a claim being pursued
against the Company. Damage or injunctive relief resulting under such a
successful claim could cause a materially adverse impact on the Company's
business, operating results and financial condition. In addition, as the Company
continues to compete in the manufacturing software application market, the
mission critical nature of such software products may increase the Company's
exposure to product liability claims against the Company.


                                       26

<PAGE>   27

GROWTH IN OPERATIONS

        The Company has experienced an extended period of significant revenue
growth, growth in the Company's customer base, expansion of its software product
lines and supported platforms, a significant expansion in the number of its
employees, increased pressure on the viability and scope of its operating and
financial systems and expansion in the geographic scope of its operations. This
growth has resulted in new and increased responsibilities for management
personnel and has placed a significant strain upon the Company'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, the Company must continue to implement and
improve the speed and quality of its information decision support systems,
management decisions, reporting systems, procedures and controls. There can be
no assurance that the Company's personnel, procedures, systems and controls will
be adequate to support the Company's future operations.

KEY PERSONNEL

        The Company believes that its continued success will depend in large
part upon its ability to attract, train and retain highly skilled technical,
managerial and marketing personnel. The Company continues to hire a significant
number of additional sales, services and technical personnel. Competition for
the hiring of such personnel in the software industry is intense, and the
Company from time to time experiences difficulty in locating candidates with
appropriate qualifications within various desired geographic locations, or with
certain industry specific domain expertise. Growth in contracting activity could
be impacted by the Company's ability to attract, train, retain and manage
productive sales and sales support personnel.

        The loss of services of one or more of the Company's key employees could
have a materially adverse effect on the Company's business, operating results
and financial condition. The Company has historically experienced a very low
attrition rate amongst all of its employees, especially those in critical
positions. The Company has several retention programs in place to retain such
key personnel including granting of stock with annual vesting periods over five
years. A number of key employees have vested stock options that have a
relatively low price when compared to the Company's current stock price. These
potential gains provide these employees the economic freedom to explore personal
objectives both within and outside the Company which may result in the loss of
one or more key employees during the coming years.

        Due to recent declines in the Company's share price, a large portion of
stock options granted over the last two years have exercise prices above the
Company's stock value at the end of the third quarter. As a result, the Company
has increased risk of losing a significant number of key employees.

        It is widely held that the technology industry is at or beyond a
condition of full employment. There can be no assurance that the Company will be
successful in attracting, training and retaining the personnel it requires to
develop, market, sell and support new or existing software or to continue to
grow. In addition, the Company's success in penetrating key vertical markets is
dependent upon its ability to attract, train and retain personnel with industry
specific domain expertise.

YEAR 2000 COMPLIANCE

        The Company's 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. These applications have been
tested for Year 2000 compliance and are certified by the Information Technology
Association of America (ITAA) as Year 2000 compliant, therefore the Company does
not expect any Year 2000 compliance issues to arise related to its primary
internal business information systems. Costs directly attributed to the
Company's internal Year 2000 initiative are currently estimated at approximately
$2.0 million. However, the Company utilizes other third party vendor network
equipment, telecommunication products, and other third party software products
that may or may not be Year 2000 compliant. Although the Company is currently
taking steps to address the impact, if any, of the Year 2000 issue surrounding
such third party products, failure of any critical technology components to
operate properly in the Year 2000 may have an adverse impact on business
operations or require the Company to incur unanticipated expenses to remedy any
problems. See the expanded disclosure of the Year 2000 issue under Management's
Discussion and Analysis.

EUROPEAN MONETARY UNION (EMU)

        The Company's 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. The Company's 

                                       27


<PAGE>   28

latest software release contains EMU functionality that allows for dual currency
reporting and information management. The Company is not aware of any material
operational issues or costs associated with preparing internal systems for the
EMU. However, the Company utilizes other third party vendor network equipment,
and other third party software products that may or may not be EMU compliant.
Although the Company is currently taking steps to address the impact, if any, of
EMU compliance for such third party products, failure of any critical technology
components to operate properly post EMU may have an adverse impact on business
operations or require the Company to incur unanticipated expenses to remedy any
problems.

        Furthermore, the company's foreign exchange exposures to legacy
sovereign currencies of the participating countries in the EMU will become
foreign exchange exposures to the Euro upon its introduction. Currently, the
Company has no derivative foreign exchange contracts denominated in legacy
sovereign currencies with maturity of January 1, 1999 or later. To the extent
hedging transactions are entered for exposures after January 1, 1999, they will
be denominated in Euros as applicable. Although the Company is not aware of any
material adverse financial risk consequences of the change from legacy sovereign
currencies to the Euro, conversion may result in problems which may have an
adverse impact on the Company's business because the Company may be required to
incur unanticipated expenses to remedy these problems.


EXPANSION OF FACILITIES

        The Company has experienced an extended period of growth that has
resulted in a significant expansion in the number of its employees. Commercial
building vacancy rates have significantly dropped in many of the markets where
the Company has significant operations. As a consequence, the Company may
experience increasing difficulty in obtaining additional space within which to
expand its operations. Failure to either obtain space, or obtain it on
reasonably attractive commercial terms, may inhibit the Company's ability to
grow, or otherwise adversely affect the Company's operations and financial
results.

        Additionally, the Company may commit to real estate projects in order to
expand its operations to accommodate expected growth. Such real estate projects
typically have a lead time of over one year from commitment date to occupancy.
There can be no assurance that the anticipated growth projections will be
realized, and therefore, the Company may be subject to increased fixed costs
which cannot be recovered from operations, resulting in material reductions to
net income and cash flows.

VOLATILITY OF STOCK PRICE

        As is frequently the case with stock of high technology companies, the
market price of the Company's stock has been and may continue to be quite
volatile. Factors such as quarterly fluctuations in results of operations,
announcements of technological innovations by the Company or its competitors or
the introduction of new software products by the Company or its competitors, and
macroeconomic conditions in the computer hardware and software industries
generally, may have a significant impact on the market price of the stock of the
Company. If revenue or earnings in any quarter fail to meet the expectations
(published or otherwise) of the investment community, there could be an
immediate impact on the Company's stock price. In addition, as described in the
Possible Adverse Effects of Outstanding Warrants and Options section below, the
Company has issued shares, stock options and warrants which, if sold directly or
exercised and sold on the open market in large numbers, could cause the
Company's stock price to decline in the short term. The Company can provide no
assurance as to when and if such a short term stock price decline may recover.
Furthermore, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly affected the market price for
many high technology companies and which, on occasion, have been unrelated to
the operating performance of those companies. Any such broad market fluctuations
may materially adversely affect the market price of the Company's stock

POSSIBLE ADVERSE EFFECTS OF OUTSTANDING WARRANTS AND OPTIONS

        The Company has outstanding warrants to purchase 6,400,000 shares of its
common stock, which have exercise prices below the current market price of the
common stock. The exercise of these warrants and resale of the underlying shares
could adversely affect the market price of the Company's common stock. At
September 30, 1998 the Company had 12,649,078 outstanding exercisable options to
purchase common stock issued pursuant to employee stock plans which could have
exercise prices below the current market price of the common stock. The exercise
of such stock options and sale of a significant number of the underlying shares
could adversely affect the market price of the Company's common stock.

INVESTMENTS AND LIQUIDITY


                                       28

<PAGE>   29

        The Company's short term and long term investments consist primarily of
high quality municipal bonds, U.S. government securities, corporate debt
securities and tax-advantaged money market funds. Despite favorable credit
ratings on these investments, there can be no assurance the issuers will not
default on their obligations, and any such default may result in the loss of
principal and accrued interest by the Company. While operating activities may
provide cash in certain periods, to the extent the Company experiences growth in
the future, operating and investing activities may use cash, and, consequently,
such growth may require the Company to obtain additional sources of financing.
In addition, material acquisitions of complementary businesses, products or
technologies and capital expenditures may require additional sources of
financing. There can be no assurance that the Company would be able to obtain
additional sources of financing or additional financing at terms favorable to
the Company.

MOMENTUM BUSINESS APPLICATIONS, INC.

        The Company expects to distribute up to $300.0 million to Momentum in
the fourth quarter in order to fund certain new product development efforts by
Momentum. Shares of Momentum will be distributed to the Company's stockholders
as a taxable stock dividend. There is no assurance that Momentum's product
development efforts will be successful in creating marketable products or
technologies or that the Company will realize any return on its distribution or
that the Company will recover any of the funds distributed to Momentum.

                                       29
<PAGE>   30



                           PART II - OTHER INFORMATION

   Item 1. Legal Proceedings

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

   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

        10.35   Agreement of Purchase and Sale dated July 22, 1998 between the
                Registrant and William Willson & Associates

        10.36   Lease dated September 14, 1998 between the Registrant and
                Hacienda Plaza Associates, LLC

        10.37   Agreement and Plan of Merger dated September 30, 1998 between
                the Registrant and Intrepid Systems, Inc.

        27.1    Financial Data Schedule - Nine months ended September 30, 1998

        (b) Reports on Form 8-K

        No reports on Form 8-K were filed during the quarter ended September
30, 1998.
                                       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:  November 14, 1998

                       PEOPLESOFT, INC.

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



                                       31
<PAGE>   32



                                PEOPLESOFT, INC.

                                INDEX OF EXHIBITS


   EXHIBIT #              EXHIBIT TITLE
   ---------              -------------

      10.35     Agreement of Purchase and Sale dated July 22, 1998 between the
                Registrant and William Willson & Associates
              
      10.36     Lease dated September 14, 1998 between the Registrant and
                Hacienda Plaza Associates, LLC
              
      10.37     Agreement and Plan of Merger dated September 30, 1998 between
                the Registrant and Intrepid Systems, Inc.
              
      27.1      Financial Data Schedule - September 30, 1998
            

                                       32