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

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the quarterly period ended April 3, 1999.

         OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

            For the transition period from ___________ to __________

                         Commission File Number: 0-26976


                                      PIXAR
             (Exact name of registrant as specified in its charter)

          California                                             68-0086179
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

            1001 West Cutting Boulevard, Richmond, California 94804
              (Address of principal executive offices) (zip code)

       Registrant's telephone number, including area code: (510) 236-4000

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 [ ]

         The number of shares outstanding of the registrant's Common Stock as of
May 11, 1999 was 45,965,315.


<PAGE>   2



PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

                                      PIXAR
                                 BALANCE SHEETS
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                               April 3,          January 2,
                                                                                 1999              1999
                                                                              ---------          ---------
<S>                                                                           <C>                <C>      

                                     ASSETS

Cash and cash equivalents                                                     $  27,793          $  29,557
Short-term investments                                                          106,877            119,491
Receivables, net                                                                  3,824              3,885
Prepaid expenses and other assets                                                 6,081              5,872
Capitalized film production costs                                                68,054             60,841
Property and equipment, net                                                      34,590             31,160
                                                                              ---------          ---------

       Total assets                                                           $ 247,219          $ 250,806
                                                                              =========          =========





                     LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable                                                              $   1,637          $   2,615
Income taxes payable                                                                830                 97
Payable to Disney                                                                   763              3,363
Accrued liabilities                                                               6,167              8,396
Unearned revenue                                                                  1,137              1,188
                                                                              ---------          ---------

       Total liabilities                                                         10,534             15,659
                                                                              ---------          ---------

Shareholders' equity:
    Preferred stock; no par value; 5,000,000 shares authorized and no
       shares issued and outstanding                                                 --                 --
    Common stock; no par value; 100,000,000 shares authorized;
       45,628,219 and 45,335,770 shares issued and outstanding
       as of April 3, 1999 and January 2, 1999, respectively                    221,256            220,397
Accumulated other comprehensive income (loss)                                       (14)               249
Deferred compensation                                                               (62)              (104)
Retained earnings                                                                15,505             14,605
                                                                              ---------          ---------
        Total shareholders' equity                                              236,685            235,147
                                                                              ---------          ---------

        Total liabilities and shareholders' equity                            $ 247,219          $ 250,806
                                                                              =========          =========
</TABLE>



                See accompanying notes to financial statements.


                                      -2-
<PAGE>   3



                                      PIXAR
                            STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                               Quarter Ended
                                                                          April 3,          March 28,
                                                                            1999              1998
                                                                          --------          --------
<S>                                                                       <C>               <C>     

Revenue:
    Software                                                              $  1,574          $    673
    Animation services                                                         222               171
    Film                                                                     1,645             4,036
    Patent licensing                                                            --               117
                                                                          --------          --------

             Total revenue                                                   3,441             4,997
                                                                          --------          --------

Cost of revenue:
    Software                                                                   298                36
    Animation services                                                         154                38
    Film                                                                       272                --
                                                                          --------          --------

             Total cost of revenue                                             724                74
                                                                          --------          --------

             Gross profit                                                    2,717             4,923
                                                                          --------          --------

Operating expenses:
    Research and development                                                 1,346               866
    Sales and marketing                                                        348               218
    General and administrative                                               1,387             1,766
                                                                          --------          --------

             Total operating expenses                                        3,081             2,850
                                                                          --------          --------

             Income (loss) from continuing operations                         (364)            2,073

Other income, net                                                            1,865             2,400
                                                                          --------          --------

             Income from continuing operations before income taxes           1,501             4,473

Income tax expense                                                             601             1,029
                                                                          --------          --------

              Net income from continuing operations                            900             3,444


Income from discontinued operations (net of income tax
   expense of $112 in 1998)                                                     --               374
                                                                          --------          --------

              Net income                                                  $    900          $  3,818
                                                                          ========          ========

Shares used in computing basic net income per share                         45,548            43,119
                                                                          ========          ========

Basic net income per share from continuing operations                     $   0.02          $   0.08
Basic net income per share from discontinued operations                         --              0.01
                                                                          --------          --------
Basic net income per share                                                $   0.02          $   0.09
                                                                          ========          ========

Shares used in computing diluted net income per share                       51,506            50,316
                                                                          ========          ========
Diluted net income per share from continuing operations                   $   0.02          $   0.07
Diluted net income per share from discontinued operations                       --              0.01
                                                                          --------          --------
Diluted net income per share                                              $   0.02          $   0.08
                                                                          ========          ========
</TABLE>


                 See accompanying notes to financial statements.


                                      -3-
<PAGE>   4



                                      PIXAR
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                       Quarter Ended
                                                                                 April 3,          March 28,
                                                                                   1999               1998
                                                                                 ---------          ---------
<S>                                                                              <C>                <C>      
Cash flows from operating activities:
    Net income                                                                   $     900          $   3,818
    Adjustments to reconcile net income to net cash
    provided by (used in) continuing operating activities:
        Discontinued operations                                                         --               (374)
        Amortization of deferred compensation                                           42                 98
        Depreciation and amortization                                                1,728              1,151
        Amortization of capitalized film production costs                              272                 --
        Credits from patent licensing, net of expense items                             --               (114)
        Changes in operating assets and liabilities:
           Receivables                                                                  61             (2,390)
           Prepaid expenses and other assets                                          (478)               108
           Accounts payable                                                           (978)            (1,003)
           Income taxes payable                                                        733               (180)
           Payable to Disney                                                        (2,600)                87
           Accrued liabilities                                                      (2,229)            (1,128)
           Unearned revenue                                                            (51)              (206)
                                                                                 ---------          ---------
               Net cash used in continuing operations                               (2,600)              (133)
               Net cash provided by discontinued operations                             --                374
                                                                                 ---------          ---------
               Net cash provided by (used in) operating activities                  (2,600)               241
                                                                                 ---------          ---------

Cash flows from investing activities:
    Purchase of property and equipment                                              (5,298)              (939)
    Proceeds from sale of property and equipment                                       290                 --
    Proceeds from sale of short-term securities                                     61,180             13,417
    Investments in short-term securities                                           (48,829)          (102,186)
    Capitalized film production costs                                               (7,366)            (7,496)
                                                                                 ---------          ---------
        Net cash used in investing activities                                          (23)           (97,204)
                                                                                 ---------          ---------

Cash flows from financing activities:
    Proceeds from exercised  stock options                                             859                692
                                                                                 ---------          ---------
        Net cash provided by financing activities                                      859                692
                                                                                 ---------          ---------

Net decrease in cash and cash equivalents                                           (1,764)           (96,271)
Cash and cash equivalents at beginning of period                                    29,557            101,847
                                                                                 ---------          ---------
Cash and cash equivalents at end of period                                       $  27,793          $   5,576
                                                                                 =========          =========

Supplemental disclosure of cash flow information:
      Cash paid during the period for income taxes                               $      --          $   1,320
                                                                                 =========          =========
 Supplemental disclosure of non-cash investing and financing activities:
      Credits from patent licensing                                              $      --          $     117
                                                                                 =========          =========
      Unrealized loss on investments                                             $    (263)         $     (92)
                                                                                 =========          =========
</TABLE>


                See accompanying notes to financial statements.


                                      -4-
<PAGE>   5


                                      PIXAR

                          NOTES TO FINANCIAL STATEMENTS


(1) BASIS OF PRESENTATION

      The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of Pixar's financial condition,
results of operations, and cash flows for the periods presented. These financial
statements should be read in conjunction with the audited financial statements
as of January 2, 1999 and December 31, 1997, and for each of the years in the
three-year period ended January 2, 1999, including notes thereto, incorporated
by reference into Pixar's Annual Report on Form 10-K for the year ended January
2, 1999.

      The results of operations for the quarter ended April 3, 1999 are not
 necessarily indicative of the results expected for the current year or any
 other period.

      Certain amounts reported in previous periods have been reclassified to
 conform to the 1999 financial statement presentation.

(2) FISCAL YEAR

      Effective for fiscal year 1998, Pixar adopted a 52 or 53-week fiscal year,
changing the year end date from December 31 to the Saturday nearest December 31.
As a result, fiscal year 1998 ended on January 2, 1999 and consisted of 53
weeks. The first quarter of 1999 represents the thirteen-week period ended April
3, 1999 and fiscal year 1999 will end on January 1, 2000 and consist of 52
weeks.

(3) EARNINGS PER SHARE CALCULATION

      Basic net income per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted-average number of common and dilutive common
equivalent shares outstanding during the period, using the treasury stock method
for options and warrants.

      Reconciliation of basic and diluted net income per share (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                        Quarter Ended
                                     -----------------------------------------------------------------------------------
                                               April 3, 1999                              March 28, 1998
                                     ---------------------------------------     ---------------------------------------
                                       Net                                        Net                       
                                     Income         Shares            EPS        Income          Shares          EPS
                                     ------         ------         ---------     ------         ---------      ---------
<S>                                  <C>            <C>            <C>           <C>            <C>            <C>      
BASIC NET INCOME PER SHARE           $  900         45,548         $    0.02     $3,818            43,119      $    0.09

EFFECT OF DILUTIVE SHARES:
    Warrants/options                     --          5,958                           --             7,197
                                     ------         ------                       ------            ------

DILUTED NET INCOME PER SHARE         $  900         51,506         $    0.02     $3,818            50,316      $    0.08
                                     ======         ======                       ======            ======

</TABLE>



                                      -5-
<PAGE>   6




 (4)  FEATURE FILM AND CO-PRODUCTION AGREEMENTS

           FEATURE FILM AGREEMENT

      In 1991, Pixar entered into a feature film agreement with Walt Disney
Pictures, a wholly owned subsidiary of The Walt Disney Company (together with
its subsidiaries and affiliates collectively referred to herein as "Disney") to
develop and produce up to three computer-animated feature films (the "Feature
Film Agreement"). Pixar is entitled to receive compensation based on the revenue
from the distribution of these films and related products. In 1995, Pixar
released its first feature film under the terms of the Feature Film Agreement,
Toy Story. Based on the individual film forecast method, all significant Toy
Story film production costs were fully amortized by the year ended December 31,
1997.

           CO-PRODUCTION AGREEMENT

      In February 1997, Pixar and Disney entered into a new co-production
agreement (the "Co-Production Agreement") which now governs all films made by
Pixar since Toy Story. Pixar's first film produced under this agreement was A
Bug's Life. Films in development or production at Pixar as of April 3, 1999, Toy
Story 2 and Pixar's fourth film (with the working title "Monsters, Inc.") are
also governed by this agreement. Under the Co-Production Agreement, Pixar, on an
exclusive basis, agreed to produce five computer-animated theatrical motion
pictures (the "Pictures") for distribution by Disney. A Bug's Life and Monsters,
Inc. count toward the five Pictures, whereas Toy Story 2 is a derivative work
that will not count towards the Pictures. However, Pixar and Disney have agreed
that all provisions of the Co-Production Agreement applicable to the Pictures
will also apply to Toy Story 2. Pixar and Disney co-own, co-brand and co-finance
the production costs of the Pictures, and share equally in the profits of each
Picture and any related merchandise and other ancillary products, after recovery
of all of Disney's marketing, distribution and other predefined fees and costs.
The Co-Production Agreement generally provides that Pixar will produce each
Picture and Disney will control decisions relating to film marketing and
distribution.

(5) DISCONTINUED OPERATIONS

      In March 1997, Pixar determined to discontinue its business of producing
CD-ROM and other interactive products. Pixar immediately discontinued these
operations and reassigned all employees of this division. Since the measurement
date and the disposal date were virtually simultaneous, no income or loss was
measured for the intervening period. Pixar recorded income from discontinued
operations of $374,000, net of income taxes, for the quarter ended March 28,
1998, due to royalty income received for the Toy Story CD-ROM products. Pixar
had no activity from discontinued operations for the quarter ended April 3, 1999
and does not expect to receive significant Toy Story CD-Rom royalty income in
future periods.

 (6)  SEGMENT REPORTING

       Pixar adopted the provisions of SFAS 131, Disclosures about Segments of
an Enterprise and Related Information. Pixar's chief operating decision maker is
considered to be Pixar's Chief Executive Officer ("CEO"). The CEO reviews
financial information accompanied by disaggregated information about film
revenue for purposes of making operating decisions and assessing financial
performance. The financial information reviewed by the CEO is identical to the
information presented in the accompanying statements of operations and Pixar has
no foreign operations. Therefore, the Company operates in a single operating
segment.




                                      -6-
<PAGE>   7


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

      This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on current expectations,
estimates and projections about Pixar's industry, management's beliefs, and
assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under "Pixar May Experience a
Net Loss in the Second Quarter of 1999," "Dependence on Toy Story, A Bug's Life,
Toy Story 2 and Monsters, Inc.," and "Risks Associated with Adequacy of Cash
Balances, " as well as those noted in the section entitled "Risk Factors" in
Pixar's Annual Report on Form 10-K for the year ended January 2, 1999 (the "Form
10-K"). Particular attention should be paid to the cautionary language in the
section in the Form 10-K entitled "Risk Factors--We May Experience Net Losses in
the First and Second Quarters of 1999," "--Our Dependence on Toy Story, Our
Dependence on A Bug's Life and Our Dependence on Toy Story 2 and Film Four,"
"--Risks Associated with Adequacy of Cash Balances," "--Risks Associated with
Scheduled Successive Release of Films" and "--Risks Associated with
Co-Production Agreement." Unless required by law, Pixar undertakes no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

      Pixar's operating performance each quarter is subject to various risks and
uncertainties as discussed in the Company's Form 10-K. The following discussion
should be read in conjunction with the sections entitled "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Form 10-K. In particular, the factors set forth below in
"Risk Factors" could affect the Company's operating results and financial
condition.

CO-PRODUCTION AGREEMENT

      In February 1997, Pixar and Walt Disney Pictures, a wholly owned
subsidiary of The Walt Disney Company (together with its subsidiaries and
affiliates collectively referred to herein as "Disney"), entered into a
co-production agreement (the "Co-Production Agreement") pursuant to which Pixar,
on an exclusive basis, agreed to produce five computer-animated feature-length
theatrical motion pictures (the "Pictures") for distribution by Disney over
approximately ten years. Pixar and Disney agreed to co-finance the production
costs of the Pictures, co-own the Pictures (with Disney having exclusive
distribution and exploitation rights), co-brand the Pictures and share equally
in the profits of each Picture and any related merchandise and other ancillary
products, after recovery of all marketing and distribution costs (which Disney
finances), a distribution fee paid to Disney and any other fees or costs,
including participations provided to talent and the like. The Co-Production
Agreement generally provides that Pixar will produce each Picture and that
Disney will control all decisions relating to marketing, promotion, publicity,
advertising and distribution of each Picture. Pixar's second feature film, A
Bug's Life, was released on November 25, 1998 and is the first Picture under the
Co-Production Agreement. The Co-Production Agreement also contemplates that with
respect to theatrical sequels, made-for-home video sequels, television
productions, interactive media products and other derivative works related to
the Pictures, Pixar has the opportunity to co-finance and produce such products
or to earn passive royalties on such products. Pixar will not share in any theme
park revenues generated as a result of the Pictures. Pursuant to the
Co-Production Agreement, in addition to co-financing the production costs of the
Pictures, Disney will reimburse Pixar for its share of certain general and
administrative costs and certain research and development costs that benefit the
productions.

      In February 1998, Pixar and Disney agreed to produce a theatrical motion
picture sequel to Toy Story, entitled "Toy Story 2". Toy Story 2 will be Pixar's
third feature film and is targeted for release in November 1999 at the earliest.
Because Toy Story 2 is a derivative work of the original Toy Story, it will not
be counted toward the five Pictures to be produced under the Co-Production
Agreement. However, for all other purposes, Toy Story 2 will be treated as a
Picture under the Co-Production Agreement. Accordingly, Toy Story 2 has been
added to the definition of Pictures produced and financed under the
Co-Production Agreement and all the provisions applicable to the other five
Pictures apply.



                                      -7-
<PAGE>   8




      In May 1999, Pixar begins production of its fourth theatrical film (with
the working title "Monsters, Inc."). This film will be produced and distributed
under the Co-Production Agreement and will count as the second of the five
original films to be produced under the Co-Production Agreement. Pixar does not
expect to release Monsters, Inc. until mid-2001 at the earliest.


RESULTS OF OPERATIONS

           REVENUE

      Total revenue for the quarter ended April 3, 1999 was $3.4 million
compared to $5.0 million in the same period of the prior year. The decrease was
primarily due to a decline in film revenue, partially offset by an increase in
software revenue.

      Software revenue includes software license revenue, principally from
RenderMan. Software revenue increased to $1.6 million for the quarter ended
April 3, 1999 from $673,000 in the corresponding prior year period. The increase
in software revenue resulted from a general increase in RenderMan software
license revenue. Due to Pixar's focus on content creation for animated feature
films and related products, Pixar has not increased the time and resources
necessary to generate significantly higher RenderMan sales. Therefore, Pixar
expects ongoing variability in revenues derived from software licenses and that
such revenue will remain flat or possibly decline. All historical and future
royalty income associated with Pixar's discontinued CD-ROM division is now and
will continue to be excluded from software revenue and presented in results of
discontinued operations. See "Results of Discontinued Operations."

      Animation services revenue includes revenue generated from short projects
related to Pixar's films. Animation services revenue increased slightly to
$222,000 for the quarter ended April 3, 1999 from $171,000 in the corresponding
prior year period. Pixar expects that revenue in this area will continue to vary
significantly from quarter to quarter due to the sporadic nature of this
business and the need to utilize animation services employees on other
productions. For example, as occurred with A Bug's Life, Pixar has transferred
substantially all of its animation services employees to assist in the
completion of Toy Story 2. There can be no assurance that Pixar will generate
any animation services revenues during periods in which its animation services
employees are devoted to feature films or other projects.

      Film revenue decreased to $1.6 million for the quarter ended April 3, 1999
from $4.0 million in the corresponding prior year period. First quarter 1998
film revenue represented Pixar's share of Toy Story-related merchandising
royalties, the 1997 ABC television airing of Toy Story and Toy Story-related
home video revenue. First quarter 1999 film revenue consisted of residual Toy
Story merchandise and home video revenue of $559,000, and royalties earned on
interactive products associated with A Bug's Life of $1.1 million. Under the
Co-Production Agreement, interactive products related to the Pictures are
derivative products on which Pixar earns passive royalties. Such royalties are
accounted for separately from the profit sharing formula that applies to the
theatrical and video releases of the films, other non-theatrical releases of the
films, film-related merchandise and television airings of the films. Pixar will
not receive profit sharing revenue from A Bug's Life until Disney recovers its
marketing and distribution fees and costs, which is expected to occur in the
second or third quarter of this year.

      Patent licensing revenue of $117,000 for the quarter ended March 28, 1998
was attributable to a patent license with Silicon Graphics, Inc. ("SGI"),
whereby Pixar granted to SGI and its subsidiaries a non-exclusive license to use
certain of Pixar's patents covering techniques for creating computer-generated
photorealistic images. Under the agreement, SGI agreed to pay Pixar total
compensation of $11.0 million, of which $6.0 million was paid in cash in March
1996 and $5.0 million was to be paid in the form of purchase credits for SGI
hardware and software. As of the end of 1998, Pixar had used substantially all
of the remaining credits and does not expect that patent licensing revenue will
be generated on an on-going basis.



                                      -8-
<PAGE>   9

      For the quarter ended April 3, 1999, Disney accounted for 54% of Pixar's
total revenue. The revenue from Disney consisted of film and animation services
revenue. Due to the Co-Production Agreement, Disney is expected to continue to
represent significantly greater than 10% of Pixar's revenue in 1999 and for the
foreseeable future. In addition, Itochu Technology, Inc. accounted for 27% of
Pixar's total revenue, primarily from sales of software and related software
licenses. A portion of the Disney revenue for the quarter was included in
receivables and represented 24% of the balance at April 3, 1999. For the quarter
ended March 28, 1998, Disney accounted for 84% of Pixar's total revenue,
primarily from film and animation services revenue.

           COST OF REVENUE

      Cost of software revenue consists of the direct costs and manufacturing
overhead required to reproduce and package Pixar's software products, as well as
amortization of purchased technology. Cost of software revenue includes no
amortization of capitalized software development expenses. Cost of software
revenue as a percentage of the related revenue increased to 19% for the quarter
ended April 3, 1999 from 5% in the prior year period, primarily due to
amortization of purchased technology associated with the acquisition of Physical
Effects, Inc. ("PEI"). Approximately $2.7 million of the PEI purchase price was
assigned to purchased technology, which PEI has licensed to a third party. Over
a period not to exceed three years, Pixar will amortize the purchased technology
against related license revenue, thereby essentially eliminating any gross
profit with respect to license revenue associated with this purchased technology
until such amortization has been completed. As a result of the ongoing
amortization of this purchased technology, it is likely that Pixar's total
software gross profit will be substantially lower during the next few years. In
addition, if Pixar determines that the license revenue generated by the
purchased technology will be lower than expected and that all or part of the
purchased technology asset may not be recoverable, Pixar would, at that point,
be required to write off all or a significant portion of the unamortized
purchased technology.

      Cost of animation services revenue consists of production costs, which
include salaries, benefits, facility expenses and department overhead costs.
Cost of animation services revenue as a percentage of related revenue increased
to 69% for the quarter ended April 3, 1999 from 22% in the prior year period.
Animation services projects are negotiated individually and depending on the
complexity of the project, profit margins vary significantly from project to
project.

      Cost of film revenue represents amortization of film costs capitalized by
Pixar. See "Capitalized Film Production Costs." Due to higher than expected Toy
Story film revenue, which resulted in Pixar's amortizing all Toy Story related
film costs by December 31, 1997, there was no cost of revenue associated with
the Toy Story revenue for the quarters ended April 3, 1999 or March 28, 1998.
Cost of film revenue from A Bug's Life was 16.5% of total film revenue for the
quarter ended April 3, 1999.

      Under the Feature Film Agreement all payments to Pixar from Disney for
Pixar's efforts in the development and production of feature films were recorded
as cost reimbursements and were netted against the related costs. In addition,
since Pixar's share of production costs under the terms of the Co-Production
Agreement are capitalized, amortized film production costs for A Bug's Life and
future feature films will be significantly higher, and the related gross profit
margins, if any, will be substantially lower than those achieved on Toy Story.

      There is no cost of revenue associated with patent licensing revenue.

           OPERATING EXPENSES

      Total operating expenses for the quarter ended April 3, 1999 were slightly
higher than in the prior year, and Pixar intends to continue to increase its
spending levels in a number of areas. As a result of competition for animators,
creative personnel, technical directors and certain administrative personnel,
Pixar has had to pay higher salaries to attract new creative, technical and
other personnel, and compensation for such personnel may continue to increase.
In addition, Pixar expects increases in systems and facilities costs and to
expand other operations.

      Under the Co-Production Agreement, Disney reimburses Pixar for its share
of certain general and administrative costs and certain research and development
costs that benefit the productions. The funding received 



                                      -9-
<PAGE>   10

from Disney is treated as operating expense reimbursements. Further, a portion
of Pixar's general and administrative overhead costs which benefit the
productions are capitalized by Pixar. In addition, because Disney is responsible
for paying all film marketing costs under the Co-Production Agreement, to the
extent that Pixar incurs film marketing costs, Disney is responsible for
reimbursing Pixar for such costs. To the extent that personnel, facilities and
other expenditures are not capitalized by Pixar nor allocated to and paid for by
Disney, and precede or are not subsequently followed by an increase in revenue,
Pixar's business, operating results and financial condition will be materially
adversely affected.

      Research and development expenses consist primarily of salaries and
support for personnel conducting research and development for the RenderMan
product and for Pixar's proprietary Marionette and Ringmaster animation and
production management software. Research and development expenses totaled $1.3
million and $866,000 for the quarters ended April 3, 1999 and March 28, 1998,
respectively. The increase was due to Pixar's continued investment in
proprietary technology and short films. Pixar expects research and development
expenses to increase in future periods. To date, all research and development
costs not reimbursed by Disney have been expensed as incurred.

      Sales and marketing expenses consist primarily of salaries and related
overhead, as well as advertising, technical support, public relations and trade
show costs required to support software sales and complement film activities.
Sales and marketing expenses increased by 60% to $348,000 for the quarter ended
April 3, 1999 from $218,000 in the prior year period, due to increases in
corporate marketing and public relations. Pixar expects these and other
marketing expenses may increase in future periods.

      General and administrative expenses consist primarily of salaries of
management and administrative personnel, insurance costs and professional fees.
General and administrative expenses decreased 21% to $1.4 million for the
quarter ended April 3, 1999 from $1.8 million in the same period of the prior
year. The decrease was primarily due to favorable timing of certain
payroll-related and outside services costs. Pixar expects general and
administrative expenses to increase in future periods as Pixar incurs additional
costs to expand its administrative staff and facilities.

           OTHER INCOME, NET

      Other income, net was $1.9 million and $2.4 million for the quarters ended
April 3, 1999 and March 28, 1998, respectively, consisting primarily of interest
income on short-term investments. The decrease is primarily due to a decline in
Pixar's cash and short-term investments.

           INCOME TAXES

      Income tax expense from continuing operations for the quarter ended April
3, 1999 reflects Pixar's federal and state income tax liability after
utilization of remaining net operating loss carryforwards and federal and state
tax credits. The income tax rate increased for the quarter ended April 3, 1999
because Pixar expects to utilize its remaining net operating loss carryforwards,
except those which originated from the exercise of non-qualified employee stock
options. The realization of tax benefits from the exercise of non-qualified
employee stock options will reduce the amount of Pixar's tax payments and
liabilities, but will not reduce Pixar's effective tax rate.

           RESULTS OF DISCONTINUED OPERATIONS

      Pixar determined in March 1997 to discontinue its business of producing
CD-ROM and other interactive products and redirected the approximately 60
employees in that division to film and related projects within Pixar. For the
quarter ended March 28, 1998, Pixar recorded income from discontinued operations
of $374,000, net of income taxes, due to royalty income received for the Toy
Story CD-ROM products. Pixar does not expect to receive significant CD-ROM
royalty income in future periods.


RISK FACTORS

                                      -10-
<PAGE>   11


      The following is a discussion of certain factors which currently impact or
may impact Pixar's business, operating results and/or financial condition.
Anyone making an investment decision with respect to Pixar's capital stock or
other securities is cautioned to carefully consider these factors, along with
the factors discussed in Pixar's Form 10-K under the section entitled "Risk
Factors."

PIXAR MAY EXPERIENCE A NET LOSS IN THE SECOND QUARTER OF 1999

      Pixar may experience a net loss in the second quarter of 1999 because of
the factors discussed below.

           END OF TOY STORY REVENUE

      Pixar has already recognized the vast majority of the revenue it expects
to receive from Toy Story. While Pixar may receive minor amounts of revenue in
subsequent periods, Pixar does not expect to recognize any further significant
revenue from Toy Story.

           TIMING OF A BUG'S LIFE REVENUE

      A Bug's Life was released on November 25, 1998 and Pixar has received a
small amount of revenue from royalties earned on related interactive products.
However, Pixar does not expect to recognize significant revenue from A Bug's
Life until after Disney recovers all marketing and distribution costs and fees.
It is difficult to predict when Disney will recover these costs because of the
many variables involved, some of which are unpredictable, such as the timing and
amount of revenue generated from (1) foreign box office, (2) sales of the home
video of A Bug's Life, which was released April 20, 1999, and (3) sales of film
related merchandise. The level of success achieved by A Bug's Life in foreign
box office, home video sales, merchandise sales and the level of marketing and
distribution costs incurred by Disney will determine whether Pixar first
receives significant revenue from A Bug's Life in the second or third quarter of
1999. Pixar expects that even if the film is an extraordinary success in foreign
theaters and in the home video and merchandising markets, Pixar will not
recognize significant revenue from A Bug's Life until the second quarter of 1999
at the earliest and possibly not until the third quarter of 1999.

      In April 1999, Disney reported general declines in its domestic home video
sales and worldwide merchandise licensing. The amount of Pixar's revenues from A
Bug's Life and future films may be adversely impacted as a result. The timing of
Pixar's revenues may also be impacted. Revenue timing depends significantly on
the source of revenue (whether theatrical, home video, merchandise or other),
the payment terms associated with each revenue source and on whether such
revenue is derived domestically or internationally. The mix of these factors
will determine the timing of Pixar's revenues from A Bug's Life and future
films, and that timing remains difficult to predict.

           TIMING OF TOY STORY 2 RELEASE

      In addition, Pixar expects that Toy Story 2 will be released in November
1999 at the earliest. As with A Bug's Life, Pixar does not expect to recognize
any revenue from Toy Story 2 until six to twelve months after its release.
Therefore, Pixar is unlikely to recognize any revenue from Toy Story 2 until the
second half of 2000 at the earliest.

           LIMITED CD-ROM INCOME

      In 1997 Pixar discontinued its business of producing CD-ROM products in
favor of other opportunities arising, in part, as a result of entering into the
Co-Production Agreement. As of April 3, 1999, Pixar had not received royalty
income from Pixar's only two existing CD-ROM products, both based on Toy Story,
since the first quarter of 1998. Pixar does not expect to receive significant
royalty income from these products in future periods.



                                      -11-
<PAGE>   12


           POSSIBLE DECLINE IN SALES OF RENDERMAN AND POSSIBLE WRITE OFF
           OF PURCHASED TECHNOLOGY

      As a result of Pixar's shift in focus to products sold for their content,
Pixar has reduced emphasis on the commercialization of software products. Pixar
is not increasing the time and resources necessary to generate higher RenderMan
sales; therefore, Pixar expects that revenue from the licensing of RenderMan
will remain flat or possibly decline.

      From the acquisition date, June 16, 1998, through April 3, 1999, Pixar
has received significantly less license revenue than expected related to the
purchased technology associated with the acquisition of PEI. If future license
revenue continues to be substantially lower than originally estimated, Pixar
may be required to write off all or a significant portion of the unamortized
purchased technology.

           INCREASE IN OPERATING EXPENSES AND EFFECTIVE TAX RATE

      Since Pixar's initial public offering in November 1995, Pixar has
significantly increased its operating expenses, and plans to continue to
increase operating expenses to fund greater levels of research and development
and to expand operations. Specifically, Pixar expects spending levels to
increase significantly due to (1) continued investment in proprietary software
systems, (2) increased compensation costs as a result of intense competition for
animators, creative personnel, technical directors and other personnel, and (3)
increased costs associated with the expansion of facilities. A portion of
operating expenses that are allocable to film productions is either capitalized
or reimbursed by Disney under the Co-Production Agreement. To the extent that
Pixar does not capitalize (or Disney does not pay for) the increases in
expenses, Pixar's operating expenses will significantly increase in 1999.
Finally, Pixar's tax rate increased for 1998 and is likely to increase in 1999
and in future years because Pixar has utilized the remaining net operating loss
carryforwards except those which originated from the exercise of non-qualified
employee stock options. The realization of tax benefits from the exercise of
non-qualified employee stock options will reduce the amount of Pixar's tax
payments and liabilities, but will not reduce Pixar's effective tax rate.

           IMPACT ON PIXAR'S OPERATING RESULTS

      As a result of the factors discussed above and as occurred in the first
quarter ended April 3, 1999, revenue may decline in the first half of 1999 as
compared to prior periods. At the same time, Pixar's operating expenses are
expected to increase in 1999. Therefore, revenue and operating results in the
first half of 1999 may continue to decline from revenue and operating results in
1998, and operating and net losses in the second quarter of 1999 are possible.
Pixar's operating results thereafter will depend upon the success of A Bug's
Life, Toy Story 2, Monsters, Inc. and subsequent films.

PIXAR EXPECTS OPERATING RESULTS TO CONTINUE TO FLUCTUATE 

      In addition to the factors set forth above, Pixar continues to expect
significant fluctuations in future annual and quarterly operating results
because of a variety of factors, including the following:

         o        the timing of the domestic and international releases of
                  animated feature films,

         o        the success of animated feature films (which can fluctuate
                  significantly from film to film),

         o        the timing of the release of related products into their
                  respective markets (such as home videos and merchandising),

         o        the demand for such related products (which is often a
                  function of the success of the related animated feature film),

         o        film production costs,

         o        Disney's costs to distribute and promote the feature films and
                  related products,

         o        Disney's success at marketing the films and related products,

         o        the timing of receipt of proceeds from animated feature films
                  and related products by Disney,

         o        the timing of revenue recognition under the Co-Production
                  Agreement and the Feature Film Agreement, as the case may be,

         o        the introduction of new feature films or products by Pixar's
                  competitors, and

         o        general economic conditions.

      In particular, since Pixar's revenue under the Co-Production Agreement is
directly related to the success of a feature film, operating results are likely
to fluctuate depending on the level of success of Pixar's animated feature films
and related products. The revenue derived from the production and distribution
of an animated feature film 



                                      -12-
<PAGE>   13

depends primarily on the film's acceptance by the public, which cannot be
predicted and does not necessarily bear a direct correlation to the production
or distribution costs incurred. The commercial success of a motion picture also
depends upon promotion and marketing, production costs and other factors.
Further, the theatrical success of a feature film can be a significant factor in
determining the amount of revenues generated from the sale of the related
products.

      Moreover, Pixar's operating expenses will continue to be extremely
difficult to forecast. Pixar budgets the direct costs of film productions with
Disney, and shares such costs equally. Pixar capitalizes its share of these
direct costs of film production in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 53, Financial Reporting by Producers and
Distributors of Motion Picture Films. A substantial portion of all of Pixar's
other costs are incurred for the benefit of feature films ("Overhead"),
including research and development expenses and general and administrative
expenses. Portions of overhead are included in the budgets for the Pictures, and
Pixar will share such costs equally with Disney under the Co-Production
Agreement. With respect to the portion of overhead that is not reimbursed by
Disney, Pixar either (1) capitalizes such portion as film production costs, if
required under SFAS No. 53, or (2) charges it to operating expense in the period
incurred. Since a substantial portion of overhead is related to the Pictures and
is, therefore, reimbursed by Disney, and since Pixar capitalizes other amounts
in accordance with SFAS No. 53, reported operating expenses for the first
quarter of 1999 have not reflected, and future reported operating expenses will
not reflect, the true level of spending on the production of animated feature
films, related products and overhead.

      Although Pixar was profitable for financial statement purposes, Pixar has
not been profitable for federal income tax purposes for each of fiscal 1996,
1997 and 1998 due to additional tax deductible items and the utilization of
federal net operating loss carryforwards. Pixar was profitable for state income
tax purposes for each of 1996 and 1997, but at levels significantly lower than
those reported for financial statement purposes. Pixar maintains a valuation
allowance which substantially offsets its deferred tax asset, given the
dependence on the success of A Bug's Life and future films, which continues to
be uncertain.

      As a result of the factors discussed above, Pixar believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful, and one should not rely on Pixar's annual and quarterly results of
operations as any indication of future performance. Due to the factors discussed
above, it is likely that in some future period Pixar's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of Pixar's Common Stock would likely be materially adversely affected.




DEPENDENCE ON TOY STORY, A BUG'S LIFE, TOY STORY 2 AND MONSTERS, INC.

           DEPENDENCE ON TOY STORY

      For at least the first half of 1999, Pixar's revenue and operating results
may be largely dependent upon (1) whatever remains to be received from Toy Story
merchandise royalties, if any, (2) passive royalties earned on A Bug's Life
interactive products, if any, and (3) Pixar's software and animation services
revenue, from which Pixar expects limited revenue. Pixar recognized the vast
majority of Toy Story revenue from all sources by the end of 1998, and expects
little revenue, if any, from Toy Story or related products for the balance of
fiscal year 1999 and thereafter. Pixar also expects no further significant
royalty income from Toy Story CD-ROM products in 1999 or thereafter.

           DEPENDENCE ON A BUG'S LIFE

      In 1999, Pixar expects to be significantly dependent upon the success of A
Bug's Life. Although A Bug's Life was released in November 1998 and has
experienced relative box office success and Pixar has received a small amount of
related revenue from interactive product royalties, Pixar will not recognize
significant revenue from the film until Disney recovers its marketing and
distribution fees and costs. Pixar believes that in addition to box office
proceeds from A Bug's Life, sales of related products, such as A Bug's Life home
videos and merchandise, must also 



                                      -13-
<PAGE>   14

be substantial in order for the film to generate significant profits. In April
1999, Disney reported general declines in its domestic home video sales and
worldwide merchandise licensing. Pixar cannot provide any assurances that A
Bug's Life will be successful in these other key markets. Therefore, it is
possible that Pixar will not recognize sufficient revenue from A Bug's Life to
generate significant earnings on a quarter to quarter basis.

           RISKS ASSOCIATED WITH A BUG'S LIFE

      Under the Co-Production Agreement, Pixar shares with Disney the production
costs of A Bug's Life. These costs were initially capitalized as film production
costs under SFAS No. 53, and Pixar is amortizing these costs over the expected
revenue stream as Pixar recognizes revenue from the film. Although A Bug's Life
has achieved substantial domestic and foreign box office success, Pixar believes
that the amount spent by Disney for marketing and distribution has been and will
continue to be significant. Unless the amount of revenue generated by A Bug's
Life from box office proceeds, home video sales and merchandise sales is
substantial even after Disney recovers the marketing and distribution costs,
Pixar's revenue could be relatively low, and Pixar would have to amortize the
capitalized production costs in large amounts over a limited number of quarters,
resulting in significant costs of film revenue in those quarters and,
potentially, significant quarterly operating and net losses. It is possible that
total revenue generated in all markets by A Bug's Life may not generate
significant revenue and operating results for us, even though A Bug's Life is
critically acclaimed and has achieved domestic and foreign box office success.

           DEPENDENCE ON TOY STORY 2 AND MONSTERS, INC.

      Pixar expects to receive the majority of proceeds from A Bug's Life by the
end of 2000. Beyond 2000, Pixar expects to be largely dependent upon the success
of Toy Story 2 and Monsters, Inc. (together referred to as the "Current
Projects"). Although development and/or production of the Current Projects is
underway, Pixar cannot provide any assurances that the Current Projects will be
successfully produced and released when scheduled. For example, while Monsters,
Inc. is currently targeted for release in mid-2001, Pixar has not formally
agreed with Disney on the timing of its release, and Pixar cannot provide any
assurances that Disney will agree to release Monsters, Inc. in 2001 as it is
currently targeted. Pixar cannot provide any assurances that it will not
experience difficulties that could delay or prevent the successful development
or production of any of the Current Projects or subsequent animated feature
films or related products. If Pixar is unable to produce and develop on a timely
basis the Current Projects and subsequent animated feature films and related
products that meet with broad market acceptance, its business, operating results
and financial condition will be materially adversely affected.

           RISKS ASSOCIATED WITH TOY STORY 2

      It is rare for animated feature films to achieve extraordinary box office
success. Pixar believes, based on available information, that there is a
reasonable basis to conclude that of the more than 40 animated feature films
introduced since 1990, only two films generated domestic box office revenues
greater than A Bug's Life and Toy Story, and both of those films were produced
and distributed solely by Disney. During at least the last five years, Pixar
believes that The Rugrats Movie and The Prince of Egypt are the only
fully-animated feature films (other than Toy Story and A Bug's Life) produced or
developed by a studio other than Disney that have achieved more than $100
million in domestic box office revenues. Unless Toy Story 2 achieves
extraordinary box office success and also achieves success in home video and
merchandise sales, Toy Story 2 may not generate significant revenue and
operating results.

      As a sequel, there are also risks unique to Toy Story 2. With a theatrical
sequel, the story concept and characters are not as novel as the original film.
In the vast majority of cases in which a film that achieved domestic box office
receipts of greater than $100 million was followed by the release of a sequel,
the sequel did not perform as well at the box office as the original. This was
the case for sequels to such films as Star Wars, Jurassic Park, Home Alone,
Jaws, Batman, Raiders of the Lost Ark, Beverly Hills Cop, Ghostbusters and Back
to the Future, among others. In many cases, sequels substantially under-perform
the original film. In far fewer cases have sequels performed as well or better
than the original blockbuster feature film, and in almost all of these cases,
the original feature films and related sequels were action-adventure films, such
as Lethal Weapon and Die Hard. Accordingly, Pixar cannot provide any assurances
that Toy Story 2 will perform as well as Toy Story at the box office. It is
possible that Toy Story 2 will substantially under-perform the original feature
film. In addition, fees and participations paid to key talent on Toy Story 2 are
substantially greater than for the original film, which together 



                                      -14-
<PAGE>   15

with other increases in production costs will have the effect of increasing the
cost of the film when compared to Toy Story.

      As a result of these factors, Toy Story 2 and related products may not
generate significant revenue and operating results for Pixar, even if Toy Story
2 is critically acclaimed and achieves substantial, but not extraordinary, box
office success.



           RISKS ASSOCIATED WITH PRODUCTION BUDGETS

      Given the (1) escalation in compensation rates of people required to work
on the Current Projects, (2) number of people required to work on the Current
Projects, and (3) equipment needs, the budget for the Current Projects and
subsequent films and related products are and will continue to be substantially
greater than the budgets for Toy Story and A Bug's Life. Pixar will continue to
finance these budgets equally with Disney under the Co-Production Agreement. In
addition, due to production exigencies which are often difficult to predict,
Pixar believes that it is not uncommon for film production spending to exceed
film production budgets, and Pixar cannot provide any assurances that any of the
Current Projects can be completed within the budgeted amounts. For example, in
order to meet the production schedule for Toy Story 2, Pixar has reassigned
employees from its animation services group and from Monsters, Inc. to Toy Story
2 for the completion of its production, which will result in a larger production
staff than originally anticipated and which will generate additional production
costs. In addition, when production of each film is completed, if completed,
Pixar may incur significant carrying costs associated with transitioning
personnel on creative and development teams from one project to another which,
although shared with Disney, are treated as film costs which increase overall
production budgets and could have a material adverse effect on results of
operations and financial condition.

RISKS ASSOCIATED WITH ADEQUACY OF CASH BALANCES

      Pursuant to the Co-Production Agreement, Pixar will co-finance the next
four animated feature films that it produces, including Monsters, Inc. Pixar
will also co-finance Toy Story 2 on the same basis as the other theatrical
films. In the future, Pixar may co-finance other derivative works such as
sequels and television productions. In addition, Pixar is building a new
headquarters and studio facility in Emeryville, California, which is being
financed by the use of cash and may continue to be financed by the use of cash.
Since Pixar does not expect to generate substantial, if any, cash from
operations until the second or third quarter of 1999, the development and
production costs of the Current Projects and the costs of the new Emeryville
facility will have a material adverse impact on Pixar's cash and short-term
investment balances. As of April 3, 1999, Pixar had approximately $134.7 million
in cash and short-term investments. Pixar believes that these funds will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures, including the development and production costs of the Current
Projects, until Pixar begins receiving cash from the release of A Bug's Life and
these films (which Pixar does not expect to be significant until the second or
third quarter of 1999). However, even if these films generate cash, unless each
is a success such that Pixar recovers on a timely basis its share of the
production costs, as well as other operating expenses and capital expenditures,
Pixar will be required to seek financing for its ongoing commitments under the
Co-Production Agreement and any other requirements of its operations. Pixar may
also seek additional financing in connection with the construction of its new
facility. See also "--Liquidity and Capital Resources". The sale of additional
equity or convertible debt securities would result in additional dilution to
Pixar's shareholders. Moreover, there can be no assurance that Pixar will be
successful in obtaining future financing, or even if such financing is
available, that it will be obtained on terms favorable to Pixar or on terms
providing Pixar with sufficient funds to meet its obligations and objectives.
The failure to obtain such financing would have a material adverse effect on
Pixar's business, operating results and financial condition.



                                      -15-
<PAGE>   16


CAPITALIZED FILM PRODUCTION COSTS

      Pixar had $68.1 million in capitalized film production costs as of April
3, 1999, consisting primarily of costs relating to A Bug's Life, Toy Story 2 and
Monsters, Inc., all of which are being co-financed by Disney under the
Co-Production Agreement. All Toy Story capitalized film costs were fully
amortized as of December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

      Cash and short-term investments decreased $14.3 million to $134.7 million
at April 3, 1999 from $149.0 million at January 2, 1999 due primarily to cash
used for film development and production costs and for construction of the
Emeryville facility.

      Net cash used in continuing operations for the quarter ended April 3, 1999
was primarily attributable to a decrease in payables and accruals of $5.1
million offset by net income of $900,000, and the non-cash impact of
depreciation and amortization expense of $1.7 million. Cash flows used in
investing activities were due primarily to investments in short-term securities
of $48.8 million, funding of film production costs of $7.4 million and the
purchase of property and equipment of $5.3 million, offset by net proceeds from
maturities of short-term securities of $61.2 million. Cash flows provided by
financing activities were due to proceeds from the exercise of stock options.

      As of April 3, 1999, Pixar's principal source of liquidity was
approximately $134.7 million in cash and short-term investments. Pixar believes
that these funds will be sufficient to meet the Company's operating requirements
through the next twelve months.

THE YEAR 2000 

      The Year 2000 problem is the result of computer programming using two
digits rather than four to define the applicable year. Computer programs that
have time-sensitive software may recognize a date using "00" as the Year 1900
rather than the Year 2000. This could result in a major system failure or
miscalculations.

      Pixar has formed a committee to address Year 2000 issues and the committee
is currently reviewing Pixar's products, Pixar's internal computer systems and
the systems of third parties on which Pixar relies for handling the Year 2000.
This committee is composed of senior management and personnel from the systems
department and the finance and administration staff. The committee's strategy
for identifying and addressing Year 2000 issues involves five phases:

      Phase 1 -- Inventory: Prepare an inventory of software, hardware, third
      party services and building systems used by Pixar and determine Year 2000
      compliance. For third party software, hardware and services, vendors are
      contacted and written certification is obtained to verify that such items
      are Year 2000 compliant. To date, most items in the inventory are either
      Year 2000 compliant or will be with minor modifications and most of the
      Year 2000 issues identified by Pixar relate to the financial software that
      Pixar uses. This phase was completed in April 1999.

      Phase 2 -- Assessment: Determine which of the inventory items identified
      in Phase 1 are critical or important as they relate to Pixar's business.
      For third party software, hardware and services which are deemed to be
      critical or important, Pixar is reviewing the written certification
      provided by vendors and performing internal testing where possible. To
      date, Pixar has identified a few third party systems which are not Year
      2000 compliant. This phase was substantially completed in April 1999.

      Phase 3 -- Strategy: Prepare strategies to modify or replace systems that
      are not Year 2000 compliant. To date, the few items in the inventory that
      have been identified as not being Year 2000 compliant are software items
      that can be made compliant by upgrading to the most recent versions of the
      software. This phase also includes monitoring the Year 2000 compliance
      programs of third parties whose services have been deemed to be 



                                      -16-
<PAGE>   17

      critical to Pixar's business. This phase is approximately 50% complete,
      and is anticipated to be complete in July 1999.

      Phase 4 -- Remediation: Initiate remediation strategies. Pixar is planning
      to upgrade certain of its systems to the most recent versions of the
      software and most required fixes are underway. This phase is approximately
      50% complete, and is anticipated to be complete in November 1999.

      Phase 5 -- Testing: Test and certify all critical and certain important
      systems where appropriate. Testing schedules have been set for Pixar's
      financial systems and studio tools. This phase is approximately 25%
      complete, and is anticipated to be complete in November 1999.

      Based on information available to date, Pixar believes that it will be
able to complete it's Year 2000 compliance review and make any necessary
modifications to its internal systems prior to the end of 1999. Pixar expects
that the total costs associated with resolving its Year 2000 issues will not be
material and does not expect such costs to exceed $500,000. The majority of
these costs will result from consultants, software upgrades and dedicated
program equipment.

      Pixar's most significant Year 2000 risk results from Pixar's relationship
with Disney, a public company. Pixar relies on Disney for the distribution and
marketing of its films and Toy Story 2 is expected to be released at the end of
1999. The disruption of Disney's distribution activities as a result of Year
2000 problems could result in lost revenues for Toy Story 2 and related
merchandise. In addition, if the accounting and financial systems of Disney are
adversely affected by Year 2000 issues and Disney is unable to issue revenue
reports to Pixar, Pixar's recognition of its share of the revenue generated
pursuant to the Co-Production Agreement and the Feature Film Agreement could be
delayed. There can be no assurance that the failure of any third parties to have
systems that are Year 2000 compliant would not have a material adverse effect on
Pixar's financial position or results of operations.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Pixar invests in a variety of investment grade, interest-bearing
securities, including fixed rate obligations of corporations, municipalities,
and national governmental entities and agencies. This diversification of risk is
consistent with Pixar's policy to ensure safety of its principal and maintain
liquidity. Pixar only invests in securities with a maturity of 24 months or
less, with only government obligations exceeding 12 months. Pixar's investments
are fixed rate obligations and carry a certain degree of interest rate risk. A
rise in interest rates could adversely impact the fair market value of these
securities.

      All of Pixar's financial instruments are held for purposes other than
trading and are considered "available for sale" per SFAS 115. The table below
provides information regarding Pixar's investment portfolio at April 3, 1999.
The table presents principal cash flows and related weighted average fixed
interest rates presented by expected maturity date (dollars in thousands):

<TABLE>
<CAPTION>
                                      < 1 YEAR      > 1 YEAR       TOTAL
                                     -----------    ----------  ---------
<S>                                  <C>            <C>        <C>      
Available-for-sale securities...     $  92,924      $ 40,010   $ 132,934
Weighted-average interest rate..          5.35%         5.05%       5.26%

</TABLE>




                                      -17-
<PAGE>   18


                          PART II -- OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

      (d) The effective date of the Company's first registration statement,
filed on Form S-1 under the Securities Act of 1933 (No. 33-97918), was November
28, 1995 (the "Registration Statement"). The class of securities registered was
Common Stock. The offering commenced on November 29, 1995 and all securities
were sold in the offering. The managing underwriters for the offering were
Robertson, Stephens & Company, L.P., Hambrecht & Quist LLC and Cowen & Company.

      A total of 6,900,000 shares were registered pursuant to the Registration
Statement, all of which the Company sold for its own account, for an aggregate
offering price of $151,800,000.

      The Company incurred expenses of approximately $12,138,714, of which
$10,246,500 represented underwriting discounts and commissions and $1,892,214
represented other expenses. All such expenses were direct or indirect payments
to others. The net offering proceeds to the Company after total expenses were
$139,661,286.

      As of April 3, 1999, the Company had used the net proceeds from the
offering as follows: $24,984,044 for construction of plant, building and
facilities, $13,077,686 for the purchase and installation of machinery and
equipment, $2,374,000 for the repayment of indebtedness, $82,481,385 for the
development of future films and other animated products and $16,744,171 for
working capital. Of these amounts, $2,374,000 represented direct or indirect
payments to directors, officers, general partners of the Company or their
associates; to persons owning ten (10) percent or more of any class of equity
securities of the Company; or to affiliates of the Company. The use of the
proceeds from the offering does not represent a material change in the use of
proceeds described in the prospectus.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

                  27.1     Financial Data Schedule


         (b)      REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed by Pixar during the quarter
                  ended April 3, 1999.


ITEMS 1, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED



                                      -18-
<PAGE>   19

                                    SIGNATURE

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.

                                      PIXAR

Date: May 14, 1999                       By: /s/ Sarah S. Flatley     
      -----------------                      -----------------------------------
                                             Sarah S. Flatley,
                                             Vice President, Finance
                                             (Principal Accounting Officer
                                             and Duly Authorized Officer)




                                      -19-
<PAGE>   20


                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
------                   -----------
<S>          <C>

27.1         Financial Data Schedule
</TABLE>