<PAGE>   1

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                                 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 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: 0-26976

                                     PIXAR
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                  CALIFORNIA                                     68-0086179
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
</TABLE>

                 1200 PARK AVENUE, EMERYVILLE, CALIFORNIA 94608
                 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)    (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 752-3000

     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 [ ].

     The number of shares outstanding of the registrant's Common Stock as of May
1, 2001 was 47,789,587.

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<PAGE>   2

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                     PIXAR

                                 BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              MARCH 31,    DECEMBER 30,
                                                                2001           2000
                                                              ---------    ------------
<S>                                                           <C>          <C>
                                        ASSETS
Cash and cash equivalents...................................  $ 78,297       $ 63,241
Short-term investments......................................   187,805        139,514
Trade receivables, net......................................     1,251          1,136
Receivable from Disney......................................     2,199         73,850
Other receivables...........................................     2,949          3,121
Prepaid expenses and other assets...........................     5,055          4,903
Deferred income taxes.......................................    25,699         25,915
Property and equipment, net.................................   110,488        110,891
Capitalized film production costs...........................    69,760         57,032
                                                              --------       --------
          Total assets......................................  $483,503       $479,603
                                                              ========       ========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................  $  1,028       $  1,622
Income taxes payable........................................     8,251          9,650
Accrued liabilities.........................................    14,902         17,229
Unearned revenue............................................    11,818         15,382
                                                              --------       --------
          Total liabilities.................................    35,999         43,883
                                                              --------       --------
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;
     47,784,675 and 47,633,372 shares issued and outstanding
     as of March 31, 2001 and December 30, 2000,
     respectively...........................................   296,360        293,209
  Accumulated other comprehensive income....................       615            249
  Retained earnings.........................................   150,529        142,262
                                                              --------       --------
          Total shareholders' equity........................   447,504        435,720
                                                              --------       --------
          Total liabilities and shareholders' equity........  $483,503       $479,603
                                                              ========       ========
</TABLE>

                See accompanying notes to financial statements.
                                        1
<PAGE>   3

                                     PIXAR

                              STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                                              ---------------------
                                                              MARCH 31,    APRIL 1,
                                                                2001         2000
                                                              ---------    --------
<S>                                                           <C>          <C>
Revenue:
  Film and animation services...............................   $14,154     $58,239
  Software..................................................     1,997       2,739
                                                               -------     -------
          Total revenue.....................................    16,151      60,978
                                                               -------     -------
Cost of revenue:
  Film and animation services...............................     2,173      15,035
  Software..................................................       164         140
                                                               -------     -------
          Total cost of revenue.............................     2,337      15,175
                                                               -------     -------
          Gross profit......................................    13,814      45,803
                                                               -------     -------
Operating expenses:
  Research and development..................................     1,545       1,413
  Sales and marketing.......................................       390         390
  General and administrative................................     2,081       1,816
                                                               -------     -------
          Total operating expenses..........................     4,016       3,619
                                                               -------     -------
          Income from continuing operations.................     9,798      42,184
Other income, net...........................................     3,225       2,837
                                                               -------     -------
          Income from continuing operations before income
           taxes............................................    13,023      45,021
Income tax expense..........................................     4,838      18,683
                                                               -------     -------
          Net income from continuing operations.............     8,185      26,338
Income from discontinued operations, net of taxes...........        82          50
                                                               -------     -------
          Net income........................................   $ 8,267     $26,388
                                                               =======     =======
Basic net income per share from continuing operations.......   $  0.17     $  0.56
Basic net income per share from discontinued operations.....        --          --
                                                               -------     -------
Basic net income per share..................................   $  0.17     $  0.56
                                                               =======     =======
Shares used in computing basic net income per share.........    47,731      47,005
                                                               =======     =======
Diluted net income per share from continuing operations.....   $  0.16     $  0.53
Diluted net income per share from discontinued operations...        --          --
                                                               -------     -------
Diluted net income per share................................   $  0.16     $  0.53
                                                               =======     =======
Shares used in computing diluted net income per share.......    50,656      49,927
                                                               =======     =======
</TABLE>

                See accompanying notes to financial statements.
                                        2
<PAGE>   4

                                     PIXAR

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                                              ----------------------
                                                              MARCH 31,    APRIL 1,
                                                                2001         2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
Cash flows from operating activities:
  Net income................................................  $  8,267     $  26,388
  Adjustments to reconcile net income to net cash provided
     by continuing operating activities:
     Discontinued operations................................       (82)          (50)
     Depreciation and amortization..........................     1,925         1,467
     Amortization of capitalized film production costs......     2,173        14,846
     Tax benefit from option exercises......................     1,286         1,327
     Deferred income taxes..................................       216            --
     Loss (gain) on disposition or sale of equipment........         8            (8)
     Changes in operating assets and liabilities:
       Trade and other accounts receivables.................        57         1,518
       Receivable from Disney...............................    71,651       (25,586)
       Prepaid expenses and other assets....................      (272)          743
       Accounts payable.....................................      (594)        3,510
       Income taxes payable.................................    (1,399)        7,167
       Accrued liabilities..................................    (2,327)       (5,418)
       Unearned revenue.....................................    (3,564)          231
                                                              --------     ---------
          Net cash provided by continuing operations........    77,345        26,135
          Net cash provided by discontinued operations......        82            50
                                                              --------     ---------
          Net cash provided by operating activities.........    77,427        26,185
                                                              --------     ---------
Cash flows from investing activities:
  Purchase of property and equipment........................    (1,410)      (19,227)
  Proceeds from sale of equipment...........................        --           398
  Sales and maturities of short-term investments............    38,802       153,613
  Purchase of short-term investments........................   (86,727)     (160,183)
  Capitalized film production costs.........................   (14,901)       (5,584)
                                                              --------     ---------
          Net cash used in investing activities.............   (64,236)      (30,983)
                                                              --------     ---------
Cash flows from financing activities:
  Proceeds from exercised stock options.....................     1,865           885
                                                              --------     ---------
          Net cash provided by financing activities.........     1,865           885
                                                              --------     ---------
Net increase (decrease) in cash and cash equivalents........    15,056        (3,913)
Cash and cash equivalents at beginning of period............    63,241        31,170
                                                              --------     ---------
Cash and cash equivalents at end of period..................  $ 78,297     $  27,257
                                                              ========     =========
Supplemental disclosure of cash flow information:
  Cash paid during the period for income taxes..............  $  5,000     $  10,225
                                                              ========     =========
Supplemental disclosure of non-cash investing and financing
  activities:
  Credits from patent licensing.............................  $     --     $      24
                                                              ========     =========
  Unrealized gain (loss) on investments.....................  $    366     $      (5)
                                                              ========     =========
</TABLE>

                See accompanying notes to financial statements.
                                        3
<PAGE>   5

                                     PIXAR

                         NOTES TO FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

     The accompanying unaudited condensed 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 condensed
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of our
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 December 30, 2000 and January 1, 2000, and
for each of the years in the three-year period ended December 30, 2000,
including notes thereto.

     The results of operations for the quarter ended March 31, 2001 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 2001 financial statement presentation.

(2) FISCAL YEAR

     Effective for fiscal year 1998, Pixar (the "Company") adopted a 52- or
53-week fiscal year, changing the year end date from December 31 to the Saturday
nearest December 31. Fiscal year 2001 will end on December 29, 2001 and will
consist of 52 weeks.

(3) NET INCOME PER SHARE

     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. Options to purchase approximately 2.6 million shares
of common stock were outstanding during the three month period ending March 31,
2001, but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares.

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

<TABLE>
<CAPTION>
                                                             QUARTER ENDED
                                        -------------------------------------------------------
                                             MARCH 31, 2001                APRIL 1, 2000
                                        -------------------------    --------------------------
                                         NET                           NET
                                        INCOME    SHARES     EPS     INCOME     SHARES     EPS
                                        ------    ------    -----    -------    ------    -----
<S>                                     <C>       <C>       <C>      <C>        <C>       <C>
Basic net income per share............  $8,267    47,731    $0.17    $26,388    47,005    $0.56
Effect of dilutive shares:
  Warrants/options....................      --     2,925                  --     2,922
                                        ------    ------             -------    ------
Diluted net income per share..........  $8,267    50,656    $0.16    $26,388    49,927    $0.53
                                        ======    ======             =======    ======
</TABLE>

                                        4
<PAGE>   6
                                     PIXAR

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(4) COMPREHENSIVE INCOME

     Other comprehensive income (loss) consists of unrealized holding gains or
losses on the Company's short-term investments. The following table sets forth
the calculation of comprehensive income, net of income taxes (in thousands):

<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                                              ---------------------
                                                              MARCH 31,    APRIL 1,
                                                                2001         2000
                                                              ---------    --------
<S>                                                           <C>          <C>
Net income..................................................   $8,267      $26,388
Unrealized holding gains (losses) on short-term
  investments...............................................      366           (5)
                                                               ------      -------
Comprehensive income........................................   $8,633      $26,383
                                                               ======      =======
</TABLE>

(5) FEATURE FILM AND CO-PRODUCTION AGREEMENTS

  Feature Film Agreement

     In 1991, the Company entered into a feature film agreement with Walt Disney
Pictures, a wholly owned subsidiary of Walt Disney Pictures and Television
(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"). The Company is entitled to receive compensation
based on revenue from the distribution of these films and related products. In
1995, the Company 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
the Company since Toy Story. Under the Co-Production Agreement, Pixar, on an
exclusive basis, agreed to produce five original computer-animated theatrical
motion pictures (the "Pictures") for distribution by Disney. 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 is responsible for the production of each Picture and Disney
is responsible for the marketing, promotion, publicity, advertising and
distribution of each Picture. The first original film produced under the
Co-Production Agreement was A Bug's Life. Films in development or production at
Pixar governed by this agreement include Monsters, Inc., Finding Nemo, the
Company's sixth film "Film Six" and the Company's seventh film "Film Seven." A
Bug's Life, Monsters, Inc., Finding Nemo, Film Six and Film Seven count toward
the five original Pictures, whereas Toy Story 2, as a sequel, is a derivative
work that will not count toward the Pictures. However, under the Co-Production
Agreement, all provisions applicable to the Pictures also apply to derivative
works such as Toy Story 2.

     All payments to Pixar from Disney for development and production of Toy
Story under the Feature Film Agreement, and A Bug's Life, Toy Story 2, Monsters,
Inc., Finding Nemo, Film Six, and Film Seven under the Co-Production Agreement
have been recorded as cost reimbursements. Accordingly, no revenue has been
recognized for such reimbursements; rather, the Company has netted the
reimbursements against the related costs.

  Creative Development Group

     In addition to the films produced and in process under the Co-Production
Agreement, Pixar's creative development group is working on concept development
for several new projects that do not come under the Co-Production Agreement.
Costs related to these projects are therefore not shared or reimbursed by
Disney.

                                        5
<PAGE>   7
                                     PIXAR

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Such costs are capitalized as film costs and will be amortized under the film
forecast method assuming the concept development leads to a successful concept
and realization of a film project. In the event a film is not set for production
within three years from the time of the first capitalized transaction, such
costs will be expensed.

     The total film production costs and related amounts capitalized are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                TOTAL THROUGH
                                                                MARCH 31, 2001
                                                                --------------
<S>                                                             <C>
RELEASED FILMS..............................................       $ 87,780
Cumulative amortization of film production costs............        (71,652)
                                                                   --------
          Total film production costs capitalized for
            released films..................................         16,128
FILMS IN PRODUCTION.........................................         44,250
FILMS IN DEVELOPMENT OR PREPRODUCTION.......................          9,382
                                                                   --------
          Total film production costs capitalized...........       $ 69,760
                                                                   ========
</TABLE>

     Under the Co-Production Agreement, certain operating expenses benefiting
the productions, such as certain research and development and certain general
and administrative expenses, are paid half by Pixar and half by Disney. From the
date of the Co-Production Agreement, the Company recorded the following amounts
reimbursed by Disney as offsets to the following expense categories (in
thousands):

<TABLE>
<CAPTION>
                                                                     QUARTER ENDED
                                                            -------------------------------
                                                            MARCH 31, 2001    APRIL 1, 2000
                                                            --------------    -------------
<S>                                                         <C>               <C>
Research and development..................................      $1,139           $1,704
General and administrative................................         899              699
                                                                ------           ------
          Total...........................................      $2,038           $2,403
                                                                ======           ======
</TABLE>

     At March 31, 2001 and December 30, 2000, the receivable from Disney
aggregated $2.2 million and $73.9 million, respectively, which consists of a
receivable from Disney for film revenue, advances net of Disney's actual share
of expenditures for all films, amounts due for animation services and
miscellaneous reimbursements.

     The Company expects to amortize, based on current estimates, approximately
$6 million to $7 million in capitalized film production costs over the
succeeding twelve-month period. In addition, the Company expects that all
released films will have amortized more than 80% of each released film's
original production costs by the end of fiscal year 2003.

(6) SEGMENT REPORTING

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

                                        6
<PAGE>   8
                                     PIXAR

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The Company's revenue segment information by film category follows (in
thousands):

<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                                                          ---------------------
                                                          MARCH 31,    APRIL 1,
                                                            2001         2000
                                                          ---------    --------
<S>                                                       <C>          <C>
Toy Story 2.............................................   $ 7,242     $53,907
Library titles..........................................     6,899       3,999
Animation services......................................        13         333
                                                           -------     -------
                                                           $14,154     $58,239
                                                           =======     =======
</TABLE>

     Library titles include A Bug's Life and Toy Story.

(7) EMPLOYMENT AGREEMENT

     In March 2001, the Company entered into an employment agreement with John
Lasseter, (the "Employment Agreement"), which has a term of 10 years. Mr.
Lasseter is a two-time Academy Award(R)-winning director and animator. In
addition to serving as head of all of the Company's creative projects, he
directed Toy Story, the first feature-length computer animated film (for which
he won a special Achievement Academy Award(R)), A Bug's Life and Toy Story 2. He
is currently in development on his fourth feature film for the Company. This
Employment Agreement supercedes the Company's prior employment agreement with
Mr. Lasseter, which was entered into in February 1997. Pursuant to the
Employment Agreement, Mr. Lasseter received a signing bonus of $4,940,000. The
Employment Agreement also provides for a current annual salary of $2,500,000
with 5% annual increases. In connection with the Employment Agreement, Mr.
Lasseter was previously granted an option to purchase 1,000,000 shares of our
common stock at the fair market value on the date of such grant. The option
vests on an equal monthly basis over the ten-year term of the agreement, except
for options that vest on the last month will vest on the penultimate month of
this ten-year period.

(8) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2000, the AICPA issued Statement of Position (SOP) 00-2,
"Accounting by Producers or Distributors of Films." The guidance in this SOP
applies to all types of films, and is applicable to all producers or
distributors that own or hold rights to distribute or exploit films. For
purposes of this SOP, films are defined as feature films, television specials,
television series, or similar products including animated films and television
programming that are sold, licensed or exhibited, whether produced on film,
videotape, digital, or other video recording format. The Company adopted SOP
00-2 during the first quarter of fiscal year 2001. Adoption did not have a
material effect on the Company's financial statements, liquidity or results of
operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
SFAS No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities", which as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities, Deferral of the Effective Date of FASB
Statement No. 133, and Amendment of FASB Statement No. 133" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of FASB No. 133," issued in June 2000, will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 generally provides for matching the
timing of gain or loss recognition of (a) the changes in the fair value of the
hedged asset or liability that are attributed to the hedged risk or (b) the
earnings effect of hedged forecasted transactions. The adoption of this
statement during the first quarter of fiscal year 2001, did not have a material
effect on the Company's financial statements, liquidity or results of
operations, as the Company had no derivative instruments.

                                        7
<PAGE>   9

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 our 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 Risk Factors on pages 13
to 18. Particular attention should be paid to the cautionary language in Risk
Factors "-- To meet our fiscal 2001 diluted earning per share target, we must
receive sufficient revenues primarily from our feature films and, to a lesser
extent, our non-film related sources," "-- Our operating results have fluctuated
in the past and we expect such fluctuations to continue," and "-- Our scheduled
successive releases of feature films will continue to place a significant strain
on our resources," as well as those noted in the section entitled "Risk Factors"
in our Annual Report on Form 10-K for the year ended December 30, 2000, as
amended (the "Form 10-K"). 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.

     Our operating performance each quarter is subject to various risks and
uncertainties as discussed in our 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.

OVERVIEW

     In February 1997, we entered into the Co-Production Agreement with Disney
pursuant to which we, on an exclusive basis, agreed to produce five original
computer-animated feature-length theatrical motion pictures (the "Pictures") for
distribution by Disney. 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 as well as 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 any participations provided to talent and the like. The
Co-Production Agreement generally provides that we will be responsible for the
production of each Picture, while Disney will be responsible for the marketing,
promotion, publicity, advertising and distribution of each Picture. Our second
feature film, A Bug's Life, was released in November 1998 and counts as the
first original 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, we will have the opportunity
to co-finance and produce such products or to earn passive royalties on such
products. We 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 us for
our share of certain general and administrative costs and certain research and
development costs that benefit the productions.

     In November 1999, Toy Story 2, our third animated feature film was
released. As a sequel, Toy Story 2 is a derivative work of the original Toy
Story and therefore it does not count toward the five original Pictures to be
produced under the Co-Production Agreement. However, as a derivative work, Toy
Story 2 is treated as a Picture under the Co-Production Agreement, and all the
provisions applicable to the five original Pictures apply.

     In 1999, we began production on our fourth theatrical film, Monsters, Inc.
and concept development on our sixth animated feature film, "Film Six." In 2000,
we began production on our fifth animated feature film, Finding Nemo and concept
development on our seventh animated feature film, "Film Seven." These films will

                                        8
<PAGE>   10

be produced and distributed under the Co-Production Agreement and will count as
the second, third, fourth, and fifth films of the five original films to be
produced under the Co-Production Agreement. We expect to release Monsters, Inc.
in November 2001, and Finding Nemo in summer 2003, at the earliest. Film Six and
Film Seven are currently targeted for release no earlier than 2004 and 2005,
respectively.

  Target Earnings per Share for Fiscal Year 2001

     We are targeting diluted earnings per share of $0.40 to $0.55 for fiscal
year 2001. This estimate is primarily based on our current expectations
regarding the following: (1) merchandise revenue and ancillary royalties
relating to the sale of products from the Toy Story franchise and A Bug's Life;
(2) residual home video sales from A Bug's Life, Toy Story and Toy Story 2; (3)
revenues from potential worldwide network television licensing revenues for A
Bug's Life, Toy Story and Toy Story 2; and (4) our assumptions, including the
timing and amount, for box office receipts, as well as merchandise revenues,
from our upcoming film, Monsters, Inc., targeted for domestic theatrical release
in November 2001.

     In addition, we are targeting diluted earnings per share of $0.10 to $0.13
for the second quarter of fiscal year 2001. Our second quarter revenue is
expected to be derived primarily from domestic network television licensing of A
Bug's Life, continuing sales of the Toy Story 2 home video, continuing
merchandise sales from the Toy Story franchise and A Bug's Life, and potential
ancillary royalties.

     These statements are forward-looking, and actual results may differ
materially. Factors that could cause actual fiscal year 2001 results to differ
include but are not limited to: (1) the timing and amount of worldwide
television revenues for A Bug's Life, Toy Story and Toy Story 2; (2) the timing
and amount of related revenues from Toy Story 2 domestic and foreign home video;
(3) the timing and amount of Monsters, Inc., Toy Story franchise and A Bug's
Life merchandise sales and ancillary royalties; (4) the timing and amount of
revenue from the Buzz Lightyear of Star Command television series and related
home video release; (5) the timing and amount of our remaining revenues from the
home video release of A Bug's Life and Toy Story as part of Disney's Gold
Collection; (6) the timing of the theatrical release of Monsters, Inc. and the
amount of related revenue; (7) the timing and amount of distribution costs
incurred in all markets for Monsters, Inc., Toy Story 2, Toy Story and A Bug's
Life; (8) the timing, accuracy and sufficiency of the information we receive
from Disney to determine revenues and associated gross profits; (9) the timing
and amount of non-film related revenues, such as licensing our software and
interest income; and (10) the market price for our common stock and related
volatility. See "Risk Factors" set forth below for a more detailed discussion of
factors that could cause actual results to differ.

RESULTS OF OPERATIONS

  Revenue

     Total revenue for the three months ended March 31, 2001 was $16.2 million,
compared to $61.0 million for the three months ended April 1, 2000.

     Film and animation services revenue for the quarter ended March 31, 2001
was $14.2 million, compared with $58.2 million in the corresponding period of
the prior year. Film revenue for the first quarter of 2001 includes $7.2 million
of Toy Story 2 related revenues attributable primarily to home video sales,
related merchandise revenues as well as royalties from the home video release of
Buzz Lightyear of Star Command and other ancillary royalties. Our library
titles, A Bug's Life and Toy Story, comprised the balance of $6.9 million
through worldwide home video sales, domestic pay-per-view revenues and consumer
products. Also included in film revenue for the first quarter of 2001 were one
time revenues associated with interactive products. Film revenue for the three
months ended April 1, 2000 resulted primarily from our share of worldwide
theatrical revenues and related merchandise from Toy Story 2, which was released
in November 1999, of $53.9 million, and to a lesser extent, our share of home
video and merchandise revenue from A Bug's Life of $2.1 million. Also included
in film revenue for the three months ended April 1, 2000, was revenue of $1.9
million from Toy Story, including residual merchandise and home video sales.
Under the Co-Production Agreement, we share equally with Disney in the profits
of Toy Story 2 and A Bug's Life after Disney recovers its distribution costs and
fees.

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     Software revenue includes software license revenue, principally from
RenderMan(R), and royalty revenue from licensing Physical Effects, Inc. (PEI)
technology to a third party. Software revenue decreased to $2.0 million for the
three months ended March 31, 2001 compared to $2.7 million in the same period of
the prior year. The decrease in software revenue resulted primarily from a
general decrease in RenderMan(R) software licensing, and to a lesser extent,
from a decrease in the royalty revenue from licensing PEI technology to a third
party. PEI, a company we acquired in 1998, licensed certain of its technology to
a third party, from which we now receive associated royalty revenue on a
quarterly basis. Due to our focus on content creation for animated feature films
and related products, we have not increased the time and resources necessary to
generate significantly higher RenderMan(R) sales. Therefore, we expect ongoing
variability in revenues derived from software licenses and that such revenue to
remain flat or possibly decline, as seen in the current quarter.

     For the three months ended March 31, 2001, Disney accounted for 88% of our
total revenue compared to 96% for the same period of the prior year. The revenue
from Disney consisted primarily of film related revenue and to a lesser extent
some animation services revenue. Because of our relationship with Disney under
the Co-Production Agreement, Disney is expected to continue to represent
significantly greater than 10% of our revenue in 2001 and for the foreseeable
future. As of March 31, 2001, amounts related to Disney include unearned revenue
from Disney, which represents 86% of unearned revenue on the balance sheet.

  Cost of Revenue

     Cost of film and animation services revenue for the three months ended
March 31, 2001 decreased to $2.2 million from $15.0 million in the corresponding
prior year period. Cost of film revenue represents amortization of capitalized
film costs. See "Capitalized Film Production Costs." For the three months ended
March 31, 2001, cost of film revenue represents amortization of film costs
associated with Toy Story 2 and A Bug's Life, and represents 15% of total film
revenue. For the three months ended April 1, 2000, cost of film revenue
represented amortized costs associated with Toy Story 2 and A Bug's Life, and
represented 26% of total film revenue. The decrease in cost of revenue as a
percent of revenue for the current period as compared to the prior year period,
is attributable to a combination of factors: (1) an increase in Toy Story
revenue for which there was no related cost, as all Toy Story film costs were
fully amortized by December 31, 1997; (2) revisions of estimates on revenue to
be received under the individual film forecast method for A Bug's Life and Toy
Story 2 resulting in lower amortization of capitalized film costs; and (3) the
mix of film revenue from quarter to quarter as the gross profit percent varies
by film.

     Cost of software revenue consists of the direct costs and manufacturing
overhead required to reproduce and package our software products, as well as
amortization of purchased technology. Cost of software revenue as a percentage
of the related revenue was 8% and 5% for the three months ended March 31, 2001
and April 1, 2000, respectively. Cost of software revenue for the three months
ended March 31, 2001 and April 1, 2000, relates primarily to amortization of
purchased technology associated with the acquisition of PEI of $120,000. We are
amortizing this purchased technology against related license revenue over a
period not to exceed four years.

  Operating Expenses

     Total operating expenses increased to $4.0 million for the quarter ended
March 31, 2001, from $3.6 million in the corresponding prior year period. We
intend to continue to increase operating expenses in a number of areas. With
respect to general expense growth, as a result of competition, we have had to
pay higher salaries for technical and administrative personnel. We expect
compensation for such personnel may continue to increase. We still expect future
operating expenses to reflect the growth of the studio as we prepare for the
release of Monsters, Inc. and as we ramp up toward our goal of producing one
feature film per year. Under the Co-Production Agreement, Disney reimburses us
for half of certain general and administrative costs and certain research and
development costs that benefit the productions. The funding received from Disney
is treated as operating expense reimbursements. To the extent that personnel,
facilities and other expenditures are not capitalized by us nor allocated to and
paid for by Disney, and precede or are not subsequently followed by an increase
in revenue, our business, operating results and financial condition will be
materially adversely affected.
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     Research and Development. Research and development expenses consist
primarily of salaries and support for personnel conducting research and
development for our RenderMan(R) software and for our proprietary Marionette and
Ringmaster animation and production management software and for creative
development for future films. Research and development expenses increased to
$1.5 million in the three months ended March 31, 2001 from $1.4 million in the
corresponding prior year period. During the first quarter of fiscal year 2000 we
recorded a one-time adjustment of $523,000, which reduced our research and
development expenses for the three months ended April 1, 2000, from $1.9 million
to $1.4 million. This adjustment was due to an additional reimbursement from
Disney under the terms of the Co-Production Agreement for certain research and
development expenses incurred prior to fiscal year 2000. After allowing for this
adjustment, the decrease in research and development expenses from 2000 was due
to a reduction in short film project costs, which was somewhat offset by our
continued investment in proprietary technology. We expect 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. Sales and marketing expenses consist primarily of
salaries and related overhead, as well as public relations, advertising,
technical support and trade show costs required to support our software segment.
Sales and marketing expenses remained level at $390,000 for the three months
ended March 31, 2001 and April 1, 2000. We believe that sales and marketing
expenses will increase in future periods, particularly in the areas of public
relations and corporate marketing.

     General and Administrative. General and administrative expenses consist
primarily of salaries of management and administrative personnel, insurance
costs and professional fees. General and administrative expenses increased to
$2.1 million for the three months ended March 31, 2001 from $1.8 million in the
corresponding prior year period. This increase is due in part to ramping up the
studio toward our goal of producing an animated feature film every year. We
expect general and administrative expenses to increase in future periods.

  Other Income, Net

     Other income, net was $3.2 million and $2.8 million for the three months
ended March 31, 2001 and April 1, 2000, respectively, consisting primarily of
interest income on short-term investments. The increase is primarily due to an
increase in interest rates and an increase in our average cash, cash equivalents
and short-term investment balances through March 31, 2001.

  Income Taxes

     Income tax expense from continuing operations for the three months ended
March 31, 2001 reflects our federal and state income tax expense of 37.1% versus
41.5% in the same period of the prior year. Our income tax rate is lower in 2001
due to the utilization of research and experimentation credits for federal and
state tax purposes, as well as the utilization of certain other state credits
and exemptions.

CAPITALIZED FILM PRODUCTION COSTS

     We had $69.8 million in capitalized film production costs as of March 31,
2001, consisting primarily of costs relating to Toy Story 2, A Bug's Life,
Monsters, Inc., Finding Nemo, Film Six, and Film Seven 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, cash equivalents and short-term investments increased $63.3 million
to $266.1 million at March 31, 2001 from $202.8 million at December 30, 2000 due
primarily to cash received from Disney for our share of film revenue, as well as
software revenue and interest income, which was offset by film production
spending and capital expenditures.

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     Net cash provided by continuing operations for the three months ended March
31, 2001 was primarily attributable to net income of $8.3 million, the non-cash
impact of depreciation and amortization expense and amortization of capitalized
film production costs totaling $4.1 million and a decrease in receivables from
Disney of $71.7 million, which were offset by decreases in accounts payable,
accrued liabilities and unearned revenue totaling $6.5 million. Net cash used in
investing activities primarily consisted of investments in short-term securities
of $86.7 million, the purchase of property and equipment of $1.4 million and
funding of film production costs of $14.9 million, which were offset by net
proceeds from sales of short-term investments of $38.8 million. Net cash
provided by financing activities consisted of proceeds from exercised stock
options.

     As of March 31, 2001, our principal source of liquidity was $266.1 million
in cash, cash equivalents and short-term investments. We believe that these
funds will be sufficient to meet our operating requirements through the next
twelve months.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2000, the AICPA issued Statement of Position (SOP) 00-2,
"Accounting by Producers or Distributors of Films." The guidance in this SOP
applies to all types of films, and is applicable to all producers or
distributors that own or hold rights to distribute or exploit films. For
purposes of this SOP, films are defined as feature films, television specials,
television series, or similar products including animated films and television
programming that are sold, licensed or exhibited, whether produced on film,
videotape, digital, or other video recording format. SOP 00-2. We adopted SOP
00-2 during the first quarter of fiscal year 2001. Adoption did not have a
material effect on our financial statements, liquidity or results of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
SFAS No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities", which as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities, Deferral of the Effective Date of FASB
Statement No. 133, and Amendment of FASB Statement No. 133" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of FASB No. 133," issued in June 2000, will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 generally provides for matching the
timing of gain or loss recognition of (a) the changes in the fair value of the
hedged asset or liability that are attributed to the hedged risk or (b) the
earnings effect of hedged forecasted transactions. The adoption of this
statement during the first quarter of fiscal year 2001, did not have a material
effect on our financial statements, liquidity or results of operations, as the
Company had no derivative instruments.

RISK FACTORS

     The following is a discussion of certain factors that currently impact or
may impact our business, operating results and/or financial condition. You
should carefully consider these factors before making an investment decision
with respect to our Common Stock.

TO MEET OUR FISCAL 2001 DILUTED EARNINGS PER SHARE TARGET, WE MUST RECEIVE
SUFFICIENT REVENUES PRIMARILY FROM OUR FEATURE FILMS AND, TO A LESSER EXTENT,
OUR NON-FILM RELATED SOURCES.

     In 2001, our revenue and operating results will be largely dependent upon
(1) the timing and amount of worldwide television revenues for A Bug's Life, Toy
Story, and Toy Story 2, (2) the timing and amount of related revenues from Toy
Story 2 domestic and foreign home video sales, (3) the timing and amount of
Monsters, Inc., Toy Story franchise, and A Bug's Life merchandise sales and
ancillary royalties, (4) the timing and amount of revenue from the Buzz
Lightyear of Star Command television series and related home video release, (5)
the timing and amount of our remaining revenues from the home video releases of
A Bug's Life and Toy Story as part of Disney's Gold Collection, (6) the timing
of the theatrical release of Monsters, Inc. and the amount of related revenues,
(7) the timing and amount of distribution costs incurred in all markets for
Monsters, Inc., Toy Story 2, Toy Story, and A Bug's Life, (8) the timing,
accuracy, and sufficiency of the

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<PAGE>   14

information we receive from Disney to determine revenues and associated gross
profits, and (9) the timing and amount of non-film related revenues, such as
licensing our software and interest income; and (10) the market price of our
common stock and related volatility.

  Dependence on revenue from our feature films.

     Under the Co-Production Agreement, Pixar and Disney share equally in the
profits of A Bug's Life, Toy Story 2, and Monsters, Inc. after Disney recovers
its distribution fee and its marketing and distribution costs. Distribution
costs include worldwide theatrical release costs, costs related to merchandise,
Disney's costs to distribute home videos in the United States and foreign
markets, Disney's distribution fee, and other distribution costs including
talent participation and residuals.

     Beginning with the first quarter of 2000, we have had an improved ability,
through information available to us from Disney and other sources, to estimate
and record our share of film revenues and gross profits. While we anticipate
this improved ability will continue to allow us to recognize our share of film
revenues and gross profits on a more timely basis, we will remain dependent on
the timing, accuracy, and sufficiency of the information provided by Disney.

     For our business to be successful, our films must achieve extraordinary box
office success. It is rare for animated feature films to achieve extraordinary
box office success. While we have been successful in the release of our first
three feature films, this level of success is unusual in the motion picture
industry, and our future releases may not achieve similar results. Beyond 2001,
we will be dependent on the future success of Monsters, Inc., Finding Nemo, Film
Six, and Film Seven (together referred to as the "Current Projects"). Unless
Monsters, Inc. and Finding Nemo achieve extraordinary box office success and
also achieve success in home video and merchandise sales, they may not generate
significant revenue and operating results for us in future years.

     Dependence on Toy Story franchise and A Bug's Life. We will continue to be
significantly dependent upon the success of Toy Story 2 in fiscal year 2001. In
2000, we recognized essentially all of Toy Story 2 worldwide theatrical
revenues, as well as a substantial amount of anticipated related merchandise
revenue. Toy Story 2 was released on home video domestically on October 17,
2000, and was released in various major international markets, including the
U.K. and Japan, in November 2000. Consequently, a significant amount of expected
lifetime worldwide home video revenues from Toy Story 2 was recognized in the
fourth quarter of 2000. We also recognized a significant amount of expected
revenues from the Buzz Lightyear of Star Command television series and related
home video release in the third and fourth quarter of 2000. In fiscal year 2001,
we anticipate revenues from continuing worldwide home video sales, ancillary
merchandising revenue from our library titles, as well as some television
revenues. However, there can be no assurance that such revenues will be
sufficient to meet our targeted earnings for 2001.

     A Bug's Life was released in November 1998, and we have recognized film
revenues to date of $118.4 million resulting primarily from the domestic and
foreign theatrical revenues from A Bug's Life, related domestic and foreign home
video revenue, related merchandise licensing, and some television revenue,
offset by Disney's marketing and distribution costs and its distribution fee.
This revenue from A Bug's Life represents a significant amount of the revenue we
expect to recognize over the lifetime of A Bug's Life. However, in line with
Disney's new home video strategy, by which more titles will be available on a
year-round basis, A Bug's Life VHS and DVD were repackaged and released as part
of Disney's Gold Collection on August 1, 2000. We expect sources of revenue in
fiscal year 2001 to include any revenues from these continuing home video sales,
possibly some television revenues, and any residual merchandise revenues and
ancillary royalties; however, there can be no assurance that such revenues will
be sufficient to meet our targeted earnings for 2001.

     Dependence on Monsters, Inc. While we anticipate Monsters, Inc. will be
released as targeted in November 2001, we cannot guarantee Monsters, Inc. will
be released at the scheduled time, and if it is released as scheduled, whether
it will be a box office success. A portion of our anticipated revenues for
fiscal year 2001, are based on the assumption that Monsters, Inc. will be
released in November 2001, and that it will be an extraordinary box office
success. If Monsters, Inc. is not released as scheduled or is not an
extraordinary box office success, it could adversely impact our targeted 2001
operating results.
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  Forecasting revenue from our feature films is extremely difficult.

     It is difficult to forecast the amount and timing of our future revenues
from Toy Story, A Bug's Life, Toy Story 2 and Monsters, Inc. for fiscal year
2001. The amount of future revenues depends not only on customer acceptance of a
film in its worldwide theatrical release, but also on customer acceptance of
related products in each separate release category -- home video, merchandise
and television collectively, being the most significant. While customer
acceptance is initially measured by box office success, customer acceptance
within each follow-on product category, such as home video, merchandise or
television, depends on factors unique to each type of product, such as pricing,
competitive products, and the time of year or state of the economy in which a
product is released, among many other factors. In addition, we have found that
the degree of customer acceptance varies widely among foreign countries. While
box office success is often a good indicator of general customer acceptance, the
relative success of follow-on products is not always directly correlated, and
the degree of correlation is difficult to predict. Disney's strategic
distribution decisions also impact the amount of our future revenues. For
example, in the first half of 1999, Disney reported general softness in its
domestic home video sales and worldwide merchandise licensing as compared to
levels associated with many of its previous blockbuster animated feature films.
As a result, in 2000 Disney implemented a new strategy of releasing animated
films on home video year round, and in special editions in both VHS and DVD
formats. However, the relative success of that new strategy is still not yet
known. For this reason and all of the above reasons, in spite of Toy Story 2's
remarkable box office success, it is difficult to predict how successful its
lifetime home video sales will be, or how successful sales of other follow-on
products will be for fiscal year 2001. Similarly, it is difficult to predict
residual video sales or television revenue from A Bug's Life in 2001. It is also
difficult to predict theatrical revenue and related merchandise revenue from the
anticipated release of Monsters, Inc. in November 2001.

     With respect to the difficulty of forecasting the timing of revenues,
Disney distributes our films and film-related products and therefore determines
the timing of product releases. While the timing of theatrical releases is
typically known well in advance of release, the timing of release of follow-on
products is often decided just in advance of release, is subject to change, and
is therefore less predictable. For example, it was not until the first quarter
of fiscal year 2000 that it was determined that the Toy Story 2 home video would
be released domestically on October 17, 2000. In all product categories, timing
of revenues is particularly uncertain with respect to releases in foreign
markets as a foreign product release is often marked by a rollout across many
countries over the course of many months. Therefore, the timing of international
revenues is inherently more difficult to predict than the timing of domestic
revenues. In addition, the amount of revenue recognized in any given quarter or
quarters from all of our films depends on the timing, accuracy, and sufficiency
of the information we receive from Disney to determine revenues and associated
gross profits. Although we obtain from Disney the most current information
available to recognize our share of revenue and to determine our film gross
profit, Disney may make subsequent adjustments to the information that it has
provided which could have a material impact on us in later periods. For
instance, towards the end of the life cycle for a revenue stream, Disney may
inform us of additional distribution costs to those previously forecasted, as
occurred in the second quarter of fiscal year 2000. Such adjustments have and
may continue to impact our revenue share and our film gross profit. In addition,
through information we obtain from other sources, we may make certain judgments
and/or assumptions and adjust the information we receive from Disney. Due to
these factors, the amount and timing of our future revenues from Toy Story, Toy
Story 2, A Bug's Life and Monsters, Inc. are difficult to forecast, and it is
possible, in any given quarter, that we will not recognize sufficient film
revenue to generate significant earnings.

     Under the Co-Production Agreement, Pixar and Disney share the production
costs of our feature films. We initially capitalize our share of these costs as
film production costs. Our policy is to amortize these costs over the expected
revenue streams as we recognize revenues from the associated films. The amount
of film costs that will be amortized each quarter will depend on how much future
revenue we expect to receive from each film. In any given quarter, if our
forecast changes with respect to total anticipated revenue from any individual
feature film and becomes lower than was previously forecasted, we would be
required to accelerate amortization of related film costs, resulting in lower
gross margins. Such lower gross margins would adversely impact our business,
operating results, and financial condition.

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  Software revenue.

     Software revenue declined in the first quarter of fiscal year 2001 as
compared to the first quarter of 2000. This decline may be indicative of future
trends as we continue to reduce our emphasis on the commercialization of
software products. We are not increasing the time and resources necessary to
generate higher RenderMan(R) licensing revenues; therefore, we expect that
revenue from the licensing of RenderMan(R) will remain flat or possibly decline.
However, to meet our fiscal 2001 diluted earnings per share target, our revenue
estimates include revenues attributable to non-film related sources including
software revenue. There can be no assurance that the timing and amount of such
revenues will be sufficient to meet our targeted earnings.

OUR OPERATING RESULTS HAVE FLUCTUATED IN THE PAST, AND WE EXPECT SUCH
FLUCTUATIONS TO CONTINUE.

  Our revenues fluctuate significantly.

     We continue to expect significant fluctuations in our future annual and
quarterly revenues because of a variety of factors, including the following:

     - the timing of the domestic and international releases of our animated
       feature films,

     - the success of our animated feature films, which can fluctuate
       significantly from film to film,

     - the timing of the release of related products into their respective
       markets, such as home videos, television, and merchandising,

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

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

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

     - the timing and accuracy of information received from Disney and other
       sources on which we base estimates of revenue to be recognized from our
       animated feature films and related products by Disney,

     - the introduction of new feature films or products by our competitors,

     - general economic conditions, and

     - timing and amount of non-film related revenues such as licensing of our
       software.

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

  Our operating expenses fluctuate.

     Our operating expenses and effective tax rate continue to
fluctuate. Operating expenses for the first quarter of fiscal year 2001
increased in comparison to the first quarter of fiscal year 2000 and we expect
to continue to increase our operating expenses to fund greater levels of
research and development, to build to our goal of producing one feature film per
year and to expand operations. Specifically, we expect our spending levels to
increase significantly due to (1) continued investment in proprietary software
systems, (2) potential increased compensation costs as a result of competition
for creative, technical and administrative talent, (3) increased costs
associated with the expansion of our facilities, (4) number of personnel
required to support studio growth and (5) increased investment in creative
development. A portion of our operating expenses that are allocable to film
productions is either capitalized by us or reimbursed by Disney under the
Co-Production Agreement. To the extent that we do not capitalize (or Disney does
not pay for) the increases in expenses, our operating expenses will
significantly increase in 2001. Finally we expect our tax rate in 2001 to be
lower than statutory rates due to the realization of certain tax benefits. We
realize tax benefits from the
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exercise of non-qualified employee stock options that reduce the amount of our
tax payments and liabilities, but will not reduce our future effective tax
rates.

     Forecasting our operating expenses is extremely difficult. Moreover, our
operating expenses will continue to be extremely difficult to forecast. We
budget the direct costs of film productions with Disney, and we share such costs
equally. We capitalize our share of these direct costs of film production in
accordance with SOP 00-2, which we adopted in the first quarter of fiscal year
2001. A substantial portion of all of our other costs are incurred for the
benefit of feature films ("Overhead"), including research and development
expenses and general and administrative expenses. Portions of our Overhead are
included in the budgets for the Pictures, and we will share such costs equally
with Disney under the Co-Production Agreement. With respect to the portion of
our Overhead that is not reimbursed by Disney, we either (1) capitalize such
portion as film production costs, if required under SOP 00-2, or (2) charge it
to operating expense in the period incurred. Since a substantial portion of our
Overhead is related to the Pictures, and is therefore reimbursed by Disney, and
since we capitalize other amounts in accordance with SOP 00-2, our reported
operating expenses for the first quarter of fiscal year 2001 have not reflected,
and future reported operating expenses will not reflect, our true level of
spending on the production of animated feature films, related products and
overhead.

     Film production budgets are likely to continue to increase, and film
production spending may exceed such budgets. Given the (1) escalation in
compensation rates of people required to work on the Current Projects, (2)
number of personnel required to work on the Current Projects, and (3) equipment
needs, the budget for the Current Projects and subsequent films and related
products may continue to be greater than the budgets for Toy Story, A Bug's
Life, and Toy Story 2. We 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, we believe that it is not
uncommon for film production spending to exceed film production budgets, and the
Current Projects may not be completed within the budgeted amounts. For example,
to meet the production schedule of Toy Story 2, we reassigned employees from
other projects, including Monsters, Inc., to complete Toy Story 2. This resulted
in a larger production staff than originally anticipated and it increased
production costs. In addition, when production of each film is completed, we may
incur significant carrying costs associated with transitioning personnel on
creative and development teams from one project to another. These carrying costs
are shared with Disney and treated as film costs, which increases overall
production budgets and could have a material adverse effect on our results of
operations and financial condition.

OUR SCHEDULED SUCCESSIVE RELEASES OF FEATURE FILMS WILL CONTINUE TO PLACE A
SIGNIFICANT STRAIN ON OUR RESOURCES.

     In order to meet our obligations pursuant to the Co-Production Agreement,
we have established parallel creative teams so that we can develop more than one
film at a time. These teams are currently working on Monsters, Inc., which is
presently targeted for release in November 2001, and Finding Nemo, which is
currently targeted for release in summer 2003. We also plan to have parallel
creative teams for Film Six and Film Seven and further to work towards producing
one feature film per year. We have only produced three prior feature films to
date and have limited experience with respect to producing animated feature
films in parallel. We have been required, and will continue to be required, to
expand our employee base, increase capital expenditures and procure additional
resources and facilities in order to accomplish the scheduled release of these
two feature films. This period of rapid growth and expansion has placed, and
continues to place, a significant strain on our resources. We cannot provide any
assurances that Monsters, Inc. or Finding Nemo will be released as targeted or
that this strain on resources will not have a material adverse effect on our
business, financial condition or results of operations. For example, to meet the
production schedule of A Bug's Life, we reassigned employees from other
projects, including Toy Story 2, to A Bug's Life. Similarly, to meet the
production schedule of Toy Story 2, we reassigned employees from other projects,
including Monsters, Inc., to Toy Story 2. In addition, John Lasseter, who was
previously providing creative oversight for Toy Story 2 in his role as Executive
Vice President, Creative, assumed the role of Director of Toy Story 2 in order
to expedite development and production of the film. Using the personnel of
future films to meet the immediate deadlines of films nearing release, as we
have for both A Bug's Life and Toy Story 2, is likely to have the long term
impact of pushing out the targeted release dates of future films, substantially
increasing film budgets, and adversely impacting our ability to generate
creative concepts for subsequent films on a timely basis.

                                        16
<PAGE>   18

     In addition, as Director of Toy Story 2, John Lasseter was focused on Toy
Story 2 until its completion in 1999, and was less available to assist on
Monsters, Inc. during its development phase. John Lasseter's availability has
been a key ingredient in the successful completion of our prior films. A lack of
his availability may adversely impact our ability to release future films as
targeted.

     If we are able to release films in 2001 and 2003, we cannot provide any
assurances that we will release our next film in 2004. Due to the strain on our
personnel from the effort required for the release of Monsters, Inc. and Finding
Nemo and the time required for creative development of a new film, it is
possible that we would be unable to release a successive new film in 2004. It is
too early to determine the rate at which any future films are to be released,
and we cannot provide any assurances that we will release a film in each
successive year or in any particular year.

     To continue to accommodate growth, we will be required to implement a
variety of new and upgraded operational and financial systems, procedures and
controls, including improvement and maintenance of our accounting system, other
internal management systems and backup systems. In addition, this growth and
these diversification activities, along with the corresponding increase in the
number of our employees and rapidly increasing costs, have resulted in increased
responsibility for our management team. We will need to continue to improve our
operational, financial and management information systems and to hire, train,
motivate and manage our employees, to integrate them into Pixar and to provide
adequate facilities and other resources for them. We cannot provide any
assurance we will be successful in accomplishing all of these activities on a
timely and cost-effective basis. Any failure to accomplish one or more of these
activities on a timely and cost-effective basis would have a material adverse
effect on our business, financial condition and results of operations.

BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR OPERATIONS.

     Our operations are vulnerable to interruption by fire, earthquake, power
loss, telecommunications failure and other events beyond our control. We are
currently expanding our detailed disaster recovery plan. Our facilities in the
State of California are currently subject to electrical blackouts as a
consequence of a shortage of available electrical power. In the event these
blackouts continue or increase in severity, they could disrupt the operations of
our affected facilities. In connection with the shortage of available power,
prices for electricity have risen dramatically, and will likely continue to
increase for the foreseeable future. Such price changes will increase our
operating costs, which could in turn adversely affect our profitability.
Although we carry business interruption insurance, our policy does not cover
electrical blackouts. Moreover, for interruptions that are covered by our
policy, there can be no assurance that such insurance will be sufficient to
compensate us for losses that may occur, and any losses or damages incurred by
us could have a material adverse effect on our business.

WORK STOPPAGES BY THE SCREEN ACTORS' GUILD AND THE AMERICAN FEDERATION OF
TELEVISION AND RADIO ARTISTS COULD ADVERSELY AFFECT OUR OPERATIONS.

     Although none of our employees are represented by a labor union, it is
common for animators and actors at film production companies to belong to a
union. There can be no assurance that our employees will not join or form a
labor union or that we, for certain purposes, will not be required to become a
union signatory. We are directly or indirectly dependent upon certain union
members, and work stoppages or strikes organized by such unions could materially
adversely impact our business, financial condition or results of operations. For
example, many of the actors who provide voice talent for the Pictures and
Derivative Works are members of the SAG and/or AFTRA and the current SAG and
AFTRA contract expires June 30, 2001. If a work stoppage did occur, it could
have a material adverse effect on the completion of our films as currently
scheduled and on our operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Investment Portfolio. We invest in a variety of investment grade,
interest-bearing securities, including fixed rate obligations of corporations,
municipalities and national governmental entities and agencies. This

                                        17
<PAGE>   19

diversification of risk is consistent with our policy to ensure safety of our
principal and maintain liquidity. We only invest in securities with a maturity
of 24 months or less, with only government obligations exceeding 12 months. Our
investments are primarily 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 our financial instruments are held for purposes other than trading
and are considered "available for sale" per SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." The table below provides information
regarding our investment portfolio at March 31, 2001. The table presents
principal cash flows and related weighted-average fixed interest rates presented
by expected maturity date (dollars in thousands):

<TABLE>
<CAPTION>
                                                      LESS THAN     OVER
                                                       1 YEAR      1 YEAR      TOTAL
                                                      ---------    -------    --------
<S>                                                   <C>          <C>        <C>
Available-for-sale securities.......................  $149,016     $38,789    $187,805
Weighted-average interest rate......................      5.53%       5.91%       5.61%
</TABLE>

     Impact of Foreign Currency Rate Changes. While our products are distributed
in foreign markets by Disney and its affiliates, we are not directly exposed to
foreign currency rate fluctuations. However, we recognize revenues from foreign
territories based on an average foreign currency exchange rate used by Disney
for revenue reporting. This rate may differ from the actual exchange rate at the
time cash is remitted to Disney and subsequently to us. Therefore, there may be
some indirect foreign currency exchange rate exposure as managed by Disney.

                                        18
<PAGE>   20

                          PART II -- OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) EXHIBITS

         10.1  Employment Agreement between the Registrant and John Lasseter
         dated March 21, 2001.*
---------------

* We have requested confidential treatment for a portion of this exhibit.

     (b) REPORTS ON FORM 8-K

         No reports on Form 8-K were filed by Pixar during the quarter ended
         March 31, 2001.

ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

                                        19
<PAGE>   21

                                   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

                                          By:        /s/ ANN MATHER

                                            ------------------------------------
                                                        Ann Mather,
                                                Executive Vice President and
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                                           Officer
                                                and Duly Authorized Officer)

Date: May 15, 2001

                                        20
<PAGE>   22

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS                            DESCRIPTION
--------                            -----------
<C>         <S>
  10.1      Employment Agreement between the Registrant and John
            Lasseter dated March 21, 2001.*
</TABLE>

---------------
* Confidential treatment requested for a portion of this exhibit.

                                        21