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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|           |  |                                                                                                
|---------- |  | -----------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the quarterly period ended March 30,
    2002.                                             
|          
|or        
|          
|o          |  | 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
    Incorporation or organization)1200 Park Avenue, Emeryville,
    California(Address of principal executive
    offices) |  | (I.R.S. Employer
    Identification No.)94608(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 þ          No o

The number of shares outstanding of the
registrants Common Stock as of May 2, 2002 was
49,703,558.



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TABLE OF CONTENTS



|                                |                                                                                               |  |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                 
|NOTES TO FINANCIAL STATEMENTS  
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II -- OTHER INFORMATION   
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|                                | Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.                             
|SIGNATURE                      



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##### Table of Contents






PART I  FINANCIAL
INFORMATION




Item 1.     Financial
Statements

PIXAR

BALANCE SHEETS

|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |         |         | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                         |                                                                                                                                                                              | March 30,                                  |         | December 29,
|                                         |                                                                                                                                                                              | 2002                                       |         | 2001        
|                                         |                                                                                                                                                                              |                                            |         |             
|                                         |                                                                                                                                                                              |                                           
|                                         |                                                                                                                                                                              | (In thousands,                            
|                                         |                                                                                                                                                                              | except share data)                        
|ASSETS                                  
|Cash and cash equivalents                |                                                                                                                                                                              | $                                          | 36,505  |              |         | $ | 56,289  |        
|Short-term investments                   |                                                                                                                                                                              |                                            | 240,261 |              |         |   | 222,310 |        
|Trade receivables, net                   |                                                                                                                                                                              |                                            | 317     |              |         |   | 1,516   |        
|Receivable from Disney                   |                                                                                                                                                                              |                                            | 32,641  |              |         |   | 13,512  |        
|Other receivables                        |                                                                                                                                                                              |                                            | 3,875   |              |         |   | 5,632   |        
|Prepaid expenses and other assets        |                                                                                                                                                                              |                                            | 3,226   |              |         |   | 3,528   |        
|Deferred income taxes                    |                                                                                                                                                                              |                                            | 22,314  |              |         |   | 21,673  |        
|Property and equipment, net              |                                                                                                                                                                              |                                            | 109,534 |              |         |   | 111,995 |        
|Capitalized film production costs        |                                                                                                                                                                              |                                            | 92,943  |              |         |   | 86,839  |        
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|                                         |                                                                                                                                                                              | Total assets                               |         | $            | 541,616 |   |         | $       | 523,294 | 
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Accounts payable                         |                                                                                                                                                                              | $                                          | 866     |              |         | $ | 4,843   |        
|Income taxes payable                     |                                                                                                                                                                              |                                            | 7,862   |              |         |   | 1,808   |        
|Accrued liabilities                      |                                                                                                                                                                              |                                            | 9,066   |              |         |   | 8,844   |        
|Unearned revenue                         |                                                                                                                                                                              |                                            | 1,705   |              |         |   | 2,113   |        
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|                                         |                                                                                                                                                                              | Total liabilities                          |         |              | 19,499  |   |         |         | 17,608  | 
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|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; 49,561,603 and 49,445,956 issued and outstanding as
    of March 30, 2002 and December 29, 2001, respectively |                                            |         | 327,127      |         |   |         | 325,362 |        
|                                         | Accumulated other comprehensive income                                                                                                                                       |                                            |         | 901          |         |   |         | 1,845   |        
|                                         | Retained earnings                                                                                                                                                            |                                            |         | 194,089      |         |   |         | 178,479 |        
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|                                         |                                                                                                                                                                              | Total shareholders equity                 |         |              | 522,117 |   |         |         | 505,686 | 
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        
|                                         |                                                                                                                                                                              | Total liabilities and shareholders equity |         | $            | 541,616 |   |         | $       | 523,294 | 
|                                         |                                                                                                                                                                              |                                            |         |              |         |   |         |        

See accompanying notes to financial statements.

1



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PIXAR

STATEMENTS OF INCOME

|                                                          |                             |                            |        |           |        |   |        |        |        | 
|--------------------------------------------------------- | --------------------------- | -------------------------- | ------ | --------- | ------ | - | ------ | ------ | ------ | 
|                                                          |                             |                           
|                                                          |                             | Quarter Ended             
|                                                          |                             |                           
|                                                          |                             | March 30,                  |        | March 31,
|                                                          |                             | 2002                       |        | 2001     
|                                                          |                             |                            |        |          
|                                                          |                             |                           
|                                                          |                             | (In thousands, except     
|                                                          |                             | per share data)           
|Revenue:                                                  |                             |                            |        |           |        |   |        |       
|                                                          | Film and animation services |                            | $      | 35,888    |        |   | $      | 14,154 |       
|                                                          | Software                    |                            |        | 1,185     |        |   |        | 1,997  |       
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Total revenue              |        |           | 37,073 |   |        |        | 16,151 | 
|                                                          |                             |                            |        |           |        |   |        |       
|Cost of revenue:                                          |                             |                            |        |           |        |   |        |       
|                                                          | Film and animation services |                            |        | 8,357     |        |   |        | 2,173  |       
|                                                          | Software                    |                            |        | 136       |        |   |        | 164    |       
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Total cost of revenue      |        |           | 8,493  |   |        |        | 2,337  | 
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Gross profit               |        |           | 28,580 |   |        |        | 13,814 | 
|                                                          |                             |                            |        |           |        |   |        |       
|Operating expenses:                                       |                             |                            |        |           |        |   |        |       
|                                                          | Research and development    |                            |        | 2,355     |        |   |        | 1,545  |       
|                                                          | Sales and marketing         |                            |        | 251       |        |   |        | 390    |       
|                                                          | General and administrative  |                            |        | 2,247     |        |   |        | 2,081  |       
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Total operating expenses   |        |           | 4,853  |   |        |        | 4,016  | 
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Income from operations     |        |           | 23,727 |   |        |        | 9,798  | 
|Other income, net                                         |                             |                            | 2,482  |           |        |   | 3,356  |       
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Income before income taxes |        |           | 26,209 |   |        |        | 13,154 | 
|Income tax expense                                        |                             |                            | 10,599 |           |        |   | 4,887  |       
|                                                          |                             |                            |        |           |        |   |        |       
|                                                          |                             | Net income                 |        | $         | 15,610 |   |        | $      | 8,267  | 
|                                                          |                             |                            |        |           |        |   |        |       
|Basic net income per share                                |                             | $                          | 0.32   |           |        | $ | 0.17   |       
|                                                          |                             |                            |        |           |        |   |        |       
|Shares used in computing basic net income per
    share   |                             |                            | 49,483 |           |        |   | 47,731 |       
|                                                          |                             |                            |        |           |        |   |        |       
|Diluted net income per share                              |                             | $                          | 0.30   |           |        | $ | 0.16   |       
|                                                          |                             |                            |        |           |        |   |        |       
|Shares used in computing diluted net income per
    share |                             |                            | 51,467 |           |        |   | 50,656 |       
|                                                          |                             |                            |        |           |        |   |        |       

See accompanying notes to financial statements.

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PIXAR

STATEMENTS OF CASH FLOWS

|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |         |       |        |         |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------------- | ----------------------------------------- | ----- | ------- | ------- | ------- | ----- | ------ | ------- | -
|                                                                            |                                                                                       |                                                  
|                                                                            |                                                                                       | Quarter Ended                                    
|                                                                            |                                                                                       |                                                  
|                                                                            |                                                                                       | March 30,                                         |                                   | March 31,                                
|                                                                            |                                                                                       | 2002                                              |                                   | 2001                                     
|                                                                            |                                                                                       |                                                   |                                   |                                          
|                                                                            |                                                                                       |                                                  
|                                                                            |                                                                                       | (In thousands)                                   
|Cash flows from operating activities:                                       |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Net income                                                                            |                                                   | $                                 | 15,610                                    |       |         | $       | 8,267   |      
|                                                                            | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                   |                                   |                                           |       |         |         |         |      
|                                                                            |                                                                                       | Depreciation and amortization                     |                                   |                                           | 2,135 |         |         |         | 1,925 |       
|                                                                            |                                                                                       | Amortization of capitalized film production costs |                                   |                                           | 7,362 |         |         |         | 2,173 |       
|                                                                            |                                                                                       | Tax benefit from option exercises                 |                                   |                                           | 645   |         |         |         | 1,286 |       
|                                                                            |                                                                                       | Deferred income tax                               |                                   |                                           | (641  | )       |         |         | 216   |       
|                                                                            |                                                                                       | Loss (gain) on disposition or sale of equipment   |                                   |                                           | (8    | )       |         |         | 8     |       
|                                                                            |                                                                                       | Changes in operating assets and liabilities:      |                                   |                                           |       |         |         |         |       |       
|                                                                            |                                                                                       |                                                   | Receivables, net                  |                                           |       | 2,956   |         |         |       | 57     |        
|                                                                            |                                                                                       |                                                   | Due from Disney                   |                                           |       | (19,129 | )       |         |       | 71,651 |        
|                                                                            |                                                                                       |                                                   | Prepaid expenses and other assets |                                           |       | 182     |         |         |       | (272   | )      
|                                                                            |                                                                                       |                                                   | Accounts payable                  |                                           |       | (3,977  | )       |         |       | (594   | )      
|                                                                            |                                                                                       |                                                   | Income taxes payable              |                                           |       | 6,054   |         |         |       | (1,399 | )      
|                                                                            |                                                                                       |                                                   | Accrued liabilities               |                                           |       | 222     |         |         |       | (2,327 | )      
|                                                                            |                                                                                       |                                                   | Unearned revenue                  |                                           |       | (408    | )       |         |       | (3,564 | )      
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            |                                                                                       |                                                   |                                   | Net cash provided by operating activities |       |         | 11,003  |         |       |        | 77,427  |  
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Cash flows from investing activities:                                       |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Purchase of property and equipment                                                    |                                                   |                                   | (150                                      | )     |         |         | (1,410  | )    
|                                                                            | Proceeds from sale of equipment                                                       |                                                   |                                   | 55                                        |       |         |         |        |      
|                                                                            | Proceeds from sale of short-term securities                                           |                                                   |                                   | 28,996                                    |       |         |         | 38,802  |      
|                                                                            | Investments in short-term securities                                                  |                                                   |                                   | (47,891                                   | )     |         |         | (86,727 | )    
|                                                                            | Capitalized film production costs                                                     |                                                   |                                   | (12,917                                   | )     |         |         | (14,901 | )    
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            |                                                                                       |                                                   |                                   | Net cash used in investing activities     |       |         | (31,907 | )       |       |        | (64,236 | )
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Cash flows from financing activities:                                       |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Proceeds from exercised stock options                                                 |                                                   |                                   | 1,120                                     |       |         |         | 1,865   |      
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            |                                                                                       |                                                   |                                   | Net cash provided by financing activities |       |         | 1,120   |         |       |        | 1,865   |  
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Net increase (decrease) in cash and cash
    equivalents                    |                                                                                       |                                                   | (19,784                           | )                                         |       |         | 15,056  |        
|Cash and cash equivalents at beginning of period                            |                                                                                       |                                                   | 56,289                            |                                           |       |         | 63,241  |        
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Cash and cash equivalents at end of period                                  |                                                                                       | $                                                 | 36,505                            |                                           |       | $       | 78,297  |        
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Supplemental disclosure of cash flow information:                           |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Cash paid during the period for income taxes                                          |                                                   | $                                 | 3,900                                     |       |         | $       | 5,000   |      
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|Supplemental disclosure of non-cash investing and
    financing activities: |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Loss on equipment disposals capitalized as film
    production costs                  |                                                   | $                                 | 549                                       |       |         | $       |        |      
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        
|                                                                            | Unrealized gain (loss) on investments, net of
    taxes                               |                                                   | $                                 | (944                                      | )     |         | $       | 366     |      
|                                                                            |                                                                                       |                                                   |                                   |                                           |       |         |         |        

See accompanying notes to financial statements.

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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 29, 2001 and for each
of the years in the three-year period ended December 29,
2001, including notes thereto.

The results of operations for the three months
ended March 30, 2002 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 2002 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 dates from December 31 to the
Saturday nearest December 31. Fiscal year 2002 will end on
December 28, 2002 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 potential common
shares outstanding during the period, using the treasury stock
method for options and warrants. Of the outstanding options to
purchase shares of common stock, for the three months ended
March 30, 2002, options to purchase approximately
3.6 million shares of common stock 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):

|                             |                  |                |        |                |  |     |        |        |  |        |      |     |  |   |       |   |  |  |        |       |  |   |      |  | 
|---------------------------- | ---------------- | -------------- | ------ | -------------- |  | --- | ------ | ------ |  | ------ | ---- | --- |  | - | ----- | - |  |  | ------ | ----- |  | - | ---- |  | 
|                             |                  |               
|                             |                  | Quarter Ended 
|                             |                  |               
|                             |                  |                |        |               
|                             |                  | March 30, 2002 |        | March 31, 2001
|                             |                  |                |        |               
|                             |                  | Net            |        |                |  | Net |        |       
|                             |                  | Income         |        | Shares         |  | EPS |        | Income |  | Shares |      | EPS
|                             |                  |                |        |                |  |     |        |        |  |        |      |    
|Basic net income per share   |                  | $              | 15,610 |                |  |     | 49,483 |        |  | $      | 0.32 |     |  | $ | 8,267 |   |  |  | 47,731 |       |  | $ | 0.17 | 
|Effect of dilutive shares:   |                  |                |        |                |  |     |        |        |  |        |      |     |  |   |       |   |  |  |        |       |  |   |      | 
|                             | Warrants/options |                |        |               |  |     |        | 1,984  |  |        |      |     |  |   |       |  |  |  |        | 2,925 |  |   |      |  | 
|                             |                  |                |        |                |  |     |        |        |  |        |      |     |  |   |       |   |  |  |        |       |  |   |      | 
|Diluted net income per share |                  | $              | 15,610 |                |  |     | 51,467 |        |  | $      | 0.30 |     |  | $ | 8,267 |   |  |  | 50,656 |       |  | $ | 0.16 | 
|                             |                  |                |        |                |  |     |        |        |  |        |      |     |  |   |       |   |  |  |        |       |  |   |      | 

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PIXAR


NOTES TO FINANCIAL
STATEMENTS  (Continued)

(4) Comprehensive Income

Other comprehensive income 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):

|                                                                              |  |               |        |           |  |   |       | 
|----------------------------------------------------------------------------- |  | ------------- | ------ | --------- |  | - | ----- | 
|                                                                              |  |              
|                                                                              |  | Quarter Ended
|                                                                              |  |              
|                                                                              |  | March 30,     |        | March 31,
|                                                                              |  | 2002          |        | 2001     
|                                                                              |  |               |        |          
|Net income                                                                    |  | $             | 15,610 |           |  | $ | 8,267 | 
|Unrealized holding gains (losses) on short-term
    investments, net of taxes |  |               | (944   | )         |  |   | 366   | 
|                                                                              |  |               |        |           |  |   |       | 
|Comprehensive income                                                          |  | $             | 14,666 |           |  | $ | 8,633 | 
|                                                                              |  |               |        |           |  |   |       | 

(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 Storyfilm
production costs were fully amortized by the year ended
December 31, 1997.

Co-Production
Agreement

In February 1997, Pixar and Disney entered into a
Co-Production Agreement (the Co-Production
Agreement) which 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 two original films produced under the
Co-Production Agreement were A Bugs Lifeand
Monsters, Inc.Films currently in production at Pixar
that are governed by this agreement include Finding Nemo, The
Incredibles, and Cars. A Bugs Life, Monsters, Inc.,
Finding Nemo, The Incredibles,and Carscount toward
the five original Pictures, whereas Toy Story 2,as a
sequel, is a derivative work that does not count toward the
Pictures. 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 Storyunder the Feature Film
Agreement, and A Bugs Life, Toy Story 2, Monsters,
Inc., Finding Nemo, The Incredibles,and Carsunder
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
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

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PIXAR


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Co-Production Agreement. Costs related to these
projects are therefore not shared or reimbursed by Disney. 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, when
it is expected that the film will be set for production. 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. Certain expenses associated with researching new
concepts and ideas, which are not expected to lead to a
successful concept and realization of a film project, are
expensed as incurred.

Components of Capitalized Film Production
Costs

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

|                                                 |                                                                |           |         |        | 
|------------------------------------------------ | -------------------------------------------------------------- | --------- | ------- | ------ | 
|                                                 |                                                                | March 30,
|                                                 |                                                                | 2002     
|                                                 |                                                                |          
|Released Films                                   |                                                                | $         | 134,277 |       
|Cumulative amortization of film production costs |                                                                |           | (88,039 | )     
|                                                 |                                                                |           |         |       
|                                                 | Total film production costs capitalized for
    released films |           |         | 46,238 | 
|Films in Production                              |                                                                |           | 44,832  |       
|Films in Development or
    Preproduction        |                                                                |           | 1,873   |       
|                                                 |                                                                |           |         |       
|                                                 | Total film production costs capitalized                        |           | $       | 92,943 | 
|                                                 |                                                                |           |         |       

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
beginning of each respective fiscal year, the Company recorded
the following amounts reimbursed by Disney as offsets to the
following expense categories (in thousands):

|                           |       |               |       |           |  |   |       |       | 
|-------------------------- | ----- | ------------- | ----- | --------- |  | - | ----- | ----- | 
|                           |       |              
|                           |       | Quarter Ended
|                           |       |              
|                           |       | March 30,     |       | March 31,
|                           |       | 2002          |       | 2001     
|                           |       |               |       |          
|Research and development   |       | $             | 1,884 |           |  | $ | 1,139 |      
|General and administrative |       |               | 1,109 |           |  |   | 899   |      
|                           |       |               |       |           |  |   |       |      
|                           | Total |               | $     | 2,993     |  |   | $     | 2,038 | 
|                           |       |               |       |           |  |   |       |      

At March 30, 2002 and December 29,
2001, the receivable from Disney aggregated $32.6 million
and $13.5 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.

For released films, the Company expects to
amortize, based on current estimates, approximately
$25 million to $28 million in capitalized film
production costs over the succeeding twelve-month period. In
addition, the Company has amortized more than 80% of each
released films original production costs as of
March 30, 2002, with the exception of Monsters, Inc.,which is projected to reach the 80% milestone by fiscal
year 2004.

(6) Segment Reporting

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

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PIXAR


NOTES TO FINANCIAL
STATEMENTS  (Continued)

presented in the accompanying statement of income
and the Company has no foreign operations. Therefore, the
Company operates in a single operating segment.

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

|                   |  |               |        |           |  |   |        | 
|------------------ |  | ------------- | ------ | --------- |  | - | ------ | 
|                   |  |              
|                   |  | Quarter Ended
|                   |  |              
|                   |  | March 30,     |        | March 31,
|                   |  | 2002          |        | 2001     
|                   |  |               |        |          
|Monsters, Inc.     |  | $             | 25,865 |           |  | $ |       | 
|Toy Story 2        |  |               | 6,648  |           |  |   | 7,242  | 
|Library titles(1)  |  |               | 1,888  |           |  |   | 6,899  | 
|Animation services |  |               | 1,487  |           |  |   | 13     | 
|                   |  |               |        |           |  |   |        | 
|                   |  | $             | 35,888 |           |  | $ | 14,154 | 
|                   |  |               |        |           |  |   |        | 



---



|    |                                                       
|--- | ------------------------------------------------------
|(1) | Library titles include A Bugs Life
    and Toy Story.

(7) New Accounting
Pronouncements

In June 2001, the FASB issued SFAS 142,
Goodwill and Other Intangible Assets, which
supersedes APB 17, Intangible Assets
(SFAS 142), which addresses the accounting treatment for
goodwill and other intangible assets acquired individually or
with a group of other assets upon their acquisition, but not
acquired in a business combination. This statement also
addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the
financial statements. With the adoption of SFAS 142,
goodwill is no longer subject to amortization over its estimated
useful life; rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value-based
test. Also, if the benefit of an intangible asset is obtained
through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented or exchanged,
an acquired intangible asset should be separately recognized.
The Company adopted SFAS 142 January 1, 2002. The
adoption of SFAS 142 has not had a material impact on our
financial position or results of operations.

On October 3, 2001, the Financial Accounting
Standards Board issued FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), which addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144 supersedes FASB
Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and also supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a
business. The Company adopted SFAS 144 January 1,
2002. The adoption of SFAS 144 has not had a material
impact on our financial position or results of operations.

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations
(SFAS 143). This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development or
normal use of the asset. As used in this Statement, a legal
obligation results from existing law, statute, ordinance,
written or oral contract, or by legal construction of a contract
under the doctrine of promissory estoppel. SFAS 143 is
effective for fiscal years beginning after June 15, 2002.
We do not expect the adoption of SFAS 143 to have a
material impact on our financial position or results of
operations.

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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 14 to
19. Particular attention should be paid to the cautionary
language in Risk Factors  To meet our fiscal
2002 diluted earning per share target, we are dependent on our
feature films and the accuracy of our forecasts,
 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 29, 2001 (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

Pixar was formed in 1986 when Steve Jobs
purchased the computer division of Lucasfilm and incorporated it
as a separate company. In 1991, we entered into a feature film
agreement (the 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), for the
development and production of up to three animated feature films
to be marketed and distributed by Disney. Our share of revenues
and expenses from Toy Storywas governed by the terms of
the Feature Film Agreement.

In February 1997, we entered into the
Co-Production Agreement (which superseded the Feature Film
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 theatrical sequel,
Toy Story 2is a derivative work of the original Toy
Story and therefore it does not count toward the five
original Pictures to be produced under the

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Co-Production Agreement. As a derivative work,
Toy Story 2is treated as a Picture under the
Co-Production Agreement, and all the provisions applicable to
the five original Pictures apply.


In November 2001, we released Monsters, Inc.,our fourth animated feature film, which counts as the second
original Picture under the Co-Production Agreement. We are
currently in various stages of production on the final three
films under our current Disney deal, Finding Nemo, The
Incrediblesand Cars. These films will be produced
and distributed under the Co-Production Agreement and will count
as the third, fourth, and fifth films of the Pictures to be
produced under the Co-Production Agreement. We expect to release
Finding Nemoin summer 2003 at the earliest. The
Incrediblesand Carsare currently targeted for a
holiday release in 2004 and 2005, respectively.

All payments to us 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, The Incredibles, and Cars, under
the Co-Production Agreement have been recorded as cost
reimbursements. Accordingly, no revenue has been recognized for
such reimbursements; rather, we have netted the reimbursements
against the related costs.

Target
Earnings per Share for Fiscal Year 2002

We are targeting diluted earnings per share of
$0.06 to $0.08 for the second quarter of fiscal year 2002. Our
second quarter film revenues are expected to be derived
primarily from remaining international box office receipts,
merchandising revenues and other ancillary royalties from
Monsters, Inc.,as well as some potential television,
home video, and merchandising revenue from our other three
films. We expect these revenues to be offset significantly by
early advertising-related expenses associated with the home
video release of Monsters, Inc. scheduled for the third
quarter.

We are also targeting diluted earnings per share
for fiscal year 2002 of $1.15 to $1.25. Building on our actual
first quarter results and projected second quarter results, we
anticipate our earnings for the second half of the year to be
driven by worldwide home video sales which are expected to be
weighted in favor of the third quarter and continue into the
fourth. We also expect merchandise revenues and ancillary
royalties relating to the sale of products from Monsters,
Inc.,as well as our other three films, to be recognized
throughout the year. Ongoing sales of home videos and
international television rights from our other films are also
expected to contribute to our 2002 results. This guidance is
based on assumptions which include some continued software sales
and interest income, as well as increased operating expenses and
a higher effective tax rate relative to 2001.

These statements regarding our targeted earnings
per share are forward-looking, and actual results may differ
materially. Factors that could cause actual results for the
second quarter of 2002 and the fiscal year 2002 to differ
include but are not limited to: (1) the timing and amount
of worldwide revenues and distribution costs from Monsters,
Inc.and other titles in our film library;(2) the timing, accuracy and sufficiency of the
information we receive from Disney to determine revenues and
associated gross profits; (3) the timing and amount of
non-film related revenues and expenses; (4) the accuracy of
assumptions and judgments used to estimate certain revenues and
associated gross profits; (5) the market price of our
common stock and related volatility; and (6) external
economic and political events that are beyond our control. See
Risk Factors set forth below for a more detailed
discussion of factors that could cause actual results to differ.
For additional risk factors that can affect our business, please
see the section entitled Risk Factors in our
Form 10-K.

Critical Accounting Policies

Revenue
Recognition

We recognize film revenue from the distribution
of our animated feature films and related products when earned
and reasonably estimable in accordance with
SOP 00-2  Accounting by Producers or
Distributors of

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Films (SOP 00-2). The following are
the conditions that must be met in order to recognize revenue in
accordance with SOP 00-2:




| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Persuasive evidence of a sale or licensing
    arrangement with a customer exists;                                                                             
|
| |  | the film is complete and, in accordance with the
    terms of the arrangement, has been delivered or is available for
    immediate and unconditional delivery;
|
| |  | the license period of the arrangement has begun
    and the customer can begin its exploitation or sale;                                                       
|
| |  | the arrangement fee is fixed and determinable; and                                                                                                             
|
| |  | collection of the arrangement fee is reasonably
    assured.                                                                                                   

Under the Co-Production Agreement, we share
equally with Disney in the profits of each Picture, including
Monsters, Inc., Toy Story 2and A Bugs Life,after Disney recovers its marketing, distribution and other
predefined costs and fees. Beginning in 2000, we 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. Although our revenues are based on the
information we receive from Disney, we may make adjustments to
that information based on our estimates and judgments. For
example, our theatrical revenues may be adjusted for our
estimated reserves on potential uncollectible amounts to be
received from theatrical exhibitors. We also make adjustments to
our home video revenues for estimates on return reserves that
may differ from those reported by Disney. The estimates on
reserves may be adjusted periodically based on actual rates of
returns, inventory levels in the distribution channel, as well
as other business and industry information. In addition, we
utilize margin normalization, such as with merchandising or home
video, in accordance with the provisions of SOP 00-2. This
may result in the utilization of budgeted or forecasted
information rather than actual costs incurred if it is deemed to
be a more accurate reflection of our participation.

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 Disney provides us with the most current information
available to enable us to recognize our share of revenue and
determine our film gross profit, Disney may also make subsequent
adjustments to the information that it has provided, and these
adjustments could have a material impact on our operating
results in later periods. As additional information becomes
available from Disney on a more timely basis, it may result in a
change of estimation for revenue recognition. Additionally, we
have the right to audit Disneys books and records related
to the Pictures per the terms of the Co-Production Agreement,
which could result in adjustments that may be material to the
financial statements in any given quarter or quarters. Any
revenue received in advance from Disney is deferred and recorded
as revenue when earned.

In accordance with the provisions of SOP 00-2,
library titles are defined as occurring three years from the
films initial release. Currently, Toy Story and
A Bugs Lifeare classified as library titles. The
term library titles is used solely for the purpose of
classification and for identifying previously released films in
accordance with the provisions of SOP 00-2. Revenue
recognition for such titles is in accordance with the
Companys revenue recognition policy for film revenue.

Film
Production Costs

We capitalize our share of direct film production
costs in accordance with SOP 00-2. Film production costs
include costs to develop and produce computer animated motion
pictures, which primarily consists of salaries, equipment and
overhead. Film production costs in excess of reimbursable
amounts from Disney are capitalized. Production overhead, a
component of film costs, includes allocable costs of individuals
or departments with exclusive or significant responsibility for
the production of our films. Capitalized production overhead
does not include administrative, general and research and
development expenses. In addition to the films produced, we are
also working on concept development for several new projects,
the costs of which are capitalized as film costs. In the event a
film is not set for production within three years from the time
of the first capitalized transaction, all such costs will be
expensed.

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Once a film is released, capitalized film
production costs will be amortized in the proportion that the
revenue during the period for each film bears to the estimated
revenue to be received from all sources under the individual
film forecast method. 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. We make certain estimates and
judgments of our future gross revenues to be received for each
film based on information received from Disney, and our
knowledge of the industry. Estimates of anticipated total gross
revenues are reviewed periodically and may be revised if
necessary. A change to the estimate of gross revenues for an
individual film may result in an increase or decrease to the
percentage of amortization of capitalized film costs relative to
a previous period. Unamortized film production costs are
compared with net realizable value each reporting period on a
film-by-film basis. If estimated remaining gross revenues are
not sufficient to recover the unamortized film production costs,
the unamortized film production costs will be written down to
fair value.

Results of Operations

First quarter 2002 results were driven primarily
by the worldwide box office performance of Monsters, Inc.To date, Monsters, Inc. has generated approximately
$517 million in worldwide box office receipts. By the end
of the first quarter of 2002, the film had reached
$253 million at the domestic box office and
$224 million at the international box office. We recognized
the majority of international receipts in the first quarter of
2002 as well as nearly all of the remaining revenues from the
films domestic release.

Revenue

Total revenue for the three months ended
March 30, 2002 were $37.1 million compared to
$16.2 million in the corresponding prior year period.

Film and animation services revenue for the three
months ended March 30, 2002 was $35.9 million compared
with $14.2 million in the corresponding prior year period.
Film revenue for the three months ended March 30, 2002
consisted of $25.9 million from Monsters, Inc.,$6.6 million from Toy Story 2, and
$1.9 million in revenues from our library titles, A
Bugs Lifeand Toy Story. Revenues from
Monsters, Inc.are primarily attributable to foreign
theatrical revenues and related merchandise sales, as well as
remaining domestic box office receipts. Revenues for Toy
Story 2were comprised of higher than expected merchandise
sales, of which a significant portion was attributable to a
one-time, unanticipated adjustment from Disney. Revenues from
our library titles resulted primarily from worldwide home video
sales, merchandising sales and other ancillary royalties. Film
revenue for the three months ended March 31, 2001 included
$7.2 million of Toy Story 2related revenues
attributable primarily to home video sales, related merchandise
revenues, as well as royalties from the home video release of
Buzz Lightyear of Star Commandand other ancillary
royalties. Our library titles, A Bugs Lifeand
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.

Software revenue includes software license
revenue, principally from RenderMan®, and royalty revenue
from licensing Physical Effects, Inc. (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.
Software revenue decreased to $1.2 million for the three
months ended March 30, 2002 compared to $2.0 million
in the corresponding period of the prior year, resulting
primarily from decreases in RenderMan® software licensing
during the period. 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® license revenues.
Therefore, we continue to expect ongoing variability in revenues
derived from software licenses and that such revenue will remain
flat or possibly decline, as occurred in the three months ended
March 30, 2002 when compared to the prior years
quarter.

For the three months ended March 30, 2002,
Disney accounted for 94% of our total revenue compared to 88%
for the corresponding prior year period. 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

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the Co-Production Agreement, Disney is expected
to continue to represent significantly greater than 10% of our
revenue in 2002 and for the near future.


Cost of
Revenue

Cost of film and animation services revenue for
the three months ended March 30, 2002 was $8.4 million
compared to $2.2 million in the corresponding prior year
period. Cost of film revenue represents amortization of
capitalized film production costs. See Capitalized Film
Production Costs. For the three months ended
March 30, 2002, cost of film revenue represents
amortization of capitalized film production costs associated
with Monsters, Inc., Toy Story 2 and A
Bugs Life,and represents 21% of total film revenue as
compared to 15% for the corresponding prior year period. Our
cost of revenue as a percentage of film revenue may vary for any
given period due to changes in the mix of film revenue as the
gross profit varies by film, as well as for revisions to
estimates on revenue to be received under the film forecast
method for an individual film. A change to an individual
films estimate of revenue to be received may result in an
increase or decrease to the amortization of the capitalized film
costs relative to a previous period. Toy Storyrevenue
has no related cost, as film costs were fully amortized by
December 31, 1997. The increase in cost of film revenue as
a percentage of total film revenue for the three months ended
March 30, 2002 as compared to the prior year period, can be
attributed to a majority of revenues resulting from Monsters,
Inc.for the three months ended March 30, 2002, which
had a higher cost amortization percentage.

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 11% for the three months ended
March 30, 2002, as compared to 8% for the corresponding
prior year period. Cost of software revenue for the three months
ended March 30, 2002 and March 31, 2001, relates
primarily to amortization of purchased technology associated
with the acquisition of PEI of $120,000 in both years. We are
amortizing this purchased technology against related license
revenue over a period not to exceed four years.

Operating
Expenses

Total operating expenses were $4.9 million
for the three months ended March 30, 2002 compared to
$4.0 million in the corresponding prior year period. We
anticipate an increase in operating expenses in future periods
due to the growth experienced by the studio as we ramp up
production on our three current film projects. 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.

Research and
Development.Research and development
expenses consist primarily of salaries and support for personnel
conducting research and development for our RenderMan®
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 $2.4 million for the three months ended
March 30, 2002 from $1.5 million in the corresponding
prior year period. The increase in research and development
expenses for the three months ended March 30, 2002 was due
to increases in employee related expenses associated with
additional staffing and an increase in short film project costs,
which was offset by reduced creative development costs. 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 decreased to
$251,000 for the three months ended March 30, 2002, from
$390,000 in the corresponding prior year period due to a
reduction in employee related costs and public

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relations expenses. We believe that sales and
marketing expenses may increase in future periods, particularly
in the areas of public relations and corporate marketing related
to our films.


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 $2.2 million for the three months ended March 30,
2002 from $2.1 million in the corresponding prior year
period. The slight increase is a result of employee related
costs, insurance and professional fees, which were offset by
reductions in public company costs. General and administrative
expenses may increase in future periods.

Other Income,
Net

Other income, net was $2.5 million for the
three months ended March 30, 2002 compared to
$3.4 million in the corresponding prior year period. The
decrease in other income is primarily a result of a decrease in
interest income due to lower interest rates for the first
quarter of 2002, as compared to those during the first quarter
of 2001.

Income
Taxes

Income tax expense from continuing operations for
the three months ended March 30, 2002 reflects our federal
and state income tax expense of 40.4% versus 37.1% in the same
period of the prior year. Our income tax rate was 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 $92.9 million in capitalized film
production costs as of March 30, 2002, consisting primarily
of costs relating to Toy Story 2, A Bugs Life,
Monsters, Inc., Finding Nemo, The Incredibles, and
Cars, all of which are being co-financed by Disney under
the Co-Production Agreement. All Toy Storycapitalized
film costs were fully amortized as of December 31, 1997.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments
decreased $1.8 million to $276.8 million at
March 30, 2002 from $278.6 million at
December 29, 2001 due primarily to film production spending
on our three films and tax payments, offset by cash received
from Disney for our share of film revenue, as well as proceeds
from stock option exercises, software revenue and interest
income.

Net cash provided by continuing operations for
the three months ended March 30, 2002 was primarily
attributable to net income of $15.6 million, the non-cash
impact of depreciation and amortization expense and amortization
of capitalized film production costs totaling $9.5 million,
an increase in income taxes payable of $6.1 million, and a
decrease in trade and other receivables totaling
$3.0 million, which were offset by an increase in
receivables from Disney of $19.1 million and a decrease in
accounts payable of $4.0 million. Net cash used in
investing activities primarily consisted of investments in
short-term securities of $47.9 million, and funding of film
production costs of $12.9 million, which were offset by net
proceeds from sales of short-term investments of
$29.0 million. Net cash provided by financing activities
consisted of proceeds from exercised stock options.

As of March 30, 2002, our principal source
of liquidity was $276.8 million in cash, cash equivalents
and short-term investments. Our future capital commitments
primarily consist of obligations to fund production costs of
films and derivative products under the Co-Production Agreement
and beyond. Pursuant to the Co-Production Agreement, we will
co-finance the next three original animated feature films that
we produce, which will be Finding Nemo, The Incrediblesand Cars. In the future, we may co-finance other
derivative works such as theatrical sequels, direct to home
video sequels, interactive products and television productions.
We also have obligations to pay portions of any revenue derived
from each feature film produced under the

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Co-Production Agreement to our entertainment law
firm in consideration for services rendered. 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 2001, the FASB issued SFAS 142,
Goodwill and Other Intangible Assets, which
supersedes APB 17, Intangible Assets
(SFAS 142), which addresses the accounting
treatment for goodwill and other intangible assets acquired
individually or with a group of other assets upon their
acquisition, but not acquired in a business combination. This
statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. With the adoption of
SFAS 142, goodwill is no longer subject to amortization
over its estimated useful life; rather, goodwill will be subject
to at least an annual assessment for impairment by applying a
fair-value-based test. Also, if the benefit of an intangible
asset is obtained through contractual or other legal rights, or
if the intangible asset can be sold, transferred, licensed,
rented or exchanged, an acquired intangible asset should be
separately recognized. The Company adopted SFAS No. 142
January 1, 2002. The adoption of SFAS 142 has not had
a material impact on our financial position or results of
operations.

On October 3, 2001, the Financial Accounting
Standards Board issued FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), which addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144 supersedes FASB
Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and also supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a
business. The Company adopted SFAS No. 144 January 1,
2002. The adoption of SFAS 144 has not had a material
impact on our financial position or results of operations.

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations
(SFAS 143). This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development or
normal use of the asset. As used in this Statement, a legal
obligation results from existing law, statute, ordinance,
written or oral contract, or by legal construction of a contract
under the doctrine of promissory estoppel. SFAS 143 is
effective for fiscal years beginning after June 15, 2002.
We do not expect the adoption of SFAS 143 to have a
material impact on our financial position or results of
operations.

Risk Factors

The following is a discussion of certain
factors that currently impact or may impact our business,
operating results and/or financial condition. In addition,
please refer to the section entitled Risk Factors in
our Form 10-K, for additional factors that may impact our
business, operating results and/or financial condition in the
future. You should carefully consider these factors before
making an investment decision with respect to our Common
Stock.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | To meet our fiscal 2002 diluted earnings
    per share target, we are dependent on our feature films and the
    accuracy of our forecasts.

In 2002, our revenue and operating results will
be largely dependent upon (1) the timing and amount of
worldwide revenues and distribution costs from Monsters, Inc.and other titles in our film library, (2) the timing,
accuracy, and sufficiency of the information we receive from
Disney to determine revenues and associated gross profits,
(3) the timing and amount of non-film related revenues and
expenses, (4) the accuracy of assumptions and judgments
used to estimate certain revenues and associated gross profits,
(5) the market price of our common stock and related
volatility, and (6) external economic and political events
that are beyond our control.

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| |                                                  
| | -------------------------------------------------
| | 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 market and
distribute home videos in the United States and foreign markets,
and other distribution costs including talent participation and
residuals. Beginning with the first quarter of 2000, we have 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 box office success. While we have been successful in the
release of our first four feature films, this level of success
is unusual in the motion picture industry and our future
releases may not achieve similar results. Moreover, although
worldwide box office results for Monsters, Inc.are very
positive, we may not achieve similar levels of success in home
video, television licensing, and ancillary products which could
impact the ultimate success of the film. Beyond 2002, we will be
dependent on the future success of Finding Nemo, The
Incredibles, and Cars.Unless Finding Nemo, The
Incrediblesand Carsachieve box office success and
are successful in home video, television licensing, and
merchandise sales, they may not generate significant revenue and
operating results for us in future years.

A portion of our anticipated revenues for the
remainder of fiscal year 2002 is based on the assumption that
Monsters, Inc.will be a success in the worldwide home
video and merchandising markets. Although to date Monsters,
Inc. has been very successful in its worldwide theatrical
release with worldwide box office receipts currently at
$517 million, there can be no assurance that worldwide home
video and merchandise sales will be sufficient to meet our
earnings target. To date, we have recognized most of the
revenues we expect to recognize over the lifetime of the Toy
Storyfranchise and A Bugs Life. Although our
forecast assumes some continued revenues from these titles,
there can be no assurance that revenues from continuing
international television licensing, worldwide home video and
merchandise sales will be sufficient to achieve our targeted
earnings.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Forecasting film revenue and associated gross
    profits 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 2and Monsters, Inc.for fiscal year 2002. 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. In spite
of Monsters, Inc.ssuccessful worldwide box office
results, it is difficult to predict the ultimate revenues from
worldwide home video, merchandising and ancillary revenue
streams.

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 determined just in
advance of release, is subject to change, and is therefore less
predictable. 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,

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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. For example, we may make adjustments to
our home video revenues for estimates on return reserves that
may differ from those reported by Disney. The estimates on
reserves may be adjusted periodically based on actual rates of
returns, inventory levels in the distribution channel, as well
as other business and industry information. In addition, we
utilize margin normalization in estimating associated costs,
such as with merchandising or home video, in accordance with the
provisions of SOP 00-2. Due to these factors, the amount and
timing of our future revenues and associated expenses from
Toy Story, Toy Story 2, A Bugs Lifeand
Monsters, Inc.are difficult to forecast, and it is
possible, in any given quarter, that we will not meet our
forecasted earnings targets.

With respect to capitalized 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. Unamortized film production costs are
compared with net realizable value each reporting period on a
film-by-film basis. If estimated remaining gross revenues are
not sufficient to recover the unamortized film production costs,
the unamortized film production costs will be written down to
net realizable value. 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.

In accordance with the terms of the Co-Production
Agreement, we are not obligated to pay certain advertising costs
related to our films until they have been fully recouped by
related revenues. Accordingly, we do not record advertising
expenses incurred in advance of domestic theatrical receipts.
For the remaining revenue streams, however, we may be required
to record advertising expenses in advance of the related
revenue. As a result, the timing and amount of such expenses are
difficult to forecast, and it is possible, in any given quarter,
that we will not meet our forecasted earnings targets.



| |                                                               
| | --------------------------------------------------------------
| | Forecasting our operating expenses is
    extremely difficult.

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 three months ended March 30, 2002 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.

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| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Film production budgets may increase, and film
    production spending may exceed such budgets.

Our future film budgets may increase due to
factors including, but not limited to, (1) escalation in
compensation rates of people required to work on our current
film projects including Finding Nemo, The Incredibles,and Cars,(2) number of personnel required to
work on our current film projects, (3) unanticipated
production delays, (4) equipment needs, (5) the
enhancement of existing or the development of new proprietary
technology and (6) the expansion of our facilities to
accommodate the growth of the studio. Therefore, the budget for
Finding Nemo, The Incredibles, Cars and related products
may continue to be greater than the budgets for Toy Story,
A Bugs Life, Toy Story 2 and Monsters,
Inc. 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 Finding Nemo, The
Incredibles and Cars may not be completed within the
budgeted amounts. 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.



| |                  
| | -----------------
| | Software revenue.

Software revenue declined in fiscal year 2001 and
through the first quarter of fiscal year 2002, as compared to
prior years. 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® licensing
revenues; therefore, we expect that revenue from the licensing
of RenderMan® may continue to decline. To meet our
fiscal 2002 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.



| |                                     
| | ------------------------------------
| | Other non-film revenue and expenses.

Our 2002 diluted earnings per share target
includes our forecast of other non-film related sources such as
interest income and our effective tax rate. Interest income
fluctuates depending on economic conditions and interest rates
available to us during the year and therefore it is difficult to
forecast. For example, although our average cash, cash
equivalents and short-term investment balances increased during
2001, interest income decreased due to declining interest rates
during 2001. Income tax expense may also fluctuate. Our income
tax rate for 2002 approximates statutory levels, however the
effective tax rate for 2001 was below statutory rates due to the
utilization of research and experimentation credits as well as
the utilization of certain other state credits and exemptions.
There can be no assurance that the amount of other non-film
revenues and expenses such as those noted above will be
sufficient to meet 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
    theatrical 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,                                                    

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| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 political and 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.

Operating expenses for the first quarter of
fiscal year 2002 increased in comparison to the same period in
fiscal year 2001, and we expect to continue to increase our
operating expenses to fund greater levels of research and
development, to ramp up our production on our three current film
projects and to expand operations. We expect our spending levels
may still increase significantly due to the following:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | continued investment in proprietary software
    systems,                                                                  
|
| |  | potential increased competition costs for
    creative, technical and administrative talent,                               
|
| |  | increased costs associated with the expansion of
    our facilities,                                                       
|
| |  | number of personnel required to support studio
    growth as we move towards multiple films in parallel production,
    and
|
| |  | 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 2002.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | 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 Finding Nemo, which is
currently targeted for release in summer 2003, The
Incredibles, which is currently targeted for release in
holiday 2004 and Cars, which is currently targeted for
release in holiday 2005, as well as future projects as we move
towards producing one feature film per year. We have only
produced four prior feature films to date and have limited
experience with respect to producing animated feature films in
parallel. In the past, we have been required, and may 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 our feature films.
This growth and expansion has placed, and continues to place, a
significant strain on our resources. We cannot provide any
assurances that Finding Nemo, The Incredibles, and
Cars 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.

In addition, John Lasseters availability
has been a key ingredient in the successful completion of our
prior films. As we move towards achieving one film a year, there
will be additional demands placed on his

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availability. In addition to
Mr. Lasseters role as our Creative Executive of the
Company, he is also directing his next feature film,
Cars. A lack of his availability may adversely impact the
success and timing of all our films.


If we are able to release Finding Nemo in
2003, we cannot provide any assurances that we will release
The Incredibles in 2004 and Cars in 2005. Due to
the strain on our personnel from the effort required for the
release of Finding Nemo and the time required for
creative development of a new film, it is possible that we would
be unable to release The Incrediblesand Carsin
2004 and 2005, respectively. 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.




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 and national governmental entities
and agencies. This 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 30, 2002. The table presents principal cash flows and
related weighted-average fixed interest rates presented by
expected maturity date (dollars in thousands):

|                               |  |           |        |        |  |       |         |   |  |   |         |  
|------------------------------ |  | --------- | ------ | ------ |  | ----- | ------- | - |  | - | ------- | -
|                               |  | Less than |        | Over   |  |      
|                               |  | 1 Year    |        | 1 Year |  | Total
|                               |  |           |        |        |  |      
|Available-for-sale securities  |  | $         | 84,241 |        |  | $     | 156,020 |   |  | $ | 240,261 |  
|Weighted-average interest rate |  |           | 4.58   | %      |  |       | 3.58    | % |  |   | 3.93    | %

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.

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PART II  OTHER
INFORMATION




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

No reports on Form 8-K were filed by Pixar
during the quarter ended March 30, 2002.




Items 1, 2, 3, 4 and 5 are not applicable
and have been omitted.

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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 14, 2002


21