<PAGE>   1

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


                                    FORM 10-Q



[X]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the quarterly period ended March 31, 2001 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:

<TABLE>
<CAPTION>
               CLASS                                OUTSTANDING AT MAY 08, 2001
               -----                                ---------------------------
<S>                                                 <C>
  Common Stock, par value $0.01........                     293,985,008
</TABLE>

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<PAGE>   2


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                               PAGE
                                                                               ----
                                     PART I FINANCIAL INFORMATION

<S>                                                                            <C>
     ITEM 1 -- Financial Statements

               Condensed Consolidated Balance Sheets as of
               March 31, 2001 and December 31, 2000...........................   2

               Condensed Consolidated Statements of Operations for the
               Three Months Ended March 31, 2001 and March 31, 2000...........   3

               Condensed Consolidated Statements of Cash Flows for the
               Three Months Ended March 31, 2001 and March 31, 2000...........   4

               Notes to Condensed Consolidated Financial Statements...........   5

     ITEM 2 -- Management's Discussion and Analysis of
               Financial Condition and Results of Operations..................  11

     ITEM 3 -- Financial Risk Management......................................  16

                                       PART II OTHER INFORMATION

     ITEM 1 -- Legal Proceedings..............................................  28

     ITEM 2 -- Changes in Securities and Use of Proceeds......................  28

     ITEM 3 -- Defaults upon Senior Securities................................  28

     ITEM 4 -- Submission of Matters to a Vote of Security Holders............  28

     ITEM 5 -- Other Information..............................................  28

     ITEM 6 -- Exhibits and Reports on Form 8-K...............................  28

     SIGNATURES...............................................................  29
</TABLE>


                                       1
<PAGE>   3



                         PART I -- FINANCIAL INFORMATION
                         ITEM 1 -- FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
                                                                                 MARCH 31, 2001   DECEMBER 31, 2000
                                                                                   (UNAUDITED)
                                                                                 ------------       ------------
                                            ASSETS
<S>                                                                              <C>              <C>
        Current assets:
             Cash and cash equivalents ....................................      $    337,078       $    646,605
             Short-term investments .......................................           718,842            354,074
             Accounts receivable, net .....................................           429,651            449,036
             Investment in corporate equity securities ....................             7,969              8,241
             Income taxes receivable ......................................            20,083             31,652
             Deferred tax assets ..........................................            63,913             59,214
             Other current assets .........................................            73,938             67,109
                                                                                 ------------       ------------
                 Total current assets .....................................         1,651,474          1,615,931
        Property and equipment, at cost ...................................           459,945            443,629
                 Less accumulated depreciation and amortization ...........          (248,281)          (234,443)
                                                                                 ------------       ------------
                                                                                      211,664            209,186
        Investments .......................................................            99,223             95,650
        Non-current deferred tax assets ...................................            19,043             19,121
        Capitalized software, less accumulated amortization ...............             6,528              7,369
        Other assets ......................................................            35,600             37,893
                                                                                 ------------       ------------
                 Total assets .............................................      $  2,023,532       $  1,985,150
                                                                                 ============       ============

                             LIABILITIES AND STOCKHOLDERS' EQUITY
        Current liabilities:
             Accounts payable .............................................      $     36,910       $     35,163
             Accrued liabilities ..........................................           160,955            141,743
             Accrued compensation and related expenses ....................           135,465            158,623
             Income taxes payable .........................................             6,709              5,059
             Deferred revenues ............................................           415,198            429,554
                                                                                 ------------       ------------
                 Total current liabilities ................................           755,237            770,142
        Long-term deferred revenues .......................................           103,005            100,858
        Long-term debt ....................................................            57,000             68,000
        Other liabilities .................................................            21,203             21,795
        Commitments and contingencies (see notes)
        Stockholders' equity:
             Common stock .................................................             2,912              2,880
             Additional paid-in capital ...................................           857,334            813,551
             Treasury stock ...............................................           (15,000)           (15,000)
             Retained earnings ............................................           261,718            225,660
             Accumulated other comprehensive loss .........................           (19,877)            (2,736)
                                                                                 ------------       ------------
                 Total stockholders' equity ...............................         1,087,087          1,024,355
                                                                                 ------------       ------------
                 Total liabilities and stockholders' equity ...............      $  2,023,532       $  1,985,150
                                                                                 ============       ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       2
<PAGE>   4



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

<TABLE>
<CAPTION>
        THREE MONTHS ENDED MARCH 31,                                 2001              2000
        ----------------------------                            ------------      ------------
<S>                                                             <C>               <C>
        REVENUES:
             License fees ................................      $    153,278      $     90,235
             Services ....................................           319,089           262,052
             Development and other services ..............            30,721            23,132
                                                                ------------      ------------
                  Total revenues .........................           503,088           375,419
        COSTS AND EXPENSES:
             Cost of license fees ........................            16,268            10,433
             Cost of services ............................           173,692           143,287
             Cost of development and other services ......            27,894            21,097
             Sales and marketing expense .................           126,184            86,530
             Product development expense .................            79,040            79,899
             General and administrative expense ..........            33,879            25,634
                                                                ------------      ------------
                  Total costs and expenses ...............           456,957           366,880
                                                                ------------      ------------
        Operating income .................................            46,131             8,539
        Other income, net ................................             8,920            17,677
                                                                ------------      ------------
             Income before provision for income taxes ....            55,051            26,216
        Provision for income taxes .......................            18,993             9,431
                                                                ------------      ------------
        Net income .......................................      $     36,058      $     16,785
                                                                ============      ============
        Basic income per share ...........................      $       0.12      $       0.06
        Shares used in basic per share computation .......           290,187           273,661
                                                                ============      ============
        Diluted income per share .........................      $       0.11      $       0.06
        Shares used in diluted per share computation .....           315,011           291,953
                                                                ============      ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>   5


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


<TABLE>
<CAPTION>
     THREE MONTHS ENDED MARCH 31,                                                          2001               2000
     ----------------------------                                                      ------------       ------------
<S>                                                                                    <C>                <C>
        OPERATING ACTIVITIES:
        Net income ..............................................................      $     36,058       $     16,785
        Adjustments to reconcile net income to net cash
           provided by operating activities:
              Depreciation and amortization .....................................            19,735             23,150
              Provision for doubtful accounts ...................................             9,396                247
              Benefit for deferred income taxes .................................            (5,003)           (24,537)
              Gain on sales of investments and disposition of property and ......            (1,835)            (8,016)
                 equipment, net
              Non-cash stock compensation .......................................               705                  -
              Changes in operating assets and liabilities:
                Accounts receivable .............................................             2,186             (8,467)
                Cash received from sales of accounts receivable .................                 -             13,920
                Accounts payable and accrued liabilities ........................            15,256             13,765
                Accrued compensation and related expenses .......................           (21,388)            (1,621)
                Income taxes receivable, net ....................................            13,315              3,166
                Tax benefits from exercise of stock options .....................             2,801              4,274
                Deferred revenues ...............................................            (7,465)             5,788
                Other current and noncurrent assets and liabilities .............            (6,912)           (16,718)
                                                                                       ------------       ------------
              Net cash provided by operating activities .........................            56,849             21,736

        INVESTING ACTIVITIES:
        Purchase of available-for-sale investments ..............................        (1,669,407)           (84,784)
        Proceeds from maturities and sales of available-for-sale investments ....         1,299,505            103,587
        Proceeds from maturities of held-to-maturity investments ................                 -             37,836
        Purchase of property and equipment ......................................           (20,371)            (9,703)
        Acquisitions, net of cash acquired ......................................              (296)                 -
                                                                                       ------------       ------------
              Net cash (used in) provided by investing activities ...............          (390,569)            46,936

        FINANCING ACTIVITIES:
        Net proceeds from sale of common stock and exercise of stock options ....            40,309             37,550
        Repurchase of long-term debt ............................................           (10,542)                 -
                                                                                       ------------       ------------
              Net cash provided by financing activities .........................            29,767             37,550
        Effect of foreign exchange rate changes on cash and cash equivalents ....            (5,574)               534
                                                                                       ------------       ------------
        Net (decrease) increase in cash and cash equivalents ....................          (309,527)           106,756
        Cash and cash equivalents at beginning of period ........................           646,605            414,019
                                                                                       ------------       ------------
        Cash and cash equivalents at end of period ..............................      $    337,078       $    520,775
                                                                                       ============       ============
        SUPPLEMENTAL DISCLOSURES:
           Cash paid for interest ...............................................      $      1,774       $        852
           Cash paid for income taxes ...........................................      $      5,349       $     21,468
                                                                                       ============       ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   6



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

1.   BASIS OF PRESENTATION

     The information for the three months ended March 31, 2001 and March 31,
2000, is unaudited, but includes all adjustments (consisting only of normal,
recurring adjustments) that the Company's management believes to be necessary
for the fair presentation of the financial position, results of operations, and
changes in cash flows for the periods presented. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Despite
management's best effort to establish good faith estimates and assumptions, and
to manage the achievement of the same, actual results may differ. Certain prior
period amounts have been reclassified to conform to the current period
presentation.

     The accompanying interim condensed consolidated financial statements should
be read in conjunction with the financial statements and related notes included
in the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 2000. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations. Interim results of
operations for the three months ended March 31, 2001 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 by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted income
per share is computed by dividing net income by the sum of weighted average
number of common shares outstanding and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options, warrants, convertible subordinated
notes and from withholdings associated with our employee stock purchase plan,
using the treasury stock method.

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

<TABLE>
<CAPTION>
        THREE MONTHS ENDED MARCH 31,                                          2001              2000
                                                                          ------------      ------------
        (In thousands, except per share amounts)
<S>                                                                       <C>               <C>
        NUMERATOR:
            Net income .............................................      $     36,058      $     16,785
        DENOMINATOR:
             Denominator for basic income per share -
                  weighted average shares outstanding ..............           290,187           273,661
             Employee stock options ................................            24,640            18,274
             Other .................................................               184                18
                                                                          ------------      ------------
             Denominator for diluted income per share -
                  Adjusted weighted average shares outstanding
                    assuming exercise of common equivalent shares ..           315,011           291,953
                                                                          ============      ============
        Basic income per share .....................................      $       0.12      $       0.06
        Diluted income per share ...................................      $       0.11      $       0.06
                                                                          ============      ============
</TABLE>


                                       5
<PAGE>   7


    Approximately 1.2 million shares of weighted average common stock
equivalents at prices ranging from $37.19 to $46.50 were excluded from the
computation of diluted earnings per share for the three months ended March 31,
2001 because the options' exercise prices were greater than the average market
price of the common shares during the period.

3.  FINANCIAL INSTRUMENTS

    Derivative financial instruments are utilized by the Company to reduce
foreign currency exchange and interest rate risks. The Company has established
policies and procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. The Company does not
hold any derivative financial instruments for trading or speculative purposes.
Derivative transactions are restricted to those intended for hedging purposes.

Change in Accounting

    Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in "Accumulated other comprehensive loss."

Forward Foreign Exchange Contracts

     The Company has a foreign exchange hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign currency exchange rates. The program uses forward foreign exchange
contracts as the vehicle for hedging significant intercompany balances. The
Company uses two multinational banks for substantially all of these contracts.
The Company has not designated the derivatives used in the foreign exchange
hedging program as cash flow or fair value hedges under SFAS 133. In general,
these contracts have terms of three months or less. These contracts are recorded
on the balance sheet at fair value. Changes in fair value of the contracts and
the intercompany balances being hedged are included in "Other income, net." To
the extent these contracts do not completely hedge the intercompany balances,
the net impact is recognized in "Other income, net." The foreign currency
hedging program is managed in accordance with a corporate policy approved by the
Company's Board of Directors.

     During the three months ended March 31, 2001 and March 31, 2000 the Company
recorded net losses of $0.7 million and $1.1 million from these settled
contracts and underlying foreign currency exposures. At March 31, 2001, the
Company had outstanding forward exchange contracts to exchange Euros ($2.0
million), Singapore dollars ($1.2 million), Chilean pesos ($0.5 million),
Japanese yen ($0.3 million), and Hong Kong dollars ($1.4 million) for U.S.
dollars and to exchange U.S. dollars for Swiss francs ($0.7 million), South
African rand ($0.7 million), Australian dollars ($0.5 million) and British
pounds ($3.6 million). Each of these contracts had maturity dates of April 30,
2001 and a book value that approximates fair value. Both the cost and the fair
value of these forward exchange contracts were not material at March 31, 2001.

Interest Rate Swap Transactions

     In June 2000, the Company entered into interest rate swap transactions to
manage its exposure to interest rate changes on facility lease obligations. The
swaps involve the exchange of fixed and variable interest rate payments without
exchanging the notional principal amount. The swaps have an aggregate notional
amount of $175.0 million and mature at various dates in 2003, consistent with
the maturity dates of the facility leases. Under these agreements, the Company


                                       6
<PAGE>   8


receives a variable rate based on the 3 month LIBOR set on the last day of the
previous quarter and pays a weighted average fixed rate of 6.80%. These swaps
are considered to be a hedge against changes in amount of future cash flows,
therefore the $7.5 million unrealized loss as of March 31, 2001 resulted in a
$7.5 million increase in "Accumulated other comprehensive loss." Derivative
losses included in "Accumulated other comprehensive loss" of $3.9 million are
estimated to be reclassified into earnings during the next twelve months based
upon a 12 month forward LIBOR rate.

Concentrations of Credit Risk

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

4.  COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
        THREE MONTHS ENDED MARCH 31,                                      2001               2000
                                                                     ------------       ------------
        (In thousands)
<S>                                                                  <C>                <C>
        Net income ............................................      $     36,058       $     16,785
                                                                     ============       ============
        Other comprehensive income (loss):
              Net change in unrealized gain on
                     available-for-sale investments ...........            (1,183)           (41,463)
              Foreign currency translation ....................            (8,467)               534
              Interest rate swap transactions:
                   Cumulative effect of accounting change .....            (2,648)                 -
                   Net unrealized loss on cash flow hedges ....            (5,002)                 -
                   Reclassification adjustment for earnings
                     recognized during the quarter ............               159                  -
                                                                     ------------       ------------
        Comprehensive income (loss) ...........................      $     18,917       $    (24,144)
                                                                     ============       ============
</TABLE>

5.  RESTRUCTURING AND EXIT CHARGES

     The following table sets forth the Company's restructuring reserves as of
March 31, 2001, which are included in "Accrued liabilities."

<TABLE>
<CAPTION>
        (In thousands)                              LEASES              OTHER            TOTAL
                                                 ------------       ------------      ------------
<S>                                              <C>                <C>               <C>
        Balance December 31, 2000 .........      $      4,520       $      5,884      $     10,404
              Cash payments ...............              (641)                 -              (641)
                                                 ------------       ------------      ------------
        Balance March 31, 2001 ............      $      3,879       $      5,884      $      9,763
                                                 ============       ============      ============
</TABLE>


6.  COMMITMENTS AND CONTINGENCIES

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

     The Consolidated Complaint purported to bring claims on behalf of all
purchasers of PeopleSoft common stock during the period April 22, 1997 to
January 28, 1999. The Consolidated Complaint alleged that PeopleSoft
misrepresented, inter alia, the degree of market acceptance of its products, the
technical capabilities of its products, the success of certain acquisitions it
had made, and the anticipated financial performance of the Company in fiscal
1999. The Consolidated Complaint abandoned all of the allegations


                                       7
<PAGE>   9


in the original complaints concerning alleged accounting improprieties,
including claims of improper accounting related to the Company's write-downs for
"in process research and development" in connection with various acquisitions,
and improper accounting related to the Company's spin-off of Momentum Business
Applications, Inc. (Momentum had been a named defendant in the original actions,
but was eliminated as a defendant when the Consolidated Complaint was filed).

     On February 10, 2000, the defendants filed motions to dismiss the
Consolidated Complaint. The motions were heard on May 4, 2000. On May 26, 2000,
following post-hearing submissions, the Court entered an order: a) dismissing
all claims against defendants Albert Duffield, Kenneth Morris, Margaret Taylor,
Aneel Bhusri, James Bozzini, and George Still, without leave to amend; b)
dismissing all claims relating to the time period prior to May 27, 1998; c)
denying the motion to dismiss as to various forward-looking statements allegedly
made by the Company between May 27, 1998 and January 28, 1999; and d) limiting
the class period for which claims may be asserted to the same time period. A
First Amended Complaint was filed on June 12, 2000. The Court set a case
management schedule pursuant to which the Company was required to provide
discovery to plaintiffs prior to May 11, 2001.

     On February 16, 2001, PeopleSoft agreed to a tentative settlement of the
litigation, which would result in the dismissal of all claims against the
defendants in exchange for a payment of $15.0 million, all of which will be
funded by the Company's Directors and Officers Liability Insurance. The Company
executed a final Stipulation of Settlement on April 20, 2001, and a motion for
preliminary approval of the proposed action settlement was submitted to the
Court on May 4, 2001. A hearing on final approval is expected to be scheduled
for August 2001. An insurance receivable and a settlement accrual of $15.0
million has been included in "Other current assets" and "Accrued liabilities,"
respectively, in the accompanying condensed consolidated balance sheets.

     On June 30, 2000, a shareholder derivative lawsuit was filed in the
California Superior Court, County of Alameda, entitled Marble v. Duffield, et
al., naming as defendants David Duffield, Kenneth Morris, Margaret Taylor,
Albert Duffield, Ronald Codd, Cyril Yansouni, Aneel Bhusri, George Still, James
Bozzini and George Battle. The action alleges that the defendants breached their
fiduciary duties and engaged in alleged acts of insider trading when they sold
stock while failing to disclose material adverse information allegedly in their
possession. The suit seeks unspecified damages, treble damages and attorneys
fees. The action is based on many of the same allegations that are the subject
of the securities class action litigation pending in federal district court,
including many allegations that already have been dismissed in the federal
action. The Company believes that the derivative claims are not proper due to
plaintiffs' failure to make pre-suit demand on the Company as required by law,
and filed a motion to dismiss the litigation on those grounds. The motion was
set for hearing in February 2001, but has been continued indefinitely.

     On February 16, 2001, the defendants in the derivative suit agreed to a
settlement, pursuant to which certain limited corporate therapeutics will be
offered, and in exchange for which all claims will be dismissed with prejudice.
The attorneys' fees for plaintiffs' counsel will be paid out of the $15.0
million settlement fund established for settlement of the related class action
litigation.

     Beginning on July 6, 1999, a series of similar securities class action
lawsuits were filed alleging that Vantive and certain current and former
directors and officers violated Section 10(b) of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder. The original complaints alleged that from
April 23, 1997 to July 6, 1998, Vantive misled the investing public as to
Vantive's future prospects and failed to disclose facts which it knew would
result in decreased demand for its products or decreased operating margins. The
original complaints further alleged that various officers and directors intended
to profit thereby by artificially inflating the price of Vantive's stock so that
they could sell significant amounts of their stock at inflated prices. The
allegations appear to have been triggered by Vantive's announcement of
preliminary results for the second quarter of 1998, released on July 6, 1998. On
November 15, 1999, plaintiffs filed a First Consolidated Amended Complaint. The
First Consolidated Amended Complaint added to the previous complaints, among
other things, allegations of accounting improprieties. The Company filed a
motion to strike and a motion to dismiss the First Consolidated Amended
Complaint. The court heard argument on the motions on February 24, 2000. On
March 21, 2000, the Company received an order from the court granting the
Company's motion to dismiss with prejudice. On June 19, 2000, plaintiffs


                                       8
<PAGE>   10


filed an appeal from the district court's ruling in the Ninth Circuit Court of
Appeals. The case is now fully briefed on appeal and the parties are awaiting a
date for oral argument. The Company believes the complaints are without merit
and intends to vigorously defend the action. However, there can be no assurance
that if there is an unfavorable resolution of the appeal, there would not be a
potential material adverse impact on the company's future financial position or
results of operations or cash flows.

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

7.    SEGMENT INFORMATION

     Statement of Financial Accounting No. 131, "Disclosures about Segments of
an Enterprise and Related Information," ("SFAS 131") establishes standards for
the way in which public companies disclose certain information about operating
segments in the Company's financial reports. Based on the criteria of SFAS 131,
the Company identified its chief executive officer ("CEO") as the chief
operating decision maker. The Company's CEO evaluated revenue performance based
on two segments: North America, which includes operations in the U.S. and
Canada, and International, which includes operations in all other geographic
regions. Data for the two segments is presented below. Employee headcount and
operating costs are managed by functional areas, rather than by revenue
segments, and are only reviewed by the CEO on a company-wide basis. In addition,
the Company does not account for or report to the CEO its assets or capital
expenditures by any segment other than the segments disclosed below.

     The following table presents a summary of operating information and certain
quarter-end balance sheet information by operating segment for the quarters
ended March 31, 2001 and March 31, 2000:

<TABLE>
<CAPTION>
        THREE MONTHS ENDED MARCH 31,                          2001              2000
                                                         ------------      ------------
        (In thousands)
<S>                                                      <C>               <C>
        REVENUES FROM UNAFFILIATED CUSTOMERS:
          North America ...........................      $    391,434      $    299,490
          International ...........................           111,654            75,929
                                                         ------------      ------------
          Consolidated ............................      $    503,088      $    375,419
                                                         ============      ============
        OPERATING INCOME (LOSS):
          North America ...........................      $     22,443      $     (9,998)
          International ...........................            23,688            18,537
                                                         ------------      ------------
          Consolidated ............................      $     46,131      $      8,539
                                                         ============      ============
        IDENTIFIABLE ASSETS:
          North America ...........................      $  1,746,206      $  1,530,149
          International ...........................           277,326           183,114
                                                         ------------      ------------
          Consolidated ............................      $  2,023,532      $  1,713,263
                                                         ============      ============
</TABLE>

     Revenues from the Europe-Middle-East-Africa region represented 13% and 12%
of total revenues during the quarters ended March 31, 2001 and March 31, 2000.
No other international region had revenues equal to or greater than 10% of total
revenues for the three months ended March 31, 2001 or March 31, 2000. Revenues
originated in each individual foreign country were less than 5% of total
revenues for the three months ended March 31, 2001 and March 31, 2000.

8.  SUBSEQUENT EVENT

     On May 1, 2001, the Company announced its intention to acquire
SkillsVillage, Inc. a privately held software company which provides services
procurement solutions, for approximately $32.0 million in cash and common stock.
The transaction is expected to be completed in the Company's second quarter and
will be accounted for under the purchase method of accounting. Under the
purchase method of accounting, the purchase price is allocated to the net assets
acquired, including in-process research and development, based on their fair
values. Any portion of the purchase price allocated to in-process research and
development will


                                       9
<PAGE>   11

be charged to expense during the second quarter, the period in which the
transaction is expected to close. 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.


                                       10
<PAGE>   12


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

     This Discussion and Analysis of Financial Condition and Results of
Operations contains descriptions of 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. Future results are subject to risks and uncertainties, which could cause
actual results and performance to differ significantly from those contemplated
by the forward-looking statements. For a discussion of factors that could affect
future results, see "Factors That May Affect Our Future Results or The Market
Price of Our Stock." Forward-looking statements contained throughout this Report
include but are not limited to those identified with a footnote (1) symbol. The
Company undertakes no obligation to update the information contained in this
Item 2.


                              RESULTS OF OPERATIONS

     The following table sets forth, the percentage of dollar change period over
period and the percentage of total revenues represented by certain line items in
the Company's condensed consolidated statements of operations, for the three
months ended March 31, 2001 and March 31, 2000.

<TABLE>
<CAPTION>
                                                                    PERCENTAGE OF
                                                                    DOLLAR CHANGE
                                                                    QUARTER OVER                PERCENTAGE OF
                                                                      QUARTER                   TOTAL REVENUES
                                                                    ------------        -------------------------------
                                                                      2001/2000             2001               2000
                                                                    ------------        ------------       ------------
<S>                                                                 <C>                 <C>                <C>
        REVENUES:
               License fees ..................................                70%                 31%                24%
               Services ......................................                22                  63                 70
               Development and other services ................                33                   6                  6
                                                                    ------------        ------------       ------------
                  Total revenues .............................                34                 100                100
                                                                    ============        ============       ============
        COSTS AND EXPENSES:
               Cost of license fees ..........................                56                   3                  3
               Cost of services ..............................                21                  34                 38
               Cost of development and other services ........                32                   6                  6
               Sales and marketing expense ...................                46                  25                 23
               Product development expense ...................                (1)                 16                 21
               General and administrative expense ............                32                   7                  7
                                                                    ------------        ------------       ------------
                  Total costs and expenses ...................                25                  91                 98
        Operating income .....................................               440                   9                  2
        Other income, net ....................................               (50)                  2                  5
                                                                    ------------        ------------       ------------
        Provision for income taxes ...........................               101%                  4%                 3%
                                                                    ============        ============       ============
</TABLE>

REVENUES

     The Company licenses software under non-cancelable license agreements and
provides services including consulting, training, development and maintenance,
consisting of product support services and periodic updates.

     Total revenues increased by 34% to $503.1 million in the first quarter of
2001 from $375.4 million in the first quarter of 2000. The increase in total
revenues is attributable to the $63.0 million increase in license revenue, the
$57.0 million increase in service revenue and the $7.6 million increase in
development and other services revenue.

     Revenues from license fees increased by 70% to $153.3 million in the first
quarter of 2001 from $90.2 million in the first quarter of 2000, primarily the
result of the general availability of PeopleSoft 8


                                       11
<PAGE>   13


applications in September 2000. The Company does not expect to sustain this
level of growth throughout 2001.(1)

     Revenues from services increased by 22% to $319.1 million in the first
quarter of 2001 from $262.1 million in the first quarter of 2000. The growth in
services revenue during the first quarter of 2001 when compared to the first
quarter of 2000 resulted from an increase in consulting revenue of $27.6
million, an increase in maintenance revenue in the amount of $24.6 million and
an increase in training revenue of $4.8 million. The increase in services
revenue is attributable to the growth of license fee revenues in previous
quarters. The Company does not expect to sustain this level of growth throughout
2001.(1) Revenue from services as a percentage of total revenues was 63% and 70%
for the quarters ended March 31, 2001 and March 31, 2000. The decrease in
service revenue as a percentage of total revenues during the first quarter of
2001 reflects primarily the change in revenue mix resulting from the increase in
license fees. Variances in the Company's license contracting activity during a
given quarter may impact its future consulting, training and maintenance service
revenues since these revenues typically follow license fee revenues. With the
general availability of PeopleSoft 8 in September 2000, the Company expects that
demand from its installed base and new customers for consulting, training and
maintenance services will increase over the next several quarters.(1) However,
the Company cannot give assurance that it will be successful in expanding its
consulting and training services.

     Revenue from development and other services increased by 33% to $30.7
million in the first quarter of 2001 from $23.1 million in the first quarter of
2000. Per the terms of the development agreement with Momentum Business
Applications, Inc. ("Momentum") the Company performs development services on
behalf of Momentum. Momentum pays the Company one hundred and ten percent (110%)
of the Company's fully burdened costs relating to the research and development
provided by the Company. Cost of development and other services increased by 32%
to $27.9 million in the first quarter of 2001 from $21.1 million in the first
quarter of 2000. As of March 31, 2001, most of the initial development projects
undertaken by Momentum have been completed or are expected to be completed in
the near future. As a result, the Company expects revenues from development and
other services, and the related costs, to decrease over the next several
quarters.(1)

Revenues by Segment

     At March 31, 2001, the Company is organized by geographic areas, in two
operating segments: North America, which includes operations in the U.S. and
Canada, and International, which includes operations in all other regions.
Revenues from the North America segment increased by 31% to $391.4 million in
the first quarter of 2001 from $299.5 million in the first quarter of 2000.
Revenues from the North America segment as a percentage of total revenues
decreased to 78% in the first quarter of 2001 from 80% in the first quarter of
2000. Revenues from the International segment increased by 47% to $111.7 million
in the first quarter of 2001 from $75.9 million in the first quarter of 2000.
Revenues from the International segment as a percentage of total revenues
increased to 22% in the first quarter of 2001 from 20% in the first quarter of
2000. The increase in revenues, for both segments, in 2001 is primarily
attributable to the general availability of PeopleSoft 8 applications in
September 2000. Within the International segment, revenues from the
Europe-Middle-East-Africa region represented 13% and 12% of total revenues
during the first quarter of 2001 and the first quarter of 2000.

Deferred Revenues

     The Company had total deferred revenues of $518.2 million as of March 31,
2001 and $530.4 million as of December 31, 2000. The Company had deferred
license revenue in the amount of $39.7 million as of March 31, 2001 and $57.9
million as of December 31, 2000. This decrease in deferred license revenue is a
result of the Company's continued focus on business and contracting practices
designed to maximize the current period revenue recognition. The Company expects
to continue these practices, which may result in additional decreases in
deferred license revenues in the future.(1) The deferred revenue balances do not
include items which are both deferred and unbilled. The Company's practice is to
net such deferred items against the related receivable balances.

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


                                       12
<PAGE>   14



COSTS AND EXPENSES

     Cost of license fees consists principally of royalties, product warranty
costs, technology access fees for certain third-party software products and
amortization of capitalized software costs. Cost of license fees increased to
$16.3 million in the first quarter of 2001 from $10.4 million in the first
quarter of 2000, representing 3% of total revenues for both of those quarters.
Cost of license fees represented 11% of license fee revenues in the first
quarter of 2001 and 12% of license fee revenues in the first quarter of 2000.
The increase in absolute dollars in the first quarter of 2001 is attributable to
an increase in royalties of $4.0 million resulting primarily from the increase
in license revenue activity during the quarter. Product warranty costs for the
first quarter of 2001 of $4.6 million were offset by a decrease in software
amortization expense of $2.2 million of products acquired via acquisition. The
Company's products are based on a combination of internally developed technology
and application products, as well as bundled third-party products and
technology. Cost of license fees as a percentage of license fee revenues may
fluctuate from period to period due principally to the mix of sales of
royalty-bearing software products in each period and fluctuations in revenues
contrasted with certain fixed expenses such as the amortization of capitalized
software.

     Cost of services consists primarily of employee-related costs and the
related infrastructure costs incurred to provide installation and consulting
services, customer care center administrative support, training, and product
support. Cost of services increased to $173.7 million in the first quarter of
2001 from $143.3 million in the first quarter of 2000, representing 34% and 38%
of total revenues and 54% and 55% of service revenues in each of those quarters.
The dollar increase in cost of services is primarily the result of a 14%
increase in headcount in the services organization, from the first quarter of
2000, in anticipation of increased demand for consulting and installation
services related to PeopleSoft 8. With the shipment of PeopleSoft 8 in September
2000, the Company expects that demand from its installed base and new customers
for consulting and training services will increase over the next several
quarters and consequently, cost of services may increase in dollar amount, and
may increase as a percentage of total revenues in future periods.(1)

     Sales and marketing expenses increased to $126.2 million in the first
quarter of 2001 from $86.5 million in the first quarter of 2000, representing
25% and 23% of total revenues in each of those quarters. The increase in 2001 is
primarily attributable to costs associated with growth in the sales and
marketing organizations. Sales and marketing headcount increased 32% from the
first quarter of 2000. In addition, marketing and advertising expenses increased
by $12.5 million primarily due to the marketing campaign for PeopleSoft 8. Sales
and marketing expenses may increase in dollar amount and as a percentage of
total revenues in future periods as the Company increases its sales force and
marketing and advertising expenses related to PeopleSoft 8.(1) The Company
expects to incur additional sales and marketing expenses in future quarters
related to PeopleSoft CRM which is anticipated to be released in the second
quarter of 2001.(1)

     Product development expenses consist of costs related to the Company's
staff of software developers and outside consultants, and the associated
infrastructure costs required to support software product development
initiatives. Product development expenses decreased to $79.0 million in the
first quarter of 2001 from $79.9 million in the first quarter of 2000,
representing 16% and 21% of total revenues in each of those quarters. The
Company's current focus in application development is to extend PeopleSoft 8 by
delivering enhanced functionality and develop a number of new applications,
mostly focused on customer relationship management, eCommerce, and internet
collaboration.(1) In addition, the Company anticipates continuing to invest in
additional functionality across all of its software product offerings, including
global product requirements and industry specific requirements.(1) However, the
Company cannot give assurance that such development efforts will result in
products, features or functionality or that the market will accept the software
products, features or functionality developed. The Company expects that the
dollar amounts invested in software product development expenses during the
remaining quarters in 2001 will be consistent with amounts invested during the
three months ended March 31, 2001.(1)

     General and administrative expenses increased to $33.9 million in the first
quarter of 2001 from $25.6 million in the first quarter of 2000, representing 7%
of total revenues in both of those quarters. The dollar

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


                                       13
<PAGE>   15



increase is primarily due to increases in employee compensation and benefits
costs, due in part to a 20% increase in general and administrative headcount
from the first quarter of 2000.

OTHER INCOME, NET

     Other income, net, which includes interest income, interest expense and
other, decreased to $8.9 million in the first quarter of 2001 from $17.7 million
in the first quarter of 2000. The decrease was primarily a result of a $9.5
million realized gain on the sale of corporate equity securities during the
first quarter of 2000.

PROVISION FOR INCOME TAXES

     The Company's income tax provision increased to $19.0 million in the first
quarter of 2001 from $9.4 million in the first quarter of 2000. The effective
tax rate for the first quarter of 2001 is 34.5%. Excluding the impact of the
gain on marketable equity securities, the effective tax rate for the first
quarter of 2000 was 34.5%. The net deferred tax assets at March 31, 2001 were
$83.0 million. The valuation of these net deferred tax assets is based on
historical tax positions and expectations about future taxable income.

EARNINGS PER SHARE

     Diluted net income per share increased to $0.11 per share in the first
quarter of 2001 from $0.06 per share in the first quarter of 2000. Weighted
average shares outstanding, used in the calculation of diluted net income per
share were 315.0 million for the first quarter of 2001 compared to 292.0 million
for the first quarter of 2000. Net income for the first quarter of 2000 included
a pretax gain on the sale of corporate equity securities in the amount of $9.5
million. Excluding the impact of the gain on corporate equity securities,
diluted net income per share would have been $0.04 for the first quarter of
2000. The increase in diluted net income per share is due to the increase in
operating income of $37.6 million which is partially offset by the $9.6 million
increase in the provision for income taxes and an 8% increase in the number of
shares used in the per share calculation. Diluted earnings per share could be
negatively affected if shares outstanding during 2001 increase as a result of
any of the following factors: (i) the issuance of common stock associated with
stock option and employee stock purchase plans; (ii) 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; (iii) potential
conversion of subordinated notes into common stock of the Company; and (iv) the
issuance of common stock to effect business combinations, should the Company
enter into such transactions.(1)

NEWLY ISSUED ACCOUNTING STANDARDS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities--a Replacement of FASB
Statement No. 125" ("SFAS 140") in September 2000. SFAS 140 revises the criteria
for accounting for securitizations and other transfers of financial assets and
collateral. In addition, SFAS 140 requires certain additional disclosures.
Except for the new disclosure provisions, which are effective for the year ended
December 31, 2000, SFAS 140 is effective for the transfer of financial assets
occurring after March 31, 2001. PeopleSoft will apply the new rules
prospectively to transactions beginning in the second quarter of 2001.
Application of the new rules is not expected to have a material impact on
PeopleSoft's financial position or results of operations.

ACQUISITIONS

     On May 1, 2001, the Company announced its intention to acquire
SkillsVillage, Inc. a privately held software company which provides services
procurement solutions, for approximately $32.0 million in cash and common stock.
The transaction is expected to be completed in the Company's second quarter and
will be accounted for under the purchase method of accounting. Under the
purchase method of accounting, the purchase price is allocated to the net assets
acquired, including in-process research and development, based

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


                                       14
<PAGE>   16


on their fair values. Any portion of the purchase price allocated to in-process
research and development will be charged to expense during the second quarter,
the period in which the transaction is expected to close. 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.

                         LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2001, the Company had $896.2 million in working capital,
including $337.1 million in cash and cash equivalents and $718.8 million in
short-term investments, consisting principally of investments in
interest-bearing demand deposit accounts with various financial institutions,
tax-advantaged money market funds and highly liquid debt and equity securities
of corporations, municipalities and the U.S. Government. The Company believes
that the combination of cash and cash equivalents and short-term investment
balances, potential cash flow from operations and issuance of stock under the
employee purchase plan and stock option exercises will be sufficient to satisfy
its operating cash requirements and expected purchases of property and equipment
at least through the next twelve months.(1)

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

<TABLE>
<CAPTION>
        THREE MONTHS ENDED MARCH 31,                                     2001               2000
        (In millions)                                                ------------       ------------
<S>                                                                  <C>                <C>
        Net cash provided by (used in):
           Operating activities ...............................      $       56.9       $       21.7
           Investing activities ...............................            (390.6)              46.9
           Financing activities ...............................              29.8               37.6
           Effect of foreign exchange rate changes on cash
              and cash  equivalents ...........................              (5.6)               0.6
                                                                     ------------       ------------
        (Decrease) increase in cash and cash equivalents ......      $     (309.5)      $      106.8
                                                                     ============       ============
</TABLE>

     Net cash provided by operating activities during the three months ended
March 31, 2001 was $56.9 million compared to $21.7 million during the three
months ended March 31, 2000. This increase is due primarily to the increase in
net income, the decrease in the benefit for deferred income taxes, the decrease
in accounts receivable and the net change in other current and noncurrent assets
and liabilities partially offset by the decrease in cash from factoring of
receivables, the decrease in deferred revenues and the decrease in accrued
compensation and related expenses.

     Net cash used for investing activities during the three months ended March
31, 2001 was $390.6 million compared to net cash provided by investing
activities during the three months ended March 31, 2000 in the amount of $46.9
million. The Company's principal use of cash for investing activities in the
three months ended March 31, 2001 included net purchases of investments in the
amount of $369.9 million and purchases of property and equipment in the amount
of $20.4 million. The Company's principal source of cash from investing
activities during the three months ended March 31, 2000 was net proceeds from
maturities and sales of investments of $56.6 million, which were partially
offset by purchases of property and equipment in the amount of $9.7 million.

     Net cash provided by financing activities during the three months ended
March 31, 2001 was $29.8 million compared to $37.6 million during the three
months ended March 31, 2000. Proceeds from the exercise of common stock options
by employees and issuance of stock under the employee stock purchase program
were $40.3 million and $37.6 million during the three months ended March 31,
2001 and March 31, 2000. The Company used cash to repurchase $10.5 million of
convertible subordinated long-term notes during the three months ended March 31,
2001 offsetting the cash provided by stock transactions.

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


                                       15
<PAGE>   17

                       ITEM 3 - FINANCIAL RISK MANAGEMENT

     Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in "Accumulated other comprehensive loss."

     The Company used derivative instruments to manage exposures to foreign
currency and interest rate risks. The Company's objectives to holding
derivatives are to minimize the risks using the most effective methods to
eliminate or reduce the impacts of these exposures.

FOREIGN EXCHANGE RISK

     During the three months ended March 31, 2001 and March 31, 2000, the
Company's revenue originating outside the United States was 26% and 24% of total
revenues. Revenues generated in the Europe-Middle-East-Africa region were 13%
and 12% of total revenues during the same periods. Revenues from all other
geographic regions were less than 10% of total revenues for the same periods.
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 incur most of their expenses in the
local currency as well.

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

     The Company has a foreign exchange hedging program designed to mitigate the
potential for future adverse impact on intercompany balances due to changes in
foreign currency exchange rates. The program uses forward foreign exchange
contracts as the vehicle for hedging significant intercompany balances. The
Company uses two multinational banks for substantially all of these contracts.
The Company has not designated the derivatives used in the foreign exchange
hedging program as cash flow or fair value hedges under SFAS 133. In general,
these contracts have terms of three months or less. These contracts are recorded
on the balance sheet at fair value. Changes in fair value of the contracts and
the intercompany balances being hedged are included in "Other income, net." To
the extent these contracts do not completely hedge the intercompany balances,
the net impact is recognized in "Other income, net." The foreign currency
hedging program is managed in accordance with a corporate policy approved by the
Company's Board of Directors.


                                       16
<PAGE>   18


     At March 31, 2001, the Company had the following outstanding forward
foreign exchange contracts to exchange foreign currency for U.S. dollars:


<TABLE>
<CAPTION>
                                                                                NOTIONAL WEIGHTED
             FUNCTIONAL CURRENCY                  NOTIONAL AMOUNT             AVERAGE EXCHANGE RATE
             -------------------                  ---------------             ---------------------
<S>                                               <C>                         <C>
             Euros                                 $2.0 million                       1.127
             Hong Kong dollars                      1.4 million                       7.800
             Singapore dollars                      1.2 million                       1.797
             Chilean pesos                          0.5 million                     592.490
             Japanese yen                           0.3 million                     122.430
                                                   -------------
                                                   $5.4 million
                                                   =============
</TABLE>

     At March 31, 2001, the Company had the following outstanding forward
foreign exchange contracts to exchange U.S. dollars for foreign currency:


<TABLE>
<CAPTION>
                                                                                  NOTIONAL WEIGHTED
             FUNCTIONAL CURRENCY                 NOTIONAL AMOUNT                AVERAGE EXCHANGE RATE
             -------------------                 ---------------                ---------------------
<S>                                              <C>                            <C>
             British pounds                       $3.6 million                        0.696
             Swiss francs                          0.7 million                        1.724
             South African rand                    0.7 million                        7.995
             Australian dollars                    0.5 million                        0.493
                                                  -------------
                                                  $5.5 million
                                                  =============
</TABLE>


     At March 31, 2001, each of these contracts matured within 30 days and had a
book value that approximates fair value. Neither the cost nor the fair value of
these contracts was material at March 31, 2001. During the three months ended
March 31, 2001 and March 31, 2000 the Company recorded net losses from these
settled contracts and underlying foreign currency exposures of approximately
$0.7 million and $1.1 million.

     In addition to hedging existing transactional exposures, the Company's
foreign exchange management policy allows for the hedging of anticipated
transactions, and exposure resulting from the translation of foreign subsidiary
financial results into U.S. dollars. Such hedges can only be undertaken to the
extent that the exposures are highly certain, reasonably estimable, and
significant in amount. No such hedges have been undertaken through March 31,
2001.

INTEREST RATE RISK

Investments in Debt Securities

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

     The Company classifies debt and marketable equity securities based on
management's intention on the date of purchase and reevaluates such designation
as of each balance sheet date. Debt securities which management has the intent
and ability to hold to maturity are classified as held-to-maturity and reported
at amortized cost. All other debt and equity securities are classified as
available-for-sale and carried at fair value with net unrealized gains and
losses included in "Accumulated other comprehensive loss," net of tax.

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


                                       17
<PAGE>   19

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.(1)

     The Company's investments are made in accordance with an investment policy
approved by the Board of Directors. At March 31, 2001, the average maturity of
the Company's investment securities was approximately three months. All
investment securities had maturities of less than eighteen months. The following
table presents certain information about the financial instruments held by the
Company at March 31, 2001 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading. The
Company believes its investment securities, comprised of highly liquid debt
securities of corporations, municipalities, and the U.S. Government, are similar
enough to aggregate. Because of the Company's effective tax rate, the Company
finds it advantageous to invest largely in tax-advantaged securities. The
average interest rates below reflect a weighted average rate for both taxable
investments and tax-exempt investments.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2001                                    EXPECTED MATURITY
(In millions)                                    -------------------------------
                                                 ONE YEAR OR         MORE THAN          PRINCIPAL           FAIR
                                                     LESS             ONE YEAR            AMOUNT            VALUE
                                                 ------------       ------------       ------------      ------------
<S>                                              <C>                <C>                <C>               <C>
        Available-for-sale securities .....      $      808.7       $      100.8       $      909.5      $      909.9
        Weighted average interest rate ....              5.34%              5.99%
                                                 ------------       ------------       ------------      ------------
</TABLE>

Interest rate swap transactions

     In June 2000, the Company entered into interest rate swap transactions to
manage its exposure to interest rate changes on facility lease obligations. The
swaps involve the exchange of fixed and variable interest rate payments without
exchanging the notional principal amount. The swaps have an aggregate notional
amount of $175.0 million and mature at various dates in 2003, consistent with
the maturity dates of the facility leases. Under these agreements, the Company
receives a variable rate based on the 3 month LIBOR set on the last day of the
previous quarter and pays a weighted average fixed rate of 6.80%. These swaps
are considered to be a hedge against changes in amount of future cash flows,
therefore the $7.5 million unrealized loss as of March 31, 2001 resulted in a
$7.5 million increase in "Accumulated other comprehensive loss." Derivative
losses included in "Accumulated other comprehensive loss" of $3.9 million are
estimated to be reclassified into earnings during the next twelve months based
upon a 12 month forward LIBOR rate.

EQUITY SECURITIES RISK

Investments in equity securities

     The Company has classified its investments in new publicly traded start-up
companies as available-for-sale investments, which are included in "Investment
in corporate equity securities" in the accompanying condensed consolidated
balance sheets. At March 31, 2001, the aggregate cost of these investments was
$2.9 million; the aggregate fair market value was $2.7 million.

     In addition, the Company has investments in privately held start-up
companies. These nonmarketable investments are accounted for using the cost
method as the Company does not have the ability to exercise significant
influence and are included in "Investment in corporate equity securities" in the
accompanying condensed consolidated balance sheets. At March 31, 2001, the
aggregate cost of these investments was $5.3 million. At March 31, 2001, the
aggregate cost approximates fair value.

Convertible Subordinated Long-Term Notes

     In August 1997, the Company issued an aggregate of $69.0 million in
principal amount of convertible subordinated notes, due August 2002. These notes
bear interest at a rate of 4.75% per annum and are convertible into the
Company's common stock at the investor's option at any time at a conversion
price equal to $50.82 per share. The Company has repurchased $12.0 million of
the convertible subordinated notes as of March 31, 2001. Based on the traded
yield to maturity, the approximate fair market value of the


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

                                       18
<PAGE>   20


convertible subordinated notes was $56.6 million and $66.5 million as of March
31, 2001 and December 31, 2000.

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

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

     The Company operates in a dynamic and rapidly changing environment that
involves many risks and uncertainties. The following section describes some, but
not all, of the risks and uncertainties that we believe may adversely affect 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 and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this report on Form
10-Q and Management's Discussion and Analysis of Financial Condition and Results
of Operations for the year ended December 31, 2000 contained in the Company's
Annual Report to Stockholders on Form 10-K.

THE CURRENT DOWNTURNS IN GENERAL ECONOMIC AND MARKET CONDITIONS COULD CAUSE
DECREASES IN DEMAND FOR OUR SOFTWARE AND RELATED SERVICES WHICH COULD NEGATIVELY
AFFECT OUR REVENUE AND OPERATING RESULTS AND THE MARKET PRICE OF OUR STOCK.

     The revenue and profitability of PeopleSoft depends on the overall demand
for PeopleSoft software and related services. Downturns in general economic and
market conditions could result in customers postponing or canceling purchasing
decisions. Some of PeopleSoft's competitors have recently announced that the
current economic conditions have negatively impacted their financial results. If
demand for PeopleSoft software and related services decreased, its revenues may
decrease and its operating results would be negatively impacted. In addition,
PeopleSoft's inability to license its software products to new customers may
have a negative impact on the market price of its stock.

OUR QUARTERLY OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY FLUCTUATE
SUBSTANTIALLY, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND OUR STOCK'S MARKET
PRICE.

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

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

     -  PeopleSoft's sales cycle is relatively long and varies as a result of
        PeopleSoft's expanding its product line and broadening its software
        product applications to cover a customer's overall business;

     -  the size of license transactions can vary significantly;

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



                                       19
<PAGE>   21

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

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

     -  changes in PeopleSoft's pricing policies and discount plans may affect
        customer purchasing patterns; and

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

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

WE MAY BE REQUIRED TO DEFER RECOGNITION OF LICENSE REVENUE FOR A SIGNIFICANT
PERIOD OF TIME AFTER ENTERING INTO A LICENSE AGREEMENT, WHICH COULD NEGATIVELY
IMPACT OUR FINANCIAL RESULTS.

     PeopleSoft may be required to defer recognition of license revenue for a
significant period of time after entering into a license agreement for a variety
of transactions, including:

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

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

     -  transactions that involve acceptance criteria that may preclude revenue
        recognition or if there are identified product-related issues, such as
        performance issues; and

     -  transactions that involve payment terms or fees that depend upon
        contingencies.

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

ANY REDUCTION IN OUR CONTRACTING ACTIVITY IS LIKELY TO RESULT IN REDUCED
SERVICES REVENUES IN FUTURE PERIODS.

     Variances or slowdowns in PeopleSoft's prior quarter contracting activity
may impact its consulting, training and maintenance service revenues since these
revenues typically follow license fee revenues. PeopleSoft's ability to maintain
or increase service revenue primarily depends on its ability to increase the
number of its licensing agreements.

OUR FUTURE REVENUE IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMER BASE
CONTINUING TO LICENSE OUR PRODUCTS AND RENEW OUR SERVICE AGREEMENTS.


                                       20
<PAGE>   22


     We have traditionally depended on our installed customer base for
additional future revenue from services and licenses of other products. Also, if
our customers fail to renew their maintenance agreements, our revenue could
decrease. The maintenance agreements are generally renewable annually at the
option of the customers and there are no mandatory payment obligations or
obligations to license additional software. Therefore, current customers may not
necessarily generate significant maintenance revenue in future periods. In
addition, customers may not necessarily purchase additional products or
services. Our services revenue and maintenance revenue also depend upon the use
of these services by our installed customer base. Any downturn in software
license revenue could result in lower services revenue in future quarters.

OVERALL INCREASES IN SERVICES REVENUES AS A PERCENTAGE OF TOTAL REVENUES COULD
ADVERSELY AFFECT OUR OPERATING RESULTS BECAUSE OUR SERVICES REVENUES BRING LOWER
GROSS MARGINS THAN OUR LICENSE REVENUES.

     Because service revenues have lower gross margins than license revenues, an
increase in the percentage of total revenue represented by service revenues
could have a detrimental impact on our overall gross margins and could adversely
affect operating results. In addition, PeopleSoft subcontracts certain
consulting services to third parties which generally carry lower gross margins
than PeopleSoft's service business overall. As a result, if service revenues
increase as a percentage of total revenue and the services provided by
third-party consultants increases, PeopleSoft's gross margins will be lower.

IF ACCOUNTING INTERPRETATIONS RELATING TO REVENUE RECOGNITION CHANGE, OUR
REPORTED REVENUES COULD DECLINE OR WE COULD BE FORCED TO MAKE CHANGES IN OUR
BUSINESS PRACTICES.

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

     The accounting profession continues to discuss certain provisions of SOP
97-2 and SAB 101 with the objective of providing additional guidance on
potential interpretations. These discussions and the issuance of
interpretations, once finalized, could lead to unanticipated changes in
PeopleSoft's current revenue accounting practices, which could cause PeopleSoft
to recognize lower revenues. As a result, PeopleSoft may need to change its
business practices significantly in order to continue to recognize a substantial
portion of its license revenues. These changes may extend sales cycles, increase
administrative costs and otherwise adversely affect PeopleSoft's business.

OUR MARGINS MAY BE REDUCED IF WE NEED TO LOWER PRICES OR OFFER OTHER FAVORABLE
TERMS ON OUR PRODUCTS AND SERVICES TO MEET COMPETITIVE PRESSURES IN OUR
INDUSTRY.

     PeopleSoft competes with a variety of software vendors, including internet
application vendors in the enterprise application software market segment,
vendors in the manufacturing software application market segment, vendors in the
CRM application market segment, providers of human resource management system
software products, providers of financial management systems software products,
and numerous small firms that offer products with new or advanced features. Some
of PeopleSoft's competitors may have advantages over PeopleSoft due to their
significant worldwide presence, longer operating and product development
history, and substantially greater financial, technical and marketing resources.
At least one competitor has a larger installed base than PeopleSoft. In
addition, Oracle Corporation is a competitor whose relational database
management system underlies a significant portion of PeopleSoft's installed
applications.

     If competitors offer more favorable payment terms and/or more favorable
contractual implementation terms or guarantees, PeopleSoft may need to lower
prices or offer other favorable terms in order to compete successfully. Any such
changes would be likely to reduce margins.


                                       21
<PAGE>   23

IF OUR INTERNATIONAL BUSINESS GROWS, WE WILL BECOME INCREASING SUBJECT TO
CURRENCY RISKS AND OTHER COSTS AND CONTINGENCIES THAT COULD ADVERSELY AFFECT OUR
RESULTS.

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

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

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

     -  increased cost and development time required to adapt PeopleSoft
        products to local markets;

     -  lack of experience in a particular geographic market;

     -  legal, regulatory, social, political, labor or economic conditions in a
        specific country or region, including loss or modification of exemptions
        for taxes and tariffs, and import and export license requirements; and

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

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT QUALIFIED EMPLOYEES IN A
HIGHLY COMPETITIVE LABOR MARKET.

     PeopleSoft believes that its future success will depend upon its ability to
attract, train and retain highly skilled technical, managerial, sales and
marketing personnel. If PeopleSoft does not attract, train, retain and
effectively manage employees, PeopleSoft's costs may increase, its development
and sales efforts may be hurt and its customer service may be degraded. Although
PeopleSoft invests significant resources in recruiting and retaining employees,
there is intense competition for personnel in the software industry. At times,
PeopleSoft has had difficulty locating enough highly qualified candidates in
desired geographic locations, or with required industry-specific expertise.
Industry wide use of non-compete agreements by competitors of PeopleSoft may
further decrease the pool of available sales and technical personnel.

THE LOSS OF KEY EMPLOYEES COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS AND
STOCK PRICE

     PeopleSoft believes there are certain key employees within the
organization, primarily in the senior management team, who are necessary for the
company to meets its short-term objectives. Due to the competitive employment
nature of the software industry, there is a risk that PeopleSoft will not be
able to retain these key employees. The loss of one or more key employees could
adversely affect the continued growth of PeopleSoft. In addition, uncertainty
created by turnover of key employees could cause fluctuations in PeopleSoft's
stock price and further turnover of PeopleSoft employees.

IF WE FAIL TO CONTINUALLY IMPROVE OUR SOFTWARE PRODUCTS AND INTRODUCE NEW
PRODUCTS OR SERVICE OFFERINGS, OUR COMPETITIVE POSITION COULD ERODE AND OUR
BUSINESS AND STOCK PRICE MAY SUFFER.

     The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements. The market
for business application software has been and continues to be intensely
competitive, which requires that PeopleSoft constantly improve its existing
products and create new products. PeopleSoft's future success will depend in
part upon its ability to:

     -  continue to enhance and expand its core applications;


                                       22
<PAGE>   24

     -  continue to provide enterprise and customer relationship management
        applications or service offerings;

     -  continue to successfully integrate third-party products;

     -  enter new markets; and

     -  develop new products or improve our existing products to keep pace with
        technological developments, including developments related to the
        internet, satisfy increasingly sophisticated customer requirements and
        achieve market acceptance.

     PeopleSoft may not be able to enhance existing products or develop and
introduce new products in a timely manner. In addition, to the extent that
PeopleSoft uses third parties to do some or all of the product development work,
PeopleSoft may be affected by their non-performance.

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

     In addition, the effort and expense of developing, testing and maintaining
software product lines will increase with the increasing number of possible
combinations of:

     -  vendor hardware platforms;

     -  operating systems and updated versions;

     -  PeopleSoft application software products and updated versions; and

     -  relational database management system platforms and updated versions.

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

AS OUR SOFTWARE OFFERINGS INCREASE IN SCOPE AND COMPLEXITY, OUR NEED TO AVOID
AND CORRECT UNDETECTED ERRORS MAY INCREASE OUR COSTS AND SLOW THE INTRODUCTION
OF NEW PRODUCTS AND WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS WHICH
COULD BE COSTLY TO RESOLVE AND RESULT IN NEGATIVE PUBLICITY.

     Despite PeopleSoft's and third parties' testing, PeopleSoft's software
programs, like all software programs generally, may contain a number of
undetected errors. This may result in increased costs to correct such errors and
reduced acceptance of PeopleSoft's software products in the marketplace.

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

IF WE LOSE ACCESS TO CRITICAL THIRD-PARTY TECHNOLOGY, OUR COSTS COULD INCREASE
AND THE INTRODUCTION OF NEW PRODUCTS AND PRODUCT ENHANCEMENTS COULD BE DELAYED,
THUS HURTING OUR COMPETITIVE POSITION.


                                       23
<PAGE>   25


     PeopleSoft licenses numerous critical software products from third parties,
some of whom are also competitors, and PeopleSoft incorporates some of their
products into its own software products. If any of the third-party software
vendors were to change their product offerings or terminate PeopleSoft's
licenses, PeopleSoft might need to seek alternative vendors and incur additional
internal or external development costs to ensure continued performance of its
products. Such alternatives may not be available on attractive terms, or may not
be as widely accepted or as effective as the software provided by PeopleSoft's
existing vendors. In addition, if the cost of licensing any of these third-party
software products significantly increases, PeopleSoft's gross margin levels
could significantly decrease.

IF WE FAIL TO MAKE OUR PRODUCTS COMPATIBLE WITH AND SUPPORT CURRENT OR FUTURE
CLIENT INTERFACES DESIGNED BY THIRD PARTIES, OUR FINANCIAL RESULTS MAY SUFFER.

     With PeopleSoft 8, use of a web browser as the user interface replaces the
traditional desktop access through networked Microsoft Windows-based personal
computers. Web browser access via the internet or an intranet involves numerous
risks inherent in using the internet, including security, availability and
reliability. There is a risk that customers will not be willing or able to
implement internet-based applications. PeopleSoft may wish to offer its
applications on future or existing user interfaces that achieve popularity
within the business application marketplace. These future or existing user
interfaces may or may not be architecturally compatible with PeopleSoft's
current software product design. PeopleSoft may not be able to support new user
interfaces and achieve market acceptance of new user interfaces that it does
support and failure to do so may result in lower revenues.

WE ARE DEPENDENT ON RELATIONSHIPS WITH THIRD-PARTY SYSTEMS INTEGRATORS FOR THE
MARKETING AND DEPLOYMENT OF OUR PRODUCTS, AND ANY DISRUPTION OF THESE
RELATIONSHIPS COULD DAMAGE OUR BUSINESS.

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

OUR RELATIONSHIP WITH MOMENTUM HAS REDUCED OUR CONTROL OVER IMPORTANT RESEARCH
AND DEVELOPMENT PROJECTS AND CREATES OTHER RISKS.

     PeopleSoft faces a number of risks as a result of its relationship with
Momentum. These risks include:

     -  In order to obtain funding for a development project, PeopleSoft and
        Momentum must agree on project selection, budgets, timetables and
        specifications for each project, and Momentum has oversight
        responsibilities for the actual product development;

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

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


                                       24
<PAGE>   26


WE MAY BE REQUIRED TO UNDERTAKE A COSTLY REDESIGN OF OUR PRODUCTS IF THIRD-PARTY
SOFTWARE DEVELOPMENT TOOLS BECOME AN INDUSTRY STANDARD.

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

WE MAY BE UNABLE TO ACHIEVE THE BENEFITS WE ANTICIPATE FROM JOINT SOFTWARE
DEVELOPMENT OR MARKETING ARRANGEMENTS WITH OUR BUSINESS PARTNERS.

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

OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY OFFER ONLY LIMITED
PROTECTION. OUR PRODUCTS MAY INFRINGE ON THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD RESULT IN MATERIAL COSTS.

     PeopleSoft considers certain aspects of the way it conducts its internal
operations, and its software and documentation to be proprietary, and relies on
a combination of contract, patent, copyright, trademark and trade secret laws
and other measures to protect this information. Pending patent applications may
not result in issued patents and, even if issued, the patents may not provide
any meaningful competitive advantage. PeopleSoft also relies on contractual
restrictions in its agreements with customers, employees and others to protect
its intellectual property rights. However, there can be no assurances that these
agreements will not be breached, that PeopleSoft would have adequate remedies
for any breach or that PeopleSoft's trade secrets will not otherwise become
known.

     Through an escrow arrangement, PeopleSoft has granted many of its customers
a contingent future right to use PeopleSoft's source code solely for internal
maintenance services. If PeopleSoft's source code is accessed through the
escrow, the likelihood of misappropriation or other misuse of PeopleSoft's
intellectual property may increase. Finally, the laws of some countries in which
PeopleSoft's software products are or may be licensed do not protect
PeopleSoft's software products and intellectual property rights to the same
extent as the laws of the United States. Defending PeopleSoft's rights could be
costly.

     PeopleSoft's competitors may independently develop technologies that are
substantially equivalent or superior to PeopleSoft's technology. Third parties
may assert infringement claims against PeopleSoft. These assertions could result
in PeopleSoft entering into royalty arrangements, and could result in costly and
time-consuming litigation, including damage awards.

ACQUISITIONS PRESENT MANY RISKS, AND WE MAY BE UNABLE TO ACHIEVE THE FINANCIAL
AND STRATEGIC GOALS INTENDED AT THE TIME OF ANY ACQUISITION.

     PeopleSoft may from time to time acquire or invest in complementary
companies, products or technologies, and enter into joint ventures and strategic
alliances with other companies. The risks PeopleSoft commonly encounters in such
transactions include:



                                       25
<PAGE>   27

     -  PeopleSoft may have difficulty of assimilating the operations and
        personnel of the acquired company;

     -  PeopleSoft may have difficulty effectively integrating the acquired
        technologies or products with its current products and technologies;

     -  PeopleSoft's ongoing business may be disrupted by transition and
        integration issues;

     -  PeopleSoft may not be able to retain key technical and managerial
        personnel from the acquired entity;

     -  PeopleSoft's management may be unable to achieve the financial and
        strategic goals for the acquired and combined businesses;

     -  PeopleSoft may have difficulty in maintaining controls, procedures and
        policies during the transition and integration;

     -  PeopleSoft's relationships with partner companies or third-party
        providers of technology or products could be adversely affected;

     -  potential impairment of relationships with employees and customers;

     -  PeopleSoft's due diligence process may fail to identify significant
        issues with product quality, product architecture, legal contingencies,
        and product development among other things; and

     -  PeopleSoft may be required to take significant product exit charges if
        products acquired in business combinations are unsuccessful.

THE INTRODUCTION OF THE EURO CREATES UNCERTAINTY THAT COULD ADVERSELY AFFECT OUR
SALES.

     PeopleSoft 8 contains European Monetary Union, or EMU, functionality that
allows for dual currency reporting and information management. However, since
the Euro will not be the sole legally required currency in any of the member
nations until 2002, it is possible that all issues related to conversion to EMU
have not surfaced yet, and may not have been adequately addressed. In addition,
PeopleSoft's products may be used with third-party products that may or may not
be EMU compliant. Although PeopleSoft continues to take steps to address the
impact, if any, of EMU compliance for such third-party products, failure of any
critical technology components to operate properly under EMU may adversely
affect sales or require PeopleSoft to incur unanticipated expenses to remedy any
problems.

POWER OUTAGES IN CALIFORNIA MAY ADVERSELY AFFECT US.

     PeopleSoft has significant operations in the state of California and is
dependent on a continuous power supply. California's current energy crisis could
substantially disrupt PeopleSoft's operations and increase PeopleSoft's
expenses. California has recently implemented, and may in the future continue to
implement, rolling blackouts throughout the state. Although state lawmakers are
working to minimize the impact, if blackouts interrupt PeopleSoft's power
supply, PeopleSoft may be temporarily unable to continue operations at its
California facilities. Any such interruption in PeopleSoft's ability to continue
operations at its facilities could delay the development of PeopleSoft's
products and disrupt communications with its customers or other third parties on
whom PeopleSoft relies, such as system integrators. Future interruptions could
damage PeopleSoft's reputation and could result in lost revenue, either of which
could substantially harm PeopleSoft's business and results of operations.
Furthermore, shortages in wholesale electricity supplies have caused power
prices to increase. If energy prices continue to increase, PeopleSoft's
operating expenses will likely increase which could have a negative effect on
PeopleSoft's operating results.

OUR STOCK PRICE HAS BEEN AND IS EXPECTED TO REMAIN VOLATILE, WHICH EXPOSES US TO
THE RISK OF SECURITIES LITIGATION.


                                       26
<PAGE>   28


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

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

     -  PeopleSoft's or its competitors' announcements of technological
        innovations;

     -  PeopleSoft's or its competitors' acquisition of new products or
        significant customers;

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

     -  changes in recommendations or financial estimates by securities
        analysts;

     -  changes in management;

     -  conditions and trends in the software industry;

     -  PeopleSoft's or its competitors' announcement of acquisitions or other
        significant transactions;

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

     -  general market conditions.

     Fluctuations in the price of PeopleSoft's common stock may expose
PeopleSoft to the risk of securities class action lawsuits. Defending against
such lawsuits could result in substantial costs and divert management's
attention and resources. In addition, any settlement or adverse determination of
these lawsuits could subject PeopleSoft to significant liabilities.


                                       27
<PAGE>   29



                           PART II - OTHER INFORMATION

     Item 1. Legal Proceedings

               On February 16, 2001, PeopleSoft agreed to a tentative settlement
        of a litigation (Suttovia v. Duffield, et al.), which would result in
        the dismissal of all claims against the defendants in exchange for a
        payment of $15.0 million, all of which will be funded by the Company's
        Directors and Officers Liability Insurance. The Company executed a final
        Stipulation of Settlement on April 20, 2001, and a motion for
        preliminary approval of the proposed action settlement was submitted to
        the Court on May 4, 2001. A hearing on final approval is expected to be
        scheduled for August 2001. An insurance receivable and a settlement
        accrual of $15.0 million has been included in "Other current assets" and
        "Accrued liabilities," respectively, in the accompanying condensed
        consolidated balance sheets.

               On February 16, 2001, the defendants in a shareholder derivative
        suit (Marble v. Duffield, et al.) agreed to a settlement, pursuant to
        which certain limited corporate therapeutics will be offered, and in
        exchange for which all claims will be dismissed with prejudice. The
        attorneys' fees for plaintiffs' counsel will be paid out of the $15.0
        million settlement fund established for settlement of the related class
        action litigation.


     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

               None

        (b)    Reports on Form 8-K

               None


                                       28
<PAGE>   30


                                   SIGNATURES

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

     Dated: May 15, 2001


                            PEOPLESOFT, INC.



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


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